To the Right of Lincoln

Blanche Lincoln, that is.

John Cassidy has an article in the most recent New York Review of Books, The Economy: Why They Failed, on just how badly the Obama administration has failed. None of this will come as any great surprise to regular readers, of course, but there are some interesting tidbits in Cassidy's article that deserve some attention. Part of the appeal of this article is the calm, almost dry, recounting of the actions the Obama administration has taken, granting them every claim they have made about why X was necessary or why Z wouldn't work. Cassidy then throws in the counter factuals, and blows the arguments out of the water.

Unemployment Increases

Interrupting the election euphoria is the economic news. The NYT has a series of graphs that show information about unemployment since 1990: The Labor Picture in October. The graphs will open in a new window.

Of particular interest to me are the graphs on the unemployment rate, job losses in sectors (note how the professional services sector is being affected), part-time employees looking for full time jobs (under-employment), and decreases in weekly wages.

In the accompanying article, Jobless Rate at 14-Year High After Big October Losses, there is more information about how the losses have occurred (my emphasis):

Above all, the latest monthly snapshot of the job market reinforced how the economy remains gripped by a potent combination of troubles — plunging housing prices, tight credit and shrinking paychecks — with all three operating at once in a downward spiral.

Companies have been hiring tepidly and laying off workers throughout the year as business has slowed, while cutting working hours for those on the payroll. Millions of Americans accustomed to borrowing against homes to finance spending have lost that artery of cash as home prices have fallen.

Wages have effectively shrunk for most workers, as rising costs for food and fuel have more than absorbed meager increases in pay. That has further crimped American proclivities to spend.

In October, weekly wages for rank-and-file workers — those not in supervisory or managerial positions — grew just 2.9 percent from October 2007, well below the rate of inflation.

The health care industry and public schools were the only sectors of the economy that showed more than notional growth last month. Otherwise, the losses were deep and broad. The troubles in the auto industry led to thousands of layoffs at car dealerships and factories that produce car parts. Tens of thousands of workers at manufacturers and construction companies lost their jobs.

Janitors, administrative workers and temporary employees were hit hard, with 57,000 jobs lost in October. Even general merchandise stores, which have seen an increase in business because of lower prices and more budget-minded consumers, laid off 18,000 workers last month.

The 284,000 jobs lost in September was the biggest monthly toll since November 2001, in the aftermath of the terrorist attacks in New York and Washington.

The economy never really recovered from the 2001 drop. Employment was heavily driven by the real estate bubble, especially here in California. Construction was home construction, retail was very much invovled with home furnishings and home improvements, consumption was financed by home equity cash-outs, and so forth.

The housing bubble has disguised the long-term effect of falling real wages with the home ATM making up for the shortfall in paychecks. While the main focus on the bubble has been on exotic mortgages, less sustained attention has been given to refinancing. A significant number of these transactions will be recourse loans, debts that cannot be discharged with a foreclosure but which will stay with the debtor, dragging down both personal and more widespread economic recovery.

Whatever real value stored up in housing has been exhausted and then some. It's not enough to put people back to work if those jobs are non-union, part-time, and low wage. A reduction in consumption and a lower rate of growth are not inherently bad things if overall economic security is improved. Can we all stand to drive older vehicles, have fewer things, and live in smaller digs? Probably, but austerity for the working class and poor will not solve the structural problems of chronic underemployment and incremental impoverishment that are creeping their way up the socio-economic food chain.

The Wall Street bailout is not even a start at addressing the structural problems afflicting the real economy.

Anglachel