1. AFTER THE GREAT RECESSION Heidi Shierholz Economist, Economic Policy Institute April 17th, 2010 National Association of Planning Councils 2010 National Conference

2. FIRST THINGS FIRST, WHERE ARE WE NOW?

3. Technically, recession is almost surely over

4. BUT OVER FOR WHOM??

5. Payroll employment (the number of jobs)

6. The jobs gap

7. Layoffs now at pre-recession levels Source: Bureau of Labor Statistics, Job Openings and Labor Turnover survey

8. But hiring still incredibly low Source: Bureau of Labor Statistics, Job Openings and Labor Turnover survey

9. Unemployment rate Source: Bureau of Labor Statistics, Current Population Survey

10. Unemployment for various groups GenderRace/EthnicityEducationAge AllMaleFemaleWhiteBlackHispLTHSHSSOMCBA+ 16 to 24 25 to 54 55+ Dec 2007 5.05.14.94.49.06.37.84.73.92.111.84.13.2 March 2010 9.710.78.68.816.512.614.510.88.24.918.88.86.9 Change 4.75.63.74.47.56.36.76.14.32.87.04.73.7

11. Underemployment

12. Long-term unemployment (more than six months)

13. Job seekers per job opening

14. THE WORST RECESSION SINCE THE GREAT DEPRESSION? ABSOLUTELY

15. GDP growth in a recession, a comparison

16. Employment loss in a recession, a comparison

17. WHAT’S IN STORE?

18. IMPORTANT – WE DO NOT HAVE TO SETTLE FOR PERMANENTLY HIGH UNEMPLOYMENT! But, the short- and medium-term are going to be ugly. The recovery in the labor market is going to take a very long time.

19. Employment growth needed to fill in the gap To fill the 11 million jobs-gap by March 2011, we would need to add 1 million jobs every month between now and then. To fill it by March ‘12, need 559,000 jobs per month. To fill it by March ‘13, need 408,000 jobs per month. To fill it by March ‘14, need 333,000 jobs per month. To fill it by March ‘15, need 288,000 jobs per month. Source: Author’s analysis of Current Establishment Survey data.

20. Unemployment, 2015 Source: Author’s analysis of Bureau of Labor Statistics, Current Population Survey data

21. Real Middle Income, 2015

22. Poverty, 2015

23. WHAT SHOULD BE DONE? MORE SPENDING FOR JOBS! (Important subtext: ARRA worked, but wasn’t big enough)

24. Impact of Recovery Act I

25. Impact of Recovery Act II

26. BUT WHAT ABOUT THE DEFICIT?

27. Perhaps counterintuitive, but true! A key way to bring the deficit down is to deficit spend to create jobs

28. Sources of increase in the budget deficit

29. Case against deficits in a healthy economy In a healthy economy, the private sector is borrowing all the available “loanable funds” to make investments. (Investments are good, because they lead to productivity growth, and productivity growth is what leads to rising living standards.) If the government runs big deficits – i.e. also wants to borrow a lot – then it is competing with the private sector for those loanable funds. This competition bids up the price of those funds – i.e. bids up interest rates. Higher interest rates lead to less private-sector investment – i.e. government borrowing “crowds out” investment. And that is bad (see above!)

30. But right now, private borrowing is WAY down

31. And private savings is way up!

32. And note: we’re not relying on foreign lending

33. IN SHORT, RIGHT NOW THERE IS PLENTY OF ROOM FOR THE GOVERNMENT TO BORROW WITHOUT CAUSING ANYTHING BAD TO HAPPEN!

34. SO DEFICIT SPENDING IS WHAT WE NEED IN THE SHORT RUN. BUT WHAT ABOUT THE LONG-RUN? WHAT’S THE ROOT CAUSE OF OUR LONG-RUN DEFICIT PROBLEMS?

35. In longer-run, we have a health-care problem, not a social security problem Spending on Social Security, % of GDP

36. Spending on Medicare and Medicaid, % of GDP

37. It’s all about runaway health care costs, NOT an aging population

38. For more information Heidi Shierholz hshierholz@epi.org 202.533.2560 Economic Policy Institute 1333 H Street, NW Suite 300, East Tower Washington, DC 20005-4707 202.775.8810 www.epi.org

40. EXTRA SLIDES

41. Public sector controls costs better

42. The time to worry about foreign lending has passed…

43. And the problem was about trade, not budget, deficits

44. And, trade deficits are driven by over-valued dollar, not fiscal profligracy

45. Generational inequity? Those determined to worry about generational distribution need to focus on trade, not budget deficits Budget deficit => higher taxes tomorrow, but these higher taxes just get recycled into higher interest payments for bondholders Trade deficit => excess of imports over exports financed by transferring ownership of domestic assets to foreign lenders – money spent today that really does get foregone tomorrow

46. TIME TO REASSESS III: INFLATION

47. Year over year change in CPI

48. Too much money chasing too few goods? Make more goods!

49. Why is deflation bigger worry? Increases real burden of a given debt $1,000 mortgage gets more and more burdensome if prices/salaries begin falling Increases real interest rates real interest rate = nominal rate - inflation

50. Effective federal funds rate

51. Large debt overhang to work off… Household loans as % of GDP

52. Inflation erodes debt overhangs

53. WHAT DO THE FACTS SAY ABOUT THE LINK BETWEEN INTEREST RATES AND DEFICITS?

54. New Treasury issues and long-term interest rates

55. Rise in deficit a very good thing…

56. Budget deficit rises by $1.4 trillion between 2007 and 2009 And that’s a very good thing! *Private spending shock greater than the Great Depression *Why no Depression? Because this time public sector muffles, not amplifies, the shock to spending

57. War on social insurance A fiscal cancer, massive entitlement programs we can no longer afford, exacerbated by a demographic glitch that began more than 60 years ago David Walker

58. Social Security: Still Needed… Share of income of aged households accounted for by Social Security

59. And more each year?

60. More social insurance in the short-run as partial remedy for jobs crisis?

61. Unemployment rates by age Source: Author’s analysis of BLS data. February 2010 December 2007

62. March of events…..Should be fatal to lots of economic nostrums Time to recognize that key planks of our our decades-long experiment in following a neoliberal macroeconomic strategy has yielded little but inequality and economic fragility.

63. Shares of GDP accounted for by consumption, investment, net exports, and government 2009

64. Corporate sector demand for borrowing

65. Why aren’t firms investing? Capacity utilization is WAY down

66. Economic benefit of various stimulus provisions Source: Mark Zandi, Moody’s Economy.com