Obama’s Gaffe
For those who haven’t heard yet, this morning President Obama said the following:
“We’ve created 4.3 million jobs over the past 27 months. The private sector is doing fine, where we’re seeing weaknesses in our economy have to do with state and local government, oftentimes cuts initiated by, you know, governors or mayors who are not getting the kind of help that they have in the past from the federal government and who don’t have the same kind of flexibility of the federal government in dealing with fewer revenues coming in.”
He probably regretted saying “the private sector is doing fine” the moment those words left his mouth. Mitt Romney and the right-wing media are having a field day, describing his comments as “out of touch” and “Obama’s most clueless moment yet“. But is this statement really clueless or just a gaffe? Let’s consider the facts.
Private sector employment versus total government employment.
As can be seen from the data, private sector job gains are the same as they were at this point in the last recovery – 4.26 million gained 27 months after the bottom. On the other hand, government employment has been falling. At this point in the previous recovery, government employment had added about 900,000 jobs compared with the start of the 2001 recession. Today, government employment is about 400,000 lower than it was at the start of the 2007 recession.
Had government grown as it did in the last recession and recovery, there would be 1.3 million more government jobs now. But, unlike the government expansion that occurred 10 years ago, the government is now contracting. That’s what austerity looks like. The ironic thing is, the GOP wants to fix the economy by implementing even more austerity, while at the same time blaming Obama for the job losses it requires!
Update: A commenter asked about the state of corporate profits. They are at record highs:
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EconoPolitics 
Let’s consider the facts.
Here are the facts in *absolute* terms, not relative to a bad baseline.
This chart shows the gains and losses in jobs in both the public and private sectors, month by month:
As you can see, there has been positive job growth in the private sector over the last 2 years or so. But as you can also see, it is nowhere near enough to compensate for the huge job losses that took place in 2008-2009.
Conversely, the public sector had minimal job losses in 2008-2009. (Civil servants can’t easily be laid off.) But as the economic slump continued, job losses in the public sector became significant in the period 2010-2011. *BUT* as you can also see, those job losses are dwarfed by the job losses in the private sector, and even dwarfed by the *net* job losses in the public sector even when recent job gains are included.
And this chart shows that the average duration of unemployment continues to be far above historical norms:
Since we know from the previous chart that the vast majority of the job losses were in the private sector, the parlous state of duration of unemployment shown in this second chart is mostly reflective of the private sector situation.
One more point. All through 2011, the spiel from the Left was that the corporations were enjoying fantastic profits and wealth but weren’t creating any jobs. (What happened to that spiel?) And so we needed a humongous infrastructure program to hire *private* contractors to build roads, bridges, high-speed rail, etc.
Well, if “the private sector is doing fine,” then I guess the Government doesn’t need to spend zillions of dollars to pay *private* contractors to build stuff, yes?
But don’t let me dissuade you from this new spiel. Believe me, I wish Obama would be so clueless and so tone-deaf that he would take this spiel to the voters.
It’s remarkably similar to the spiel the Left tried out in Wisconsin.
I think my graph shows a clearer picture. I deliberately included the last two recessions for comparison, your graph only shows the current one.
I agree that this recession is the worst since the Great Depression. We had a big decline in GDP, a financial crisis, and the biggest asset bubble in our history – which came on the heels of the second biggest asset bubble. All the while we were running up debt – both public and household – which has left the economy in a weak condition at the worst possible time. (BTW, these are the many of the same things that occurred in the 1920’s.)
I’m not sure what the “Left’s spiel” has been, but I’ve included a graph of corporate profits in the post. They are at record highs. Maybe if they reduced executive compensation and offshoring, they could afford to hire a few more American workers!
I have to disagree, I believe this was an incredibly clueless statement.
If the “private sector [was] doing fine,” real unemployment would not be 20%. Almost all of the decrease in unemployment under Obama has been a result of people giving up looking for jobs, as we have the lowest labor participation rate in 30 years. That doesn’t sound like the private sector, or any other sector is “doing fine.” To me, the claim that our economy is in a tailspin because of a lack of Government employment is beyond absurd. If that is your position, then you must advocate expanding government employment to reduce the unemployment rate, right? If 50% of the unemployed were given new government jobs, do you think our economy would be better off?
As has been documented very well, government employees make almost twice the income and benefits of private sector employees. This leads to the rediculous reality that “public servants” who are paid by the “public,” live twice as comfortably as the “public” they serve. That is not only unsustainable, but indefensible as well. When employees in Wisconsin were asked to pay a small percentage of their benefits, rather than 0 (which was still WAY less than any private sector employee) we got to see just how entitled those government leeches believe they are. Protests, vandalism, recall elections, etc. all because those employees don’t think they should pay for a portion of their benefits like everyone else. Lost in the leftist hype is the fact that in less than two years, unemployment is down in Wisconsin, and the state is running a surplus.
I also want to take exception to the whole “record corporate profits” meme. Business is in the business of making a profit, nothing else. Business is not in the business of “creating” jobs, and is not some altruistic private welfare system. The fact that businesses “create” jobs as a result of success, or provide billions in charitable contributions doesn’t change the fact that its sole mission is to create a profit. That profit is the result of creating a product or a service at a price that other people voluntarily pay for. So “excess profit” is nothing more than superior customer service.
Your implication that “profit” is somehow detrimental to the “middle class” is hogwash. First of all, many in the “middle class” are directly involved in the creation of that profit, either as a business owner or as an employee. The majority of Americans also benefit indirectly from that success, since most Americans are in someway invested in those corporations through 401k’s, IRA’s or direct stock purchase. So when “corporations” succeed, we all do.
