In this week’s Barron’s Randall W. Forsyth, citing research by Stephanie Pomboy’s Macro Mavens, makes a point I have been making for a few years. Supposedly strong employment gains in recent months, Pomboy notes, consist largely of part time jobs. Because of Obamacare, small companies are holding workers to less than 30 hours per week so that they do not count as “full-time employees” who must be given lavish benefits. In June full-time employment was still 3.4 million below its pre-crisis level. Mort Zuckerman made the same point in today’s WSJ.
The inevitable result of a shift to a part-time America is weak personal income growth. In May real personal disposable income grew only 1.9% year-on-year, and the 12-month moving average of this metric is a dismal 1.4%. How does that compare with years before the financial crisis, during the supposedly terrible reign of President George W. Bush? Between 2005 and 2007 the yr / yr percentage change of real personal disposable income averaged 2.6%, nearly twice as fast as the recent 12-month average. And don’t forget, Obama has delayed the employer mandate, so employers have not yet been socked with the full impact of the law. Furthermore, the cost of insurance will be rising rapidly for the next couple of years, which will inhibit hiring even more.
Fed Policy and Obamacare
Although many Wall Street economists continue to look the other way, the baneful effects of Obamacare on employment are pretty well recognized at this point. What people are still missing is the impact on Fed policy. When Janet Yellen looks at an economy with low labor force participation and just 1.4% average real personal disposable income growth, she sees an economy burdened by too much debt, which is allegedly restraining demand. She forgets about supply side constraints– regulations that are raising costs, hurting employment, and discouraging investment, such as:
- Obama has sharply raised marginal tax rates on highly productive individuals.
- Failure to reform America’s laughably dysfunctional tax code, which is impelling more and more companies to decamp to Europe.
- Obamacare penalizes small business that go over the limit of fifty full-time workers. It pays to stay small.
- The war on coal.
- The Keystone XL Pipeline freeze.
- The absurd ban on oil exports.
- Onerous ozone regulations.
- Dodd Frank curtails small business lending by wrapping community banks in unnecessary red tape.
- Huge, capricious fines on major banks.
No wonder we have what Larry Summers mischaracterizes as “secular stagnation.” By limiting supply and raising costs, these policies slow economic growth and make the economy more inflation-prone. Because she is misreading the causes of weak job growth, Chair Yellen’s easy monetary policy runs the risk of triggering inflation. I keep hearing that inflation can’t be a problem unless wages start to inflate. This makes no sense to me. Prices are a function of supply and demand; companies will raise prices if they can do so, regardless of what is happening to their own costs. A couple of weeks ago, I had a hard time finding a hotel room in Boston for less than $400—not because wages are rising in Boston, but because the hotel market is tight after five years of solid growth in the local economy.
I will be interested to see if Chair Yellen mentions regulation tomorrow in her Congressional testimony.
Krugman Flunks Finance 101
The good professor thinks he has figured out why conservatives oppose the Fed’s ultra-loose monetary policy, five years into economic expansion. Not only are they (unlike Krugman himself, of course) insufferably ideological and unscientific; they are also greedy. See, Fed policy has driven down interest rates, and it’s rich guys and gals—not the middle class retiree with a few hundred thousand dollars to invest—who get the largest share of their income from interest payments. Greedy rich conservatives hate Fed policy because their interest income is under pressure.
Krugman needs a refresher course in bond math. When interest rates decline, bond prices rise. These rich guys who supposedly have been hurt by Fed policy actually have garnered huge capital gains since 2007, while “working families” continue to be screwed by Obamanomics. For example, the iShares 10-20 year Treasury Bond ETF has appreciated from 96.96 on July 9 2007 to 129.37 now, a gain of 33.4%, in addition to which holders of this ETF have received 2%-5% per year in interest. That’s a total return, straight through a searing financial crisis, of about 7% per year. People in the top 0.1% who own lots of bonds have done much, much better than the average worker facing weak job growth and declining median household income since 2007. Krugman / Obama rhetoric favors the 99%; their policies favor the 1% and especially the 0.1%, even if they are not smart enough to know it.
Krugman seems to think super-easy money that risks inflation will help “working families,” but the opposite is true. The labor market is still weak enough that most workers do not have the bargaining power to get wage gains in excess of price increases, so their real incomes would decline if inflation picked up. The 1970s were a good decade for commodity speculators, but not for average workers.
Copyright Thomas Doerflinger 2014. All Rights Reserved.
