The recovery is real, but it's still really far from the recovery we need. That's been the consistent message of the past three years, with consistent job growth that hasn't been near enough to end our jobs crisis much before the end of the decade.
But that might be changing. Now, there have certainly been plenty of false starts before, but this time might really be different. Housing is finally showing signs of life and austerity is mostly over. In October, this added up to 255,000 new jobs, including revisions to past months, and that despite us shedding 13,000 more public sector jobs. The self-inflicted economic wound that is firing cops and teachers has added a degree of difficulty to our already daunting jobs crisis, but that degree of difficulty is disappearing. As Binyamin Appelbaum of the New York Times points out, government jobs fell by 97,000 in 2009; 230,000 in 2010; 258,000 in 2011; before turning positive to the tune of 20,000 more jobs in 2012. Consider that government employment increased by 259,000 during the Reagan recovery of 1983-84 and by 316,000 during the post-tech bubble recovery of 2002-04.
In other words, our disappointing recovery isn't as disappointing if just look at the private sector, though only quite. I took this chart from Bill McBride of Calculated Risk -- the one Joe Weisenthal of Business Insider calls "the scariest jobs chart ever" -- and I subtracted out government jobs. That leaves us with a picture of how far the private sector has fallen during every postwar recession and how long it's taken to get back to its pre-recession peak. The depressing reality is our private sector jobs hole is still deeper than it ever was during half of all other recessions, even after the past three years of recovery. (Note: This measures the percent of private sector jobs lost from the previous private sector peak).
There are two big stories here. First, our past three recoveries have also been our three worst recoveries, private sector or otherwise. And second, the current recovery has actually been a bit stronger than the previous two recoveries, at least when it comes to the private sector. These are both stories about the Fed and about how recessions have changed since 1982. Recessions used to be nasty, brutish, and short. They happened when the Fed got worried about inflation and raised interest rates, and they ended when the Fed stopping worrying about inflation and lowered interest rates. But then Paul Volcker won the war on stagflation, and we entered a brave new world of falling inflation, falling interest rates and financial deregulation. Recessions now seemed to be mild, infrequent, and long. They happened when bubbles burst, with the Fed cutting already low interest rates even lower to mitigate the damage, and they ended once households and businesses rebuilt their balance sheets.
But then we hit zero. In 2008, interest rates were low enough that even cutting them to nothing wasn't enough to stop the free fall. The Fed was far too slow and far too cautious about trying unconventional policies, and the result was our brush with financial collapse. This close-up with the abyss finally gave our policymakers some religion, at least for a time, so that we got another one of the jobless recoveries we've gotten used to, if not a little better, as the chart below shows. It looks at the most recent recessions and recoveries -- what Paul Krugman calls our "postmodern business cycle" -- and compares overall job losses with private sector job losses during each. We're arguably doing better on the latter and should be doing better on the former.
There's one caveat, one counterargument and one takeaway here. The caveat is we would expect a faster recovery from a deeper recession. The counterargument is we wouldn't if that deep recession was a financial crisis, especially one that involved a housing crash. And the takeaway is we are needlessly handicapping the recovery. Notice the convergence between the thick and dotted red lines -- that's what austerity looks like in action.
Maybe Obama could have used a lesson in socialism from his Republican predecessors.
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