The economics and politics of a recession like no other
By Barry Bluestone | Boston.com | July 6, 2012
The latest news on the employment front is not good. Indeed, it is terrible. Last month, employers nationwide added a total of just 80,000 to their payrolls. Back in January of this year, 275,000 jobs were created, a strong enough performance to reduce the national unemployment rate from 8.5 to 8.3 percent in a single month. If we could have kept that pace up for just five months, we would have shaved the unemployment rate by a full point. By the November election, we might have faced a jobless rate of “just” 6.5 to 7.0 percent. President Obama would have been seen as something of an economic magician, boosting his chances of reelection immensely.
Unfortunately, June marked the sixth month in a row that employment growth has been deteriorating. As such the official unemployment rate remains stuck at 8.2 percent. Unless a miracle comes along to create about 200,000 jobs a month to offset labor force and productivity growth, the unemployment rate will not fall much below this level. Essentially, private employers have stopped hiring and the public sector continues to lay workers off. Sluggish consumer demand explains part of this. A weakening European economy explains still another. And while I am not one for conspiracy theories, it just may be true that some employers could justify adding new employees now, but are holding off new hiring until after the election hoping that miserable economic conditions will help jettison Democrats from the White House and the Congress.
The fact is this recession is unlike any one we have experienced over the past century with the possible exception of the Great Depression of the 1930s. A few statistics and a simple chart demonstrates why.
The current “Great Recession” is the eighth official recession since 1960. The job loss during this recession was enormous relative to each of the others as the following table demonstrates. Between January 2008 and February 2010, total non-farm employment plummeted by nearly 8.8 million jobs. This was more than three times the loss in any of the previous recessions in terms of the number of jobs lost and more than twice the rate. Before employment began to recover, the nation had a total of 6.4 percent fewer jobs than before the recession began.
|Recession Period||Jobs Lost||Jobs Lost as % of Total|
But what is really frightening about the current state of affairs is that the recovery has stalled in a fashion that makes even these numbers look relatively benign. By May of this year, only 43 percent of the lost jobs had been recovered. In the previous recessions, as the following chart reveals, it took no more than eight months to recover this share of the job loss. This time around it has taken fifty-one (51) months. In this sense, this weak economy is between six and twenty-five times worse than earlier recessions! (The dates in the chart refer to the period in which the total number of jobs was contracting.)
There are several reasons that might explain this. First, of course, is that this recession was so much more severe than all the earlier ones. Snapping back from a recession that claims just 1.3 to 3.1 percent job loss is a lot easier than one where 6.4 percent of the jobs disappeared. A second reason is that all of the previous recessions were “normal” in the sense that they amounted to corrections in a regular business cycle when inventories of unsold goods rose faster than consumption and as a consequence employers slowed down production to bring inventories into line with demand. This time around the proximate cause was not a “normal” inventory build-up, but an irrational speculative boom in housing, a massive credit card spending bubble, and ridiculously risky banking practices that could never be sustained. Instead of a little bubble bursting, a gargantuan one did.
Yet there is still a political dimension to this recession that marks this one apart from all the others. In past recessions, Democrats and Republicans came together to forge a coherent fiscal policy response to bad economic times. The consensus was similar to the near universal support given to the President in times of war or a foreign policy crisis. In the 1960-1961 recession, President Kennedy and Republicans in Congress agreed on short-term tax cuts for working Americans to prop up consumer spending. In subsequent recessions, members of both parties forged a combination of short-term tax cuts and sharp increases in federal spending — in defense and in social programs — to shorten the time it took to regain lost jobs.
This time around, Republicans in the Congress have made it clear that they – perhaps like some employers — do not desire a faster solution to reduce joblessness in the hopes of securing electoral victories in November. By putting partisanship and conservative ideology ahead of a coherent and rational attack on unemployment, millions and millions of American families will suffer for years to come.