Posted by: danielfee | July 22, 2012

Tell Me a Story

Presidential elections are won or lost based on whose story the voters believe. The sad truth is that most Americans are not engaged in the political process, they understand very little about the procedures involved in governing and are tuned out until a few months before a big election, such as the upcoming presidential election. So as the summer heats up, above 100 degrees in many places which are setting all time recorded temperatures, so too does the political rhetoric and story telling.

This election should be titled “The Tale of Two Stories.” It is the best of times, it is the worst of times. On the one hand, Willard “Mitt” Romney is telling his story of how bad the economy is under President Obama and touting his 59-point plan to turn it around. On the other hand, Barack Obama is telling his story of how his policies and leadership have saved the country from sliding into the second Great Depression from the Great Recession of 2008-2009 which he inherited when he came into office.

Granted, Mitt Romney will acknowledge that Obama inherited a recession and has said on many occasions “President Obama didn’t create the recession, but he has made it worse.” Really? Is it true that Obama made the recession worse? I addressed this claim in some depth in a January 14, 2012 post, and I would encourage everyone to read it. But in this post I have updated some of the data to include statistics from the first half of 2012. Granted, Obama will acknowledge that the economy is not growing fast enough and too many people still cannot find a job, but he claims that things are moving in the right direction. So is it true when Obama said “the private sector is doing fine”, when the unemployment rate is still above 8%? The answers depend upon whose story you want to believe.

Let’s look a little deeper into both stories, starting with jobs. If there is one thing you can get every politician in Washington to agree upon, it is that “jobs” are the most important issue which must be addressed. Not that they can come to an agreement on how to address the jobs issue, just that it is the most important issue which they are not resolving. In order to evaluate the two stories we first need some background information on jobs creation. We could go back to look at the record on jobs creation since the Great Depression which would span a range from 1932 until 2012, during which 34.8 million jobs were created under Republican president policies and 73.4 million under Democratic president policies. But how would that relate to the two stories being told by Romney and Obama today? It probably doesn’t, except for in a very general way. The Democratic presidents tended to govern under an economic philosophy known as Keynesianism while the Republicans governed under an economic philosophy known as supply-side, especially since the election of Reagan in 1980. It is probably much more relevant to look at the jobs data from January 2001 until June 2012 for a realistic picture of which story might be more accurate.

Mitt Romney has posted his 59 point “Believe in America: Plan for Jobs and Economic Growth” on his website and refers to it in his stump speeches. In that plan there are seven (7) policies relating to cutting taxes, seven (7) related to cutting government spending, sixteen (16) relating to deregulation, thirteen (13) relating to anti-union policies, ten (10) relating to global trade policies, and six (6) relating to an energy policy which amounts to “drill baby drill.” If it sounds familiar, that’s because it is. It is basically the same supply-side economic policies of tax cuts and deregulation that were pursued and implemented by the Bush administration from 2001-2008. As the supply-side story goes, if we cut taxes, especially for those at the top and corporations, the economy will grow and these so-called “job creators” will hire more people and prosperity will trickle down throughout the economy. Bush was able to get two big tax cuts passed by the Republican-controlled Congress in 2001 and 2003. The net cost in lost federal revenues over the 10-year period these cuts were to remain in place was approximately $2.8 trillion. So how many jobs did the “job creators” create as a result of the Bush tax cuts? Good question. The actual numbers of private sector and public sector employees are shown in Table 1 and the net change from year to year is shown in Table 2.

TABLE 1: Employees on Nonfarm Payrolls

# Employees on

# Employees on

Date

Private Payrolls

Public Payrolls

Total

December 2000

111,753,000

20,614,000

132,367,000

December 2001

109,768,000

21,122,000

130,890,000

December 2002

108,642,000

21,556,000

130,198,000

December 2003

108,491,000

21,544,000

130,035,000

December 2004

110,749,000

21,700,000

132,449,000

December 2005

112,498,000

21,878,000

134,376,000

December 2006

115,053,000

22,114,000

137,167,000

December 2007

115,745,000

22,333,000

138,078,000

December 2008

112,542,000

22,532,000

135,074,000

December 2009

107,107,000

22,481,000

129,588,000

December 2010

108,008,000

22,252,000

130,260,000

December 2011

110,193,000

21,993,000

132,186,000

June 2012

111,145,000

21,943,000

133,088,000

Table 2: Net Yearly Change

# Employees on

# Employees on

Date

Private Payrolls

Public Payrolls

Total

December 2000

December 2001

(1,985,000)

508,000

(1,477,000)

December 2002

(1,126,000)

