The Guardian Unlimited, October 10, 2011
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The September jobs report showed that the U.S. economy created just 103,000 jobs in the month, 45,000 of which were the jobs of Verizon workers who were returning from a strike in August. The economy has created 99,000 jobs a month over the last three months, about 9,000 more than it needs to keep pace with the growth of labor force. At this pace, it will be around 80 years until the economy gets back to normal levels of unemployment.
Nonetheless, the news accounts told the public that the jobs numbers were better than expected. After all, at least the number of jobs is growing; the economy has not sunk back into recession.
Of course slow growth is better than a recession. But this is like saying that we are better off with one major hurricane hitting the East Coast than two. This is true, but why would we expect that two major hurricanes would hit the East Coast in the same year?
This is the same logic with the double-dip recession story. In the last several months many economic analysts have been running around with scary stories about a double-dip recession. While the stories were scary, they never made much sense.
Every recession that the United States has had since the Great Depression has been triggered by a plunge in housing and car sales. It is very difficult to imagine sharp falls in either of these sectors at this point primarily because current sales levels are already very low. At worst, we could see a modest downturn in one or both sectors which would have a limited impact on the economy.
By contrast, other sectors of the economy are growing, albeit very modestly. Consumption, which is 70 percent of GDP looks to be on a 2-3 percent growth path over the second half of 2011. Investment in equipment and software is likely to grow at close to a 10 percent annual rate. Government is shrinking, but only at 1-2 percent annual rate. This slows growth, but since this sector is only 20 percent of GDP, the shrinkage in government is not nearly large enough to turn GDP negative.
With one exception, there really is not a plausible story whereby the U.S. economy goes into a second recession. The exception of course is the meltdown of the Eurozone from a disorderly default of one or more of the heavily indebted countries. However, this outcome will be determined by the greed and ineptitude of the IMF, the European Central Bank, and the European commission, the troika managing negotiations with the debt-troubled governments. The current strength of the U.S. economy has little direct bearing on the willingness and ability of the troika to bring about an orderly resolution of the crisis.
The spread of the double-dip nonsense matters because it provides a backdrop in which politicians and the media can tell us that we somehow should be happy about really bad economic news. By lowering expectations enough, even the pathetic September jobs numbers can be made to look good.
This is not the first time the media has played this game. At the start of the downturn we had any number of political figures and “experts” telling us that we were at risk of a second Great Depression. This line was constantly repeated so that most of the public probably thinks it is true. In fact, Ben Bernanke, who is after Alan Greenspan the person most responsible for the economy’s collapse, was actually named Time Magazine’s Person of the Year, precisely because he prevented a second Great Depression. Of course he also prevented a return of the Black Death.
In reality, we never had any reason to fear a second Great Depression. The first Great Depression was caused not just by mistakes in responding to the financial crises at its onset, but also by the failure to provide a sufficient boost to demand to get the economy back on its feet again. The massive stimulus due to World War II that finally restored the economy to full employment could have just as easily occurred in 1931 as 1941, if there had been the political will.
There is nothing magical about spending on war that generates jobs. Spending of the same size on public works, public education, and public health would have had the same effect. We know this now, which is why there was never any reason to think that a bad turn of events in the 2008 financial crisis would have condemned us to a decade of double-digit unemployment.
Political figures routinely use the media to create absurdly bad counterfactuals so that their actual performance will look good by comparison. Economics reporters should know how to evaluate arguments so that they don’t pass along these nonsense counterfactuals to the public. They should also not make a point of relying almost exclusively on economic experts who end up being wrong on almost everything.
Unfortunately, we are far from that point today. As a result, people will have to do their own homework to recognize that the September jobs numbers really were awful and that they should be very angry at politicians who refuse to do anything to boost the economy.