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The job stall

Robert Reich, professor of public policy | June 4, 2012

The White House must be telling itself there are still five months between now and Election Day, so the jobs picture could brighten. After all, we went through a similar mid-year slump in 2011 but came out fine.

But however you look at today’s jobs report, it’s a stunning reminder of how anemic the recovery has been – and how perilously close the nation is to falling into another recession.

Not only has the unemployment rate risen for the first time in almost a year, to 8.2 percent, but, more ominously, May’s payroll survey showed that employers created only 69,000 net new jobs. The Labor Department’s Bureau of Labor Statistics also revised its March and April reports downward. Only 96,000 new jobs have been created, on average, over the last three months.

Put this into perspective. Between December and February, the economy added an average of 252,000 jobs each month. To go from 252,000 to 96,000, on average, is a terrible slide.  At least 125,000 jobs are needed a month merely to keep up with the growth in the working-age population available to work.

Face it: The jobs recovery has stalled.

What’s going on? Part of the problem is the rest of the world. Europe is in the throes of a debt crisis and spiraling toward recession. China and India are slowing. Developing nations such as Brazil, dependent on exports to China, are feeling the effects and they’re slowing as well. All this takes a toll on U.S. exports.

But a bigger part of the problem is right here in the United States, and it’s clearly on the demand side of the equation. Big companies are still sitting on a huge pile of cash. They won’t invest it in new jobs because American consumers aren’t buying enough to justify the risk and expense of doing so.

Yet American consumers don’t have the cash or the willingness to spend more. Not only are they worried about keeping their jobs, but their wages keep dropping. The median wage continues to slide, adjusted for inflation. Average hourly earnings in May were up 2 cents – an increase of 1.7 percent from this time last year – but that’s less than the rate of inflation. And the value of their home — their biggest asset by far — is still declining.  The average workweek slipped to 34.4 hours in May.

Corporate profits are healthy largely because companies have found ways to keep payrolls down — substituting lower-paid contract workers, outsourcing abroad, using computers and new software applications. But that’s exactly the problem. In paring their payrolls, they’re paring their customers.

And we no longer have any means of making up for the shortfall in consumer demand. Federal stimulus spending is over. In fact, state and local governments continue to lay off large numbers. The government cut 13,000 jobs in May. Instead of a boost, government cuts have become a considerable drag on the rest of the economy.

Republicans will  have a field day with today’s jobs report, taking it as a sign that Obama’s economic policies have failed and we need instead their brand of fiscal austerity combined with more tax cuts for the wealthy.

But that’s precisely the reverse of what’s needed.

Cross-posted from Robert Reich’s blog.

Comments to “The job stall

  1. The President to date has been ignored on his jobs proposals. Well, there is still time before the election for him to take major initiative to get the country working again. Having established that he can use prosecutorial discretion to bring immediate relief to 800,000 “dream” immigrants, the President is now in position to turn prosecutorial discretion toward the bigger goal of relieving the millions of unemployed by getting them into jobs. He can ignore his critics and declare a new Treasury and IRS collections policy of leniency and permanent deferment of all required 6.2% social security payroll contributions by businesses that increase in the coming year the number of people they employ by 6.2%. It will cost businesses no additional money, while increasing business’s profit potential from simply having more employees producing products and services.

    And thus by unilateral executive action alone President Obama will set the unemployment rate in an immediate nose dive towards 5%, and thus cut the Gordian Knot and finally side step all the cowardly chewing and bemoaning over stimulus versus debt. I’m rooting for this much too simple, right under our noses, action in these troubled times that only our President can take to end our useless economic stalemate. I’m rooting for our President, who is beginning to think outside the box for our Country’s sake. And by the way, thank you also Justice John Roberts for thinking outside the box for our Country’s sake.

  2. Econophysics models can predict economic stall.

    The stall analogy is very apt and is reflected by work that I have done in conjunction with Dominican University’s Green MBA program to develop a policy ‘flight simulator’ for resource and environmental evaluations, but the model does a lot more. It is driven by a fluid dynamics analog, inspired by early work on a hydromechanical simulator developed the New Zealand economist Phillips (of Phillips curve fame) in the 1950’s! Cambridge has restored one of his machines. My model shows that a stall in the economy occurs when those at the leading edge of the economy extract more than they generate in value, and thus restrict downstream flow to the rest of the economy.

    The Dominican project page is at

    In the working paper, the model is fully described, including a graphic representation comparing force coefficients in the US and Swedish economies from 1979-2007 vs. GDP. More importantly, it shows that there is an optimum condition of income distribution for a given structure of the economy that results in much higher growth and stability. (The paper also has links to Phillips machine and his work on control of an economy)

    I’m a big fan of simulations, rather than mathematical models, as they do not need to be so tightly constrained and show the possibility of “nudging economics towards an experimental science,” as discussed by Reiss:

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