Matt Yglesias

Labor Market Freefall

CAP graph:

Heather Boushey wrote words to go with it.

The Elusive Post-Bubble Economy

Paul Krugman takes on the question of how we get the economy to re-balance itself for a post-bubble environment and comes up with the disturbing answer that he doesn’t really know:

To be more specific: the severe housing slump we’re experiencing now will end eventually, but the immense Bush-era housing boom won’t be repeated. Consumers will eventually regain some of their confidence, but they won’t spend the way they did in 2005-2007, when many people were using their houses as ATMs, and the savings rate dropped nearly to zero. [...]

A more plausible route to sustained recovery would be a drastic reduction in the U.S. trade deficit, which soared at the same time the housing bubble was inflating. By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending. [...]

Furthermore, even if the dollar falls again, where will the capacity for a surge in exports and import-competing production come from? Despite rising trade in services, most world trade is still in goods, especially manufactured goods — and the U.S. manufacturing sector, after years of neglect in favor of real estate and the financial industry, has a lot of catching up to do.

Anyway, the rest of the world may not be ready to handle a drastically smaller U.S. trade deficit. As my colleague Tom Friedman recently pointed out, much of China’s economy in particular is built around exporting to America, and will have a hard time switching to other occupations.

Krugman says we may need a prolonged period of government intervention in the economy even past what’s needed as a short-term stimulus. I would say that part of the answer may well involve taking a larger share of our productivity gains as increased leisure rather than increased production and incomes. As noted below, Americans on average put in many more hours of work than do the citizens of most other wealthy countries. A structural shift to less-work, less-output dynamic could be catastrophic if that means a structural shift to a very high rate of unemployment. But if it means a structural shift toward six-week vacations and fewer 60 hour weeks then that could be a good thing.

Time to Invest in Netflix Stock

Matt Richtel in The New York Times reports:

Even as layoffs are reaching historic levels, some employers have found an alternative to slashing their work force. They’re nipping and tucking it instead.

A growing number of employers, hoping to avoid or limit layoffs, are introducing four-day workweeks, unpaid vacations and voluntary or enforced furloughs, along with wage freezes, pension cuts and flexible work schedules. These employers are still cutting labor costs, but hanging onto the labor.

People in these circumstances will still have most of their income, and also a lot of additional free time. A potential economic boon for firms offering inexpensive entertainments. Similarly, I suppose we’ll see people shifting from things that save time but cost money (prepared meals) to things that take time but save money (cooking at home).

This is also a reminder that American workers pull longer hours than do workers in most other rich countries (a lot of middle-income countries’ workforces work longer than ours) as seen in this chart of aggregate annual hours worked:

The recession, obviously, is not a good thing. But I think it might be a good thing if when we pull out of it, we switch to a different equilibrium in which people work somewhat less and earn somewhat less. There’s a lot of evidence to suggest it would make people happier, and some good reason to think it would be better for the environment.

Unemployment Up

I said when the quarter two GDP numbers came in showing decent growth that this seemed inconsistent with what we’ve seen from the labor market data. And today comes another data point that certainly looks more like recession than like 3.3 percent growth, as unemployment ticked up to 6.1 percent on the eighth consecutive month of job losses. The country has seem substantially higher unemployment numbers in the past, but overall the rate of job creation during the Bush-era expansion was ridiculously slow and has turned south well before the employment-population ration ever re-achieved its 1990s-era peaks.