May 07, 2011
The Post once again showed why it is known as “Fox on 15th Street,” running an editorial with the subhead, “tackling the specter of structural unemployment,” which essentially offers nothing to address the problem.
The piece got off to a bad start early, telling readers:
“The unemployment rate remains stuck at 9 percent of the workforce, up from 8.8 percent in March. But, good news: The higher rate reflects job-seekers reentering the market because their prospects are better.”
Actually, this is not the reason that the unemployment rate increased to 9.0 percent. The Labor Department’s household survey showed a 205,000 increase in the number of people categorized as unemployed and a drop of 190,000 in the number of people reported as working. So, almost the whole change from March to April is explained by people going from being employed to unemployed, not new entrants to the labor market. This change is likely just a statistical quirk — it is not statistically significant — but the Post’s assertion is simply wrong as anyone can see who looked at the numbers for a second.
But, as usual, it gets worse. The Post tells readers that we can’t try to create jobs through fiscal stimulus:
“The government’s support was truly massive: Even before QE2 and the December 2010 payroll tax cut, the economy had received four times more fiscal and monetary stimulus (as a share of gross domestic product) than in all nine post-1953 recessions combined, according to a J.P. Morgan analysis. But the federal deficit is already huge at 10 percent of GDP, and increasing it substantially could trigger a bond market revolt that would abort the recovery.”
Wow, we had a big stimulus — that’s really scary. Well, this was a much bigger downturn than “all nine post-1953 recessions combined.” The Post completely ignored the $8 trillion housing bubble as it was growing — instead filling its news and opinion pages with whining about the budget deficits of those years. It still seems determined to ignore the bubble.
We could recover from 8 of the past 9 recessions (the 2001 stock bubble crash recession being the exception) without substantial fiscal stimulus because they were all brought on by the decision of the Fed to raise interest rates. If the recession was brought on by raising interest rates, then there is a simple way for the Fed to bring on a recovery.
That’s right! The Fed can lower interest rates. This is not an option when the recession is brought on by the collapse of an asset bubble, especially when interest rates are already at zero. (We used the growth generated by housing bubble to recover from the last recession.) Doesn’t anyone at the Post’s editorial board understand this basic issue?
The Post also raises the spector of the bond market vigilantes. Yes, these bond market vigilantes are really scary guys. They are even invisible so no one can see them. The interest rate on 10-year Treasury notes is now 3.14 percent, much lower than it was in the budget surplus days of the late 90s. Still, the Post wants readers to be very scared — better to force tens of millions of people to be unemployed or underemployed than to take the risk that the bond market vigilantes will attack.
Then the Post warns against more aggressive monetary policy. This could lead to INFLATION!!!!!! The horror, the horror. What planet are these people on? Suppose the core inflation rate rises from its current rate of around 1.5 percent to 2.5 percent, 3.5 percent, or even 4.5 percent? Who gives a damn? Economies around the world, including our own, have for many decades had strong growth in output, productivity, and real wages with these sorts of inflation rates. How could any sane person view the risk of inflation rising to such levels as being worse than the current employment situation?
The Post then forgets where the economy is for a moment when it discusses President Obama’s efforts to promote energy conservation and clean energy:
“The Obama administration thinks ‘green jobs’ are part of the answer, but clean-energy subsidies move jobs around within the economy instead of creating them.”
The “move jobs around” line is a plausible claim when the economy is at full employment. It is not plausible now. The people employed weatherizing homes would not have other jobs if government subsidies did not encourage homeowners to make their homes more energy efficient.
The Post then gives us it pure propaganda line:
“Increasing exports, as the administration aims to do, is a promising strategy.”
Can someone get these people an intro econ textbook? Increasing exports is not what creates jobs, it is increasing net exports (exports minus imports) that creates jobs.
If GM shuts an assembly plant in Ohio and instead ships its car parts to Mexico to be assembled there, are these parts exports creating jobs? In Washington Post land the answer is apparently “yes.” Unfortunately in the real world the answer is no. Since we have been increasing our imports more rapidly than we have increased our exports, the United States has been running a big trade deficit, leading to a large loss of jobs. (The trade deficit also implies negative national savings — and therefore either large budget deficits or negative private savings or some combination, but we’ll leave this issue for another day.)
Finally, the Post conclues by urging patience:
“The costs, human and economic, of high unemployment are heartbreaking. But it will take a measure of patience as well as a sense of urgency to prevent it from becoming a permanent feature of the U.S. economic landscape.”
Yes, all the buffoons running economic policy who could not see the largest asset bubble in the history of the world are still there running economic policy. All the Wall Street clowns who made a fortune pushing junk mortgages and packaging them into complex financial instruments are still rich. That’s just the way it is. The rest of us just need to be patient.
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