08 November 2011

Will Work for Votes

From a jobs point of view, we are in a depression.  And the only two parties we seem capable of electing to run this country, since at least the 1850s, have now both staked their latest re-election prospects on creating jobs.

Both parties are failing us - miserably.

When Democrats had absolute power (January 2009, until 2011), it seems they pushed the health care agenda while they could (no, I’m not dismissing the 2009 Act; just read on).  And at least since the Republicans have had the House, it appears they’ve been more focused on either saying “no” to anything a Democrat might suggest; that, or maybe passing anti-abortion legislation.

And now that we enter this election cycle with dissent brewing both on the left with the “Occupiers”, and on the right with the Tea Parties; now after at least three or four years of continued malaise, our elected representatives might finally be starting to focus on actually helping the private sector create a job or two.

Let’s review our current job environment.  One aspect of depressions is, deeper than normal job loss with far slower than normal recovery.  This current period is exactly that.

In the post-World War II era, there have been 11 recessive periods (splitting 1980-82), including this current one.  In all but two (our current one, where jobs declined during 2008-10; the other, 2000-03), the private sector jobs lost were recovered in 7-15 months, or just under one year on average.  Of those periods, the average private jobs lost as a percent of the pre-decline peak was 3.6%.

Defining recessive periods by private job loss and the time it takes to recover, this current one began in January 2008 and bottomed out in February 2010.  Using last Friday's jobs report, which updates us through October 2011, we are now 20 months out and still not recovered - well beyond the more typical 11.6-month average recovery.

Despite approaching twice the normal recovery time, we are not even close to actually recovering.  We lost 8.8 million private jobs in this current period.  That's 7.6% of the number of jobs we had before the decline – more than double what is typical.  Over the past 20 months through October 2011, only 31% of those private jobs lost have since been recovered (26% of total jobs, which includes government).

The next slowest post-World War II recovery period was after 2000-03.  However, 20 months into that, 83% of jobs lost had been recovered; all just three months later.

The job recovery time, as a ratio of the loss time, for all previous ten recessive periods averages a little over 1.0.  In other words, it took on average 12 months to recover from 12 months’ worth of job loss, no matter how deep or shallow.  On a graph, it would look like the "V-shape" that some people characterize normal recessions as - as fast out, as in.  This current recessive period experienced 25 months of job loss.  So a normal looking, V-shape recovery would have all those jobs made back by May 2012 – around a half-year from now.

To date, we have recovered only 2.8 million of the 8.8 million private jobs lost.  Twenty months in, that's an average recovery rate of 138 thousand jobs per month (104 thousand were reported for October 2011 last Friday; consensus guess was 125 thousand, per Bloomberg).

At the 138 thousand monthly rate, it will take another 44 months from October 2011 – or by around June 2015 – just to make back all jobs lost in this current recessive period.  That would be a total recovery time of 5 1/3 years, over five times the average duration of post-World War II recoveries.

On top of that, while we will have spent potentially three-quarters of a decade either losing 8.8 million jobs or trying to make them back, we will not have even begun to address the ~10-14 million more jobs we would need to create in that time simply to address population growth.  There are 154 million people in our civilian labor force.  Just to keep up with population growth (~0.9-1.2%), we need to generate 115 to 150 thousand jobs each month.  Therefore in a sense, at these current rates, we will never effectively recover.

It looks like job loss during in the Great Depression bottomed out around the end of 1933.  The unemployment rate, pre-1929 Crash, I believe, was around 4%.  By 1933 it was around 25% (with under-employment in the zone of 35-40%, depending on how you measure it, as they didn’t keep consistent records back then).  And it appears that it took around ten years, through 1943, to get back to a 4% unemployment rate.

That was aided in no small part by war-time production.  The US added over five million private jobs in just about a year, from mid-1940 through mid-1941 alone (taking ~5-7% off of by-then ~15-17% unemployment).

Our current situation is by no means as bad as the 1930s.  But it is clearly many multiples worse than every other post-World War II recessive period, and the closest one on record that we might dare to compare to the 1930s.

If we are on track to take more than five years to recover the jobs lost in the course of about two, it means our current recovery time will be over 2 ½ times the loss time.  This would be equivalent to the Great Depression’s, four years down, ten years out ratio.  The total loss and recovery period then would be only two-thirds the duration of the Great Depression’s – but almost 3 ½ times the duration of the post-World War II average.

And it’s not just the number of people without jobs.  It’s also the amount of time each person spends out of work.  As of October 2011, the average duration of unemployment was around its peak, at 39.4 months.  So far, this is double any highest previous peak of the post-World War II recessive periods.

I think we all know by now that the headline unemployment rate hovers stubbornly around 9.0%.  As well, the underemployment rate is 16.2%e - sometimes referred to as the real unemployment rate, as it includes things like people who want to work full-time but can only find part-time gigs.  These levels are about double what they should be in non-recessive times.

Not in over a generation’s time has the job situation been so bleak; has there been a greater need for our government to proactively and aggressively tackle this one issue.  So what’s on the plate at the moment?

Well we have what’s left of the President’s ~$450 billion job proposal, revealed last September.  I guess as expected, it was voted down in the Senate last month.  Now he pitches bits and pieces of it.  Basically, over half of it was tax cuts and job/investment-related credits and benefits.  The rest was investment/spending.

I feel that Keynesian-styled government spending is a necessary evil, only when the private sector is too nervous to invest and expand.  But I also feel that timing in life is everything.

The government, at best, is grossly inefficient, and therefore should spend the least possible, whenever possible.  The occasional impact of their spending stimulus is best deployed in hard times as a psychological inducement to encourage the private sector to invest again.

The window for effectiveness to that end is small – when people are at their most fearful.  Wait too long, and the psychological utility of its impact diminishes, as the atrophy of malaise sets in.  That moment would have been about three years ago.  And the government did spend in a rather big way then.  Their remedies, it turns out in hindsight, although big, just weren’t bigger than the actual problem.

I support the President’s proposals for lower taxes and offering job and business investment related tax credits while the economy is soft – even if it’s kind of “pushing on a string” right now.  And I do support his infrastructure spending proposals – primarily because we have to do that anyway.

But throw the consumer a bone also (I know their lobby isn't as big, but try).  We might also want to explore, as well, allowing personal interest (on credit cards, or auto loans for example) to be deductible for personal income taxes, if we can find an offset to pay for it.  This would transfer stimulus to more efficient private consumption – the by far largest component of GDP.

After all, businesses only invest when they need to – when they see that they have more sales than they know what to do with.  Increasing private consumption generates that “good problem” for business.

Some might worry that could get the household back into too much debt – part of what caused our problems in the first place.  I argue that we are effectively going there anyway, via our public sector rising debts.  And, after several years of that, to what benefit, really?

Ultimately, the best job creator is promoting, nurturing innovation and technological advancement.  For many decades, we have both publicly and privately led that charge.  The rest of the world is now catching up, but I wouldn’t count us out.

I will conclude by paraphrasing what I heard former President Clinton state in an interview on MSNBC’s “Morning Joe” today.  He said, when he was younger, it was the Soviets that were going to “bury” us in advancement.  Then in the 1980s, it was the Japanese.  Now, apparently, it’s supposed to be the Chinese.

He said it’s been a money-loser every time to bet against the US.  Our job is to make people lose that bet once more.  I agree with him.

We’ve done it before.  We’ll do it again.  And that’s the good news.

Now if we could just get those pesky politicians out of the way.

No comments:

Post a Comment