Posts Tagged ‘Recession’

Why the economic recovery is so slow

March 6, 2014
Current job losses compared with previous recessions

Current job losses and recovery compared with previous recessions

The chart shows how slow the current U.S. economic recovery is compared to recoveries from  previous recessions.  When and if the number of U.S. jobs returns to the pre-recession level (the 0.0% line on the chart), the jobs recovery will not be complete because the number of working-age Americans will have increased in the meantime.

Why is the current economic recovery so slow?  Here is what I think:

  • Almost all the benefits of economic growth during the past 20 or 30 years have been flowing to a tiny minority of the population — the upper 1% or 0.1% of the population.
  • These segment of the population spends less of their income than most Americans do.  Instead they save their money so that they can become even richer.
  • Contrary to what “supply-side” economists hoped in the 1980s, they have not been investing their money in enterprises that create American jobs.  People don’t invest money just because they have money or just in order to create jobs.  They invest money in a business because they have reason to think there is a market for that business’s products and services.
  • Prior to the 2008 crash, U.S. economic growth depended on the willingness and ability of the American middle class to take on debt in order to maintain their spending power.
  • Since the 2008 crash, banks, wisely, have tightened their requirements for lending.
  • Since the 2008 crash, middle class Americans, wisely, have been paying down their debts rather than taking on more.
  • These leaves us with the situation that John Maynard Keynes wrote about — an economy that does not grow because people have no money to spend, and people without money to spend because the economy is not growing.

I don’t believe in government spending money for the sake of spending money, but there are a lot of things that need to be done that in the long run will add to US economic strength, and this would be a good time to start.  One useful way to increase jobs is for governments at all levels to start to repair our deteriorating bridges, water mains and other physical infrastructure.

LINKS

FORGET THE 1% by J.D. Alt for New Economic Perspectives.

Inequality and the Weak Recovery by Joe Weisenthal for Business Insider.

Americans Shut Out of Home Market Threaten Recovery by Pashant Gopal and John Gittelsohn for Bloomberg Business News.

An economics lesson from a kangaroo

August 19, 2013

australia.minimum.wage

This is true, although in terms of purchasing power, the Australian minimum wage for fast-food workers is more like $12 in the United States. Click on Australia minimum wage for details from the Real News Network.

Many economists say, without any empirical evidence, that an increase in the minimum wage will automatically result in increased unemployment.  This is because it is a basic principle of economics that if you increase the price of something, people will buy less of it, and so it is with wages.

Under certain conditions, that would be true.  Fewer people would be hired for minimum wage jobs if, say, the U.S. minimum wage was raised to $72.50 an hour.  But there is no evidence that any of the actual increases in the minimum wage have had any adverse measurable effect on U.S. employment.  Indeed, the number of minimum wage and near-minimum wage jobs has increased dramatically since 2007-2009, when the minimum wage was increased from $5.15 to $7.25 an hour.

The basic concept of economics—that the law of supply and demand describes how people respond to economic incentives—is true as far as it goes.  This concept has such beauty and explanatory power that it is easy to forget the other dimensions of human behavior.   Economists who forget this wind up like the physicist in the joke, who could infallibly predict the outcome of horse races, provided there were spherical horses racing in a vacuum.

May 14, 2012

philebersole:

Hat tip for the link to kmareka.com

Originally posted on Job Market Monitor:

There are three main reasons that this recovery isn’t generating enough jobs:

1. Overall economic growth has been subpar since this recovery started

Six months after the last recession ended, the U.S. economy began growing at an annual rate of 3.8%, adjusted for inflation. And although it has slowed since then, real growth for the most recent quarter was 2.2%. That may not sound too bad, given that the U.S. economy has averaged about 3.25% after inflation since World War II. But following a recession, there is normally a period of nine to 18 months during which growth is exceptionally high. Within six months after the 1981-82 recession ended, for example, real GDP rebounded at a rate of at least 7% for more than a year. By contrast, the current recovery peaked only half a percentage point above what qualifies as average growth. As a result, there has never been…

View original 266 more words

Barack Obama’s magic jobs number

March 9, 2012

Nate Silver’s statistical analysis indicates that incumbent Presidents since World War Two, and especially from 1980, have been likely to be re-elected if U.S. jobs are increasing at a rate of 150,000 a month in the election year.  The United States in fact added 227,000 jobs in February.

If Silver is correct, President Obama should be on track to win—barring the unforeseen—in spite of an unemployment rate still stubbornly high and long-term unemployment at record levels.  Of course he is helped by the lack of a sensible economic policy from any of his potential Republican opponents.

Click on Obama’s Magic Number? 150,000 Jobs Per Month for Nate Silver’s report in his FiveThirtyEight column for the New York Times column.

Click on Today’s Jobs Report in Pictures and The Legacy of the Great Recession for charts by the Center for Budget and Policy Priorities showing just how bad the job situation still is.

Click on Statement by chief CPBB Chad Stone on the February employment report for analysis of the February jobs figures.

