America’s jobs crisis

By Felix Salmon
June 1, 2012

This is about as bad as the jobs report could possibly be: just 69,000 jobs created, split between 95,000 new jobs for women and 26,000 fewer jobs for men. The market reaction has been swift and merciless, with stocks and bond yields plunging: the 10-year Treasury bond now yields less than 1.45%. When stock prices fall, of course, the earnings yield on the S&P 500 goes up, even as bond yields go down. Which means that the numbers on this chart are now even more extreme than at the close yesterday:


The green line, here, should not be able to simply go up and to the right indefinitely. While market failures clearly happen all the time, things are really bad when they persist for this long. And what you’re looking at, here, is a market failure, as Brad DeLong explains: what we’re seeing, he says, is nothing less than “a massive failure of our economic institutions”.

The first reason betrays a lack of trust that governments can and will do the job that they learned how to do in the Great Depression: keep the flow of spending stable so that big depressions with long-lasting, double-digit unemployment do not recur. The second reveals the financial industry’s failure adequately to mobilize society’s risk-bearing capacity for the service of enterprise.

Basically, we have low bond yields because the Fed has failed to do its job, and persuade the markets that it is capable of engineering a healthy economy over the long run. And we have high stock yields because the market has failed to do its job, which is to treat high corporate earnings as a fantastic opportunity to invest in the economy and build something even greater in the future. Just look at the amount of money which is flowing straight to corporations’ bottom lines, and not being put to good, productive work. Corporate profits now account for significantly more than 10% of GDP: that’s never happened before.


To spell this out: high corporate profits and low levels of job growth are two sides of the same coin. If things were working properly right now, companies would take their excess revenues and use them to hire more people. Instead, they’re basically just letting those excess revenues sit on their balance sheets as cash because they’re scared to invest in themselves. It’s frankly pathetic.

The solution to this problem is nothing complex — the arbitrage is sitting there in the first chart, plain for all to see. The government can borrow at 1.45%: it should do so, in vast quantities, and invest that money back into the economy itself. Take a few hundred billion dollars and use it to fix our broken infrastructure, to re-hire all those laid-off teachers and firefighters, to provide some kind of safety net for the millions of Americans who have been out of work for more than a year. Even if the real long-term return on any stimulus package was zero, the nominal long-term return would be well over 1.45%, making the investment worthwhile.

To put it another way, not all crises look the same. Back in 2008-9, the fact that we were in a crisis was obvious, and it resulted in unprecedented levels of enormous coordinated actions between Treasury and the Fed. Now, however, when we look at the crisis-level spreads in the first chart, we don’t think “crisis” any more — and the sense of urgency that everybody felt in 2008-9 is long gone. How many more dreadful jobs reports do we need before it returns?

The 2012 election should be a referendum between two visions of America. On the left, Obama should say that we’re in a jobs crisis, and that he’s going to do everything in his power to get people back to work — by employing them directly, if need be. On the right, Romney can say that job creation should be left to US companies, despite the fact that those companies are signally failing to increase their payrolls despite their record-high profits. And then the public can choose which side they want to vote for.

Sadly, the lines won’t be drawn nearly that cleanly: Obama is bizarrely reluctant to talk about anything which rhymes with “stimulus”. As a result, the current dysfunction — and horribly weak jobs market — is likely to persist for far too long.


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See, among others, Robert Barro’s WSJ op-ed from 5/9/12: “Once a comparatively low public-debt nation, Japan apparently bought the Keynesian message many years ago. The consequence for today is a ratio of government debt to GDP around 210%—the largest in the world… This vast fiscal expansion didn’t avoid two decades of sluggish GDP growth, which averaged less than 1% per year from 1991 to 2011. No doubt, a committed Keynesian would say that Japanese growth would have been even lower without the extraordinary fiscal stimulus—but a little evidence would be nice.”

Posted by uprof | Report as abusive

How can the election possibly be between to competing visions for America? The election is like picking between PSOK or New Democracy in Greece — a couple of proven losers when it comes to leadership, parties wedded to the elites and status quo, completely divorced from the citizenry.

Robama and Obomney and the demopublicans and republicrats are singularly unqualified to do anything besides what they have been doing — bailing out the perps instead of prosecuting them, giving us endless wars with borrowed Chinese money, corporate welfare on unimagineable scale.

