A Jobless Recovery

The Economy is Beginning to Recover

Just as the first tiny green buds appearing on bushes herald the end of winter and the promise of spring, the increasing sprouts of good economic news herald the the end of the current recession and hold the promise of good times ahead.

Stock markets in many nations, which are usually good indicators of future economic trends, have been rising steadily and have recovered much of the ground most of them lost in last Fall's crash. More and more companies are reporting rising revenues resulting in increasing profits or, at least, decreasing losses.

Output is increasing and orders for raw materials are rising around the world. Even the banks, which looked to be on the verge of total collapse a year ago, are recovering with many of them repaying, with interest, the emergency funds their governments pumped into them.

John Maynard Keynes

British Economist John Maynard Keynes (Cropped image from 1946 International Monetary Fund Photo courtesy of WikiPedia.org  http://en.wikipedia.org/wiki/File:John_Maynard_Keynes.jpg)
British Economist John Maynard Keynes (Cropped image from 1946 International Monetary Fund Photo courtesy of WikiPedia.org http://en.wikipedia.org/wiki/File:John_Maynard_Keynes.jpg) | Source

Unemployment Remains High Despite Economic Recovery

This has some economists and policy makers concerned and the phrase jobless recovery is being used with increasing frequency. The term jobless recovery refers to the situation where the economy stabilizes at an equilibrium point that is below full employment.

Basically, when we say that the economy is in equilibrium it means that total output of the economy is equal to total demand and there is no pressure to increase or decrease the current rate of output. While companies are profitable and existing jobs are basically secure, the lack of pressure to increase output results in no incentive to employ more resources, including labor, in the production of those resources.

In the years immediately following World War II, the U.S. and many West European governments' Keynesian style economic policies resulted in relatively static economies with little economic growth. The increase in U.S. economic activity following the end of World War II was basically a shift from war production to consumer production and the re-employment in areas like housing and automobiles that brought most existing resources back to full employment.

From that point on the U.S. economy fluctuated between recession and inflation as government monetary policy (control over the money supply and influence on interest rate movements) was used to speed up economic activity during recessions and slowing it down during booms (when the economy began to reach full capacity and inflation loomed).

The result was layoffs when the U.S. government moved to slow down demand when inflation threatened by decreasing the money supply and increasing interest rates. Once inflation no longer loomed as a threat the planners in Washington would increase the money supply and push interest rates down which caused the economy to begin expanding again and workers being called back to their jobs.

This static equation worked until the 1970s when the post World War II baby boom generation came of age and entered the labor force. The economy was not large enough to accommodate such a large increase in new workers even if all of the previous generation had retired. The previous generation, whose numbers were relatively small due to low birthrates in the 1930s and losses of life during World War II, was not old enough to retire at that time and their remaining in the labor force further reduced the demand for additional labor.

Stimulus from Steiger Capital Gains Tax Cut

It was at this point that change began to occur in the U.S. as the Republican Party began pushing for policies aimed at stimulating economic growth rather than simply managing demand.

The first of these changes occurred in 1978 when Wisconsin Congressman William Steiger added an amendment to an appropriations bill that called for reducing the capital gains tax from 49% to 28%.

A capital gain is the difference between the price paid for a capital asset (for tax purposes capital assets include things like buildings, equipment, stock and other financial securities, etc.) and the higher price received for that asset when sold.

Because of past inflation, the price of most capital assets people held had increased but the decline in purchasing power of the dollar due to accumulated inflation meant that even though the price received for the sale of a capital asset had increased the dollars received for that asset would purchase about the same amount of goods as the original investment. However, after the government took 49% of this, mostly inflationary, gain, the investor was left with money that would purchase fewer assets than before.

The reduction in the capital gains tax gave holders of wealth an incentive to sell older, low return assets and invest in new businesses, new and more efficient plant and equipment, etc. The result was an increase in productive capacity which resulted in both an increase in output and and increase in the number of workers needed. This is known as economic growth.

U.S. President Ronald Reagan
U.S. President Ronald Reagan | Source
U K Prime Minister Margaret Thatcher
U K Prime Minister Margaret Thatcher | Source

President Reagan and Prime Minister Thatcher Ushered in an Era of Prosperity

The election of Ronald Reagan in 1980 ushered in a new era of pro-growth economic policies in the U.S. This increased economic growth not only benefited the United States but the example of the success of the growth policies of President Reagan in the U.S. and more especially the success of Prime Minister Thatcher's growth policies in Great Britain encouraged other nations around the world to institute similar policies and this resulted in a major advance in world economic growth.

