Why They Must Act

You know me with my love of nifty graphs. Well, this depressing one–with an even more depressing title–comes from this week’s issue of The Economist. I don’t know if you remember that I told you one of the sayings for a short unsustainable uptick in a market is that even a dead cat bounces if you throw it. So, a small market rally that falls apart is called a dead cat market. Well, think about that appellation in association with the idea that “Dead cats do better”. Then, be truly horrified because this is not just any market, this one reflects our job market.

HERE’S the way these things typically work. A deep recession is usually followed by a rapid recovery. From 1934 to 1936, the American economy grew by 10.9%, 8.9%, and 13.0% per year, respectively. From 1983 to 1985, annual growth came in at 4.5%, 7.2%, and 4.1%. For now, it seems the American economy will struggle to grow by 3% in the first full calendar year after the recession. Still, growth of any sort typically ends up producing some employment growth, and so rapid recoveries from deep recessions usually produce a lot of employment growth:

Employment sprang back by 3.5% in the 12 months following the end of the deep 1981-82 downturn. When the economy started growing again in March 1933 the employment bounceback was springier still. No such turnaround has emerged this time. The American economy has seen downturns this severe and recoveries this jobless but never the one on top of the other.

I’m bringing this up again because there was an Obama apologist who myiq2xu let out of spam last night talking about how you could blame Clinton for all kinds of things–while still not giving him credit for anything like a good recovery–including losing the House of Representatives back then. Another Obama apologist I read at FDL was saying that Clinton had it easy because he didn’t come in during a recession. It’s amazing to me how history gets so rewritten. These kinds of comments must come from children that lived through the 80s in Montessori preschool with their parents footing the bill. This election will be lost on lack of action, vision, discussion, and leadership on the overwhelming problem of joblessness. After 18 months, it’s Obama’s jobless recovery.

First, you can see in that graph that there was a recession in 1990-91. We recovered nicely from it during the first Clinton term. We even recovered strongly from the monetary policy led recession of the early 1980s. Once interest rates settled down and Reagan spent a lot of money rebuilding assets in the military, the job market recovered nicely. Better yet, take a look at the recovery of jobs during the Great Depression. Rather impressive isn’t it?

Usually, when you see a very bad recession, you see very strong job growth as we recover. This has not happened with the last two recession which started under the Dubya terms. We’ve had two jobless recessions in a row and very close together. As a matter of fact, the number of people employed right now are the same number of people employed in 1999. We’ve completely erased a decade.

So, what’s lacking? Well, that’s easy. That would be a strong and forceful demand side stimulus package specifically targeted to job creation. At all those times there was no huge tax breaks to the upper class so they can speculate in the markets with their monies and create the next bubble. Bush 41 wasn’t stupid.

Reagan and Clinton both raised taxes after the recoveries had taken hold. Reagan actually increased taxes by more than any other president. It was the one addressed to fixing the baby boomer problem that was upcoming in Social Security. But, he did that after a strong batch of fiscal spending; again focused on rebuilding the navy which brought about shipyard jobs. (They’ve just announced this year in Louisiana, that one of those huge ship builders–including the one that just built the USS New York–is closing its shipyards that are scattered through out the state. Not good.) It also helped when the Fed went back to normal interest rate levels. If you haven’t heard my story about my first home purchase in 1982, then you should. My interest rate at the time was just under 17% on a thirty year fixed mortgage. Luckily, by 1985, I got a new one at 9%. Yes, that’s still high by today’s standards, isn’t it?

The difference back then was that I was getting good raises and I was not alone.. I haven’t seen a good raise in 10 years. In fact, I’ve been furloughed recently (which means they don’t pay you for days you work) and now–along with half of the tenured senior faculty in my department– I’ve been laid off. I’m about 7 years out from cashing in on the retirement plan. Most of them are with a few years, but, now, they’ve lost that. That, mind you, is in a college that’s a profit center. Remember, teaching MBAs is a university cash cow. That’s why there are so many of them.

The deal is there is a tremendous amount of ground to make up right now in the labor market which worries me to no end because no one in Washington DC appears to get it. The Atlantic calls this the era of joblessness. They get it.

There is unemployment, a brief and relatively routine transitional state that results from the rise and fall of companies in any economy, and there is unemployment—chronic, all-consuming. The former is a necessary lubricant in any engine of economic growth. The latter is a pestilence that slowly eats away at people, families, and, if it spreads widely enough, the fabric of society. Indeed, history suggests that it is perhaps society’s most noxious ill.

The worst effects of pervasive joblessness—on family, politics, society—take time to incubate, and they show themselves only slowly. But ultimately, they leave deep marks that endure long after boom times have returned. Some of these marks are just now becoming visible, and even if the economy magically and fully recovers tomorrow, new ones will continue to appear. The longer our economic slump lasts, the deeper they’ll be.

If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities. It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years.

This is not a time for complacency or silly season politics. This is a time for a brave approach to solving our jobless problem. The Republicans are brain dead on the issue so there’s absolutely no hope of anything coming from them. What I don’t understand is this new Democratic party. Look at the graph and tell me that your eyes are lying to you about the impact of FDR’s bold vision and action for the US during the Great Depression. Why can’t we get similar initiative and leadership now that we’re suffering from the Great Recession?

We don’t need an extension of capital gains preferential treatment. That just brings on more bubbles. We don’t need an extension of a tax break to the wealthiest inheritance babies. That doesn’t do anything but fund a donor class. We certainly don’t need to focus on the ever growing budget deficit because that’s not going to change unless we end this joblessness. Mr. President, tear down the wall that is stopping Democrats from being Democrats.