This chart, constructed by the Vice President’s office via BLS data, would seem to indicate just that:
Politics and policy from inside Washington
The Great One opines thusly:
But storm clouds are gathering. And a big one is the sinking dollar. No one in the Obama administration or at the Fed seems to care about it. In fact, they are probably applauding the lower dollar as a sort of 1970s way of boosting exports and the manufacturing heartland in the Midwest. But the falling dollar is bad for consumers. And it ultimately will cause higher inflation, as signaled by the rising gold price. There also are future tax hikes and the explosion of spending and debt. All of this is why it’s hard for me to be a long-term bull.
The great market boom of 1982 to 2000 was basically characterized by low marginal tax rates and King Dollar. Unfortunately, the 21st century has seen a weak dollar and more recently rising tax rates that are coming due in 2011 (if not sooner). In other words, the prosperity-inducing Mundell-Laffer supply-side model is being reversed.
As Art Laffer put it to me, we are stealing demand and production from the future. So even as we get a V-shaped recovery now and into next year, 2011 may pay the piper for both low growth and higher inflation.
Me: That is the whole plan here, steal growth from the future. It is the ultimate in wealth redistribution.
My Reuters colleagues give the tale of the tape:
Obama, grappling with the worst U.S. housing crisis since the Great Depression, pledged to help as many as 9 million families keep their homes by reworking their mortgages.
Eight months later, the plan is plagued by delays, red tape and, some critics say, a reluctance by banks to do their part. Just 17 percent of eligible borrowers have had their loans modified and monthly payments cut. Hardly any have been given a cut in the amount they owe on homes which are now worth less.
That means many successful applicants are left with loans that they still will not be able to afford in the long run. So instead of resolving the housing crisis that pushed the U.S. economy into recession, America may be prolonging it and, in the process, stunting the global recovery.
“Every single policy we’ve seen has merely kicked the problem down the road,” said Laurie Goodman, a veteran analyst at broker-dealer Amherst Securities Group LP, which specializes in residential mortgage-backed securities.
Me: Clearly at this point the best housing policy is an overall economic policy that boost growth and jobs — and let housing find its own level.
Both California and Michigan are turning into powerful economic examples of what not to do. Here is a bit on Michigan Gov. Jennifer Granholm’s green job push:
Since taking office in 2003, Granholm has created 163,300 positions, her office says. She expects that a recent infusion of more than $1 billion from the Obama administration aimed at nurturing car battery and electric-vehicle projects will generate 40,000 more positions by 2020.
In the past decade, however, as the auto industry has grown smaller, Michigan has lost 870,000 jobs — about 632,000 of them during Granholm’s tenure. The number is expected to reach 1 million by late next year, the end of her term.
Me: And what is the cost per job, I wonder, in various tax subsidies. The Tax Foundation plots a better way:
The typical pattern after such “job creation” purchases is:
- far fewer jobs appear than were promised;
- the tax incentives turn out to be far more generous than advertised (see recent scandal about Iowa’s film tax credits, a type of tax giveaway that Michigan has indulged in to a remarkable degree); and
- the state’s politicians distract the public’s attention from the failure of previous job creation deals with new ones.
The bottom line is that politicians should focus on the nuts and bolts of government, which does not include gallivanting around the globe searching for companies to bribe.
The story also mention the fate of the Electrolux refrigerator plant in Greenville. It shut down three years ago, taking 3,000 jobs with it, despite tax breaks from the state. I am familiar with this story. I interviewed the union workers up there four years ago. Even though it had been clear for years that Electrolux was likely going to shift production to Mexico, the workers I met had done little to prepare for the eventuality. No reeducation or retraining such as upgrading of computer skills, for instance. And few seemed willing to move to cities or states with better economies.
Over at his TNR blog, Noam Scheiber wonders what unemployment will be when Obama runs for reelection, noting that IHS Global Insight predicts it will be 8.1 percent:
8.1 percent unemployment in 2013 means a bit higher than that when Obama stands for re-election in 2012. In case you’re wondering, the last time the unemployment rate was nearly as high just before an election was 1992 (7.6 percent in September of that year–probably the last unemployment statistic to sink in before Election Day), which didn’t work out so well for the incumbent. Other high election-year unemployment rates in recent decades: 7.5 percent (September 1980) and 7.6 percent (September 1976), which also don’t appear to have helped the incumbent party’s cause.
On the other hand, it’s probably all somewhat relative. The 7.6 percent unemployment rate in September 1992 was pretty close to the peak of 7.8 percent from that business cycle, whereas 8.3 or 8.4 percent unemployment in September of 2012 would be substantially lower than the peak from this business cycle. By way of comparison, the unemployment rate stood at 7.3 percent in September 1984, but that apparently qualified as “morning in America” after a peak of 10.8 percent in 1982.
Me: One thing that Scheiber fails to grasp is that an 8 percent unemployment rate is roughly double what Americans have grown accustomed to in recent years. You could argue that 7 percent unemployment back in the early ’80s seemed more like a return to normalcy.
