The real problem in the unemployment figures
posted at 10:06 am on February 8, 2009 by Ed Morrissey
We read plenty about large layoffs by firms in financial trouble in the economic crisis, but CNN’s Chris Isidore says we mostly miss the real problem in labor in this crisis. Hiring has dropped to decade-long lows, and while that may sound redundant, Isidore says the subtle difference makes a difference in how we need to approach the problem:
But the real problem in the U.S. labor market today isn’t layoffs. It’s a hiring freeze that is gripping most work places – and has not gotten nearly as much attention as the job cuts.
“The hiring rate has caved. That’s why the job market is as bad as it is,” said Mark Zandi, chief economist with Moody’s Economy.com. “Given this low hiring rate, unemployment would still rise even if layoffs were falling.” …
During the last recession in 2001, there was not nearly as sharp a drop in hiring and job openings. In fact, the hiring and job opening rates, which compare new hires and openings to the overall number of workers, are both at their lowest level on record.
And economists say that even if the number of layoffs peaks soon, the pace of hiring and job openings may remain soft for months to come.
Why has this recession generated such bad job opening rates? Isidore quotes Robert Brusca of FAO Economics as saying that “fear is running the show right now,” and small wonder. Instead of trying to calm the nation, Barack Obama, Harry Reid, and Nancy Pelosi have transformed themselves into Chicken Littles, abandoning FDR’s “All we have to fear is fear itself” in favor of “We’re all going to DIE!” Why? Their stimulus package keeps losing support, and only fear can propel it to passage, but that same hysteria has employers locking their doors, which creates a self-fulfilling prophecy of economic doom.
The proper salve for a lack of job creation would be an infusion of capital into the markets. The failure of businesses normally creates openings for small start-ups to take their place, or for innovators to find new solutions to new problems and bring them to market. The Obama administration should encourage capital to come to market by lowering the risk cost through cuts in the capital-gains tax rates, or eliminating them entirely, for the next four years.
That will create jobs and expand opportunity, and would balance the layoffs of firms that had shaky business models even before the latest financial crisis. In fact, that’s why the 2000-1 recession managed to absorb the dot-com bubble collapse as well as the 9/11 attack collapse so well. The Bush administration lowered taxes and kept capital working to create jobs. Instead, the Obama administration wants to re-create the WPA, digging ditches just to refill them later, and paying for it by eventually seizing the capital that could have created real, long-term employment.
Obama could learn something from George Bush. I doubt he’ll stop screeching hysterically long enough to figure it out.