The big picture: uh-oh

Credit: Calculated Risk blog

Last Friday, the September unemployment numbers were published, with unemployment remaining unchanged at 9.1%. The broader U6 measurement of unemployment was up 0.3% to 16.5%. With 100,000 new jobs created, the economy just barely kept up with population growth, but did not manage to soak up any of the unemployed.

Ezra Klein's analysis of the last 3 years of Obama Administration economic policy was published this last weekend. Klein's basic thesis is that the policy response from all parts of government have been insufficient in the face of Reinhart and Rogoff's many writings that financial crises are much worse than a typical recession and that they require a much more robust response.

In March 2009, Reinhart and Rogoff took to Newsweek to critique the “chirpy forecasts coming from policymakers around the globe.” The historical record, they said, showed that “the recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11 to 12 percent in 2011.” 

...“I don’t think it’s too much of an exaggeration to say that everything follows from missing the call on Reinhart-Rogoff, and I include myself in that category,” says Peter Orszag, who led the Office of Management and Budget before departing the administration to work at Citigroup. “I didn’t realize we were in a Reinhart-Rogoff situation until 2010.”

I'm reminded of when I first thought things were going to be bad. It was in the middle of 2008, driving south on I-5 between Los Angeles and San Diego and I was listening to "This American Life" and the famous "The Giant Pool of Money" episode. This is what they had to say at the end:

Alex Blumberg: That talk seems to have faded and there's more talk that the next few years will feel like the 1970s. There are lots of technical differences between this crisis and Jimmy Carter's malaise. But for the average person, it could feel the same. It's not an out-and-out depression. Everything's just kind of crappy. And not just in housing or banking but for the economy as a whole. It’s barely growing. There aren't a lot of new businesses, new jobs. Unemployment keeps creeping up. We're just sort of stuck, in neutral, for a while. 

Anyone under, say, 45 probably doesn't remember that 1970's malaise too well. Anyone under 30 has barely known a US economy that wasn't growing. Now there's a decent chance we'll all get to see what life felt like in the '70s. Which isn't great. It's pretty bad, actually. Unless you're comparing it to the 1930’s.

The 70's-redux theme hasn't really been disproven. Uh-oh. Best wishes to all of us.