Rip Van Winkle Wakes To The Recession

Several prominent economist who have apparently been slumbering the last three years suddenly awoke this week and, upon an examination of the global financial situation, said that unemployment was the primary enemy of the recovery.

Austan Goolsbee, the new head of the White House Council of Economic Advisers, offered on ABC News, in what was probably the first public interview since his appointment, “This recession is the deepest in our lifetimes, the deepest since 1929.” “More than 8 million people lost their jobs. It’s going to take a significant push on our part — and time — before that comes down, I don’t anticipate it coming down right away.” He may think that the best way to help his president and his party is to pretend that they have just discovered the jobs problem and now can do what they must to solve it.

A much more prominent figure, Dominique Strauss-Kahn, the managing director of the IMF, told a forum that the financial crisis “won’t be over until unemployment significantly decreases.” He added “The labour market is in dire straits. The Great Recession has left behind a waste land of unemployment.” A joint study by the IMF and the International Labor Organization said that a record 210 million people across the world are estimated to be unemployed, an increase of more than 30 million since 2007.  Based on these findings, Dow Jones reports that that ILO estimates that over the next 10 years more than 440 million new jobs will be needed to absorb new entrants into the labor force and still more to reverse the unemployment caused by the crisis.

What was not in the headlines or the stories about the Strauss-Kahn and Goolsbee comments is any advice about how the global unemployment problem can be solved. These leading economists have been absent while the problem has gotten worse. And worse still, they seem to have lost any capacity to light a path pointing to the end of the tunnel.

The two schools of thought about how employment may improve are childishly simple. The first is that all recessions eventually end on their own. The history that supports that claim is irrefutable. The trouble is that no one knows the time frame for the progress of the current downturn. Growth in demand for goods and services in the emerging nations may lift the global economy back onto its feet. China’s industrial and consumer sectors are both doing remarkably well. The same is true for India and much of Latin America. Whether these nations can prosper without a recovery of the economies in the developed world has been debated inconclusively almost since the beginning of the current downturn.

The second approach to bring back jobs is for governments to spend their ways out of the recession, where unemployment is most acute. That is also simple, at least on paper. Stimulus packages, like those that were put into place in many large countries in early 2009 need to be repeated or expanded. The first round of these efforts were not enough to make a lasting difference. A redoubled effort, however, is likely to do so. Many financial experts and politicians have begun to advocate for austerity as the only means to cut national deficits and eventually sovereign debt. That track rules stimulus out as a possible solution.

Indecision regarding how the joblessness problem should be addressed will probably end up as the single most damaging aspect of the efforts to remedy the situation. The analysis that unemployment has and will cripple the recovery is nearly ancient. Almost everyone, particularly those who are out of work, are waiting for someone to advocate a way out of the trouble – even if it is at the risk of adding to burdensome deficits.

A generation has begun to lose its opportunity for even modest economic advancement and nothing has been done about it.

Douglas A. McIntyre