Why Is Anyone Asking Why We Don't Have Enough Jobs?

If we see a car that runs into a brick wall at 80 miles an hour, we don't ask why its front end is messed up. In this same vein, why on earth would be looking for a reason for a lack of jobs in an economy that has a gap of close to $1 trillion a year in annual demand?

This is what Robert Atkinson does in a column in the Huffington Post. If we take him at face value, Atkinson is actually confused about the reason that the economy is lacking jobs. He must have missed the housing bubble and its collapse.

See, the housing bubble was directly creating hundreds of billions of dollars of annual demand by spurring record levels of construction. The housing bubble also generated close to $500 billion in annual consumption through the housing wealth effect. The bubble generated more than $8 trillion in additional equity, almost all of which has now disappeared.

After the bubble collapsed, housing fell from more than 6 percent of GDP to less than 2 percent of GDP, a loss in annual demand of more than $600 billion. The loss of housing wealth, coupled with the loss of close to $5 trillion in stock wealth, led to a falloff in annual consumption of close to $500 billion. Lost tax revenue also led to cutbacks in annual government spending at the state and local level of close to $100 billion.

In short, we have lost more than $1.2 trillion in annual demand. The stimulus package came to around $300 billion per year for two years. Guess what, $1.2 trillion is much more than $300 billion.

The long and short is that the economy is operating way below its potential because there is nothing to replace the gap in demand created by the collapse of the housing bubble. The lack of demand means a shortage of jobs and high unemployment. There is nothing mysterious about this picture, it is about as simple and straightforward as it gets.

I suppose, in this weak economy, that it is good that people can get jobs looking for solutions to mysteries that do not exist. (Make work jobs can make sense if there is no productive employment available.) But there is no reason that the rest of us should be bothered by solutions for non-existent problems.

[Btw, the fact that the stimulus was too small is not 20/20 hindsight, it is what those of us who know economics said at the time.]

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written by foosion, December 09, 2011 6:36 PM

If there was $1 trillion of fake demand caused by the housing bubble, then popping the bubble should cause the economy to go back to trend. However, things are substantially worse than trend. A bubble inflating and collapsing therefore seems an inadequate explanation for why we're below trend.

Perhaps a debt overhang? Austerity measures enacted as a reaction? The financial system mess and the reaction? Something else?

On This Edition of Any Economist Knows: Robert D. Atkinson, Ph.D.
written by izzatzo, December 09, 2011 7:12 PM

From the Huffington Post article, this quote:

But remember, we are all winners in the long run. The former elevator operators went on to get better jobs. Today's technology Cassandras are too focused on destruction and not enough on the creation. They ignore basic economics (higher productivity lowers prices which gives consumers more to spend which in turns creates new jobs and more economic output) or assume it somehow no longer applies to age of intelligent machines. In fact, a growing, dynamic economy benefits all workers.

Robert D. Atkinson, Ph.D., is the president and founder of the Information Technology and Innovation Foundation, an economic and technology think tank based in Washington.

Oh yeah baby, gimme some of dat basic economics of supply side Says Law that creates its own demand with more motivational speakers who employ themselves by producing and consuming their own cheerleading output as they prepare to die in the long run.

Stupid liberals.

-2

There is and WAS nothing!
written by adh, December 09, 2011 7:30 PM

The lead article states: "The long and short is that the economy is operating way below its potential because there is nothing to replace the gap in demand created by the collapse of the housing bubble."

Not an economist, I don't understand what is meant by our economy's "potential", but I do know that much of our economy during the period of the bubble's inflation, other than housing, was devoted to military spending, financial and medical services. The ITs and dot.coms went through bubbles of their own, and interest rates were brought down by the Fed to bring the economy out of those bubble deflations.

Without a healthy, basic industries that produce goods, I don't know what can supply employment that is not a monetary based bubble. Of course, some of those are worse than others. Good ones might include repair of our infrastructure, universal health care, conversion to renewable (non-nuclear) energies. I think that we must rebuild our ability to manufacture consumer goods. Maybe a new business model for such production is required - other than the current form of top-down, capitalist management.

To be brief, I don't believe that we are in an anomalous economic period. What we are calling the great recession is what an economy that is tied to an imperial, militaristic foreign policy paid for by borrowing looks like. It is what it looks like when capital is permitted to seek greater returns overseas. It is what an economy looks like when its guiding principle is to each according to his greed, from each no matter his disability.