Posted by upstater | Report as abusive

The first graph is interesting, Given the nature and length of the post war repression, I figure if the S&P reverts under the current repression, it’s going to get messy.

Posted by praxis22 | Report as abusive

And yet, just this a.m., I saw a professional economist tweeting about Congress needing to deal with the ‘Debt cliff.’ After she must have seen the jobs numbers. And she won’t be alone – she’ll have all the austerians agreeing with her that we need to slash government to deal with ‘confidence.’
We’re in a period where many, many elites are either utterly deluded or have policy urges that are not related to employment or even market efficiency.
We are witnessing a near-blanket denial that the problem is what it is: ideological fixation on a solution that has been tried over and over and found wanting many, many times.

Posted by RalfW | Report as abusive

Umm … we have a lot of debt on the books already, FS. “Spend yourself rich” isn’t an option any longer, sorry. As UProf points out, that approach didn’t work out for Japan as your theory implies – just dug a deeper hole.

One thing we all could do – avoid panicky impulses, and hope our pols do the same.

Posted by MrRFox | Report as abusive

Y. Obama. Lots ‘o fuel for The Rom here.

Idea for The Rom: Become a Librul – Spend, fix the world! Kill the O in November! Go down in history! Flip-Flop-ing? Been there, done that. I’m waiting for the call.

Posted by ibilln | Report as abusive

One note on the corp profits and the lack of hiring: I can understand corps not hiring. If there isn’t demand for more product, why hire? What is happening that is pernicious is that current employees below senior management are not sharing at all in the growing profits.
There is a serious problem, I believe, with the profits being channeled to balance sheets, shareholders, and C-suite execs, and virtually none to workers.
Paying $5M bonuses to a handful of top workers has nearly no stimulative effect. Paying $5K bonuses to 1,000 workers would have a near-instant stimulative effect as most workers have seen no net wage growth in 30 years.
This is also why keeping the Bush tax cuts in place on the top few percent of earners is anti-stimulative. We’re starving government at a time when the wealthy are not capable of personally spending enough to get us out of the sluggishness.

Posted by RalfW | Report as abusive

I agree with Felix about infrastructure spending though it amazes that he thinks the Fed Govt “borrows” money. Maybe it works out to looking like that at the end of the day but the Treasury creates money ex nihilo.

Posted by petertemplar | Report as abusive


Isn’t there a problem, though, when all those Treasuries at 1.45% have to be refinanced? I thought that was the problem that Greece and Spain and Ireland ran into, that when it came time to roll over their bonds, their yields went up from 2% to 12% and more.

Also, why not deal with the problem of huge corporate profits by making it more expensive to make profits than to invest in the business (i.e. close tax loopholes and raise corporate tax rates). This would actually reduce the deficit and reduce the risk of a US default crisis instead of increasing it.

*reads what he has just written*

Oh dear, tax increases? The Republicans will destroy the country before they allow that. And they will, they will…

Posted by voodoobunny | Report as abusive

Instead of having the government borrow to create jobs, we can effectively force businesses with lots of profits to hire more people. If we raise the corporate tax rate and provide credits for investment, they will either hire more/create new ventures, or they will pay more in taxes. They get to choose: they can decide how their profits are used, or the government can. But they can’t hold on to them.

Posted by KenG_CA | Report as abusive

Sitting on record profits may be pathetic, or it might be strategic: there will be no further drops in the employment rate until Obama is out of office and the GOP is in control again.

Posted by TJ6 | Report as abusive

correction to previous post: make that UNemployment rate.

Posted by TJ6 | Report as abusive

I think Clifford Asness’ rebuttal is more insightful, ‘true’, than DeLong’s (and your) view.

Posted by dedalus | Report as abusive

For what it’s worth, fixed private investment grew more quickly in 2011 than any other GDP category. Still, it’s not surprising that there’s evidence of more precautionary saving on both the corporate and individual side than was the case, say, five years ago.

Posted by dWj | Report as abusive

Not saying much that hasn’t already been said, but there’s no mystery to the lack of stimulus talk (or action) on Obama’s part: stimulus probably isn’t all that popular among swing voters, and Obama himself is hawkish on the deficit. Check out our take on this at Blue Rondo à la Turk: 12/06/01/institutional-failure/

Posted by take5five | Report as abusive

The earnings yield on the S&P500 could easily come under pressure. Corporations may be nearing the limits of cost-cutting (sustained cost-cutting erodes the ability to innovate and compete), and price pressure has been strong.

