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


Underemployment


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


MORE SPENDING FOR JOBS!

(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

hshierholz@epi.org

202.533.2560

Economic Policy Institute

1333 H Street, NW

Suite 300, East Tower

Washington, DC 20005-4707

202.775.8810

www.epi.org


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

spending


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

fragility.


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

2009


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 Economy.com


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