Home > shorter work time > The Rise and Fallacy of Larry Summers…

The Rise and Fallacy of Larry Summers…


We finally came across Larry Summers most recent statement on why unemployment lines will be lengthening long after the Messiah and his economic team declare this recession over.

If the entire quote is too long, just cut to the highlighted words in this statement:

The economic contraction has caused significant job loss. It is noteworthy, however, that the higher than forecasted job losses do not appear to be primarily the result of weaker-than-expected GDP. Rather, it appears that a given level of output is being produced with fewer people working than historical relationships would have led one to predict. In economists’ language, there is a significant residual in the Okun’s law relationship: The unemployment rate over the recession has risen about 1 to 1.5 percentage points more than would normally be attributable to the contraction in GDP.

To put the point a different way, normally in economic downturns, productivity decreases as firms keep workers employed even as the amount of work declines. This pattern of deteriorating productivity has not been a feature of the current recession. In fact, productivity has increased in this recession, as it did in the last.

Bad news indeed. Political prospects for the Democratic Party may arc toilet-ways in the mid-term elections unless they can get a handle on this.

Another writer commenting on Larry’s observation, put it this way:

What seems plausible is that the disruption in financial markets after the collapse of Lehman Brothers, combined with a cash-flow disruption for businesses and predictions of a long slump, discouraged US employers from hanging on to their employees during the downturn in hopes of a quick recovery. Instead of “hoarding” workers, businesses shed more workers than usual.

How does Doctor Larry diagnose this unsettling illness, and what can the Messiah do about it?

One potential explanation for this phenomenon, though by no means a dispositive one, is that the greater financial pressure on firms in this recession has led them to shed cash flow commitments at an unusually rapid rate by laying off workers and leaving jobs vacant. Perhaps an expectation that the recession would be lengthy has also contributed to this behavior.

I emphasize these points because they suggest the importance of the structural dimensions of economic policy. If unemployment reflects more than just weak aggregate demand, the case for measures to increase the flow of credit and get banks lending again, as the Obama Administration has pursued, is reinforced. It also speaks to the importance of structural policy changes that restore long-term confidence, including job-creating investments in education, infrastructure, renewable energy, and energy efficiency that are key components of the Recovery Act.

So, we are led to believe that greater than expected job losses are caused by companies who are having a harder time getting credit, and/or who expect a pretty lengthy economic contraction. And, the cure for this illness is to generate public “investment” – in Washington-speak the loading of more debt on the public is always called investment – unless it is called tax cuts for Fans of Bush and Dick.

Fair enough.

Then perhaps Larry would explain what happened in the last recession – in 2001 – and the last one before that – in 1993, when, as we earlier quoted Brad DeLong:

In 1993—two full years after the National Bureau of Economic Research said that the 1990-1991 recession had ended—the unemployment rate was still higher, and the employment-to-population ratio lower, than it had been at the recession’s trough. We saw this same kind of “jobless recovery” after the recession of 2001. It wasn’t until 55 months after that recession ended that a greater share of Americans were working than had been working before the contraction.

Did every Wall Street bank collapse into a heap of insolvency in those recessions too, creating a contraction of credit which then sent Main Street spiraling down in an orgy of job evictions?

If so, we had not heard about it. (A failure we personally lay at the feet of the slobbering, servile, manipulated, mainstream media – who, for all their failure to note those two credit catastrophes, nevertheless found weapons of mass destruction right under Saddam Hussein’s reading glasses.)

We have different theory: No matter how much Washington does to create and extend billions of hours of superfluous labor time, social labor keeps expanding its productive capacity that much more. The post-war ponzi scheme of keeping the masses slaving away to maintain the global empire is collapsing like the list of Bernie Madoff’s dinner invitations, and there is nothing the Messiah can do to stop it.

Working time will be reduced one way or another – by law, or pitchforks…

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