Daily Archives: October 5, 2012

The monthly US employment report has evolved steadily: once a lagging indicator of the underlying state of the economy, it is now seen more as a leading indicator of economic, political and social trends. Friday’s data tell us, for once, rather good news.

Let’s start with the numbers that make headlines and move markets. With 114,000 new jobs in September, the unemployment rate falling to 7.8 per cent (after fluctuating all year from 8.1 per cent to 8.3 per cent) and earnings increasing on account of both hours worked and average pay, the labour market is gaining traction. This healthy development is crucial for supporting consumption, encouraging investment and limiting further income and wealth inequality.

Yet this brighter picture must be sustained if America is safely to deleverage those segments of the economy that remain over-indebted. A significant part of the monthly improvement is associated with part-time, rather than full-time, employment. With Congress too divided to enact meaningful policy measures, the Federal Reserve will have no choice but to remain deeply engaged in uncertain policy experimentation.

The implications go well beyond economic policy and extend to the political process.

The unemployment rate is now back where it was when Barack Obama assumed the presidency in January 2009. Friday’s report will therefore make it harder for his opponent Mitt Romney, however energised he may be after Wednesday’s televised debate, to refocus the presidential campaign on disappointing economic outcomes. Remember that to win Mr Romney needs not only to provoke voter concerns about the economy, but also to convince more Americans that he is suitable for the White House.

The data will also resonate in congressional races that are important to future co-operation between the executive and legislative branches of federal government – thus affecting the ability of the political system to respond properly after the November elections.

These debates will no doubt play out in the media in the coming days, but they should not obscure issues that also matter a lot in the long-term: the structural health of the labour market and its ability to recover in a sustained and robust manner.

With an increase to 58.7 per cent, the employment-population ratio is edging up from a multi-decade low. This is important as the country cannot rely on a steadily declining share of its adult population to maintain and improve living standards, meet rising health costs and foster less divisive income inequality.

There is another labour market issue that deserves mention here, and that is the number of workers out of a job for six months or more. At 4.8m (and 40.1 per cent of the total), long-term unemployment is still too high: it is slowly improving, but still includes too many who are young (the teenage unemployment rate is an alarming 23.7 per cent) or have limited education (an 11.3 per cent unemployment rate for those with less than a high school diploma).

Such long-term joblessness is particularly detrimental for households, communities and government. It inhibits labour market flexibility, erodes skill levels over time and strains already-stretched (and often inadequate) safety nets. For those who have yet to secure their first “real” job, it risks tipping them from being unemployed to unemployable.

The bottom line is simple. We should certainly welcome Friday’s data, the best we have seen for a while. But it is too early to celebrate. And we should certainly not relax the pressure on politicians in Washington to do more to overcome the US unemployment crisis.

Between those in Congress ignoring the severity of the problem and others delaying substantive policies, America’s insidious jobs crisis could become still more entrenched. If that happens, human suffering will increase and politicians will find it even harder to overcome other policy challenges – from the impaired fiscal outlook to a still-fragile housing market – that are already deeply structural in nature.

The writer is the chief executive and co-chief investment officer of Pimco

Mitt Romney is the presidential candidate of one of the world’s oldest and most powerful political machines. Henrique Capriles is the candidate of an ad hoc and inchoate amalgam of Venezuelan political groups. Both men are running against incumbents who are deft politicians with broad popular support, but the similarities end there. The US Republican is running for office in a mature democracy where the incumbent faces strict limits on using the state’s resources in his campaign. Mr Capriles faces Hugo Chavez, one of the world’s longest serving heads of state and an autocrat who has never shied away from treating the nation’s oil wealth as his own or changing laws at will.

Yet confounding expectations, Mr Capriles has run a flawless campaign and on Sunday will confront Chavez with the strongest challenge he has ever faced at the polls. In contrast, Romney’s campaign, lavishly funded and full of the best political consultants money can buy, has suffered from endless gaffes, mistakes and miscalculations. Peggy Noonan, a Republican columnist, has famously called it “a rolling calamity”.

So is there anything that Mitt Romney, the 65-year-old veteran of politics and business, can learn from a 40 year-old from a backward country with a deeply flawed democracy? Yes, quite a bit, as it turns out.

First, he could learn the virtue of being enthusiastically inclusive. He should ignore his advisers and reach out to the voters everyone says will never support him. Mr Capriles has engaged even the most stalwart Chavez backers and constantly reiterates that if elected, he will be inclusive, tolerant and will allow no score-settling against Chavez followers. Mr Romney instead sounded sincere in his now-notorious dismissal of the 47 per cent of voters whose lifestyle and income put them securely in Barack Obama’s camp.

Second, he should beware of ideology – which will never pay the rent or cure your sick child. “What I learned as mayor and governor is that people want concrete solutions to their concrete problems,” Mr Capriles often says. In contrast, Mr Romney’ rhetoric is long on ideology and short on details, a pattern that is making him vulnerable. People want to hear specific proposals that will improve their daily lives. This is as obvious as it seems to be easy to forget.

Mr Romney should also be careful to avoid bickering. While Mr Chavez regularly spews a torrent of insults at his rival, Mr Capriles has always been respectful and careful in the way he addresses the president. This is surprising, given the deep political rifts that divide the country. Yet Mr Capriles has understood that despite the polarisation, there is a growing popular hunger for reconciliation and a strong desire for politicians to stop bickering and get on with solving the country’s problems. While the polarisation is less pronounced in the US than in Venezuela, polls show that US voters think politicians’ squabbling is preventing them dealing with problems such as the fiscal cliff, high indebtedness or welfare reform and that this gridlock is bad for the nation.

While it is true that negative advertising often works, there may be significant gains to be made by tapping Americans’ hunger for more civility and collaboration among politicians.

Empathy is the next quality Mr Romney should cultivate. The only thing worse than a politician displaying a forced empathy is one who shows no empathy at all. Bill Clinton is, of course, the master at making people feel he genuinely understands their predicament. While empathy towards the poor and the needy also comes naturally to Mr Capriles, he has been very deliberate in making it one of the central features of his political persona. Mr Romney is trying hard to convey that he feels people’s pain. But too often he lets slip comments that make it patently clear that the privileged life he has led makes it hard for him to really get into poor people’s shoes. He should try harder.

Despite Mr Capriles’ flawless campaign he may still lose Sunday’s election and despite Mr Romney’s flawed one he may win in November. Mr Obama may turn out to be vulnerable and, thanks to his charisma, oil money and dirty tricks, Mr Chavez may prove invincible. If Mr Capriles wins on Sunday, however, his final lesson to the world will be to show that abusive autocrats can be beaten by a great candidate who runs an impeccable campaign.

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