Reich: Unsatisfactory Jobs Market Could Continue for Another 10 Years!

High unemployment could restrain U.S. economic growth in the years to come says Robert Reich, who serves as an advisor on U.S. President Barack Obama’s Economic Advisory Board. www.financialpost.com; By: Alia McMullen; Words: 579

In an edited version of McMullen’s interview with him Reich went on to say that, “Technically, the recession may have ended, but the jobs and earnings recession will drag on probably for another year and it’s doubtful that we’ll see anything less than double-digit unemployment through most of 2010.

The stimulus is inadequate. It was enacted at a time when the administration and Congress did not expect nearly the erosion in jobs that has occurred. In addition, state governments, which are not allowed to run deficits in 49 out of 50 state constitutions, have been cutting services and reducing payrolls at an alarming rate, thereby offsetting the federal stimulus. This year and next, the states will account for about a US$250-billion anti-stimulus. They’ll be cutting jobs, slashing programs and some even raising taxes.

The federal stimulus needs to be larger. However, I doubt that Congress is in any mood to increase the federal budget deficit. So, I expect we’ll be seeing a host of small program proposals such as a “new jobs tax credit” awarded to firms that create a net new number of jobs. I suspect there will be greater attention given to loans to small businesses, enabling small businesses to get credit more easily.

Small businesses are the major generator of jobs in the United States and unfortunately the credit squeeze has hit them particularly hard. The administration may try to extend the stimulus through various legislative means without having to go back to Congress and declare they are actually seeking a second stimulus.

Because the level of unemployment and the number of people without jobs is rising right now and will probably stay quite high for another year, now is not the time to begin an exit strategy, as it’s called, of reducing deficits and pulling in the money supply. I would expect that late 2010 or perhaps 2011 might be the right time.

My biggest fear for the economy is continued high joblessness, which creates a vicious cycle. People don’t have enough money to buy because they feel that their jobs are precarious and they must save, or they quite literally don’t have enough money. That leads to more layoffs because businesses can’t continue to pay people if there are no customers. Those additional layoffs, of course, lead to greater fears and less capacity to buy. We end up in a double-dip, a return to deep recession.

We’ve lost a net of seven million jobs, but that doesn’t include all the people that have come into the workforce who would like to have a full-time job. That number is close to 2.5 million. Nor does it include all the people who are working part-time who want and need a full-time job. That number is estimated to be 1.5 million.

So, you put it all together and we’re talking about 10 or 11 million new jobs that would have to be created in order to get back to where we were. That’s no small challenge for an economy, even one as large as the United States. If 2010 shapes up to be as bad as I fear, we could be looking at 10 years of an unsatisfactory jobs market.”

Editor’s Note: The above article is an abridged and enhanced (where appropriate) version of the original. The author’s views and conclusions are unaltered. Lorimer Wilson (editor@MunKnee.com)

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