Is fear about the future of Eurozone eating into U.S. recovery? This certainly could be the case if the recent sentiment among investors away from the stock market and into the less profitable but more stable U.S. treasuries is any indicator. But parking money in safe assets like US treasuries starves the economy of investment, leading to slower economic growth and prolonged unemployment. One thing is certain: as long as the Eurozone problems remain a source of uncertainty, recovery will remain anemic.
The latest BLS employment report reveals that the U.S. economy created only 69,000 jobs in May, far below the 150,000 consensus expectation. The unemployment rate has increased slightly to 8.2%. While the Bureau of Economic Analysis released its first quarter 2012 GDP figure of 1.9 percent actual growth rate versus the projected 2.2 percent estimate. Earnings also remain below inflation. The numbers add up to serious weakness in the economy.
Weakness in the labor market with a silver lining in manufacturing
The number of long term unemployed (those who have been looking for work for more than 26 weeks) rose from 5.1 to 5.4 million and accounted for 42.8 percent of the total unemployed. The labor force participation rate has increased by .2 percent to 63.8 percent, but the increase offsets April’s decline — the bottom line is that the rate has not changed significantly.
The labor force participation rate is significant in that it mathematically changes the unemployment rate (the more people drop out of the labor force, or stop participating, the lower the unemployment rate will be) and affects how many jobs the economy needs to produce to return to a lower unemployment rate, such as that seen before the 2008 crisis. Atlanta Fed’s neat post shows that the higher the labor force participation rate is, the more jobs per month need to be created to return to 7.5 unemployment rate by 2013. If you use this nifty calculator, to reach 7.5 percent unemployment rate a year from now, the economy needs to produce 185,321 jobs a month. To reach a more realistic target of 8 percent unemployment a year from now, we need at least 124,316 jobs a month.
Article comments
1 - Glenn Contrarian
Welcome to austerity economics.
Mr. Jurek, my conclusion will directly address your article and will link my initial statement to your own conclusion.
Conservative economists are right about something - taxation really is wealth redistribution. But does that money go down into a hole? Does it really? Think about it - except for tax dollars that are spent overseas (such as foreign aid, logistics for military operations, etc.), tax dollars are for the most part not wasted. I repeat, tax dollars are for the most part not wasted.
Why is that? What are those tax dollars used for? Obviously, for big-ticket items such as Medicaid, Medicare, and Defense, but also for regulatory agencies and essential government functions. And here's the key fact - when Medicaid, Medicare, Defense, regulatory agencies, and other government agencies buy things, where do they spend their taxpayer dollars? In America. Where do all those government employees buy their daily needs? In America.
The American government is the biggest employer in the world. Corporations large and small compete for the government's business...and many corporations have grown to be world leaders largely because of the American government. Boeing comes to mind.
Yes, there is fraud - but compared to the sheer size of the government budget, such fraud is relatively minimal and will remain so as long as regulatory agencies are properly funded, properly supervised, and allowed to do their jobs. So fraud cannot be used as an excuse.
So what happens when we shrink government too far, when we make government so small that we can drown it in a bathtub? American businesses lose their biggest customer. The gargantuan government agencies are no longer buying from American businesses, and those same agencies are forced to cut payroll whether by firing them or by cutting their pay and benefits, the poster child for which is Texas where 41% of all teachers have second jobs just to make ends meet.
So since March 2010, while America has added two million private sector jobs (many of which are lower-paying service-sector jobs), America has also lost over a half million public sector jobs - almost all of which paid middle-class wages. That is why America's recovery is so anemic and why it will continue to be so while we embrace austerity.
Have we seen this before? Certainly. America had (through Keynesian economic measures) largely made it out of the Depression by 1936, but the Conservative Coalition essentially forced FDR to adopt austerity measures (as I pointed out with references in this article)...and down we went into the Depression. What pulled America out of the Great Depression? Massive government spending on a scale never seen before in human history - also called "World War II", for in economic terms, that's what WWII was: a full-blown government stimulus package. It's not for nothing that during the early 80's recession that people were joking that "we just need a good war".
Hoover slashed taxes to 25%, and we went into the Great Depression. Reagan slashed taxes to 25% for the wealthy, and we went into the early-80's recession (and Paul Volcker convinced him to raise taxes quickly, which Reagan did and we recovered). Bush 43 slashed taxes, and what happened? The Great Recession. How many times do we have to repeat this lesson? Really high taxes are not good - but neither are really low taxes.
And the proof lay not only in our own history, but in all the world around us. With the exception of certain OPEC nations, every first-world nation on the planet has something in common: they're all socialized democracies, all what most conservatives would call "nanny states". There's plenty of other nations that have governments small enough to drown in that proverbial bathtub (as Grover Norquist wants) - and they're ALL third-world nations. Every. Single. One.
So back to employment. What happens when the government sheds so many jobs? Not only do we have over a half million fewer middle-class jobs, the former employees themselves are generally forced to find low-paying service-sector jobs, or simply stop looking for a job altogether and become a burden on the taxpayer, and voila! Welcome to the unemployment statistics of our anemic (austerity-based) economic recovery.
Taxes are wealth redistribution - conservatives are right about that. But what they miss is that such wealth redistribution is essential to American business! That wealth redistribution pays not just for teachers and firefighters and police, but for all those other government functionaries who live in America, pay American taxes, and buy goods from companies here in America...and they ensure that their agencies and departments purchase goods from American companies, too!
