Job Market Vigilantes

You've heard of the "Bond Market Vigilantes", the bond investors that reacted quickly and violently to the policies that would've led to outrageous government spending and put a newly installed President Clinton in his place. The Clinton agenda foundered on rising rates. Well, it looks like history is rhyming and President Obama is being put in his place by the Job Market Vigilantes. The Obama agenda is foundering on 10% unemployment. We all understand that unemployment should take a hit in an economic dowturn/recession, but the pace of job losses relative to the decline in the economy is well-documented. We should be doing better, meaning we should not be shedding this many jobs this fast given that there are clear signs the economy is improving.

What is going on? The most charitable explanation is that the Obama administration's far-reaching policy game plan represents such massive uncertainty for businesses and investors that they are holding back on making commitments until they can get more certainty as to what the operating environment will be in the coming years. This should not be surprising to anyone who understands basic financial analysis. However, I think there is more going on. The Obama policy agenda is not just large and sweeping, it is ragingly hostile to business. It begins and ends with business being untrustworthy and exploitative. So many levers of influence that the government holds over business - regulation, taxation, anti-trust, energy policy, labor law, healthcare policy - are trending aggressively anti-business (see here and here). This isn't a surprise, but it is a shock given how fast and heavy the assault has come. Business interests made a bet that a Democrat would win the White House and that if they got on board they could have a hand in the formulation of policy. American business now realizes it was had and they are doing the sensible thing, playing the levers that they have over the Administration, which are capital and jobs. While businessmen won't ultimately make decisions based on political spite, they will apply pressure where they can and they won't hand an advantage to their opponents in government for nothing. Business knows the $787 billion Obama-Pelosi-Reid stimulus will be viewed as a huge dud if it doesn't create jobs. Business knows that Obama can't plow ahead with cap and trade and healthcare reform if employment keeps rising rising rising. Business knows that they can give the minimum wage law a huge black eye if jobs go away. And guess what? Business holds most of the cards when it comes to how many jobs get created, and they are not playing the government's game. So while alot of the job losses are purely driven by economics, I am convinced that a decent sized percentage of them are the business community's way of reigning in Obama and our radical left Congress. Do I think that CEO are tacking on extra layoffs beyond what's needed in order to stick it to Obama? No. Do I think that businesses are adopting the most conservative business posture than necessary rather than take on risks where the reward could ultimately accrue to a hostile White House and the demonizers of business in Congress? Yes I do. Just call them the Job Market Vigilantes.

UPDATE: Wow, no less than Richard Posner is saying the same thing, although he clinically takes the most charitable view.

UPPDATE: I didn't mean to suggest that we have job market vigilantes in lieu of bond market vigilantes these days...we have them too. Guess you could say that Obama-Pelosi-Reid & Co. have brought out all the vigilantes!