Forget about unemployment coming down through fiscal and monetary stimulus in your lifetime. There isn’t enough money in the world to fix this problem.
Above is a chart created by the blog Zero Hedge with a chilling projection on when employment will return to pre-recession level.
The chart starts at the National Bureau of Economic Research’s officially designated date for the beginning of the recession in December 2007. The NBER asserts the recession ended 18 months later in June 2009 — when, as you can see on the chart, employment had not only not recovered, but was still falling unchecked.
In the dotted line on the chart Zero Hedge projects that the total number of people employed will reach the 2007 level again about five years from now. They also note, for the record that this total will not include all the new people who will come into the labor force during that period.
This means, even when employment reaches its pre-recession peak, an unemployed population equal to all the people who entered the labor force in the eight years between 2007 and 2015 will still be unemployed.
To put it another way: even if we get back to pre-recession levels by 2015, an additional 16 million people will have been added to the unemployment rolls.
Sixteen million additional unemployed is larger than the total number of jobs lost in this recession.
It gets worse: according to Spencer England at the blog Angry Bear, the average length of an expansion after a recession since 1950 has been 52 months. This means, based on the NBER’s call, we should be going into recession again sometime in 2013 — when employment will not have recovered even to its 2007 level.
Your congressperson and senator need to know these figures.
And, you need to know when they are going to sponsor legislation to reduce hours of work so it can be fixed.
Zero Hedge: Obama Need To Stimulate 232,400 Jobs A Month To Get Back To Pre-Depression Job Levels By End Of His Second Term
The American social safety net is not prepared to have tens of millions of otherwise able-bodied citizens unemployed and without work for six years.
When Rand Paul and the rest of the Tea Party fiscal deficit chicken-hawks begin to contemplate these numbers, they will be presented with a gut-wrenching choice: End the Washington-Wall Street consensus forever and bring on the Keynesian Apocalypse, or betray their most fundamental principles and quietly line up for handouts from K Street lobbyists.
Our money says these empty suits fold.
From Zero Hedge:
When two months ago we looked at what the implied job creation rate must be for the US to get back to the same level of jobs as December 2007 when the original depression started (now that the recession is over) by the end of Obama’s now extremely improbable second term, we arrived at a number of 229,300 per month. Updating for the data two months later, after today’s NFP data, results in a breakeven growth rate of 232,400 per month. In other words, America now needs to create an additional 3,100 jobs per month compared to two month earlier, to merely revert to the state in employment last seen in December 2007, let alone create additional jobs. Keep in mind that unlike the economists in the government, we actually index the growth rate to adjust for the growth in the projected labor force which grows at 90,000 per month.
The chart below shows the actual and projected monthly change in NFPs (ex. census) to get to a breakeven by November 2016.
There probably hasn’t been two separate recessions in three years, simply one that has evolved in significant ways. But if this really is a “double dip” recession, then our data indicates that the “Great Recession” of 2008 was merely the precursor, and not the main event. It is this current dip that we should be really concerned about; the current contraction in consumer demand is about structural changes in consumer behavior, whereas the “first dip” was about short term loss of consumer confidence.
Barry Eichengreen and Kevin H. O’Rourke have been updating us on the progress of this depression by comparing it to the big one, The Great Depression. Their original post on April 6, 2009 captivated their audience, and we also ran some commentary on it here.
One thing that struck us was that we might compare the two events to the totally overlooked depression of the 1970s – The Great Stagflation. The reason why this one is missing and, perhaps, lost from official economic history is that it did not resemble the widely accepted official definition of a depression. For instance, as shown in the graph below, year over year Gross Domestic Product enjoyed an unbroken expansion during the entire period.
This is the 1970s Depression all over again – this time on a global scale. Governments are going to fall.
This puts the wind to the sails. It is the type of action I would expect, demand, in fact, from the humanity in Europe. If this can be coordinated correctly it will bring government to this point: ordering the goon squad to keep whacking her citizens with tear-gas and sticks until they go back indoors, or, seeing the gathering grim determination of active citizens collectively finding their Archimedean Point, the goons themselves will beg to stand down. They may even join their fellow citizens. After all, these are not Indonesian goons we are talking of here, these are European goons. And, they are Unionized. They have an undeniable stake in this. Perhaps they themselves will glimpse a New Horizon.
What a moment. We hold our breath as “The Whole World is Watching,” and, though through sheer exhaustion of spirit we may have come to believe otherwise, we now know beyond question that we continue to live in interesting times.
“The whole world is watching.
The whole world is watching.
The whole world is watching.
The whole world is watching.” Chicago Transit Authority, 1969
Europe’s unions caught between members and markets
European trade unions are facing up to a difficult choice: acquiesce to austerity measures and infuriate members, or fight them with strikes and risk a market backlash that could make the economic situation worse.
At one extreme is Ireland, where unions have avoided widespread industrial action over existing cuts — some of the earliest and sharpest in Western Europe — in part because the resulting market reaction would hurt workers more.
Trade union congress leader Jack O’Connor told Reuters last week that he feared foreign investors would interpret serious strikes as a sign Ireland might not be able to push through cuts and meet debt obligations, leaving it unable to borrow.
“Even if you win (the strike campaign), you could end up losing,” he said — but he said the decision was costing him sleepless nights and would not rule out further strikes if the government pushed through new cuts.
At the other extreme is Greece — where the European Union and International Monetary Fund (IMF) are demanding harsh spending cuts — where unions say they will strike in June and push for Europe-wide action against austerity measures.
“We’ll be pushing until the end to prevent the worst,” GSEE union head Yannis Panagopoulos, promising maximum resistance to a bill that raises the retirement age and curtails early pensions.
