Matthew Yglesias » Unemployment Passes 10 Percent

Nov 6th, 2009 at 10:45 am

Unemployment Passes 10 Percent

More bad news on the labor market front:

Takeaways: One, people need to stop worrying about inflation. Two, the federal government should deploy more aid to state and local governments. Three, instead of easing up on the easing of monetary policy the Fed needs to ease even more, probably by taking some advice from Scott Sumner about ways this is possible.

Comments
51

Filed under: Economy, Monetary Policy,

51 Responses to “Unemployment Passes 10 Percent”

Al Says:
November 6th, 2009 at 10:48 am
Heckuva job, Barack!
DTM Says:
November 6th, 2009 at 10:49 am
Two, the federal government should deploy more aid to state and local governments.

Yes, but really it should be bumping up all efficient forms of stimulus, even the ones that happen at a bit of a lag. It is just very likely at this point that we are still going to benefit from stimulus effects for several years to come, and that point gets farther in the future the deeper the hole gets.
DTM Says:
November 6th, 2009 at 10:54 am
I know Al is just kidding around at this point, but for the record, this recession was caused by events that occurred during the Bush Administration (or indeed before the Bush Administration in some cases), and the things that the Obama Administration specifically have done have helped moderate the effects. Moreover, if the GOP wasn’t filled with know-nothing hacks like Al, Congress might have authorized the Obama Administration to do a lot more.

So, heckuvajob Republican hacks, both now and then!
ron Says:
November 6th, 2009 at 11:00 am
Three, instead of easing up on the easing of monetary policy the Fed needs to ease even more,

A stupid comment.

The US is awash in cash. There is just no reason to spend it(except by Goldman-Sachs to run-up the price of oil and stocks).

The only answer is government spending. Consumers have no money to spend and are ineligible for loans. Companies have no incentive to spend since they can’t sell anything extra they produce.

CCC, WPA, etc. is needed now. Industrial policy (smart grid, mass transit, energy efficiency, etc.) for the future.
doug Says:
November 6th, 2009 at 11:08 am
monetary policy writ large cannot be eased enough to put money where it needs to be. You need either targeted direct lending by the Fed, disintermediating wall street and even main street banks, or direct redistributive spending, hopefully of the kind that leaves you with something useful at the end, and not just another couple of months on unemployment.

But again I note how easily the transition has been from pooh-poohing the risk of inflation posed by this path to actually cheerleading of the creation of inflation.

The thing is, if the monetary authority really gets into the cheerleading mode for inflation, they can definitely make it happen. That has been the risk all along.
James Gary Says:
November 6th, 2009 at 11:10 am
I don’t disagree with the post, but what is the point of the graph? Although both axes of the graph are labeled and labeled correctly, it’s still confusing: a casual observer might conclude that a low employment/population ratio is a good thing, since it’s generally conceded that the 1950-1968 period were good times economically. Of course, the participation of women in the workforce was far lower in those days, which means the data are somewhat skewed to begin with.
kafka Says:
November 6th, 2009 at 11:14 am
Monetary easing is stimulative only if there are willing borrowers. Those days are over. People are tapped out on debt and burdened with deflating assets purchased with borrowed money. Or, to put it differently, easy money won’t work now because it worked too well and too often in the past.
wait-and-see Says:
November 6th, 2009 at 11:14 am
DTM

Maybe if Obama is really optimistic about the unemployment situation the quicker and stronger the job numbers will rebound.
OregonGuy Says:
November 6th, 2009 at 11:15 am
Matt,
Please read Richard Koo’s book “The Holy Grail of Macroeconomics”. You’ve given sufficient mind space to the U. Chicago school, time to consider another point of view.
Mattyoung Says:
November 6th, 2009 at 11:19 am
Odd, none of the comments noticed that the employment/population ratio is returning to the average, about 50%.

How did we have growth with a smaller group working before? Something wrecked the economy, but not unemployment. It is more likely that more people work to pay something off, I wonder what?
Al Says:
November 6th, 2009 at 11:19 am
I know that DTM is just kidding around. After all Obama’s own economic advisors told us that the stimulus package would keep unemployment under 8%. (And, in fact, even without the stimulus package, it wouldn’t get to 9%.) Somehow, Barack Obama’s policies have caused the US to have 2% greater unemployment than we were told less than a year ago.

