Felix Salmon

In March 2010, the unemployment rate for high-school graduates 25 years or older peaked at 11.9%. Since then, it has dropped 4.2 percentage points — a pretty impressive showing, in just two years — and now stands at 7.7%.

In the same period, the unemployment rate for college dropouts 25 years or older also fell, from 9.5% to 8.0%. But that drop, of 1.5 percentage points, is much smaller. And now college dropouts have a higher unemployment rate than their friends who never went to college at all.

And these two series are very comparable: both sets include about 34 million people.

Now these numbers aren’t seasonally adjusted, and you can see that the unemployment rate for high-school graduates is pretty bumpy. As a result, it might well rise again soon. But the big picture is clear: unemployment among college dropouts is proving much more stubborn than it is among most of the rest of the population.

Jed Graham lists a number of reasons why that might be the case. For one thing, with the majority of Americans now attending college, even if they don’t all graduate, college is less of a destination for the elite than it used to be. The elite will always get jobs, but as students become less elite, they’re  less assured of having great careers once they graduate.

And for another thing, college dropouts are still significantly more likely than high-school graduates to have a job: their employment rate is higher, even if their unemployment rate is lower, since they have a significantly higher labor force participation rate. On the other hand, the reason for the higher labor force participation rate is just that fewer people used to go to college, which means that among people 68 years or older, high-school graduates vastly outnumber people who went to college. And once you’re over 68, you can be excused for no longer being in the labor force.

So what’s going on? Graham’s convinced there’s something real here:

Labor Department data show that while the jobless-rate advantage of college dropouts over high school finishers has disappeared and turned negative, the advantage of two-year-degree holders over college dropouts is way above the historical norm.

Meanwhile, the jobless rate differential between high school finishers and two-year-degree holders is right in line with its historical average. This suggests that the principal mover is a decline in employment outcomes among dropouts.

I suspect that the conjoined forces of for-profit colleges and student loans are a significant contributory factor here. College dropouts certainly have more debt than they used to, and although indebtedness doesn’t directly lead to higher unemployment rates, it does at the margin act as a constraint on the massive life option that everybody has when they leave college. If high debts force you into some crappy job when you drop out of college, your chances of getting a good long-term career diminish.

And more generally, college is slowly moving from the “things which are bought” column into the “things which are sold” column — for-profit colleges, in particular, recruit aggressively in ways that would have been unthinkable to an earlier generation of tertiary educators. As a result, people drop out of college not just because it’s statistically certain that in any college class there will be some students who drop out, but increasingly because a lot of students, especially in courses offered by for-profit colleges, really can’t and shouldn’t be in those classes in the first place.

Besides, it makes conceptual sense that if you’re going to drop out of college, you’d be better off not going to college at all. Say you drop out after two years: you could have been working hard at the beginnings of a career during those two years, earning money to get yourself started on some well-defined course. Instead, people who drop out of college (Bill Gates, Mark Zuckerberg, and a handful of other exceptions notwithstanding) generally have little idea of what they want to do next, and are well behind their high-school peers in terms of building an economically-productive life.

All of which is to say that while it’s still indubitably a good idea to go to college, the “go to college” advice has to be added to, these days, with further admonitions not to take on too much debt, and certainly not to drop out. Because as far as employability is concerned, it seems that college dropouts have never had it so bad.

There’s a lot going on in this month’s jobs report. The headline number of jobs created — 115,000 — is miserable: it’s basically just enough to keep up with population growth. That’s the number the markets look at. The number the politicians look at, however, is the unemployment rate, which ticked down to 8.1%. That’s still high, but it’s not a statistic to beat Obama round the head with.

The big news, however, lies elsewhere, in the fact that a whopping 522,000 people left the labor force joined the “not in labor force” rolls last month. When more than half a million people in one month decide that they’re not even going to bother looking for work any more, there’s no way you can say you’re in a healthy recovery.

