This morning's jobs numbers were just dreadful. A paltry 18,000 jobs were created in June, while unemployment rose to 9.2%. The May and April figures were revised downwards by a combined 44,000, so the net is now 217,000 jobs in April, and just 25,000 in May.
Naturally, I live in a city where the instant response is to ask what this means for our local industry. There's been a lot of linkage to this interview with David Plouffe
, who denies that this is going to be a problem for Obama:
It's looking more and more like Obama will have to do something no president has done since Franklin Roosevelt: Win reelection with unemployment around 8 percent.
Ronald Reagan, another president Obama is sometimes compared with, was reelected in 1984 when unemployment was 7.2 percent. Obama isn't likely to see a number that low.
. . . That seemed to be at the root of Plouffe's remarks on Wednesday, as quoted by Bloomberg. "The average American does not view the economy through the prism of GDP or unemployment rates or even monthly jobs numbers," Plouffe said, according to Bloomberg. "People won't vote based on the unemployment rate, they're going to vote based on: 'How do I feel about my own situation? Do I believe the president makes decisions based on me and my family?'
This is obviously some whistling past the graveyard. No president since FDR has gotten re-elected with unemployment above 8%, and while unemployment was still near 17%, it had also dropped by more than 7% since its high. To see the difficulty Obama faces, compare unemployment under his administration to Reagan--the last president to be re-elected with high unemployment:
The scales don't exactly compare, but as you can see, by this point in his presidency (mid-1983) Reagan was starting to see a sharp decline. For Obama, by contrast, the numbers seem to be moving in the wrong direction. It could always be a blip, of course. But even if they resume their gentle decline, it wouldn't be the same--Reagan saw a steep run-up, and then an equally sharp decline. Under Obama, by contrast, the number has been bouncing around between 9-10% for most of his presidency.
Contrary to what his political critics will claim, this is not because Obama has somehow screwed things up--either by passing the stimulus, or not passing enough stimulus. The fact is, we don't really know much about how to treat the high and lingering unemployment of a post-financial crisis recession--the massive stimulus advocated by some of the High Keynesians has never really been tried anywhere (well, China, maybe, but for various reasons that's hard to evaluate.) There are all sorts of reasons to think that it would have been hard to do a much bigger stimulus--not just because of the politics, but because of the technical difficulties of pushing that much money out the door
, and the uncertainty over the willingness of the markets to support so much borrowing. Maybe you can argue that he should have focused on jobs instead of spending a year passing his health care bill, and I'd agree, but I'm not sure I'd want to bet much money that unemployment would be much lower if he had.
But it seems quite likely that Obama is going to pay a price for this even though it's not his fault. I don't mean that it will be impossible for him to win re-election, but this is certainly going to make things much more difficult. It takes about 125,000 new jobs every month just to keep even with labor force growth, so reducing unemployment by even a percentage point would require creating over 2 million jobs in the next year, adding at least 250,000 jobs to payrolls every single month. This is still possible, but it is not, right now, looking very likely.
The recession seems to be validating what Reinhart and Rogoff argue in This Time is Different
, their landmark work on financial crises: post crisis, government debt balloons, and economic growth is slow. According to Reinhart
, 8-9% unemployment could well persist to 2014. And voters may not be willing to wait long enough to let Obama enjoy the rebound.