Heckuva job, Barack’s economic advisors!
Al Says:
November 6th, 2009 at 11:21 am
Moreover, if the GOP wasn’t filled with know-nothing hacks like Al, Congress might have authorized the Obama Administration to do a lot more.

Apparently DTM is so ignorant he doesn’t even know which party controls Congress. After all, the Democrats have a filibuster-proof majority!
max Says:
November 6th, 2009 at 11:22 am
One, people need to stop worrying about inflation.

You could maybe start with Bernanke. He’s been trying to save the banks, not really inflate.

Two, the federal government should deploy more aid to state and local governments.

And rather a lot more besides.

Three, instead of easing up on the easing of monetary policy the Fed needs to ease even more, probably by taking some advice from Scott Sumner about ways this is possible.

You need to print money and put it in people’s hand straight away. A coupla hundred billion of that (since it would be ‘base money’) would do wonders.

max
['Yes. That would be inflating. Yes, the stock market would be flat, so that drop P/E's. Yes, I don't care if rich people freak out. At this point, rich people should be worried about hungry people visiting their house, and not in a friendly way.']
James Gary Says:
November 6th, 2009 at 11:24 am
How did we have growth with a smaller group working before? Something wrecked the economy, but not unemployment.

N.B.: As I noted above, the graph doesn’t seem to be adjusted for the fact that women generally didn’t work outside the home before the 1970s.
Al Says:
November 6th, 2009 at 11:26 am
Three, instead of easing up on the easing of monetary policy the Fed needs to ease even more

What Matthew apparently wants to do is create another asset bubble.

After all, we know that the Fed’s monetary policy in the beginning of the decade was too loose, which created the housing bubble. Matthew apparently thinks this was a great idea and wants to do the same all over again.
linus Says:
November 6th, 2009 at 11:27 am
If the Senate Democrats start working on another unemployment extension today the Republicans might let it pass by this time in 2012.
SomeCallMeTim Says:
November 6th, 2009 at 11:29 am
Heckuva job, Barack!

Totally fair, I think, though I’d probably disagree with Al about why it’s fair.
rui Says:
November 6th, 2009 at 11:31 am
I must say, Al is making a very cogent case that Obama’s advisers are dangerously right-wing.

This is surprising intellectual honesty on his part. Credit where credit is due.
Ed Smithe Says:
November 6th, 2009 at 11:36 am
You guys have been wrong about the effect (or lack thereof) of your policies since the President came into office. Now that we’ve reached 10%, I think it’s time that we try something that will actually allow the private sector to provide long-term employment to Americans. And it doesn’t involve blowing up the budget for additional entitlements that are destined to raise taxes across the board. Business has figured out your ridiculous strategy, that’s why they’re not hiring.

More aid to states? We just tried that with the stimulus and we spent 700 billion dollars for NOTHING. As for inflation, take a look at the rest of the world pulling away from the dollar. The long term trend is not a good one and plenty of smart people in the Middle East, Europe, and Asia have figured this out. Too bad the cheerleaders over here just can’t read the writing on the wall.

What a total disaster, and the best that the administration has done is to say that numbers like this are the new norm.

It’s just unfortunate that people in the Republican party are nearly as stupid when it comes to macroeconomic policy. Cut taxes and spend, spend, spend. That obviously didn’t work either.
bob mcmanus Says:
November 6th, 2009 at 11:38 am
Reading some Scott Sumner

So in the end, you’ll get higher oil prices, lower real wages,

This is exactly what you want. The dollar devaluation of March to July 1933 pushed up commodity prices sharply. The WPI rose 14%, and since nominal wages were steady the real wage fell by about the same. A perfect test of my sticky wage theory against the Keynesian consumer spending theory. And during those 4 months industrial production rose 57%. The biggest real wage increase in the 20th century occurred in 1920-21, and industrial production actually fell about 30%. Why? because the huge real wage increase (defined as W/WPI) occurred because the WPI plummeted. So I am very comfortable with the fact that stimulus reduces real wages in the short run. It gives firms an incentive to hire more labor.

