Inequality.org

connecting the dots on a growing divide

Why the Jobless Recovery?

Ever since the sharp recessions of the early Reagan years, each new expansion has yielded fewer and fewer jobs.  A recession is bad enough for most people.  A jobless recovery is even worse.

Recessions wreak terrible damage on millions of ordinary households.  For top 1% households, the damage may be real but it’s usually manageable.  Families cut expenses, draw down savings, and get through one way or another.

For the other 99% of households, recessions can be catastrophic.

In the realonomy where most Americans live and work, losing a job often means losing the family home, losing the family’s health insurance, and having to move to a new state to find work.

Most economists celebrate the “flexibility” of the American workforce.  By this they mean that Americans are willing to move thousands of miles away from friends and family to get a job.  But most people aren’t so much willing to move for work as forced to move for work.

In today’s recession, there’s not even work to move for.  The recovery — now in its third year — has produced essentially zero jobs.  For all practical purposes, it’s been a jobless recovery.

Why the jobless recovery?  Economists will give you all sorts of answers based on technical factors, but in the end it all comes down to one word: inequality.  Or, to be more specific, two words: rising inequality.

Once upon a time, from the middle 1930s through the middle 1970s, incomes in America were becoming more and more equal every year.  In the four decades from 1935 – 1975 executive pay barely kept pace with inflation.  By contrast, ordinary workers’ real incomes nearly tripled.

Once upon a time, from the middle 1930s through the middle 1970s, incomes in America were becoming more and more equal every year.

When the economy expanded, nearly all of the increases in output went into workers’ paychecks.  As a result, employment bounced back sharply after a recession.  The economy might have a hiccough now and then, but in the forty years after the Great Depression it never caught pneumonia.

Now things are very different.  The US economy has expanded by roughly 8% since the beginning of the recovery in mid-2009.  Imagine if all that money had gone into hiring new workers.  If it had, unemployment today would be around zero percent.

Instead, nearly all that money — economic growth of 8%, totaling over $1 trillion worth of output per year — has gone into corporate profits and the incomes of the top 1% of Americans.

Any economist can tell you that things aren’t really as simple as the story told here.  Labor market flexibility has its advantages; there have been structural changes in the economy since the 1970s; money doesn’t just put people to work.

Nonetheless, the big picture really is as simple as the story told here.  We have the power to choose what kind of economy we want.  We could have an economy with strong unions, generous unemployment benefits, and universal healthcare.  Or we could have an economy optimized to benefit a small number of very rich people.

Starting in the 1970s, Americans have increasingly chosen the latter.  We’ve virtually outlawed unions in most states, privatized the provision of social services, and deregulated Wall Street.  We’ve built prisons instead of schools.  We chose this economy.

We can say we’ve been tricked, but really … come on.  Who ever truly believed Ronald Reagan’s claim that we could stimulate economic growth by cut taxes on the rich?  If anyone did believe it then, we’ve now had thirty years of low taxes on the rich.  Where’s the growth?

No one can take such arguments seriously anymore, if the ever did.

Low taxes on high incomes are good for people with high incomes, period.  Cutting government services is good for people who don’t use government services, period.  Deregulating Wall Street is good for Wall Street, period.  Anyone who thinks otherwise is (to be blunt) stupid, lying, or both.

Today’s jobless recovery is just the latest and worst in a long line of jobless recoveries.  Given how damaging job loss is to the vast majority of people, a government of the people, by the people, or at least for the people would do everything in its power to keep people employed.

We don’t have to have these jobless recoveries.  But then, we don’t have to have such enormous and rising levels of economic inequality.  We have them because we’ve chosen them.  We know how to run a pro-people government.  We just don’t seem to want one.

  • Domsmom3

    I notice you didn’t criticize Obama’s trying to spend our way to economic prosperity.  Also, you need to check your grammar and punctuation before you post.

  • Neil Talbot

    Salvatore Babones is 100% on the right track in this article and in his article of March 5, 2012 “The Problem Isn’t Growth — the Problem is Inequality.” It all boils down to the circular flow of income. Ordinary working households, who make up most of the 99%, can only spend what they earn. Their meager savings may cushion them a bit in a time of recession, but not much. If the growth of corporate outflows goes not to them but almost entirely to the 1% in higher salaries, fees and profits, it will not be respent in the same way. Instead will find its way mostly into already-glutted financial markets, thus raising the risk of future financial bubbles and busts. Keep up the good work, Salvatore, along with other economic “dissidents” like Robert Reich. 
    Neil Talbot

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