Who cares about the unemployed…
…it seems that way, at least, when I listen to much of the rhetoric coming out of Washington.
But it’s not just Washington, it’s Wall Street, too. In my line of work, finance, market participants grapple with the monthly economic data flow, eyeing each release as if it’s telling a new story about the current prospect for US economic growth – that it isn’t just treading water. ‘Consensus’ economists forecast their expectations for the economic release of the day, the market then trades based on the surprise to which the data beat or disappointed expectations. Day in, day out, that’s what we do.
I have a problem with this automated way of viewing the world. It’s tough to hear Wall Street economists defend their forecasts, stating that ‘oil’ or ‘Europe’ are the primary risks to the outlook; or that the structural unemployment rate has risen markedly so that harmful inflation is right around the corner. Step back, take a look at where 2.7% annual growth (current Consensus for 2011) actually gets the US labor market (see chart below).
The biggest risk to the outlook is not oil, it’s unemployment. The longer that the labor market remains idle – in fact, the labor force is now trending downward – the lower will the average skill level will go. Then you’re going to get something much more structural, the so-called positive feedback loop.
People move to the US for the American Dream – I wonder where they’ll go now…. Germany?
The chart above illustrates the harmonized G7 unemployment rates indexed to 2007 for comparability. The latest readings (June mostly) are listed in the legend.
The US labor market, as measured by the unemployment rate, deteriorated much more precipitously than that in any other G7 country. Germany stands out as the sole labor market that’s shown any marked improvement, furthering a trend that started with the the Hartz Concept. (I just did a Google search of the Hartz commission and came across this Economist article written in 2002 – remarkable.)
Policy drives the structural level of unemployment, not the other way around. In the US, there are currently no true boundaries to the supply of labor, rather it’s demand. Congress should be targeting job creation and aggregate demand, not the 2012 elections.
Stephen Gandel is right: there is no upside to high unemployment, just downside. You want to drop the deficit? Create jobs and aggregate demand so that the population ‘can’ pay taxes.
Rebecca Wilder
The top one percent has a stranglehold on policy. Obama figures people with empathy have nowhere to go and no GOP centrist–is that an oxymoron?–can even get out of the gate. there simply is no political price to be paid for sustained unemployment and stagnant wage levels and so no one cares.
As long as the word “stimulus” is a word dirtier than any four letter ever hoped to be, Obama is left only with choosing a “tax cut” to try to stimulate since such measures are blocked by minorities in the Senate and, since 2010, by the House. So payroll for employees. Didn’t do it. What about for their employers? (Now, I can ask does he know what the blazes he is doing but I kinda know he does and doesn’t care as long as things are upbeat next year. Also, is there something else he could realistically do?)
The problem is that none of this is effective to create jobs when the demand isn’t there. Also, I’ve been wondering how much of these temporary measures have gone to the spikes in oil and food and if the poor are just getting by using the payroll tax reductions, how can the temporary cut end when their wages are not doing much? Do people really think that business will raise wages or hire in the current economy? I think most of the tax relief stimulus dollars goes to savings for the upper incomes and to necessities for the lower incomes.
For the unemployed, there are those who do not seem to care. If they did they would not be setting forth backdoor trial balloons to put people to work that cannot put people back to work. Working on the unemployment issue is just too hot a political tool for cooperation. So nothing will be done and people will soon disappear into the unforgotten.
More on topic. I saw a headline this morning (didn’t read it) that American households had regained only 50% of their wealth. Seeing Rebecca Wilder’s statements here makes me wonder who is a “household” because we know that if most of the 90%ers hold most of their wealth in their house and housing is still slumping so they haven’t recovered much or anything. And, when reports say that average households have <100K in retirement accounts, even if one assumes they regained their losses there, they still have housing value wealth loses.
Rebecca Wilder, this bring me to a question. Why do we insist on considering overvalued asset loses as wealth loss. Isn’t this more like lost air? (No, I’m not forgetting the debt problem. Just wondering about the “asset losses”.)
“But it’s not just Washington, it’s Wall Street, too.”
Big duh!
make that “the forgotten”.
