The Anatomy of a Keynesian Recovery
Almost two and a half years since the recession officially ended, we are finally observing a modest recovery in the job market. Even if we discount the 42,000 new holiday season jobs for “couriers and messengers,” there is clearly some jobs growth in key sectors of the economy. Unfortunately, aside for the fact that the recovery is languid and underwhelming by historical standards, it is also unwholesome. Our economic recovery is similar to a computer that is repaired from a serious virus; it functions adequately but is never the same. In other words, we are reaping the benefits of a government-managed Keynesian recovery.
During 2008-2009, instead of letting the economy settle and enjoy a robust recovery through the perennial business cycle, the Bush and Obama administrations engaged in fiscal stimulus, monetary stimulus, housing stimulus, bailouts, and takeovers of major industries. Perforce, our economy, as much is it will inevitably recover, will be fundamentally weaker than it was prior to the recession. Historically, we have always come out of recessions in a stronger position than prior to the economic downturn, but not this time.
Nothing is more emblematic of our permanently damaged economy than the interminable shrinkage of our labor force. Our labor force is roughly 850,000 smaller than it was when the recession ended in middle of 2009, even though the civilian population of working age people has increased by roughly 4 million. At this point in the Reagan recovery, the labor force had expanded by 4 million.
The labor force participation rate has steadily declined from 65.7% in mid-2009 to 64.0%, even as unemployment has eased. During that same period, almost another 200,000 people gave up looking for work. If the participation rate were back to its recent average, the U3 unemployment rate would be well over 11%. This is not even accounting for the U6 number of underemployed and part-time workers, which is still astronomically high (15.2%). Overall, 23.7 million are either out of work or underemployed.
Oh, and what about the fact that the Black unemployment rate has climbed another 0.8% to 15.8% over the past three months? Is this good news? Or is it more soft bigotry of low expectations?
What’s equally disconcerting is the fact that the employment-population ratio, the proportion of working-age people who are employed, is near an all-time low at 58.5%. How are we going to sustain Social Security, as well as all the welfare programs, with such a small workforce relative to the population? With less people working, we will permanently forfeit much of our economic output. The median household income has already dropped 5.1% since the end of the recession.
Unless we end the bipartisan micromanagement of our economy, a sluggish economy and a permanently anemic labor force will be the new norm. As long as our entire GDP is consumed by debt, we will be relegated to European style economic growth forever. And that is exactly what Obama intended when he campaigned on fundamentally transforming America.