Paul Krugman is pointing out this morning what a few of us so-called "doom-and-gloomers" have warned against. This Friday's December employment report and the gross domestic product report five Fridays from now will likely be the most positive we've seen in two years:
There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.
But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.
This shouldn’t be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama’s Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.
Krugman goes on to say that these numbers could easily be just blips. The Japanese, for instance, showed phenomenal growth in 1996, but were far from out of the woods in their lost decade.
We Americans have just completed our own lost decade, as Neil Irwin wrote in the Washington Post Saturday:
There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.
Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 -- and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.
And the net worth of American households -- the value of their houses, retirement funds and other assets minus debts -- has also declined when adjusted for inflation, compared with sharp gains in every previous decade since data were initially collected in the 1950s.
The Uh-Oh Decade, as a few called it in the contests of 1999, turned out to be a prescient name, economically and otherwise. But the problems for the U.S. economy started well before then, even if the impacts weren't immediately apparent. While the auto industry and other manufacturing businesses moved their operations to cheap-labor maquiladoras in Mexico or simply lost market share to countries that had export-oriented industrial policies, U.S. trade policy gave away economic advantages for a pig-in-a-poke in return. Thus did structural unemployment gradually began taking its toll, first among the lower middle class, then steadily working its way up the ladder.
The cracks and chasms were papered over by the bubble economy, massive unsustainable consumer debt and neoliberal, deregulatory happy-talk about the new world economic order that would, just you wait and see, make us all more prosperous,
The Great Recession, which, in the manner that economists measure such matters, has been over now for five or six months, even though its devastating impacts have yet to recede, is anything but a blip. It's true, as some wag noted, things are still awful now, but 12 months ago they were terrifying. We seemed perched on the precipice. We averted having a disaster become a catastrophe, thanks to the remnant legacy of the New Deal - policies that Republicans fought (and still fight) tooth and nail, such as unemployment compensation - as well as the Obama administration's push for a federal stimulus. But we're still on dangerous ground. And if the deficit hawks have their way - including the fake ones in the Republican Party who don't care about such matters when they're in power - we could be back teetering on the ledge in short order.
The consensus view - the average cited by the experts - is that we'll see a break-even unemployment number for December. That is, no net jobs lost, and none gained. Some observers have made a case for a gain as large as 50,000. That's a far cry from the 741,000 loss reported
24 12 months ago.
The 50,000 may well be a blip, however. The numbers that will really count are those reported in February and March. If the improvement trend holds through those months, then will be the time to break out a few smiles.
However, suppose for a moment that we were to return to the employment growth of the 1990s, when an average of 225,000 jobs a month were generated. If we could do that, it would take 36 months to regain the 8.1 million jobs lost since the Great Recession officially began in December 2007. That means getting back to where we were would take until February 2013, 13 months longer to recover on the employment front than in any recession since the 1930s. And not many observers think it's likely the economy will create jobs that fast, certainly not in 2010. Not, that is, unless more stimulus is applied. The $155 billion jobs bill passed by the House of Representatives three weeks ago certainly won't do the trick.
If your unemployment benefits are about to run out for the third time, or you're living on nothing but food stamps, or you're working a part-time job because that's all you can get hired for, then the short term is what matters and what Congress and the administration do right now is what counts for you and at least 26 million other Americans in your shoes.
But the long-term reality is that little-to-nothing has been done over the past few decades to deal with the real killer in all this, structural unemployment, the kind that permanently eliminates jobs. Some structural unemployment caused by changing technology and innovation and a shift in consumer preferences is inevitable. Driven by the right policies, equally well-paying jobs come around to replace them. But some structural unemployment comes from eliminating jobs without replacing them with anything. At least not by anything in the U.S. Workers displaced in this way, especially older but-not-yet-financially-able-to-retire workers, can find themselves in tough straits for a long time. The country's full of those. They aren't, of course, the only victims as any twentysomething college graduate with $35,000 in student loans and no job can attest.
America needs a transformation to put the brakes on our race to the bottom. This ought to include a lot things, not the least of which are a permanent federal jobs program, decent pay for a shorter standard work week (which hasn't been changed for 75 years), and incentives, including legal ones, for cooperative enterprise ownership.
An essential ingredient of this transformation is an industrial policy whose components include fairer trade policy and a labor-market strategy. Most countries - including almost all of America's leading trading partners - have such policies, each of them designed, even by the Red capitalists of authoritarian China, to make life for their citizens better.
So, in the coming weeks, while eagerly watching the news about unemployment, the GDP and all the other statistics that indicate the immediate direction of the economy, it's well to remember that America’s fate now rests in the hands of other countries’ industrial policies. Not having our own is, ultimately, an economic suicide pact courtesy of the promoters of the same policies and behavior that got us into this gigantic economic mess.