RSS

Our deep economic crisis and the inadequacy of Obama’s jobs plan

09 Sep

The state of the economy remains one of the top issues in the media and in people’s minds. And rightly so. Last week, the Labor Department released a report stating that no new jobs were created in the month of August. Official unemployment remains at 9.1% at the end of August, which is up from 8.8% at the end of July, according to Gallup. This dismal jobs situation put pressure on Obama to create a jobs bill, which he outlined in a speech to a joint-session of Congress yesterday evening (which I’ll come back to later on). Given the coverage and obvious importance of the current economic situation, I decided to show some useful statistics that portray the depth of this crisis and show, in my opinion, that things are actually worse than the media says it is. 

The 9.1% number that the media touts as the unemployment rate is very misleading. That number is based on the number of unemployed persons (14 million) divided by the total labor force (153.6 million in August). So when you divide 14 million by 153.6 million, you get 9.1% and that’s how “official” unemployment is calculated by the U.S. Bureau of Labor Statistics. However, this number does not reflect “real” unemployment. It leaves out those who want to work full-time but can only find part-time work (which is of concern because part-time workers earn less, have fewer benefits, and are less able to support themselves than full-time workers) and those who give up looking for work (in the BLS’s eyes, they’ve dropped out of the labor force so they’re not counted in the unemployment rate). So it’s very possible for “official” unemployment to go down because people give up looking for work rather than finding new jobs.

Real unemployment is much higher. According to Mother Jones, the total number who are truly unemployed (people who are out of work, want to work full-time but forced to work part-time, and people who give up looking for work) is 25.3 million, which puts the real unemployment rate to around 16%, nearly double the official figure. Gallup’s numbers, however, are slightly higher. Their number for “underemployed”, which includes those who are unemployed or want to work full-time but can only find part-time work, is around 18%. If you add discouraged workers to that number, real unemployment could be much higher. However, because Gallup’s numbers are not seasonally adjusted and count workers who are 18 and older (compared to 16 and older in BLS numbers), as their site points out, their numbers are not directly comparable to the U.S. Bureau of Labor Statistics’ numbers. Despite the slight difference between Mother Jones’ and Gallup’s numbers, it is quite clear that real unemployment in America is much higher than the 9.1% touted in the media. The real level of unemployment is in the high-teens or close to 20%, which is staggering.

There is also a big gap between the number of available job openings and the number of people who are unemployed. As Mother Jones also points out, there are 6.9 million fewer jobs today than there were in December 2007 and there are 0.22 job openings for each unemployed worker. In order to meet its 11.3 million-job deficit by mid-2016, the American economy needs to add 280,000 jobs each month. In the past three months, however, an average of 35,000 jobs were created each month.

This graph below (done by Calculated Risk) is particularly revealing.

It shows how quickly each recession since World War II regained the jobs lost since the beginning of each recession. With the exception of the 1990 and 2001 recessions, most recessions took around 2 years or less to regain their job losses. While the 1990 (black line) and 2001 (brown line) recessions took longer to regain jobs, the depth of their job losses were not that severe. The 1948 recession saw a very sharp decline in jobs but quickly bounced back within less than a year. The current recession, which began in 2007 (red line), has seen the worst employment decline in post-World War II history. And, as this graph shows, we are yet to recover from it, even though it’s been almost four years. Unless some miracle occurs that brings backs American jobs (with fair wages and decent benefits) within a short time, it will probably take years until the unemployment crisis fully recovers.

Which brings me to Obama’s recently-announced jobs plan, titled “The American Jobs Act”. While there are some decent elements of this plan, overall, I’m very skeptical about its merits. On the bright side, the plan proposes investment in infrastructure, modernizing 35,000 public schools, preventing teacher layoffs, extending unemployment insurance, encouraging businesses to hire veterans and long-term unemployed, and expanding job opportunities for low-income youth and adults. These are definitely steps in the right direction.

