So we now have a resumption of positive economic growth coupled with, by many measures, the worst labor market in a generation, in which more than one in six American workers are unemployed or underemployed. The share of those not working who have been unemployed for six months or more is also at an all-time high of 35.6 percent.
What to make of this? I don't claim to have more than a decent layman's understanding of the economy, but it seems to me that there are two ways to look at it, with very different political implications. One, employers are narrowcasting the pain onto those would-be workers who add the least value to the bottom line, and who are also (we know from data) by and large less educated and less civically engaged--in terms of things like voting--than their still-employed counterparts, with the effect that for those outside that circle of pain, things are actually okay now and, with growth having resumed, likely to get better. As David Leonhardt writes, in the second link above:
One of the more striking aspects of the Great Recession is that most of its impact has fallen on a relatively narrow group of workers. This is evident primarily in two ways.
First, the number of people who have experienced any unemployment is surprisingly low, given the severity of the recession. The pace of layoffs has increased, but the peak layoff rate this year was the same as it was during the 2001 recession, which was a fairly mild downturn. The main reason that the unemployment rate has soared is the hiring rate has plummeted.
So fewer workers than might be expected have lost their jobs. But those without work are paying a steep price, because finding a new job is extremely difficult.
Second, wages have continued to rise for most people who still have jobs. The average hourly wage for rank-and-file workers, who make up about four-fifths of the work force, actually accelerated in October, according to the new report.
If this is true, it's possible that the emerging meme in political pundit circles, echoed by voices as disparate as cranky liberal economist Paul Krugman and oft-obnoxious libertarian cheerleader Megan McArdle--that the Democrats are D-E-D dead in next year's midterms unless they find a way to create jobs--is almost exactly wrong. So long as those now employed stay employed, and in fact are seeing their wages increase while inflation stays low, "their" economy is in good shape.
(Of course, this implies that they'll recognize the situation for what it is and vote accordingly. I read recently that New Jersey was one of the few states to add jobs over the last year; while the economy wasn't the only issue, its relative good health evidently didn't do much to help Jon Corzine in his failed bid for re-election. It's also difficult for the Democrats, given who they are and who they claim to represent, to defend their majorities on a message of "screw the folks who aren't working; y'all are doing great!")
But the second interpretation is that the recovery is fragile and conditional to an extent that the undertow could yet drown it. My big concern is that states and localities, which have seen tax revenues plunge by record margins this year, will have to pass budgets that inflict a ton of new pain--wiping out jobs, degrading service quality, and generally doing damage beyond what's anticipated or projected. This is where the limitations of my own understanding cloud the analysis: I'm not sure exactly how bad trauma in the public sector has to be before it swamps the private sector.
Then again, this is also where it feeds back into politics. The Democrats are defending a lot of governorships next year, and if those governors have to preside over budgetary bloodbaths, their re-election efforts are going to suffer badly. That plus the more important consequences--the jobs lost among teachers, healthcare workers and other high-value individuals whose salaries are paid through public monies--should be enough to prompt a second federal intervention. It won't be called a "stimulus," as national politics have somehow made that a bad word, but that's what it'll be.
Unfortunately, the cowardly Democrats in Washington probably won't have the stones to push something like that through on their own. So they might have to buy Republican support by including a tax cut--either something targeted toward businesses for hiring (the problem with which is that a lot of firms that would have hired anyway will take the credit, reducing federal revenues), or a payroll tax holiday--which is better, but problematic in that when the holiday ends, consumer spending might go back down. And even with those measures, the Republicans are so crazily nihilistic right now, and becoming more so seemingly by the day, that they either might not get behind it no matter what, or demand such absurd concessions--nine dollars in a wasteful tax cut for every dollar of assistance to states and localities--that there isn't much point.
I'm not sure I get why any sane person would choose to go into public life these days.