Good Policy and Employment Growth in the USA

Hey Pete isn’t it a pity that you can’t run the mile in eight minutes.  Yes, Pete said, but I am happy to be walking after that hip operation last month.  But the surgeon said you would be as good as new in a couple of weeks. Yes, and the surgeon needed a new hot tub cover too. Anyway, despite worries that the US economy is not improving fast enough to bring us back to normal, the Labor Department release last Friday was heartening and suggests further improvement. The payroll survey revised upward job growth in October and reported an increase in jobs for November of 120,000. The companion and broader household employment survey showed employment growing by 278,000 jobs. The unemployment rate fell below 9% to 8.6% as well.

In terms of the overall economy, this is a bit like Pete being able to walk a mile but it is still a ways from his normal mile run. The real issue today is one of false expectations. Activist politicians and economists wanted us all to believe that that their hocus pocus policies would have us running faster much quicker than was really possible. They are just now admitting that the global crisis was larger and deeper than first described – and will take longer than normal to heal.  So while we won’t do a back flip over the recent report, the truth is that the US economy seems to be on the mend.

One of my colleagues – let’s call him Joe since that is actually his name – pointed out to me as I was busting a gut trying to do three consecutive push-ups at the gym – that Europe was at it again. All the news last week was about a possible new compromise that would save the euro, Europe, and seals. But Joe pointed out that every time the EU seems on the verge of an agreement, Merkel and Sarkozy once again decide they are going to re-enact the economic equivalent to World War II.  Merkel wants Europeans to behave more like the Swiss – Sarkozy wants them to act more like Zorba.  Maybe Merkozy could come together and agree that Europeans should act more like the Dutch.  The Dutch are very conservative, save parts of their paychecks each month, smoke dope in Turtle Bars, and generally enjoy life as they ride around the town square on 300 pound 25 year-old bicycles that were given to them by their grandparents. They also say things like Als tublieft and debankt.

Before I go much farther I just wanted to tell you that I have not had sex with any sports coaches or Herman Cain. I do recall several times in high school when my coach said that if I didn’t play better he was going to put his size 16 High Top Converse All Star up my youknowwhat. But that is the closest I came to sex with coaches or politicians.

Financial markets want to see real solutions to our global financial problems. It seems worth thinking about that if the EU and the US were to fashion reasonable compromises that these markets would  be utterly delighted and increase further, consumers would feel wealthier, banking bottlenecks would be relieved, and the world economy could get back to an 8 minute mile. If I was a US politician up for re-election next year I would think about the political payoff to finding a real solution. The payoff to good policy choices has never been stronger. I would worry a lot, however, that if the EU actually does fashion a decent compromise while US government officials continue to approximate the monkey cage at the zoo, the political cost could be quite heavy. Our politicians will look even dumber than the monkeys if they are the only ones to let the milk spoil.

I keep saying words like – real solution.  It is possible that the Europeans and US politicians might come to some agreement or compromise that was not a real solution – and I am NOT advocating that. The room for real solutions, however, is quite ample. For those nuts who read me regularly, you may find this next part redundant but a compromise does not necessarily mean we sell our souls to Bobby Knight. A compromise recognizes that you cannot get exactly what you want but you do not have to give up on your basic principles. It is sort of like me when I agree to participate in our household’s Christmas decoration activities. As a relative to the famous Grinch and the son of two unreligious Jews, I don’t love the idea of spending hours putting together manger scenes, Christmas villages, and lifting a 900 pounds Santa out of the basement. But I do it anyway because I know two things. First, Betty will buy me some really nice Christmas presents. Second, my kids will buy me expensive bourbon.  So it is a good compromise.

A reasonable fiscal package in the US would recognize that housing and finance are the source of our current problems and need to be addressed. This  would entail dealing with the housing default overhang in a way that recognizes the difference between those who might realistically be able to repay with some contract adjustment – and those who might be able to repay but only if they won the top prize in the lottery. A real solution would also put us on a path toward smaller debts and deficits though recognizing that stimulus cannot be withdrawn too fast. A plan to begin reducing government stimulus but at a pace that accelerates over time could be designed by economists.  Should the US Congress come up with something that seriously addresses these two issues, incumbents could laugh their way back to their usual payola and corruption in 2012.

In summary, things in the USA are not as alarming as some people say but are not as good as they could be. We are on the mend from a serious illness but we need to keep following the doctor’s orders. The time for alarm and extreme policies has passed. Even small changes in the right direction can and will have great impacts on wealth, confidence, economic growth and employment. Politicians have much to gain by doing the right things. They do not realize how much they will personally lose if they continue to fritter away time and voter patience.