Transcript Slide 1

April 17th, 2010
AFTER THE GREAT RECESSION
National Association of Planning Councils
2010 National Conference
Heidi Shierholz
Economist, Economic Policy Institute
FIRST THINGS FIRST,
WHERE ARE WE NOW?
Technically, recession is almost surely over
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
GDP Growth
BUT OVER FOR WHOM??
Jan-10
Mar-09
May-08
Jul-07
Sep-06
Nov-05
Jan-05
Mar-04
May-03
Jul-02
Sep-01
Nov-00
Jan-00
Mar-99
May-98
Jul-97
Sep-96
Nov-95
Jan-95
Mar-94
May-93
Jul-92
Sep-91
Nov-90
Jan-90
Mar-89
May-88
Jul-87
Sep-86
Nov-85
Jan-85
Mar-84
May-83
Jul-82
Sep-81
Nov-80
Jan-80
Jobs (thousands)
Payroll employment (the number of jobs)
140000
130000
120000
110000
100000
90000
80000
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
136000
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
Mar-06
Jan-06
Nov-05
Sep-05
Jul-05
May-05
Mar-05
Jan-05
Jobs (thousands)
The jobs gap
144000
142000
140000
138000
11 million jobs
134000
132000
130000
128000
126000
124000
122000
Source: Bureau of Labor Statistics, Job Openings and Labor Turnover survey
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
Sep-03
Jun-03
Mar-03
Dec-02
Sep-02
Jun-02
Mar-02
Dec-01
Sep-01
Jun-01
Mar-01
Dec-00
Layoffs (thousands)
Layoffs now at pre-recession levels
2600
2400
2200
2000
1800
1600
Dec-00
Mar-01
Jun-01
Sep-01
Dec-01
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Hires (thousands)
But hiring still incredibly low
6000
5500
5000
4500
4000
3500
3000
Source: Bureau of Labor Statistics, Job Openings and Labor Turnover survey
Source: Bureau of Labor Statistics, Current Population Survey
Jan-10
Mar-09
May-08
Jul-07
Sep-06
Nov-05
Jan-05
Mar-04
May-03
Jul-02
Sep-01
Nov-00
Jan-00
Mar-99
May-98
Jul-97
Sep-96
Nov-95
Jan-95
Mar-94
May-93
Jul-92
Sep-91
Nov-90
Jan-90
Mar-89
May-88
Jul-87
Sep-86
Nov-85
Jan-85
Mar-84
May-83
Jul-82
Sep-81
Nov-80
Jan-80
Share of labor force
Unemployment rate
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Unemployment for various groups
Gender
All
Dec
2007
March
2010
Change
5.0
Race/Ethnicity
Male Female White Black
5.1
Age
Hisp
LTHS
HS
SOMC
BA+
16 to
24
25 to
54
55+
6.3
7.8
4.7
3.9
2.1
11.8
4.1
3.2
4.9
4.4
9.7 10.7
8.6
8.8
16.5 12.6 14.5 10.8
8.2
4.9
18.8
8.8
6.9
4.7
3.7
4.4
7.5
4.3
2.8
7.0
4.7
3.7
5.6
9.0
Education
6.3
6.7
6.1
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Unemployed
Jan-07
14%
Sep-06
Involuntarily Part-time
May-06
16%
Jan-06
Sep-05
May-05
Jan-05
Sep-04
18%
May-04
Jan-04
Sep-03
May-03
Jan-03
Sep-02
May-02
Jan-02
Sep-01
May-01
Jan-01
Sep-00
May-00
Jan-00
Underemployment
20%
Marginally Attached
12%
10%
8%
6%
4%
2%
0%
Jan-10
Mar-09
May-08
Jul-07
Sep-06
Nov-05
Jan-05
Mar-04
May-03
Jul-02
Sep-01
Nov-00
Jan-00
Mar-99
May-98
Jul-97
Sep-96
Nov-95
Jan-95
Mar-94
May-93
Jul-92
Sep-91
Nov-90
Jan-90
Mar-89
May-88
Jul-87
Sep-86
Nov-85
Jan-85
Mar-84
May-83
Jul-82
Sep-81
Nov-80
Jan-80
Share of the labor force
Long-term unemployment
(more than six months)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
Sep-03
Jun-03
Mar-03
Dec-02
Sep-02
Jun-02
Mar-02
Dec-01
Sep-01
Jun-01
Mar-01
Dec-00
Job seekers per job opening
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
THE WORST RECESSION SINCE
THE GREAT DEPRESSION?
ABSOLUTELY
GDP growth in a recession, a comparison
1.09
1.07
GDP Index
1.05
Current
1990
2001
1980
1973
1969
1960
1957
1953
1948
1.03
1.01
0.99
2009 Q3
0.97
0.95
2007-IV
2008-I
2008-II
Source: EPI analysis of Bureau of Economic Analysis data.
