Mean Spirited & Bad Economics

http://economix.blogs.nytimes.com/2012/02/09/mean-spirited-bad-economics/?emc=eta1

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"The problem with popular thinking is that it doesn't require you to think at all." (Kevin Myers)

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Simon Johnson, the former chief economist for the International Monetary Fund writes regularly for the NY Times "Economix" site. His 2/9 post on unemployment was exceptional.

Since the 1930s, employers have been paying insurance premiums (payroll taxes on wages) to the government. But, the severity and depth of the current recession ("current" is his term and mine - from an employment point of view, nothing's changed except a couple of positive months of U.S. hiring), raise an issue that we haven't had to confront since the 1930s - what do we do when people run out of standard unemployment benefits?

In a position that appears to be either so ignorant or so cynical that it defies reality, "House Republicans" propose to cut back on these benefits, asserting that this will push people back to work and speed the recovery. Quoting Johnson: "Does this make sense, or is it bad economics, as well as mean-spirited?"

What work would these unemployed people be going back to? Alan S. Blinder (former Vice Chairman of the Fed and Princeton Economics Professor) discovered, as a result of reading "The World Is Flat" and researching 800 plus job classifications, that as many as 40 million jobs could be eliminated over the coming years because they can be done more cheaply elsewhere. Fareed Zakaria reminds us that the current U.S. GDP level is at the same place it was in 2007 but with 10 million less people employed. While Johnson doesn't refer to it directly, the long term unemployed (1 year or more) number continues to be 3.5 million people. Do we think these people are going to hop back into the workforce anytime soon?

"The Chart." Johnson includes the chart I favor on the recession compared to previous ones in his post and I think it does a nice job of showing how dramatically far below "normal" the work force of the U.S. is.

Depending on the time frame you use and the data selected, Johnson says the U.S. has lost 8 million jobs "...most of which have not returned." Johnson cites an enormous statistic: since 2008, the share of long-term unemployed to total unemployed has moved up to 45%. That number is usually 10 to 15%.

Does anybody think these people are going to find a job right away?

The official BLS unemployment rate is 8.3% right now and any drop in that statistic is good, but I like to follow the BLS U6 unemployment rate which attempts to characterize the unemployed plus those who have given up looking for a job: 15.1%. That, to me, is a more reasonable characterization of the unemployment situation.

Johnson introduces us to Paul Solman's "U7" unemployment rate which includes the "underemployed" and those who have been out of work so long that the government no longer counts them: 16.9%. Click on Solman's chart/article from the Johnson post.

Johnson spends a good portion of his post asking what we stand for as a society if we want to cut off unemployment benefits to people whose job prospects just aren't that good. I ask the same question. Do you?