By Robert J. Samuelson
Thursday, December 3, 2009
You have to be mighty isolated not to know someone who has been laid off, was forced into early retirement or -- just entering the labor market -- can't find a job. Unemployment of 10.2 percent is still below the post-World War II peak of 10.8 percent of late 1982, but by other measures, the job situation is the worst since the Great Depression. More than a third of the unemployed have been without work longer than six months, a postwar record. Counting those who involuntarily have only part-time work and those who would like a job but have stopped looking, the "underemployment" rate is 17.5 percent, another postwar peak.
This week's White House jobs "summit" will try to revive employment growth, but it will be a hard slog. Job creation is fundamentally a private-sector process, and the private economy is experiencing a broad retreat from credit-driven spending. Mark Zandi of Moody's Economy.com reports this astonishing figure: Since last spring, the number of bank credit cards has dropped 100 million, about 25 percent. Banks are tightening credit standards (partly in reaction to new credit card legislation designed to protect borrowers from rate increases), and consumers are canceling cards.
Meanwhile, empty office buildings, shuttered retail stores and underutilized factories have depressed business investment spending. In the third quarter, it was down 20 percent from its 2008 peak. Despite huge federal budget deficits, total borrowing in the economy dropped in the first half of the year; this hasn't happened in statistics dating to 1952.
Companies hire mainly when they see greater demand for their products and believe that extra workers will generate higher profits. More jobs then elevate confidence and demand. But for now, the logic is running in reverse. To restore profitability, companies are firing workers, and the ensuing pessimism erodes confidence and spending. Beyond households' $12 trillion loss in net worth, mostly reflecting lower stock and home values, Americans are saving more to guard against joblessness, lost overtime or lower wages.
The good news is that the bad news may be peaking. Surplus inventories are declining; new orders will spur production. There is pent-up demand for cars and appliances. The devastated housing market is showing signs of revival -- more sales, stable prices. Initial claims for unemployment insurance have dropped, as have monthly job losses (from about 700,000 per month early in the year to about 200,000 recently). Corporate profits have recovered from lows, easing pressure for layoffs.
Will economic growth quickly absorb 8 million lost jobs and the roughly 1.5 million annual new workers -- or is something more needed? The Economic Policy Institute, a liberal think tank, proposes a $400 billion program of aid to state and local governments, extended unemployment benefits, new "public service" jobs and a temporary tax credit for businesses that hire workers. EPI says its program would create at least 4.6 million jobs in its first year.
Even assuming that some of these jobs are "saved" (layoffs that don't occur), that looks too high. The first Obama stimulus was larger and, though estimates differ, seems to support a smaller number of jobs. Zandi proposes a $230 billion program -- also with a tax credit, extended benefits and aid to state governments -- that he projects would add 1.7 million jobs by mid-2011. Still, the unemployment rate would remain around 10 percent, Zandi says; the recovery would be sluggish and many discouraged workers would rejoin the labor market.
In the short run, Zandi doesn't worry about the effects on the federal budget deficit, because borrowing by consumers and companies is so weak. But the perception that the administration will tolerate, despite rhetoric to the contrary, permanently large deficits could ultimately rattle investors and lead to large, self-defeating increases in interest rates. There are risks in overaggressive government job-creation programs that can be sustained only by borrowing or taxes.
Obama can't be fairly blamed for most job losses, which stemmed from a crisis predating his election. But he has made a bad situation somewhat worse. His unwillingness to advance trade agreements (notably, with Colombia and South Korea) has hurt exports. The hostility to oil and gas drilling penalizes one source of domestic investment spending. More important, the decision to press controversial proposals (health care, climate change) was bound to increase uncertainty and undermine confidence. Some firms are postponing spending projects "until there is more clarity," Zandi notes. Others are put off by anti-business rhetoric. The recovery's vigor will determine whether unemployment declines rapidly or stays stubbornly high, and the recovery's vigor depends heavily on private business. Obama declines to recognize conflicts among goals. Choices were made -- and jobs weren't always Job One.