Welcome to the Modern-Day Depression
We need to recover from the Obama economic recovery
By Mortimer B. Zuckerman
September 19, 2012
How do you recover from a recovery? Just how bust the nation's "recovery" has been is painfully documented in the latest news, just two months before the election. The Census Bureau validated what middle-class Americans know all too well from their week to week, month to month struggle to make ends meet. The typical family is back to where it was in 1995. The analysis of annual data collected by the bureau indicates that median income in 2011 had fallen to $50,054, the fourth straight year of decline in well-being, and that's adjusted for inflation. In political terms, the Obama administration can truthfully say that the erosion had begun before the president took office, while Mitt Romney can point out that the administration spent four years of fumbling and quite failed to stop the rot.
At the same time we were clobbered by the Census numbers, the latest unemployment report landed with a dull thud: The advance figure for unemployment claims for the week ending September 8 was 382,000, up from the previous week's revised figure of 367,000. The four-week moving average was 375,000, up 3,250 from the prior week's average of 371,750.
These are marginal negative movements, but they underline that the recovery touted by the administration has been the weakest in modern history. Nobody is entitled to blow a trumpet because the unemployment rate for August can be headlined at 8.1 percent, down two digits from July's 8.3 percent. That's a drop brought about not by more jobs but because 360,000 people left the workforce. It muffles the fact that 5 million people have now been out of work for 27 weeks or more. That's roughly 40 percent of the unemployed. Another 2.6 million people were marginally attached to the labor force, and over eight million people have given up looking for a job, so they are not counted because they had not searched for work in the prior month.
Are they lazy good-for-nothings? Maybe a handful, but most are decent Americans eager to work. The average period of unemployment is close to 40 weeks. Imagine the sense of futility that must overcome people who month after month fill in forms, go for interviews if they're lucky, and end up as they started—with nothing to show because there are approximately 4.5 unemployed workers for every job. Fewer Americans are at work today than in April 2000, even though the population has grown by 30 million people since then. Think about that.
A reality check is offered by the unemployment numbers the government calls U-6. It measures people who have applied for a job in the last six months and also includes people who are involuntary part-time workers—government-speak for people whose jobs have been cut back to two or three days a week or who are working part-time because they have been unable to find a full-time job. That number is almost 15 percent. Include the eight million people who have simply given up looking for a job and the real unemployment rate is closer to 18 or 19 percent. These are the brutal facts behind the Census report on median income. It is no surprise when annual wage increases have dropped to an average of 1.6 percent, the lowest in the past 30 years.
There are other distressing aspects in the numbers. For example, older people are not leaving the workforce at the same rate as in the past. Instead, they are seeking to bolster their savings as an antidote to the stomach-churning decline in their net worth, 75 percent of which has come from the decline in the value of their home equity. They hope to retire with dignity but now are willing to do that at an even later date. Ironically, since the recession began, employment in the age group of 55 and older is up 3.9 million, even as total employment is down by five million.
The so-called quit rate has sagged to the lowest rate in years. Quite simply, the baby boomer population is delaying its exit from the workforce and thus creating a huge bottleneck in terms of youth unemployment. Prospects for older people out of work, however, have sharply deteriorated, especially for those who have been unemployed for any length of time. Dean Baker of the Center for Economic and Policy Research and Kevin Hassett of the American Enterprise Institute wrote recently in the New York Times that a worker between the ages of 50 and 61 who has been unemployed for over a year has only a nine percent chance of finding a job in the next three months. A worker who is 62 or older and similarly unemployed has about a six percent chance.
This trend has displaced young workers, who now face double-digit unemployment and more life at home with their parents. Many young couples realize they can't afford to start a family, and the result is that the birth rate has just hit a 25-year low of 1.87 births per woman. And job prospects for young workers aren't very good. Layoff announcements have risen from a year ago and hiring plans have dropped dramatically.
Workers won't feel the labor market is recovering until hiring is occurring at a recovery level pace of at least 300,000 more hires per month than we are seeing now. And when it comes, there will be a cloud to that silver lining. The job openings are mostly low-wage jobs that haven't been exposed to global competition. More than 40 percent of new private sector jobs are in low-paying categories such as leisure and hospitality, bars, and restaurants.
This is, in effect, the modern-day Depression. Take two issues, Social Security disability and food stamps. Roughly 15 percent of the population, a record, representing over 46 million Americans, are in the food stamp program, compared to the 7.9 percent participation from 1970 to 2000. And about 400,000 people have been signing up each month over the past four years. In addition, a record 11 million-plus Americans are now collecting federal disability checks. Half of them have come on board since President Barack Obama took office. This is another sign of the Depression-like times that we are in. It is not as visible today as it was back then because there are no bread or soup lines. That is simply because checks have replaced those lines. But it doesn't take away from the fact that millions of people who had good private sector jobs are now dependent on the government for life support.
Which candidate has the better answer? Romney has declared, without much detail, that he will create 12 million jobs in his first term. It sounds great, but it is actually no more than what Moody's Analytics predicts are already likely (and its forecast includes extending the Bush tax cuts for those earning less than $250,000, not quite the same as what Romney is planning). Meanwhile, it is clear that the ill-designed stimulus has not worked. True, things would likely have been worse. But the president left too many decisions to a pork barrel Congress: Less than 10 percent of the stimulus funds were pegged for infrastructure of lasting value.
The White House website proclaims that "from day one President Obama has focused on efforts that can help small businesses grow and expand." That is a tall one. The president pivoted late to jobs, having expended much energy and political capital on his healthcare reform bill. When he did unveil the $447 billion American Jobs Act before a joint session of Congress last year, it was without any attempt to garner Republican support. While it included many good things, it also included tax increases and regulations the president knew were anathema to the opposition, leading the Fiscal Times to call the bill "a scam," designed for the election to complete the portrait of an obstructionist Republican Party.
It's right and understandable that the outrages in Libya, Egypt, and Yemen have commanded attention and may yet command more. But at base the economy is the fundamental challenge that will determine America's strength as well as its resolve.
The economy is slowing to a growth rate that will be close to zero in the second half of this year, according to a recent AEI report, which also notes that 2012 is the third year of stalled recoveries. No incumbent president has ever won re-election with unemployment rates as high as they are likely to be in November. A job is the most important family program, the most important social program, and the most important economic program in America. The unemployment and income statistics are intolerable for a compassionate and wealthy nation.
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