After the great recession
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April 17th, 2010. Heidi Shierholz Economist, Economic Policy Institute. National Association of Planning Councils 2010 National Conference. after the great Recession. First things first, Where are we now?. Technically, recession is almost surely over. But over for whom??.

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April 17th, 2010

Heidi Shierholz

Economist, Economic Policy Institute

National Association of Planning Councils

2010 National Conference

after the great Recession

First things first, Where are we now?

Technically, recession is almost surely over

But over for whom??

Payroll employment (the number of jobs)

The jobs gap

Layoffs now at pre-recession levels

Source: Bureau of Labor Statistics, Job Openings and Labor Turnover survey

But hiring still incredibly low

Source: Bureau of Labor Statistics, Job Openings and Labor Turnover survey

Unemployment rate

Source: Bureau of Labor Statistics, Current Population Survey

Unemployment for various groups


Long-term unemployment (more than six months)

Job seekers per job opening

The Worst Recession since the Great Depression? Absolutely

GDP growth in a recession, a comparison

Employment loss in a recession, a comparison

What’s In store?

But, the short- and medium-term are going to be ugly. The recovery in the labor market is going to take a very long time.

Important – we Do not have to settle for Permanently High unemployment!

To fill the 11 million jobs-gap by March 2011, we would need to add 1 million jobs every month between now and then.

To fill it by March ‘12, need 559,000 jobs per month.

To fill it by March ‘13, need 408,000 jobs per month.  

To fill it by March ‘14, need 333,000 jobs per month.

To fill it by March ‘15, need 288,000 jobs per month.

Employment growth needed to fill in the gap

Source: Author’s analysis of Current Establishment Survey data.

Unemployment, 2015

Source: Author’s analysis of Bureau of Labor Statistics, Current Population Survey data

Real Middle Income, 2015

Poverty, 2015


(Important subtext: ARRA worked,

but wasn’t big enough)

What should be done?

Impact of Recovery Act I

Impact of Recovery Act II

But What about The deficit?

Perhaps counterintuitive, but true!

A key way to bring

the deficit down

is to deficit spend

to create jobs

Sources of increase in the budget deficit

Case against deficits in a healthy economy

  • In a healthy economy, the private sector is borrowing all the available “loanable funds” to make investments. (Investments are good, because they lead to productivity growth, and productivity growth is what leads to rising living standards.)

  • If the government runs big deficits – i.e. also wants to borrow a lot – then it is competing with the private sector for those loanable funds. This competition bids up the price of those funds – i.e. bids up interest rates.

  • Higher interest rates lead to less private-sector investment – i.e. government borrowing “crowds out” investment. And that is bad (see above!)

But right now, private borrowing is WAY down

And private savings is way up!

And note: we’re not relying on foreign lending

In short, Right now there is plenty of room for the government to borrow without causing anything bad to happen!

So deficit spending is what we need in the short run. But what about the long-run? What’s the Root cause of our long-run deficit problems?

In longer-run, we have a health-care problem, not a social security problem

Spending on Social Security, % of GDP

Spending on Medicare and Medicaid, % of GDP

It’s all about runaway health care costs, NOT an aging population

For more information

Heidi Shierholz


Economic Policy Institute

1333 H Street, NW

Suite 300, East Tower

Washington, DC 20005-4707


Extra slides

Public sector controls costs better

The time to worry about foreign lendinghas passed…

And the problem was about trade,not budget, deficits

And, trade deficits are driven byover-valued dollar, not fiscal profligracy

Generational inequity?

Those determined to worry about generational distribution

need to focus on trade, not budget deficits

Budget deficit => higher taxes tomorrow, but these higher

taxes just get recycled into higher interest

payments for bondholders

Trade deficit => excess of imports over exports financed by

transferring ownership of domestic assets to

foreign lenders – money spent today that

really does get foregone tomorrow

Time to reassess III:inflation

Year over year change in CPI

Too much money chasing too few goods?Make more goods!

Why is deflation bigger worry?

Increases real burden of a given debt

$1,000 mortgage gets more and more

burdensome if prices/salaries begin falling

Increases real interest rates

real interest rate = nominal rate - inflation

Effective federal funds rate

Large debt overhang to work off…

Household loans as % of GDP

Inflation erodes debt overhangs

What do the facts say about the Link between interest rates and deficits?

New Treasury issues and long-term interest rates

Rise in deficit a very good thing…

Budget deficit rises by $1.4 trillionbetween 2007 and 2009

And that’s a very good thing!

*Private spending shock greater than the

Great Depression

*Why no Depression? Because this time public

sector muffles, not amplifies, the shock to


War on social insurance

A fiscal cancer, massive entitlement programs we can no longer afford, exacerbated by a demographic glitch that began more than 60 years ago

David Walker

Social Security: Still Needed…

Share of income of aged

households accounted

for by Social Security

And more each year?

More social insurance in the short-run as partial remedy for jobs crisis?

Unemployment rates by age

February 2010

December 2007

Source: Author’s analysis of BLS data.

March of events…

..Should be fatal to lots of economic nostrums

Time to recognize that key planks of our

our decades-long experiment in following a

neoliberal macroeconomic strategy has

yielded little but inequality and economic


Shares of GDP accounted for by consumption, investment, net exports, and government


Corporate sector demand for borrowing

Why aren’t firms investing?Capacity utilization is WAY down

Economic benefit of various stimulus provisions

Source: Mark Zandi, Moody’s

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