Again, taxes that are too high are a bad thing - but taxes that are too low are at least as bad. Why? While Big Business may get an initial shot in the arm by not having to pay higher taxes, their bottom line will still hurt because many of their customers no longer have middle-class wage-paying government jobs.
In a first-world democracy, government and business have a symbiotic relationship - hurt one, and the other will suffer as well. The failure of Greece was not the size of their government, but their system that allowed people to retire on a government pension at age 55. But for every Greece that shows the failure of a "nanny state", one can easily see in the third world a dozen examples of the problem that lay with having small, weak governments.
The wealth redistribution that we call taxes is a GOOD thing, and essential to America's economy. Slash the taxes, and we slash the economy - we are cutting our own economic throats.
2 - Igor
Most of the great wealth created in the USA was sponsored by the US taxpayer. Every business in the USA can trace it's wealth and success to government financed and managed projects. Even the oh-so-chic Facebook, Google, etc., had their roots in government projects and were facilitated by pioneering work in government labs and agencies.
In addition to ALL the high-tech businesses that were sponsored by the US taxpayer and created by US government agencies, the very means of doing daily business were created by the government: the roads, the railroads, the international shipping ports, the USA Navy that protects ALL shipping around the world.
All of those things were done by the US government. So it is ignorant ingratitude and disloyal treachery for US business to now claim that government is an enemy, and to posture as "self-made".
There is not a business in America that does not trace it's success and it's very existence back to the willingness of American citizens to tax themselves to provide a growth environment to American business.
It is base treachery for American business to now turn on the US citizenry and proclaim it's unwillingness to contribute to American society.
Our very history demonstrates the foolishness of the "trickle down" theory: once the guys at the top get their hands on money and power nothing can dislodge some of that money and power and let it trickle down to the peasantry.
3 - Les Slater
Retiring at 55 is the reason for Greek economic problems? Efficient use of a person's labor for 30 years is more than enough to provide all the wealth needed to sustain any population size including investments to dramatically increase the quality of life, including all cultural aspects.
4 - Glenn Contrarian
Les -
I said the reason why Greece is failing is because of the system that allowed people to retire with pension at 55. Implied are the words "that - among other things - allowed". More importantly, the Greek system of tax revenue collection is notoriously corrupt, and that said corruption is so entrenched within the tax collection system that it is effectively preventing Athens from being able the changes required to get its economy back on track.
5 - Les Slater
Glen -
I did read what you said and I reread it after your response. Fundamentally, what is a pension other than living off what is produced by those still producing? There is no reason in the world that should be a problem unless the mechanism for distribution of the products of labor is extremely inefficient. The question of taxes is a smokescreen, superficial.
6 - Dr Dreadful
It seems particularly perverse that it is the capitalists who tend to oppose lowering the retirement age, yet these same capitalists who refuse to hire over-55s because they are a poor investment.
I have to wonder, though, Les, whether 30 years of individual labour - even efficiently used - is indeed enough to sustain a robust economy what with the increasing average human lifespan and the high healthcare costs that entails.
7 - Les Slater
Dread -
In the drive to increase profits, or more properly, to increase the rate of return on investment, the employers are driving down what percentage of what's produced going to the producer. The immediate reason for this is competitiveness on the world or regional basis. The problem is that when a large percentage of the consumers are also the producers then a surplus develops. In Marxian terms it's called overproduction. Overproduction only in a capitalist sense, goods cannot be produced profitably. Productive investment drys up and there's no place to invest except speculative instruments of capital.
A huge portion of what useful that is being produced is being used to support nothing but the maintenance of the unproductive propping of capital.
8 - Les Slater
Dread -
High healthcare costs? For the capitalist system it seems it is more profitable to have an unhealthy population. The food industry feeds into this helping to produce a base population that the healthcare industry can make profits on.
9 - Dr Dreadful
Les: I think in your scenario this is where advertising comes in: the technique of persuading people to buy products they don't need.
An unhealthy population may be good for the healthcare industry but it has a big impact on the profits of all employers because of employee work days lost to illness. There's something missing in your narrative here.
10 - Igor
@3-Les
@4-Glenn
The cure for early retirement is the same as the cure for unemployment: reduce the work week.
Industrial efficiency increases about 2% a year. Relentlessly. That's what a good capitalist system does (take it from a life-long capitalist!): it replaces people work with machine work. Thus, a recurrent expense is replaced with a one-time expense.
Consequently (it follows with inexorable logic!) you MUST reduce work time OR increase consumption. We were unwilling to reduce worktime, so we increased consumption after WW2. But now we've run the string out, as evidenced by runaway obesity!
Save the economy! Cut the workweek to 32 hours!
11 - Dr Dreadful
It is true (or at least common sense) that workers who are less tired are more productive. IIRC there are many studies that back this up.
The thing is that if your workforce works fewer hours individually then you need to hire more workers to cover the lost hours. This isn't necessarily a case of expense but of hassle. If labour laws could be amended so as to reduce the amount of red tape needed to get someone hired (in my case - albeit in law enforcement - 5 months and counting!), then you might find more employers willing to reduce their work week.
12 - Les Slater
My solution is to the workers in charge... of everything.
13 - Igor
Anthropologists say that early man had about a 3 hour workday. Let's see, that's about 20 hours per week.
And efficiency studies say efficiency drops off after about 20-25 hours.