The growth policies of the Reagan and Thatcher governments were not without problems. Economic growth requires change and change usually results in greater economic opportunity for individuals while, at the same time, providing less economic security. New companies and new industries compete with existing companies and industries for both customers and workers with the result that some companies and industries fail leaving their employees jobless.

The introduction of the Personal Computer, is an example of this process as it created numerous jobs and new products both in the manufacturing of PCs and related equipment as well as production of software.

However, this also competed directly with the typewriter industry which caused sales to drop for companies producing typewriters and the PC manufacturers also competed with typewriter manufacturers for workers forcing the ailing typewriter industry to choose between raising wages amidst falling sales in order to keep enough workers to maintain production or close their domestic plant and move the operation abroad where labor was more plentiful and wages lower.

Joseph Schumpeter & Idea of Creative Destruction

The economist Joseph Schumpeter (1883 - 1950) called this process of change, in which the side effect of the creation of new industries and economic growth resulted in the disappearance or destruction of existing industries, creative destruction While the long term result of change is beneficial to everyone, there is pain in the short run workers and owners of dying industries struggle to deal with the change.

Creative destruction is evident in the current recession as older and less efficient companies and industries die or move abroad; as newer and more efficient employers and industries become leaner and more efficient and in the process find ways to produce more with fewer workers. There are also industries, such as housing, where there is a surplus of supply which means that, in the short run at least, there will be lower demand for new construction which translates into fewer workers needed in that industry.

Job destruction is all around. Newspapers are closing and journalists and other workers being laid off as consumers turn to the Internet and other electronic media for information services. Most of those laid off will not get their old jobs back after the recession ends since much of the industry no longer exists. The same is happening with many other employers and industries.

Government Action can Thwart or Bring About a Jobless Recovery

The question is how long will it take before the economy creates new jobs to replace the lost jobs? Here is where government comes in as government policies have a tremendous influence on economic growth and job creation.

Tax cuts and reduced government spending will put more money in the hands of individuals and much of this will find its way into investments in new businesses which will lead to and increase in demand for more workers. This type of economic growth will result in the economy expanding and reaching a new equilibrium at at higher level which both produces more and employs more people.

Raising taxes and increasing government spending will have the opposite effect as a result of both reducing the amount of money people have to invest (as it is taxed away by the government) as well as reducing the amount of physical resources available to entrepreneurs as the government will be competing and buying these same resources for its own use.

If the government of a nation chooses the path to economic growth, we will see the unemployment numbers in that nation begin to drop quickly as new businesses begin seeking employees. Of course, due to structural changes in the economy, people laid off from industries that have died and will not return will have to learn new skills to be able to function in the new, growing economy.

Economic Growth Should be the Goal of Government Policies

For now we can only wait and see how governments choose to act. If the government attempts to manage the economy by intervening in the economy with massive new regulations and programs paid for with high taxes, we will risk a repeat of the Great Depression of 1932 when the Roosevelt Administration came to power in the U.S. and immediately began raising taxes and smothering the economy with programs and regulations just as the economy was beginning to recover on its own from the famous 1929 crash.

Similar policies by governments in other nations caused their economies to suffer the same fate.

On the other hand, if the government takes a hands-off approach and cuts taxes and spending we could see a repeat of the global economic boom that was initiated by the Reagan and Thatcher economic policies in the U.S., Great Britain and other nations whose governments adopted similar more liberal economic policies.

Click Here for A Jobless Recovery - Part II

More by this Author


Comments 39 comments

earnestshub profile image

earnestshub 7 years ago from Melbourne Australia

Great hub. An easy read, even for an Ozzie!

Thank you for this, I will now go read No 2!


gmrwebteam 7 years ago

This is the condition where payday loan lender comes into existence.


mega1 profile image

mega1 7 years ago

So, what do you think? Should we all go buy a lot more "consumer goods" like they're sayin? Like, we got already plenty of appliances, but should we get a 4th car? Just to boost the economy, I mean? And when are they gonna give us capital gainers a breaK? Of course, if you're listenin to some of these guys on the tv, they make it seem like capital gains aren't havin' any impact on anything! I say the rich will show us the way! The better they do, the better, eventually (if we can manage to live long enough) ALL of us will do. I'm researchin what effect the new fangled medications are havin' on the economy, but so far nobody wants to talk much about THAT, so its real hard to do a survey when everybody's like, tranked!