In several posts you have mentioned executive compensation. CEO’s don’t set their own compensation, the stockholders and corporate boards do. In every case, those entities decide on a compensation package to attract good CEO’s, and under the assumption that the leadership of the CEO will create income far in excess of the compensation package. When they don’t, they find a new CEO. When they do, businesses expand (i.e. hire more employees), or distribute profits to stockholders (you and me). So are CEO’s 100 times more valuable than the “average” employee? Take, for example, Ron Johnson, the former Apple executive that is now the CEO of JC Penney. His retail division at Apple brought in $15 billion in revenue. Don’t you think he is worth every bit of $53 million to JC Penney?
Finally, you decry offshore labor. Given the choice, don’t you think most US based manufacturers would prefer to make their products here? Do you really think there is evil intent on the part of corporations to move overseas, or do you think government policy and taxation have more to do with it? Do you think corporations deal with non-english speaking workers, shipping, customs and transportation costs just to screw Americans, or do you think it might have more to do with excessive regulations, the highest corporate tax rate in the world and unions? I believe the latter.
Obama’s comment (and my post) were specifically addressing jobs. Again, private sector job growth is the same as the last recovery, austerity has caused public sector job losses. Do you disagree?
This would only be a “clueless” statement if Obama actually believed the economy was good – he doesn’t. In fact, the purpose of that press conference was to address the problems in the economy. Claiming he believes the economy is good seems to be the clueless statement.
I agree that public sector employees make more than private sector employees. Although, I don’t believe it is double, I think it’s more like 30%. But there are two explanations for this. It could be, as you claim, the public sector is overpaid. Couldn’t it, instead, be that the private sector is underpaid? I think the latter explanation is more likely. I talk more about that here: https://powerlineiswrong.wordpress.com/2012/02/08/class-war-already-in-progress/
“Record corporate profits” isn’t a meme, it’s a fact. Do you dispute it? I never claimed profits are detrimental to the middle class, and I agree completely that healthy corporations benefit us all. My only issue is where those profits are going. When virtually all productivity gains go to the top, that is unhealthy and unsustainable, IMO.
Regarding CEO compensation, it is set by the board. The board is made up of other executives – there is no labor representation on the board. The attitude of most board members is, “CEO’s are important and must be highly compensated – the higher the better. Workers are expenses and need to be paid as little as possible.” I call BS on that line of thinking. A successful company needs both good management and good employees.
When we talk about offshore labor, we mostly mean China. China is a communist, currency manipulating country with no labor or environmental laws. The only reason we engage in “free trade” with them is to keep US labor costs down, IMO.
I agree the corporate tax code needs to be rewritten. But even though the rate is high, corporations don’t pay very much – there are many more deductions in the US code than in most other countries. The effective corporate tax rate is only 3%.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456
Whether Obama meant it or not, I believe it is out of touch, and will prove to be as costly as McCain’s “the fundamentals of our economy are strong” comment during the last election. I think most Americans will take that statement along with the golf, vacations and fundraising activity, and will rightly decide that Obama is out of touch with reality and the American people.
Whether or not “austerity” has caused public sector job losses is not the point. In an economic downturn, public sector job losses SHOULD occur. The problem is they occur at a lower rate than any other portion of the economy:
http://www.bls.gov/news.release/empsit.t14.htm
Granted, some of the categories are showing an increase in employement, but they SHOULD because regardless of how small it is, we are techinically in a “recovery.” (In quotes because 1.9% growth is hardly a recovery….) So it appears to me that Government workers have faired the best during this “worst recession since the Great Depression.” If all sectors were enjoying the same unemployment rate as government workers, Obama’s re-election would almost be certain. At this point during Reagan’s Presidency, economic growth was 6.5%, Two and a half times Obama’s. It was “Morning Again in America.”
According to this, on average, Federal employees DO earn double in salary and benefits:
http://www.usatoday.com/money/economy/income/2010-08-10-1Afedpay10_ST_N.htm
I do argue that the public sector is overpaid, rather than the private sector being underpaid. Private sector pay is based on market forces, not political ones. The proof is that public sector wages continually increase rather than contract during downturns in the economy. As the USAToday article points out, Federal wages increased 33% faster than inflation since 2000 (a period that includes two recessions) and 28% faster than the private sector when adjusting for inflation. Obviously, federal pay is unaffected by the condition of the economy.
It is absolutely indisputable that profits are at record levels, my issue is that it is used by the left as evidence that something is wrong. As the IBD article points out, “record profits” also produce increased tax revenue to the government, so Obama continues to show that he is either a complete economic illiterate or dishonest beyond belief. Neither is a welcome trait in a President.
Are you really defending a tax code in which the corporate tax rate is 40%, but the average effective rate is only 3%? If I were Romney, I would start running on a platform to “double the effective tax rate on corporations,” offer a flat 6% corporate tax with no deductions, and leave democrats to defend why they don’t want to change the tax code and “increase” taxes on corporations. It would be nice to beat the Liberals at their own game for once, and that would lay the ground work nicely for an across the board flat tax. If Jesus is content with 10% of my income, the Government should be content with 6%. The Government is definitely not Jesus, even with Obama in charge.
I’m not sure why public sector jobs should decrease in a downturn. There is just as much need for teachers, cops, firefighters, courts, etc. during a recession.
“At this point during Reagan’s Presidency, economic growth was 6.5%”. True. I’ve put my explanation for the differences in a post:
https://powerlineiswrong.wordpress.com/2012/06/18/reagans-recovery-vs-obamas-recovery/
On the topic of public vs. private compensation, I think the data show pretty convincingly that private sector workers are underpaid. Here is a great article on the subject.
http://www.ritholtz.com/blog/2011/08/the-heart-of-the-matter/
I’m definitely not defending the corporate tax code! I think it should be scrapped and replaced with a Goods and Services Tax. That way there would be zero incentive for companies to locate overseas, and we would collect taxes on foreign made products.