Back in June, President Obama predicted that the unemployment rate would eventually hit 10 percent before the recession truly ended. Well, here we are.
Today, the Labor Department announced that the unemployment rate has hit a 26-year high of 10.2 percent, after employers shed 190,000 jobs in October. The wider U-6 measure of underemployment also ticked up to 17.5 percent, from 17 percent last month. The Labor Department also revised September’s losses down to 219,000 from 263,000. At the same time that joblessness continues to increase, productivity — output per hour worked — has soared (as employers make do with fewer employees).
Economist Dean Baker said that he did not expect declining unemployment rates until next spring. “We may be looking at very high levels,” Baker said, “barring a policy response, for several years into the future.” So as Brad DeLong asked “if you had told everyone last election day what would happen, economically, in 2009, what policies would they have adopted then to stem this disaster? And why aren’t we implementing those policies now?”
Indeed, there are positive steps that can be taken, now, that would support the labor market. As Matt Yglesias pointed out, we should probably be deploying more aid to state and local governments, to prevent layoffs and keep infrastructure projects up and running. (Let’s not forget that state aid was significantly reduced during negotiations over the stimulus package.) Paul Krugman, for his part, is advocating a WPA-style direct jobs program — “think of it as the stimulus equivalent of getting the middlemen out of the student loan program.”
Instead, as Steven Pearlstein wrote, “what [lawmakers are] proposing to do is to spend a lot of money that they don’t have in ways that won’t work to help too many people who are neither desperate nor deserving.” These ideas take the form of the badly misguided homebuyer tax credit, and the politically brilliant but economically pointless $250 payment to seniors.
Already, the response that we’ve seen from Congress has been fearmongering about deficits or using the unemployment rate as a nonsensical reason to kill health care reform. Neither of those provide much hope for some productive policy emerging. But if nothing is done, it’s going to be a long, painful slog back to a positive employment situation.