Zero Hedge has the two charts which matter. First you have the number of people not in the labor force, which has been climbing steadily through the recession and the recovery, and is now approaching 90 million. The only time it fell was during the first quarter of 2010 — the census-hiring boom. This chart speaks volumes to me: it says that while Capital might not be in a recession any more, Labor still isn’t working.

Then there’s the even scarier one, which is the labor force participation rate — now down to 63.6%.

This chart is just petrifying. The participation rate started falling after the dot-com bust, leveled off during the credit boom (but never really rose much), and then fell off a cliff when the recession started. You’d think it would have started to bounce back up by now, but no. Instead, we’re now deep into pretty much unprecedented territory. Yes, the participation rate has been this low before — back in 1981. But that was during the decades when women were still properly moving into the labor force.

As Mike Konczal noted this morning, a key indicator of labor recession is still in force: if you’re unemployed, you’re still more likely to drop out of the labor force entirely than you are to find a job. And as Dan Alpert noted, in a country of 314 million people, there are only 115 million full-time workers and 27 million part-time workers. It’s really hard to get a robust recovery when the number of people earning money is so anemic.

For demographic reasons — the retirement of the baby boomers — the labor force participation rate is naturally going to fall over the next decade. But go back just one year, to March 2011, and look at the official CBO projection of the labor force participation rate. The CBO saw a rate of 64.6% in 2012 — a full percentage point higher than we’re at right now. The participation rate wasn’t expected to fall to today’s level of 63.6% until 2017.

Politically speaking, the unemployment rate is still the number that people concentrate on. But increasingly, being unemployed is little more than a halfway house between employment and dropping out of the labor force altogether. Until the labor force participation rate stops falling and starts rising, the so-called recovery will remain a theoretical economic entity and not a real-world reality for hundreds of millions of Americans. We need jobs, and we need them now. Ben Bernanke, and Congress, are you listening?

Update: The labor force actually fell by 342,000, not 522,000. The working-age population grew by 180,000, however, so the number of people not in the labor force went up by 522,000.

So that was unpleasant: I guess we’ve all just become so used to healthy jobs report that a weak one like this comes as a nasty shock. And it is a bad report: for all that the margin of error is high, and the unemployment rate (which, remember, is basically the one number which matters politically) fell, the Establishment Survey was riddled through with weakness, both in terms of February’s numbers and in terms of revisions to December and January. Even weekly earnings fell.

So there’s bad news here, which is that judging by this one report, some of the steam might have gone out of the recovery. And there’s a little bit of good news too, which is that it’s just one report, not a trend, and that it has a very wide margin of error; that the economy’s still creating jobs, even if it’s not creating them as fast as we had hoped; and that it wasn’t all that long ago that a +120,000 headline figure would have been taken as something decidedly encouraging. So the expectations baseline has moved significantly upwards, and in many ways it’s the expectations baseline, rather than the numbers themselves, which drives investment.

The markets always care a lot about the non-farm payroll figures, but this report will ultimately have almost no effect on either politics or policy. Politics because the Household Survey showed unemployment falling, and policy because it’s actually pretty much what the Federal Reserve expected. As far as the real-world ramifications of this are concerned, they’re small and mainly related to the fact that long-dated Treasury bonds now yield about 0.1% less than they did yesterday. Which is important if you’re a fixed-income trader, and isn’t if you’re not.

So if you’re taking today off, there’s not a whole lot to worry about here. Go off and enjoy your long weekend. But be sure to go back to work next week!

I can’t remember the last time there was this much excitement and anticipation surrounding a payrolls number — and it’s another solid report. There were 227,000 new jobs created in March, and the already-excellent numbers from the previous two months being revised upwards: the figure for last month is now officially 284,000, a truly excellent number.

The really good news here is that this isn’t even really good news, at least from a market perspective. For a while there, the recent spate of upbeat jobs reports only served to raise worries that the other shoe would soon drop and we’d run into big downward revisions or monthly mean-reversion. Increasingly, however, this is looking like a real trend: the recovery in the American jobs market is going as well as anybody could reasonably expect. It’s still not enough to get the unemployment rate down to an acceptable level in the near term, of course: there’s still a jobs crisis in this country. But we’re moving in the right direction.

