If you've been pinning your job-search hopes on the conventional wisdom that employment gains follow an economic recovery, you have a problem right now. The so-called Great Recession has been over for almost two years, but unemployment remains about where it was before the National Bureau of Economic Research (NBER) declared that the recovery had begun.
In June 2009, the month the NBER has pinpointed as the end of the recession, the Bureau of Labor Statistics' unemployment rate stood at 9.5 percent. In early 2011, the unemployment rate was 9 percent. To put this feeble recovery into perspective: Just eight months after the job-loss peak in the 1948 recession, which saw unemployment increase by 5.2 percent percentage points, all of those jobs had been replaced. Less than a year after the trough of the 1958 recession, the economy had reversed an unemployment spike of more than four percentage points. In 1981"“82, job growth more than erased a 3.1 percentage point increase in unemployment within 11 months, leaving the rate lower than it was before the recession.
The numbers today get even worse when you look beyond the Bureau of Labor Statistics' top-line figures. As of January, the government was reporting a rate of 16.1 percent for U-6, its measure of "total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force." The U-6 number, sometimes referred to as the "real unemployment" rate, has improved since January 2010 by less than half a percentage point, and not in a straight line. In fact, U-6 dropped early in 2010 before ticking back up in the summer"”a year after the NBER's declared end of the recession, when you would expect job growth to be at its strongest.
Even that 0.5 percentage point improvement in official unemployment contains more bad news than good. Much of the increase comes from "discouraged" workers who reach the end of their unemployment benefits and have stopped looking for work. The Bureau of Labor Statistics reduced its estimate of the civilian labor force by 504,000 in January, which, along with some changes to its estimates of total population, helped make the unemployment rate look a little better.
The economy would need to be creating about 150,000 jobs a month just to keep up with population growth. Instead, nonfarm payroll job creation averaged 94,000 per month from January 2010 to January 2011. At the beginning of this year, the Franklin & Eleanor Roosevelt Institute, analyzing Bureau of Labor Statistics numbers, calculated how people are leaving unemployment. It found that more (22 percent and rising) are going from "unemployed to not in labor force" than are going from "unemployed to employed" (17 percent and falling).
And all of the above numbers are arguably better than they would have been without various one-off interventions"”hiring for the 2010 Census, the first-time homebuyer tax credit, the $800 billion stimulus package of 2009"”that have now run their unrepeatable course.
Economists have rolled out an alphabet soup of justifications and neologisms to explain all this: the "w-shaped" or "l-shaped" recession, the "double dip," the "jobless" or "job-loss" recovery, and so on. But there are really only two possible explanations: Either the recovery isn't happening, or there's something wrong with our assumptions about the economy. Unfortunately, nobody seems to be interested in using the Great Recession as an opportunity to get rid of a pile of macroeconomic hoodoo that has consistently failed the test of outcomes.
We are meant to understand, for example, that the Federal Reserve manipulates interest rates through its federal funds rate, which is what banks charge each other for loans. Since December 2008, the fed funds rate has been kept between 0 percent and 0.25 percent, a historically low rate. Yet long-term interest rates keep going up. As of this writing, the yield on the 10-year Treasury bond was 3.7 percent; on the 20-year Treasury, 4.55 percent; on 30-year Treasuries, 4.75 percent. With very little fanfare, the Fed's vaunted power to "heat up" or "cool off" the economy has vanished.
Keeping the fed funds rate negative relative to inflation has succeeded in pushing prices upward at a time of economic slack. Between December 2008 and December 2010, commodity prices went through the roof. The price of gold rose by 89 percent, compared with 1.8 percent consumer price index (CPI) inflation over the same period. Crude oil went up 107 percent. Copper went up 230 percent. Sugar went up 154 percent. Soybeans went up 65 percent. Wheat went up 60 percent. Corn went up 102 percent. Coffee went up 113 percent. Describing these numbers in a December article for Asia Times, commodity specialists Hossein Askari and Noureddine Krichene coined a new term"”"Bernankeism""”to describe how endless currency creation and low interest rates produce inflationary bubbles. Not that you'd know about inflation if, instead of buying things you needed, you were studying the popular "core" CPI, which leaves out energy and food costs and bases its estimates on a cherry-picked basket of goods that tells us increasingly less about the well-being of Americans.
