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Economy still slow to recover after Great Recession

Monday, September 10, 2012 | 5:26 p.m. CDT

EDITOR'S NOTE This is the first in a series examining issues at stake in the presidential election and their impact on people.

The issue:

The economy is weak and the job market brutal. Nearly 13 million Americans can't find work; the national unemployment rate is 8.1 percent, the highest level ever three years after a recession supposedly ended. A divided Washington has done little to ease the misery.

Where they stand:

President Barack Obama wants to create jobs with government spending on public works and targeted tax breaks to businesses. Mitt Romney aims to generate hiring by keeping income taxes low, slashing corporate taxes, relaxing or repealing regulations on businesses and encouraging production of oil and natural gas.

Why it matters:

The economy didn't take off when the Great Recession ended in June 2009. Growth has never been slower in the three years after a downturn. The human toll is immense. Forty percent of the jobless — 5 million people — have been out of work for six months or more, their skills eroding and their chances of finding good jobs fading. Federal Reserve Chairman Ben Bernanke has declared long-term unemployment a "national crisis." Millions of Americans have simply given up looking for work.

The agonizing recovery is the consequence of the deepest recession since the 1930s. The economy lost a staggering 8.8 million jobs and has only clawed back 4.1 million, or 46 percent. A financial crisis dried up credit. Collapsing house prices destroyed $6.5 trillion worth of home equity — the biggest source of wealth for most families. More than 1 in 5 homeowners is stuck with a house worth less than the mortgage on it. Feeling poorer, families have limited their spending and paid down debts. They've had another reason to hunker down: The weak job market has let employers keep wages low. For most Americans, pay hasn't kept up with even modest inflation.

Weeks after he took office, Obama pushed $862 billion worth of tax cuts and government spending programs through Congress. The package was meant to generate economic growth and revive hiring. Romney and other Republicans have declared the stimulus program a failure. But most economists — and the nonpartisan Congressional Budget Office — say it kept unemployment from going even higher.

Still, faced with a persistently sluggish economy, Obama proposed another plan last year to rev up hiring with increased spending on public works projects and tax breaks to small businesses. But his $447 billion jobs plan has gone nowhere, blocked by congressional Republicans who say government programs to help the economy accomplish little other than swelling the $11.2 trillion federal debt — $16 trillion if you include money government agencies owe each other.

They advocate lower taxes and fewer government regulations. Specifically, they want to repeal Obama's health care law and the Dodd-Frank law that tightened regulations on Wall Street.

With the politicians paralyzed, the Federal Reserve has stepped in, pushing short-term interest rates to zero and pouring more than $2 trillion into financial markets by buying Treasury debt and mortgages. The Fed's actions may have kept the economy from slipping back into recession, but they have not stimulated healthy economic growth.

Republicans and Democrats will have to find some common ground before the year ends to prevent the economy from falling off a "fiscal cliff." If they don't reach a budget deal, more than $600 billion in spending cuts and tax increases will start to kick in next year. The threat of the fiscal shock is meant to force Republicans and Democrats to compromise. Otherwise, the combination of spending cuts and tax increases probably would send the economy back into recession and drive unemployment back to 9 percent next year, the Congressional Budget Office estimates.


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Comments

Christopher Foote September 10, 2012 | 10:27 p.m.

Here's a fairly succinct Paul Krugman on part of the problem:

"The Jobs Program That Wasn't: Macroeconomic Advisers on the American Jobs Act, proposed a year ago:

We estimate that the American Jobs Act (AJA), if enacted, would give a significant boost to GDP and employment over the near-term.

The various tax cuts aimed at raising workers’ after-tax income and encouraging hiring and investing, combined with the spending increases aimed at maintaining state & local employment and funding infrastructure modernization, would:

Boost the level of GDP by 1.3% by the end of 2012, and by 0.2% by the end of 2013.
Raise nonfarm establishment employment by 1.3 million by the end of 2012 and 0.8 million by the end of 2013, relative to the baseline….
Having blocked the president’s economic plans, Republicans can point to weak job growth and claim that the president’s policies have failed."
The Republican party has done this country a grave disservice solely to increase their own electoral chances in November. To vote for them is to be complicit in a shameful act.

(Report Comment)
Derrick Fogle September 11, 2012 | 12:04 a.m.

Actually, private job creation is doing fine. The difference between this and every other recession recovery for the last 30+ years, is government employment is actually down, instead of up.

Is the economy really weak? The stock market is doing well, corporate profits are strong, domestic energy production has already seen the biggest increase in decades, and all the "Job Creators" - the CEO's and bankers, the "1%" - have been seeing strong double-digit gains in their incomes.

