Obama Fail: Underemployment Rate 17.3%

12:15 pm in Uncategorized by fairleft

Officially, the unemployment rate is now 10.0%. But, realistically . . .

. . . the true unemployment rate –which I define (as I think most would) as ALL people who want work but just can’t find it — probably lies somewhere between 11.6% and 13.2%. If you consider individuals working part-time for economic reasons as unemployed, you get an unemployment rate north of 17.4%.

Expected Returns

Counting the people who have given up looking for work and the part-time workers who would rather be working full-time, the so-called underemployment rate edged up to 17.3 percent in December.

AP

Report suggests a year of high unemployment ahead
Jeannine Aversa & Christopher S. Rugabear
AP Economics Writers
Fri Jan 8, 5:04 pm ET

Brace for a year of stubbornly high unemployment.

Gripped by uncertainty over the economic recovery, employers chopped 85,000 jobs last month, and difficulty finding work helped chase more than half a million people out of the job market.

The unemployment rate held steady at 10 percent. It did not creep higher only because so many people stopped looking for work and are technically not counted as unemployed. . . .

The article continues below. What everyone should note is the second paragraph. Governments worldwide threw trillions at private banks, and that didn’t do crap-doodle for the economy. I told you so:

But the jobless rate is likely to rise in coming months as more people see signs of an improving economy and start looking for work again. Some economists think it could near 11 percent, which would be the highest since World War II, by June. . . .

Complicating the recovery are remnants of the recession: high debt, a sputtering housing market and the inability or reluctance of people and businesses to borrow and spend. Most economists think unemployment will rise this year and stay high into 2012. . . .

It was the second straight month the unemployment rate came in at 10 percent. The only reason it didn’t rise was that 661,000 people stopped looking for jobs and left the work force.

In a normal economic recovery, more people would be entering, not leaving, the job market. If those people hadn’t dropped out, the rate would have hit 10.4 percent in December, according to an estimate by the Economic Policy Institute.

Counting the people who have given up looking for work and the part-time workers who would rather be working full-time, the so-called underemployment rate edged up to 17.3 percent in December. The record high is 17.4 percent, reached in October. . . .

The December numbers complete a picture of a disastrous 2009 for American workers. The unemployment rate averaged 9.3 percent in 2009 — up from average of 5.8 percent in 2008 and the highest since 1983.

The number of unemployed has hit 15.3 million, up from 7.7 million when the recession started in at the end of 2007. The recession has wiped out 7.2 million jobs. And the number of people jobless for at least six months hit a record 6.1 million.

And the future, as predicted by one of the predictors of the housing bust, Dean Baker:

. . . Dean Baker, co-director of the Center for Economic and Policy Research in Washington, said the latest report was so bad that it casts doubt of an imminent positive turn in job growth, let alone a robust one. "It’s totally plausible we’re going to lose jobs for several more months in 2010."

The economy has shed more than 7.2 million jobs since the recession started in December 2007 — almost half of them since Obama’s $787 billion economic stimulus program was passed in February. For 2009, employers cut more than 4.1 million jobs. . . .

One stark statistic in the latest employment report is the staggering number of people who have dropped out of the labor force. In December, the number of people working or looking for work totaled 153.06 million, a decline of 661,000 from November and more than 1.5 million from December 2008. The last time there was an annual decline in the labor force was in 1951.

The so-called participation rate of people working or looking for work fell to 64.6 percent, the lowest since 1985.

A major difficulty with any recovery is that Obama isn’t listening to people like Dean Baker, Hyman Minsky (well, he’s dead, but you know what I mean), or Thomas Palley. A blogger revives interest in Minsky in the following, remembering that he (like me and others in 2008) recommended throwing money at the poor and working class, not the banks, to make an economy recover from a financial-sector induced crisis:

One can argue, of course that giving the money to the banks would not have been the best move to stimulate the economy, as they were not forthcoming with credit even after the bailouts. Minsky would agree with this as well, though he did see the importance of the government financial entities, the Federal Reserve in the US as being the lender of last resort to keep the system afloat. He had an even more radical solution to solving financial crises, however. Minsky theorized it would be best to give money to the poor and unskilled first, in the form of offering minimum wage jobs to anyone who wanted one. In so doing, these workers would spend money, which would then stimulate the economy.

Australia was the only industrialized country to try something similar to this, and I should note that it was also the only industrialized country not to go into a recession. Middle and low income Australians were given a lump sum as a tax rebate, which put AU$42 billion into the economy. Though the joke about the stimulus package was that most of the money would go to other countries, as Australians did not manufacture many things, the truth is that the Australian economy actually grew by about one percent while most of the rest of the world’s economies were shrinking.

