Obama’s Tax Cut Plan: Will it Create Jobs?

by on December 20, 2010 · 7 comments

in Economy, War and Peace

by John Lawrence / Will Blog for Food / December 20, 2010

The recent bill that passed Congress that extended the Bush tax cuts for two years, funded unemployment insurance and did a few other things will undoubtedly create more “economic activity.”

But will it create jobs?

That’s the 64 trillion dollar question. Economic activity is not synonymous with job creation although that’s the theory Obama is gambling his Presidency on. Economic activity is synonymous with positive GDP growth, but GDP growth has been positive since the third quarter of 2009. GDP growth has been positive for 5 straight quarters and hence by definition the US is officially not in a recession and hasn’t been for the entire year of 2010. However, there is still an official unemployment rate of about 10% and an unofficial unemployment rate of 17%. At the same time job growth has been anemic.

About a million jobs have been created in 2010 which is more jobs than were created during the entire Bush Presidency, but that isn’t even enough to cover new entrants into the work force. About 100,000 new jobs per month are required just to stay even. That’s 1.2 million jobs a year. Therefore, taking new entrants into the job force into consideration, there has actually been net negative job growth for the last 10 years including Obama’s Presidency!

Something like 8 million jobs were lost during the Great Recession. Currently, there are over 400,000 initial claims for unemployment insurance every week. The statistics are ominous but, what is worse, government officials don’t seem to have a clue as to why this is happening. There is no explanatory narrative, and their only theory is that increased economic activity will lead to job creation. Not necessarily so. What is certain is that the Obama tax cut plan will drill another trillion dollar hole in the national debt. And it will likely create jobs not in the US but in China and other Asian countries where labor is much cheaper than in the US.

It’s called labor arbitrage. When barriers to trade fall as they have with the current free trade penchant, businesses will move jobs to whatever country has the cheapest labor force and in today’s world that means China. One is hard put to purchase a product not made in China. Consequently, increased economic activity will mean that GDP will increase as consumers buy more products MADE IN CHINA. That translates into few, if any, jobs created in the US.

The Obama administration is also trying to increase exports to serve the growing consumer markets in the developing countries of the world. That would arguably create jobs in the US. Only problem is that the transnational corporations, which are eager to serve those markets, prefer to locate their production plants not in the US but in those countries next to the emerging consumer markets. That way they get the best of both worlds. They get cheap labor AND they are close to the markets they want to serve. This leaves the US at a huge disadvantage. Corporations are eager to serve the US consumer market which is 70% of US GDP, but they don’t want to locate production plants in the US because the cost of labor is too high.

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{ 7 comments… read them below or add one }

James Palen December 20, 2010 at 2:34 pm

Just wanted to correct a false statement in this post. It is not true (at all) that more jobs were created in 2010 (1 million) than during the entire Bush presidency. In fact, when Bush took office, the country had a count of 132.5 million jobs. When he left, it had a count of 135.5 million. The last time I checked my math, that equals 3 million, which, once again applying elementary match skills, is three times the amount created in 2010. Now if I really wanted to be picky, I could point out that the first half of Bush’s tenure was one of the fastest growing times in our nation’s history, only to fall drastically in the second half of his tenure (which is of course the only portion of the entire eight years Bush critics like to remember so as to substantiate their arguments). Look up the historical data. I narrowed the facts to include only net figures during the entire eight years. Prior to the start of the downfall in 2007, the figure was much higher than 3 million. You might want to cite such facts before you decide to throw false statements out there.


Shane Finneran December 20, 2010 at 4:03 pm

James, look at you, a Bush apologist! First I’ve seen in these here parts in many a moon, I reckon. Welcome!

Now, Lesson 1 in debating around here, my good man, ya need to provide some sources if you’re going to expect people to take your numbers seriously. Where do you get your numbers? Americans for Thin Air?

Here are some numbers (sourced properly) that I think summarize your man Bush’s contribution to economic history. I’ll give you this: the economic disaster that during the Bush era only affected MOST Americans negatively… our society’s economic elites did great!

“[As of end of 2009] there has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well. Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 — and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s…”



Frank Gormlie December 20, 2010 at 4:12 pm

As our old but young friend Lane used to do: ^bump


Jon December 20, 2010 at 4:09 pm

I have to correct a false statement in your reply. You say, “…only to fall drastically in the second half of his tenure (which is of course the only portion of the entire eight years Bush critics like to remember so as to substantiate their arguments).

Wrong! I also like to remember the first half of his tenure because that’s when he invaded Afghanistan and Iraq! Two of my fondest memories of his wickedly-awesome presidency.


James Palen December 21, 2010 at 9:30 am

Touche, Jon.

Shane: The article you reference specifically states it’s as of the end of 2009. Remind me, who was president from the end of Jan. 2009 to Dec. 31 2009? Those figures include the job losses in President Obama’s first year, including the 10 months that followed his stimulus plan that was, in his words, the only way to keep unemployment below 8 percent. Since Mr. Obama has been in office, official unempolyment has increased by a full 2 percent (and at times, by more than 2 percent). And it’s still stagnant or occasionally rising.

Here is a WSJ article (and yes, I’m aware that you may not grant the WSJ its due respect) that is actually aimed at pointing out how horribly Bush’s eight years compared to other presidents. Still, in light of the fact that the article is trashing Bush by pointing out that the 3 million jobs created in his eight years are miniscule comparitively, it does reflect that the statement I referred to in Mr. Lawrence’s piece are inaccurate and false.



Shane Finneran December 21, 2010 at 9:44 am

Now that’s what I call some source data! Thank you for the follow-up.

And indeed, my article was talking about 12/31/99 to 12/31/09, which does not line up exactly with Bush presidency. But looking at your WSJ article, I think we agree that job creation was terrible under Bush. I just thought you were beginning to argue the opposite with your initial post, so I had to say something.


Ian December 21, 2010 at 11:43 am

You guys have to get over this false premise that the president and the government somehow create jobs in the private sector.

Have you ever heard of a shell game? That is the game that they are playing with you. They can shift the money around in so many different way, but the net gain is ZERO.

All they do is create and support inefficiencies in the flow of capital that wouldn’t otherwise exist, and that is BAD for the economy.


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