Posts Tagged ‘Economic recovery’

Qualitative easing and the Obama recovery

March 25, 2016


The Federal Reserve Board’s policy of qualitative easing has helped the stock market recover.  But Americans who work in the real economy are still struggling.

Qualitative easing is the Federal Reserve Board’s policy of creating new money to buy Treasury bonds in order to keep interest rates low.  The greater the demand for bonds, the lower the interest rates, and the interest rate on Treasury bonds is generally the benchmark on all Treasury bonds.

The Fed’s Operation Twist was a sale  of medium-term Treasury bonds and purchase of 10-year bonds.  The Federal Funds rate is the interest rate for overnight loans among banks so they can meet the Federal Reserve’s requirement for reserves.

The chart above shows how QE correlated with the ups and downs of the stock market.  But, as I indicated in a previous post, American corporations did not advantage of low interest rates to invest in their businesses.  Instead they have transferred the gains to stockholders in the form of stock buybacks.

An economic recovery has taken place.  Most Americans are better off than they were at the depths of the crash.  But as economic recoveries go, this one has been weak.


The chart shows how important is it to always adjust for inflation.  A dollar in the year 2000 is not the same thing as a dollar in the year 2016.

Although corporate executives did not take advantage of Qualitative Easing to invest in America, there was nothing besides politics holding back the federal government from investing in public works.  There is a lot of urgent work that needs to be done in maintaining and upgrading American’s physical infrastructure, such as upgrading public water systems to get the lead out.

With a lot of public work that needs to be done, a lot of people who need work and financing costs at historic lows, why not put the unemployed and under-employed to work doing what needs to be done?  Fiddling with interest rates and the money supply is not enough.


‘Starving the beast’: public sector jobs decline

November 19, 2015


public-sector-jobs-gap1.pngClick on Economic Policy Institute for details (hat tip to Bill Harvey)

One of the reasons for the weakness of the current economic recovery is the loss of public sector jobs—mainly in state and local governments, including school districts.


Why is the economic recovery so weak?

July 13, 2015

weakrecoverySource: Sentier Research

Why is the current economic recovery so much weaker than in the previous two recoveries?

www-usnews2I don’t claim a profound knowledge of economics, but here’s what I think.

During the time of peak prosperity, the American economy was based on a benign cycle—high wages supported a mass consumer market, which supported high employment.

Since the 1980s, American wages have been stagnant or falling, and Americans maintained their purchasing power by means of borrowing.  But since the 2008 recession, they have reached the limits of their power to borrow and spend.

Big financial institutions and holders of financial assets are investing more in debt instruments or in production overseas than in job-creating enterprises in the United States.  At the same time government at all levels has responded to hard times by cutting spending and employment.

Both the public and private sector are dis-investing in education and training, in scientific research and in the infrastructure necessary to a productive economy.

Barring a change of direction, I expect things to continue to worsen.

How can we the people turn things around?  Being honest about the situation would be the first step.  Government could stop doing harmful things, such as the no-strings bank bailout and pro-corporate trade agreements.  Corrente’s 12-Point Platform is the kind of thing we should be thinking about.


The U.S. jobless rate is falling [Update: Maybe]

March 7, 2015

MW-DH110_jobs_r_20150306091454_ZHVia MarketWatch.

It’s interesting that the report of gains in jobs and a drop in unemployment was followed by a drop in stock prices.

Conceivably this could be been due to the improvement being less than expected, but analysts quoted in my morning newspaper said investors fear that the apparent recovery will cause the Federal Reserve Board to stop holding down interest rates in order to stimulate the economy.

A certain number of people can be expected take their money out of the stock market and put it in savings accounts in banks, or in bonds, because they would getting actual interest income again.

In other words, stock prices reflect an unsustainable government policy, and not the real health of the economy.


Still, it’s good news that the unemployment rate is falling, and is falling by every measure.


Public employment fails to keep up

October 14, 2014


My e-mail pen pal Bill Harvey sent me links to articles with the charts shown above, both from the Economic Policy Institute, whcih the seriousness of the current attack on the public sector and the decline of public employment.

Public employment, unlike in previous economic recoveries, is still depressed, especially at the state and local level.  In and of itself, this creates a drag on the whole economy, just like job losses in any other category.

And after a certain point there aren’t enough public employees left to do their jobs adequately.   Teachers with too-large classes teach less effectively.  Firefighters with too-long shifts and too-small crews fight less effectively.  Nurses with too many patients may not be able to keep track of them as they should.  Public roads and public utilities aren’t maintained.

While there can be featherbedding in public employment, this is not the situation now.  Public services in many places are in dire straits.


Low interest rates haven’t spurred a recovery

October 10, 2014

It’s a financial axiom that central banks can make money available and set the rates, but they cannot dictate where it goes.

Yet, the IMF just now seems to be figuring that out.

As for central bank sponsored “risk taking,” haven’t we seen enough already?

Where the Money Went

  • Junk bond speculation
  • Stock market speculation
  • Stock market buybacks at ludicrous prices
  • Robots in lieu of hiring
  • Free profit for banks thanks to interest on “excess reserves”
  • Private equity firms buying up houses
  • In Europe, banks loaded up on their own allegedly risk-free bonds
  • In China, property bubbles and profitless SOEs [state-owned enterprises]

Where the Money Didn’t Go

  • Higher wages
  • Infrastructure
  • Investment

via Mish’s Global Economic Trend Analysis.

(Hat tip to Naked Capitalism)


The U.S. jobs market has recovered (or has it?)

June 7, 2014

The number of Americans with jobs has at long last gotten back to where it was before the state of the recession.

As the chart above shows, this has taken much longer than after any previous recession since World War Two.

But this doesn’t mean the U.S. economy is back to normal.  The population has grown since then, and so we still have a higher number of Americans than before who are out of work.

Economists define a recession as two quarters of a year in which GDP (output of goods and services) has fallen, and a recovery as two quarters in which GDP has risen again.

In theory this would automatically mean an increase in jobs.  If the output of goods and services is increasing, then supposedly more people are being put to work to produce these goods and services.  But this time around, there is a disconnect.

The percentage of working-age Americans with jobs is far below pre-recession levels.  Most Americans, based on their personal experience, think the United States is still in a recession.


The extremely slow U.S. economic recovery

May 6, 2013

The Dow Jones average is back to where it was before.   The American job market still has a long way to go.

Dow hits record high

There is less to these charts than meets the eye.  Stock prices and jobs are rebounding, but investors are not doing all that well, and job-seekers are doing worse.

The Dow Jones average for the past six years has not kept up with inflation, even though the rate of inflation is extremely low.   And the bottom chart shows just how slow the rebound in jobs has been compared to previous economic recoveries.  Just as the stock market ought to keep up with inflation, the job market ought to keep up with population growth.  In other words, even when the number of jobs gets back to what it was in 2007, we’ll still be behind.

The official unemployment rate for April was 7.5 percent.  Economist David F. Ruccio pointed out that this means there are 11.6 million Americans still looking for work, four years after the supposed beginning of the economic recovery.

The Bureau of Labor Statistics reports its U-6 rate of unemployment, which includes jobless people who’ve given up looking for work, and part-time workers who want to work full-time, is 13.9 percent.   This is 21.9 million Americans, roughly one in seven eligible workers.

Click on Why Good People Can’t Find Jobs — What You’re Up Against for a good report on why it’s tough to find a job.

Click on occasional links and commentary for David F. Ruccio’s web log, which is crammed with good information.

Obama and the economic recovery

November 3, 2012


The October jobs report shows the U.S. economy continues to recovery, but, as this chart from the Calculated Risk web log shows, at a much slower rate than previous post-war economic recoveries.

Since the 1970s, each economic recovery has been weaker than the previous one, with slower growth in jobs and hourly wages at a lower rate than in the previous recovery.   But in my opinion, the reason the 2007 recession is so much worse is the 2008 Wall Street crash, signaling the unsustainability of an economy based on debt and speculation rather than borrowing.

Here are some more charts, also from Calculated Risk, which show the state of the U.S. economy in the light of the latest job report.



The lower chart, which shows the proportion of the population in the labor force and the proportion with jobs is probably a better measure of the employment situation than the unemployment rate, which is the percentage of the population looking for jobs who can’t find jobs.   You should notice that the bottom line on the chart is not zero, which means that the variation at first glance seems greater than it really is.

The job losses in the recession were mainly well-paying, middle-class jobs, and the job gains are mainly low-paying, less desirable jobs.   And while any increase in jobs is good news, the rate of job growth is barely enough to keep up with growth in the population.