Posted by TFF | Report as abusive

Right on, TFF – the yield on debt may be miserable, but it is reliable in a way earnings/dividends are not. And – capital losses, like FB, happen to equities.

Besides, when everything crashes into rubble us OWS-types will pick up the pieces – and install 100% estate tax. Countin’ on your support, guy.

Posted by MrRFox | Report as abusive

The U.S. government has ruined the world economy by not paying back any of its debts -trillion to China trillion to Japan, but even that is only a fraction of what they owe to the their fed and social security trust funds etc.

All the gold in america equals a small percentage of that,maybe enough to pay off Brazil and Taiwan.

Corporate america better step up to take care of the problems, they hold all the chips now,

Posted by MiddleWest | Report as abusive

O’bama had the job crisis front-and-center when he came into office and it will still be there when he’s gone. He hasn’t done one thing to stimulate or create employment. Hell, he even laid off Lawrence Summers .. Since the Rom has a better track record of creating unemployment than employment it looks like things are going to be like this for a few years.

Posted by Woltmann | Report as abusive

Well said upstater, I am continually shocked how someone as intelligent as Felix can see any differences worth caring about between the two parties. They are both clubs out to service their members with ever so slightly different policies.

Posted by QCIC | Report as abusive

Obviously we are experiencing a deflationary phenomena of unprecedented proportions.

But the one receiving unemployment benefits do not want to take on newer available jobs paying less, it is not convenient for them.

Perhaps a gradual reduction of unemployment benefits will force many to accept less paying jobs. I know a very unpopular suggestion.

We need to compete with offshore outsourcing and low wage Asia manufacturing.

It is obvious that lowering interest rates only does not work, even to devalue the $, considering every other country is trying to do the same.

Posted by robb1 | Report as abusive

Re: Obama is bizarrely reluctant to talk about anything which rhymes with “stimulus”.

That may be because there are very few words that actually rhyme with stimulus, Mr. Salmon.

Posted by mns3dhm | Report as abusive

@ mns3dhm

bizarrely reluctant to talk about anything which rhymes with “stimulus”.

stimulus – it only has to rhyme with ‘us’
e.g. defend us, protect us, feed us – plenty of choices

alternatively stimuli, stimulate, simulate ….

Posted by scythe | Report as abusive

All you folks that are slamming companies for not investing –

Why don’t you take your savings / get a loan and start a business?

What is stopping YOU?

It is easy to tell others what to do – but gets a little harder to plunk down your own cash.

I know this for a fact because I run my own business – I know the risk – I know how it feels to make an investment and have things not work out – see your cash vanish – I know what it is feels like to have a payroll due and be short of cash –

All I am saying is before you criticize others for not risking their cash – ask yourself why you are not investing your own money.

Posted by Bill10500 | Report as abusive

| But the one receiving unemployment benefits do not want to take on
| newer available jobs paying less, it is not convenient for them.

Isn’t unemployment pay about 50% of what you used to make? Even without having to pay taxes, that’s got to be less than most people were making. Looking at the long-term unemployed rate makes me think that there aren’t many jobs for people willing to take a pay cut.

Posted by GregL53 | Report as abusive

Well, the only intelligent thing to do under the circumstances is start another hallucination fueled war in the Middle East against a major oil producer and blanket the region with radioactive debris in the process. That should fix the limping American economy once and for all.

Posted by politbureau | Report as abusive

Bill10500, if banks would actually loan money to people many of us would would start or expand businesses in a heartbeat. Banks aren’t making loans to small businesses unless their revenues are greater than $250k. Most of us don’t have any savings to invest. Also, I know plenty of people who would love to leave their full time job in order to start a business but can’t because they would lose their health insurance. That’s the other piece of the small business start up puzzle that most people tend to ignore.

Posted by johnnyjr | Report as abusive

@ johnnyjr and in responce to BradDelong’s quote:

“The second reveals the financial industry’s failure adequately to mobilize society’s risk-bearing capacity for the service of enterprise.”

My small bank is part of the “failure” to mobilize… Our capital ratio has grown to nearly 12% nearly 50% more than our regulators require. We could lend 100,000,000 in a month if only we could find credit worthy borrowers to take the money from us.