434,000

(692,000)

December 2003

(151,000)

(12,000)

(163,000)

December 2004

2,258,000

156,000

2,414,000

December 2005

1,749,000

178,000

1,927,000

December 2006

2,555,000

236,000

2,791,000

December 2007

692,000

219,000

911,000

December 2008

(3,203,000)

199,000

(3,004,000)

December 2009

(5,435,000)

(51,000)

(5,486,000)

December 2010

901,000

(229,000)

672,000

December 2011

2,185,000

(259,000)

1,926,000

June 2012

952,000

(50,000)

902,000

Now that we have the raw data from the end of each year, this is where the story-telling or political spinning begins. Where do you start counting to determine the effects of a president’s policies? Obviously you shouldn’t start your count before the president’s proposed policies are adopted into law. For instance George Bush’s first tax cut wasn’t adopted until June 7, 2001, so any changes that occurred to the employment numbers before this date could not have been due to that tax cut. I think Mitt Romney, vintage 2006 when he was governor of Massachusetts, gave the best answer when he was explaining his own jobs record as governor. He said that you could not hold him accountable for what occurred in the first 11 months after he took office because he needed time to get his policies adopted and put into place so they could start working. I would agree Governor Romney of 2006, but not presidential candidate Romney of 2012 who has repeatedly counted President Obama’s jobs numbers from the day he took the oath of office. In fact, he even tried to assign the entire January 2009 job losses to Obama, even though he wasn’t sworn in until the 20th of the month.

So let’s look at the data in the above tables starting in 2002 for George Bush and 2010 for Barack Obama. This gives both of them the first 11 months of their administrations to get their own policies adopted and into effect. From January 2002 to December 2009, while the Bush supply-side policies were in place, the number of employees on private payrolls went down by 2.661 million jobs. The number of employees on public payrolls (aka government workers) went up by 1.359 million. So it would appear that the only “job creators” during the 8 years of Bush’s policies was the government. That is odd, since part of the story that Mitt Romney is telling is that Obama has expanded the size of government. But has he really? From January 2010 through June 2012, which is the latest data available, under the Obama policies the number of employees on private payrolls went up by 4.038 million jobs and the number of employees on public payrolls (aka government workers) went down by 0.538 million. What the numbers seem to indicate is that when President Obama said “the private sector is doing fine”, when he was comparing the job growth in the private sector to the losses in the public sector, he may have been right. But that doesn’t fit with Mr. Romney’s story so he jumped all over that statement and claimed the President must be out of touch because the economy is so bad. But if you look closely at Table 2 you will notice the key to both Governor Romney’s and President Obama’s stories is based on who gets credit (or blame) for the really bad job numbers in 2009. So even though Governor Romney said he could not be held responsible for what occurred in the first 11 months he was in office, he wants to place the blame on President Obama for his first 11 months in office. To be fair, President Obama did hit the ground running and got the stimulus package approved his first month in office and he did approve the bailout loans for the auto industry by the end of March, so it is fair to assume that his policies did have some affect in the latter half of 2009. So if we split the 2009 jobs numbers the first six months from January through June, there were 3.876 million jobs lost under the Bush policies and 1.184 million jobs lost under Obama’s during the remainder of the year. With this adjustment, George W. Bush’s supply-side policies lost 1.454 million private sector jobs. But on the bright side he added 1.336 million government jobs so that he ended with a net loss of just 118,000 total jobs over eight years. That is only an average of 1,311 jobs lost per month! Meanwhile, Obama’s adjusted totals show that he has created 2.881 million private sector jobs and on the down side has lost 0.565 million government jobs. So he has a net of 2.316 million jobs created. That is an average of 64,333 per month. So Obama’s job growth numbers are not robust, but in his story version he isn’t claiming that they are. The story Obama is telling is that things have turned around and we are going in the right direction but not fast enough. Well if it is not fast enough, what is holding job growth back?

Maybe it is because corporations have been struggling to make a profit so they cannot afford to hire the laid off workers back. So let’s look at corporate profitability. According to a chart published by Business Insider, after the Bush tax cuts were adopted the after-tax corporate profits took off. They more than doubled from around 600 billion in 2001 up to just under $1.4 trillion in 2007. Then the bottom fell out as the Great Recession hit. They dropped almost all the way back to just a little over $600 billion by the middle of 2009. Since Obama’s policies have gone into effect, the after-tax corporate profits have rebounded very nicely. In fact, at the end of 2011 they set an all time record high of almost $1.7 trillion dollars. When corporate profits are measured as a percentage of GDP, it shows they are also at an all time record high.

