Roubini on Unemployment: 'The Worst Is Yet to Come'

Nouriel Roubini, writing in the New York Daily News, said on Sunday that “unemployed Americans should hunker down for more job losses” given the likelihood of a jobless recovery. This was as gloomy a piece as I have seen from Roubini in the past few months. He has clearly become more downbeat about the long-term picture for the U.S. economy.

The article begins:

Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%…

…we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

This sounds dire. As a result, Roubini goes on to call on the Obama Administration to take direct action on jobs. Extending unemployment benefits is not going to cut it. Roubini says we need:

a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.

With statistics showing that the rate of long-term joblessness is at the highest since the Great Depression, Roubini joins an increasing number of economists who are calling on the Obama Administration to take the employment situation more seriously.

Paul Krugman has said that we are now in a liquidity trap. Therefore, we need to subsidize jobs and promote work sharing as Germany is doing.

I have made similar arguments about quantitative easing for the past year. Monetary policy is effectively useless – and is merely creating bubbles.

The Obama Administration is moving into deficit hawk mode at the wrong time as this will only worsen the jobs situation and lead to a double dip recession. Instead, I have called for a payroll tax cut or a job subsidy.

Randall Wray, a professor at the University of Missouri-Kansas City, has also offered a unique job solution.

All of this is urgent, as Roubini indicates:

Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.

The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession…

The damage will be extensive and severe unless bold policy action is undertaken now.

The Obama Administration is taking an ‘indirect’ approach. They do so for three reasons. First, they are afraid of being boxed in politically by taking more direct measures. They also see a need to defend their previous policy decisions. But, Mark Thoma thinks part of the resistance to more direct measures is ideological. In a post earlier today, he says:

Growth policy is an attempt to make the economy grow faster, and stabilization policy attempts to keep the economy as close as possible to that trend, i.e. to avoid business cycles.

When Republicans had the political microphone, they emphasized growth policy (because it allowed them to argue for what they really wanted, lower taxes, growth policy was simply the vehicle that allowed them to get there), and this was supported by academic work from people such as Robert Lucas who claimed that, from a welfare perspective, stabilization was of second order concern, growth policy was where policymakers should focus their effort if they wanted to enhance welfare. Summers’ remarks reflect this type of thinking.

The Obama Administration’s approach of focusing on deficit reduction without enough direct job measures is sure to keep unemployment elevated. In looking at the politics of economics I said recently:

I see jobs as the first area for Obama to attack. The question is whether he does this directly via some modified private-sector controlled W.P.A.-type program or indirectly via something like a payroll tax cut. After jobs comes foreclosure. Personal income and taxes are the least important area going forward (especially as any tax cuts will either increase deficit spending or have to be made up by tax increases elsewhere).

The Obama Administration is doing the opposite. They seem to have received the ‘deficit reduction comes first takeaway’ from recent state elections in Virginia, New Jersey, and New York instead of the ‘jobs come first takeaway.’ That is bad news for Democrats and it is also bad news for the hopes of a sustained recovery.

Source

The worst is yet to come: Unemployed Americans should hunker down for more job losses – Nouriel Roubini, NY Daily News
Job Losses Mount, Enduring and Deep – Floyd Norris, NY Times

Comments

[Spin:]

'Roubini says we need:

a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.'

Roubini sounds like a front man for the administration. More spending and taxing to push the problem out in to the future, but no real solution.

Nov 16 02:23 PM

[GotLife:]

GM reports a 1 Billion loss in Q3 after billions of tax infusion. Plans to fund Opel rescue with government and Canadian funding. WHAT? Billions in debt holders wiped out and they STILL can't make a profit? Is the US paying for an Opel rescue? Hope it is all coming from Europe. Are the unions and executives sharing in the pain? Payrolls across the board should be cut immediately until a profit is reported and the taxpayer is made whole! Bigger loss in Q4, more payroll cuts...

Nice job on Q3 Washington. You stink at the car business. Add that one to the USPS, Amtrack, and financials.

