The United States lost 63,000 jobs in February.  Although the unemployment rate fell from 4.9% to 4.8%, this may mean that so many workers have become so discouraged that they are withdrawing from the labor force.  Fewer Americans working only causes a drag on output.  A one percent change in unemployment is translated into two percent less output.  The spiriling effect from of reduced output and spending will only eventually lead to further increases in the unemployment rate.  I believe that this will only get worse during late spring and early summer as high school and college graduates enter the job market.

Monetary policy is not proving to be an effective tool for turning around the economy.  Investment dollars move to the highest bidder and the federal reserve is giving investors the impression that the U.S. is not a good place to invest in.  Sure, some financial company may be able to cover its costs with a temporary, lower cost loan from another bank, but that does not benefit the consumer.  The consumer is seeing no growth in his income but is experiencing increases in the cost for food and transportation.  Add the threat of increasing home costs due to a resetting of interest rates on adjustable loans and we have a consumer base that is in dire straits.

 

The short term fiscal stimulus pushed by Democrats and unwisely signed onto by Republicans will do nothing to resolve the slow down in the economy, at least not for the immediate and long term.  While we may get a nice spike in spending right around election time, multiplier effects from the spending will only lead to inflation, thus eroding any positive gains from the stimulus package.

 

What are Republicans doing?  They are not leading but are being led by in-the-box thinking and the poor sentiments of pundits and reporters on CNBC.  Republicans need to force the next president to treat the federal budget as a long term investment tool.  Screaming tax cut, tax cut, tax cut all the time is not an effective long term growth policy and is quite frankly indicative of shallow thinking. 

 

7 March 2008