This is *exactly* the economy we are asking for with supply-side economic policies. This is *exactly* the economy the conservatives will tell you is (ideologically) perfect: The wealthy "Job Creators" are seeing great rewards for their work.

Too bad Trickle Down economics is a complete sham, the "Job Creators" actually aren't, and the benefits of supply-side economics is just a misbegotten fairy tale. The economy actually sucks. There are no jobs. And, this is precisely because we allow a tiny fraction of our population walk away with a 20%+ take. Reminder: There are no jobs. You can't honestly call them Job Creators.

Fact is, the difference in this recovery, the reason it has been so weak and jobless, is because for once the government has actually shed jobs instead of increasing. Evidence indicates that government hiring really does help the economy, since without it, the economy just sputters.

There are, what... 12 days left in the legislative session before the election? Are you ready to bet the collective farm that the Lame Duck session in Congress will do something effective about the, ahem, fiscal cliff?

I mean, *besides* increasing the deficit by reversing the cuts in military funding?

(Report Comment)
frank christian September 11, 2012 | 8:01 a.m.

What is true in both the FF (foote fogle) posts above? As usual, practically nothing!

Here is Footes "grave disservice", with his Krugman fiction. "Kasperowicz reports: "House Republicans are unlikely to schedule any time for Obama's plan, in large part because of the $1.5 trillion in tax hikes Obama has proposed to help pay for it." (Kasperowicz, reporter for The Hill)

Fogle, as usual, ignores the fact that Obama has done
Everything, concerning our economy, the exact opposite of what has solved recession problems in our past and blames those successful actions for today's problems. The sad fact is that Obama knows exactly what he has created and only intends, if re-elected, to continue the 4-lane highway of programs that will release more tax payer funds to prospective voters And the ultra rich (which fogle claims to hate) Democrats (liberals here and abroad).

In truth, our private sector is not even producing enough jobs to keep up with population growth, much less grow us out of recession. Here is truth about public and private sector jobs.

http://www.nationalreview.com/corner/255...

Here, in short, imo, is the liberal plan for our economy. "Keep the tax payer money flowing, what ever the cost to country, then bank it, as it becomes available to us."

(Report Comment)
Michael Williams September 11, 2012 | 9:09 a.m.

Ok, folks. Move along. There's nothing to see here. All is well. Private jobs are better than ever and all we have to do is hire everyone else to gov't positions. No, we're NOT accepting responsibility for any remaining bad stuff since our strategy is to say that conservatives obstructed otherwise sound policy over the last 4 years.

I've just GOT to stop believing my lyin' eyes.
____________________

"...the reason it has been so weak and jobless, is because for once the government has actually shed jobs instead of increasing."

Me: I laughed so hard tears came to my eyes. Many thanx for that.

(Report Comment)
Christopher Foote September 11, 2012 | 10:04 a.m.

@MW,
Feel free to interpret this graph (was the passage of the stimulus prior to the improvement in the jobs situation just a coincidence?):
http://reportergary.com/wp-content/uploa...
The 2009 stimulus greatly improved the private sector jobs picture. The 2011 AJA would have further improved the jobs situation as well.
Is it your argument that instead of shedding 600,000 public sector jobs, Obama should have devised a policy in which the government added 500,000 public sector jobs in his first term? That's approximately how many public sector jobs were added during the first term of He-Who-Must-Not-Be-Named.
If obstructionism prevented passage of additional legislation (the AJA) to address poor private sector jobs growth, it seems quite disingenuous to claim the policies did not work, as they were never enacted in the first place. This strategy, though incredibly damaging to the country, was politically savvy (I suppose "Country First" was simply a convenient political slogan for 2008 and not a true sentiment for the GOP).

(Report Comment)
Michael Williams September 11, 2012 | 10:44 a.m.

Chris: Mainly I'm laughing at the evolving excuses and explanations.

Both have come far, especially over the last 4 months. I especially liked Derrick's explanation that the REAL problem is lack of public employment. Sheesh, after 4 years of worrying about...who knew it was that simple?

Was the AJA slope change a coincidence? Beats me. Your graph shows a correlation of events certainly, but you and I both know the jobs drop off had to stop somewhere to meet the corrected job needs at that time. Did you think employment would continue to zero? And what is the quality of those jobs?

Do you have data beyond May 2011? If memory serves, the monthly job growth since then is flatlined somewhere between 50K and 150K per month with some fluctuations. Such numbers DO NOT EVEN MEET THE BREAKEVEN OF 164K WE NEED PER MONTH for real growth!

