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Home Publications Blogs Beat the Press 400,000 Newly Unemployed Workers Celebrate Budget Agreement

400,000 Newly Unemployed Workers Celebrate Budget Agreement

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Saturday, 09 April 2011 13:16

Has anyone told the White House press corps about the economic downturn? We have 8.8 percent [thanks Tony] of the workforce unemployed, more than 8 million people employed part-time who would like full-time jobs, and millions more who have given up looking for work altogether.

The reason is simple: there is not enough demand in the economy. When we cut government spending, there is less demand in the economy. As we used to say in intro econ class: Y = C+I+G+X-M. That means that GDP is equal to the sum of consumption, investment, government spending and net exports. If we cut government spending, then we have reduced demand, unless we think there are a lot of firms who will be inspired to hire people because the government is cutting back its spending.

Moody's estimated that the original Republican plan for $61 billion in cuts would lead to a loss of 700,000 jobs. Goldman Sachs had a similar number. Since the final deal had a bit less than two-thirds of these cuts, the implication is that somewhat more than 400,000 workers will lose their jobs.

And the remarkable part of the story is that these newly unemployed workers are not even mentioned in the coverage in the NYT, the Post, or it seems anywhere else. Hey why ruin a great budget drama by talking about the people who will have their lives ruined?

Comments (26)Add Comment
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written by Paine, April 09, 2011 3:43
Dean I have a terrible guy cherish on you
I love it when you give good lede
...
written by Paine, April 09, 2011 3:45
I know I know
This was good headline

But good lede is more compact and clever
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written by MicronEcon, April 09, 2011 3:52
Apparently nobody in D.C. cares about "those people" and certainly the punditocracy doesn't. It's not anyone they know, and after all, employment is over 90%.
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written by izzatzo, April 09, 2011 4:25
Any economist knows the surge in hiring by McDonalds will absorb the 400k newly unemployed under Ricardian Equivalence that created a flight to hamburgers from government tofu.
Unemployment = Hardship : 400,000 Unemployed = 400,000 Hardships
written by Union Member, April 09, 2011 5:46

if all you've ever received is an ordinary paycheck and you experience long term unemployment while facing the very real prospect that any future work will only mean underemployment - you never recover from that.

You can't plan, you can't dream (which were only modest dreams to begin with); you live in fear, that's it. With moments of abysmal self-doubt. What's not to celebrate? Hope their home - if they have one - is above water.

What is it in this story the NYT can't cover? David Brooks could at least advise them that if they choose to get sick then they and their children will just have to live with the implications of that "choice."
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written by joe, April 09, 2011 5:51
If unemployment falls from 8.8% to 8.7% because people give up looking for work, look for the press to say the spending cuts reduced unemployment. Brooks already has the piece typed out.
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written by urban legend, April 09, 2011 7:04
C'mon, Dean, why do you keep making "8 million" your headline number for unemployment when the reality is far, far worse than that? If you look at the enormous drop in the employment-to-population ratio since 2000, the number who would take jobs if they were available is about 15 million. Add in another 5 million who are in part-time jobs not by choice and want full-time and you easily have a real unemployment number in the 20-25 million range. (That's the formally under-employed, and does not even count millions more who are under-employed by reason of education and experience.)