While we're discarding economic terms, we should reconsider the centrality of GDP growth (which, as the Harvard economist Robert Barro has demonstrated, can look deceptively healthy because of the way government spending is counted), along with the idea that "housing traditionally leads the recovery" (it isn't today), and the idea that Wall Street reflects the overall economy (which the Reuters financial journalist Felix Salmon argues is less true than ever, due to the decreasing number of new companies listed on stock exchanges).
Given the novelty of a recovery you keep hearing about without actually seeing, maybe we should even rethink NBER's measurements of business cycles. Right now we're supposed to believe the political truism that the "economy is recovering but people are hurting." You could just as easily remove the disjunction and conclude that people are hurting because the economy isn't recovering.
Tim Cavanaugh (tim.cavanaugh@reason.com) is a senior editor at reason.
Help Reason celebrate its next 40 years. Donate Now!
Try Reason's award-winning print edition today! Your first issue is FREE if you are not completely satisfied.
Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time.
Starting with the assumption that the Economy is something that can be "managed" just by a combination of tweaks and econometrics, or that can be modeled with cool-looking equations.
That's because the hoodoo serves to conveniently shift the blame away from the people that caused the economic problems; has been ever since the General Theory[...]
As I've been saying since I first read an introduction to macro and micro:
The purpose of macroeconomics seems to be to contradict the whole of microeconomics.
I have decided to carpet bomb the economy. I don't need congressional approval. My supporters will unconditionally support me.
This spot reserved for future complaints
I should like to register a complaint...
Duly noted. Unfortunately due to the state of the economy we are currently looking for replacement staff to address your complaint. We hope to have this need filled and get back to you sometime this decade. Thanks for your time.
Your parrot is just pining for the fjords. That'll be $24.50.
Norwegian Blue, beautiful Plumage.
That parrot's not dead!
Just resting after a prolonged squawk.
"plus all persons marginally attached to the labor force"
So nice you had to say it twice?
Nooo!
Only termites would agree with that assumption....
... which only the Fed's and Wallstreet's scam artists would continue to peddle...
Seriously, people pay too much attention to the stock market. It's not like it's the god of the economy. Its just a way to trade parcels of companies that choose to sell of aforesaid parcels for a quick cash influx.
I know this belongs in the morning links, but it's too brilliant not to share. Rebecca Black's "Friday": A Libertarian Allegory
When she finally announces, elatedly, that "I don't want the weekend to end," she is expressing more than just the desire to be permanently relieved of educational tasks; it is a cry for the civic order to recognize the human right of liberty itself. The video ends with that hope that there will be no return to the twelve-year sentence but rather that "partying" could become a permanent state of being, not just for her but for everyone.
OK, it was worth it. But did he really need to go on, for, like, 50 paragraphs?
Wait'll you see the doctoral dissertation!
50 paragraphs of WIN!
Partying endlessly is inreconciliable* with reality. Partying is a consumptive activity, and you can't consume what hasn't been produced. Work is required.
However, the view that school is a state of slavery is rather correct. I think that there should be much more choice in what sort of education (if any) the student partakes in.
Also, her singing stinks. (Not a challenge to the theme, it just needs to be repeated.)
*Is that spelled right?
It's hilarious that even Autotune couldn't make her sound good.
Meaning: Those programs just represent a cocaine shot given to an addict who is suffering the shivers...
Commodity prices have followed a V-shaped pattern and Cavanaugh cherry picked the bottom of the V when he chose Dec 2008.
Fact is - oil, natural gas, rice, wheat, etc were all higher BEFORE Bernanke enacted QE1 or QE2 so, therefore, QE has had no discernible effect on commodity prices (other than stirring up the goldbugs) proving monetary policy need not necessarily lead to inflation.
Bernanke knows what he is doing - dollar hawks do not. Even so, the FOMC last voted 10-0 with Ben and the last hawk - Hoenig, is retiring.
I look forward to nutty Ron Paul's investigations though - love good comedy.
"QE has had no discernible effect on commodity prices"
If, as you stipulate, printing money has no effect on prices, then 1) what drove prices higher prior to QE1 and QE2, and 2) what is driving them higher now?
Read Full Article »