Rotten Unemployment Numbers
This morning’s release of the unemployment figures for October can only be described as disappointing. The unemployment rate came in at 10.2%, way above the consensus expectation and rising to a level equal to the worst of the 1982/83 recession. This is just rotten.
This is exactly the situation I was describing yesterday: it seems to me that the financial media have been extraordinarily blase about the steady build up of unemployment. Their economic forecasting is biased towards the financial world, where profits have returned strongly, and their judgement has been muddied by the third quarter GDP report and the attendant hoopla over the end of the recession.
In human terms the recession is not yet done. This morning’s figures undermine any possibility of an easing up of government intervention in the economy: the private sector has contracted so completely into a defensive mode that we risk spinning down even more once the current round of stimulus wears off.
Moreover, all talk about the Federal Reserve Board tightening the money supply and raising interest rates now looks absurd: their models, if applied correctly, would indicate keeping interest rates at their current levels for years, not just months. The rule of thumb indicator the Fed uses to set rates is called the ‘Taylor Rule’, which right now suggests an interest rate of -5% or even less. Since that is impossible we are stuck in a twilight zone where Fed monetary policy is useless – literally. By this I mean that the Fed has its foot pressed as hard down on the accelerator as is possible and still cannot generate sufficient forward momentum. The economy is awash with cash, most of which is being hoarded by the banks as they seek to protect themselves against liquidity problems.
We do not suffer from a lack of cash, we suffer from a fear of spending it.
Until that fear abates – and who knows when that will be – the economy will sputter at best. The onus is on private businesses to shed their fears and step up their spending plans. Being profitable on a sinking ship is a fool’s game. Those profits are an illusion since each round of cuts corrodes the next period’s profits.
We need jobs. And we need them now.
This entire situation is exactly that predicted and analyzed by Keynes. I find it extraordinary that anyone still rejects his solution: government stimulus.
Hopefully the shock from this morning’s data will help clear the minds of our lame administration and those ‘moderates’ who oppose further action. The case is building, not receding, for further government intervention.
The cost will be high in terms of future debt and continued deficits. But that cost is nowhere near as high as that we would incur were we to slip back into a new and potentially deeper recession.
