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Tuesday, January 15, 2013

Transcript: Robert Pollin, Employment and Unemployment, and the events of 2012


That was Robert Pollin of the Political Economy Research Institute. We'll hear him later in the podcast with the short form of his take on 2013.

First, a little tardy, but our annual report on events widely reported that did not actually occur.

The Recovery,
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Sorry. We're still at it. We'll go into detail in coming months, but today let's break it down.

The Housing Recovery. Did it happen for you? Or are you still in a mortgage bigger than the house?

In many markets house prices ARE up, or at least sideways. There is a lot of activity with hedge funds and vulture funds coming to buy distressed properties to convert to rentals. But millions of families are locked into houses they are over-paying for and unable to even trade down because they don't have the 20 percent down payment.

Employment Recovery. Did it happen for you?

If you're young, Are you sure you went to school to work at Starbucks? Do you worry that these lost years will never be made up? Or do you take out another loan and go to graduate school? Or maybe just get another game app for the phone?

If you've lost your job, Aren't you sorry the new ones don't pay as well as they used to? Did you ever think you'd be working night security?

If you still have your job, Are you locked in there by that mortgage? The retirement plan has gone from sell the house for a nice profit to supplement the savings to no retirement, hold on to the job, hope you can squeeze into social security and Medicare at some future date.

Small Business Recovery? Just look at the NFIB sentiment survey. No reason to invest, expand, hire. Business conditions six months from now? That question was answered with gloom not seen since 2008. No. No recovery.

What else was widely reported and did not happen?

The Obama victory triggered the apocalypse? That was predicted. Did not happen. Seems to be business as usual, actually.

Deleveraging has progressed substantially and soon we will have a turnaround? Asserted by many. Has it happened?

Mortgage debt blew up in the 2000 to 2008 period, carrying total consumer debt (Home Equity, Auto Loans, Credit Cards, Student Loans) to a peak in the last day in office for George W. Bush. From six plus trillion to twelve plus trillion dollars.

It HAS come off a bit now, to around eleven trillion, on the fall in mortgage debt, as some households stick in there and pay down their loans, while others realize their losses through foreclosures and short sales.

But we've added in the student loan category, which has not quite doubled in the same period, now to $1 trillion. This is an alternative to unemployment. Borrow money to go to school. It is a sleeping crisis. With the rules the way they are, it could cripple the future for many of these people, even as it provides another profit center in the private economy, the no-value technical school.

So, Widely reported, not occurring, 2012 version

This week at the forecast blog, ReMacroBaseline.com, we take up employment and unemployment.

As we wrote in our last forecast in September 2011:
"Employment growth and the real rate of unemployment are not only key economic indicators. They are the measure of the economy. All the other numbers, including GDP growth and the other indices, are secondary. Labor is the primary capacity that must be used to its maximum. A full employment economy is the only healthy economy."

Unfortunately that blog is lost to the cyber-vortex which consumes those too lazy to keep up their domain registrations.

But the point remains.

Employment is in Depression. We are not yet back to the peak of nearly five years ago. Not back? We're barely halfway back. We dropped over 6% of the labor force, and we've added back slightly more than 3%. Meanwhile the labor force is growing. The Economic Policy Institute has a chart from 2012 which shows the jobs shortfall as being 8.9 million jobs, of which 5.2 million are jobs not added. That is, adjusted for population, we needed 5.2 million, or 3.8 percent of the labor force in additional jobs to keep to trend. That means -- adjusted for population -- there has been no recovery at all. We hit the bottom and have flat-lined since.

The closest thing in the post-war to this depth of job loss was in 1949, a short, sharp recession that went north into the wonderful unemployment rates, sub-4% and a decade of prosperity. That job loss was similar in percentage of the workforce terms, very much less in terms of population. 1949 came in the context of huge government debt, by the way, coming out of the war, greater as a percentage of GDP than today, and in the context of tremendous economic challenges in the transition from war to peace. We rebuilt Europe, built the American dream, and had time to practice containment of the Soviet Union. That was in the heyday of demand side economics.

Any argument that employment is recovering is specious. Wall Street likes to feature job growth, which is often a positive number, but as we said, barely tracking the growth in the labor force. And it likes the unemployment rate -- not because it is so good, but because it seems to be lower than it was at the depths.

In fact, job growth rarely peeks above 200,000 in a month, and we need 600,000 to get to recovery. The slow drop in the unemployment rate is not a sign of health, it is a symptom of stagnation, a function of the decline in job-seekers. The employment to population rate ought to be around 63%. It is stuck below 59% and is not moving.

Again, the unemployment rate IS coming down, not from any conspiracy hatched in the pocket-protected hearts of statisticians at the Bureau of Labor Statistics, but as a result of people having to make other plans. Getting onto Social Security early, going to school on credit, taking disability, or doing whatever they can.

We get into more of that, with charts, in the post at reMacroBaseline.com on Friday. But just a couple more quick notes:

Jobs are important on two counts. One, idleness is bad. Idle capacity means unmade goods and services, products we could use to build on. Two, the incomes that come with jobs are the demand that is the primary driver of market capitalism. The stagnation in the employment numbers is further exposed as a disease by the fact of falling real incomes for most workers. People who lose jobs and find another typically lose up to one-third of their take-home in the exchange. This is a recipe for further decline.

The higher-paying jobs are in investment-related industries, and there is a lot of public investment that is going unbuilt that needs to be built.

And a last note, we listened to Paul Krugman this week, and we have his book here, End This Depression Now. Some of our listeners know we are not great Krugman fans because of ... well, in this case, because a temporary pump-priming even on the scale Krugman suggests may be better than what we have now, but it is not sufficient to rescue the economy, nor restore long-term stability. Nor is it designed to. Krugman may be on the edge of what is politically possible, but economically we need substantial reform in banking, debt, health care, and public investment. This is a necessary regime for recovery. Krugman is offering two aspirins and call me in the morning for a serious systemic disease.

So, Before we get to Robert Pollin and his look into 2013... This episode of the Demand Side Forecast is brought to you by, yes, Demand Side the book, DemandSideBooks.com and reMacroBaseline.com, our new and in need of comment forecast blog, and by your democracy. Taking to the streets is all very nice, but wouldn't it be better if the representative government we have in place would represent people in a democratic manner? It would certainly make the chat about economics more relevant.

Now, on to Robert Pollin, courtesy of the Real News Network.


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