Moving Beyond the Unemployment Situation to a Better "New Normal"

Please review the chart copied from Calculated Risk this morning. The dotted red line shows the truer extent of what the recently-ended (?) economic banana has done to what most people consider the sine qua non of economic growth: jobs.

The economists who advised President-elect Obama that the unemployment rate was heading for a peak of 8.5%, and that "stimulus" could restrain that number to 8.0%, missed what seers such as Dr. Roubini and the blogger Mike Shedlock saw, which was a sicker economy than one that had simply been sucker-punched by a disorderly Lehman Bros. bankruptcy.

Regardless of what seers ranging from mainstream organizations such as the Conference Board (Leading Economic Indicators = "LEI") and the Economic Cycle Research Institute (whose indicators are basically LEI 2.0) have forecast, there has been a simpler real-time tool that has been far more predictive, namely Gallup.com. The rapid deterioration in the labor market in mid-2008 was correlated with a rapid deterioration of the hiring/letting-go question in the Gallup survey, and the "New Normal" of less discretionary spending also showed clearly in drastically reduced discretionary spending.

Unfortunately, these parameters are near their cycle lows as of yesterday's data. As late as June 2008, daily "discretionary" spending per respondent was over $110. It is mired at $63/day currently, marginally above its low of May 2009 in the high $50s. The hiring/letting-go data may be showing a tiny improvement but are still deep in rising unemployment territory.

Furthermore, the unemployment rate would have been 10.1% in September, not 9.8%, had it not been for about 500,000 Americans (!) who dropped out of the labor force. To quote Calculated Risk, who is not known for emotionality: "Ugly. Ugly. Ugly."

A forward-looking solution to the current economic woes should involve a combination of the following rather than simply playing the same tired tune of support for auto production and more and more lending:

1. Recognize that Americans on average have been over-consuming, as per the obesity epidemic. There is much to be said for the quieter life. (I am ignoring the serious problem of income and wealth disparities in order to generalize to the "average".)

2. A sustainable economy needs to focus on enduring needs of people living in harmony with the natural environment. This means less emphasis on "things" and more emphasis on services such as improved medical care and medical research (with proper accounting for the fact that more of such things does cost money) and support for many other forms of innovation, and less emphasis on mega-stadiums (such as the Olympics would have brought to a large Midwest city) and multiplex cinemas that are little more than bread and circuses for the masses while the elite grow richer. Sorry, Mr. President, but repaving roads may be the Chicago way, but it has an economic multiplier effect that is less than one and definitely has a negative environmental effect, and it is a sorry excuse for a thoughtful growth policy.

3. Support for those hurting economically, especially where it is due to factors beyond their control.

4. Post-industrial re-thinking of the idea that in a society where only a couple of percent of the work force is needed to produce food and water, full employment has the same priority that it had in prior generations. Work is called work because it is not play and may be dangerous "un-fun". Without becoming H. G. Wells's Eloi, we can become a post-industrial leader by thinking, resting and exercising more while still meeting the tangible real needs of the people.

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