Type to search

Lesson From December’s Jobs Report: Turn On The Fiscal Jets

Economy Memo Pad

Lesson From December’s Jobs Report: Turn On The Fiscal Jets


The economy is not yet strong enough to cope with tighter monetary policy, but fiscal policy is what’s really missing from this recovery.

The weak employment report out today reinforces the view that the Federal Reserve should not ease up on monetary policy soon. The strength of this economic recovery is not yet clear, and the Fed is the only game in town due to sequestration of government funds.

Waiting another three or four months to tighten policy and reduce quantitative easing will not change the course of America’s destiny. But moving now, as they have done ever so slightly, could easily pull the rug out from under this modest recovery.

The sharp fall in the unemployment rate to 6.7 percent was just about entirely accounted for by people dropping out of the workforce. The employment-to-population rate is roughly at its lowest level in more than 30 years. Too many people are not working in America. For all the economic weakness in Europe, they have higher participation rates than the U.S. does.

The drumbeat of optimism emanating from most economists recently will now be muted until the next set of data. The jobs numbers are the most telling indicator of economic strength. Economists turn on a dime when they are issued, but only because they can, given the computerized models that shift modestly with every piece of economic news. They should have a stronger analytical thesis than to depend on one month’s data.

The path forward is clear. We should keep in mind that the economy is not doing badly. On average, there has been moderate job growth over the last three months, just not nearly enough to justify an end to monetary stimulus now. We should wait at least a few months to make sure this recovery and expansion is truly solid.

The good news is that the disappointing employment data will reduce pressure on the Fed as Janet Yellen takes over the reins. The bad news is that it will unleash the anti-Obama forces who blame the slow economy on Dodd-Frank’s costs to the financial community, future fears of inflation, and of course the federal budget deficit. Tune in to Fox News after the employment data release and you’ll find them saying “Obama did it.”

Larry Summers offers the best advice: we have to turn on the fiscal jets. The first words out of anyone’s mouth about the economy should be that sequestration did it. Fiscal de-stimulus was huge in 2013. Government spending fell sharply. The deficit is no longer an issue, given unemployment around the current level.

Summers is being criticized by economists and commentators from across the political spectrum for claiming the nation may be in a period of secular stagnation. Summers noted that the economy was disappointing even before 2007. How could that be, ask some, if the unemployment rate got down to roughly 4.5 percent?

John Taylor of Stanford is especially vociferous about how good the economy was under George W. Bush. Of course, he worked for Bush. But even apart from that, it is hard to take his claims seriously.



  1. paulyz January 11, 2014

    I see there aren’t any answers to the facts listed in this report. Obama keeps saying we are turning the corner on the economy, when it has gotten even worse. The unemployed not counted just to make it look like Obama’s disastrous policies are working isn’t much believed anymore and Millions of Americans getting hit with Obamacare costs, with less coverage and no say in their Doctors or care. And this report was during the very busy Christmas season yet!!!

    p.s. Meanwhile, BO wants to give “another” Amnesty to MILLIONS of Illegals while MILLIONS of Americans are out of work. And when these Illegals get FREE Obamacare, expect to pay even more.

    1. Arnie January 11, 2014

      Without the house obstructing EVERY effort to get things going like infrastructure repair and high speed rail, which are good investments and good business, changes in the tax code that will stop companies from being encouraged to send manufacturing out of the country (we are down to %10, way not enough for our population), and much more. They hate Pres. Obama and will kill us all to prove it.

      Another thing since you brought it up and is not appropriate to the question of austerity, I know people who are paying less for healthcare and getting more. Let’s add to that, Insurance companies are the people we pay for the healthcare not the government. They can’t cheat us anymore ‘is all. According to the GAO who EVERYBODY uses, the ACA will reduce the budget over time which is only a start. Throw this on top, the deficit has dropped to half since Pres. Obama took office.

      As for austerity, as a policy it does not work. All you need do is look at Europe and see what’s happening there because of austerity. They even admit that it’s not working. Wise spending that repairs the electric, transportation system, bridges, communications infrastructure of our country is wise and will kick start our economic engine. History proves that is true! Also, we must bring manufacturing back or we will be doomed. A service economy is BS and always was.

  2. iDonald January 11, 2014

    Good clarification of the economic picture.

  3. mandinka January 11, 2014

    Yep another year in the books as a complete failure… your doing a heck of a job barakie

    1. Bill January 11, 2014

      You can thank the GOP, they block everything they can and then say “not me” wake up and smell the roses.