Want some scary numbers? We have over 2.5 million fewer full-time jobs or by-choice part-time jobs today -- in absolute numbers -- than we had in 2000, despite the working age population having grown 12% in that period.
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written by urban legend, April 09, 2011 7:26
I re-read Dean's post, and realize he intended to make those elements of unemployment or under-employment additive. Notwithstanding that formal correction, it still would be nice to focus attention on the really big and horrible aggregate number.
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written by Ellis, April 09, 2011 7:32
You forgot to mention the most important thing: corporate profits rose at their fastest rate in history. That has to be great news. It shows that government austerity policies are definitely working. All that other stuff about economic growth and unemployment is, at most, of secondary importance when it comes to government policy. Dean, as a top economist, you ought to at least understand that simple fact.
Deans Facts, Low-rated comment [Show]
Real World Tony
written by union member, April 09, 2011 8:49
How do the unemployed save enough for retirement? That's precisely what I meant by losing the ability to plan and dream! I went through a decades worth of careful disciplined savings during one bout of unemployment.
Tony, may I ask you, did you see the housing bubble coming? And regarding our wars of choice, how did you vote?
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written by Robert, April 09, 2011 9:21
Nice post, but can't you get more reliable sources than Mood's or Goldman Sachs? Also, the groundwork for this job loss was Obama's preemptive three year discretionary spending freeze announcement last year and his adoption of the austerity rhetoric, which the GOP used as the floor for negotiations.
Dear Union Member
written by Tony, April 10, 2011 5:42
You bet I saw the housing bubble coming. In November 2006, when housing starts dropped 30% from there high, I warned everyone I knew, that we were probably going into recession. The only surprise to me is that it took 13 months longer then I thought it would for the recession to begin. And in about 10 days, we are going to get new housing data, that should confirm that we are having a double dip in housing, and when housing dips, 7 out of 9 times in the past we have gone into recession.

As far as our wars are concerned, I was for Gulf War 1 (1991) but I was against all the rest. We cannot afford them, we are not nation builders, and I feel if we are going to have our troups on foreign land, those countries should pay for most of it.

And as far as savings are concerned, nothing drives me nuts more then the poor spending and saving habits of Americans. Most jobs in the private sector go to people in there 20's and 30's, and you are let go when you are in your 50's or older. I averaged a 13% savings rate during my 30 year working career, owned just one credit card and paid it in full every month, payed all cash for three of the four cars I bought in my life, and payed off my house when I was 45. I was let go from my job two years ago at age 52, so I now live off my savings and my investments.

So don't tell me to live in the real world. It's my fellow baby boomers that are living in the land of fantasy in my opinion. I hope they learn a valuable lesson from all this, but they probably will blame everyone but themselves for there problems. People do not know there history, or they would not keep doing the same stupid things over and over again.
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written by Deb Schultz, April 10, 2011 8:47
I'm happy for your good fortune, Tony, but I don't think your luck is a plan. And yes, you were lucky. There are many people in this country who have worked as hard as you and made do with used cars and scrimped and saved but who are struggling now to survive the impact of the recession. There are many younger people, not the hated boomers, who are laboring under huge education debt, looking for jobs in any field, not just the one they spent those loans acquiring. If they are lucky, they will find some work somewhere that will help them pay their current debts, but it will be some time before they can save any significant amount for the future, let alone 13% of their pay.

My personal feeling is that cutting government spending at this time is seriously confused policy. I keep being puzzled by the fact that we can somehow spend billions and billions of dollars propping up the financial system yet we cannot afford to fund a national health care system, one that would incorporate Medicare and Medicaid and be available to everyone. It seems to me that this alone would make everyone's lives much better and would have the great added advantage of helping the government gain some much-needed control over the budget-busting cost of health care.

Thanks Tony for your reply
written by Union Member, April 10, 2011 9:55

i was following you most of the way until that last paragraph. I don't think people need to be taught a lesson. Why should punishment of any kind have to be a part of economics? And if so, why aren't our financial leaders being punished for bringing this upon us in the first place?

And you say that people should know their history, but again I would blame this gigantic unaccountable behemoth - mostly known as the Mass Media - for the reason most people don't know what's up or down.
Tony, Why Can't We Learn From Japan's Experience With Debt?
written by Dean, April 10, 2011 9:59
Tony,

The argument that because Japan's economy has not performed well that we cannot learn from its experience with high levels of debt does not follow logically. The argument of the deficit/debt hawks is that markets panic and interest rates soar when debt burdens get high. Japan has a debt burden that is more than twice as high as what we are projected to hit in a decade and this has not happened.