Americans then just came out nearly two decades of economic disruption. Americans today, a generation of prosperity. Expectations are different. Plus, unemployment has risen more than 5.4 percentage points from its cyclical low during this recession vs. 3.6 points during the early 1980s recession.
Is there a “new normal” for the American labor market? Are the days of an unemployment rate of just 4 to 5 percent a thing of the past?
That is the contention of some economists who see the sharp rise in joblessness during this recession as a warning sign of structural changes in the job market.
Yes, the U.S. unemployment rate of 9.8 percent is as high as it’s been since June 1983. And if you add in discouraged workers and those working part-time who would prefer a full-time job, the unemployment rate is 17 percent.
But it’s not just that unemployment is high. It’s that it’s far higher than what economists would have expected given the depth of the downturn.
The current unemployment rate is 5.4 percentage points above the nadir of the previous expansion. (During the terrible 1981-82 recession, by contrast, unemployment rose just 3.6 percentage points, although the peak was higher at 10.8 percent.)
According to an economic rule of thumb called Okun’s Law, which analyzes the relationship between unemployment and economic growth, peak unemployment should have been more like 8 percent. Indeed, that was the White House forecast at the start of the year. If Okun’s Law no longer works, that would be a sign of a tectonic shift in the labor market.
As would the findings of Jacob Funk Kirkegaard, an economist at the Peterson Institute for International Economics. After a sector-by-sector analysis of the U.S. economy, he concluded that such industries as finance, retail trade, publishing and broadcasting are suffering from structural job losses that won’t likely turn around with an expanding economy. What’s more, the employment share of industries seeing net structural employment losses during the current cycle is 36.2 percent, the highest level since the early 1950s.
And the special skills of workers from those sectors may be mismatched for higher-potential industries like healthcare and education. Once fiscal and monetary stimulus abates, Kirkegaard concludes, “the U.S. labor market is in for a long, hard slog.”
America’s new natural rate of unemployment may be more like 7 percent rather than roughly 4.5 percent. If so, then Kirkegaard’s policy recommendation of new spending on worker retraining is probably a smart one.
Then again, the U.S. economy and its marvelously flexible labor market have shown a knack for dealing with structural change without the government. Until the financial meltdown, the unemployment rate was below 5 percent despite the disappearance of 3.5 million manufacturing jobs during the decade to offshoring and
To JPMorgan Chase economist Jim Glassman, that performance “demonstrates that permanent job losses don’t have to stand in the way of bringing unemployment back down.”
Moreover, the high U.S productivity rate is a long-term plus for the labor market because it shows America’s innovative capabilities remain robust.
Not that government investment in job training, as well as infrastructure and basic research aren’t important as well. Reducing an onerous corporate income tax is also critical.
The deep resilience of the American economy may surprise the pessimists. But we won’t know for some time. The unemployment rate typically peaks around 18 months after a recession concludes. So if the current downturn ended in June, we will be well into 2010 before we have a firmer feel on whether the “new normal” is here to stay.
A NY Times story by my pal John Harwood hints at a second stimulus package may be brewing:
Publicly, White House aides and Congressional leaders have responded with incessant attempts to highlight benefits from the $787 billion economic stimulus package they enacted earlier this year. Privately, Mr. Obama’s economic advisers are sifting options for a new package of tax cuts and other job creation measures to be unveiled in next year’s State of the Union address — or earlier if pressure for action becomes irresistible.
Me: They certainly won’t call it “stimulus,” which is a toxic word these days. I could see more aid to state and local governments, an expanded housing credit, expanded unemployment benefits. They could surprise with a payroll tax cut. But any pricey packages could be met by a negative bond market reaction. They would really, really like to avoid doing this.
Ed Yardeni has been crunching the numbers:
Based on the previous two cycles, employment might recover within the next 11-21 months after June, or between May 2010 and March 2011! It fell 289,000 during the 11 months following the recession trough of March 1991 and 1.08mn during the 21 months following the November 2001 trough. So far, it is down 768,000 from June through September. A similar analysis suggests that the unemployment rate should peak 15-19 months after June, or sometime between September 2010 and January 2011!
US unemployment has been far worse than economists would have expected given the magnitude of GDP decline. Has something structurally changed with the American labor market? An interesting angle on this from Brian Wesbury and Bob Stein of First Trust Advisers:
The employment situation has remained much weaker much longer than the overall economy. In September, the jobless rate rose to the highest level since 1983, total hours worked fell at a 5.9% annual rate, and wage gains were a soft 0.1%. Payrolls came in worse than anticipated, falling 263,000, although payrolls fell a smaller 210,000 in the private sector. There are two reasons for the disconnect between the economic recovery and the labor market. First, productivity growth has been rapid of late, part of the ongoing process of technological change that rivals (and may surpass) the industrial revolution. Second, corporate leaders still think the recent spurt in growth will be short-lived and so are being overly cautious. In the short term, productivity growth lets companies raise production even as they continue to cut jobs. Over time, though, higher output with lower labor costs mean more profits, which will help stimulate rapid job growth once companies become more confident about the staying power of the recovery. When the labor market eventually turns positive, it will do so with a vengeance.