At this point, if we have a weak month between now and the election, it’s going to be the bad figure which looks like an aberration: only a sequence of two or three consecutive weak payrolls reports will really convince economists and the market that the recovery is going off the rails. It’s taken far too long to get here, but we’re finally moving in exactly the right direction, at an eminently healthy clip. Or, to put it another way: you can start breathing easier again, come the first Friday of the month. All those good job numbers were real, after all. And maybe next month the pundits won’t be on quite as many tenterhooks as they were this time around.

What mean reversion? This is two fantastic jobs reports back-to-back, with the second even better than the first.

You thought the December jobs report was great? I certainly did — but it’s been revised, now, and it’s even better than was first reported. And the January report is positively glowing.

Unemployment was just 8.3% in January, marking three successive months where it fell by 0.2 percentage points. This time last year, there were 13.9 million unemployed; that figure has now dropped by 1.2 million people, or 8.3%. That’s really impressive for an economy which is hardly booming. And it’s a real decline, too: the employment-to-population ratio is just as high as it was a year ago, even as the total population has risen by 3.6 million people.

One glance at these charts is enough to show that there’s still a very long way to go. Unemployment is far above where it should be; payrolls need to stay strong for a long time to make up for all the jobs lost during the recession; much more of the population needs to be working; and, most importantly, we need to do something about the stubbornly large ranks of the long-term unemployed.

But none of these things can be addressed in a single month: creating jobs takes time. And what we’ve been seeing over the past couple of months is an economy moving smartly in exactly the right direction.

And lookie here! If you check out Table A-5, and look at the unemployment rate for male Gulf War-era II veterans (that is, veterans of the wars in Iraq and Afghanistan), you’ll see that it’s fallen from 15.5% to 7.7% in one year. If that’s not great news, I don’t know what is.

So while there’s a lot of work to be done, let’s allow ourselves a bit of celebration today. For all the problems in the world — and the US economy could still be derailed if something nasty happens in Europe — things are moving very much in the right direction for the time being. Long may it last.

Many thanks to Mark Bergen for finding me this data; I asked him for it because I thought that maybe we could learn something from the way in which China has managed to keep employment growing steadily through some extremely turbulent economic times.

What you’re looking at here is total Chinese employment from the All China database. Primary industry is commodities, basically, including agriculture; secondary industry is manufacturing; tertiary industry is services.

It comes as little surprise to see that agricultural employment has been falling steadily for 20 years. But it is surprising to see that if you take out the services sector, total Chinese employment has been going nowhere, and basically falling, for the same amount of time.

Caroline Baum, using a different data source, says that China lost 15 million manufacturing jobs between 1995 and 2002; according to these figures, employment in “secondary industry” was flat in those years, going from 156.6 million to 156.8 million before starting to rise again and reaching 218.4 million in 2010. (It’s worth pausing here to appreciate the sheer scale of this chart: each horizontal line is another 100 million workers.)

Meanwhile, the services industry — tertiary industry — has been on fire: it now employs 263 million people, more than are employed in secondary industry, and has doubled since 1992. All this, remember, in a country with more or less flat population growth, thanks to the one-child policy.

Of course it’s hard to find work in the services industry if you’re a rural peasant: tertiary industry is a fundamentally urban thing, which brings me to my second chart.

It comes as no surprise to see that urban employment is growing incredibly fast — 13.7 million urban jobs were created in China in 2010 alone. What does come as a surprise is to see that urban jobs are still in the minority in China — which means that there’s a lot of room for growth going forwards.

In the U.S., we had a huge construction boom in the aughts, which was concentrated on building bigger suburban and exurban residential houses. That’s good for homebuilders and makers of granite countertops, but it doesn’t really boost the economy more broadly. The Chinese construction boom, by contrast, is building cities and roads and crucial infrastructure, which allows the service economy to keep on growing at a torrid place.

