Ugly Job Losses
The unemployment outlook and accumulating job losses make today’s economic news truly awful. Here is the New York Times article on the report: U.S. Loses 533,000 Jobs in November
The point is that we are just gathering steam. Last month’s loss of over 500,000 jobs is appalling. It is the eleventh straight monthly loss. Not since 1974 have we had such a dismal single monthly loss, and back then the loss came at the height of a nasty recession rather than earlier in what appears to be a very deep downturn.
And that’s the good news.
The bad news is hidden. There was an even larger leap in the number of workers who are unemployed and who have given up looking for a job. Those people [officially called ‘discouraged workers’] are not even counted in the workforce and so don’t add to unemployment. So the official unemployed figure of 6.7% is nowhere near accurate.
The shedding of jobs has now reached epidemic proportions. The stress this will place on local government resources as they try to meet unemployment payments could push some states into even sharper budgetary problems. Already California is in such dire straits that it is contemplating issuing IOU’s to vendors rather than pay them. This has happened only once since the Depression.
This vast pool of idle workers acts as weight pressing down on the entire economy. Underutilization is a further problem. There are a vast number of workers who are taking full time jobs well below their skill level, or who are taking part time work when they would prefer full time work. These under used workers are an additional weight. The total under use of the workforce contributes to the fall in demand throughout the economy, and is a cause for grave concern.
We appear to be falling into a classic spiral downwards where the fear of unemployment acts as break on spending. The fall in spending acts, in turn, as a break on company earnings. They react by laying off workers to preserve profits. So the original fear of unemployment becomes a self-fulfilling prophecy, and a vicious self destructive cycle begins.
The only known cure for this downward spiral is massive government spending which is designed to offset the lost consumer and business spending. The idea is that government money fills the gap left by the lost private spending and allays the fears of unemployment. Once that fear is abated the economy can start to recover of its own accord.
Adding this grim outlook for the ‘real economy’ to the already heavily damaged credit markets and we can see a near perfect storm of disaster looming.
That’s why Obama has to act even though he is not president officially. The economy’s terrible condition requires him to give direction so that Congress can support his recovery plans. Hopefully Bush won’t block anything. He has caused this mess through his dogmatic adherence to the supposed self-healing powers of the markets.
John Maynard Keynes blew away the self-correcting thesis seventy years ago. It his theories that we now need to blow the dust off in order to understand how to save ourselves.
Meanwhile all I can do is express my sympathy for all the Americans who now find themselves victims of the Reaganite free market doctrine. Hopefully we will never again fall prey to the illusion that unregulated markets are the better way to generate wealth. It was nonsense in 1980 and it is nonsense now. Unfortunately it is taking an epic recession to kill that particular piece of ideology off. What a shame.