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written by JoblessInJersey, December 10, 2011 1:20 AM

Yeah, I don't understand why we're all stupid either.

I believe in this guy the same way I have faith that President Obama's prediction of 8% or less unemployment by November (due, as he implies to improvement in economy, not due to people leaving workforce) will come true.

I am starting to think I should offer myself as a Presiential candidate. I need a job and I think I'd do better than any of the candidates.

I am so disgusted. I am so afraid for the future -- afraid for myself, afraid for us all.

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written by Uncle Bruno, December 10, 2011 7:47 AM

You were correct about the stimulus. Do you also stand by your assessment of Obama as one of our best presidents?

Say it isn't so
written by trish, December 10, 2011 9:22 AM

Did Baker assess obama as "one of our best presidents?" Really??
I have a hard time reconciling that with the logic and reasoning, the clarity of thinking, the honesty of his posts...please tell me no. I have tried to find evidence of this.

I worked hard to elect Obama in this southern backwater in which I reside and regret every second...

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written by Union Member, December 10, 2011 9:30 AM

Why isn't anyone asking why we don't have enough jobs?

a.) They don't care.

b.) They're afraid of Michele Bachman, Rick Perry, Herman Cain, Mitt Romney, and now Newt Gingrich in '12.

c.) Inflation

d.) The powerful tear-gas and pepper-spray lobby in Washington.

e.) both a and d.

Similar Calcs
written by JSeydl, December 10, 2011 9:35 AM

Nice. Here are my calculations: http://goo.gl/lDBrN. Mine are very similar.

The thing that frustrates me the most, though, is that this error by the Obama Administration has forced a perception into the minds of the populace that fiscal stimulus doesn't work at all. Fiscal stimulus does work. You just need to have the math right.

How many years?
written by Arne, December 10, 2011 12:40 PM

"popping the bubble should cause the economy to go back to trend"

Dean has presented enough information about savings rates that it should be obvious this is not true. Debt overhand is right.

If we are down $8T, we need to rebuild it before we are back to trend. At a 5 percent savings rate on a $15T annual economy, that is going to take 10 years.

Would we still need a $600B stimulus 5 years from now to maintain full employment?

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written by urban legend, December 10, 2011 3:41 PM

But there is a deeper question: we had a fairly poor employee-to-population ratio even at the peak of the Bush years -- approximately 1.5 percentage points, or nearly 4 million jobs, below the Clinton peak in 2000, and we needed a housing and finance bubble (and high military employment and defense contracting) to get even that. Manufacturing employment was in steady decline throughout the Bush terms.

So what should have been there to generate sufficient employment in lieu of the bubbles and war? The only thing I can see is that we have been neglecting every aspect of our national infrastructure to serve the demands of the anti-government and anti-tax Gover Norquists. That's where the huge hole in employment has been all these years.

Infrastructure should be seen as much more than a temporary "stimulus" when the economy is weak. It's a fundamental national need that we have neglected while other advanced and ebven not-so-advanced countries have been passing us by. With a few more million people at work higher incomes arising from relative labor scarcity (and a stronger union presence from so many more union construction jobs), that would have added hundreds of billions to total demand.

Our worst president and infrastructure
written by adh, December 10, 2011 7:46 PM

Two comments: I don't know what Dean Baker pronounced about Obama, but I consider Obama a war criminal for continuing and expanding our non-defensive warfare; he commits crimes against humanity by failing to prosecute Bush admin torturers, by having foreigner torture our rendered detainees and for permitting the torture of Bradley Manning at Quantico, Va.; Obama is a usurper of power; he has violated his oath of office in not supporting and defending our Constitution; he is an incorrigible liar. This is just the short list.

Infrastructure repair is necessary to maintain productive efficiency, but the maintenance should be paid for from the taxes that other products generate. If we produce little, then such maintenance must be paid for by borrowing and increasing our debts. That is OK for stimulating a sluggish economy, but there must be productive industries to be stimulated.

Information Technology & Innovation Foundation
written by Hugh Sansom, December 10, 2011 11:51 PM

A quick check of the foundation from which Atkinson hails reveals that the "honorary co-chairs" include Orrin Hatch and Darrell Issa. Enough said.

Why Is Anyone Asking Why We Don't Have Enough Jobs?

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