However, the plan is very tax-cut heavy. The plan totals $450 billion, of which $250 billion is in tax cuts. Most of the cuts are in payroll taxes, which funds Social Security. Small businesses and workers will see their payroll taxes cut in half. By cutting payroll taxes, Obama’s plan takes money out of a popular and necessary social safety-net for retired workers that pay into it in order to stimulate job growth. However, tax cuts are not the best stimulant for job growth. As Eliot Spitzer and Jeff Madrick pointed out on Countdown with Keith Olbermann, companies that receive tax cuts don’t always use them to hire new workers. Companies that receive tax cuts often save that extra money and don’t put it back into the economy. During recessions, if businesses don’t spend and consumers don’t spend then the only option left is for the government to spend in order to stimulate demand and put the economy back on track. That’s how America got out of the Great Depression and the same thing needs to happen now. Obama’s tax-cut-heavy jobs plan won’t do that. More importantly, it isn’t fair to cut Social Security to alleviate the unemployment crisis. Social Security expenditures is not related to the jobs crisis. The recession and related unemployment crisis were caused by a bursted housing bubble and Wall Street gambling with people’s mortgages — Social Security played no role in that. Social Security is a vital social safety-net that protects the elderly from poverty and it’s been working well since its creation. Putting Social Security on the chopping block makes no sense.

Overall, I am very skeptical that Obama’s jobs plan will improve the country’s economic situation. It is certainly better than nothing and there are good things in this plan. However, the tax cuts will not do much to stimulate the economy. Cutting payroll taxes, thereby defunding Social Security, is a terrible and unnecessary idea (this was probably tacked on to please Republicans). Plus, this could complicate the work of the deficit-reduction “super committee” that was created by the atrocious debt deal passed last month. So any benefit that could come from this plan will be offset by the cuts to Social Security and the damage done by the debt deal and “super committee”.

Moreover, as the facts I presented show, the nation’s economic crisis is very deep and systemic. It will take a long time for this country to recover from the damage done by neoliberal economic policies. Much more needs to be done in order to not only recover lost jobs but also ensure that those jobs provide people with a decent standard of living and retirement benefits. In addition, it is vital that this nation reduce the substantial economic inequality that currently exists. The few, very rich individuals and corporations are living lavishly, while the rest of the country suffers. So even if Obama’s jobs plan passes, we have to follow up with more progressive policies to ensure economic stability and justice.

Advertisements
 

Tags: , , , , , , ,

6 responses to “Our deep economic crisis and the inadequacy of Obama’s jobs plan

  1. Graciela Clarke

    January 20, 2012 at 10:53 am

    The company where i work are in a really deep sh*t right now and i might lose my job 😦

     
    • ajhudson

      January 20, 2012 at 11:02 am

      Oh no, I’m sorry to hear that. 😦 A lot of people are feeling your pain. I hope you don’t lose your job.

       
  2. Shalom Patrick Hamou

    September 26, 2011 at 5:59 am

    ==================

    We are following blindly, against our own will, and without even being aware of it, The Invisible Hand. This Must Stop!

    Therefore we are hatching the Conspiracy of the Indignant against The Invisible Hand, and triggering Black Friday the 13th, January, 2012, on Wall Street: #BlackFridayThe13th2012.

    We will organize, as soon as we are numerous enough, between us, ☮ La Nouvelle Économie. (The New Economy) Only those who will have Signaled Unequivocally Their Indignation before the next Stock Market Crash will be allowed to participate. Whatever the date of that Crash, on, before, or after Friday the 13th, January, 2012.

    Others will have to content themselves with the Individualist Capitalist System they stubbornly continue to serve blindly.

    Participating is easy, free, anonymous therefore secure, completly legal from any standpoint, in any democratic country, and you can do it here, on the screen of your computer in the comfort of your home.

    Warning: while entering a Serial Number of a €5 Note is strictly anonymous and secure, participating in our Network and displaying publicly your support is not. It is a courageous deed but you alone would bear its consequences.

    #BlackFridayThe13th2012

    ==================

     

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: