Tuesday, July 14, 2009

Unemployment - A Commentary

The previous article is one that provides data with respect to the current unemployment situation as compared with previous economic cycles and in previous Presidential administrations from Truman to date. This is my personal opinion about that data, and a response to criticisms regarding the adequacy of the stimulus program signed on February 17, 2009 to address the unemployment problem.

As stated previously, 10% of the stimulus money has been spent. Asking whether the program is successful at this point is analogous to asking whether your outfit is appropriate after having put on your panties. There is not sufficient information available to answer the question. If the administration is correct in its allegation that, by early August, 500,000 jobs will have been created or saved by the $75 billion spent thus far, job losses will be 2 million instead of 2.5 million. 10% of the stimulus will have improved job losses by 20%.

Some allege that the fact that the unemployment rate is at 9.5% shows that the stimulus program is a failure. Data show that to be false, based solely on the fact that unemployment rates are well within historical parameters of previous recessions. Further, in the recession ended November, 1982, unemployment averaged 9.8% for a full year after the recession ended. It is, as has been said by countless pundits, a lagging indicator.

Others say that stimulus money could have been put to better use by lowering business taxes. It is true that the US has on of the highest business tax in the world, second only to Japan. Those who hold this opinion feel that lowering business taxes would result in immediate hiring. History shows that opinion to be false.

In reviewing hiring behavior in prior recessions, data show that businesses rely upon increasing productivity of existing staff as the business cycle improves, delaying the necessity to add new staff until the cycle is well past recessionary levels. Consequently, it would be more likely that businesses would use tax savings for other purposes.

While the success of the stimulus package is certainly not a given at this point, those who suggest that there is sufficient data to opine that it is a failure are relying upon 10% of its expenditures and five months in order to draw this conclusion. Further, those who believe that the funds would better serve the unemployment situation with lowering business taxes are at odds with historic recessionary hiring trends.

1 comment:

  1. Thank you Kitty for your reply and this post.
    This problem is so complex and I am surprised by the comments I read regarding Obama's "failed" economic policy. I took a "peek" over at WoW after Palin announced her resignation and could not believe how many people want Obama's policies to fail.

    People I suppose want immediate results.