Posted today at
Economists for Dean
Today's employment report shows that over 250,000 net new jobs were added over the last two months (September's number was revised up to 125,000). This is the first real solid piece of good news on jobs in quite a while. It confirms that the sharp rise in GDP growth in the 3rd quarter was also reflected in job market gains. While it is just a few months of data few economic forcasters doubt that employment will continue to rise through 2004.
This piece of good news for America's workers, however, does not mean that the economy should not be a major issue for Democrats in the 2004 election. This expansion still makes the 1992 "jobless" recovery look like a jobs boom and many American workers are still taking a beating (see below). Bush's economic policy has contributed little to the short-term economic revival (compared to what could have been done) but comes at the considerable expense of threatening our long-term economic health. As Fed Chairman Greenspan said yesterday :
Remember that in just five years the first cohort of the baby-boom generation will reach 62, the earliest age at which social security retirement benefits may be claimed and the age at which about half of the prospective beneficiaries choose to retire. In about 2008, the proportion of the working-age population that will retire is projected to begin escalating. Almost surely, the social security and Medicare benefits that are promised under current law to future retirees cannot be financed with existing tax rates. Budget simulations by a broad range of analysts (including those at the Office of Management and Budget and the Congressional Budget Office) suggest that the rapid increase in the unified budget deficits that would occur under current law as the baby-boom generation retires could set in motion an unsustainable dynamic in which large deficits result in growing interest payments that augment deficits in future years. Such a development could have notable, destabilizing effects on the economy.
As we have argued in the past, the tax cuts were reckless, largely innefective and amounted to pilfering. None of that is changed by this uptick in job growth. Getting the message through about the recklessness and fraud of Bush's economic policies, however, will be made more difficult because of the media's focus on day to day numbers as opposed to the wisdom of policy, which requires more effort. As I said last week, "Dean and the other candidates must be prepared for the possibility that job growth will accelerate sharply in 2004 and how to handle the political rhetoric over an improving economy".
As to the state of the labor market,
it is still hurting. There is growing evidence that there is a bifurcated labor market where those who are out of work, have seen their jobs permanently eliminated as a
recent paper by the New York Fed shows. The painful implications of this has been discussed by the New York Times
here and
here and in my previous post
"The Unemployment Crisis and the Folly of Bush's Personal Reemployment Accounts".
Keep in mind that there are still about 3.5 million people claiming unemployment insurance. I am not a political expert, but I imagine that the lesson of the 1992 election is that it doesn't matter what the business headlines say if people are still hurting.
An important implication of this permanent job loss ought to be a massive overhaul of job training programs to bring in more money and to make the programs more effective (more on this in a future post). While this does not sell as well politically, especially in the Democratic primaries (as people just want the jobs, thank you very much) it is one of the few effective things that can be done that is not just political posturing with detrimental side effects.
Other important implications of today's jobs report:
It throws a monkey wrench into the Fed's plan to stay on the sidelines for a "considerable period" and may force them to raise rates in the midst of an election year.
Independent of Fed action, long-term rates are likely to head higher due to higher inflation expectations (more on this in a later post). These can potentially further weaken the housing market and lower a just-emerging rise in business investment. If the bond market changes its thinking on inflation and Fed policy it might suddenly realize that there's going to be a flood of treasuries entering the market due to Bush's red ink. We might be in for an interesting ride in 2004.