I think President Obama deserves some credit for the fact that things are not even worse than they are.  I think his stimulus program helped, and, while I disagree with the way the bank bailout was handled, I think the recession would have been far worse if the administration had stood idly by and let nature take its course.   Here is another Calculated Risk chart, which compares the current U.S. recovery with the Great Depression of the 1930s in the United States and with other nations which have gone through financial crises in the past few decades.


What this chart shows is that the financial crisis in the United States could easily have been much worse than it was.

Unfortunately, the Obama administration failed to take action to prevent a future financial crash.  It declined to prosecute for financial fraud nor to restructure failed financial institutions, as was done in the aftermath of the savings-and-loan crisis.  Obama’s administration worked pro-actively to prevent legislation that would break up the too-big-to-fail banks or to take meaningful action to limit speculation with federally-insured bank deposits.  As a result, the Wall Street financiers who were responsible for the financial crash, except for the executives of Lehman Brothers, wound up better off than they way before.

The predictable result of this will be another financial crash, a bigger and worse one than the 2008 crash.  I am not smart enough, or foolish enough, to say when this will be, but when it happens, it will be a political disaster for whatever political party happens to be in power at the time.

The broader problem is that the United States has slower economic growth than in the 1950s and 1960s, and an increasing share of the benefits of that growth are going to a tiny minority of the population.  I think both trends are the result of the globalization of the national economy.   To some extent, slower economic growth and wage stagnation are the result of the leveling of the playing field between American workers and workers in Latin American and eastern Asia.  I don’t complain about this.  It would be shameful to try to maintain my high material standard of living by trying to keep people in other nations poor.

The other aspect of globalization is that the world’s economic elite have the means to escape regulation and taxation, and that international economic institutions—the World Trade Organization, the International Monetary Fund, the European central bank—operate to protect the interests of financial institutions and the economic elite from national governments.  I can imagine an alternate globalization in which international institutions work to raise labor and environmental standards, but at present workers and scientists are not in charge.

I wouldn’t expect Barack Obama to be able to change the situation all by himself, although I think a President is in a good position to raise awareness of the problem.  Nor do I think that Mitt Romney offers a better alternative.   His Bain Capital is part of the problem.  Change, if it comes, will have to come from an aroused public opinion.

Click on Calculated Risk: October Employment Report for a more complete analysis of the latest Bureau of Labor Statistics report.

Click on Modest Jobs Growth in Latest Economic Report for a more readable and less technical analysis by the New York Times.


America’s low-wage recovery

September 4, 2012

When and if employment in the United States gets back to what it was before the recession, American working people will still be worse off than before, because on average they’ll be working in lower-paying jobs.

The National Employment Law Project, a liberal think tank, reported that about three out of five of the new jobs gained during the current economic recovery were in low-wage occupations, with median pay less than $13.52 an hour, or $28,122 for someone working full-time, year-round.   But about four out of five of the jobs lost during the recession were in occupations with median wages above that level.

There is good growth in occupations such as retail clerk, kitchen worker, laborer, freight handler, waiter and waitress, home health aide, office clerk and customer service representative.  The low-wage occupations would provide $15,621 to $28,121 a year to someone working full-time year-round.

The moderate-wage jobs would pay $28,142 to $42,973 a year.  They’re mostly in construction, information industries and banking, insurance and real estate.

Median wages in the high-wage jobs would be $42,994 to $110,906 a year.  A relatively small number of these jobs were lost during the recession, but the loss hasn’t been made up.

The NELP researchers said the shift reflects a hollowing out of the middle level of the U.S. economy which has been going on for a long time, plus layoffs of government workers during the recession.

Back in April, the Economic Policy Institute, a labor-oriented think tank, issued a report predicting that 28 percent of American workers will be in low-paid jobs in 2020, about the same as in 2010.  The EPI defined a low-paid job as one insufficient to keep a family of four above the poverty line.  In 2011, that was $23,005, or $11.06 an hour for someone working full-time year-round.  In yet another report, NELP researchers estimated that one in four American workers currently has a job that pays less than $10 an hour.

What all this shows is that economic stimulus is not enough to bring about prosperity.  Unless we Americans are resigned to growing steadily poorer, we have to figure out not just how to restart, but how to rebuild, our economy.

