Unemployment jumped to 9.8 percent in a very disappointing November jobs report. Nonfarm payrolls increased by only 39,000 and private jobs expanded by just 50,000. This is way below what the economy needs. Most discouraging, the smaller-business household employment number fell for the second time in a row, down 173,000 in November after a 330,000 drop in October. This is the nineteenth straight month with unemployment above 9 percent.
Now, after the severe financial panic of two years ago, it seems clear that too many tax and regulatory obstacles are blocking satisfactory job creation. And it also seems clear that a number of fresh new incentives will be necessary to spur the kind of prosperity that Americans desire. Following the deep recession, we need shock-therapy, pro-growth, tax-cut and deregulatory incentives.
Post-election, is the Washington war on business really over? Has the war on successful earners and investors truly ended? Is the class war against capital still being waged by the White House?
Will Obama bring senior business people into his inner circle? Are we going to get pro-growth tax reform for individuals and corporations? Are we truly going to limit government spending in order to reduce the onerous budget deficit? Is King Dollar currency stability on the table?
These are all key questions for the economy’s future and the murky unemployment outlook.
Perhaps the only saving grace from the poor jobs report is that it will spur a quick resolution to extend all the Bush tax cuts.
Democrats keep shilly-shallying with all these silly class-warfare amendments, like a $250,000 limit, or a $1 million limit. This has everything to do with left-wing redistributionist social policy and nothing to do with economic growth. The fact is, passing the bill to freeze the tax rates will help business confidence. Why don’t Democrats understand this?
But there’s more.
Large and small companies remain worried about the high regulatory and tax costs of Obamacare, which is the number-one jobs-stopper. How expensive will it be over the next five to ten years for the new hire? Companies also have to deal with a crazy quilt of new financial regulations that may block access to new bank loans when private credit demand kicks up.
But the Bush tax cuts will not do the job alone. Full-fledged flat-tax reform — of the sort embodied in the best of the Bowles-Simpson fiscal recommendations — will be necessary for full-fledged economic recovery.
Lowering the top personal and corporate tax rates will increase after-tax returns for work and investment. That’s the kind of strong new incentive that will be necessary to ignite rapid economic growth in the post-meltdown period. Broaden the tax base and lower marginal rates across-the-board.
And full-throated spending reduction will be necessary to drive deficits lower, and reduce the threat that future taxes may have to go up if the bond vigilantes come after the U.S. Treasury market the way they have attacked various countries in Europe.
Meanwhile, the Fed can produce money, but we are learning again that it cannot produce jobs. It also can produce inflation and a devalued dollar.
In other words, the basic building blocks for growth must be restored: limited government, lower tax rates, and a steady currency.
However, all is not doom and gloom on the economy. There is some optimism. In fact, there’s a mystery to Friday’s jobs report, since it just doesn’t tally with all the other good economic news.
Retail sales are up four straight months, and chain-store sales for the early holidays surprised on the upside. Manufacturing reports have been solid. Even for November, the Institute for Supply Management’s surveys for manufacturing and services were solid. The ISMs are basically real-time economic indicators. And oddly enough, the employment component of each looks fairly strong.
Meanwhile, core business investment is rising at a double-digit pace. Profits are at a record high. Commodity indexes are rising at a better than 10 percent rate, year-on-year. The M2 money supply is growing around 8 percent annually. Business loans from commercial banks are finally bottoming. The Treasury yield curve is positively sloped. Oil prices, closing in on $90 a barrel, are too strong. And the stock market’s strong run continues.
In sum, the economy is actually rising at a roughly 3 percent rate. But economic growth should be double that.
There is so much work to be done by the new Republicans in Washington. Let’s hope the Tea Party message is alive and well in the GOP. Smaller government, lower tax rates, deregulation, and free-market economic freedom. We need it now more than ever.
Larry Kudlow is the host of CNBC’s “Kudlow Report.”