Pre-Keynesian, a variant Mellonism or something. Increasing aggregate demand by reducing real wages? Sumner is nuts, as DeLong and Krugman call it, Dark Age Economics.

MY, try some L Randall Wray or Jamie Galbraith. We need and want wage-inflation, on a massive scale. A jobs program will tighten the labor market. FDR hired 60% of the unemployed. What is that, 3-5 million new Federal jobs?
James Gary Says:
November 6th, 2009 at 11:38 am
Now that we’ve reached 10%, I think it’s time that we try something that will actually allow the private sector to provide long-term employment to Americans. And it doesn’t involve blowing up the budget for additional entitlements that are destined to raise taxes across the board.

Sure. What?
Ed Smithe Says:
November 6th, 2009 at 11:39 am
Yeah, Obama’s advisors are right wing. Well as someone who is a part of the right wing, let me just say that is the stupidist thing I’ve heard. Anyone who calls them right-wing must believe in the good ‘ol days of price and wage controls. If you haven’t had a chance to read some history, that didn’t work terribly well in either this country, or beyond.
cube Says:
November 6th, 2009 at 11:40 am
Al,

Although the early Obama administration predictions were about 8% unemployment, these were revised in June when the job numbers turned further south, well before 2009 stimulus or administration policies could take effect.
nothing Says:
November 6th, 2009 at 11:42 am
I agree with Ed Smithe and support his bold plan to……
complain a bunch and do nothing
bob mcmanus Says:
November 6th, 2009 at 11:45 am
I also don’t quite see how setting an inflation target (Sumner’s plan) of say, 5% for the next thirty years, will increase immediate output when we are in a liquidity trap, but I don’t claim to understand his idea.

I have my own monetary stimulus that the Fed/Treasury might be able to accomplish while bypassing Congress.

Print (NOT borrow!) up 10 trillion dollars and send checks to every American.
Ed Smithe Says:
November 6th, 2009 at 11:46 am
Do nothing…my goodness, you guys are really in a state of denial these days.

Firstly, a 15% cut in government spending across the board. No ridiculous health care plan and cap and trade. No more stimulus bills. Audits of every department. And cuts to cap gains and marginal tax rates.

I’m sorry if this is just too much for you guys as your big chance to fix this economic calamity continues to blow up in your collective faces.
bob mcmanus Says:
November 6th, 2009 at 11:52 am
Son-of-a-gun

Why Not a WPA Krugman, 10:44 this morning

Sumner is bad news.
Ed Smithe in Season 8 "Goobacks" Says:
November 6th, 2009 at 11:52 am
They took our jobs
Tootat Says:
November 6th, 2009 at 11:53 am
Now that we’ve reached 10%, I think it’s time that we try something that will actually allow the private sector to provide long-term employment to Americans.

As James asked, like what?

Business has figured out your ridiculous strategy, that’s why they’re not hiring.

Really? I though businesses were not hiring because their sales/profits have tanked.

More aid to states? We just tried that with the stimulus and we spent 700 billion dollars for NOTHING.

Stop lying. Only 14-15% of the stimulus has been spent to date. And aid to states is not the entire 787 billion (to be precise).

Firstly, a 15% cut in government spending across the board. No ridiculous health care plan and cap and trade. No more stimulus bills. Audits of every department. And cuts to cap gains and marginal tax rates.

HA!
10 Per Cent: The Trojan Horse Opens | Daily Renewal: Freethinking Bipartisanship Says:
November 6th, 2009 at 11:54 am
[...] Barely over a year ago, we called for a creative alternative to the corporate troll’s 10 Per Cent Solution. It did not arrive, and today we have the 10 Per Cent Consequence. [...]
Ed Marshall Says:
November 6th, 2009 at 11:55 am
@26 Was there the tiniest twinge of cognitive dissonance as you wrote that, or does that mantra just jump out of your mouth like duckspeak at any economic problem without the brain even engaging?
LMAO Says:
November 6th, 2009 at 11:55 am
tax cuts and audits? Really?
Did Meg Whitman let you in on her secret plan?
chris Says:
November 6th, 2009 at 11:57 am
@26: Despite the name, narcotics are not actually a cure for narcolepsy.

