Wishful Thinking By The Obama Administration

In an article in The Wall Street Journal entitled "Factories Revive Economy", it was reported that the “U.S. manufacturing index in March registered its best reading since 2004…” and goes on to claim that production is increasing around the world, which is a good sign that the United States won’t “double-dip” back into a recession. One would have to be very naïve to believe that this production increase indicates a solid turnaround in business growth in the United States because although there’s been an increase in production in the private sector of the US, permanent employment numbers have not changed significantly. When a recession occurs, businesses have two means of surviving: cutting expenditures or increasing productivity at a lower a cost of producing goods.

In the recently released uptick in employment numbers, when temporarily subsidized stimulus related employment, along with temporary additional census workers are removed, the permanent private sector job increase has been at a minimum, despite the increase in production. Production has been, for the most part, increased in companies that have demonstrated the ability to show productivity and efficiency increases without labor cost increases. In other words, it has been a jobless recovery in the private sector.

Politically, it has been very important for the current administration to be able to speak about employment increases to help improve the American public’s confidence in our economy, but as stated before, these employment increases have been somewhat illusionary. Private sector companies will increase their costs, such as labor, only when absolutely required to maintain productivity growth. That is why the government has made such a push for stimulating employment through every means at its disposal with subsidies in the areas of energy efficiency, as well as federal and state work projects that could be advanced through the use of stimulus money.

The fact of the matter is the United States economy will not truly begin to turnaround until the private sector begins providing more jobs because the key to success is to give the American consumer increased purchasing power as a result of truly improved employment conditions and increased confidence in the security of the future of the American economy. One of the reasons that the economy is depressed is the people that continue to have jobs are being conservative in their own spending because nobody has confidence in their job security. Since so many American workers fear reduced hours, pay, or being laid off, they do not want to spend their money. All of these temporary fixes make the Obama administrations statistics look better, but they are not providing for long-term sustainability of our economy. You can only buy so much with stimulus money because at some point, the economy needs to be able to stand on its own and compete with the rest of the world’s economies.

If you read this Wall Street Journal article more closely, the details begin to unravel as it is revealed that the main contributor of the sudden increase in factory production is China (and other Asian countries as well). As a matter of fact, the United States production levels are only a smidgeon higher than they have been since the recession hit. That’s not to say that the United States isn’t doing better, but production has correlated with the increase in purchases made by these other countries and consumption in the United States has really been minimal. The inflated employment numbers, coupled with the positive statistics in factory production have only been effective in tricking the American consumer to have more confidence in the economy. This will hopefully help in encouraging people to spend more money, but this is not the panacea that the current administration would like you to believe that it is.