2008-III
2008-IV
2009-I
2009-II
2009-III
Employment loss in a recession, a comparison
106%
104%
Maximum of prior recessions
102%
Average of prior recessions
Percent of jobs lost
100%
98%
Minimum of prior recessions
96%
94%
2008 recession
92%
90%
88%
1
3
5
7
9
11
13
15
17
19
months since recession start
21
23
25
27
29
31
33
WHAT’S IN STORE?
IMPORTANT – WE DO NOT HAVE TO SETTLE
FOR PERMANENTLY HIGH UNEMPLOYMENT!
But, the short- and medium-term are going
to be ugly. The recovery in the labor market
is going to take a very long time.
Employment growth needed
to fill in the gap
• To fill the 11 million jobs-gap by March 2011, we
would need to add 1 million jobs every month
between now and then.
•
•
•
•
To fill it by March ‘12, need 559,000 jobs per month.
To fill it by March ‘13, need 408,000 jobs per month.
To fill it by March ‘14, need 333,000 jobs per month.
To fill it by March ‘15, need 288,000 jobs per month.
Source: Author’s analysis of Current Establishment Survey data.
Unemployment, 2015
12.0
10.1
10.0
9.5
9.3
8.0
8.0
5.8
6.0
6.3
6.0
5.5
4.7
5.8
5.1
4.6
4.6
2006
2007
5.3
5.1
2014
2015
4.0
4.0
2.0
0.0
2000
2001
2002
2003
2004
2005
2008
2009
2010
Source: Author’s analysis of Bureau of Labor Statistics, Current Population Survey data
2011
2012
2013
Real Middle Income, 2015
$54,000
$53,000
$52,000
$51,000
$50,000
$49,000
$48,000
$47,000
$46,000
$45,000
$44,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Poverty, 2015
35%
30%
25%
Overall Poverty
20%
Projected
Child Poverty
Projected
15%
Black Poverty
Projected
10%
5%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
WHAT SHOULD BE DONE?
MORE SPENDING FOR JOBS!
(Important subtext: ARRA worked,
but wasn’t big enough)
Impact of Recovery Act I
Impact of Recovery Act II
BUT WHAT ABOUT
THE DEFICIT?
Perhaps counterintuitive, but true!
A key way to bring
the deficit down
is to deficit spend
to create jobs
Sources of increase in the budget deficit
$47
Mechanical
Stimulus
TARP
Other
$184
$181
$841
Case against deficits in a healthy economy
•In a healthy economy, the private sector is borrowing all the
available “loanable funds” to make investments.
(Investments are good, because they lead to productivity
growth, and productivity growth is what leads to rising living
standards.)
•If the government runs big deficits – i.e. also wants to
borrow a lot – then it is competing with the private sector for
those loanable funds. This competition bids up the price of
those funds – i.e. bids up interest rates.
•Higher interest rates lead to less private-sector investment –
i.e. government borrowing “crowds out” investment. And that
is bad (see above!)
But right now, private borrowing is WAY down
20.0%
15.0%
Percent of GDP
10.0%
5.0%
0.0%
-5.0%
-10.0%
Source: Federal Reserve data.
And private savings is way up!
14
Personal savings rate
12
10
8
6
4
2
0
Source: Bureau of Economic Analysis data.
And note: we’re not relying on foreign
lending
10%
8%
6%
4%
2%
0%
-2%
-4%
Net lending from the Rest-of-World, % of GDP
IN SHORT, RIGHT NOW THERE IS
PLENTY OF ROOM FOR THE
GOVERNMENT TO BORROW
WITHOUT CAUSING ANYTHING
BAD TO HAPPEN!
SO DEFICIT SPENDING IS WHAT WE
NEED IN THE SHORT RUN.
BUT WHAT ABOUT THE LONG-RUN?
WHAT’S THE ROOT CAUSE OF OUR
LONG-RUN DEFICIT PROBLEMS?
In longer-run, we have a health-care
problem, not a social security problem
Spending on Social Security, % of GDP
Spending on Medicare and Medicaid, % of GDP
It’s all about runaway health care costs,
NOT an aging population
For more information
Heidi Shierholz
[email protected]
202.533.2560
Economic Policy Institute
1333 H Street, NW
Suite 300, East Tower
Washington, DC 20005-4707
202.775.8810
www.epi.org
EXTRA SLIDES
Public sector controls costs better
3,500
Index, 1970=100
3,000
2,500
Average annual cost growth
rates
2,000
Private insurers: 9.4% each year
Medicare: 8.3% each year
Private insurers
1,500
1,000
Medicare
500
0
1970
1974
1978
1982
Source: Center for Medicare and Medicaid Services.