Realistically, there is very little chance that global manufacturing employment is going to increase in future at a rate which will provide jobs for a growing global population. If we’re going to find jobs in the U.S. and the rest of the world, they’re going to have to be found in exactly the area where China is finding them — tertiary industry, or services.

How do you create service-industry jobs? By investing in cities and inter-city infrastructure like smart grids and high-speed rail. Services flourish where people are close together and can interact easily with the maximum number of people. If we want to create jobs in America, we should look to services, rather than the manufacturing sector. And while it’s hard to create those jobs directly, you can definitely try to do it indirectly, by building the platforms on which those jobs are built. They’re called cities. And America is, sadly, very bad at keeping its cities modern and flourishing. 1950s-era suburbia won’t cut it any more. But who in government is going to embrace our urban future?

File this one under “unmitigated good news”: America’s employment situation turns out to have been rosier, at the end of 2011, than anyone had dared hope. There were 200,000 more people in work last month than there were in November, and the unemployment rate — by far the single most politically-important macroeconomic statistic — fell to 8.5%, the lowest rate in three years. All data series are noisy, of course, and we’ll surely see volatility in this one over the course of 2012. But it really does seem that there’s a bit of fire in the American belly right now, and that things are going to continue to get better over the course of this year unless and until some new crisis comes along.

The cheer is spread all over this report. The broadest measure of underemployment, U-6, fell sharply to 15.2%, again a new three-year low, and down two full percentage points in two years. The unemployment figures more generally are now beginning to look as though they’re in a downward trend, rather than every good month being offset with a subsequent disappointment. I’m not worried about an economy falling below stall speed any more — there’s a world of difference between this report and the gruesome one we were initially presented with four months ago. Back then, it seemed like nothing could get Americans back to work: now, with political gridlock as far as the eye can see through 2012, it seems that America has got used to nothing and is has worked out how to grow anyway.

Of course, the long-term problems remain long-term problems, including the number of people unemployed for more than six months or a year, and the overall percentage of the population which actually has a job. None of those numbers moved significantly, and none are likely to any time soon. They’re not things which get changed by a monthlong bout of hiring: they’re deeply engrained in the economic structure of the country, now, and are likely to prove stubbornly resistant to change.

But for the majority of us who are working now or who have had a job in recent months, things are looking relatively rosy. Average weekly earnings rose to $799.46, continuing a steady upward rise. And there’s even hope that the painful public-sector layoffs might be coming to an end: while we now have 280,000 fewer government employees than we did a year ago, that number was pretty much unchanged in December. (Or maybe it’s just that even the government has a little heart, and doesn’t like laying people off right before the holidays.)

Is this a fantastic report? No: as Betsey Stevenson says, an economy on fire could and would add 400,000 jobs a month, rather than 200,000. But no one’s kidding themselves that this economy is on fire. The main thing is that it’s growing, that things are moving in the right direction, and that we’re well above stall speed. If we stall, remember, there’s no safety net: the chances of any kind of fiscal stimulus in 2012 are exactly zero. So we’re on our own, here. And, happily, we seem to be doing OK.

When Occupy Wall Street launched, there were hopes and fears that it would recapitulate the Arab Spring. Those hopes and fears sprang largely from a simple fact: that both OWS and the Arab Spring are characterized in large part by angry, unemployed young people.

As we come to the end of 2011, it’s worth taking note of the fact that stunningly high youth-unemployment numbers are increasingly a global phenomenon — and that this is a new thing, which postdates the financial crisis, and which doesn’t seem to be improving anywhere.

Here are the numbers for a few key Eurozone countries: you can see not only that Spain and Greece have almost unthinkably high youth unemployment approaching 50%, but also that Ireland, in particular, has seen its youth unemployment rate go through the roof since the crisis, from below 10% to over 30%.

