Unemployment Doesn't Always Peak at the End of Recessions

HT: James Pethokoukis

The unemployment rate peaked long after the end of the prior two recessions (1990-91 and 2001). The Obama administration may be starting to worry that the current recession could play out the same way. And they should worry, particularly if they consider what the past three recessions all had in common: ineffective fiscal policies.

Bush Sr. famously raised taxes in 1990, and the breaking of his no-new-taxes pledge coupled with a relative weak recovery helped elect Clinton in late 1992. Bush Jr. championed an ineffective stimulus policy in 2001 (mainly tax rebates), and the economy suffered through a "jobless recovery" until he passed a genuine tax-cutting stimulus bill in mid-2003, after which the economy almost immediately boomed. And now Obama has overseen a raft of tax rebates and income redistributionist policies, and his spending plans all but guarantee higher taxes.

I've argued that the current recession is most likely over, but I don't see a strong recovery, nor do many people. Unless we get a rather strong recovery, the unemployment rate is unlikely to peak anytime soon, and I've said before that it could be a year or so before we see any significant improvement in the job market.

The best way to solve this looming disaster for Obama's approval rating is to recall the current stimulus bill and replace it with a genuine stimulus bill, one that relies mainly on cuts in tax rates for workers, investors, and businesses.

Comments

[conceptwizard:]

No strong recovery without the consumer buying and housing stabilized. The dollar issues are another matter....

Jul 10 07:36 AM

[Pat C:]

Good grief, get some therapy. We need some open minded creative thought.

Jul 10 12:24 PM

[Go Lakers:]

Unemployment next-to-never peaks at the end of a recession, this is hardly news-worthy. I'm with Pat C on this one - you have re-hashed a long known fact and wrapped it around your Republican-biased small-Government-tax-cut mantra. Don't misunderstand me - I'm not a Democrat or an anti-Republican - but you're trying to make a case for small Government and tax cuts through a weak link to a long known economic fact.

The people who read this aren't stupid - you'll have to do better than that to be compelling.

Jul 10 12:35 PM

[W.E. Heasley:]

Good points. And yes, Recall the Stimulus Plan. Why? Design.

The unemployment chart published above is a mirror image of traditional business cycles and traditional/historical recovery stimulus plans. Throw in Nixon's price controls, Carter's Credit Interest Rate controls (more price controls) and Oil Shocks and you complete the picture.

This time around the back drop is different. Simultaneously deploying Keynesian Deficit Government Spending and QE, in an environment of high government debt, creates uncharted waters with unknown unintended consequences (not the regular business cycle). Please do remember that Keynesian Deficit Government Spending and QE are both theories developed in low or zero existing Government Debt.

The current component of Keynesian Deficit Government Spending is not traditional or historical in design. Traditional Infrastructure Spending has been replaced, this time around, with Social Engineering with minor emphasis on Infrastructure. The design is full of an extreme number of Political Earmarks. The “timing” of the stimulus is based on Politics (2010 elections) not Economics (Jobs).

In other words, the Stimulus Plan is not Political-Economy, its Political-Political.

Substituting Political-Economy with Political-Political is dangerous at best and an Economic Train Wreck at worst.

Jul 10 10:41 PM