Fear And Loathing In The Unemployment Line

The minutes of the FOMC on August 11th and 12th were released today. The Fed did everything it could just short of saying that the recession is officially over. One of the critical notations in the minutes was that “the staff continued to project that real GDP would start to increase in the second half of 2009 and that output growth would pick up to a pace somewhat above its potential rate in 2010.” The Fed has a tradition of never showing more than muted enthusiasm. There will be nothing but blue skies for the economy from September 1 onward.

The Treasury Department has not yet crossed the end of the recession Rubicon. Geithner has elected to stay on this side of the river unlike Gaius Julius Caesar. Geithner does not have a reputation for intrepidness. He may never acquire it at this stage. Geither shared his views about the upcoming G-20 summit by stressing that the economy is still in serious if not critical condition and that, left alone, it will turn sharply downward again. “We have come a long way, but we have got a long way to go,” he said. Stimulation is still at the core of any improvement for the time being, at least as far as the Administration is willing to make the point without the news coming directly from the President.

Geithner’s sentiments are understandable even if he is completely wrong. It would not send an acceptable message if the Treasury Department said that the recovery was in full bloom while hundreds of billions of dollars of the $787 billion stimulus package have not been spent. Congress and taxpayers might want some of the money back. Rebates would run the risk of fueling consumer spending which could actually feed a normal recovery in GDP. The necessity of the entire stimulus program might be questioned. Mr. Geithner knows that it is important for the late stages of the recession to drag on.

Geithner may not need much help. The one thing that the Fed and the Treasury agree upon is that unemployment will not only increase; it will remain elevated for several quarters. It may seem like a complaint, but the most serious threat that a double-dip recession has in the near future is the unemployment rate, and it is the one thing that neither the Fed nor Treasury have programs to directly address. That is a fact that seems to have been lost in the current debate about when the economy will improve and by how much.

Unemployment was always thought to be one of the most important elements in the creation of a prolonged downturn. But, there is nothing in any program from the Fed or the Administration and Congress that is called a Jobs Act. The stimulus programs are meant to create or add 3.5 million jobs. The long lists of plans that will be funded have nothing to do directly with putting individual people into specific jobs. That may be the greatest paradox of the $787 billion investment. Everything is done indirectly. The money goes into the economic system as a cause, and jobs are supposed to be created as an effect. That leaves a great deal to chance. Money being spent for new broadband systems can be as easily put toward equipment as toward people.

The point about which taxpayers should be most ambivalent when it comes to the huge deficit that the federal government is creating is that there is nothing in the stimulus packages, even in the fine print, that shows citizens how their children, their neighbors, or their friends find work.  People are reasonably concerned that the deficit will rise by $9 trillion in the next decade without a concrete guarantee of new jobs in a system in which unimaginable amounts of money are being spent to keep the national economy moving forward.

That, in a word, is the trouble with the current programs to rescue the economy and “manage” the recession. People look at their daily newspapers and see two things. One is trillions of dollars in red ink and the other is double-digit unemployment. They cannot put the two together and reconcile them.

Douglas A. McIntyre