Last week was Investment.
Investment is the key to employment. This is mainline Keynes.
Government deficits for employment purposes have been promoted by some on the Left, including Keynes, but in a society with failing infrastructure, failing schools, decrepit health care, and a climate crisis looming, employment is the way to the end, not the end in itself. Healthy employment would return prosperity to the middle class, stabilize the society and get things rolling for small business, as well. But we don't need employment for employment's sake.
But the more normal take is that government deficits applied in a kind of blanket manner: any combination of tax cuts, defense spending, or whatever else the government might get through will increase GDP and by extension employment. This group is usually the jump-start group, with the idea that a certain momentum will generate demand which will cause investment and we'll be off to the races. Probably not. Another angle is out of the Levy Institute, which advocates direct employment in lieu of welfare. There is a certain logic to that. Getting rid of the "ragbag" as Leon Keyserling called it, of government programs in favor of direct work is logical and more respectful. But there is a class of dependent people, whether by disability or age, which cannot be abandoned.
Others claim that the problem is not going to be solved by employing people by government action. The problem is that the interest rate is not low enough, or the right interest rate is not low enough. This is the zero lower bound school. So what we need to do is buy ever more financial securities to force the interest rates down. This group includes Ben Bernanke and Paul Krugman.
While it WAS Keynes who pointed out the efficacy of interest rates in certain situations to stimulate investment, and identified the mechanism to influence them as the purchase of securities by the central bank, and Bernanke and Krugman call themselves NeoKeynesians, I think John Maynard would not approve. Keynes was explicit in the contention that the interest rate would not work in some situations -- like the one we have today. And he was right. The interest rate has not produced investment in this era of uncertainty. All that buying of financial securities has ended up in financial securities. The liquidity trap. There is no level of interest rates low enough to drain it off into real investment.
And we ought not leave out the last group which says "Cut the deficit, cut the spending, balance the budget, NOT investing will sooner or later create jobs. The Hayek school of virtual reality. Like the interest rate group, no matter what the evidence, just forge onward. Not a single example of austerity succeeding as a recovery tactic. No matter if the cause was a financial bubble ... actually some of them -- the most recent Nobel laureate from the Chicago School included -- don't believe in bubbles, even now ... but no matter what the cause, the solution is to cut the real spending in the social safety net and not invest in anything useful until we wring out the excesses in this imaginary capitalist marvel.
The components of the unemployed. In normal times there are people who are looking for work who cannot find it, and there is another group who are not able to work, prefer not to work, are going to school, or are working outside the monetized economy, housewives and unpaid home health care workers and so on. In bad times, this group grows. Someone -- maybe it was Karl Marx -- called this the reserve army of the unemployed. That army is swollen, homeless, disabled, living on social security before they wanted to, hiding out in school growing their debt, and doing whatever else they can do to get by. This army was ignored by the headline rate of unemployment released last Friday -- 7.0 percent.
We are growing this group every day. Creating chronically dependent people who are willing to live subsistence lives because they are not willing to work at the jobs and pay levels they can get, or are mentally unable to work, or socially unable. The Right calls the government the cause of this kind of dependency, when in fact, it is the manifest failure of the corporate capitalism to create the work. So-called "discouraged workers" are in a relative's or friend's basement because they aren't being thrown out, and are learning just how worthless they are every day without a job. Drugs, television, video games, conversation with others who have it just as hard, sullenness.
Nobody is worthless.
But I digress. Our point today is employment.
What are the employment facts?
Public sector payroll jobs under Obama have fallen by more than 700,000. Absolutely unprecedented. Of course, these are not just the federal jobs, but include the teachers and police and fire and so on of local and state governments. Down 700,000. At the same elapsed point in Ronald Reagan's administration, that number was up by 400,000. Under Clinton up by 800,000. Under W by a million. Under Papa HW ... well, he didn't get a second term, but he still wins. Between his first day in office and his last, 48 months later, plus 1.1 million public sector jobs. Under Obama minus, 700,000.
