Published: Wednesday, September 9, 2009
Without jobs, what can we recover from?
A jobless recovery is like a unicorn, a fanciful thing that has no home in the real world. It’s an oxymoron - think jumbo shrimp or Seattle Republican. A self-negating phrase at odds with our understanding of how things work.
Even as economists tell us the recession has ended, the nationwide unemployment rate surged to 9.7 percent in August. Analysts square the circle and proclaim a jobless recovery, which is no recovery at all.
Last week, Arun Raha, the head of the state economic and revenue forecast council, said again that the recession has almost certainly ended. Yet, “the recovery is still fragile and fraught with risk.” Moreover, he sees the state’s unemployment rate climbing to 9.8 percent in the first quarter of 2010. That’s better than the 10.5 percent peak he’d predicted earlier, but still not great news.
Raha’s economic report to the forecast council is important to state budget watchers because it sets the stage for the Sept. 17 official revenue forecast. Last June he sliced $482 million from his estimate of revenue collections through June 2011, pushing the balance sheet into the red. The governor responded by ordering her department heads to reduce spending, again. Lawmakers said they’d wait for the September forecast to see if additional budget adjustments would require a special session in October.
Tax collections this summer have fallen $65 million below Raha’s June forecast. Nonetheless, Raha said he was more optimistic than he was then. Overall, he says events are unfolding as he predicted, a comment that suggests any revision next week may be minor.
Discussing the revenue outlook in general terms, Raha said, “The consumer is king,” adding that “right now consumer spending is bumping along the bottom.”
Of course it is. People have seen their retirement savings ravaged by the stock market collapse. Housing values have plummeted. Many with jobs have seen their paychecks shrink.
We know what has to happen to awaken the slumbering consumer. People have to have money to spend and feel comfortable spending it.
Raha credits what he calls “an unprecedented global turnaround” to a “worldwide infusion of monetary and fiscal stimuli.” Perhaps, though polls tell us the public isn’t buying it. Most of us don’t recognize the turnaround — and won’t until employment growth returns. We doubt the efficacy of the stimulus money, most of which remains unspent. According to Rasmussen Reports, only 30 percent of voters believe the economy is getting better; 48 percent of us believe it’s getting worse.
Regardless, the massive infusion of deficit dollars has not — cannot — sustain growth. For a sustainable recovery, one that puts Americans back to work, we need private sector spending — business and consumer — to strengthen. For that to happen, government spending will have to recede as a share of our economy. That entails tough fiscal decisions from lawmakers loathe to control spending.
Further, the reset economy will initially come with a lower level of consumer spending than we saw in the pre-recession years. Americans were living beyond their means, spending money they didn’t have, relying on easy credit and inflated housing values. Personal savings rates declined dramatically. Then the bottom fell out.
“If something cannot go on forever, it will stop,” economist Herb Stein famously said. The great American spending binge stopped. And, it’s likely we’ll stay on the wagon for a while. Those who don’t abstain by choice may find their resolve buttressed by tighter credit.
Public policy changes heighten the risk. When the cost of adding employees gets too high, hiring slows down. Mandated health benefits, increased workers’ compensation and higher unemployment insurance taxes boost labor costs and delay recovery. Similarly, higher taxes on households could choke off consumer spending and send the economy into a double-dip recession.
Governments continue to face substantial deficits, with little prospect of another deficit-swelling federal bailout. Tax hikes cannot be the answer. Lawmakers must focus on strengthening private sector demand, creating the conditions that will get people back to work. That means minimizing taxes on employment and consumption and making it easier for businesses to resume hiring.
If they do that, we’ll have a real recovery, one we can believe in.
Richard S. Davis writes on public policy, economics and politics. His e-mail address is richardsdavis@gmail.com.
Even as economists tell us the recession has ended, the nationwide unemployment rate surged to 9.7 percent in August. Analysts square the circle and proclaim a jobless recovery, which is no recovery at all.
Last week, Arun Raha, the head of the state economic and revenue forecast council, said again that the recession has almost certainly ended. Yet, “the recovery is still fragile and fraught with risk.” Moreover, he sees the state’s unemployment rate climbing to 9.8 percent in the first quarter of 2010. That’s better than the 10.5 percent peak he’d predicted earlier, but still not great news.
Raha’s economic report to the forecast council is important to state budget watchers because it sets the stage for the Sept. 17 official revenue forecast. Last June he sliced $482 million from his estimate of revenue collections through June 2011, pushing the balance sheet into the red. The governor responded by ordering her department heads to reduce spending, again. Lawmakers said they’d wait for the September forecast to see if additional budget adjustments would require a special session in October.
Tax collections this summer have fallen $65 million below Raha’s June forecast. Nonetheless, Raha said he was more optimistic than he was then. Overall, he says events are unfolding as he predicted, a comment that suggests any revision next week may be minor.
Discussing the revenue outlook in general terms, Raha said, “The consumer is king,” adding that “right now consumer spending is bumping along the bottom.”
Of course it is. People have seen their retirement savings ravaged by the stock market collapse. Housing values have plummeted. Many with jobs have seen their paychecks shrink.
We know what has to happen to awaken the slumbering consumer. People have to have money to spend and feel comfortable spending it.
Raha credits what he calls “an unprecedented global turnaround” to a “worldwide infusion of monetary and fiscal stimuli.” Perhaps, though polls tell us the public isn’t buying it. Most of us don’t recognize the turnaround — and won’t until employment growth returns. We doubt the efficacy of the stimulus money, most of which remains unspent. According to Rasmussen Reports, only 30 percent of voters believe the economy is getting better; 48 percent of us believe it’s getting worse.
Regardless, the massive infusion of deficit dollars has not — cannot — sustain growth. For a sustainable recovery, one that puts Americans back to work, we need private sector spending — business and consumer — to strengthen. For that to happen, government spending will have to recede as a share of our economy. That entails tough fiscal decisions from lawmakers loathe to control spending.
Further, the reset economy will initially come with a lower level of consumer spending than we saw in the pre-recession years. Americans were living beyond their means, spending money they didn’t have, relying on easy credit and inflated housing values. Personal savings rates declined dramatically. Then the bottom fell out.
“If something cannot go on forever, it will stop,” economist Herb Stein famously said. The great American spending binge stopped. And, it’s likely we’ll stay on the wagon for a while. Those who don’t abstain by choice may find their resolve buttressed by tighter credit.
Public policy changes heighten the risk. When the cost of adding employees gets too high, hiring slows down. Mandated health benefits, increased workers’ compensation and higher unemployment insurance taxes boost labor costs and delay recovery. Similarly, higher taxes on households could choke off consumer spending and send the economy into a double-dip recession.
Governments continue to face substantial deficits, with little prospect of another deficit-swelling federal bailout. Tax hikes cannot be the answer. Lawmakers must focus on strengthening private sector demand, creating the conditions that will get people back to work. That means minimizing taxes on employment and consumption and making it easier for businesses to resume hiring.
If they do that, we’ll have a real recovery, one we can believe in.
Richard S. Davis writes on public policy, economics and politics. His e-mail address is richardsdavis@gmail.com.
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