The following is an op-ed by Ed Butowsky is managing partner at Chapwood investments LLC . He manages money for high net worth individuals serial entrepreneurs celebrities and athletes.
The U.S. Bureau of Labor Statistics released its monthly Employment
Situation Summary on Friday, August 6 at 8:30 a.m. Eastern Time.
Here’s the first paragraph, with a bit of editing on my part:
Blah blah blah Total nonfarm payroll employment blah blah blah rose
by blah blah blah 943,000 in July, and the unemployment blah blah blah
rate declined by 0.5 percentage point blah blah blah to 5.4 percent, the
U.S. blah blah blah Bureau of Labor Statistics reported today. Blah blah
blah Notable job gains occurred in leisure blah blah blah and
hospitality, in local government education blah blah blah, and blah blah
blah in professional and business services blah blah blah blah blah.
So once again, the monthly “Job Report” came out and the media did
what the media always does: Regurgitate the press release and recite the
numbers – the same old blah blah blah – without providing so much as a
shred of context. Some know-nothing “experts” predicted a number less
than 943,000, so the media dutifully reported that the number of new
jobs beat the forecast. GOOD NEWS!!!
That’s how it goes these days when it comes to economic news. The
talking heads don’t understand any of it, so they just say the economy
added blah blah blah jobs, and we the people nod our heads in approval.
Jobs up, HOORAY! That’s all we need to know.
Well, not really all. Let’s dig a little deeper. Let’s put the “good” news
into a framework that helps us understand what it all means.
Now pay attention, because here’s the key point you need to know about
the monthly jobs report, the one the media doesn’t tell you, because it
doesn’t get it:
America’s annual deficit – $3.1 trillion this year, give or take a couple
of billion – is bleeding uncontrollably. And it’s the annual deficit – not
the “experts” and not the talking heads – that dictates how many jobs
the country needs to add each month.
Read that over a few times and keep it in mind, because now we’re
going to figure out how many new full-time jobs we really need to
overcome the deficit. And you can put away your calculator. It’s pretty
First of all, you need to know that half of America’s tax revenue – the
money the country needs to stay afloat – comes from federal income
taxes. So to overcome the deficit, no matter its size, we need to collect
half our new money from the federal income taxes that will be paid by
people who weren’t contributing before: the people in new jobs.
And that means:
• America’s deficit stands at $3.1 trillion this year. Since half of the
money we need to eradicate that will have to come from federal income
taxes derived from new jobs …
• That means we need $1.55 trillion from federal income taxes.
And we can’t come even close to that, because:
• The average full-time job pays $50,000.
• At a 25 percent federal income tax rate, each new full-time job will put
$12,500 – one-quarter of $50,000 – into America’s bank account.
Let’s recap quickly: We need $1.55 trillion (half the $3.1 trillion
deficit) in new income tax payments, and we’ll be collecting $12,500
from each new job.
Now, let’s do the math …
$1.55 trillion ÷ $12,500 = 124 million
That means we need to add 124 million new jobs this year to overcome
the deficit. But there’s no need to panic because that’s 124 million in a
year. The monthly figure is much lower:
124 million ÷ 12 = 10,333,333
OK, now you can panic. The formula establishes that we need to average
10.33 million jobs per month to offset the half of the $3.1 trillion deficit
that must be raised through income taxes.
No problem, except we’ve been averaging only 566,000 new jobs per
month this year – and the year is almost over. And get this: Half of those
jobs are part-time. That means our 566,000 jobs really add up to
283,000. We need to add 10,333,333 full-time jobs each month, and
we’re actually adding only 283,000. That’s just 3 percent of what we
need to pay our country’s bills. And if we can’t make up the other 97
percent, we’ll have to add the shortfall to the national debt.
The next jobs report will be released on September 3 at 8:30 a.m.
Eastern. When it comes out, you can count on hearing a lot of the same
blah blah blah.
Just don’t believe it. Because this “good” news has to be seen through a
lens that shows not only how many new jobs have been added, but how
many more new jobs needed to be added to offset our spending. We
need to deal with the deficit, because failing to do so just adds to our
Make sure you are following Ed on Twitter @EdButowsky for more financial advice and tips.