Nearly all of our commerical customers are telling us they are more interested in paying down debt than starting new projects. The businesses that are trying to borrow are mostly in desperate shape. We rate loans on a 1-7 scale 1 being riskless (cash secured) and 7 being in default with minimal hope of full recovery. We are litterally booking 5 rated loans just to keep our balance sheet from shrinking.

What are we to do?

Posted by y2kurtus | Report as abusive

“All you folks that are slamming companies for not investing –

Why don’t you take your savings / get a loan and start a business?”

Obviously, because health insurance you can get while self-employed is both prohibitively expensive and not worth a damn. I think the BIGGEST drag on jobs is that a lot of people with great ideas are hanging on to crappy jobs for the benefits, so they’re not creating jobs.

I wonder what the effect would have been if Obama could have gotten universal healthcare passed and in place quickly. Would we be seeing an entrepreneurial Renaissance?

Posted by AmyBlank | Report as abusive

Mr Salmon, i think the reason that this proposal is not being implemented is that voters don’t trust the government to actually spend that money in a way that optimally grows the economy. It’s not like the government would just take the money and just invest it into a small-cap index ETF; most likely it would either spend the money by either hiring hundreds of thousands of civil servants, or it would use the borrowed money to temporarily improve the lifestyle of voters (but not in a long-term invest-in-growth kind of way). I don’t think politicians are corrupt or badly-intentioned, i just think it works out that way because of the structure of the democratic system.

However, just for fun, even though i don’t think they will do it, here’s how i would like the government to invest in the economy. I would like the government to stimulate the formation of new startups / small businesses. From johnnyjr and AmyBlank, we see two easy ideas for this: (1) subsidize healthcare for people starting their own business, (2) expand government financing of early-stage (read: almost no revenue) businesses.

Posted by bshanks | Report as abusive

We need to understand here what the gov’t can and cannot do as much as what the government should and should not do. Having the Fed engage in operations designed to tax savers and create a stock market bubble are not the answer. All we do here is cause those on fixed incomes to pull back or take a crap shoot and invest in Facebook(or JP Morgan in CDS). We know the result.
Secondly the primary role of gov’t in an advanced free market economy is not to decide which investments make sense and engage in them. That’s what China does and we see the empty office towers and malls as proof. Here we get bankrupt Solynda which is much the same.
Gov’t needs to get back to the basics with regard to the economy. Make sure the tax structure is simple and effective(not fair which is highly subjective) that rule of law is enforced and contracts documented and safeguarding the legality of contracts.
That said there are things we can do. Add to H1B visas. These guys add and enrich our university systems and fill vital roles in our top companies making way for these same companies to hire beyond those imported workers and increasing our economic output job and wealth creation. We should encourage more rich educated foreigners to move here , open businesses, buy homes and raise families.
There’s a role for gov’t to build infrastructure, fix roads, build bridges and rail, but we need to be careful. Too much and we just waste money. And we can’t just spend money, we see what’s going on in Europe and the results are not pretty.

Posted by Sechel | Report as abusive

Surely the only reason for the jobs numbers problem is the ending of the stimulus by the GOP partisans who would rather bring the economy down than give credit to Obama. Ever since he’s been elected they’ve fought him tooth and claw – even undermining the International standing of the US just for partisanship.

Unemployment is a trailing indicator, and the trail time from the budget squabbles with the Republicans fits exactly with when one would expect a softening of the jobs numbers.

The time to cut debt is in boomtimes, not in a slump. Unless you want to use a slump for selfish political purposes of course. Then you go ahead and do what the T Party says.

Posted by FifthDecade | Report as abusive

Virtually any sensible system will ultimately generate stable growth. The difference between stimulus and austerity, tax-and-spend vs. cut-and-reduce, may alter the structure of the economy and the timing of the recovery, but they all can work.

Our problem is that the present system is neither sensible nor stable. The cut-and-spend policies that began in 2002 with President Bush and have continued under Obama are obviously unsustainable. Federal revenues have fallen. Federal spending has risen. We are now spending so much more than we take in that ALL discretionary spending could be eliminated without repairing the deficit. Something needs to change.

But what will change? How will it change? Will taxes rise at the end of the year? Will spending be slashed? Will Congress kick the can down the road with another two-year stopgap? (Or worse, a six month deal.)

