Precisely 25 months ago, I publicly presented the following thoughts:
Obama the Job Savior: 134,372,000 Jobs “Saved”
On January 10, 2009, a week and a half prior to the inauguration of the president, Reuters reported that Mr. Obama claimed the stimulus plan he was proposing would create, or “save,” up to 4 million jobs by 2010.
The Bureau of Labor Statistics (BLS) issued its June 2009 report indicating 15,095,000 individuals are unemployed (9.7 percent unemployment rate). Mysteriously, not part of the unemployed figure previously cited are 6,454,000 individuals looking for work, 4.1 percent of the civilian labor force.
The total unemployed and those “looking for work but not unemployed” equals 21,549,000 individuals, 13.8 percent of the 155,921,000 total civilian labor force.
This translates to 134,372,000 jobs “saved” (155,921,000 minus 21,549,000).
Mr. Obama: a job well done.
In fact, he exceeded expectations by 130,372,000 jobs, or 3,159 percent.
How can this be?
It depends what the meaning of the word, “saved,” is (a reference to a previous president, you may recall).
Evidently, the parameter chosen by the current president is, at best, a non sequitur.
Let’s examine economic data that has real practical applications for society.
On August 4, 2009, the St. Louis Federal Reserve Bank reported 2009 projections for world GDP (i.e., income) growth calculated by the International Monetary Fund (IMF) and the World Bank (WB). Both predict a decrease of 1.4 percent and 2.9 percent, respectively relative to 2008.
The significance of this is extraordinary. World GDP growth has been positive every year from 1951-2008, averaging 3.8 percent per year. This occurred despite declines in world trade for the years 1958, 1975, 1981, 1982, and 2001. Average growth for these years remained positive at 1.1 percent.
The World Trade Organization (WTO) projects a decline in world trade (i.e., export volume) of 9 percent.
From 1950-2006 world trade volume increased 27 times, while world GDP increased 8 times. The ratio of world trade to world GDP increased almost 4 times from 5.5 percent to 20.5 percent. As of 2008, the ratio of world trade value to GDP reached 28.1 percent according to the WTO and CIA World Fact Book.
From 1970-1985, the divergence between trade and GDP was largely due to price increases in oil as short term supplies were reduced (probably coordinated based on geoeconomic and geopolitical considerations).
However, from 1985 onward, the cause of this divergence has been a more integrated global supply chain. Vertical and horizontal specialization (labor differentiation) has grown exponentially as manufacturing processes harness more efficient cost structures in developing countries. Technological advances have further enabled this phenomenon.
Economic interconnectedness increases monetary velocity (frequency of monetary exchange) as the means of production are more tightly compartmentalized and distributed through additional entities. This suggests trade is more sensitive to changes in GDP.
The financial crisis is the result of a major drop in demand from artificially inflated values. This decrease has reduced velocity, income, wealth, and credit creation. These variables have an exacerbating, or multiplicative effect, on trade. This decrease in trade further reduces world income through a negative feedback cycle.
As world income falls and future economic prospects deteriorate, business investment decreases, followed by increased unemployment.
A year ago, my sense was unemployment would reach 10 percent. The Bureau of Labor Statistics (BLS) recorded 9.7 percent in June 2009 (this figure does not include underemployed nor many looking for work).
It would not be surprising if unemployment remains in double digits during the 2012 presidential campaign.
Not to worry, Mr. Obama. Even with a 20 percent unemployment rate, you can claim 124,736,800 “saved” jobs: not bad.
These ideas seem highly applicable given the recent economic climate: possibly a prescient analysis and prognostication.
Moreover, they further validate the premise of my previous Moneynews article.
That is, the current socioeconomic and geopolitical realities suggest a diminutive probability for the president’s re-election next year.
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