On The Left

Joblessness Is Top Problem, But No One Has An Answer


President Obama and his fellow Democrats want more jobs. So do Republicans. Heck, everyone does. Yet job creation is weak.

It's true the economy has generated 5.5 million jobs from its low point. Still, 3.2 million fewer jobs exist now than at the previous high.

The official jobless rate is 7.9%, but it would be 14.4% if it included part-timers who'd like full-time work and discouraged workers who have stopped looking, notes Janet Yellen, vice chairwoman of the Federal Reserve Board.



Despite some years of recession-induced joblessness, unemployment averaged 5.6% from 1950 to 2007. The Congressional Budget Office doesn't expect it to fall below 7.5% until 2015. That would make six years above 7.5% — the longest stretch in 70 years.

Something's changed in how the economy works.

One theory is de-leveraging: Americans paying down their high debt.


Another approach is to see which sectors are lagging compared with past recoveries. Yellen did this and indicted housing (its deep slump) and state and local governments (spending cuts).



Before the 2008-09 financial crisis, the bias was toward more spending. The inclination was to surrender to immediate gratification. Want a new car? Sure, why not? More meals out? Great idea! Businesses did the same. Banks made the next loan; companies hired the next worker and approved the next investment project.

An expanding economy justified optimism, and optimism supported an expanding economy. Hello, bubble.

The psychology has reversed. The bias is against extra spending.

Eat out? Try leftovers. Remodel the basement? Oh, leave it alone. In the boom years, the personal saving rate (saving as a share of after-tax income) fell from 10.9% in 1982 to 1.5% in 2005.

Now it's edging up; from 2010 to 2012, it averaged 4.4%. It could go higher, imposing a further drag on the economy. Businesses have also retreated. Since 1959, business investment has averaged 11% of gross domestic product and peaked at nearly 13%. It's now just over 10%, reports economist Nigel Gault of IHS Global Insight.

Note that these attitudes govern sectors accounting for four-fifths of the economy. Consumer spending is about 70% of GDP; business investment is the rest. They dwarf housing construction, about 2.5% of GDP.

Caution and risk aversion aren't so great as to cause a recession, but on the margin they have limited the economy's expansion to rates — lately, 1% to 2% — too weak to absorb most jobless.

Pessimism produces a sluggish economy; a sluggish economy produces pessimism. That's the main explanation of poor job creation.


Americans aren't just de-leveraging. They're also building wealth to protect against unknown dangers. Perhaps the stock market's recent rise to record highs signals restored confidence, but remember: The market is simply regaining levels of late 2007.

A Credit Suisse report argues that returns to stocks will average about 3.5% annually (after inflation) in the next 20 years, down from 6% since 1950. To compensate for lower returns, companies would need to contribute more to pensions. Wages would suffer. Consumption spending would weaken.


It could happen but isn't guaranteed.



A meaningful level of projects would take time to start and add to budget deficits. We are waiting and hoping.