Sunday, October 25, 2009
(10-25) 04:00 PDT Washington –
Forget a jobless recovery. The economy may be entering a recovery with job losses.
Third-quarter estimates this week are expected to show that the economy grew for the first time since the quarter ending in June 2008. Despite the estimated 3 percent expansion and a stock market that has been on a tear since March, hundreds of thousands of people are still being laid off each month.
Eight million jobs have been lost nationwide since the recession began two years ago, and by some measures workers face the worst job market since the Depression. The average laid-off worker has been without a job for 61/2 months, a post-World War II record. Many of those workers will never recover financially.
California’s hole, deepened by a state budget mess and volatile tax system, is far worse: Unemployment is at
12.2 percent, third highest in the nation; and adding discouraged and part-time workers puts it over 20 percent.
“It’s not even a jobless recovery; it’s a recovery with more job losses,” said UCLA economist Lee Ohanian. “The idea of having essentially no net job creation after a remarkably severe recession is a real pathology for the U.S. economy.”
‘Painfully weak’ job growth
Top White House economist Christina Romer of UC Berkeley told Congress on Thursday that employment growth could remain “painfully weak” through next year, and that the largest effect from the $787 billion stimulus enacted in February, mainly aid to states, is past. By mid-2010, she said, the stimulus will no longer contribute to growth.
Alarms are ringing at the White House and in Congress. But with a mind-boggling $1.4 trillion deficit this year, Democrats have used up their bullets. The word stimulus has such a bad connotation that the term has been banished from new efforts to goose the economy and help workers, such as extending unemployment benefits, sending $250 checks to seniors and a program the White House announced to help small businesses get loans.
House Speaker Nancy Pelosi, D-San Francisco, and top House Democrats met for four hours with economists Wednesday, amid criticism from the left that the stimulus was poorly targeted on jobs. Calls have mounted for a tax credit to hire workers, much like one tried three decades ago during the Carter administration, but there is little appetite in Congress or the administration for more stimulus spending.
Romer and Vice President Joe Biden’s economist, Jared Bernstein, cited high deficits in downplaying calls for a new stimulus. “Remember, stimulus by definition is temporary,” Bernstein said. “In the interest of fiscal rectitude, we need to ramp the spending down no later than necessary.”
Even under optimistic assumptions, it could take seven straight years of solid growth just to get employment back to where it was before the downturn, a Rutgers University analysis found.
Almost no one is expecting job growth to roar back, given its anemic increase in the last decade, when the economy generated on average 1 million jobs a year, less than half as many as during the booms of the 1980s and 1990s. Median income actually fell more than $2,000 over the decade.
Employment mystery
Economists are puzzled as to why job growth has slowed, citing everything from higher health care costs, to higher productivity, to Chinese currency manipulation.
“The answer is, we don’t know,” said Tim Bartik, a liberal economist with the Upjohn Institute for Employment Research in Michigan who is proposing a tax credit for employers who hire new workers.
At a cost of $21,000 per job created, he said, a tax credit is far cheaper than the average $112,000 cost of each job created by the stimulus, as calculated by the administration.
Michael Boskin, former top economist in the George H.W. Bush administration, favors a cut in payroll taxes. He said the current stimulus has been “marginally effective at best, and at immense expense,” describing it as mainly a “patchwork of wish lists for various constituencies.”
University of Maryland economist Peter Morici said the administration’s efforts to restore growth by directing spending to such things as alternative energy are too expensive for the number of jobs created and ignore larger problems in the economy.
’70s French model
“If we’re going to have 1970s French policies, we’re going to have 1970s French unemployment,” Morici said, referring to government direction of investment that many people blamed for chronically high unemployment in Europe. The rapidly weakening dollar should boost exports and reduce imports, helping U.S. producers, but because China keeps its currency, the yuan, artificially pegged to the dollar, U.S. competitiveness against China will not improve.
“You can’t grow with a huge trade deficit,” Morici said. “If you don’t revalue the Chinese yuan against the dollar you can’t get out of this mess, and if you don’t do something about oil imports you can’t get out of this mess. Industrial policies won’t fix it.”
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/10/25/MNMR1A9PMQ.DTL
This article appeared on page A – 1 of the San Francisco Chronicle
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