So if corporations are making record profits, why aren’t they hiring more people? The answer we hear most often it is because of uncertainty. Uncertainty with taxes, the new health care laws, and the new banking regulations, just to name a few of the more prominent excuses. Really; since when has there ever been in certainty is business? Any good business person plans for contingencies because one can never be certain what the future will bring. There are a few business leaders that will speak the truth and tell anyone willing to listen and tell you that it is all about demand for your products and services that will drive hiring decisions. American companies have some of the highest productivity rates in the world. During the Great Recession of 2008-09 many companies learned how to do more with fewer people, which is obviously being reflected in their record profits. So think for a moment; why would any business hire more people if they are making record profits at current staffing levels? They wouldn’t, unless they cannot keep up with the demand for their product or service. The auto industry is a perfect example. They laid off huge numbers of people and shut down shifts and plants because of weak demand and other structural business problems. They went through an expedited organized bankruptcy process which allowed them to restructure labor and dealership contracts and their finances. Then the Obama administration provided a “cash for clunkers” tax credit to jump-start demand for new autos. The auto industry regained it footing, sales took off and GM is once again the number one car company in the world. Of course they began hiring back workers because they could not keep up with demand at the reduced staffing levels. So if anyone tells you they are not hiring because of “uncertainty”, and it is not followed by “of the future demand for their product or service”, then you will know they are just making excuses.

The other part of the story that dovetails with the jobs is the size of government and its regulatory impact on the private sector. According to Governor Romney’s story, businesses are being held back from starting and growing because of the big overreaching government that has been created by the Obama administration. As the story goes, the key to unlocking this potential is to cut corporate tax rates and deregulate. Of course these are the same policies that were implemented during the Bush years, and look how well the deregulation of Wall Street worked out! Actually, the start of the deregulation mania began in the early 1980’s with the Reagan administration. It gained steam through the 1990’s and reached a pinnacle in the George W. Bush administration. There were many steps along the way, but the depression era banking regulations known as the Glass-Steagall Act of 1933 were completely eliminated by 2000. Large swaths of the financial services industry were freed from the regulatory burden and those that remained were divided up between numerous government agencies which lead to confusion over which agency had primary responsibility to oversee certain functions. As we all now know, Wall Street went on a credit expansion and derivatives binge, creating trillions of dollars worth of mortgage-backed derivatives which would soon turn toxic. The unregulated derivative products were traded over-the-counter, which means is was a private agreement between two parties, so there was no government oversight similar to stocks that are sold on a regulated exchange. These derivatives, in all their exotic forms, were spread all over the world and were sold as triple-A rated investments. However when they turned toxic in a few short years as the subprime mortgage market began to unravel, no one knew who was holding the good stuff and who was holding the bad stuff. Everyone started to worry that the counter party to their over-the-counter agreement might not be able to make good on their end of the deal. After all, if you were a Wall Street banker and you could see that you had a bunch of toxic assets on your books, wouldn’t you assume everyone else did as well? Especially if you were the one who sold them in the first place? They all made this assumption and because the entire market was opaque, the end result was that the credit markets froze. Banks would not rollover the overnight loans to other banks and businesses who depended on this commercial paper. The only entity capable of unfreezing the credit markets was the government, so Wall Street was bailed out by the government with taxpayer dollars. I have not yet met anyone, be they conservative, liberal or independent, who says they liked the taxpayer bailout of Wall Street. There are many who agree that it needed to be done, but are unhappy about it and say we need to do something to make sure that never happens again. That something was the Dodd-Frank Wall Street Reform and Consumer Protection Act that President Obama signed into law on July 21, 2010. According to President Obama’s story, the financial services industry needs to have ground rules (aka regulations) in place so that consumers are protected and the taxpayers will not be on the hook for future bailouts. Some people think Dodd-Frank didn’t go far enough and others think it went too far. It is a very complex piece of legislation, which of course it needs to be to address the complexities of the financial system no matter how many pages it takes. But the details of Dodd-Frank are not important for the two story lines being told. What is important is policy 9 in Mitt Romney’s 59 point plan is: Repeal Dodd-Frank and replace with a streamlined, modern regulatory framework. I thought that is what we had when the Commodities Futures Modernization Act of 2000, which was sponsored by Republican Senator Phil Gramm, was signed by President Bill Clinton, and created the opaque derivatives market.

According to the Mitt Romney story, big government not only over regulates businesses, but also employs too many people, does too many functions that should be done by the private sector and spends too much money. President Obama’s story about government is that it should do those things that we can’t do as individuals so we should pull our resources together and do them through the government. Obama describes these as investments in our future and Romney describes these as government spending.

