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Home Publications Blogs Beat the Press The Washington Post Wants You to Accept High Unemployment (and Social Security Cuts)

The Washington Post Wants You to Accept High Unemployment (and Social Security Cuts)

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Saturday, 20 August 2011 07:53

The Washington Post ran a major article today telling readers that they should just get used to high unemployment. The article presented the view of some economists, that the economy can only recover from a financial crisis after a prolonged period of economic weakness, as somehow reflecting a consensus opinion within the economics profession.

For example, the subhead told readers that while presidential candidates promise a quick recovery, "analysts say this post-recession comeback may take longer." Since this pessimistic view is far from the consensus within the profession, a real newspaper would have said "some analysts." Similarly the sentence, "but because of the severity of this recession, and the accompanying crises hitting banks and other lenders, economists believe that recovering from it will be more difficult," would have the phrase "some economists" in a serious newspaper. (The article does include some dissenters, but it implies that their views are an exception.)

The article then includes a set of charts that show a number of countries in which it took more than a decade for the unemployment rate to return to its pre-crisis level following a financial crisis. It is possible to tell a very different story using a different set of countries as is shown below.

crisis-unemployment_23169_image001                             Source: International Monetary Fund.

As can be seen, the unemployment record of these five recent victims of financial crises is mixed. Four years after the crisis (which would be 2012 in the U.S. case) South Korea and Malaysia had unemployment rates that were above the pre-crisis level, although in both cases they were at or below 4.0 percent. Most people in the United States could probably live with this outcome. In the case of both Russia and Mexico the unemployment was below the pre-crisis level four years after the crisis. In Argentina the unemployment rate was 8 full percentage points below the pre-crisis level, although the country had already been in a severe recession prior to the onset of the financial crisis.

The point of this exercise is that it is easy to find countries that were able to recover from the effects of a financial crisis relatively quickly. It is not a pre-ordained fact given to us by God that workers must suffer for years afterward simply because the people who managed the economy were too incompetent to prevent a financial crisis. This is simply an effort by the same group of incompetent economists to excuse their ongoing failure to fix the economy after they wrecked it.

It is also worth noting that this article gets an important fact about the economy and the recovery fundamentally wrong. It told readers that:

"The economy cannot fully heal until consumers and other debtors shed their financial burdens and are able to spend more freely again."

Actually, the failure of consumers to spend freely is not the economy's problem, which can be easily seen by looking at the savings rate. Currently the savings rate is near 5 percent of disposable income. Its average over the years prior to the take-off of the stock bubble in 90s was over 8 percent. In other words, consumers are spending freely. The reason why demand remains weak is that over-building of the bubble years has left construction badly depressed. Also, a trade deficit that is close to 4 percent of GDP is effectively draining $600 billion a year out of the economy.

These simple facts would be evident to anyone who has knows the basic national income accounting that is taught in an intro economics class. The Post should be aware of them.

Comments (11)Add Comment
Consumer Spending is Far Below Pre-Crash Levels
written by Paul, August 20, 2011 12:13


http://www.gallup.com/poll/146429/consumer-spending-slightly-february.aspx

http://www.gallup.com/poll/148793/Americans-Spending-Increases-July.aspx

At approximately $65/day through July,2011 compared to $100/day in the same period of 2008, consumer spending has been severely depressed for the past 3 years. Since consumer demand represents 70% of GDP, it is obvious why the economy remains in a depression.
Revenge of Inconsequential Government Sayeth the Lord and Rick Perry
written by izzatzo, August 20, 2011 2:50
It is not a pre-ordained fact given to us by God that workers must suffer for years afterward simply because the people who managed the economy were too incompetent to prevent a financial crisis.


Exactly.

Suffer not the unemployed for they shall prosper upon my return at Armageddon and the end of Obama and Consequential Government.

The blind shall see, the deaf shall hear, the crippled shall walk and the unemployed shall be swamped with job offers from an unschackled private sector.

Yea, those who managed the economy into a cesspool will receive the Mark of the Beast from Free Market Faith Healer Rick Perry to seal their fate in Dante's Inferno with all Consequentials employed by government.