Private sector payroll jobs? Obama's presidency to date, plus 4 million. At the same point in W's, less than 2 million. Papa HW's ended up with plus just over 1 million. Reagan, plus 7 million. Clinton plus 13 million.
The charts are online. Note. Without public employment gains, both W and Papa would have been negative total jobs at the end of their tenures.
The Bush-Obama recession/depression in jobs continues today. Employment now almost six years on is still 1 percent below that at the onset. We have lost more person-years of employment in this recession than in all other postwar recessions combined.
Long-term unemployment is coming down. Good news? First the data. Those unemployed over 27 weeks now comprise 2.5 percent of the population. This is actually a higher number than the peak in any other post-war recession. But why has it come down? Because the non-participating reserve army of the unemployed has absorbed them. Not because they found work.
Our contribution here at Demand Side is to provide you with the chart that reconciles the unemployment rate with the swelling of the army of unemployed. We do this by simply taking the official Bureau of Labor Statistics Current Employment Survey headline unemployment rate and adding the draftees into the Army of the Unemployed. Simple. Methodologically robust. And see that it correlates with your experience and the doldrums most of us feel in the real business and household sectors. Bouncing along the bottom. But here on our chart, the bottom seems to be sloped up slightly. The All-In number has broken below 18 percent, down from a high of 22 percent in late 2010. The Headline number, adjusted, is now peeking below 12 percent, down from its high of 14.3, also late in 2010. Wonderful. We've shaved 3.2 percent off the 14.8, and in only three years. At this rate we'll be back to the number of 2007 by ... what? ... 2022. Come on.
There are those who say, "Whooee! 203,000 jobs added. Unemployment rate at 7.0 percent by the old math! We're on our way! 2014 will be the turning point. These are the people who have been saying the same thing since 2010. The same people. Many of them were assuring us the crash would be a dip at best. And a lot of them want to sell you a share or two of an ETF.
Because it is less bad than the peak of the crisis does not make it good or even a harbinger of better times ahead.
An aside about employment v. productivity. If one thing should have died over the past 30 years it is the notion that labor gets paid its marginal product. This is a Neoclassical scheme in which the factors of production get paid relative to their contribution. Note that it is impossible to split out which is which from labor and capital, and productivity has gone up substantially while wages have not. Still, in the long run or in the fantasy world, the route to higher wages is through productivity improvements.
Productivity goes up in tight labor markets because managers manage, innovators innovate, and so on. It goes up because wages go up in tight labor markets and managers are incentivized to save labor. Wages also go up in situations where labor organizes, because the market becomes balanced. The buyer of labor no longer dominates the seller.
Productivity does rise with technology, to a degree, and to some extent the absence of job gains currently is from business investment in technology, self-serve, robotics. Some of that is labor being more productive. Some of it is self-serve. I am now searching through a phone menu rather than asking the nice lady for the answer. Profits may go up, but you see every day some folks who are left out for want of technological capability. I think that may be my personal axe.
Tangentially, the move to high tech, robotics and so on has also produced some -- anecdotally, at least -- unfilled job openings, as the technical chops to run the robots are not in broad supply. Companies complain about the dearth of qualified applicants. How about they train them? No, it would be better for profits if the local college trained them at the student's expense.
And that brings us to the unemployment rate for different levels of education. Not surprisingly, those with the most education are the best employed at the highest wages. But all levels have gone down, and we suspect that the most well qualified and best connected are simply bumping the lesser endowed down the ladder.
Calculated Risk says we'll be back to the pre-recession peak in terms of absolute numbers of employed by the middle of next year. We'll return to that level with hundreds of thousands of new entrants into the job market, millions drafted into the reserve army of the unemployed, college graduates and MacDonalds and on the night watchman beat, and very, very few more doing what needs to be done -- infrastructure, education, climate change mitigation. We have the talent, we have the numbers, we just don't have the will to do the right thing.