And don’t think that the US is any better, it isn’t. The US measures youth unemployment once a year, in July, and that series looks like this:

The thing to note here is not just the absolute level — youth unemployment is now 18.1%, and for blacks it’s 31% — but also the sharp rise. Countries differ in how they measure unemployment, but however it’s measured, it’s going up alarmingly, and the level in the US is in exactly the same ballpark as the levels we saw in the Middle East which caused the Arab Spring. We’re lower than Egypt and Tunisia, but we’re higher than Morocco and Syria:

The Economist had a great article on youth unemployment in September, saying that its negative repercussions “will be felt for decades, both by those affected and by society at large”. In peripheral European countries, youth unemployment causes a massive brain drain, and in all countries there’s a clear link between youth unemployment and the crime rate. In turn, if a higher crime rate leads to a higher incarceration rate, then a significant chunk of a whole generation essentially loses the opportunity to have a successful career, since having prison on your resume tends to be very harmful indeed for job prospects.

And as far as total future national income and wellbeing is concerned, we’re causing huge amounts of damage here:

Youth unemployment leaves a “wage scar” that can persist into middle age. The longer the period of unemployment, the bigger the effect. Take two men with the same education, literacy and numeracy scores, places of residence, parents’ education and IQ. If one of them spends a year unemployed before the age of 23, ten years later he can expect to earn 23% less than the other. For women the gap is 16%. The penalty persists, though it shrinks; at 42 it is 12% for women and 15% for men…

Unemployment of all sorts is linked with a level of unhappiness that cannot simply be explained by low income. It is also linked to lower life expectancy, higher chances of a heart attack in later life, and suicide.

As for the particular case of America, one big effect of the lack of jobs for young people is a significant rise in student-loan debt. The Economist drily notes that “as they build up debts, not all these students will be improving their job prospects”.

The global financial crisis had many causes, and there’s a lot of blame to go around. But the one group which is almost entirely blameless is the group being hit the hardest, over the long term, by the crisis. And I worry very much about how the global economy will fare in decades to come as this cohort of workers, angry and deeply scarred by the post-crash economy, is tasked with driving economic growth.

Today’s employment report counts as a win for the White House. Markets care about payrolls; politicians care about unemployment. And so does the country as a whole: the severity with which the BLS website crashes on the first Friday of the month is a direct function of the change in the headline unemployment rate, which, wonderfully, fell to just 8.6% last month.

But while numbers matter in election campaigns, it’s people who vote. And they vote based on their own personal experiences, rather than on macroeconomic statistics. And the fact is that if you’re a person in America, the likelihood that you have a job was unchanged this month: the employment-to-population ratio ticked up just one tenth of one percentage point.

When employed people become unemployed, that’s bad news, and immediately visible in the unemployment rate. When unemployed people leave the labor force entirely, that’s equally bad news, but it’s a tougher measure for the public to connect with, since at that point they’re no longer counted in the unemployment rate. Everybody knows what “unemployment” is; the population which cares about the “employment-to-population ratio”, by contrast, is wholly comprised of wonks.

The plunge in the employment-to-population ratio over the course of the Great Recession is going to be its biggest and most lasting legacy. We’re now back to the levels last seen in the days before most women worked, but we live in a very different world now. In the late 1970s, a woman without a job was much less likely to consider herself unemployed than in the early 2010s. And when she casts her vote in November, the degree to which she’s happy or unhappy with the current administration is going to be much more connected to her actual employment status than it is to whether she’s officially showing up in the unemployment rolls.

Over the next few months, we’ll get a better sense of the signal-to-noise ratio in the 8.6% number. I’m hopeful that we’ve seen the last 9 handle in the headline unemployment data series, and if I’m right, then the optics of the unemployment rate are, at the margin, good for Ds and bad for Rs. But the unemployment rate is not a particularly good gauge of how well the economy is functioning, or how many people have jobs. And I’m very pessimistic that the employment-to-population ratio is going to get back above 60% even over the medium term. It’s certainly not going to get there before the election.