1986
1990
1994
1998
2002
2006
The time to worry about foreign lending
has passed…
80
Spain
New Zealand
Annual % growth, home prices
France
-8
Australia
Finland
Ireland
60
United Kingdom
Belgium
y = -3.9294x + 33.788
R² = 0.3089
Denmark
Sweden
Canada
40
Norway
Italy
Greece
20
Switzerland
United States
0
-6
-4
-2
0
2
Austria
4
6
Germany
-20
-40
Japan
Current account balance as % of GDP
Netherlands
8
10
And the problem was about trade,
not budget, deficits
8.0
6.0
China's Treasury securities
Percent of U.S. GDP
4.0
2.0
0.0
-2.0
-4.0
-6.0
U.S.-China trade balance
-8.0
-10.0
-12.0
Source: OMB, USITC, Treasury data.
U.S. budget
And, trade deficits are driven by
over-valued dollar, not fiscal profligracy
Real, broad dollar index
120
6
4
110
2
100
0
90
-2
80
70
60
Source: Federal Reserve and OMB data.
-4
-6
Trade deficit as a % of GDP
130
Generational inequity?
Those determined to worry about generational distribution
need to focus on trade, not budget deficits
Budget deficit => higher taxes tomorrow, but these higher
taxes just get recycled into higher interest
payments for bondholders
Trade deficit => excess of imports over exports financed by
transferring ownership of domestic assets to
foreign lenders – money spent today that
really does get foregone tomorrow
TIME TO REASSESS III:
INFLATION
Year over year change in CPI
25
20
Percent
15
10
5
0
-5
1947
1950
Source: BLS data.
1954
1958
1961
1965
1969
1972
1976
1980
1983
1987
1991
1994
1998
2002
2005
2009
Too much money chasing too few goods?
Make more goods!
90
Capacity utilization
85
Percent
80
75
Employment-to-population ratio
70
65
1989
1991
1993
Source: Federal Reserve and BLS data.
1995
1997
1999
2001
2003
2005
2007
2009
Why is deflation bigger worry?
Increases real burden of a given debt
$1,000 mortgage gets more and more
burdensome if prices/salaries begin falling
Increases real interest rates
real interest rate = nominal rate - inflation
Effective federal funds rate
25
20
Percent
15
10
5
0
1954-07 1958-09 1962-11 1967-01 1971-03 1975-05 1979-07 1983-09 1987-11 1992-01 1996-03 2000-05 2004-07 2008-09
Source: Federal Reserve data.
Large debt overhang to work off…
Household loans as % of GDP
110
100
90
80
70
60
50
40
Inflation erodes debt overhangs
55
Debt/GDP ratio
50
45
40
35
30
Actual
1%
3%
Actual values and scenarios with inflation rates higher by…
5%
WHAT DO THE FACTS SAY ABOUT
THE LINK BETWEEN INTEREST
RATES AND DEFICITS?
New Treasury issues and
long-term interest rates
700
600
6
New Treasury issues
10-yr rate
7-yr rate
5
500
4
300
3
200
100
2
0
1
-100
-200
Source: Treasury Department and Federal Reserve data.
0
Interest rates
New issues, $billions
400
(Prelim)
Rise in deficit a very good thing…
Budget deficit rises by $1.4 trillion
between 2007 and 2009
And that’s a very good thing!
*Private spending shock greater than the
Great Depression
*Why no Depression? Because this time public
sector muffles, not amplifies, the shock to
spending
War on social insurance
A fiscal cancer, massive entitlement
programs we can no longer afford,
exacerbated by a demographic glitch that
began more than 60 years ago
David Walker
Social Security: Still Needed…
< 50%,
35
>90%,
33
5090%,
32
Share of income of aged
households accounted
for by Social Security
And more each year?
More social insurance in the short-run as
partial remedy for jobs crisis?
Unemployment rates by age
20
18.5
18
February 2010
16
December 2007
Unemployment rate
14
11.8
12
10
8.6
8
7.1
6
4.1
3.2
4
2
0
16-24
Source: Author’s analysis of BLS data.
25-54
55+
March of events…
..Should be fatal to lots of economic nostrums
Time to recognize that key planks of our
our decades-long experiment in following a
neoliberal macroeconomic strategy has
yielded little but inequality and economic
fragility.
Shares of GDP accounted for by consumption,
investment, net exports, and government
80
70
60
Share of GDP
50
40
1947-2000 average
30
20
2009
10
0
-10
Personal consumption
expenditures
Source: Bureau of Economic Analysis data.
Gross private domestic
investment
Net exports of goods and
services
Government consumption
expenditures and gross
investment
Corporate sector demand for borrowing
1,400
Investments
1,200
Dollars (billions)
1,000
800
Cash flow
Financing Gap
600
400
200
0
Source: Federal Reserve data.
Why aren’t firms investing?
Capacity utilization is WAY down
95
90
85
Percent
80
75
70
65
60
Source: Federal Reserve data.
Economic benefit of various stimulus
provisions
Source: Mark Zandi, Moody’s Economy.com