TARP stabilized the financial sector; the auto bailout kept GM and Chrysler from going into receivership; the stimulus prevented the economy from plunging into another Great Depression. Unless you live in the bubble that is the Republican echo chamber, these facts are indisputable. And yet, more than two years after these measures were taken, the nation is still dealing with stubbornly high unemployment numbers. To add insult to injury, the prospects for a dramatic turnaround seem remote at best. Like it or not, we are in the middle of a “jobless” recovery.
Well for one thing, the amount of jobs that are being added each month – and it’s important to note here that we have witnessed 15 straight months of private sector job growth after enduring more than 24 consecutive months of job losses as a result of the recession – is not nearly sufficient to significantly put a dent in the unemployment rate. In a good economy, with unemployment around four or five percent, those numbers would be good news. The best you can say about job creation these days is that we don’t appear to be going backward; at least not yet. Unfortunately that’s as good as the news gets. The fact is that for a robust recovery to occur, the economy would have to be creating two to three times the number of new jobs each month. Had that been happening all along, the unemployment rate would’ve been around 6% by now, and well on its way to 5%, perhaps even lower.
So what went wrong? In two words, nothing and everything. Let’s look at the last word first.
While TARP was crucial in preventing a chain reaction from occurring within the banking industry, the lack of oversight in it proved its undoing. The fact was that the bulk of the money the Fed poured into the banks was never “loaned” back out as was intended. In deed less than 10% went back out into the market. Fearing the crash that never happened, banks hoarded the money, which propped up their bottom lines, but ultimately did little for the financial markets that were stuck in neutral. By January ’09 the majority of corporate America found its credit lines all but frozen. Unable to borrow the capital they so desperately needed to grow their businesses, these companies began slashing payroll just to stave off bankruptcy. It wasn’t until the late spring of that year that credit began flowing again. By then the damage had been done.
With respect to the stimulus, I have beat this dead horse for more than two years. While it did keep the economy from plunging off the cliff, it was never a stimulus in the traditional sense of the word. Paul Krugman, as early as January of 2009, pleaded with the Obama Administration for a $1.5 trillion stimulus. Fearing he might not get anything, the newly elected president opted for a middle of the road approach that was laden with tax breaks that Republicans demanded and projects that were not immediately “shovel ready.” While a hefty portion of it provided badly needed relief to states facing major budget shortfalls, on the whole, the $787 billion dollar plan was the economic equivalent of plugging a dike. It kept us from drowning but did little more. The result was a steady rise in unemployment throughout ’09, and while the private sector has added more than 1.8 million jobs since January of 2010, we still have a substantial percentage of the workforce either unemployed or under-employed.
So now what?
Virtually every economic indicator shows corporate America enjoying the highest level of profits in almost a decade. The banks, once thought to be on the verge of collapse, are healthier and bigger than ever. Wall Street, after losing more than half its value in early ’09, has rebounded with a vengeance. From a low of 6,547 in March of ’09, the Dow climbed all the way back to just shy of 13,000, a little over a thousand away from its all-time high of 14,164 in October of ’07, before settling back down to around 12,000. Clearly Wall Street is doing quite nicely.
So, if everything is just peachy keen in corporate America, why then haven’t we seen higher job growth numbers in the private sector? This is the point where we talk about the word nothing. In a word, there’s nothing wrong with the economy. That’s right folks, nothing, nada. The patient, once on life support and fighting for its life, is now up and about and walking around the corridors of the hospital fit as a fiddle and itching for a discharge. The reason unemployment remains so high is because most employers want it that way. Period.
Understand, this isn’t some ideological war, like the one most pundits immerse themselves in to curry favor among their supporters. This is about profit motive, pure and simple. The issue is not one of liquidity. Virtually every economist aggrees there is no shortage of capital. The economy has been walked back from the edge of the cliff by prudent, if conservative, fiscal policy; the problem is that it now finds itself in the middle of a swamp in the rainy season. The real problem comes down to demand. When employers feel they can get the same level of productivity as they had before the recession out of their current workforce, while at the same time showing record profits to their shareholders, there is little incentive to rock the boat as it were and add overhead, i.e. additional employees. To the extent that employers do add staff, they are opting to go with short-term, temporary workers, rather than go the traditional tried and tested method that brings with it the added cost of benefits. It’s simple arithmetic. When you can get two plus two to equal five or even six, you’d have to be crazy to argue the point. If it ain’t broke, don’t fix it, right?
Except it is broke, and broke but good. And the real danger is that it isn’t very likely to get “fixed” any time soon, regardless of what happens in the next election. That’s the dirty little secret of the recovery. The key players in this tragedy are doing just fine, while the rest of the country is recuperating from the worst case of addition by subtraction in decades. Until and unless corporate America can be made to see that the emperor has no clothes and is freezing his ass off, we will continue in this “jobless” recovery and millions of would-be employees will wonder if they will ever again taste the fruits of their labor; fruits that not that long ago tasted oh so sweet.