It’s no coincidence that after the employment-to-population ratio plunged, we saw the rise of first the Tea Party and then Occupy Wall Street. Social unrest will not go away so long as more than 40% of the US population is jobless. Some part of that 41.5% is too young to work; some part is too old; some part is in jail; and some minuscule part is simply too rich to care. But at heart, it’s a massive dead weight dragging down the hopes and prospects of hundreds of millions of Americans. And they’re not going to take it quietly.

There’s some encouraging news buried in this month’s employment report; you just can’t see it by looking at the headline numbers. Black unemployment is plunging, down to 15.1% in October from 16.7% in August. The number of long-term unemployed fell by 366,000 to 5.9 million, which is a decline of 2.2 percentage points. The broad U-6 unemployment rate fell by 0.3 percentage points, to 16.2%. And note those upward revisions to previous months, too: August’s zero is now +104,000, September was revised up to +158,000, and the twelve-month average is +125,000. Not good enough, but pointing in the right direction.

No one’s opening any champagne this morning: the levels here are still atrocious. But at least there’s reason for hope that the economy is still above stall speed; I, for one, am much more sanguine about the prospects for a double-dip recession than I was a couple of months ago. If the jobs situation isn’t getting worse, that means America’s still growing, and that the recession’s still over. And it’s a lot easier to accelerate a recovery than it is to turn around a decline.

Easier — but not easy. Not when the central bank and the executive both look powerless. The base-case scenario is still that things are going to be very bad through 2012. And of course if Europe implodes, they’ll be worse. Still, the economy has managed to gain 342,000 jobs in the past three months. And that’s not nothing. Even if you adjust for population growth.

There’s no particularly good news in these numbers. For every glimmer of good news, like the upward revisions to previous reports totaling 100,000 new jobs or so, there’s an offsetting piece of bad news, like the broad U6 unemployment rate jumping up to 16.5% from 16.2%.

And the number of people unemployed for more than six months is now 6.24 million — up by 208,000. The long-term unemployed — the least employable of the unemployed, and the most intractable problem in terms of getting America back to work — are now 44.6% of the total, up from 42.9% last month, and 41.8% a year ago.

It’s always a bit dangerous to try to meld the two surveys which make up the payrolls report, but I’m detecting a trend here: insofar as employers are hiring new people, they’re hiring new entrants into the labor force, rather than people making up the ranks of the unemployed. Maybe it’s recent graduates, maybe it’s former stay-at-home moms who were never claiming unemployment but who are now getting jobs. Maybe it’s immigrants. But the big picture is that employment growth is more or less keeping track with population growth, leaving no new jobs for the 14 million unemployed Americans.

It’s worth asking, in this context, whether Obama’s jobs bill would actually change that dynamic at all. It might help at the margin — if you’re working hard enough to burn through the fat reserves of highly-qualified graduates and moms and immigrants, you might eventually start cutting into the hard muscle mass of the long-term unemployed. But my gut feeling is that the effect of the jobs bill will be much bigger on employment figures than on unemployment figures.

Is there anything the government can do to bring unemployment down? Or is it now too late? If we are indeed in the early months of a double-dip recession, than I think it is too late: unemployment is more likely to go up than it is down from here. And even if the economy’s still managing to eke out modest growth, I don’t see much hope that the unemployment rate will come down to a remotely acceptable level any time soon. Realistically, America’s unemployed are here to stay. And we’re only just beginning to understand how that’s going to affect the political economy of the nation.

My colleague Pedro da Costa has this intriguing tweet this morning, and I thought I’d throw it out there for bloggers and commenters: let’s say I gave you 40,000 people earning $50,000 apiece, and asked you to put them to work for one full year. Could you create a business worth more than $2 billion? How would you do that? And how many people would that business employ going forwards?

(Small print: yes, you can spend $X over and above the cost of labor, but then the business has to be worth $X+$2 billion. And you can pay some people more than $50,000, so long as you still employ 40,000 people in all. And for the purpose of this thought experiment, let’s ignore things like payroll taxes and the like.)

I’m sure that Andrew Mason would have some ideas here: he’s one of the few entrepreneurs who isn’t shy about hiring a lot of people.

