Unemployment

The new unemployment figures came out the other day and the amazing Calculated Risk Blog published these two graphs.

The first graph shows that both the depth and the duration of the current recession is on track to be the worst since WW II. The curve still appears to be trending downward.

Employment by recession since WWII

Employment by Recession

 Click on the image for a larger version.

The second graph shows employment since WW II. Notice how severe our recent has been but how it is common for unemployment to increase even after a recession has ended. There is concern among economists that unemployment will continue at a high rate for several years or that we will have a double-dip recession. Only time will tell. I’m concerned because I believe government policy has been very counter-productive.

Employment since WW II

Employment Since WW II

Click on the image for a larger version.

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5 Responses to “Unemployment”

  1. Monica Shiwratan Says:

    http://projects.propublica.org/tables/stimulus-spending-progress

    Based on ProPublica, which has been keeping track of the spending of the stimulus package, only $580 billion of the $787 billion stimulus has been allocated to be spent. Of that $580 billion, $269 billion has not even been spent as of yet.

    With this in mind, I would like to say that it is just too early to simply say that government policy has been counter productive. After all, the entire stimulus has not gone into effect as of yet. Besides, if had been as counter productive as you believe, do you think there might be any reduced job losses with out it?

    Moreover, there is one thing that most people refuse to consider, but they must. That is the very fact that there are lags in fiscal policy– which is what this stimulus package is. If you have ever taken a marco-economics class, then you might have remembers some mention of “time lags.”

    When we talk about time lags in fiscal policy, we are referring to the amount of time that it takes for the policy to actually have the intended effect on the economy. What happens to be the estimated time lag for fiscal policy you might ask? Well it’s actually one to two years.In this case, we may be leaning more towards two years because the stimulus package is actually going into effect in pieces, and not at the same time.

  2. Monica Shiwratan Says:

    Though I disagree with your opinion (my statements are just my opinions as well), you have a great page!
    I’m adding you to my links, hope you can do the same for me as well.

  3. Roy Says:

    Monica,

    You say, “When we talk about time lags in fiscal policy, we are referring to the amount of time that it takes for the policy to actually have the intended effect on the economy.”

    Well, this makes sense, I understand a time constant for the economy to adapt to a new policy. Unfortunately, the time constant gives bad policy the benefit of the doubt long enough for it to develop a lobby. We are still waiting for the “intended effect” of the New Deal policies. It was WW2 that brought the labor hours worked back to their 1929 level. The New Deal paid farmers to destroy food while city dwellers went hungry and the railroads went broke in between. As a legacy of the New Deal, we have a complex web of subsidies, and regulation often adopted to mitigate the unintended consequences of the previous policy while we wait for the time lag to reveal the intended effect on the economy.

  4. Monica Shiwratan Says:

    While it seems that WWII is the reason for the economy stabilizing after the depression, it certainly is not the only reason. It is true that government spending during WWII time seems to increase productivity more than the New Deal Programs alone. However, that does not mean that WWII is to thank for the recovery back then.

    From my understanding of macro-economics, increased government spending is suppose to increase the demand for goods and services, and eventually increase interest rates. This is then suppose to raise the level of savings (also loanable funds– keep in mind loanable funds is national savings), there would then be more credit available to further increase spending by consumers and businesses. So I guess you can say that government spending should therfore provide liquidity to the markets.

    Nonetheless, This only happens if all other aspects of the markets remain the same. This includes consumption levels. Due to rationing during WWII, consumption levels stayed stable, even though GDP was increasing. Based on this it is clear that price levels went up, so we can then say inflation is what brought back productivity. This inflation might not have been possible in my opinion if it wasn’t for the New Deal. Besides, isn’t that what the farmers wanted? Isn’t that what was needed considering that agriculture was becoming less and less profitable?

    In total though, I don’t think we can compare the stimulus package to the New Deal even though it takes some ideas from it, like infrastructure programs. The way I see it, we don’t need to ration anything today to try and make sure that we increase price levels, which in turn increase wages, then increase production, and finally creates jobs. Our main tool today for controling prices is the Federal Reserve Bank. They provide liquidity to the markets now. They opened the discount window to save the insolvent banks, and they control the interest rates by setting weekly targets. In that case there is no need for creating imaginary demand. Raise interest rates and people will save more, businesses will spend less. Lower interest rates, people will save less and businesses will spend more….

  5. Monica Shiwratan Says:

    True, we have low interest rates now and nothing seems to be happening, and that is just the effect of confidence levels… something that is beyond anyones control since the consumer will spend when they feel most comfortable. And with something like behavioral science and the very idea that markets will fluctuate, it won’t be long before people start spending again because the belief is that when in a recession, eventually there will be an time of expansion again. Though it’s driven by the self-fulfilling prophecy, it works!

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