US Unemployment Hits 5%

The year 2008 didn’t open very well for the American economy. The US Labor Department reported that the country produced only 18,000 new jobs in December and that hiring in the private sector contracted by 13,000. The unemployment rate has bumped up to 5%. That’s the highest it’s been in two years and is getting close to October 2001 levels, when the country was reeling from the Al Qaeda murders. What lies ahead won’t be a recession, but it’s going to feel like one.

On Friday, President George “LBJ” Bush showed how he got to be a failed businessman when he said, “This economy of ours is on a solid foundation.” No, Mr. President, it isn’t. Oil is at $100 a barrel, which is about 60% higher than a year ago and is as good as a regressive tax in crippling the economy. Housing prices are close to freefall. There have been declines in the number of factory and construction jobs. Things, actually, are rather bad and likely to worsen.

Still, Mr. Bush is aware of the fact that some kind of economic stimulus package is needed. And for him, that means tax cuts. He wants to make the tax cuts he’s enacted a permanent part of the tax code. Since they expire in 2010, it’s hard to see how keeping them past that date will boost spending now, but that is the plan, if one can use the word so loosely.

What’s going on is pretty simple to understand. Demand is falling. This is similar to what happened in 1929, but there are sufficient fail-safes in place these days to prevent a real depression. Still, people aren’t buying stuff, and that means businesses aren’t going to be hiring people, which makes wage-earners nervous and so they don’t spend. This goes on ad infinitum, or at least until it really hurts.

Consumer spending is the driver of the American economy accounting for about 2/3 of GDP. Putting disposable income into the hands of people who are going to buy food, clothing, power tools, dishwashers, a new car and so on is the solution. It has to happen fast, and it has to be targeted on those making the least amount of money. A one-time tax rebate would do the trick. Watch it not happen as the economy flounders into July.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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