At Davos, Larry Summers called the current economic outlook “a statistical recovery and a human recession”. And leading economists not only agree with him, but see no way out of the deep hole of joblessness.
The economy’s 5.7 percent growth last quarter — the fastest pace since 2003 — was a step toward shrinking the nation’s 10 percent unemployment rate.
There’s just one problem: Growth would have to equal 5 percent for all of 2010 just to lower the average jobless rate for the year by 1 percentage point.
And economists don’t think that’s possible.
Most analysts say economic activity will slow to 2.5 percent or 3 percent growth for the current quarter as the benefits fade from government stimulus efforts and from companies drawing down less of their stockpiles.
That’s why the Federal Reserve and outside economists think it will take until around the middle of the decade to lower the double-digit jobless rate to a more normal 5 or 6 percent.
It’s hard to argue with the figures, which are just an application of Okun’s Law, relating the unemployment numbers to economic activity. This formula offers little hope that the jobless rate will even dial back to 9 percent by the end of the year – and by the time people are voting in November.
All of this suggests that a $100 billion dollar jobs bill is woefully insufficient to actually impact the employment rate, and that the multiplier effect for such spending must be as high as humanly possible to reverse the jobs crisis. That spending level for a jobs bill is embedded in the President’s budget, but Max Baucus wants to even dampen that meager spending by dragging the bill through his Finance Committee.
A meager bill that doesn’t include direct job creation or something that can vault past Okun’s Law will crush Democrats in November. More importantly, it will add to long-term joblessness, where millions of workers are unable to re-enter the labor force, lose some of their key skills, and reduce their earning potential over their entire lifetime. That’s the human recession Summers is talking about, and it demands a much fiercer government response.