Does its economy have serious problems? Sure, but these are not in any obvious way tied to its debt. (Give us the story if you think so.)

To say that we can't learn from its debt experience because its economy is still weak would be like saying that we couldn't try to emulate someone who lost weight with diet and exercise because they got hit by a car and killed. The fact that this person was the victim of a tragic car accident does not change the effectiveness of diet and exercise for losing weight. Similarly, the fact that Japan has some longstanding economic problems does not change the fact that it has been able to run very large deficits and sustain a very high debt and still borrow in credit markets at low interest rates.
Union Member
written by Tony, April 10, 2011 1:38
Thanks for your reply. I would point out, according to a wonderful Philosophy professor I once had the pleasure to listen to, wisdom is only learned from suffering. I hope he is wrong on this, but I doubt it. If we forgive everyone for all there mistakes, how will they every learn?

Now I am in complete agreement with you on our politicans and the media. Amd I worked in the television industry for 30 years, and these people just make things up over and over again. So I stopped watching television a long time ago. Even when I watch CNBC, I turn off the volume and just watch the ticker as it goes by.

My best advice to people, is to only be influenced by the most literature, accurate and objective people that you can find. And economics and finance is a social science. Outside of when a economy goes into recession, prices eventually go down, are there any other absolutes in economics? I don't think so.
...
written by Tony, April 10, 2011 2:02
You bring up a interesting point about Japan. Some believe, that the reason that Japan has been able to grow there debt to GDP to about 200%, is because about 95% of there debt is financed domestically, while here in the U.S. it is about 50-50.

Many people feel that once the Bob Hope generation in Japan die out, the baby boom generation that follows neither has the savings or the will to continue financing there debt. Many others believe that the only reason that interest rates are so low in Japan on there 10 years bonds, is because of fear, since the Nikki is still way down from its 1989 peak. Take that fear away, and will interest rates remain so low? Even if this fear is unfounded, Japans GDP has averaged only about 1% for the last 20 years, even with zero or near zero short term interest rates. They have gone through three recessions without a inverted year curve, which often happens before recessions. All this tells me that there is something terribly wrong in Japan and there does not appear to be any end in sight. It's been bad enough that we have averaged only about 2% GDP since 2000. Do we really want to go down the road of Japan?

Europe seems to be going to the other extreme. They are punishing the tax payers, and the lenders do not suffer at all. That does not seem right either. Iceland is probably the only country in Europe that is doing things right, by telling the lenders that if you made bad loans, then you lose your money. Of coarse this approach could mean that some will not lend you money any more, but if you look what happened to Brazil in the 1990's, lenders appear to have very short memories when it comes to lending money.

I would like to find a more middle ground, where we keep our economy growing as best we can, but at the same time, start changing our entitlement programs in the future. This is something that Robert Shiller and Nouriel Roubini endorse, and I do too.
Fundamental Error in Observation
written by Union Member, April 10, 2011 2:22

Tony, I'm sorry, but the people who are suffering the most from all of our self-created, very complicated, and difficult to solve problems are the least of those responsible for the problems in the first place, (So what merit is there in their suffering?); while those who are responsible - either through malevolence or negligence - are not only not held accountable, they are rewarded with bailouts and bonuses and re-election.
I hasten to add:
written by Union Member, April 10, 2011 2:25

and campaign contributions.
And furthermore:
written by Union Member, April 10, 2011 2:29

Accolades and excuses from the Media.
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written by diesel, April 10, 2011 9:51
Tony, I rarely resort to ad hominem attacks, but in your case I will make an exception. You are a smug, ill-informed, unsympathetic prig. You don't know a damn thing about how most Americans make their living--how hard they work and how much or little they are paid. Try drawing up a family budget using the figures for average wages and expenses and you will see that it is virtually impossible for most people to save 13% of their income. It's not a question of moral failing, it's a simple question of numbers and math.

