On The Jobs Numbers
I was on RT TV America last Friday talking about the jobs report. The video from that discussion is below (it runs about 5 minutes).
Here’s the deal:
The US is in the midst of a technical recovery that has been on-going for about 17 months now. When I say technical recovery, I mean "the period just following recession until the previous level of output before recession is re-attained." Soon , we will be in the non-technical part of recovery with 2011 Real GDP is higher than 2007 Real GDP. Right now, the jobs picture is still weak. 150,000 jobs added isn’t a lot. But, if everything goes right, you’re going to see a lot more than 150,000 jobs added per month. Read my thoughts on the G-20 given the so-called currency war for the international implications of a multi-year recovery. I still think there are a lot of pitfalls here (housing, oil prices, protectionism, the euro zone) which could spell double dip, so I wouldn’t give the all clear as the ECRI has done. But things are not looking dire.
Now, a lot of economists of the Keynesian variety are telling us that the problems in the US are cyclical i.e. an aggregate demand (AD) problem. Certainly, this is true if you are using a flow model that disregards the effect of a particular industrial organization on debt accumulation. We could gin up some more AD and be back to the future.
However, flow models are cyclical in nature; they have no real understanding of the secular trends that devotees of Minsky or the Austrian School talk about. The secular problems in the US are mostly structural: overly large financial sector, excess consumption, low savings rate, hollowed out manufacturing sector, declining relative education scores, increasingly unequal income distribution, crumbling infrastructure. The policy mix now in place in the US is not geared to move the US away from this unsustainable mix. This inevitably means that when the next recession comes, with debt levels still high and interest rates still low, all of the structural problems will magically re-appear and the talking heads will say "whocouldanode." Then we will try the same policy mix: low rates, fiscal stimulus, buying up financial assets with printed money – only more aggressively.