Nov 16 02:32 PM

[artkarl:]

As the economy worsens, it will be easier to pass healthcare legislation.
-Karl Krachenberg

Nov 16 03:16 PM

[Alan Young:]

Very good article; I have to agree with the author.

Many comments protest against using government spending to solve the problem, based on some philosophical argument that pure capitalism is somehow better.
This is crazy talk, and I do mean truly delusional. It was unfettered capitalism that got us into this mess—yes, enabled by gov't policies to be sure, but not directly caused by government. We're going to have to face the fact that the countries that have bounced back from the crash more strongly that we have, have done so with lots of government support—China being the extreme and unambiguously successful example. There are plenty of people who would rather be politically correct (i.e. Libertarian or conservative Republican) than pragmatic, but that's a very expensive choice for most of us.

This is not spending just for the sake of spending. Our infrastructure is a mess. Boston is losing more drinking water from its leaky plumbing system than it is consuming. The SF-Oakland Bay Bridge is literally falling apart. New Orleans is no better off than it was the day Katrina hit it. Our interstate power grid is no better off than it was a few years ago when everything from Ohio to New York got blacked out. There is PLENTY of constructive work that could be done with government funding, but local governments have nothing to spend. Get money in the hands of people who need it to spend—not to banks to cover their shiddy ass't sheets—and get them off unemployment, while establishing a stronger infrastructure foundation to support badly-needed re-industrialization.

If the people who insist on Pure Capitalism keep driving our economy the way it's been going, public unrest may replace our leadership with proponents of Pure Socialism. I don't think anyone would enjoy that trip. It's time to get pragmatic.

Nov 16 04:00 PM

[robert.b.fe...:]

Alan Young: Greetings. I think that the current administration does advocate for pure socialism. They may even be carrying out these ridiculous and ineffectual policies to get that result. Complete destruction of the current economic structure is requisite to replacing it with the desired one. I can't believe that the smartest people in the room all came from Goldman Sachs (GS) and yet they are so stupid that they can't reach a conclusion on a predictable out come. Rahm Emanual categorically stated that no crises should go to waste and the administration has been creating or deepening one after another ever since. As for unrest in the street that may be exactly what they need. That or a really big terrorist attack that would allow them to declare Marshall law and suspend the constitution in order to preserve their power in perpetuity. Call me a conspiracy theory nut if you wish but that explanation makes more sense than any of the actions yet taken by this administration and congress "For our own good.".

Nov 16 05:55 PM

[Down Time:]

I installed fencing on my house when it was purchased. No unskilled or semiskilled labor was hired.


On Nov 16 06:16 AM Roger Knights wrote:

> Here's my suggestion for reducing unemployment (from one of my Instblogs):
>
>
> I think the gov't should offer to pay for home-improvement projects
> for home-owners, again in exchange for a share of future profits
> on the sale of the house. There are certain desirable home improvements
> that wouldn’t require skilled labor, such as adding fencing, home
> security, and earthquake protection. Millions could be hired to do
> these tasks after a bit of videotaped training.
>
> This technique could also be used to fund purchase and installation
> of insulation, attic fans, south-side awnings, white-painted roofs,
> and heat pumps. The US needs to cut its energy consumption, and a
> little governmental nudging is OK to get us there.
>
> These initiatives would stimulate lots of economic activity; upgrade
> the country's housing stock; make life pleasanter for home-owners
> and their neighbors (who'd live in an upgraded neighborhood); reduce
> crime; and be a good investment for the gov't. in the long run. They
> would also be politically popular.

Nov 16 08:01 PM

[Zmartmoney:]

You're right - I know a couple of people with advanced degrees and loads of experience who were at the wrong place at the wrong time. AND, they STILL haven't given up and gone down to MIckey Dee's and gotten a job serving McNuggets and coffee... Don't worry - they'll come around and grab that dream again.