Stupid liberals.
...
written by denim, August 20, 2011 6:16
"It is not a pre-ordained fact given to us by God that workers must suffer for years afterward simply because the people who managed the economy were too incompetent to prevent a financial crisis. This is simply an effort by the same group of incompetent economists to excuse their ongoing failure to fix the economy after they wrecked it."

Maybe it is not the economists fault. Rather it is the deregulating, free trading, laissez-faire, Ayn Randite politicians, inclusive since Jimmy Carter. Where were they when it came time to check if the policy would bring economic justice for all? Out worshiping mammon. They got the lions share for themselves and tossed crumbs they felt would prevent revolt.
...
written by jethro, August 20, 2011 8:05
Economic justice for all ??? What are you possibly talking about. Some people (no matter what excuse or reason you want to dream up) just do better than others. While my friends were enjoying themselves after work at the local pub, I worked a second job. I went to school at night and now I make more money than they do. It was a choice - I sacrificed years ago and now I reap the rewards. I support several nonprofits and employ 24 people and for some reason I am supposed to share even more than I have, take more risks with my business, suffer more stress, etc...

Your comments, like many of the people here, are illogical and must be driven by either guilt, envy or regret. Keep preaching your income equality crap, it will never happen by government mandate - how is the war on poverty and drugs working out ???
War on Poverty
written by Dean, August 21, 2011 8:41
Jethro,

While there were plenty of wrongheaded programs involved in the war on poverty, as a matter of fact, poverty actually plummeted in the years from the end of the 50s through the mid-70s that we associated with heyday of liberalism. It has risen in the 3 decades since President Reagan declared his surrender.
...
written by diesel, August 22, 2011 4:10
Jethro, are you saying that only Americans who work two jobs and attend night school deserve economic security? And that this is a desirable state of affairs? What kind of life is that? Does such a lifestyle afford a person any time to develop some character traits aside from acquisitiveness and consumption? I doubt it. You sound bitter about having sacrificed the best years of your life--as well you should be. The human spirit rebels at this kind of straightjacket.

You have paid a terrible price, and in your divided Spirit your better Self, rather than turn against its internalized, tyrannical Overlord, instead looks outward for victims to blame and lashes out at the external embodiment of the "permissive" side of your personality which you so severely suppressed. Vent your spleen as much as you like--it makes no difference--because actually you are ashamed of yourself for having been too cowardly to stand up to the tyrant to whom you sacrificed the better part of yourself. Why else would you begrudge others their simple pleasures?
what are corporate profit levels now and what is the unemployment rate now
written by frankenduf, August 22, 2011 9:27
yo jethro- economic justice refers to workers getting a fair share of the profits that accrue from their labor- if an inordinate amount of profits go from workers pockets to financial corporate profits (via government mandate!) than the system is not just- besides, "what are you possibly talking about."?- ur kidding right?- anyone who's had at least 1 eye open anywhere on the planet the past 3 years knows why economic justice is being cried out for- your comments, like many of the self-absorbed lot, are illogical and must be driven by either ignorance, callousness, or self-deception. Keep preaching your free market crap, it will never happen because of corporate welfare- how's the system where 10% control 90% of the wealth working out???
...
written by liberal, August 22, 2011 10:28
jethro wrote,

Keep preaching your income equality crap, it will never happen by government mandate


You've got it entirely backwards. Inequality is happening by government mandate.

Most of the truly rich got that way because of government-granted privileges. The two biggest that come to mind are speculation in land, and finance.
...
written by liberal, August 22, 2011 10:40
frankenduf wrote,
if an inordinate amount of profits go from workers pockets to financial corporate profits ...


The problem isn't "profit" in the accounting sense. The problem is "rent" in the economic sense.
...
written by liberal, August 22, 2011 10:44
jethro wrote,
I went to school at night and now I make more money than they do.


Yawn. The truly rich didn't get that way by working second jobs and investing in their education. Most of them got that way by receiving government handouts.
Minnesota Twins
written by Minnesota Twins, August 26, 2011 9:35

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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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