You yourself are the living embodiment of someone who hasn't learned from suffering, because it's doubtful whether you've ever truly suffered. Like many self-satisfied moralists, you generalize from too limited a base--your own narrow life. If I were like you, I would wish ill upon you so that you could acquire some wisdom but I'm wise enough to know that I don't need to do that, because life will hammer you in the end. Nobody gets out of this alive and we will all experience our full measure of suffering. In the mean time, take a lesson from the ancient Greeks, and don't crow about your own good fortune.

Oh, and have a little compassion, not everyone is as perfect as you are.
Diesel Response
written by Tony, April 10, 2011 10:52
What a shame it is that someone like you, would respond the way that you did to a website, that was supposed to be one of class. I have met Dean Baker in person, and while I may disagree with him on many things, I do give him credit for being one of the few who called the housing bubble, and sharing his views on his free web site.

Having said that, I have no problem with people having different points of view, so long as they are respectful. Yours was not respectful. There is a old Buddhist saying, if you do not contend, there is no conflict. You are contending.

And I have taken plenty of Philosophy classes, including ancient Greek, and I do not see how you can say that I am gloating.

Saving 13% of my salary for 30 years was hard work. I am not rich, but I am debt free. And part of the problem in this country in my opinion, is that the average American is living way beyond there means. I have met so many people who buy expensive houses, cars, have huge credit card bills, and then expect taxpayers to bail them out when they go broke. I take a sort of existential point of view in this manner. You can live your life as you please, but you pay the price.

And to try to say that I have not suffered in my life is a joke. Does my mother going through breast cancer recently not count as suffering. Or my fathers death. Or my losing my job two years ago and being forced into early retirement?

But thats okay, because I have learned a long time ago, do not expect much from people, and you will seldom be disappointed.
It is "their" not "there"
written by NewsFromAnnArbor, April 11, 2011 6:07
Tony,

Check your spelling, you use "there" when you should be using "their"; as in their lack of savings not there lazy habits! Also, your tight wade ways did little to stimulate the economy over the last 30 years. Shame on you for dropping out of the workforce and failing to perform your expected role in the reserve army of the unemployed (by placing righteous downward pressure on wages); you are a malfunctioning worker!

Point is, there is more than one way to moralize!

My own feeling is that we need to have more paid time off for workers to get the unemployment rate back down. Also, if we did not have the crazy sick care system we have now, there would be less incentive to get rid of workers in their 50's. Getting rid of workers in their 50's is a huge waste of valuable resources.
Answer to Tony
written by diesel, April 11, 2011 8:12
Glad you brought up the Buddha. As you recall, as a youth he lived in a gated compound completely isolated from distressing experiences. His wealthy Father went to great trouble to create an artificially secure environment in which his son would experience no discomfort. But unlike the progeny of America's wealthy, the young man ventured out of the family compound into the city. There he, for the first time in his life, encountered sickness, old age and death. Distressed by the incongruity of this experience with what his Father had taught him, he abandoned his secure life and took up the life of a seeker of wisdom. In the end he counseled that his followers practice compassion and to seek out their salvation with diligence.

What has this to do with economics?

Did Franklin Roosevelt "deserve" polio?

If sickness, old age and death are inevitable, and if they come upon a person regardless of merit, and if they are economically ruinous then perhaps a compassionate society should take steps to protect its citizens from exploitation by those who prey upon people in their most vulnerable moments. And so we have Social Security to deal with old age, Medicaid and Medicare to deal with sickness and terminal illness.

Roosevelt's contracting polio made him conscious of the reality that bad things happen to good people regardless of their personal merits. This realization tends to make a person less smug and less certain of the justice of life. People less smug are open to compassion. Compassionate people try not to exploit another's vulnerability for their own personal gain.
Unemployed
written by Scott D. Moore, April 11, 2011 11:17
Dean, thank you for spelling out the MATH again! What is wrong with these people? What is so hard about this formula- nothing, "That means that GDP is equal to the sum of consumption, investment, government spending and net exports." Right on the money.

Thank you for staying on top of this.

Scott

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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