melbrown1 profile image

melbrown1 7 years ago

This was a very informative Hub. I am of the school that thinks that the economic climate dictates what type of action government should take. In the 70's government spending was high, yet business activity and production as well as employment was stagnant. Though I'm not conservative, it took deregulation and tax cuts to get the economy going again. The problem though was that during the 80's and part of the 90s there was no policing of financial manipulation by corporations or consumer protections. We've all seen the result of this. Now it is time for government to do exactly what its doing..pumping money into various institutions. The trick is to know when it time to stop pumping money


earnestshub profile image

earnestshub 7 years ago from Melbourne Australia

Clearly written hubs like this on economics are too are rare.

I enjoyed this direct easy read.


Vinda 7 years ago

love it ..indeed


Chuck profile image

Chuck 7 years ago from Tucson, Arizona Author

sannyasinman - thanks for your proof reading assistance and suggestions.

I have also done some re-wording to make it more inclusive. While I am most familiar with the situation in the U.S. where I live, much of what I am describing is occurring to a greater or lesser extent in the industrial nations of Europe and Asia as well as the U.S. as evidenced by what is being reported in London's Financial Times as well as the Wall Street Journal in the U.S. and various global economic reports on the Internet.

Chuck


sannyasinman profile image

sannyasinman 7 years ago

You might want to fix a typo in the opening paragraph (herald the the end), and I had read 500 words before you gave the reader a clue as to which country you are refering to (not all of your readers are American). You mention "the stock market", "the economy", "the government" . . . but whose?


hans56 profile image

hans56 7 years ago from Amsterdam/Chicago

Fine hub for sure. I'm a bit cautious in predicting employment growth or decline. We just don't know. While still in college we had a few high ranking labor specialists giving guest lectures. Their stance was that a situation of full employment, let alone a labor shortage had become impossible. That was back in 1983 and the reason was the idea that the computer would take over most mundane labor tasks. Yet three years later I was confronted with a terrible labor shortage. As corporate recruiter of a good investment bank we just couldn't attract enough potential from the market. In two years the situation had changed 180 degrees because of unforeseeable events.


khmohsin profile image

khmohsin 7 years ago from London,UK

Good shairing there is need of explore more things like that.


Freeastrology 7 years ago

I think economies worldwide have recovered enough to safely say that recession is over


Chuck profile image

Chuck 7 years ago from Tucson, Arizona Author

ducklamb - from an American jobs point of view, a fall in the value of the U.S. dollar relative to currencies of other nations, could have the effect of increasing jobs for Americans as American goods would cost less abroad which would encourage other nations to import more from us thereby increasing the need for workers in American industries that are exporting their wares.

The main reason the government of China is so willing to buy American debt is to keep the value of the dollar from falling. American is China's largest trading partner (in 2004 Wal-Mart alone was China's fifth largest trading partner http://nugent-economics.blogspot.com/2004/12/wal-m... and Wal-Mart is included in the U.S. import figures) and on the product side of trade, we import many times more goods from China than we export to them. This means that there is a huge flow of U.S. dollars into China to pay for these goods. Since America doesn't export that much to China this means that we receive relatively few Chinese Yaun in payment for our goods sold.

Periodically nations have to settle up when the central banks exchange the foreign currencies their citizens have received from sales abroad for their own currencies that the foreign nations have received from the sale of goods to us. In the case of China and the U.S. the U.S. comes up short and is unable to buy back its currency. Normally this would cause the value of the dollar to fall which would mean that it would cost more dollars to purchase a yaun which would mean that items produced in China would cost more for Americans who want to purchase them. Of course, when the price of goods rise people buy fewer of them.

To prevent this and keep Chinese workers employed making goods to sell to Americans, the Chinese government and banks have chosen to buy the one thing that we have to sell and that is our bonds. By buying our bonds the Chinese are providing us with the additional yaun needed to make up the difference between the dollars they got from us buying from them and the yaun we got from selling far fewer goods to them.


Chuck profile image

Chuck 7 years ago from Tucson, Arizona Author

shiaolin - thank you for visiting my web page and for your comment.

Short of traveling to Europe and looking for a job in person, your best bet is probably registering on European job sites that have job postings for employers in Europe.

