They used to tell me I was building a dream, and so I followed the mob,
When there was earth to plow, or guns to bear, I was always there right on the job.
They used to tell me I was building a dream, with peace and glory ahead,
Why should I be standing in line, just waiting for bread?
Yip Harburg, Brother, Can You Spare a Dime (1931).
ON February 6, 2009, the United States governments Bureau of Labour Statistics (BLS) released its monthly Employment Situation Summary. The first paragraph of the report contained startling data. In January 2009, the U.S. economy lost almost 600,000 jobs (the highest figure in 34 years). The official unemployment rate rose from 7.2 per cent to 7.6 per cent (the highest in 16 years). Since December 2007, which the BLS identified as the start of the current recession, the U.S. economy has lost 3.6 million jobs (2.8 million lost since September 2008). In the quiet, measured language of this data-collection agency, in January, job losses were large and widespread across nearly all major industry sectors. The scale of the number is unimaginable.
A White House forecast, released by the Bush administration days before it left office (January 16), pointed out that the U.S. economy would lose 235,000 jobs a month in 2009, or 2.8 million jobs. This estimate now seems modest. In November 2008, Goldman Sachs revised its own earlier estimate to suggest that in 2009 the unemployment rate would be over 7 per cent (it was then 5.6 per cent then). President Barack Obama went on air shortly after the BLS released its report. This was in itself remarkable since BLS reports are normally of no interest to the general public and are rarely reported on by the mainstream media. Obama acknowledged that this particular report bore devastating news and the data could not be worse. The head of Obamas Council of Economic Advisers, Christina Romer, warned that if the government did not act swiftly we are likely to lose millions more jobs and the unemployment rate could reach double digits.
Obama recognised that while this number was enormous, this is not an abstract debate. It is an urgent and growing crisis that can only be fully understood through the unseen stories that lie underneath each and every one of those 600,000 jobs that were lost. Factories close their doors, small businesses pull down the shutters, houses are abandoned to foreclosure: people who lived their life with the promise of the American Dream are rapidly abandoned even though they have put in their hours for decades.
The numbers are magical. Inside that 600,000 figure are 207,000 manufacturing jobs; this is the largest decline of manufacturing jobs in a single month since the high point of deindustrialisation (1982). Alongside this figure is 734,000 discouraged workers, people who have stopped looking for jobs because they do not think they are out there. If you add these two figures, the picture is even more dismal. The decline in manufacturing has meant a gradual parity in the number of men and women in the active workforce. In the past year, men accounted for eight of the 10 lost jobs, and more men gave up looking for work than women.
Boston Globe columnist Ellen Goodman points out, You not only have a near-equal number of women in the workforce, you have a lot of women in formerly two-earner families whove become the breadwinners. Breadwinners? Or should I say crustwinners. The other dubious part of this equality for families is that even if women fill half of the payroll jobs, they dont bring home half the pay checks. They still earn 78 cents for every male dollar. In two-worker households, husbands earn close to two-thirds of the income and usually hold the job with the health insurance. That is gone. Womens jobs (in health care and education, for example) might be more stable for the present, but they are also less profitable.
Inventory sits in warehouses and in retail stores as sales go down. Like a blood clot, these unsold goods clog up the system, dampening any need to increase production. The U.S. Commerce Department released its own dreary report, showing that new orders received by U.S. factories fell by 3.9 per cent in December, following a 6.5 per cent slump in November. Retail sales for January fell by 1.6 per cent (according to the International Council of Shopping Centres).
The verdict of The Washington Post was stark: If the jobless rate keeps rising at the pace it has for the past two months, it will hit double digits in the summer and reach its highest rate since the Great Depression in the fall. Companies in nearly every sector of the economy have cut jobs or announced that they would take other steps to save on cost, including freezing or reducing pay or eliminating contributions to employee retirement programmes (February 7, 2009). The January numbers, in other words, will be dwarfed by those figures that come for February, March, April, May and June. No one wants to consider what is going to happen after midsummer.