Panagopoulos says he is already talking to other European unions and hopes they can work together to hold back a wave of austerity measures as governments pull back on stimulus spending and start to address deficits.
He’s phoning it in now.
If it were not previously obvious that Paul Krugman has simply decided to cease evolving, and fully intends to ride his Nobel Prize into a grassy, well-shaded, spot overlooking the American economist version of an intellectual Forest Lawn, his most recent response to an imagined slight by the WSJ should put all doubts to rest.
The Journal apparently accused Saint Paul of duplicity for his claim in the popular press that unemployment compensation does not reduce labor force participation, while maintaining just the opposite view in his textbooks:
I hear through the grapevine that the usual suspects at the WSJ have put out something along the lines of “Krugman says that unemployment benefits won’t raise unemployment, but in his textbook he says they will, neener neener.” Are they really that stupid? Probably not — but they [...] think that you, the reader, are that stupid.
Since you are not stupid, Saint Paul proceeds with his argument that,
Everyone agrees that really generous unemployment benefits, by reducing the incentive to seek jobs, can raise the NAIRU; that is, set limits to how far down you can push unemployment without running into inflation problems.
While unemployment compensation will not necessarily encourage the unemployed to avoid work, really generous unemployment compensation will. Everyone, Saint Paul swears, agrees with this. If you pay people enough to not work, it will begin to affect how much they have to be paid to seek work – leading to inflation. If we make it too comfortable for people who cannot find jobs, we will pay for it in higher prices. So we need to carefully calibrate exactly how much the unemployed receive for having been laid off – too little and they starve, too much and Lloyd Blankfein won’t be able to afford that diamond studded, solid gold, Rolls Royce he has his eye on – the one with seats covered in the most exquisite gossamer of fairy wings.
(And, if we provide decent shelters for battered women, we will only encourage the collapse of marriage. It is typical of Saint Paul that he protests the most squalid assertions of his field only to incorporate the logic of those assertions into his argument.)
However true the reasoning that forcing companies to pay full compensation to those who have been thrown into the streets might lead to the loss of such fear of starvation that workers might even prefer not to work – and, therefore, adopt the attitude of such notables as Paris Hilton, who seems to survive quite nicely without the burden of the daily commute – nevertheless, Saint Paul assures us that we are far from encouraging these sorts of pretensions among the filthy poor:
But in case you haven’t noticed, that’s not the problem constraining job growth in America right now. Wage growth is declining, not rising, and so is overall inflation. A wage-price spiral looks like a distant dream.
Not only are we able to keep the unemployed in such a state of anxiety about their mere survival, with incremental extensions of the unemployment compensation – subject to the periodic political infighting in Washington – there are so many of them that their sheer number threatens to starve even those who remain at work by depressing wages. The problem we face instead is precisely the opposite: who is going to consume all the crap we’re producing in China, now?
What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant.
Thus, Saint Paul cuts through the knot: we are suffering such unemployment, because we have no cash, because we are unemployed!
Well, at least we are getting somewhere: If there is a lack of demand for the things we already produce, then there must also be a lack of demand for productive investment to hire the unemployed to produce more of it. A situation which Saint Paul’s intellectual godfather, Lord John Maynard Keynes, put this way: “investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises.”
And, what was his solution, Paul? Was it to maintain the threat of starvation over the heads of 20 percent of the labor force indefinitely?
Or was it to reduce hours of work?
In an ironic twist to the growing realization that this crisis is far from over despite the glad-handing in Washington on having barely escaped Great Depression II, Yves Smith, of Naked Capitalism, yesterday suggested that some form of central planning – similar to the collapsed Soviet Union – may be necessary to avoid the economic calamity separately predicted by Peter Boone and Simon Johnson, and by Martin Wolf.
Brad Delong thinks John Cochrane is certifiable. Hopefully, they’ll get adjoining padded cells, with bunk-beds so Paul Krugman and Lawrence Mishel can join them.
By way of Brad Delong; we present a PBS debate on economic policy between John Cochrane, who thinks you should sit at home and starve, and Lawrence Mishel, who wants you to work while you starve.
How best to cut your wages to increase the growth rate of the economy? That is the question! Trapped between the economists who want to increase the rate of GDP growth by using inflation to cut your wages, and economists who want to increase the rate of GDP growth by using unemployment to cut your wages, the only thing certain about the next period is that your wages are toast.
This, as usual, is presented to you as a Hobson’s Choice. Cochrane warns you that spending money to combat unemployment will result in huge deficits, which eventually will require you to pony up higher taxes to pay off. Mishel warns that not spending money to combat unemployment will result in you, and millions like you, being locked out of the workforce for a very long time.
You have 30 seconds to make a decision: Spend $200,000 for job paying $32,000, and starve; or, don’t spend the money and starve?
The clock is ticking…
You can continue adding to your stock portfolios…
Compensation costs increased 1.2 percent, the same as last quarter’s 12-month percent increase. These are the smallest percent changes published since the series began in 1979. The wage and salary series increased 1.4 percent for the current 12-month period, the same as the September 2009 12-month percent increase. These are also the smallest published percent changes since the series began in 1975. The cost of benefits increased 1.0 percent for the 12-month period ending December 2009. This is the smallest published percent change since the series began in 1979. In September 2009, benefits increased 1.1 percent. Employer costs for health benefits increased 4.4 percent for the 12-month period ending December 2009. In December 2008, the 12-month percent change was 3.5 percent. (emphasis added)
Despite what you will hear today, these are not good numbers for anyone except the sellers of luxury yachts.Output is increasing even as unemployment is rising; wages are entirely stagnant.