Economic Questions from Marcia Ball

Southern piano rocker Marcia Ball has done what many entertainers do:  Risked her popularity by taking a political position.  After asking her fans to support the President's reelection because of  her support of the Affordable Care Act ("Obamacare")'s coverage of children, she continues talking about politics..

"Call me kooky, but I'm kind of enjoying the dialogue that sprang up over my last political posting, so here's something else to mull over: My question of the day: how is the President supposed to create jobs? Isn't that what businesses do?
Well, maybe they just can't afford to hire anyone else. There's a recession, after all. Most people can't even imagine how the very rich live because 95% of us will never get close to the places where the 1% hang out and the 4% who aren't them but get in are serving them."

Let's take a look at what Marcia is asking.

First, "How is the President supposed to create jobs?  Isn't that what businesses do?"
There are two kinds of employers, Marcia.  One is the private sector, what you refer to as "businesses."  The other is the public sector, or government workers on the national, state and local level.  As of last June, public sector jobs during the Obama Administration have decreased by about 600,000.  By the way, if you put those lost jobs back into the job numbers, the unemployment rate would be about 7.8%, not 8.3%. 
The private sector, on the other hand, has created 780,000 net new jobs during the same period.

So, the answer is that the President has cut jobs, and businesses have created them.

Second, Marcia ponders whether businesses can't afford to hire anyone else.  There's a recession, after all.
Well, there certainly was a recession.  It lasted from December, 2007 through June, 2009.  It may feel like there is still a recession because the average growth in gross domestic product ("GDP") since that time has been 2.35%.  Let's take a look at that level of growth and see if we can explain why it has been slower than after most recessions.  

2009

1. First Quarter GDP was -6.7      
2. Second Quarter GDP was -0.7% - End of 2008/2009 Financial Crisis
3. Third Quarter GDP was +1.7%
4. Fourth Quarter GDP was +3.8%

2010

1. First Quarter GDP was  +3.9%
2. Second Quarter GDP was +3.8% - Beginning of European Debt Crisis
3. Third Quarter GDP was +2.5%
4. Fourth Quarter GDP was +2.3%

2011

1. First Quarter GDP was +0.4% - Egyptian President steps down, Libyan conflict                    begins, President Obama ratchets up sanctions on Libya, Oil prices pass $90/barrel, Japanese earthquake/tsunami
2. Second Quarter GDP was +1.3% - Government shutdown narrowly diverted in Debt Limit debate, US Debt Rating lowered
3. Third Quarter GDP was +1.8% - Oil prices below $90/barrel, Debt Limit debate resolved
4. Fourth Quarter GDP was +3.0% - Oil prices again pass $90/barrel

2012 

1. First Quarter GDP was +2.0%
2. Second Quarter GDP was 1.7%

Assuming that the European Debt Crisis shaves 1% from GDP growth, and oil prices account for -.2%, the effect of these two crises on 2012 growth total 1.2%.  Adjusting for these issues, 2012 growth would have been just over 3%, which would keep job growth about even with population growth. 

This is sub-par for after a recession, but definitely a better picture than the one we see.

Finally, Marcia says, "Maybe they just can't afford to hire anyone else.  Most people can't even imagine how the very rich live because 95% of us will never get close to the places where the 1% hang out and the 4% who aren't them but get in are serving them,"  

Job creation is a function of demand, not wealth.  Cash positions in businesses are at record highs, but hiring is slow because business is not convinced that the economy is growing fast enough to warrant the expense of expanding their staff.  How could the President change this perception?  

One way would be to create a more "business friendly" environment by resisting the urge to solve every problem with new rules.  While the administration boasts that it has passed fewer regulations than Bush, this is a misleading statement.  For instance, one of the regulations was the massive Dodd-Frank bill.  While no one argues the need for financial reform, this enormous bill has some unintended consequences that should be considered.  For example, small banks are unlikely to survive, as their regulatory compliance staff is inadequate to implement such complex reform.  Do we really want to eliminate community banks?  And, with limitations on fees that can be charged for certain services, banks are raising fees and minimum balances for other services.  Do we really want to drive the poor from access to banks to usurious charges made by check cashing services?

Overall, the President has done an above average job with the U.S. economy.  To improve that performance, he'll have to create a more business friendly environment.  That may go a long way toward improving private sector employment.