Anna,
Talking heads. Rarely do the headlines give perspective.
Part of the recaptured wealth is union and state pension funds whose crisis was headlines when the markets were down 50%. 401k and IRA’s too.
Recovered markets make the paper worth of many pensions much healthier.
I saw this somewhere on the blogsphere this AM.
12:35 EDT I am watching a McKinsey and CED gab fest on c-span addressing the jobs issues – people from seem rather honest about the current situation.
Anna,
Peak to trough (Q2 2007 to Q1 2009), US net worth of households and nonprofits fell over 16 trillion (more than a year’s worth of GDP). That’s going to turn a few heads. Since then, we’ve recuperated about half that (back to 8.7 tn down) on fake equity prices (cutting jobs, QE 2, and deleveraging rather than expanding business and hiring) and defaults. Going forward, I can’t really see what else will contribute to wealth gains unless the real economy is on a truly sustainable growth path.
To your question, ” Why do we insist on considering overvalued asset loses as wealth loss. “
Wealth can take several forms: net worth of paper and tangible assets AND/OR the present value of labor income. Labor income has been stagnating over the last decade, so debt accumulation was inevitible. Asset prices took over what should/could have been real income generation.
On total wealth, you write down the papaer assets, leaving the debt, you’re going to get default….unless it is supplanted by an increase in permanent income via aggregate demand. Ultimately, then, paper asset values would stabilize with real income generation.
Rebecca
Thanks Rebecca and ilsm.
STRB.
Awesome. Good session. Thanks for the heads up.
http://www.c-span.org/Events/A-Look-at-Job-Creation/10737422162-2/
Rebecca
“People move to the US for the American Dream – I wonder where they’ll go now…. Germany?”
Well, among OECD members, for level, you have Switzerland (3.1%), Norway (3.3%), Korea (3.6%), the Netherlands (3.6%), Austria (4.2%), Australia (4.9%), Luxembourg (4.5%) or Mexico (5.2%). But for change, Germany has everybody beat. Unemployment averaged 7.7% in 2009 and now it’s down to 6.1%. But doesn’t that have to be credited more to Kurzarbeit than a healthy economy?
Thus it’s worth noting that the only countries in the OECD that avoided a recession were Australia, Korea and Poland. Poland was not pegged to the euro, and depreciated more with respect to the euro than any other flexible exchange rate member of the EU. In other words loose monetary policy seems to be the key.
You are welcome. It was a good session, and the people from McKinsey seem to have a grip on reality.
Rebecca:
This is not new. Wat is harmonized unemployment? Al I know is when Particpation Rate drops, U3 is meaningless. This is the case since 2001.
– 40% of corporate profits in 2007 came from Wall Street Financial Services, Let me guess how much of such was labor itensive . . . Change the paradign.
– 1978 SCOTUS changes usury laws, Marquette National Bank vs. First of Omaha Corp Change the paradigm
Until the US places a priority on labor intensity activiies rather than CDS, etc.; we are in trouble as profits do not need labor.
Nice article Rebecca
Thanks
“But it’s not Washington, it’s Wall Street, too.”
there’s a difference?
“Policy drives the structural level of unemployment, not the other way around.”
So, don’t say “unemployment.” Say DISemployment.
“Policy drives the structural level of unemployment, not the other way around.”
So, don’t say “unemployment.” Say DISemployment.
“Policy drives the structural level of unemployment, not the other way around.”
So, don’t say “unemployment.” Say DISemployment.
Sorry for the multiple posts. I keep forgetting that disqus wants to infest my browser with cookies so they can track me and sell the data to their clients. My bad.
lambert
there is a “delete” tag under each post. click on the extras to get rid of them.
“You want to drop the deficit? Create jobs and aggregate demand so that the population ‘can’ pay taxes.”
Rebecca
You’re on the wrong trail. The idea is to shrink government, not reduce the deficit. All government actions during the past decade are based on that tacit, if not explicit, goal. Cut taxes, reduce revenues. Reduce revenue, tighten the belts and cut back on the public work force. Cut back the public work force and you then need to (the need to covers up for the intended to) cut back on government services. “We have to do more with less.” Well not really more, but with less you get less. Either less service or less accomplished of the services that may appear to still be available. However when they cut back on public employment, especially during an downward trend in general employment and further exacerbate both a recessionary trend and revenue from taxes from those newly unemployed, furloughed, etc. Now we’re getting into a cyclonic trend.
