Wednesday, February 5, 2014

The Expansion Through Contraction Theory

     The Congressional Budget Office released a report yesterday that estimated ObamaCare will cost the economy 2.3 million jobs in 2021. A steady loss in the ensuing years will be realized do to employers reducing the number of work hours as a means of escaping the new law's mandates for full-time employees. A similar report produced by the CBO in 2011 had the loss of jobs at 800,000, a number that the current report has tripled. As is the case with government accounting, by the time 2021 rolls around, the number of jobs lost to ObamaCare will be well over 10 million.
     The CBO report reads like the medical chart of a patient on hospice care, as it outlined growing deficits after a short period of reductions, Gross Domestic Product growth that will struggle to maintain even a modicum of improvement, and unemployment that will not fall below 6% until late 2016. I remember President Obama saying that unemployment would drop below 6% by the end of his first term, and if it did not then it would be, "a one term proposition," for his presidency. Well, the American people rewarded him anyway with a second term even though he failed to meet even the modest goals he set for himself. People sometimes forget that the average unemployment rate for the entirety of the George W. Bush administration was 4.9%.
     The way in which the Obama administration has been able to fool the American public into believing in the myth of an improving economy is what I call expansion through contraction. Barack Obama has of course had help in this scheme from his marionettes in the financial media and elsewhere. A data point that illustrates how this work was released yesterday, it was factory orders, which dropped 1.5% in the month of December. But since the analysts seeded everyone's expectations for a 1.7% drop, the markets responded positively to the contraction in factory orders. This "bad news is good news simply because it is not worse news" has been the cornerstone of the Obama administration economic policy for the last 5 years.
      The analysts create a positive from overstating a negative. The biggest negative is the fact that the president, as well as those in the media, are still talking about "recovery." Five years after the official end of the recession we should not be in recovery or even talking about it, but enjoying a full blown thriving economy. The reason for the acceptance by those in the financial world of substandard economic data is the bottle of free flowing liquidity the Federal Reserve has held up to the lips of a wino market in the form of its quantitative easing program. But now that the bottle is beginning to be pulled away with the Fed's tapering program, the market is giving a little more weight to actual economic data, hence the recent downturn in the market indices.
     The expansion through contraction theory has held President Obama in good stead, as there has been a plethora of bad economic data over the last five years that has given the president an opportunity to trot out the worn, old horse of, "it could be worse." And the American public, by and large, have accepted economic mediocrity as excellence simply because it is not abject failure.

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