My idea: outsourced mortgage servicing. Create a mortgage servicer from scratch, where everybody who calls in is given a single point of contact — a unique individual who owns their problems and is charged with finding solutions to any problem, including refinancing and loan modification. There’s got to be a way of building up enough trust with both banks and homeowners, over the course of a year, to build a $2 billion business somehow.

Two charts jump out at me from Doug Elmendorf’s presentation to the Joint Select Committee on Deficit Reduction. The first is the sheer size of various loopholes in the tax code:

If you want to make a serious dent in long-term deficit reduction, this is a good place to start. Everybody knows that Social Security and Medicare — pensions and healthcare — comprise a massive part of the government’s future spending. What’s less well known is that pensions and healthcare are also the two biggest tax expenditures in the tax code: the deductibility of healthcare premiums will cost the government about $650 billion over five years, with the deductibility of pension contributions running it a close second. That’s over a trillion dollars in lost revenue right there. Add in the mortgage-interest deduction and the lower rates on long-term capital gains, and you get to $2 trillion pretty quickly. Double that to get a ballpark ten-year figure.

This is something that proponents of private health insurance don’t often grok: that it’s heavily subsidized by the federal government already, due to its tax-exempt status. And it stands to reason that if the government is going to spend hundreds of billions of dollars a year subsidizing private health insurance, then it ought at the very least to get some kind of control over the healthcare industry in return. If you want to keep the system fully private, then fine, but don’t ask the government for massive subsidies at the same time.

As for the tax deductibility of pension contributions, Mark Miller wrote a great post on the subject in June, in which Teresa Ghilarducci makes a very strong point.

Ghilarducci argues that retirement saving wouldn’t decline if the deduction disappeared. “There’s no evidence that it increases saving; much of the academic literature shows that higher income people are simply moving investments they would have made anyway [in taxable accounts] to a tax-preferred account. And there are 25 million taxpayers in the bottom two quartiles who don’t take deductions, so they’re getting no subsidy at all from the federal government on their contributions.”

Everybody’s talking about the necessity of making hard choices: there are lot of hard choices here which could have an enormous effect on government revenues while at the same time simplifying the tax code and even maybe allowing a reduction of the headline rate of income tax. I’m in favor of taking a whack at all of the bars on this chart, with the exception of the EITC. Doing so would make the tax system more progressive, simpler, and more lucrative. Which is exactly what we need.

So, that’s one opportunity facing the deficit committee. But here’s something scarier:

This is the official CBO unemployment projection, on which all of its economic forecasts are based. And it shows unemployment plunging to 5% after 2015. That’s considered the long-term unemployment rate, and I guess that 2015 is considered the long term, or something. In any case, it ain’t gonna happen — there’s absolutely no reason to believe that the economy will suddenly add an enormous number of jobs in four years’ time.

As a result, actual tax revenues are going to be lower than the CBO is projecting, since the CBO is anticipating revenues from millions of people who won’t in fact be employed. And government expenditures on unemployment insurance, Medicaid, and the like will be substantially higher than the CBO is projecting.

So when we get to work on the deficit, it’s important to remember that the problem is bigger than the official CBO numbers would have you believe. Partly because the CBO is assuming things like a 30% reduction in Medicare payments for physicians’ services after 2011, which simply isn’t going to happen. And partly because the CBO is being incredibly overoptimistic on the unemployment rate. So let’s get to work on reducing the size of those loopholes. It’s the only way we can credibly free up enough money to provide the stimulus the economy needs right now.

I’m not a fan of the kind of political rhetoric that Barack Obama employed for much of his speech last night. “Pass this jobs bill” is not exactly “tear down this wall.” And at the risk of getting nitpicky, it’s difficult to say that “America can be number one again” and “America will be number one again” towards the end of the speech, only to finish with the assertion that “America remains the greatest nation on Earth”: my reaction was “wow, that was quick.”