As for what Obama’s policies have done so far, see here.
Ed Smithe Says:
November 6th, 2009 at 12:03 pm
Tootat,

I thought that the economy is growing? So how can the economy be growing if businesses aren’t making money?

As for the stimulus, the administration’s own economic advisors have said that we’ve seen the peak. Why is it that you have more faith in it than they do?

HA!? Yeah, let’s keep doing what we’re doing and lose more jobs! Tell me, is the reason that you persist with policies like this is because it feels better when they’re finally stopped? You have zero credibility…10% and climbing…try factoring that into your brilliant analysis.
Ed Smithe Says:
November 6th, 2009 at 12:05 pm
Oh, I’m sorry, I must be the crazy one here. You see I believe that what you guys have been doing isn’t working. It must be my imagination that people are continuing to lose their jobs. Yes, what we need to do is, pardon the phrase, stay the course…because that is working oh so well.
Mattyoung Says:
November 6th, 2009 at 12:11 pm
How did we have growth with a smaller group working before? Something wrecked the economy, but not unemployment.

“N.B.: As I noted above, the graph doesn’t seem to be adjusted for the fact that women generally didn’t work outside the home before the 1970s.”

So what, women gained some rights. Because women gained some rights does not imply that employment should suddenly jump up for a while. The equilibrium employment ratio would still remain around 50%. I still ask the question, if equilibrium employment ratio is 50% than why can’t we grow with that level?
rapier Says:
November 6th, 2009 at 12:25 pm
It’s true that without fiscal deficits of about $2 trillion a year here and as much around the golobe and a so called monetary policy of zero short term rates and unprecedented monetization around the globe of perhaps another $2 trillion annually the system will implode. The thing is it will only implode later with those and it will be a bigger disaster.

The monetary and credit systems, such as they are, are dysfunctional. The only tenable policy is unidirectional. More money and more credit, forever. The world does not work that way.

I’m reminded of a story, the denouement of the tale, about Charley Company in William Eastlake’s great book The Bamboo Bed. Charley got mixed up with the NVA in the jungle and got hit bloodied badly and gave up the high ground, their only hope. Ammo low and night falling Captain Clancy ordered a mad minute. Wherein everybody would fire everything that had for one solid minute. The idea being that at least for that one minute they would stay alive. So here we let the Treasury borrow and the Fed print madly so that we may live another minute.
Bob Roddis Says:
November 6th, 2009 at 12:27 pm
From the mouths (keyboards?) of babes:

Scott Sumner writes:

The 1983-4 recovery was particularly fast.

No shit, Sherlock. As I have implored so many times, HIGH INTEREST RATES CURE DEPRESSIONS caused by artifically low central bank interest rates. In the 1920 depression, rates went up to 7%. Prices were allowed to fall and tax rates were slashed. Recovery was swift.

In the 1981 recession, Democrat Volker raised rates to 20%. Tax rates were slashed. The 1983-4 recovery was particularly fast.

The Bernanke/Obama/Krugman/Yglesias team, being chowder-heads from Hell, continually proposes to do what will invariably cause even more economic misery. It is the monetary dilution and the “stimulus” debt that cause the depression in the first place. May the oblivious public someday catch on.

THE AMERICAN PUBLIC IS IGNORANT AND APATHETIC! Do you agree?

“I don’t know, and I don’t care!”
poetry Says:
November 6th, 2009 at 1:04 pm
You guys are hilarious. Bob Roddis, you’re my favorite.

So, on Tuesday, India bought six billion dollars worth of gold from the IMF. Why? Because Obama ‘n’ Friends are handling the crisis so capably, the Dollar Index has hit record lows, and looks to go even lower! You have to understand, this is good because poor people on fixed incomes will no longer be able to buy as much food per dollar. Less mouths to feed! Yay!

Hail Caesar!
DTM Says:
November 6th, 2009 at 2:05 pm
After all Obama’s own economic advisors told us that the stimulus package would keep unemployment under 8%. (And, in fact, even without the stimulus package, it wouldn’t get to 9%.) Somehow, Barack Obama’s policies have caused the US to have 2% greater unemployment than we were told less than a year ago.

