Why a Better Jobs Picture Didn’t Save the Democrats
As reported by the Bureau of Labor Statistics (BLS) on Friday, October was a good month for jobs. Full-time-equivalent (FTE)* employment increased by 617,000. This was the sixth-highest monthly total seen during the economic recovery that began in July 2009, and it was far above the 122,000 average over the 64 months since then.
Meanwhile, labor force participation, the unprecedented fall in which has been the big ongoing story of the Obama economic recovery, actually increased slightly during October. This meant that the reported decline in the unemployment rate to 5.8%, from 5.9% in September, was “real.”
While the BLS report came out after the election, the electorate experiences the employment situation directly, so voters were able to factor October’s improvement in the jobs picture into their decisions on November 4.
Five days before the election, on October 30, the Bureau of Economic Analysis (BEA) reported that 3Q2014 real GDP (RGDP) increased at an annualized rate of 3.50%. Coupled with the 4.51% RGDP growth reported for 2Q2014, this means that real economic growth for the six months leading up to the election averaged 4.01%. This is not only the highest growth rate seen during any six-month period during the economic recovery thus far, but also a number considered to be in “boom” territory.
Despite the recent improvements in both jobs and economic growth, on November 4, Americans voted decisively for a radical change in direction. The voters gave control of the Senate to the Republicans, and increased the GOP’s majority in the House of Representatives.
Many pundits and Democratic Party strategists were shocked by the election results, but if he were still with us, Jude Wanniski would not have been surprised at all.
In his seminal 1978 book, The Way the World Works, Wanniski put forth his “Political Model,” which asserts that progress is limited by the choices presented to the electorate by the political elites, and not by the wisdom of the voters. In other words, Wanniski contended that the electorate, as a whole, constitutes a perfect decision maker, and that it votes as if it (collectively) knows everything and understands everything.
Although many Democrats blamed low voter turnout for their losses on November 4, Wanniski noted that everyone votes in every election. Not voting just represents the only way that people can pull the lever for, “I don’t see any difference between these two candidates;” or, “I haven’t studied this issue, and I don’t want my random vote to cancel out the vote of someone that has;” or, “I don’t feel strongly about this, so I want to leave the decision to people that do.”
If he had been able to do a post-election telephone interview from Heaven, Jude Wanniski would have explained that the message that the voters were sending was:
“We weren’t voting for progressivism in 2006, 2008, and 2012, we were voting against Bush/McCain/Romney clueless conservatism. We are alarmed by the Democrats’ progressive, big-government overreach. Now that the Republicans have finally presented us with some candidates that don’t seem crazy and/or threatening, we are going to give them control of Congress, and hope for the best.”
Obamacare was a big issue for the electorate on November 4, because it is pure progressivism, and therefore both unworkable and destructive of freedom. However, another major driver of the Republican wave was the voters’ concern about our out-of-control Federal Reserve.
The Fed is one of the two great instrumentalities of progressivism, the other being the IRS. Since its creation in 1913, ordinary people have been suspicious of the Fed, because it represents an enormous concentration of unaccountable power.
The electorate, which collectively knows everything, is well aware that, starting in about 2003, the “Fed problem” went from “chronic” to “acute,” when the Fed adopted a rules-free, 100% discretionary approach to monetary policy. The voters are also aware that only Republicans seem interested in reforming the Fed. When the Democrats had full control of government, they passed the Dodd-Frank bill, which gave the Fed even more unaccountable power.
As George Gilder explained in his 2013 book Knowledge and Power, money provides the “carrier” for the price signals that are used to coordinate economic activity, especially investment. An economy will grow the fastest when its monetary carrier is as free of “noise” as possible. Distorted price signals lead inevitably to malinvestment, which wastes capital and slows growth.
A good real-time indicator of the value of the dollar is the CRB Index** (actually, the inverse of the CRB Index). Accordingly a good measure of the noise in our monetary carrier is the variation in the CRB Index over a given period of time.
Under the Bretton Woods gold standard, during the 142 months that ended with August 1971, the CRB Index varied from +7.5% to -6.5% of its average value for the period. During a comparable period ending in December 2002, when the Fed was running a discretionary, but more or less rules-based monetary policy, the variation in the CRB Index was +17.4% to -16.7%. The Fed’s most recent, 100% discretionary, approach brought the monetary noise level during the most latest 142 months all the way up to a variation of +54.4% to -29.4%.
As the Fed has gotten more improvisational, the dollar has gotten less stable, and our monetary carrier has become filled with noise. Prosperity requires a stable dollar. The electorate knows this. Hopefully, the Republicans, to whom the voters have just given control of Congress, will press forward with monetary reform.
*FTE (full-time-equivalent) jobs = full-time jobs + 0.5 part-time jobs
**The CRB Index is a commodity price index comprising: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gasoline, and Wheat.
Article originally published on RealClearMarkets.