      1. CommonSense January 12, 2014

        Bill, I think it’s fair to say BOTH the GOP and Dems have had a had in blocking or moving ahead agenda’s. It begain in the 60’s with LBJ’s (Democrate) Great Society spending programs and then in the 70’s Nixon (Republican) taking us off the gold standard and going to a strickly fiat money/currency system based on faith. As we have seen recently (last 5-6 years) the ability of the US government/Treasury to simply print money to theoretically cash our way out of trouble is a mirage. States and cities do not have the power to print money and as such, those that don’t exercise fiscal responsiblity in spending file bankruptcy. This we have seen. In the US we don’t necessarily have a monetary problem, but we do have a very serious fiscal policy problem that is not being dealt with.

        1. Independent1 January 12, 2014

          If you checked into that printing of money, you would see that the U.S. over the past 5 years hasn’t printed money any faster than every country in Europe; and that China has printed it 7 times faster. And that in the process, America’s debt to GDP ratio has actually lowered because GDP has increased faster than the debt.
          In fact, the CBO has said recently that America’s debt to GDP is around 73.5% now which is lower than virtually every other simiar indusrialized nation on the planet which actually run debt to GDP ratios of greather than 80%; even Canada’s is about 15% points higher than America’s.

          Here’s an article you need to read about the fact that debt to GDP and all that nonsense has virtually no bearing on a country’s economic performance; it’s all about not trying to run a country with AUSTERITY!!

          How to destroy an entire country (with austerity):


        2. Independent1 January 12, 2014

          I forgot to mention: if you check the record of GOP and Democratic administrations since Nixon’s 2nd term, you’ll find that every GOP president has governed with significant deficit spending, while every Democratic president that has inherited deficit spending has worked to reduce it. And no Democratic president has reduced deficit spending further and faster than the smallest spending president since Eisenhower, Barak Obama.

          And the economic performance of America under Democrats has been far more successful than under Republicans which is reflected by the much better stock market performance under Democrats. Since the stock market crash of ’29, the effective Stock Market yield under 35 years of GOP governance has been .4%; whereas under 40 years of Democrats it’s been close to 10%. Clearly demonstrating that America’s economy works far better when Democrats are guiding the country.

        3. Independent1 January 12, 2014

          And by the way, that .4% for 35 years of GOP governance was as of 2005 and doesn’t factor in the loss of almost 6,000 points on the Dow during Bush’s 2nd term which would drive the .4% yield negative; nor does the Dems close to 10% factor in the almost 10,000 point increase in the dow (which is now at about $16,400 when it was close to $6,500 when Obama took office); which would put the results for Dems well over 10% for the 45 or so years of Dem governance since just after the 1929 market crash..

          And let me just give retirees an example of what the difference would have amounted to if $10,000 had been invested in 1930; under the GOP it would have grown to about $11,700 , as of 2005; whereas under Dems it would have grown to over $307,000. Which do you think retires would rather retire on? $11,700 in their investment, or $307,000???

          Someone really needs to explain to me why anyone with an investment in the stock market would ever even think about voting for the GOP.

          1. CommonSense January 12, 2014

            True, many nations have printed money at a faster pace than the US, however, look at what is happening to those countries. As the old cliche’ goes……….what goes up will eventually go down. Also, look at what has happened to currency exchange rates, balance of trade. It sucks. I think you have to look at ALL impacting components of this free money printing out 3-5 years. Not just the immediate gratification.

          2. Independent1 January 12, 2014

            I gather you either didn’t read the article on How to destroy a country or you didn’t pay much attention to it. My sense is that the printing of money has had nothing to do with the problems European countries are experiencing. In fact, since virtually all of them have implemented austerity budgets, which is the real problem, they probably haven’t been printing enough money to rev up there economies.

            In case you really missed part of Rep Grayson’s article on How to destroy a country – which is what the GOP is trying to do to America. Here are some excerpts:

            A lot of people blame Greek government debt for the current suffering. According to the Central Intelligence Agency, that most authoritative of all conceivable sources, Greek government debt stands at 160% of GDP, which seems like a lot. But Japanese government debt stands at 215% of GDP, and the unemployment rate in Japan is only 4%.