Again for the record, since I know Al is just joking around:

The Obama Administration wasn’t wrong about the positive effects of the stimulus. They were wrong about the baseline employment track to which the stimulus was going to be applied. Specifically, they assumed that something like the historical relationship between GDP declines and disemployment would hold, and this time it has been worse than the historical average. None of this has anything to do with the stimulus, and indeed we already knew the baseline disemployment effect was going to be much worse than originally hoped long before the stimulus started having a notable effect.

The upshot is not that the stimulus was a bad idea or isn’t working as intended. The upshot is that it needed, and needs, to be much bigger, because even working as intended it isn’t nearly big enough to deal with the baseline problem.

Apparently DTM is so ignorant he doesn’t even know which party controls Congress. After all, the Democrats have a filibuster-proof majority!

Of course if Al wasn’t just joking around, I’d point out it takes true ignorance to overlook the fact that the Democrats did not in fact have 60 votes in the Senate at the time of the stimulus bill, and indeed still don’t thanks to a certain Senator from Connecticut proving he really means it about being an independent.

But all that is a bit beside the point. If some conservative Democrats want to be stupid about economics, that doesn’t somehow excuse the Republicans for being equally stupid about economics. All of them collectively share the blame for our too-small stimulus, regardless of political party.

You guys have been wrong about the effect (or lack thereof) of your policies since the President came into office.

Again, this is simply wrong. The policies are working as intended. The problem is that the baseline scenario is worse than we originally hoped, and again the proof is in the fact that the baseline scenario was on a worse track long before the policies had a chance to have an effect.
Otis the Sweaty Says:
November 6th, 2009 at 2:19 pm
The Obama Administration wasn’t wrong about the positive effects of the stimulus.

That’s true, but they significantly overestimated how effective the stimulous would be at holding down UE. And that was a big mistake, politically speaking.

The Dems in congress should have had a bill ready for Obama to sign on day 1 so Obama could get right to healthcare instead of wasting political capital on the stimulous. The Democratic party has the votes, but they are too unwieldy to get their agenda through.
Bob Roddis Says:
November 6th, 2009 at 2:36 pm
Keynesians are always wrong about the “stimulative effect” of “stimulus”.

Every day, all the time.

Of course, when people are on the receiving end of purchasing power stolen by monetary dilution, or get borrowed funds stolen from future generations, they appear temporarily stimulated.

We can only hope that when this mess collapses further as the result of the long discredited Keynesian hoax that the public come to associate Keynes/Obama/Krugman/Yglesias/Bernanke/Stimulus with the fraud and theft that it is.
Mattyoung Says:
November 6th, 2009 at 2:43 pm
Notice that the 3.5% GDP growth pushed oil up 11%, from $70 to $80? When oil goes above $85, then we get increased deflation in the retail sector because consumers cannot afford the transportation costs.

In Recalculation terms, between our $350 billion/year oil commitment to OPEC and the cost of putting a dozen eggs in the household we have too big a gap for the technology we have deployed.

The Obama policies have a bad effect, we are getting inflation in commodities and deflation in retail; the worse outcome. Each stimulus widens that gap because government is pushing faster than energy efficiency can support.

We do not have a demand collapse for energy, energy is still the constraint and government direct actions are not generally energy efficient.

But, I could be wrong and maybe we are not constrained by energy. We are still stuck with the Whodunnit because any off target stimulus could make things worse until we sort of reach consensus on what happened ro what’s being targeted.
Al Says:
November 6th, 2009 at 2:43 pm
thanks to a certain Senator from Connecticut proving he really means it about being an independent

You mean “Independent Democrat” who caucuses with the Democrats.
DTM Says:
November 6th, 2009 at 2:53 pm
That’s true, but they significantly overestimated how effective the stimulous would be at holding down UE.

I think it is important to be precise here. The stimulus has been as effective as they were planning–maybe even a bit more so. It is just that the baseline unemployment scenario has been much worse than they hoped.

You mean “Independent Democrat” who caucuses with the Democrats.

If that doesn’t mean he is committed to voting with them on procedural matters, that means they don’t have 60 guaranteed votes against a filibuster.

Again, not that it matters: none of this excuses the Republicans’ bad behavior, and I am happy to spread around the blame for the too-small stimulus on a bipartisan basis.
Otis the Sweaty Says:
November 6th, 2009 at 3:24 pm
It is just that the baseline unemployment scenario has been much worse than they hoped.

