An Uphill Battle to Add Jobs

12/14/2009 12:00 pm EST

Focus: MARKETS

John Mauldin

Chairman, Mauldin Economics

John Mauldin, editor of Thoughts from the Frontline, crunches the numbers and tells how difficult it will be for the US to get unemployment back to past levels.

In August, I did a back-of-the-napkin estimate that we would need about 15 million new jobs over the next five years just to get back to where we were when the recession started. That works out to about 125,000 new jobs each month to handle new workers coming into the market (which comes to a total of 7.5 million over five years), plus the eight million-and-rising jobs we've lost.

That amounts to 250,000 new jobs a month every month for five years. And we are still losing more than that number a month, let alone adding the needed 250,000. Only once, in 1999, did we actually add over 250,000 jobs a month for a whole year. And that was during the Internet boom.

Sadly, the private sector has shed over 300,000 jobs since 1999. Real incomes are roughly where they were, and the stock market is down. Talk about a lost decade.

What would it take to get back to 5% unemployment [by 2020]? I assume no recessions for the next ten years, and two million new jobs a year after 2011, which I start off with almost 1.5 million jobs.

Want to get to 5% within five years? Add three million jobs a year starting now—with no housing recovery, a smaller auto industry, and financial firms getting leaner.

I have serious doubts that we can have what amounts to the largest tax increase of all time in what will be a very weak economy, without putting us back into recession.

And Speaker [of the House Nancy] Pelosi thinks it is smart to add another 5.4% surtax on what will already be a rising capital gains and dividend tax. Taxing small businesses—and that is what the tax increase amounts to—is a very bad idea in a weak economy. Small businesses are where the job growth comes from.

So, let's quickly see what a double-dip scenario might look like. Let's assume we only lose another 1.2 million jobs in the next recession, since we have already lost so many in this one (eight million and counting). And then the economy comes roaring back in 2012, with 1.5 million jobs and continues to grow rather smartly for the rest of the decade.

Another million lost jobs will take us well over 11% and close to 12% (remember, you have to add in the increasing population), even without my double-dip scenario.

Americans are not used to 12% unemployment or 10% rates for extended periods. That is going to cause a serious backlash across the political spectrum. Couple that with the discomfort over $1.5-trillion deficits, and there could be some serious political changes in the coming years.

The only way out of this morass is to create an environment where small business can thrive. Government spending does not increase GDP over time. It is a temporary, nonproductive stimulus. It takes private investment to create jobs and increase productivity.

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