On Nov 16 09:07 AM Adonis wrote:

> One of the issues with the unemployment rate, is I know people you
> aren't willing to work in just any job. They are fine with staying
> on unemployment until a precise job comes around. This was not the
> case in the Depression. People would take any paying job just to
> put food on the table, but today's laziness keeps the unemployment
> rate higher.

Nov 16 08:23 PM

[Zmartmoney:]

You've been watching the Looney Tunes again, haven't you...? Tch! Tch! And, I know that you'll agree for sure with the logic that all those licensed handgun owners out there are the reason for violent crime. Oh Puhleeze! How about a government that enforces the laws we DO have? How about holding white collar hoodlums responsible for their gigantic failures? This isn't about Capitalism - we haven't had that around since we junked the Constitution. Gimme a break! The fascists are arm wrestling the socialists for control - but, relax, they'll learn to share.


On Nov 16 04:00 PM Alan Young wrote:

> Very good article; I have to agree with the author.
>
> Many comments protest against using government spending to solve
> the problem, based on some philosophical argument that pure capitalism
> is somehow better.
> This is crazy talk, and I do mean truly delusional. It was unfettered
> capitalism that got us into this mess—yes, enabled by gov't policies
> to be sure, but not directly caused by government. We're going to
> have to face the fact that the countries that have bounced back from
> the crash more strongly that we have, have done so with lots of government
> support—China being the extreme and unambiguously successful example.
> There are plenty of people who would rather be politically correct
> (i.e. Libertarian or conservative Republican) than pragmatic, but
> that's a very expensive choice for most of us.
>
> This is not spending just for the sake of spending. Our infrastructure
> is a mess. Boston is losing more drinking water from its leaky plumbing
> system than it is consuming. The SF-Oakland Bay Bridge is literally
> falling apart. New Orleans is no better off than it was the day Katrina
> hit it. Our interstate power grid is no better off than it was a
> few years ago when everything from Ohio to New York got blacked out.
> There is PLENTY of constructive work that could be done with government
> funding, but local governments have nothing to spend. Get money in
> the hands of people who need it to spend—not to banks to cover their
> shiddy ass't sheets—and get them off unemployment, while establishing
> a stronger infrastructure foundation to support badly-needed re-industrialization.
>
>
> If the people who insist on Pure Capitalism keep driving our economy
> the way it's been going, public unrest may replace our leadership
> with proponents of Pure Socialism. I don't think anyone would enjoy
> that trip. It's time to get pragmatic.

Nov 16 08:31 PM

[User 330841:]

The FEDS should give loans to anyone that opens a fast food franchise.
A McDonalds that is usually open almost 24hr will hire approximately 60 people.If it costs $1million to open a franchise then each employee would cost about $16,000. furthermore those employees would not need extensive educations . and training.
It would give younger employees a start at the bottom of the ladder, and an opportunity to learn how to work.

Nov 16 09:37 PM

[roguephd:]

We need to fix the long-term structural problems facing our economy and country, not rely on short-term stimulus: evict the illegals, revoke birthright citizenship, erect tarrifs to obtain an even trade balance, eliminate incentives for short-term speculation at the expense of long-term investment on both wall street and the corner office, and develop an industrial policy for engineering, technology, and manufacturing independence (energy independence will be nice too).

Nov 17 12:24 AM

[HA65MPH:]

OK , ..Unions - unions - unions ....chicken -in - cheif !...govt. mandate , unions -unions unions .., next bail out coming ...newspapers , unions -unions ...did i say UNIONS !!.BHO , NEW AND ON GOING MOUTH PIECES THE NEWS''''PAPERS''' WAKE UP , ..WE ARE SKE-ROOD !..MANDATED BY OBAMMANATION !....want a job , get thee to a Union ...OR , ACORN !..GEEZE THANKS ..bho....!!!!

