Immigration Reform Bill: Higher Unemployment, Higher Interest Rates, Lower Wages, Lower GNP

There should be a congressional hearing on how the CBO was directed to lie to the American people about the "Immigration Reform" bill. Normally, we go soft on the CBO. Their job is to make estimates based upon narrow parameters. Their estimates do not include macroeconomic variables, only static analysis, and are limited to a 10-year time frame...until today.

To save you time, the CBO report contains the following within their typical 10-year estimation window, the rest is just politically-motivated Doo Doo designed to push through amnesty:

• "S. 744 would lower per capita GNP by 0.7 percent in 2023"
• "Slightly raise the unemployment rate through 2020"
• "Average wages for the entire labor force would be 0.1 percent lower in 2023"
• "Higher Interest Rates"

Only economically net positive macroeconomic effects are included in this report.

The Details

CBO.GOV on the Amnesty bill: (bold italics ours)

Following the long-standing convention of not incorporating macroeconomic effects in cost estimates—a practice that has been followed in the Congressional budget process since it was established in 1974—cost estimates produced by CBO and JCT typically reflect the assumption that macroeconomic variables such as gross domestic product (GDP) and employment remain fixed at the values they are projected to reach under current law. However, because S. 744 would significantly increase the size of the U.S. labor force, CBO and JCT relaxed that assumption by incorporating in this cost estimate their projections of the direct effects of the bill on the U.S. population, employment, and taxable compensation. 

ONLY the bill's economically net positive effects are included and widely reported to people who will never drill down to the truth. This is another affront to our nation and an insult to our intelligence. If you are going to break convention, at least be intellectually honest. This can only mean that this report was politically motivated, a repeat of the ObamaCare CBO reports.

There are parts of the truth littered in the report, but just enough to make the lie convincing to those who want to use it for political purposes. The CBO breaks their own 10-year estimation rule. Making economic estimates further than 10 years out is a fool's errand on the scale of global warming predictions.

Consider the rationalization for extending the CBO forecast beyond 10 years with the argument that low-skilled workers incorporated into the estimate will not be eligible for social security and other benefits for 10 years: (bold italics ours)

CBO and JCT generally do not provide cost estimates beyond the standard 10-year projection period. However, S. 744 would cause a significant number of people to become eligible for certain federal benefits in the decade following 2023, so CBO and JCT have extended their estimate of the effects of this legislation for another decade.

 From here the report attempts to lump unspecified economics impacts "take our word for it" style:

...the economic impacts not included in the cost estimate would further reduce deficits (relative to the effects reported in the cost estimate) by about $300 billion over the 2024–2033 period.

Next, soft-selling of lower GNP and average wages:

Per capita GNP would be less than 1 percent lower than under current law through 2031 because the increase in the population would be greater, proportionately, than the increase in output; after 2031, however, the opposite would be true. CBO’s central estimates also show that average wages for the entire labor force would be 0.1 percent lower in 2023 and 0.5 percent higher in 2033 under the legislation than under current law. 

The only saving grace to this report is buried at the very end, in the summary: (bold italics and brackets ours)

 In sum, relative to current law, enacting S. 744 would:

• Increase the size of the labor force and employment,

• Increase average wages in 2025 and later years (but decrease them before that), [B.S.]

• Slightly raise the unemployment rate through 2020,

• Boost the amount of capital investment,

• Raise the productivity of labor and of capital, and

• Result in higher interest rates.

Chalk this one up as another attempt to sell Doo Doo Economics.

Jobs Lost Not Added for July 2012

We have all heard the media report that 163,000 jobs were added in July 2012. The Wall Street Journal has attributed stock gains to the news.

Stocks rose sharply in early trading. The Dow Jones industrial average added 243 points to 13,122, while the broader Standard & Poor's 500 index rose 27 points to 1,392.

Unfortunately it is more Doo Doo Economics:

The Bureau of Labor Statistics' employment numbers reports the following:

Not in Labor Force (unadjusted) rose from 86,770,000 (June) to 86,828,000 (July).  This is an increase of 58,000 people who have dropped out of the labor force. From July 2011 to July 2012 this number has increased from 84,859,000 to 86,828,000. This is an increase of 1,969,000.

The Employment-Population ratio (unadjusted) has decreased from June 2012 to July 2012 from 58.9% to 58.8%. It is up from July 2011 when it was 58.6%.

The Employment Level (unadjusted) decreased from June 2012 to July 2012 from 143,202,000 to 143,126,000. This is a decrease of 76,000 jobs. On a brighter note, this number is up from July 2009 when it was 141,055,000.


P.S.
The graphic at the top of this post is our latest "Don't Tread on Me" bumper sticker /tshirt design.

U.S. Economy Forecast: Remainder 2011

The U.S. unemployment rate will be 9.1% or 9.2% for September 2011. Official Labor Department figures will be available on 10/7. This is effectively no change to the unemployment rate with around 17,000 private sector jobs added for September 2011.

Currently, I am pessimistic on the economy for the remainder of 2011. There is a reasonable risk that unemployment will rise to 10% by the end of the year.

In response the U.S. Federal Reserve, The Bank of England and the European Central Bank may coordinate a quantitative easing (QE) in an attempt to shock the economy. This would spur financial markets for approximately three months, the historic effectiveness of QE1 and QE2. Market sentiment eventually turns negative on inflationary risk and market uncertainty.

Corporate earning growth is going to be weak, so the stock market is not oversold. We are not at a stock market bottom yet.  Companies that cut production and services to protect the bottom line will drive further unemployment.

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These predictions underpin the astroturf, anti-capitalist strategic push behind Occupy Wall Street:

"Communism has never come to power in a country that was not disrupted by war or corruption, or both."

John Fitzgerald Kennedy.

For those who consider joining the Occupy Wall Street crowd, I remind you of the following:

"How do you tell a communist? Well, it's someone who reads Marx and Lenin. And how do you tell an anti-Communist? It's someone who understands Marx and Lenin."

"Capitalism and communism stand at opposite poles. Their essential difference is this: The communist, seeing the rich man and his fine home, says: 'No man should have so much.' The capitalist, seeing the same thing, says: 'All men should have so much.'"

"Most people who read "The Communist Manifesto" probably have no idea that it was written by a couple of young men who had never worked a day in their lives, and who nevertheless spoke boldly in the name of "the workers"."

Ronald Reagan

UPDATE 10/7/2011:

Since I normally do not make public economic predictions, lets look at how this played out in the news today:

While Businesses added a respectable 137,000 jobs, that number was bolstered by 45,000 Verizon (VZ, Fortune 500) strikers who returned to work last month. And that hiring was slightly offset by a loss of 34,000 public jobs, mostly at the local government level.

Meanwhile, the unemployment rate remained unchanged at 9.1%, in line with economists' forecasts.

The ECRI produces widely-followed leading indicators that predict when the economy is moving between recession and expansion -- and all those indicators are now pointing to a new economic downturn in the immediate future.