From 1954 to 1991, the governments civilian workforce excluding postal workers, fluctuated between 0.9 and 1.1 percent of the population. However by the end of 2010 that was down to just 0.7 percent and as Table 2 shows, an additional 300,000 have been cut from the government workforce. Obama’s story includes the federal government providing assistance to states and local governments so that they can hire back some of the laid-off teachers, firefighters and cops. Romney’s story is that we don’t need more teachers, firefighters and cops and he rhetorically asked, “did the President not get the message of Wisconsin?” That’s odd; I thought the recall election of the governor in Wisconsin was about his eliminating the rights of the public unions, excluding the police and firefighters unions, from collectively bargaining. When the two stories about the size of the governmental workforce are reduced to their core, the Obama story is that the things we have historically considered as public services such as police, fire protection and education are government functions and should remain as such. This means hiring back some of the laid-off public workers. The Romney story is about privatizing these functions, therefore we should not hire back any of the laid-off public sector workers. In fact, according to his story we should reduce these jobs further.

The third leg of Romney’s story about big government is that it spends too much money and that Obama has been the biggest spender of all time. But according to a recent story published in the Wall Street Journal Market Watch, government outlays are rising at the slowest rate since the 1950’s. That is inclusive of the Obama stimulus spending and increases in unemployment and Medicare spending. A chart accompanying the article showed the annualized growth rate of federal spending by presidential term. During Reagan’s first term annualized spending went up 8.7% and during his second by 4.9%. During George H.W. Bush’s one term it went up by 5.4%. During Bill Clinton’s two terms it went up 3.2% and 3.9% respectively. Then we get to George W. Bush and the annualized spending went up 7.3% in his first term and an even higher 8.1% in his second term. So according to the Romney story, if Obama is the biggest spender of them all, then the annualized growth rate must rising at a double-digit rate. Right? But the Wall Street Journal article showed that it has only risen at an annualized rate of 1.4% during Obama’s first term. Something must be wrong!

Yes, something is wrong. The story that Mitt Romney is telling is fiction. If you are someone who likes good fiction stories, then Governor Romney is your guy. By all means, vote for him. But don’t be surprised when he gives you the same results that George W. Bush gave us. If on the other hand you prefer non-fiction, like I do, then the story Obama is telling is much closer to reality, and you should vote for him this November.

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Responses

  1. What an insightful piece. You should send it to the White House so they can read and share it in a simple way with the populace. Some of the information you have shared here is vital for people making choices in the coming presidential elections.

    http://blackrepublicanandmyworldview.wordpress.com/2012/07/19/running-on-fear-the-tale-of-the-2012-elections/

    • Thank you for your comment. As an engineer I find that looking at the numbers is the best way to evaluate the stories. You know lawyers, they will tell you anything. 🙂 Of course both Obama and Romney are lawyers, so you really have to do the research to see who is closer to the real facts. I am sure the Obama campaign is aware of the data I included, plus a lot more. They are talking about the big theme that Romney is proposing to return to the Bush policies with his 59 point plan. But they cannot get to deep into the number for two reasons. First, Americans have short attention spans and their eyes roll when they hear too many numbers. Second, if they give the actual results from the 8 years of Bush policies they will be accused of blaming Bush for everything. That is why we see political campaigns that are big on stories and short on facts and numbers. It is up to us to dig for the facts and share them with each other. Please fell free to share my post with your friends and family and repost it anywhere you like. That is the great thing about social media, we can share info that you won’t see in most of the mainstream media. You would think with 24 hours a day of air time to fill they could actually spend more time digging out the real data and informing their viewers. But they are either propaganda outlets or their idea of reporting is to allow both sides to make whatever claim they want and just leave their viewers hanging with no way to judge who’s claims were factual.

  2. This is an excellent post. My only problem with Obama’s story is that he isn’t telling it well enough. He’s letting Mitt get away with a lot of BS. He needs to defend Keynesianism more effectively and explain that private sector demand creates private sector jobs.

    • Just have patience. You can’t tell the whole story in the first chapter. It appears to me that Obama is doing a good job of telling his story and pointing out how Romney’s story is filled with inconsistencies (to put it nicely). Romney is having a difficult time with his story because it is limited to “the economy is bad and it’s all Obama’s fault.” He cannot tell his own story because he doesn’t want to talk about his time at Bain, as governor or even his personal life because of his religion. So he is stuck with a one theme story which will get old soon. It reminds me of the student that doesn’t really know their subject so they keep repeating the same thing in slightly different ways just to fill up the page.


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