Governments around the world would do well to take heed of Minsky’s theories. The truth of his theories seems to be correct. Capitalism, though it is able to produce phenomenal growth, is invariably an unstable economic system that requires occasional intervention by governments. We know from experience that Soviet style socialism does not work, but we should take heed of the messages that the past couple of years have tried to teach us. Unbridled speculation leads to an inevitable economic collapse in any capitalist country. The next time may not come for many years, but it will come, and it is best to be prepared for it by looking at investments rather than speculation.

‘Progressives’ will be Obamas and Clintons, i.e., they won’t provide a progressive attack on our basic economic problems, however, writes Thomas Palley, till they have economic understanding that abandons the ‘enforced with Stalinesque glee’ globalization/laissez-faire mainstream. I quote from a passage on ‘banned/forgotten in the mainstream’ institutionalist economic thinking, which was brilliant and very important in the economic progress of the 1930s and 40s:

Back to the Future: Economics for the Real World
By Thomas Palley
Wed Jan. 25, 2006 12:00 AM PST

. . . Institutionalists did not challenge the idea that self-interest and profit are major motives for economic action, but they did recognize that their pursuit could lead to sub-optimal outcomes. What appears to maximize well-being from an individual perspective can be sub-optimal once the competitive inter-play of actions is taken into account. Thus, when Wal-Mart refuses to pay health benefits, other retailers are forced to go in this direction to remain competitive and survive. Likewise, when Wal-Mart sources globally, so too must other retailers. The result is erosion of American manufacturing jobs and wages. Nor do wages rise in developing countries because Wal-Mart plays them off against China.

Such a perspective leads to the idea of “regimes of competition,” and policy should aim to create a competitive environment in which working families prosper. The challenge is to design regulatory institutions (regimes) that balance the Keynesian need for stable flows of demand and income with the capitalist need for economic incentives. Such market regulation prevents excessive price fluctuations, and also prevents the kinds of pre-Depression monopoly and exploitation that weakened America’s income and spending base.

The New Deal embodied much institutionalist policy in the form of laws establishing a minimum wage, the forty-hour week, the right to overtime, and the right to join unions. These labor laws complemented consumer product safety laws. The New Deal also introduced law regulating financial markets, which paired with earlier legislation establishing the Federal Reserve as regulator of the banking system. Together, these regulations established an economic regime that excluded destructive competition, ensured a “Henry Ford” distribution of income whereby workers could buy the things they produced, and prevented market tendencies to deflation.

Viewed in this light, American institutionalism provided a new microeconomic thinking that paired logically with Keynes’ macroeconomic analysis. Keynesian monetary and fiscal policies stabilized the business cycle, while institutionalist market regulation built the middle class, and together they underwrote the great prosperity of the post-World War II era.

However, even as these policies were being put into practice, they were being driven out of economics classrooms and textbooks. Whereas Keynesianism won mainstream standing, its microeconomic counterpart never did. One reason was institutionalism’s focus on capitalism’s crueler failings, which was politically unacceptable in the Cold War era of geo-political competition. This meant institutionalism was driven out of classrooms by the end of the 1950s, which meant it was driven out of policy shops and legislative chambers by the end of the 1970s.

Globalization has again raised the specter of destructive competition, calling for a resurgence of institutionalist thinking. However, such thinking is now barred and obliterated by post-Cold War, free-market triumphalism.

This has enormous practical and political consequences. Absent the one-two combination of Keynesianism and institutionalism, globalization will likely stumble badly. Similarly, well-intentioned progressive politicians in America and Europe, looking to tackle the problems of globalization, will find themselves lost as long as they adhere to the laissez-faire thinking that dominates universities.

This risks making progressives irrelevant for economic policy. In the 1930s, the economics of the day proved not up to the challenge of the Great Depression, forcing the development of new economic ideas. The same holds today for globalization.

Palley last summer wrote the following, to the Queen of England:

Letter to the Queen: Why No One Predicted the Crisis

Her Majesty The Queen
Buckingham Palace
London
SW1A 1AA
29 July 2009
MADAM,

In response to your question why no one predicted the crisis you have recently received a letter from Professors Tim Besley and Peter Hennessy, sent on behalf of the British Academy. They claim economists’ failure to foresee the crisis was the result of a “failure of the collective imagination.” That claim is tendentious and will mislead you.

The failure was due to the sociology of the economics profession. This failure was a long time in the making and was the product of the profession becoming increasingly arrogant, narrow, and closed minded. One was compelled to adhere to the dominant ideological construction of economics or face exclusion. That was the mindset of the IMF and the World Bank with their “Washington Consensus”, and it was the mindset of central bankers (including your own Bank of England) with their thinking about the sufficiency of inflation targeting and hostility to regulation. . . .

He then cites three 2006 predictions of the economic crisis made by the Levy Institute (www.levy.org), which is rooted in Hyman Minsky’s version of Keynesian economics.