January 08, 2014
Those who hoped to be informed about the state of the economy by reading this NYT piece on President Obama’s renewed focus on the economy made a bad mistake. The piece implies that the economy is largely back to normal except for pockets of people who have been left behind. For example it tells readers:
“He is presiding over an economy that has improved sharply in the five years since 2009, when it was buckling under the weight of a severe recession, but decades-long shifts in technology and globalization have left more people out of work for extended periods than at any other time in the past 50 years.’
The piece then adds:
“Like Mr. Obama, President Ronald Reagan also ended his fifth year with unemployment at 7 percent after a devastating recession. But Mr. Reagan was sunnier in public as the country’s financial fortunes turned around, and ran for re-election in 1984 with an advertising campaign that declared ‘It’s morning again in America’ for a country weary of economic distress. Mr. Obama has chosen to be more restrained in his enthusiasm.”
It is not just a question of sunny disposition. By the beginning of 1986 the economy had 7.8 percent more jobs than it had in its pre-recession peak in July of 1981. By contrast, the number of jobs is still 1.0 percent below its pre-recession peak in January of 2008. The same story can be seen looking at the ratio of employment to population (EPOP). In January of 1986 the EPOP was 0.6 percentage points above its pre-recession peak. By contrast the EPOP is now more than 4.5 percentage points below its pre-recession peak. This corresponds to more than 10 million fewer people working. By any reasonable measure the economy is in far worse shape today relative to its pre-recession level of output than it was in January 1986.
The assertion that people have been left out of work due to a “decades-long shifts in technology and globalization” is not supported by evidence. If there is reason to believe that most of the unemployed would not find work if the economy returned to its level of potential output (we are still down by more than 6 percent [$1 trillion annually] according to the Congressional Budget Office) the NYT opted not to show it.
In other words, the most obvious reason these people are unemployed is that the government is running macroeconomic policies that are keeping the economy far below its potential level of output, not some inexorable trend in globalization or technology. The latter view may absolve policy makers of blame for the plight of these people, as well as the lack of wage growth for the much larger group of people who are employed but not sharing in the economy’s growth, but it is far from obvious that it correctly describes the economy. It is irresponsible of the NYT to just assert it as fact.
Note: Typo corrected, thanks Robert Salzberg.
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