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A Lost Decade on Every Front: Policymakers Must Resolve the 2000 Inflection Point

James Carville thinks the White House should panic, something that usually doesn’t inspire confidence in leadership. I actually like some of his specific steps – indicting the banks is a good idea way past its time, and defending the Democratic Party platform sounds like a plan. Overall, a Carville agenda sounds like an improvement on the current agenda.

It may be too late for all this, however. The stimulus has been poisoned by a bad initial forecast and a too-quick pivot to deficit reduction. The Economist reports that public opinion on austerity globally, not just in the United States, is sadly favorable. The OUTCOME of austerity isn’t, and that moves public opinion far more than the concept, but as a result these new stimulus programs are getting a middling amount of traction at best.

I think it’s a great idea for Obama to visit the Boehner/McConnell bridge between Ohio and Kentucky that has been shut down, to highlight the urgent need for infrastructure investments. That makes plenty of sense and it carries a long-term vision. 

But at some point, some politician is going to have to address the larger issue here. At the risk of quoting a paper by the Brookings Institution, take a look at the labor market statistics discussed here. [cont’d.]

From 1951 through 2007, there were never more than three unemployed workers for each job opening, and it was rare for that figure even to hit two-to-one. In contrast, there have been more than three jobseekers per opening in every single month since September 2008. The ratio peaked somewhere between five-to-one and seven-to-one in mid-2009. It has since declined but we have far to go before we return to “normal” levels […]

Unemployment increased during the 2001 recession, but it subsequently fell almost to its previous low (from point A to B and then back to C). In contrast, job openings plummeted—much more sharply than unemployment rose—and then failed to recover. In previous recoveries, openings eventually outnumbered job seekers (where a rising blue line crosses a falling green line), but during the last recovery a labor shortage never emerged.

The anemic recovery was followed in 2007 by an increase in unemployment to levels not seen since the early 1980s (the rise after point C). However, job openings fell only a little—and then recovered. The recession did not reduce hiring; it just dumped a lot more people into an already weak labor market.

The result is a shortfall in demand for workers unprecedented in the lifetimes of essentially everyone working today.

There was an inflection point around 2000, in other words. Job openings remained elevated, which puts downward pressure on wages and keeps labor markets slack. This hasn’t really even changed with the Lesser Depression. Income has subsequently fallen for 10 years after that, the employment-population ratio remained well below the peak level, and basically life in America has been downgraded. The middle class sees tougher jobs prospects, slack labor markets and rising core prices, particularly on health care and higher education. The rich get richer and the poor stay poor.

Here’s Kevin Drum:

It now looks to me like 2000 was another inflection point. Household incomes went from 1 percent growth to zero growth, and they’ve been stuck there ever since. Even researchers who are skeptical that income inequality rose dramatically after 1973 mostly accept that it’s definitely risen since 2000. The entire past decade has been an economic disaster on multiple fronts, and that’s one of the reasons the financial collapse of 2008 has been so terrible. We had a decade’s worth of labor market weakness that was partly masked by a housing bubble, and it all came crashing down within a year or two. Instead of a long, slow slide, we got ten years worth of drops compressed into 24 months.

The two main drivers of economic growth since the late 1990s were mirages: Pets.com and mortgage backed securities. Bubble 1 and bubble 2. Deregulation, outsourcing, automation, poor business decisions, abysmal Fed policy, all of this contributed to the slide. But this slide is a decade in the making. Nobody looks to 2007 as the model for a domestic economy. Yet at best, that’s where the Obama program will take us. That would be a better place than the crisis stage of today. But that’s not healing what’s completely sick about the US economy.

CommunityThe Bullpen

A Lost Decade on Every Front: Policymakers Must Resolve the 2000 Inflection Point

James Carville thinks the White House should panic, something that usually doesn’t inspire confidence in leadership. I actually like some of his specific steps – indicting the banks is a good idea way past its time, and defending the Democratic Party platform sounds like a plan. Overall, a Carville agenda sounds like an improvement on the current agenda.

It may be too late for all this, however. The stimulus has been poisoned by a bad initial forecast and a too-quick pivot to deficit reduction. The Economist reports that public opinion on austerity globally, not just in the United States, is sadly favorable. The OUTCOME of austerity isn’t, and that moves public opinion far more than the concept, but as a result these new stimulus programs are getting a middling amount of traction at best.

I think it’s a great idea for Obama to visit the Boehner/McConnell bridge between Ohio and Kentucky that has been shut down, to highlight the urgent need for infrastructure investments. That makes plenty of sense and it carries a long-term vision.

But at some point, some politician is going to have to address the larger issue here. At the risk of quoting a paper by the Brookings Institution, take a look at the labor market statistics discussed here.

From 1951 through 2007, there were never more than three unemployed workers for each job opening, and it was rare for that figure even to hit two-to-one. In contrast, there have been more than three jobseekers per opening in every single month since September 2008. The ratio peaked somewhere between five-to-one and seven-to-one in mid-2009. It has since declined but we have far to go before we return to “normal” levels […]

Unemployment increased during the 2001 recession, but it subsequently fell almost to its previous low (from point A to B and then back to C). In contrast, job openings plummeted—much more sharply than unemployment rose—and then failed to recover. In previous recoveries, openings eventually outnumbered job seekers (where a rising blue line crosses a falling green line), but during the last recovery a labor shortage never emerged.

The anemic recovery was followed in 2007 by an increase in unemployment to levels not seen since the early 1980s (the rise after point C). However, job openings fell only a little—and then recovered. The recession did not reduce hiring; it just dumped a lot more people into an already weak labor market.

The result is a shortfall in demand for workers unprecedented in the lifetimes of essentially everyone working today.

There was an inflection point around 2000, in other words. Job openings remained elevated, which puts downward pressure on wages and keeps labor markets slack. This hasn’t really even changed with the Lesser Depression. Income has subsequently fallen for 10 years after that, the employment-population ratio remained well below the peak level, and basically life in America has been downgraded. The middle class sees tougher jobs prospects, slack labor markets and rising core prices, particularly on health care and higher education. The rich get richer and the poor stay poor.

Here’s Kevin Drum:

It now looks to me like 2000 was another inflection point. Household incomes went from 1 percent growth to zero growth, and they’ve been stuck there ever since. Even researchers who are skeptical that income inequality rose dramatically after 1973 mostly accept that it’s definitely risen since 2000. The entire past decade has been an economic disaster on multiple fronts, and that’s one of the reasons the financial collapse of 2008 has been so terrible. We had a decade’s worth of labor market weakness that was partly masked by a housing bubble, and it all came crashing down within a year or two. Instead of a long, slow slide, we got ten years worth of drops compressed into 24 months.

The two main drivers of economic growth since the late 1990s were mirages: Pets.com and mortgage backed securities. Bubble 1 and bubble 2. Deregulation, outsourcing, automation, poor business decisions, abysmal Fed policy, all of this contributed to the slide. But this slide is a decade in the making. Nobody looks to 2007 as the model for a domestic economy. Yet at best, that’s where the Obama program will take us. That would be a better place than the crisis stage of today. But that’s not healing what’s completely sick about the US economy.

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David Dayen

David Dayen