Nov 17 01:05 AM

[Mr. Ed, Jr.:]

It is not "some philosophical argument that pure capitalism is somehow better" than government spending. That is a strawman argument. The argument-- at this point-- is that we have already had TWO stimulus packages, and the last one (By the Obama administration , Pelosi, Reid, et al) was largely wasted on political payoffs and cronyism. And the part that was actually about helping America was designed to kick in next year-- an election year. The Washington thieves will do it to us again, if we let them. Or do we never, ever learn ?

There is one other small problem-- we are broke. The biggest debtor nation the world has ever seen has a government buying cars and giving $8k tax credits to citizens for buying a home. Our dollar is crashing. The rest of the world is trying to unload their dollars-- what will they do when we spend another trillion dollars on health care, and yet another trillion on a 3rd "stimulus" ? And you can bet the next stimulus will be just as corrupt as the last one-- but maybe not as corrupt as the proposed "health care" bill.

And it certainly was NOT "unfettered capitalism that got us into this mess". It was insane borrowing and spending by Americans and their government, which can only happen when there are insane lenders around to enable it. Capitalism is not about Americans using their homes as ATM machines and acting like rock stars, while burying themselves in debt. Government policies enabled and encouraged foolishness, but that has nothing to do with capitalism. Capitalism built this country.

(As for China "bouncing back"-- that jury is still out. And when they come in with a verdict, it may be very different than what you are expecting.)

We do not have anything close to "pure capitalism" in this country. What we have had for a very long time is capitalism and heavy government interference on behalf of special interests. The problem is that our government is corrupt. Every day, it is some new corruption exposed-- and it is always the taxpayer who gets smoked in the deal. Whether it is bankrupt AIG using bailout funds to pay GS at 100%, or when our Congress was briefed by Paulson on the financial crisis-- and they rushed off to sell their stocks, or a "stimulus " bill loaded with political payoffs, it is now S.O.P.

Corruption is the problem, not capitalism.


On Nov 16 04:00 PM Alan Young wrote:

> Very good article; I have to agree with the author.
>
> Many comments protest against using government spending to solve
> the problem, based on some philosophical argument that pure capitalism
> is somehow better.
> This is crazy talk, and I do mean truly delusional. It was unfettered
> capitalism that got us into this mess—yes, enabled by gov't policies
> to be sure, but not directly caused by government. We're going to
> have to face the fact that the countries that have bounced back from
> the crash more strongly that we have, have done so with lots of government
> support—China being the extreme and unambiguously successful example.
> There are plenty of people who would rather be politically correct
> (i.e. Libertarian or conservative Republican) than pragmatic, but
> that's a very expensive choice for most of us.
>
> This is not spending just for the sake of spending. Our infrastructure
> is a mess. Boston is losing more drinking water from its leaky plumbing
> system than it is consuming. The SF-Oakland Bay Bridge is literally
> falling apart. New Orleans is no better off than it was the day Katrina
> hit it. Our interstate power grid is no better off than it was a
> few years ago when everything from Ohio to New York got blacked out.
> There is PLENTY of constructive work that could be done with government
> funding, but local governments have nothing to spend. Get money in
> the hands of people who need it to spend—not to banks to cover their
> shiddy ass't sheets—and get them off unemployment, while establishing
> a stronger infrastructure foundation to support badly-needed re-industrialization.
>
>
> If the people who insist on Pure Capitalism keep driving our economy
> the way it's been going, public unrest may replace our leadership
> with proponents of Pure Socialism. I don't think anyone would enjoy
> that trip. It's time to get pragmatic.

Nov 17 02:59 AM

[User 504692:]

America needs jobs, creativity, and a future...not more bankers. End the support of bankers. Support an Architect or an Engineer instead.

Nov 17 04:21 AM

[Teutonic Kn...:]

Things don't look too good, isn't it?

The Obama regime hasn't listened well so far one year into coming into office. Partly, being human, we don't want to hear let alone believing in bad news.

Mr. Obama is a very frightened man deep inside him, so he clings onto the old Bushie appointees such as the Timmy and Benny. These folks are patriotic Americans, no doubt, but they were part of the gang that steered us into this mess. Consequently, their actions tend to be pro-self-denial and regrettably, covering their tracks.

