Rodney Johnson | Thursday, October 10, 2013 >>
On a recent Sunday I was watching television, flipping between two programs. One was an NFL football game and the other was a C-Span broadcast of Dr. Doug Elmendorf’s testimony before a House of Representatives panel.
I can’t remember who won the football game, or even who was playing, but I found the U.S. House panel discussion riveting.
Such is the life of a data junkie.
Part of what struck me was Dr. Elmendorf’s composure; part was sheer horror at the lack of economic understanding the representatives in attendance showed.
Dr. Elmendorf is the director of the Office of Management and Budget. He was there to discuss his office’s recent report on the likely changes in our financial situation over the next several decades.
As usual, the politicians took very partisan views of the information and used their time to score talking points instead of delving further into the analysis.
The topics ranged from health care costs to Social Security payments, and often ended with statements that began with: “I’m sure my friends across the aisle…” What drivel!
But one line of questioning caught my attention. It was about the sequestered budget cuts and Dr. Elmendorf’s estimate that the cuts will result in a loss of hundreds of thousands of jobs. The Congressman asking the questions was none other than my own Representative, Kathy Castor.
In her questions, Rep. Castor was genuinely interested in how the sequestered budget cuts would affect employment in general, and in her district specifically.
While Dr. Elmendorf couldn’t address local affects, his analysis shows that the $85 billion in budget cuts will result in an estimated loss of 600,000 jobs.
Rep. Castor was very concerned. To her, this was an obvious reason to add the spending back to the budget. Clearly 600,000 jobs need to be preserved!
Or do they?
Since the game was on a commercial break and the testimony had moved on to another Representative asking silly questions, I did a little math…
Spending $85 billion for 600,000 jobs is the equivalent of $141,667 per job. An annual income at this level would put the worker in the top 10% of all earners in the U.S., which seems a bit excessive for government jobs.
But I don’t think Rep. Castor ever stopped to do the math. I don’t think her Legislative Aide for Economic Affairs did either. Instead, it appears that the mantra is: “Jobs at any cost!”
Do they ever think of who pays the cost?
As I’ve written previously, the Fed’s followed this line of thinking for years, but it makes Congressmen look like kindergarteners.
While Congress wailed and screamed over $85 billion in budget cuts that span an entire year and put an estimated 600,000 jobs at risk, the Fed prints $85 billion a month in an effort to create jobs and only achieves the creation of about 175,000 of them.
Keep in mind, attributing the entire average monthly jobs gain of 175,000 to the Fed’s efforts is being stunningly generous. Those gains are certainly not all because of the Fed’s actions.
The Fed’s efforts – in the best-case scenario – cost over $485,000 per job. This money, if it all flowed to the job holders, would put the workers not in just the top 10% of earners, but in the rarified air of the much-hated one-percenters.
Of course, there is slippage in both the Congressional and the Fed programs. While much of the money from Congressional cuts comes from workers, not all of it is salary and benefits. There are billions of dollars in capital expenditures and expenses for equipment, facilities, and other things that won’t be made.
With the Fed, the connection to actual people is tenuous at best. There’s no clear linkage to jobs other than a chain from the Fed to lower interest rates, which in turn fuels debt, which makes homes more affordable, so presumably more new homes are being constructed.
If we counted only jobs in sectors affected by housing, the number of jobs attributable to the Fed would be much lower.
No matter how the math works out in terms of jobs created through government spending or money printing, one thing is for sure: The person at the other end of the line, the one paying for all of this, is a particular sort of citizen.
They’re a citizen who earns enough to pay federal income tax and who’s managed to spend less than he earns over the years. In short, if you’ve worked hard to grow your income and have saved instead of spent every nickel, then Congress and the Fed have a continuing plan for you.
As long as their assessment of the employment market remains dim, they plan for you to fork over a bit more of your assets.
Part of the fight against this sort of thing is to lower your taxable footprint as much as possible. While there’s not much you can do about earned income, there are certainly ways to position investments and holdings to bring down your tax bill.
Adding in some municipal bonds, either individually or in a unit investment trust, can do the trick while providing yield, particularly right now while tensions are running high over Detroit’s bankruptcy. Tax planning with trusts can be very beneficial for those nearing or in retirement.
As for the Fed’s printing, it’s the only thing keeping the U.S. from its natural course of deflation.
Right now the dangerous game we all play is to stay invested in assets like equities, which are benefiting from the Fed’s fight to re-inflate industries like housing. All the while we have to keep an eye on the exits for when the Fed’s failures become widely recognized.
One thing is for sure… sitting around watching Congress and the Fed pursue jobs at any cost can be very expensive for the rest of us.
P.S. As Harry mentioned yesterday, today he spoke about the demographic cliff threatening countries the world over at The Sovereign Society’s Total Wealth Symposium in Las Vega. On Saturday I’ll talk about how to find the bright spots in our lost decade. To hear us, plus more than 24 of the top minds in the county, click here.
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