Those who watch the way the government collects the numbers are wary of this data. Government figures are only so good as the methodology used by its agencies. In 1995, the Clinton administration convened the Advisory Commission to Study the Consumer Price Index. Bill Clinton appointed Michael Boskin, the former head of President Bushs Council of Economic Advisers, to head the commission. The Boskin Commissions report (1996) recommended that the BLS revise its method for sampling. As a result of this report, the BLS conducted a form of statistical pruning, cutting its household sampling size from 60,000 to 50,000. An important aspect of this cut was the reduction of households from inner cities, which have a disproportionate number of non-white residents and also of impoverished families. Further, the BLS began to exclude discouraged workers from its calculation of unemployment.
With Boskins new method, the poverty rate fell, as did the unemployment rate, and it was notable that (without the inner-city data) suddenly blacks enjoyed better economic health than before. This fabulous world renewed enthusiasm for the American Dream even as the reality hidden in segregated slums was quite different.
The latest Survey of Consumer Finances shows that households have less wealth than in 2001. The saving rates went down from 9 per cent in the 1980s to 5 per cent in the 1990s to 0.6 per cent over the past few years. Unemployed people with no wealth and access to modest social insurance will certainly foreclose on the homes that they hoped would build them wealth; this will create less incentive for banks to lend, and once more lead to further job cuts. The cycle is inevitable and bleak. The North America chief economist of BNP Paribas Bank, Brian Fabbri, told The Washington Post: The economy is suffering. Things are getting worse, not better. Everything is weakening at a faster pace than we have ever seen. You dont need to embellish (February 5, 2009).
The downward spiral of the U.S. and world economy has challenged the intellectual house of Milton Friedmans monetarism. Things are at such a sad pass for proponents of laissez faire that the Cato Institute (a libertarian foundation) ran a full-page advertisement in The New York Times extolling its beleaguered principles. Even the most conservative Republicans (such as Senator Lindsey Graham) are resigned to such extreme steps as bank nationalisation. This would have been unheard of a few years ago.
Former Federal Reserve Chairman Alan Greenspan offered his own mea culpa before Congress as the theory that control of money supply is enough to provide a stimulus now sounds ludicrous.
Obama arrived in Washington with a proposal to raise $775 billion in stimulus spending. Within weeks he was able to push this Bill through Congress, which agreed to lift the amount to $787 billion. Admittedly, the thrust of the earlier Bill was changed quite dramatically: the legislature diverted much of the direct spending proposals towards further tax cuts. But, nevertheless, the idea that the U.S. government was going to borrow towards shovel ready job creation projects is quite astounding. The list of how to spend the money is already long: infrastructural spending, expenditure towards research and development and outlay towards education. There are many ideas, and many outstretched hands. Whether this money will actually create jobs quickly enough is an open question. The government says that the stimulus measure might create or maintain 3.5 million jobs. This would just about stem the tide of the jobs haemorrhaged over the past few months. As the chair of the Progressive Caucus in Congress, Lynn Woolsey, said, the first thing to recognise is that while the Bill isnt perfect, its $800 billion better than what we had a few weeks ago.
Goldman Sachs economic analysis team looked at the stimulus package and concluded that the Bill is unlikely to do much more than stabilise the U.S. economy in the near term. Unless recovery in the private sector proves to be much stronger than we expect over the next two years, we think more stimulus will be needed before the end of 2010.
Obama inherited a federal deficit of $1.2 trillion. His spending will raise this to over $2 trillion, with every expectation that this will rise to $3 trillion. Obamas Treasury Secretary Tim Geither unveiled a plan with few specifics, dodging one large problem (an economy with insolvent banks) by offering trite promises about another (the joblessness). If the banks are indeed beyond salvation (the International Monetary Fund estimates that the bank losses are now at $2,200 billion), then it is unlikely that the various stimulus packages will do more than act as a stop-gap measure until something is done about them.
The government will make stimulus spending routine to prevent a social collapse until it comes to terms with what Martin Wolf of The Financial Times calls the zombie institutions, whose toxic presence is going to undermine the ability of hard-working people to get good jobs.