Click on Full Employment: A Force Against Rising Inequality and Stagnant Incomes for a report by economist Jared Bernstein on why it is vital to get back to a full employment economy.

Hat tip to Barry Ritholtz’s The Big Picture for the chart.

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The top 1 percent had a very good year

March 6, 2012

The top 1 percent of American income earners came bouncing back from the recession in great shape.  About 93 percent of the nation’s 2010 income gains flowed to them.

There are two ways of interpreting this.  One is that the 1 percent are Ayn Rand heroes who all by themselves generated 93 percent of the nation’s gains in wealth over 2009.  My interpretation is that the system is flawed.

Notice that most of the gains of the upper 1 percent were in the form of capital gains, which is taxed at a 15 percent rate, in contrast to taxes on earned income, which is taxed at rates starting at 10 percent and rising in increments to 35 percent.  What this means is that although the income of the middle class is taxed at a higher rate than the income of the poor, and the income of the affluent at a higher rate than the middle class, the income of the ultra-rich is taxed at a lower rate than the income of the middle class.

Click on The 1% Had a Fantastic 2010 for Mike Konczal’s comment on the Rortybomb web log (and a hat tip to Konczal for the chart).

Click on The One Percent Bounce Back for Timothy Noah’s comment in The New Republic.

Click on The World’s Top Incomes Data Base created by Facundo Alvarado, Tony Atkinson, Thomas Piketty and Emmanuel Saez for the Paris School of Economics Center for Equitable Growth.

The success and limits of economic stimulus

February 28, 2012

New unemployment insurance claims

It is a fact that economic recovery began after President Obama took office.  I believe that the recovery was helped by his economic stimulus program and by programs already in place such as food stamps and unemployment insurance.  These helped cushion the effects of the recession and allow recovery to take place.  I can’t prove this.  There is no way to go back in time and run another scenario in which the government stood aside and allowed events to take their course.

The problem is that the recovery is so slow, and that even when and if economic conditions get back to the way they were before.  During the supposed expansion preceding the 2007 recession, wages were declining (in terms of buying power), American manufacturing was being eroded and poverty was increasing.

Below are some charts which illustrate the weakness of the current economic recovery.

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Downsized, devastated and totally wrecked

December 8, 2011

Less than a third of the workers who lost their jobs in the Great Recession have made it back, or are climbing back, to where they were before, according to a Rutgers University study.

In August, 2009, researchers at Rutgers Center for Workforce Development interviewed about 1,200 workers, representing a cross-section of the population, who’d lost their jobs during the preceding year, and the researchers followed them for the next two years to see how they made out.  The chart at right shows what they found out.

The meaning of the five categories is as follows.

  • Workers who have MADE IT BACK consider themselves in excellent, good, or fair financial shape and have experienced no change in their standard of living due to the recession.
  • People ON THEIR WAY BACK have largely experienced a minor change to their standard of living, but say the change is temporary. They also consider themselves in excellent, good, or fair financial shape.
  • Workers who have been DOWNSIZED meet one of three conditions; they have experienced: a minor change that is permanent; a minor change that is temporary, but they are in poor financial shape; or a major change in their standard of living that is temporary and they are in at least fair financial shape.
  • Workers classified as DEVASTATED have experienced a major change to their lifestyle due to the recession. They can be either in poor financial shape and think the change is temporary, or in fair financial shape but think this change is permanent.
  • Workers that have been TOTALLY WRECKED by this recession have experienced a major change to their lifestyle that is permanent and are in poor financial shape.

Source:  Jesse’s Café Américain

Of the 1,202 workers questioned, 47 percent rated their personal financial situation as “poor” and 36 percent “only fair.”  The economic situation has had a “major impact” on 58 percent, and 41 percent expect the changes to be permanent.

Click on Categorizing the Unemployed PDF for the full study.

Hat tip to Digby at Hullabaloo.

If we’re in a recovery, where are the jobs?

October 12, 2011
Job recovery in 12 recessions.  Double click to view.
This time it really is different.  Double click to view.
Double click to view.

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This time it’s different—and worse

September 12, 2011
Double click to view

Click on Anatomy of a soft economy for the original version of the chart in Fortune magazine.

Click to view

Click on American Idiots: How Washington is destroying the U.S. economy for the article by Alan Sloan, Fortune magazine’s senior editor-in-chief, that went with the second chart.

I have to say that I like the charts a lot more than I do Sloan’s article.   He thinks that the economic crisis is primarily a result of federal budget problems, and that it can be fixed by tinkering with the tax code and chipping at Social Security and Medicare.  As the chart itself shows, the problems are much more fundamental than that.

Hat tip to The Big Picture.

Prosperity yesterday, regression today

September 4, 2011
Double click to enlarge

This graphic sums up the past 60 years of the U.S. economy very well.

It accompanied an article in the New York Times by Robert Reich, former U.S. Secretary of Labor and professor of public policy at the University of California at Berkeley.

Click on The Limping Middle Class to read the article.

Hat tip to The Big Picture.


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