That's anemic no matter which political stripe you support. Hell, it's worse than anemic and best described as one expensive holding pattern. Wow....QE1, QE2 and a soon-to-be-announced QE3 and this is all we have to show for it......

Abject failed policy....and one helluva lot of debt. Last I checked, I think your personal bill is ca. $125K.

Pay up.

(Report Comment)
Jimmy Bearfield September 11, 2012 | 1:44 p.m.

"Last I checked, I think your personal bill is ca. $125K."

Ironic that that's the same amount as the mortgage: www.columbiatribune.com/news/2012/may/12....

If you're going to put your self on the hook for $125K (not counting interest), which would you rather have it go toward: the national debt or a home?

(Report Comment)
Michael Williams September 11, 2012 | 2:21 p.m.

Jimmy: I think either my memory was faulty, or the math was wrong.

$16T divided by ~300M citizens = ~$53K/citizen

I don't know where the $125K came from. Old-age memory, probably.

He should still pay up.

(Report Comment)
Michael Williams September 11, 2012 | 2:28 p.m.

"The stock market is doing well, corporate profits are strong..."
________________________

Stock market mainly reflects larger companies and not Main Street America. Where do you think a bunch of that stimulus money got invested, anyway?

Increasing corporate profits are, in largest part, the result of business profits ABROAD. For example, I think over 50% of Coca Cola's business is abroad, and how many cars did GM sell in China last year? Who makes the innards for iPhones?

Gold/silver markets say rocky roads ahead in financials. What do you think will happen when we DO come out of this funk with all that "stimulus" money out there? Starts with an "I".

(Report Comment)
Mark Foecking September 11, 2012 | 3:11 p.m.

Michael WIlliams wrote:

"DO NOT EVEN MEET THE BREAKEVEN OF 164K WE NEED PER MONTH"

What's your source for this? I know it's based on population growth, but with immigration down and an aging population, I wonder if that's correct?

Of course, I may nor be able to see your answer, but just in case I can...

DK

(Report Comment)
Michael Williams September 11, 2012 | 3:37 p.m.

Not at my instant recall. I'll have to look and will do so immediately to see if I can recognize where I got it. You can help by "googling" which is all I can do, too. I do remember seeing many interpretations ranging from 125-300K jobs/month.

(Report Comment)
Mark Foecking September 11, 2012 | 3:41 p.m.

Christopher Foote wrote:

"The 2009 stimulus greatly improved the private sector jobs picture."

And there's the tradeoff - it also increased the debt. It's living better in the present at the cost of the future, something both parties have eagerly presided over and allowed to happen.

If we think the debt will ever be paid, or even reduced significantly, then increasing spending while cutting taxes irresponsibly adds to it. But government has acted for decades as though the debt will never need to be paid, so why not cut taxes and increase spending? Do deficits really matter?

DK

(Report Comment)
Michael Williams September 11, 2012 | 4:15 p.m.

Do deficits really matter?
_______________

They certainly do in my family.
But, if I could print my own money.....not so much.
________________

A quick look at the breakeven shows numbers all over the place....from 90K to upwards of 200K. I'm posted on this before and, if memory serves, I was using the 150K number. Unfortunately, since I won't spring for a "membership", those writings are closed to me so I don't know if I included any links for you to use. I'll keep looking to see where I came up with the 160+ number....I'm guessing one of the newspapers I recently read, but that's a guess. Here's one at 150K from a NYT columnist, but it begs the question of where HE got it:

http://www.pbs.org/newshour/bb/politics/...

Don't forget to include recent grads in addition to immigration numbers.

(Report Comment)
Christopher Foote September 11, 2012 | 4:22 p.m.

@Mark,

With an effective interest rate below zero, I would argue that deficit spending to create additional jobs following the worst recession in 70 years is the least bad policy option. A high unemployment rate is a drain on the treasury due to reduced revenues and increased safety net costs. It is feasible that additional short term spending could in the long run be the cheapest option, by effectively lowering the unemployment rate, thus generating additional tax revenue and reducing spending on the unemployed as that pool shrinks.
In general, I am opposed to deficits and think US fiscal policy should be neutral (no surplus, no deficit) across the entire business cycle.

(Report Comment)
Michael Williams September 11, 2012 | 4:33 p.m.

Have we evolved to this?

"I would argue that deficit spending to create additional jobs....is the least bad policy option."

That's one helluva long way to fall in just shy of 4 years.
___________________

A 2009 fix?

Bah humbug.

I'm revising my forecast to late 2013.

(Report Comment)

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