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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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After the great recession

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
First things first, Where are we now?






Layoffs now at pre recession levels
Layoffs now at pre-recession levels

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


But hiring still incredibly low
But hiring still incredibly low

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


Unemployment rate
Unemployment rate

Source: Bureau of Labor Statistics, Current Population Survey




Long term unemployment more than six months
Long-term unemployment (more than six months)







Important we do not have to settle for permanently high unemployment

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!


Employment growth needed to fill in the gap

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
Unemployment, 2015 to add 1 million jobs

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


Real middle income 2015
Real Middle Income, 2015 to add 1 million jobs


Poverty 2015
Poverty, 2015 to add 1 million jobs


What should be done

MORE SPENDING FOR JOBS! to add 1 million jobs

(Important subtext: ARRA worked,

but wasn’t big enough)

What should be done?


Impact of recovery act i
Impact of Recovery Act I to add 1 million jobs


Impact of recovery act ii
Impact of Recovery Act II to add 1 million jobs


But what about the deficit
But What about to add 1 million jobs The deficit?


Perhaps counterintuitive but true
Perhaps counterintuitive, but true! to add 1 million jobs

A key way to bring

the deficit down

is to deficit spend

to create jobs



Case against deficits in a healthy economy
Case against deficits in a healthy economy to add 1 million jobs

  • 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!)



And private savings is way up
And private savings is way up! to add 1 million jobs


And note we re not relying on foreign lending
And note: we’re to add 1 million jobs 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. government to borrow 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
In longer-run, we have a health-care problem, not a social security problem

Spending on Social Security, % of GDP



It s all about runaway health care costs not an aging population
It’s all about runaway health care costs, security problemNOT an aging population


For more information
For more information security problem

Heidi Shierholz

[email protected]

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
Extra slides security problem



The time to worry about foreign lending has passed
The time to worry about foreign lending security problemhas passed…


And the problem was about trade not budget deficits
And the problem was about security problemtrade,not budget, deficits


And trade deficits are driven by over valued dollar not fiscal profligracy
And, trade deficits are driven by security problemover-valued dollar, not fiscal profligracy


Generational inequity
Generational inequity? security problem

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
Time to reassess III: security probleminflation



Too much money chasing too few goods make more goods
Too much money chasing too few goods? security problemMake more goods!


Why is deflation bigger worry
Why is deflation bigger worry? security problem

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



Large debt overhang to work off
Large debt overhang to work off… security problem

Household loans as % of GDP




New treasury issues and long term interest rates
New Treasury issues and and deficits?long-term interest rates



Budget deficit rises by 1 4 trillion between 2007 and 2009
Budget deficit rises by $1.4 trillion and deficits?between 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
War on social insurance and deficits?

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
Social Security: Still Needed… and deficits?

Share of income of aged

households accounted

for by Social Security


And more each year
And more each year? and deficits?



Unemployment rates by age
Unemployment rates by age jobs crisis?

February 2010

December 2007

Source: Author’s analysis of BLS data.


March of events
March of events… jobs crisis?

..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.



Corporate sector demand for borrowing
Corporate sector demand for borrowing exports, and government


Why aren t firms investing capacity utilization is way down
Why aren’t firms investing? exports, and governmentCapacity utilization is WAY down


Economic benefit of various stimulus provisions
Economic benefit of various stimulus provisions exports, and government

Source: Mark Zandi, Moody’s Economy.com


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