I just did a quick Google search using the words "best European job sites" in the search bar. Here are a few of the results, which I have not checked out and know nothing about other than that they list jobs in Europe, and which I am providing as a starting point for your search.

http://www.eurojobs.com/

http://www.quintcareers.com/Europe_jobs.html This site basically lists job search resources online for Europe

http://searchjobsin.com/top-10-job-websites-in-eur... This site reviews and has links to European job sites on line.


ducklamb 7 years ago

the artical didnt mention the falling value of the dollar,increasing value of other currencies around the globe.commodities as gold,silver and oil rising,while the dollar falls.that cant be good considering nearly everything we buy is manufactured in another country.prices on those goods will rise also,as the dollar falls.ie gas and oil.i hate to say "what if".what if a frog could fly,he wouldnt bump his ass.what if the international market decides to use another currentcy to price commodities.countries holding the dollars are losing.how long can that go on?now they see huge bonuses on wallst.we are printing money like madmen.america is like a drunk that wants to drive a car,all the other countries dont take the keys away because they want to see a crash.jobless recovery,im also unemployed,the unemployed wont recover.


InvestmentSchool profile image

InvestmentSchool 7 years ago from Connecticut,Florida

unemployment will continue to rise as successful businesses are taxed and faced with more expenses, i agree with Don


shiaolin profile image

shiaolin 7 years ago

talking about jobless/unemplyed....any idea or suggestion of how to get a job in part of the europe...simple job like a nanny/caretaker/gardener/housekeeper...i been applying in the internet but mostly i incountered are scammer....tnx


Deborah-Lynn profile image

Deborah-Lynn 7 years ago from Los Angeles, California

Here I am in California, I have a headache now which is serious cuz I never get headaches, but thank you for the explaination of how our government is trying to console us superficially because they are unable or unwilling to lazer the problem at its' root.


Don Simkovich profile image

Don Simkovich 7 years ago from Pasadena, CA

I interviewed a democratic state senator in California who said the state has too many regulations and taxes need cutting. There are some politicians in Calif who are sounding fiscally conservative.


pgrundy 7 years ago

I don't know that I agree with you that Ronald Reagan and Margaret Thatcher ushered in an era of prosperity. One might ask, "For whom?" For some people working in the financial industry it was certainly the beginning of quite the gravy train. For people working on the line in manufacturing, not so much. Ditto retail. Ditto wage slaves in call centers.

You are always fairly (fairly!) safe writing about economic history though, because most people fall asleep or get lost before the end of the article so few will disagree. Most will not understand what you said and won't want to look stupid. I think Reagan did this country no favors, but I understand why he's the patron saint of financial analysts and stockbrokers. Well done, well written, thanks for sharing your views.


Linda Myshrall 7 years ago

We are now preparing to trade one false economy for another.

And our economy is feeding on itself at this point. Sure, you can inject (borrowed) money into a failing economy, thereby tweaking economic indicators to make it *appear* like everything's moving in the right direction.

But... I definitely have my doubts about this. If my household economy were in the same situation (ie: borrowing money at an alarming rate and spending it at an even more alarming rate with nothing coming in) I would be terrified. I *am* terrified.

At some point we're going to have to pay the piper... and just where are we going to get the money from? Healthcare? please.


sukhera143 profile image

sukhera143 7 years ago from Home

Great hub.


steffsings profile image

steffsings 7 years ago from Pacific NorthWest

I believe your summation "For now we can only wait and see how governments choose to act" was quite appropriate, in the midst of all that's happening globally, a simple tax break may not be enough to change our circumstances. Thank your for this informative hub, and what an eye-opener (I almost want to shut them again) my state has one of the lowest unemployed rates, but that doesn't say much for we outrank others in hunger (3rd) & homelessness (6th) - I thank God constantly for my job & pray for the others.


MikeNV profile image

MikeNV 7 years ago from Henderson, NV

There has been no recovery. Nothing has been fixed. The only thing that has happened is there has been additional borrowing and a paperwork shuffle. The "economy" as measured by the media is nothing more than following the paper transactions of the wealthy.

The fact of the matter is the Federal Reserve and CENTRAL BANK based on the Fractional Reserve Banking System have created a debt burden that is no longer sustainable.

Until the Central Bank issues are addressed nothing is going to get better. And perpetual debt model works to enslave the masses to the wealthy elite... who do not work, they are the benefactors of those who do.

There is only $3 of hard currency per $100 of money created. We live in an electronic currency market created by continually borrowing from the working class. This has finally caught up and needs to be fixed.