But, as Paul Krugman says, there’s a lot to like in the nitty-gritty of the proposals, even if most of it was hard to discern in the speech itself. This, in particular, comes close to something I’ve been advocating for a while:

The President’s plan will completely eliminate payroll taxes for firms that increase their payroll by adding new workers or increasing the wages of their current worker (the benefit is capped at the first $50 million in payroll increases).

There are two things I’m less than ecstatic about here. First is the $50 million cap; second is the elimination of payroll taxes just for handing out pay rises, rather than for actually hiring people. But maybe there are logistical reasons why it’s hard to measure the number of employees, rather than just the total payroll in dollars.

But the idea of this bill, I think, is to attack the jobs crisis on multiple fronts, rather than placing a lot of faith in any one tax cut or similar. There’s the tax credit for hiring unemployed veterans, which is a great idea, along with another tax credit for hiring anybody who’s been unemployed for more than six months. There’s infrastructure investment, concentrated on schools, along with the return of our old friend the National Infrastructure Bank. That was a great idea when Obama first proposed it during the presidential election campaign, and it will remain a great idea when it’s proposed again every few years or so.

And! The wholesale mortgage refinance proposal managed to make it into the bill as well. That’s a great little stimulus program, which will cost the government little or nothing. It probably won’t create much in the way of jobs, but we need growth as well as jobs, and it will help, at the margin, on the growth front.

My least favorite part of the bill is probably the conceit that, as Obama put it, “everything in this bill will be paid for. Everything.” This is a particularly obvious symptom of the virulent disease which has long reached pandemic proportions in Washington — taking a headline from George Magnus, I call it Deficit Attention Disorder.

This is a stimulus bill; stimulus bills, by their nature, can’t be revenue-neutral or fully paid-for. And this one isn’t. Instead, it seems like Obama is going to tot up the cost of the bill — $447 billion is the number doing the rounds — and add it to the $1.5 trillion that the deficit supercommittee is being charged with cutting from the budget over a decade-long period. That’s not paying for a bill, it’s passing the buck to someone else.

And it’s pretty sad commentary on the state of American politics — and the way that the horrible personal-finance metaphor seems to have become embedded in the national psyche — that Obama considers this both necessary and a good idea.

The bottom line here, I fear, is that the best we can hope for is that this second stimulus will manage to keep the economy slightly above stall speed, and thereby help us avoid the job losses associated with a nasty double-dip recession. Avoided job losses are very good things, but they’re not new jobs. And they don’t get you re-elected.

The symbolism of today’s payrolls report — ZERO — would be bad enough even if it wasn’t coming out in advance of the Labor Day weekend. There’s a pattern here: no matter how bad Wall Street thinks the employment report is going to be, it always seems to be worse, these days. It’s like GE’s earnings circa Jack Welch, but in reverse.

It’s increasingly looking as though the government is utterly incapable of creating jobs, but is actually pretty effective at destroying them. It’s doing so in a direct, literal way — there were 17,000 fewer government employees in August than there were the previous month, and local government has lost more than half a million jobs since September 2008. And it’s also doing so in an indirect way — there can’t be much doubt that a significant part of the jobs weakness is a function of the anger and uncertainty caused by the utter dysfunction of the legislative branch of government.

Hiring and firing decisions, of course, happen slowly — and they often happen after the summer. The jobs situation, which is always cyclical, now seems to be in a downturn rather than an upturn, which raises the prospect of a negative payrolls figure in September and further gruesome news over most of the 2012 election year. President Obama can speechify all he wants on Thursday, but I can’t imagine that he’s going to be able to get anything substantive through the House — not when Eric Cantor is demanding that even emergency hurricane relief be paid for with spending cuts.

You can call this a double dip, if you like, or you can view it as a kind of aftershock of the financial crisis. Either way, the economy is clearly now below its stall speed, and we don’t have access to the mechanisms necessary to get it moving again. That is going to make for poisonous politics, Washington gridlock, and untold human misery among millions of new and long-term unemployed across the land. Happy Labor Day, people.