Job seekers attend a career fair in Overland Park, Kansas, December 1, 2011. (AP Photo/Charlie Riedel)
Today the Bureau of Labor Statistics announced that unemployment dropped to 8.6 percent from 9 percent, while the economy added 120,000 new jobs. Is this actually good news? About half of this decline is due to workers giving up looking. We can get a better sense from the employment-to-population ratio, because unemployment doesn’t track people who have stopped looking for work. The employment-to-population ratio did increase slightly to 58.5 percent, but this is still within the range it has been for two years.
In fact, over the past year, employment-to-population has stayed consistently depressed. Every indicator we look at—job openings, the rate at which people quit their jobs for new opportunities, the number of hours worked in the economy—has stayed weak during 2011. With job growth failing to exceed population growth each month, and with no serious increase in the percent of Americans working, 2011 was a lost year for the economy.
Lost years for the economy have major consequences. Beyond the human misery that results, they put the entire project of liberal governance at risk. Choices made early by this administration resulted in no advancement on three fronts that could bolster the struggling economy: fiscal policy (increasing the deficit through spending on investment and temporary tax cuts), monetary policy (increasing the money supply to stimulate growth), and dealing with the problems in the housing market.
Starting in late 2009, the Obama administration started framing our economic crisis as a “dual deficit problem.” In other words, the administration wouldn’t push for a larger short-term deficit—spending more money to stimulate the weak economy, a key tenet of Keynesian economics—without also cutting the long-term deficit. Treasury officials told a reporter at The New Republic that the administration needed to show “some signal to US bondholders that it takes the deficit seriously” and that “spending more money now [on stimulus] could actually raise long-term [government] rates, thereby offsetting its stimulative effect.”
This was a victory for the network of elites that The Nation’s Ari Berman refers to as the “austerity class.” By buying into the now-conventional wisdom that it was economically unsound to grow short-term deficits without simultaneously decreasing long-term deficits, long-term deficit reduction was turned into a co-equal problem of economic woes. This is like a doctor telling a patient suffering from multiple gunshot wounds that he should have a healthier diet—it might be true, but there’s a much more pressing problem.
Want an example? In the 2010 State of the Union address, President Obama stated that he would freeze 2011 discretionary spending even though unemployment was projected to be above 8 percent, because, he said, if “we don’t take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery,” which “would have an even worse effect on our job growth and family incomes.” This conventional wisdom gave the Republicans the leverage they needed to destroy any pro-active economic agenda.
So the administration spent much of 2011 engaging in the wrong analysis of the economy, one that looked like that of the far right. Early in the year the administration brought in new advisers, notably Bill Daley as chief of staff, in order to repair relationships with business in the wake of financial reform. This incorrectly diagnosed the problem as a liberal government beating up on unappreciated job creators, instead of weak income and mass unemployment among workers. In his 2011 State of the Union address, Obama argued that we needed to “win the future” by investing in education and bringing “discretionary spending to the lowest share of our economy since Dwight Eisenhower was president.” Recent college graduates are suffering from high unemployment and there’s no real reason to worry about government debt levels, but you wouldn’t understand that from that speech.