Cagsil profile image

Cagsil 7 years ago from USA or America

Great job on the hub. It touches on many issues happening in America, but I do believe the perspective of most don't allow them to truly understand. They are still missing an integral part, which allows them better control.


Unemployed Guy 7 years ago

YAY!!! The recession is over! Flags are waving and horns are blowing! Even so, I'm still unemployed and I don't see anything getting any better for us poor people.


The Rope profile image

The Rope 7 years ago from SE US

great economic lesson in 2009. thanks for another educational footnote in today's crazy world.


advoco profile image

advoco 7 years ago from cadiz

Very well-informed and argued piece. The western world is crying out for the "medicine" you prescribe (and Thatcher/Reagan would have) - less government regulation, lower public spending, more incentive to work and invest.


bobmnu profile image

bobmnu 7 years ago from Cumberland

Good article. Many of the problems could be eliminated if the government would stay out of the way. The old saying that you tax that which you want to eliminate seems to indicate that this administration wants to eliminate economic growth.


doodlebugs profile image

doodlebugs 7 years ago from Southwest

I feel that we are coming out of the recession, only I fear that we may have not learned our lessons. Unless the savings rate increases and credit card spending decreases, we are doomed to repeat the whole thing over again. Only this time we will have no wiggle room to borrow our way out of the mess since our nation is so far in debt.


Office Fit Out 7 years ago

Fantastic article, thanks.


joebhoy profile image

joebhoy 7 years ago from Manila

thanks for sharing.


Chuck profile image

Chuck 7 years ago from Tucson, Arizona Author

Aya Katz - Good questions.

As to growth, I agree with you that laissez fair is best and that government should have minimal impact on the economy. In fact the two biggest problems with government having an economic policy are the unintended consequences that always occur and the fact that politicians and policy makers, being people like the rest of us, tend to craft economic policies to help either their friends and supporters or pacify those groups complaining the loudest. Policies aimed at helping either of these groups either do nothing for everyone else or harm others in society.

As to deflation, it is severe deflation that is bad. A little deflation is actually good for most (and mild deflation has been the trend in the U.S. for the past decade or so) as falling prices are the same as increases in income as far as consumers are concerned. Admittedly, even mild deflation makes life somewhat difficult for producers of certain products in which there is a time lag between the start of production and the sale of the final product. During this time period falling prices mean that what they can sell the final product for may be less than the cost of production. However, most producers have become very good at not only keeping costs in line but also improving processes with tools like lean manufacturing, Six Sigma, etc. which result in ongoing increases in efficiency and corresponding decreases in costs along with improvements in quality (the computer industry has been doing this since at least the 1970s. And in the 1970s they not only had to deal with mild deflation but major inflation at the same time as the U.S. economy as a whole was encountering inflation of 20% or more while prices of mini and micro computer products fell steadily.

As to depressions, they are corrections to excesses in the economy and these adjustments are necessary. However, they are painful for those affected and those affected include more than those who were responsible for the excesses.

Thanks again.

Chuck


Aya Katz profile image

Aya Katz 7 years ago from The Ozarks

Chuck, why should economic growth be the goal of the government? In fact, why should it have any economic goal at all? In laissez fair, don't we just let whatever happens happen?

I'm kind of hoping for deflation, myself. Any chance of that happening? If we had deflation, could we still have growth? Or does deflation always bring about a depression? And are depressions always bad?


ocbill profile image

ocbill 7 years ago from hopefully somewhere peaceful and nice

yes sir. it is perplexing to see the market go up with unemployment at 10%, real unemployment is at 17%. So, the doomsayers say we have another leg donw in the stock market. I would personally like to see the savings rates around 3%+ whay re mortgage rates still in the 5's or 6's yet savings is 1%..makes no sense why it is waaaaayyy off.


Laurel Oakes profile image

Laurel Oakes 7 years ago

Great article read it once but will read it again!


lyricsingray 7 years ago

Fantastic write. Thanks, Kimberly


kartika damon profile image

kartika damon 7 years ago from Fairfield, Iowa

This is a lesson in economics and I will bookmark it to read later. I have been wondering why all the talk of recovery goes on despite the high rate of unemployment - it's actually very scary!


Isabellas profile image

Isabellas 7 years ago from Ohio

Very well done. I was just born during the Reagan era so I did not realize that it happened then as well.


artrush73 profile image

artrush73 7 years ago

Great Article :) thanks for sharing, very interesting read :)

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working