Click on The Low-Wage Recovery and Growing Inequality PDF for the NELP report.

Click on Majority of New Jobs Pay Low Wages, Study Finds for a summary of the NELP report in the New York Times.

Click on The Future of Work: Trends and Challenges for Low-Wage Workers PDF for the EPI report.

Click on Welcome to Your Low-Wage, Temp Work Future for a summary of the EPI report in Forbes.

Click on Obama, Romney and the Low-Wage Future of America for an article by Dan Froomkin of Huffington Post on the failure of either President Obama or Governor Romney to address this issue.

Hat tip to Think Progress.

Recovery still has a long way to go

May 4, 2012

This chart shows how much worse job losses have been in this recession compared to other recessions since World War Two.

Mike Konczal, who posts on the Roosevelt Institute web site, pointed out that unemployed Americans are dropping out of the labor force at a faster rate than they are finding jobs.  Click on Rortybomb for his post.

Heidi Shierholz, of the Economic Policy Institute, said the outlook is probably better than the figures indicate, because of seasonal factors, but the outlook is still grim, including for new college graduates.  Click on Economic Policy Institute for her analysis.

Click on Calculated Risk for the source and explanation of the chart above, and more charts.

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.


Worthwhile Obama initiatives

January 27, 2012

Click to enlarge

I’m highly critical of President Obama’s record.  But in fairness, I ought to acknowledge the President’s achievements.   These achievements are real, even though some of them have to be qualified with an asterisk (*).

  • President Obama’s economic stimulus program has apparently helped the economic recovery along.  (*The current economic recovery has been weaker than most post-World War Two recoveries, and it will take a long time to get back to pre-recession conditions, which were none too good to begin with.  Nevertheless, the Obama stimulus program was enacted over Republican resistance to doing anything at all, so the President deserves some credit.)
  • President Obama stuck to his promised timetable for withdrawing combat troops from Iraq. (*Non-combat troops and armed U.S. contractors remain in Iraq, and the Obama administration probably would have kept combat troops in Iraq if the Iraqi government had agreed to give them extraterritorial privilege.  Nevertheless, the President did what he promised to do, and he deserves credit.)
  • The new Defense Department budget calls for a reduction in force and a slowdown in growth in military spending, a necessary step to bring overall federal spending under control.  (*Spending will remain above pre-9/11 levels, and spending will increase on Special Forces and unmanned weapons, thereby increasing the President’s power to wage secret wars.  Nevertheless, this is a politically difficult action.)
  • The U.S. Department of Justice has filed a lawsuit to uphold the right of private citizens to make video recordings of police in the performance of their duties.  As Radley Balko wrote on The Agitator, this is a big deal.  Video evidence is usually the only evidence of police abuse of power except the unsupported word of the victim.  Now, the initiative for this may have come more from Attorney-General Eric Holder than from the President himself, but Obama still deserves credit.  No asterisk here.

Click on Pentagon budget set to shrink next year for the Washington Post’s report on President Obama’s proposed military budget.

Click on DOJ Urges Federal Court to Protect the Right to Record Police for background on this lawsuit.

The Obama administration also deserves credit for the repeal of the Don’t Ask, Don’t Tell policy toward gays in the military, and for compiling and distributing objective data to physicians on the effectiveness of different forms of medical treatment.  None of this, however, outweighs President Obama’s record on war, civil liberties and pandering to Wall Street.

Click on President Obama and his liberal critics for my case against President Obama.


How much did the economic stimulus help?

September 2, 2011

Click to enlarge

The economic stimulus plan enacted with the leadership of President Barack Obama, Senate Majority Leader Harry Reid and then-House Speaker Nancy Pelosi did not end the Great Recession, but, as the following charts show, it did do some good.

Click to view

Click to enlarge

Click to enlarge

While the jobs recovery is encouraging, economists believe that it is necessary to create 90,000 to 260,000 new jobs per month just to keep up with the population increase.  That is why the unemployment rate hasn’t gone down.


The guest who won’t go away

July 15, 2011

Click to enlarge


The economic recovery is sputtering

May 6, 2011

Click on Fears and Failure for Paul Krugman’s perspective.

Click on Good job growth in a bad economy for Ezra Klein’s perspective.

Click on Why Washington Should Pay Attention to the Economy Here and Now for Robert Reich’s perspective.


The recession ended in June 2009

November 20, 2010