Right, and that’s on them. You make a mistake like that and it is gonna hurt you politically.

Personally, I think monetary policy has been more effective at holding down UE (relatively speaking) than the stimulus. The stimulus has done a lot for GDP but GDP and employment seem to have entered some twighlight zone style disconnect.

Without the stimulus, UE is probably alittle over 10.5 right now. But without Bernanke’s quantitative easing, unemployment is probably at 12, maybe worse.
DTM Says:
November 6th, 2009 at 4:12 pm
Right, and that’s on them. You make a mistake like that and it is gonna hurt you politically.

OK, but what happened is basically that they used the historical relationship between GDP declines and disemployment. That estimate of the relationship proved too optimistic, but there was no real way of knowing that was going to happen at the time. Of course noting all that probably won’t shield them from politically-motivated criticism, but I don’t see it as something they could really avoid.

Without the stimulus, UE is probably alittle over 10.5 right now.

Assuming about 1 million jobs saved/created by the stimulus right now, I actually get an unemployment rate around 10.8-10.9 without it. And the total direct and indirect effects will likely be a lot more significant at peak.

But without Bernanke’s quantitative easing, unemployment is probably at 12, maybe worse.

I agree the Fed’s efforts have been crucial. Unfortunately, I think they are also pretty tapped out.
Below The Beltway » Blog Archive » Chart Of The Day Unemployment Edition Says:
November 6th, 2009 at 5:21 pm
[...] H/T: Matthew Yglesias [...]
Wonk Room » Unemployment Hits 10 Percent — Are Tax Credits For Homebuyers And Seniors The Best We Can Do? Says:
November 6th, 2009 at 5:23 pm
[...] now, that would support the labor market. As Matt Yglesias pointed out, we should probably be deploying more aid to state and local governments, to prevent layoffs and keep infrastructure projects up and running. [...]
Otis the Sweaty Says:
November 6th, 2009 at 5:27 pm
Of course noting all that probably won’t shield them from politically-motivated criticism, but I don’t see it as something they could really avoid.

Well, if it makes you feel any better, I doubt anybody but hardcore Republican partisans take what guys like Boehner say particularly seriously. Even a far right reactionary like me can only roll my eyes when I see Boehner’s lame “where are the jobs”. That said, Geitner, Bair and Summers have a responsibility to their boss to make sure he gets accurate projections. It isn’t easy, but having a difficult task is no excuse to not get the job done right. If Obama won’t fire them, they need to take responsibility and fall on their swords. You don’t leave your boss out on a limb like that. Period.

Assuming about 1 million jobs saved/created by the stimulus right now,

Why would we assume such a high number? What is the upper limit of jobs created so far by the stimulus, 100,000? So that means it’s main benefit has been to keep the states from budget slashing even more than they have. So how many state and local jobs have been saved from the chopping block thanks to Federal cash? Considering that the stimulus has only earmarked 300 billion directly to the states, I would be shocked if it saved anymore than 400,000 state and local jobs. Actually I think that’s being generous.

If Obama wants to save atleast a million jobs, he’d need Krugmanesque levels of stimulus, which we already know is a non starter for political reasons.

I agree the Fed’s efforts have been crucial. Unfortunately, I think they are also pretty tapped out.

I wouldn’t underestimate the Fed. I thought Bernanke’s goose was cooked in March and look at him now. These guys are good.
JonF Says:
November 6th, 2009 at 6:30 pm
The 8% unemployment prediction was not some administration flub. It was what all economists were forecasting, based on Okun’s Law, which relates unemployment in a recession to GDP drops. Okun’s Law has been valid for decades– even during the Great Depression it held. But it didn’t hold valid this time, and no one really knows why. I would have said “panic layoffs” late last year when no one knew how bad it was going get, and predicted that there would be a partial rebound in employment when it became obvious the Four Horsemen were not on the horizon, much as we have seen a partial rebound in the stock market (which also plunged a lot further than predictions would have called for). But so far no evidence of a rebound of any kind in hiring. If anyone can solve this problem, and formulate a politically-viable program to address it, they will have a lock on the future the way FDR’s Democrats did.

Matt Yglesias

Unemployment Passes 10 Percent

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