In economics, real economic return isn’t just an important metric. It’s crucial. That’s why I find it so intellectually dishonest when some economists look at the gross domestic product (GDP) and employment growth without putting it in the context of the massive increase in debt, spending, and money supply.
A stimulus plan is supposed to generate higher and faster growth than the normal trend would dictate. By definition, a stimulus plan should improve the long-term trend.
Governments have taken the recommendations of economist John Maynard Keynes to spend in recession periods and have erased from their memory the need to save and cut taxes in times of growth. Keynes opened a dangerous door when he placed government as the solution to an economic crisis, and subsequent governments have taken it to the extreme with clear diminishing returns. What we have now is a chain of massive debt and monetary stimuli that are devoted to current and entitlement spending with no real economic return, only to see increases in spending even in growth periods, where governments never save.
It’s in the context of the largest fiscal and monetary stimulus in decades that we can and should be extremely concerned about the latest jobs report.
None of that has happened.
All we see in the U.S. economy is a direct consequence of the reopening. The economy sank due to the shutdown and is recovering due to the opening. The only thing that government and central bank actions have achieved in the meantime is to drive inflation and debt higher.
Higher debt and rising inflation aren’t drivers of longer-term growth and improved productivity trends—rather the opposite.
Imagine that you invest $6 trillion in an economy in 2020 and 2021, and the results are lower job creation while debt rises twice as fast as growth. It’s a recipe for disaster.
The September jobs report was extremely disappointing in this context of the massive so-called stimulus. Disguising it as “labor shortages” is simply a joke. A dreadful 194,000 jobs were gained versus 500,000 expected in nonfarm payrolls in September with the labor force falling by 183,000, leaving it still 3 million below pre-pandemic levels. The report shows that the economy has seen 15 months of a stagnant labor participation rate of 61.6 percent.
There were 4.4 million in February 2020. These people “were working part-time because their hours had been reduced or they were unable to find full-time jobs,” according to the BLS.
It’s another disappointing jobs report that must be put into the context of the largest fiscal and monetary stimulus in decades. This makes it even poorer and shows that the net impact of massive debt and spending on jobs generates almost no multiplier effect.
Of course, Keynesians will say that the disappointing growth and jobs figures are because (a) the government hasn’t spent enough, (b) the deficit should be higher, or (c) more spending should be announced.
This time isn’t different. More government spending and more deficit don’t make the economy stronger. It makes it weaker.