The Politics of Unemployment

Noam Scheiber offers a theory about the politics of high unemployment:

I just wanted to flesh out a point I hinted at in my TNRtv segment yesterday but didn’t get to elaborate on. My sense of the political relationship between unemployment and the deficit is as follows: Unemployment can be fairly high, but as long as it stays below some critical level, most people will think of it as something that mostly affects/threatens someone else. As a result, many will be as or more concerned about deficit-spending. Their basic calculus will be: Why should we run up enormous amounts of debt helping other people. This, I suspect, is a big reason the number of people who say they’re most concerned about the deficit has been gaining on the number of people who say they’re most concerned about unemployment/the economy in public opinion polls (scroll down to question 23 in that poll I linked to).

But at some point, unemployment presumably crosses a psychological threshold, wherein most people begin to see it as something that threatens them, too. And my hunch is that it’s kind of a knife-edge proposition–or, rather, that the number of such people gradually rises in line with the unemployment rate than balloons once it crosses a certain rate. I have no idea where that threshold is–10 percent? 11 percent? 12 percent? But, if and when we cross it, I think you’re going to see concern about unemployment diverge pretty sharply from concern about the deficit.

I think there’s one epicycle too many here. When someone loses their job, that usually has a negative impact on that person’s entire household. But most people are fine. But as the number of jobless rises, the circle of people negatively impacted by unemployment grows. Eventually, it grows to encompass a huge number of people and you reach a political tipping point.

One point to keep your eye on is that through Quarter 1 of 2009, median earnings have held up okay despite the rising unemployment:

That’s because wages are “sticky” and inflation has been low or zero. So many people who haven’t lost their jobs are actually doing better than they were a year ago. But the longer abysmal labor market conditions persist, the more that situation will change. Nominal wages aren’t infinitely sticky, after all, and hits people have taken to their retirement accounts and so forth will start to bite.