It is hard to find much good news in the unemployment report released this morning.
The national unemployment rose to 9.7%; for males it exceeded 10%. The Bureau of Labor Statistics revised upward their estimates for job losses in June and July, and even the bright spot in the report, the lower than expected figures for job losses in August, was a recession-level number and (like the June and July figures) likely to be revised upward.
I want to focus on some of the political and economic consequences of this.
But first, there is an important point that almost always gets ignored and must be made. The important point is that jobs and unemployment follow by several months any changes in the economy. In practical terms this means that it takes six months or so for changes in the broader economy (GDP growth) to show up in figures on employment growth and unemployment rates. A large part of the reason for this is the cost of hiring and firing workers (both financially and psychologically) and the time that it takes to do this. This is why economists call unemployment a lagging economic indicator.
Now for the political consequences.
There is no doubt that President Obama is going to get blamed for the bad unemployment report released today. But because of the lags involved, none of this is really his fault. The high and rising unemployment we are now experiencing is the result of the sharp economic collapse at the end of last year and into the beginning of this year. In short, this is a Bush administration unemployment problem. What happens from here we can blame on Obama, but our nearly 10 percent unemployment is the result of failed Bush administration policies-- the deregulation that led to the financial collapse, the decision to let Lehman Brothers collapse, and the failure to do anything aggressive during its last few months in office.
Second, things are going to get worse on the unemployment front before they get any better. The contraction of the US economy during the second quarter of this year, due to the lags, will push up unemployment for the remainder of this year. A ten percent unemployment rate before the end of this year is pretty much a given. And the worsening unemployment will be Obama’s fault—his stimulus package, while helpful, was just not enough.
Third, for a number of reasons we are still not out of the woods yet. Even the most optimistic forecasters are not predicting enough growth for the rest of this year to stop the unemployment rate from rising into next year. The more pessimistic forecasters (like me) don’t see much hope for economic growth later this year, or for an end to rising unemployment during the first half of next year.
Here are just a few of the problems we face.
State governments began cutting their spending and raising taxes and fees in July. They also began furloughing workers—requiring that they time off without pay.
But the big problem is that people are suffering—they have lost jobs, those with jobs are losing income, and debt levels are still much too high. Also, starting in July, the volume of adjustable rate mortgages that are going to reset at much higher rates will increase dramatically. This will put even further strains on household spending.
This does not bode well for more consumer spending to help pull the economy out of the recession. The unemployment report is going to make both consumers even more reluctant to spend.
It is clear that we need another stimulus bill. But as many people have pointed out, probably none better than Paul Krugman, it is going to be hard to get another stimulus package passed when the first one does not seem to have done much good.
This leaves only one hope—the health care reform bill must be made into a stimulus bill. The public option now needs to be pushed for on economic stimulus grounds. The bill needs to be passed ASAP, the spending necessary to create a public option needs to take place immediately, and we need to forget about how we are going to pay for this until the economy starts to recover. Lacking this, we are looking at an unemployment rate of around 11 percent next year at this time and an unmitigated disaster for Democrats in the 2010 elections. The case for the public option is now pragmatic and political, as well as something that is in the political interest of all Democrats.