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DAVID KRUSE

By Staff | Dec 17, 2010

Of consumers that have a job, confidence is rising and so is consumer spending. There is some semblance of an economic recovery occurring, but it is clearly evading the job creation sector.

9.8 percent unemployment in November was very discouraging and when Congress threatened not to extend jobless benefits, it became a crisis to many households shut out of the economy.

First of all, when the unemployed lose jobless benefits, it doesn’t mean that the cost of sustaining them to the government is ended. They will be forced to fall back on other government support programs that are more bureaucratic, less efficient and sometimes demeaning.

Those that have lost unemployment benefits find that their ability to seek employment has likely been damaged. Granted, half the 9.8 percent would prefer something other than employment, but there are way too many millions of Americans that desperately want to work that can’t. Openings for good jobs have a ream of applicants a mile long so it’s not that those folks are not trying to get work.

This much unemployment is not a good thing for the social fabric of the country, but it will make us tougher. Too many people expect a job, but do not do the things that make them employable and when they get caught in the hole they quickly realize that.

Becoming employable starts with decisions made at a much younger age than many begin the process. This recession will make some think more about that when it matters when they can do something about it. You can be as prepared to work as they come, however, and the job opportunity must be there. That does require economic growth.

The current rate of unemployment is very consistent with the current rate of economic growth. “Okun’s Law as it came to be known, has been tweaked over the years, and now states that for every two percentage points the economy grows above its long-term trend annually, unemployment falls by a percentage point.

That means, according to Okun’s Law, that the economy isn’t growing fast enough to bring down unemployment.” That was the crux of Ben Bernanke’s message on “60 Minutes.” The Fed feels compelled to push growth with fiscal and monetary policy in order to produce more jobs.

Ironically, business is good, companies are making money, corporations are sitting on a pile of cash reserves, interest rates are historically low and despite all that, companies are not hiring. Why? In a word, “Risk.”

The reason business is in as good a shape as it is, is because they laid off people fast enough and hard enough to protect their equity and bottom line. That is one difference between the Great Depression and Great Recession. In the 1930s, companies laid employees off “when” they went broke. Today, they lay off employees before they go broke to keep from doing so.

There is some social evolution to that business practice acceptance. Almost nothing can make a business go broke faster than to be paying employees to produce goods and services that they can’t sell.

This has created an economic performance that has come to be called a “jobless recovery.” It is likely the type of recovery that we will consistently get. Business is going to be very careful about hiring, adding to their costs before they are convinced that demand is there for the production.

Even if they are sitting on a pile of cash it does them no good to hire people they don’t need because the demand for what they produce is not there. That is a waste of equity. Unsettled issues such as health care, trade, taxes and so on are added to the equation when businesses evaluate hiring risks and Congress hasn’t helped provide a back drop of business confidence.

The president belatedly became “pro-business” around the time of the Congressional election. The pro-business policy is “no tax hikes” for anybody and to extend unemployment benefits. Unemployment checks are keeping 3 to 4 million people above the poverty line where they can still be modest consumers.

“The Congressional Budget Office said every $1 spent on unemployment benefits generates up to $1.90 in economic growth. The program is the most effective government policy for generating growth among 11 options the CBO has analyzed.”

I don’t blame U.S. business for being cautious about hiring. The average number of hours worked weekly and the average hourly wage have both begun to pick up so there is a pulse. The Fed has stated a commitment to reducing unemployment as a reason for QE2.

In my opinion, while I concur that unemployment is a social problem, I’m less convinced that it’s as serious an economic problem as popularized. By that I mean that both business and employees can be doing very well financially, isolating the “recession” to a contained segment of unemployed.

That would not be a very politically popular observation nor any solace to those desperately looking for a job. Business is going to have to see the government respond with clear tax policy, ratify Free Trade Agreement and, frankly, build such a substantial cash reserve that expansion risk is minimized.

Congress has not responded in real time so business did not either. The tax compromise crafted by the president and GOP congressional leaders would be the best stimulus package they could enact; something that if it had been done a year or so sooner would be having a more positive impact on the economy today than other stimulus enacted.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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