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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



) -- Friday forecasters expect the Labor Department to report the economy added only 67,000 jobs in August -- my estimate is 63,000. Either would be much less than the 130,000 the economy must create each month to stay even with adult population growth.

Overall, GDP and employment are growing more slowly than the population, and the private sector is much smaller than before the Great Recession -- even with big boosts in federal spending on private health care services and federal mandates for similar outlays by the states.

Employment grew in the second and third quarters despite very slow GDP growth, because labor productivity fell the first half of 2011. Consequently, real wages, per capita income and living standards are dropping -- all exacerbated by hungry state and local tax collectors who refuse to tighten belts as quickly as households and businesses.

A downsizing private sector, falling productivity per capita GDP and a shrinking share of the adult population employed or even seeking employment are ominous signs of economic decline.

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Recent economic data -- retail sales, consumer spending, surveys of business sentiment, and housing/auto market activity -- indicate an economy in neutral, and one that could slip into permanent stagnation or recession.

Near term, employment in health care, retail, and manufacturing should post modest gains, and construction may exhibit some bounce, because it fell to such low levels during the recent recession.

State and locals governments will continue to shed jobs, because state of payments for Medicaid services are rising too rapidly and a downsized private sector generates too few tax receipts -- together those shrink resources available for other public services.

The Big Picture

The economy must add 13.9 million jobs over the next three years -- 386,000 each month -- to bring unemployment down to 6%. Considering layoffs at state and local governments and likely federal spending cuts, private sector jobs must increase at least 400,000 a month to accomplish that goal.

Growth in the range of 4% to 5% is needed to get unemployment down to 6% over the next several years. Recent GDP data put first half growth at less than 1%.

Jobs creation remains weak because temporary tax cuts, stimulus spending, large federal deficits, price-raising health-care mandates and tighter but ineffective business regulations do not address, and indeed exacerbate, the permanent structural problems holding back dynamic growth and jobs creation -- dysfunctional energy and trade policies that cause a huge trade deficit.

Oil and trade with China account for nearly the entire $600 billion trade deficit. This deficit is a tax on domestic demand that erases the benefits of tax cuts and stimulus spending.

Simply, dollars sent abroad to purchase oil and consumer goods from China, that do not return to purchase U.S. exports, are lost purchasing power and cannot be spent on U.S. made goods and services. Consequently, the U.S. economy is expanding at less than 1% a year instead of the 5% pace that is possible after emerging from a deep recession and with such high unemployment.

What Needs To Be Done

Also, America is not playing its advantages well. Strengths in finance, telecom and backbone technologies, pharmaceuticals, aerospace and auto and other industries are not generating exports as much as those are creating offshore jobs. Mass layoffs recently announced in these sectors bode poorly.

Without prompt efforts to produce more domestic oil, redress trade imbalance and better regulatory and industrial policies, the U.S. economy cannot grow and create enough jobs.

Weak demand, excessive and ineffective regulation, and the generally pessimistic outlook offered by Treasury Secretary Geithner and White House advisors depress consumer and business confidence.

The appointment of Alan Krueger to head the Council of Economic Advisors indicates business can expect continued emphasis on new spending, taxes, cumbersome regulation and limits on domestic energy production and few effective efforts to confront Chinese mercantilism or generally improve U.S. trade competitiveness.

Until this policy direction is altered, the economy will continue to grow slowly or slip into recession, unemployment will rise, living standards will fall, and American standing in the global economy will decline.

An American policy of decline by design!

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Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.