            Moreover, Spain’s unemployment rate is virtually as high as Greece’s, but Spain’s government debt stands at only 85% of GDP. That’s less debt than Singapore’s, and Singapore’s unemployment rate is 1.8%.

            So we cannot properly attribute the catastrophe in Greece to labor protection, nor can we attribute it to government borrowing. What is the cause, then? The World Health Organization has the answer: austerity. “Austerity” is a bloodless term for gross economic mismanagement, animated by heartlessness. That robotic cut-cut-cut mentality that deprives us of jobs, of public services, of safety, of health, of infrastructure, of help for the needy, and – ultimately — of our economic equilibrium and the ability to survive. The mentality that ushers in, and welcomes, a vicious war of all against all. Austerity is destroying an entire country, right before our eyes.

          3. CommonSense January 12, 2014

            Suggest reading Dr. Milton Freidmans, “”Money Mischief”” and then proceed to reading “”After Shock”” by Robert Weidmer. Come back when done and present your case. Then for alternative reading, try reading “The Secrets of the Federal Reserve” published by Bridger House. Then History of the Bank of England and the Rothschild Family. I believe you will have a completely different view than what you have presented to me. Although I’m Indepent I would present over history GOP, Dems, Whigs and Tories have all had their fingers in the pot. I prefer conversing with those that don’t point fingers, but rather those that are scholars of history and facts.

          4. Independent1 January 12, 2014

            I’d suggest you throw those books in the trash and wake up!! Whatever they wrote isn’t worth the trouble to read.
            Based on your way off beat sense of reality.

  4. daniel bostdorf January 11, 2014

    This topic is that that we need to invest in America and avoid a disasterous fiscal austerity false permise.

    From the article:

    “capital investment was weak before 2007, never even close to returning
    to the levels of the second half of the 1990s. The right wing loves to
    blame lack of business confidence on low levels of capital investment
    today, but how do they explain the Bush era?

    on a side note that I hpe NM editors and moderators will see:
    Mandinka the social media troll with his usual rant based in no facts
    and bullying statements that are off topic and have no positive value

    A social media troll as someone who seeks to lure or
    bait people into negative, disruptive rhetoric for their own edification
    or to commandeer an otherwise free-flowing discussion among colleagues.
    They don’t recognize anyone that may be interested in discussing
    something that bores them and opt to criticize or yell “boring” instead
    of engaging in the discussion. They choose to belittle those who seek
    the information and discourse as well as those who try to provide it.
    They simply have no interest in anything that is not self-serving.
    Trolls will defend their focus on expressing contrary opinions as an
    honorable attempt to rid the online community of fake-experts, get to
    the truth of a matter or enlighten their followers; however, their
    intent has nothing to do with community building or public

  5. CommonSense January 12, 2014

    Clearly, Jeff is a Keynesian theorist. But wow!!! Inflation is not an issue right now? Really? If he sits in his cube at the Institute and ponders over government supplied figures on inflation, then he is totally naive. I run a small business and buy supplies. The wife does the grocery shopping. So here’s a snap shot (outside) the beltway and what is happening in the (real) world. First, main street inflation is running more like 9-12% a year. Everything we buy, from light bulbs, screen doors, paint, to water heaters has risen in price 15-20% in the last two years. I look at real life product purchases that come out of my real life wallet. Not some government report that says inflation is about 2%. Furthermore, with the declining value of the dollar, and more and more products we purchase from abroad only amplifies the problem. It is common knowledge that since the 1970’s the data used to generate popular reports such as unemployment, GDP, or inflation has been manipulated so much in order to make things for politicians look better than it really is…..the data is no longer valid information for main street America. The most popular examples are GDP, the value of goods and services produced. The matrix of data compromising those figures has recently been manipulated such that GDP reported is about .5 to .7% higher than before. Unemployment is another. If the data matrix used in the 1970’s were used to today….unemployment would actually be reported as between 10-15%. So excuse me, if I don’t buy the theory of someone inside the beltway using non-real world experience to tell the American public all is well when in fact the data is cooked in order to present an agenda and rosy picture, when in reality, those of us in the real world of running small business’s see it differently.

  6. Oarboar January 13, 2014

    Hey, everybody, here’s something you should do the next time you see a talking head or anyone else preach austerity:

    Ask them if they’re willing to take the austerity medicine they’re prescribing for everyone else by giving up their own jobs. (I’ll help you out and give you the answer: No.)

    As an economic strategy, unemployment isn’t working.


Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.