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I'm the wet blanket

I've been trying to stay away from political posts lately (which has resulted in... no posts from me, i know. Luckily min has picked up the slack) but with reports that the improving economy is bolstering Obama's chances against Romney, i thought i ought to throw out some caveats. Yes, the economy is improving. It actually has been improving, slowly, since the stimulus was first passed. Here's employment levels since 2008 (click on any of the charts below to go to the source).

Job losses and gains since 2008

The job situation was plummeting prior to Obama's presidency (do i really have to say that?) and continues during a period that is technically part of Obama's term but before a single policy of his was implemented. Once the stimulus takes effect, the losses slow and eventually reverse.

However, the stimulus was inadequate, and we are climbing out of the hole much too slowly.

Jobs gap

Looking at the above potential trendlines, it's unlikely that we'll see a return to pre-depression employment before 2024. I think even seeing a sustained increase equal to "average creation for the best year in 2000s" line is extremely optimistic if we do nothing.

I've used this chart before, but here's the latest version, showing how this recovery compares with previous post-Great Depression downturns.

Recession Comparisons

So if you subscribe to the sort of economic determinism that says that candidates win presidential elections based on the rate of change (not the level) of economic conditions, President Obama should win in 2012, unless things in Europe get so bad that it affects us here (which is a real, although seemingly lessening, possibility). But Obama seems satisfied with his economic policies and the make-up of the House and Senate isn't likely to improve much in his favor, so we're still going to be stuck in this lost "decade" that has slow but insufficient job growth. (P.S. if Romney somehow wins, we may, counter-intuitively, see a bigger stimulus, since he won't have an obstructionist Congress to deal with. Caveats: the stimulus would probably be mostly tax cuts, which are less effective, and the Tea Party wing of the Republican party might still manage to prevent any stimulus).

The point is to take all of the "improving economy" news with a grain of salt. We've got a long way to go.

Finally, let's look at where the job gains and losses are coming from.

Job Gains and Losses by Sector

As Matthew Yglesias says:

The fact that Barack Obama has been president during this time tends to somewhat confuse people's analysis, but we basically just ran a year-long experiment in the idea that curtailing the public sector would supercharge private sector growth and it's a bit hard to see the supercharging in the data.

Those public sector losses are primarily at the state level. So as Paul Krugman feared, we've got fifty Herbert Hoovers experimenting with austerity and ruining our recovery. To be fair, all states (except Vermont) are stuck with Balanced Budget amendments that prevent them from doing the sort of counter-cyclical spending that is necessary. A new Federal stimulus is needed to mitigate that.

And just to be clear, just because it's mainly the public sector that is suffering directly, a high unemployment rate hurts all workers. There are more candidates per open position, and wages are adjusted downward accordingly. It also affects consumer demand, which in turn reduces private company investment. So it's something that affects all of us, and needs to be resolved. If we cheer the lukewarm recovery and just focus on Obama's re-election numbers, i fear that we won't remember what needs to be done.

By fnord12 | February 8, 2012, 10:51 AM | Liberal Outrage