Joshua Cooper Ramo wrote an interesting article in Time magazine (September 21st, 2009 – Jobless in America: Is Double-Digit Unemployment Here to Stay?) about unemployment in the United States. Incorporating economic theory to the current unemployment figures, he makes a good argument that our country is headed into uncharted territory. Typically, rates of growth and rates of decline are predictable. Each month, government agencies provide their forecast on metrics such as GDP, inflation, the trade balance, etc. Relatively speaking, the actual numbers are usually very close to the forecasts predicted. Unfortunately, today’s unemployment rate seems to be playing by a different set of rules.
How unemployment/job growth has been tracked in the past is similar to the accelerator of your vehicle. The more gas you give the car, the faster it goes. The more you let off the gas pedal, the slower it goes. Using this analogy, the more gas you give the economy, the more jobs are created. Congress passed a record high stimulus package with the hopes of giving gas to the economy. It hasn’t worked. Almost every sector continues to shed workers and increase the number of those unemployed.
According to the article, policymakers made decisions based on worst case unemployment numbers, which they believed to be around 8.9%. This number was surpassed months ago. From December 2007 to August 2009, the US economy has cut nearly 7 million jobs, according to the Bureau of Labor Statistics. We have not seen this much of a drop since the end of World War II. The United States economy is divided into agriculture and nonfarm jobs. We now have about the same number of nonfarm jobs today as we did 10 years ago. The expansion generated over the past decade has been lost in the last 20 months.
Do we have the appropriate policy makers in place? Only through history can we look back and make a fair determination. This Time magazine article references a piece written by Larry Summers titled “Hysteresis and the European Unemployment Problem.” For those unfamiliar with Larry Summers, he is the Director of the National Economic Council and Assistant to the President for Economy Policy. He has written extensively on economy policy and labor. Referencing his article, the major point he illustrates is that our economy will never be the same and by responding now, we are late to the party. Similar to the 1930’s, the majority of those jobs lost were in agriculture, and due to technological innovation, those jobs were never available again. The war effort created new jobs and put America back to work again. What is going to happen with today’s unemployed?
The article references one legitimate option. Sure, we could expect the federal government to play a role by adding more money through stimulus packages. Unfortunately, this is simply a band aid to the problem. Creating low end jobs or retraining for whatever work is available is not an effective long term solution. The legitimate option is to reshape what it means to work in America. This means to invest in every unemployed individual and provide an education to master a new skill.
If we are truly at a point in our history that we have not seen before, a short term solution (like Cash for Clunkers, as an example) is not viable. It is delaying the problem and adding expenses to a dire balance sheet. We need a long term approach and a vision to provide hope and optimism in a country that is desperate for both.
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