The one thing that has been accomplished is to have cut the size of the govfernment, at least were it is really needed most. Apparently the public is less observant of cuts in necessary functions until after those services are no longer available, or the quality of those services have been debased. Now that the debasement is under way it can be pointed out that government is the problem given that we’re not even getting our monies worth of the services that goevernment is providing. Schools don’t perform because of lousy teachers, or because of not enough properly trained teachers. Fire Dept response times are growing longer? Either deny the facts or suggest faster driving. We’re doing the best we can with what we’ve got, but we’ve got plenty and we need to cut back in order to reduce the deficit and thereby reduce government waste, or just reduce the government. Convoluted, but it works. The only question is, who is the beneficiary of such an ass backwards approach to governing.
Jack,
You are falling for it. The FIRST thing government cuts back on are the ESSENTIAL services. Whenever there is a revenue problem, they eliminate, say, 9-1-1 service, release prisoners, and cancel morning Kindergarten. Do they cut back on pension benefits, or the travel budget of the Asst. Director of Parks? Noooooo. That is not how you get more tax money.
Sammy
You’re still ignoring the obvious. First cut backs are to taxes. After that it all falls into place. Insufficient revenue. ie not enough tax receipts, results in all the belly aching about budget deficits and the need to make cuts in government and the programs that the government is intended to provide. Governments are constituted in order to “provide for the general welfare” of its citizens. That’s why we agree to pay taxes, to support the system that protects us all. The system breaks down when we begin to think that we don’t need those protections and are foolish enough to buy into the concept of each man for himself rather than one for all and all for one. The One Percenters can buy their own welfare. The rest of us need to stand together. We need good government. They need less government so that they can attempt to take more control. You’re a fool if you believe otherwise. Atlas Shrugged is a fable meant to attract teen-aged boys who dream of being rugged individualists.
Sammy Parks and Rec is a TV sitcom based on a wngnut talking point. It is not piece of policy analysis.
The actual reality of medium to long term state level budget cuts since Prop 13 vas been funding cutbacks to public education, and especially pubic higher education. both in direct support of teaching and facilities and in grant money to students. If a U President needs a new building he has to go to deep pocketed (and often corporate donors) whose donations increasingly come with strings attached. And if a middle class kid wants to finance an education he as forced to go to a private bank. And the newest trend is to have no grace period for interest accruals.
Equally anyone who can’t see how state and local governments have squeezed many billions out of public pensions via transition from DB to DC plans either hasn’t been paying attention or delibrately pulling a Rush.
This is not to sat that there is no game playing up front, but the pure fact is that public schools don’t have the arts, music, PE programs they used to offer as part of the curriculum, they are rapidly pricing kids put of extracurricular activities via parent fees.
Bruce,
public schools don’t have the arts, music, PE programs they used to offer as part of the curriculum, they are rapidly pricing kids put of extracurricular activities via parent fees.
I had art, music, and PE when we were spending $4K per pupil. Now we are spending
$10K per public school student. http://3.bp.blogspot.com/_otfwl2zc6Qc/S4GiP_vM3wI/AAAAAAAAM1Y/DYzZiz4lZMo/s400/ed1.bmp
That’s about $300K per class. The teacher makes $60K, where does the other $240K go?
Janitors? Twenty public-school janitors rake in more than $140,000 a year
http://www.nypost.com/p/news/local/janitors_clean_up_zEecMaKxzR8m202QAPiVZP#ixzz1P0U8SLBI
Superintendants? In May, at the same time the network was trying to shutter one of its schools due to financial problems, it was first disclosed that Hernandez was earning $261,732 a year, making him the highest paid public-school superintendent in the state. His wife made $134,826,
http://upload.democraticunderground.com/discuss/duboard.php?az=view_all&address=389×6634290
In the US, there are currently no true boundaries to the supply of labor, rather it’s demand. Congress should be targeting job creation and aggregate demand
There are true boundaries to the supply of labor. They are called national borders, and immigration laws. Stimulating demand cost money. We save money and forgo babel when we limit labor. Open boarders is class warfare/corperate welfare at its worst and is non sensical when juxtaposed with a welfare state.
Governments are constituted in order to “provide for the general welfare” of its citizens. That’s why we agree to pay taxes, to support the system that protects us all.
Governments are constituted by the powerful to protect the interests of the powerful.
The powerful have become powerful by monopolizing the central banking system. Good on you Dennis Kucinich for calling for the abolition of the federal reserve bank. And good on you Dennis for trying to call off the war in Libyia.
“Governments are constituted by the powerful to protect the interests of the powerful.” cursed
That is too often the aftermath of government’s first order of business. What you should have said is that government is then prostituted by the rich and powerful to serve their own venal interests.
The ghost of FDR ought to smack Obama for this administrations lackadaisical aproach to the unemployed.
I’d like to see the Davis Bacon Act suspended. On the theory that’s better to give two guys jobs at twenty dollars an hour then one guy a job at forty in todays world.
I do not believe that a man truely feels like a man unless he works and aquires a degree of financial indepence as well as mounting a woman on a regular basis. This is necessary for a good body politic. Methinks Obama does not want a good body politic and I consider this ominous.
cursed:
Shorten the work week at the same pay. Labor, Direct Labor, is and has been the smallest component of the cost of manufacturing.
the labor reforms are hardly the main reason for the german job “boom”. It’s more the demographics and the non existance of wage increases (after inflation). One can argue, that the labor reforms play a big role in damping the wage increases, but that is at best difficult to proove.
the labor reforms are hardly the main reason for the german job “boom”. It’s more the demographics and the non existance of wage increases (after inflation). One can argue, that the labor reforms play a big role in damping the wage increases, but that is at best difficult to proove.
the labor reforms are hardly the main reason for the german job “boom”. It’s more the demographics and the non existance of wage increases (after inflation). One can argue, that the labor reforms play a big role in damping the wage increases, but that is at best difficult to proove.
Anna,
Late to jump in here. Houses are expected to have about 10% more (down) to go to get back on the historical trend lines baring overshoot. The drop in home values IS real wealth loss if the homeowners lost wealth in the process. For example bought a $600K home, owe $550K on the note and the house is worth $300K – the homeowners lost their downpayment plus still owe $250K more than the house is worth. They lost real wealth and the ability to fund their retirements.
Default is a possibility but would still result in the loss of real wealth by the defaulters even in the best circumstances.
Then you have all the recent grads, unemployed, and with un-BK-able student loans. I’ve heard horror stories of people with $100-200K in non-dischargeable student debt. Go to any of the law blogs and you’ll get a steady stream. These are people unable to start gerating long-term wealth becuase of the employment market and the huge debt overthem. They lose a lot of the effects of compound interest over time. I had $50K in savings and no debt 2 years after graduation. That money just keeps growing year after year. the recent grads are getting none of that (and worse some take on more debt at Grad school).
And state pension funds make the US budget look perfectly run. They are a disgrace.
Islam will change
Sammy,
Thanks for responding. Bruce is out to lunch when he doesn’t understand that government ALWAYS cuts the critical stuff first. I have never seen any level of govenment rack & stack all th eprograms on priority then start at the bottom and make cuts. And no janitor should EVER be making $140,000 unless he’s in a HAZMAT suit.
My kids’ minority-majority public HS puts out more National Merit Scholars than any 5 other schools combined, public and private, withen a 100 mile radius including all the Dallas- Fort Worth metroplex. Over 50% of the students are on some kind of meal subsidy. Yet that school out-performs all those DC schools with twice the per student spending. Its not the spending. There is lots of fat in schools systems – especially higher education that could be cut.
And DC is much better the DB becuase it lets you move your retirement when you move jobs. Your not locked in to a dead-end job and your overarching idea is to keep your job at all costs to keep that pension. With DC you can move even if fired.
Islam will change