Wait and see. Don’t invest, don’t spend. Pick up pennies where convenient, but don’t take any risks. It is really the only sensible option in the face of a dysfunctional government.

Posted by TFF | Report as abusive

TFF, that’s what people around the world are doing… they’ve stopped spending, and economies are declining, and the ratio of debt to GDP is rising while taxes are falling. Keynes was right, you should spend in a recession and pay back debt in a boom. The problem is, the right wing parties realised they could raid the larder in the good times, and instead of paying back debt, they paid back rich taxpayers.

There’s a lot of the seven sins at work here – lust for power, greed for money, gluttony for consumption, sloth to fix things, wrath aimed at everyone else to blame them rather than take responsibility, pride in one’s own ‘group/party/theory/belief’ that it cannot possibly be wrong because it belongs to you as you belong to it…

What we need is for people to put selfish pursuits aside, to work together and stop scaring the average man in the street, to take responsibility, and spread some hope and positivity around. Talk things up for a change, not talk them down. People respond to that. Hope. But only if it doesn’t get killed off in Congress…

Posted by FifthDecade | Report as abusive

America raised two generations of third world welfare babies and Mexican peasants who are uneducated, not talented, unmotivated, and not worth hiring. Pull the plug on the welfare system and the unemployment problem will solve itself after two more generations.

Posted by mulholland | Report as abusive

The ONLY economic plan Romney has is voodoonomics. He wants to extend the Bush tax cuts for the rich along with cutting other taxes for the rich, increase military spending and cut or gut as many environmental laws and regulations as possible. Just how is that going to bring economic recovery?

Posted by rebel999 | Report as abusive

“TFF, that’s what people around the world are doing… they’ve stopped spending, and economies are declining, and the ratio of debt to GDP is rising while taxes are falling.”

Exactly. And it is a rational response to a dysfunctional system.

“The problem is, the right wing parties realised they could raid the larder in the good times, and instead of paying back debt, they paid back rich taxpayers.”

BINGO!!! Those tax cuts pushed the debt higher, fueled bubbles, and left us with far less wiggle room to respond to a crisis.

“Talk things up for a change, not talk them down. People respond to that. Hope. But only if it doesn’t get killed off in Congress…”

Obama has been trying that, but unfortunately at every step his political opposition shouts the opposite. Both sides are right, in a way. We ARE in big trouble, but as you say the only possible way out is hope.

Posted by TFF | Report as abusive

When people hoard cash because they think the economy is weak, and won’t grow, it becomes a self-fulfilling prediction. That’s the nature of positive feedback in the economy; if everyone with money thought the economy was going to boom, they would be investing their money, and the economy would grow.

The only solution to this is to give people and businesses little option but to invest and/or spend their excess capital.

Posted by KenG_CA | Report as abusive

Lockheed Martin Fort Worth, TX needs mechanics, assemblers, technicians, custodians, and many more. They need about 3000 employees.

Their greedy union workers went on strike and Lockheed is looking to get rid of the lazy workers and hire people who really appreciate a job. Send your resumes in today to Lockheed Martin Aeronautics.

Posted by Acftfixer | Report as abusive

I think you need to commission the French to make the necessary changes to the wording on the Statue of Liberty.

Posted by notnews | Report as abusive

@notnews, perhaps we should melt it down? It served the purposes of a softer age. Now we worship the higher ideal of Capitalism.

Have you seen the price of copper recently?

Posted by TFF | Report as abusive

I don’t understand this Krugmanian obsession with “stimulus.” It made a lot of sense in WW-2, as it amounted to an actual investment in infrastructure. The new infrastructure was useful for creating new wealth in ways that were not possible before (aka, airlines, washing machines, electronics). Unless you’re actually investing in infrastructure which can increase the country’s productive power (and rehiring laid off firemen does not count as “infrastructure”), nothing good is going to happen. This is a very obvious truth, which admittedly, intelligent economists forgot to account for. The idea that squirting money around haphazardly will do anything other than line the pockets of bankers seems laughably insane.
The idea that a “stimulus” is going to do anything for unemployment: also laughably insane. You need new businesses which require labor of the sort we have available on hand. Aka, while everyone loves computer companies, it doesn’t help US citizens much, as most of our computer science guys are employed already.

Posted by slocklin | Report as abusive