There is no magic with unemployment numbers. Folks, we are in real world unfolding, Globe-Trotting to China (Hillary once, Obama now, and Hillary twice) just won't magically fix anything here at home. To ask the 1.3B Chinese citizens to rush to buy American goods to give us jobs is pretty far-fetched.

For now, tighten up our belts, lower wages and salaries, then we could become once again competitive. We just can't print ourselves out of this mess.

TK

Nov 17 12:10 PM

[Roger Knights:]

Wow--25 thumbs-down on my home-improvement scheme. (Thanks for the head-pat, bmcon). I wouldn't have proposed it if I didn't think that the likely alternatives within the political mainstream weren't worse. If some sort of second stimulus package is coming, as seems likely, and if unemployment is becoming a focus of the current administration, then what is the best outcome we can hope for? IMO, it would be something that:

1. At least gives the government some collateral in exchange for what it spends. I.e., there's a chance of its getting its money back, or even profiting, eventually.

2. At least provides benefits for a large number (millions) of citizens, both the homeowners who'd get upgraded houses at no cost and the currently unemployed.

3. Substantially reduces the amount spent on unemployment compensation.

4. Can be implemented nearly immediately.

5. Has low bureaucratic overhead and relatively low likelihood of massive fraud.

6. Can be terminated fairly easily, when conditions improve.

Other alternatives that Obama is likely to consider would provide much less "bang-for-the-buck" and/or would take years to put into full operation. Many (most?) would merely prevent the unemployment or wage-reduction of currently employed Democratic voting blocks, such as union workers, gov't. employees, and greenies. Many would have high overhead or chance for waste. And such programs would tend to get entrenched and be harder to "sunset."

Nov 17 12:47 PM

[Roger Knights:]

Oops--sorry for the double-post--I pressed the button only once, I swear.

Nov 17 12:48 PM

[Roger Knights:]

PPS: Down Time wrote:
"I installed fencing on my house when it was purchased. No unskilled or semiskilled labor was hired."

I did a lot of my own home improvement work too, such as installing lots of insulation (including double-paning the windows) and some earthquake protection (reinforcing the cripple wall of my basement with heavy plywood paneling). On other tasks I hired a handyman whom I helped, namely installing a heavy-duty attic fan and installing large awnings (SunSetter's are quite a bargain).

I tore down the wooden fencing that came with my house because it had rotted in the wet environment here in the PNW. I could have put up another such fence myself, but I didn't, because I wanted something that would last. So I had a 6-foot-high, vinyl-covered chain-link fence installed as a replacement. I couldn't do that myself, because it requires trained installers. (Fence-stretchers and concrete footings are needed. Plus, the fence-stretching is a two-man job.)

Nov 17 01:01 PM

[BioGuy:]

I think some of this data was posted elsewhere, but here is the recent Moody's report on private equity/LBO's.

www.zerohedge.com/arti...

Something from Joshua Kosman, LBO's and unemployment;
www.npr.org/templates/...

Nov 17 06:40 PM

[Al-USA:]

Teutonic Knight wrote:
"
For now, tighten up our belts, lower wages and salaries, then we could become once again competitive.
"

You mean for the overpaid CEO's right?

Thought so...

Nov 19 02:29 AM

[Teutonic Kn...:]

To Al-USA - -

Concur.

But I would also recommend we change the names and signs of all our nation's numerous presently so-called "Leadership Programs, Leadership Centers" to "Lack of Leadership Programs, Lack of Leadership Centers" to reflect the need for self-examination for the plundering of precious resources by the overpaid (and greedy) CEO's

TK.


On Nov 19 02:29 AM Al-USA wrote:

> Teutonic Knight wrote:
> "
> For now, tighten up our belts, lower wages and salaries, then we
> could become once again competitive.
> "
>
> You mean for the overpaid CEO's right?
>
> Thought so...

Nov 20 12:53 AM