This story was filed over at the AP at 4:29PM, and then linked from the front page of the NY Times online edition less than a half-hour ago: "
Formula Shows Why It's So Hard to Cut Jobless Rate."
Formula Shows Why It's So Hard to Cut Jobless Rate
By THE ASSOCIATED PRESS
Published: January 31, 2010
Filed at 4:29 p.m. ET
WASHINGTON (AP) -- The economy's 5.7 percent growth last quarter -- the fastest pace since 2003 -- was a step toward shrinking the nation's 10 percent unemployment rate.
There's just one problem: Growth would have to equal 5 percent for all of 2010 just to lower the average jobless rate for the year by 1 percentage point.
And economists don't think that's possible...
CORRECTION IN THIS PARAGRAPH IN ITALICS:
What the AP doesn't tell us is that
"...John McCain's leading economic advisor from his '08 campaign doesn't think that's possible." (See further down, herein.)
The story continues on to tell us there's an economic consensus that the U.S. gross domestic product ("GDP") will drop to somewhere between 2.5% and 3% for 2010 as government stimulus benefits diminish during the course of the year and as companies draw down less of their stockpiles. Perhaps the most alarming part of the story is this:
That's why the Federal Reserve and outside economists think it will take until around the middle of the decade to lower the double-digit jobless rate to a more normal 5 or 6 percent.
The "formula" referenced in the story's headline is Okun's Law. Something which a few diarist's here have referenced in recent posts, as well. My posts from the last couple of days are HERE and HERE.
As I noted yesterday:
And, while some of those armchair economic pundits may rush to posit that the current Great Recession is "just like other recessions' past," citing the applicability of Okun's Law --a staple of traditional economic thought which I pointed out was totally contradicted by the just-announced Q4 '09 GDP statistics, in my post from yesterday-- the truth is the numbers relating to our current economic downturn really are breaking a lot of old rules as far as traditional thinking on the economy is concerned.
As the newest AP article, quoting economists Mark Zandi, chief economist at Economy.com and chief John Hancock economist Bill Cheney, also notes (IMHO, understates the harsh difference between our current economic downturn and past recessions), Okun's Law "...hasn't always held up perfectly in recent decades."
According to Zandi's and Cheney's extrapolations of Okun's Law, "...the economy would have to grow roughly 5 percent for all of 2010 just to ratchet down the average unemployment rate for the year by 1 percentage point -- to a still-high 9 percent."
Today's lead editorial in the New York Times provides the obvious answer to the problem: "No Jobs, No Recovery."
No Jobs, No Recovery
New York Times
Editorial
Published In Print: January 31, 2010
It may seem counterintuitive, but with the government reporting stronger-than-expected economic growth at the end of last year, now is the time to think about renewed recession -- and to act to avoid it.
The economy grew at an annual rate of 5.7 percent in the fourth quarter of 2009. But well over half of that growth came from large adjustments to business inventories that are unlikely to be repeated on a similar scale in the months to come. As such, they are evidence that the sick economy is recovering, not that it is healthy.
Like the AP story, the Times' editors remind us that the effects of the administration's stimulus will diminish in the months ahead. So, what should be done?
So, what does it take to translate an incipient recovery into a sustained expansion? In a word: jobs. Employment leads to income and to spending. As sales deplete inventories, businesses restock, which creates more jobs and so on in an upward spiral.
The editorial reminds us that we're already some 10 million jobs short, and that there is no job growth on the horizon that could set the stage for an upward spiral. Hence, a second leg down for our economy is a real possibility, and it must be avoided at all costs.
Last, but far from least, the editors at the Times point to the real problem: senate rethugs and DINOs stonewalling House legislation that provides "...a good starting point for creating jobs."
Unfortunately, with the economy already some 10 million jobs short, there is no job growth on the horizon robust enough to set that upward spiral in motion. And because the economy is already in such a deep hole, a second leg down would mean ever worsening hardship.
The editorial closes by further stating the obvious: millions of jobs must be created. soon.
So, it's ironic to note that Mark Zandi--the top economic advisor from the 2008 McCain campaign--is now telling us the same thing!
Maybe the Senate GOPers, with one of their leading economic minds now (also) pointing to the elephant in the room (along with DINOs seemingly oblivious to, perhaps, the core tenet of their own party) will finally get a freakin' clue!
Election Day 2010 is only a few days more than nine months away.
You know what to do: CONTACT YOUR SENATORS!
(If they're Republicans, tell 'em their "leading economist" has told them what to do, and to look at the breaking AP story, linked above. If they're Democrats, tell 'em to read the AP story and today's NY Times editorial, too.)