Jobless recovery will haunt Democrats

November 29, 2009


— For a political horror show, fast forward to the summer of 2010: The unemployment rate is stubbornly high, hovering in a range between 9.3 percent and 9.7 percent. Companies are wary about hiring more workers because the economy remains soft. Small businesses, which normally power a recovery, are caught in a credit squeeze.

In this scenario, the jobs outlook will remain bleak for another year. The unemployment rate will remain well above 8 percent in 2011. And the economy won’t bounce back completely for another five years after that.

The Democrats, in our scary 2010 movie, will be heading toward the midterm elections hoping to preserve their 21-seat margin in the House. Vulnerable incumbents will be clamoring for more economic stimulus, but the Obama administration will be constrained by the huge budget deficits needed to bail out the economy after the 2008 financial crisis.

I wish this economic forecast were just a bad dream after too much Thanksgiving turkey. But it’s drawn from the minutes of the Federal Reserve’s Nov. 3-4 meeting, released last week. It’s a genuinely troubling document, as much for its political implications as for its number-crunching. It draws a picture of a nation of unfair and unequal sacrifices, where Wall Street is recovering even as Main Street continues to pay the bills.

If the Fed’s projections are right, the public is going to be very angry next year — at big business and at the elected officials who have spent trillions of dollars without putting the country fully back to work. Lou Dobbs, the voice of populist anger, may become the nation’s hottest politician. President Obama, who has struggled to find a centrist consensus for economic policies, may be tossed like a cork on a stormy sea.

The Fed struggled to answer the basic question that is haunting administration policymakers: Why has unemployment remained so high, even as the economy has started to grow again and the stock market has been on a tear? The Fed’s answer is that businesses, having been burned by the recession, are wary about adding more workers or making new investments. Like consumers who have just discovered the virtues of saving, their prudence — however sensible on an individual basis — is a collective drag on the economy.

“Business contacts reported that they would be cautious in their hiring,” the Fed minutes note. “Indeed, participants expected that businesses would be able to meet any increases in demand in the near term by raising their employees’ hours and boosting productivity, thus delaying the need to add to their payrolls.”

If hiring hasn’t bounced back, neither has lending. “Bank loans continued to contract sharply in all categories,” the Fed reports. Big businesses may be able to get money, but smaller firms “faced substantial constraints in their access to credit.” This credit squeeze, in turn, will “restrain hiring at small businesses, which are normally a source of employment growth in recoveries.”

Putting the numbers together, the Fed predicts that despite a growing economy, unemployment will be between 8.2 percent and 8.6 percent during 2011, down only about a percentage point from 2010. And here’s the scariest line of all in the Fed minutes: “Most participants anticipated that about five or six years would be needed for the economy to converge fully to a longer-run path” and a normal job market.

Looking toward next year’s congressional elections, strategists will have to calibrate the politics of high unemployment. The four states with the highest jobless rates as of October are all Democratic strongholds: Michigan, at 15.1 percent; Nevada, at 13 percent; Rhode Island, at 12.9 percent, and California, at 12.5 percent. And if you look at the states where Democrats gained their 21 House seats last year, the list includes eight states where unemployment in October was above the national average of 10.2 percent.

The politics of rage aren’t pretty. But in this case, it’s hard to argue that the anger isn’t justified. The Fed’s analysis shows what we see in the daily stock-market summaries. People on the top are recovering their losses; people on the bottom are out of work and out of luck.

I admire Obama’s effort to make responsible economic choices in this environment, and his refusal to demagogue issues such as financial reform. But he will need all the political genius he showed during the 2008 campaign — and which he has displayed too little lately — to handle what’s coming at him next year.


just_another_bozo_on_this_bus 8 years, 6 months ago

What's even more troubling for the Democrats is that significant gains for the Republicans in 2010 will almost certainly guarantee that the economy will be even worse in 2012. And if the Republicans get the presidency and even more gains in 2012, we may not even have elections in 2014.

On the other hand, as long as "moderate" Democrats are calling the shots, it really doesn't matter whether Democrats or Republicans are in charge. We're toast, either way.

nbnozzy 8 years, 6 months ago

You need to become a moderate Republican, Country and captialism first....that's our motto.

Flap Doodle 8 years, 6 months ago

Porkulus has saved or created 10 trillion jobs.

Richard Heckler 8 years, 6 months ago

Isn't it time to bring the troops home to their families and devote war dollars toward rebuilding our nations economy,create new industry and put 20 million people back to work making money instead of making war?

Isn't it odd each time our nations financial institutions crumble there are Bush family near by and a McCain still in office?

Who has history with financial institutions going south such as the savings and loan scandal? Republicans!

About the Bush/Cheney/Greenspan/Bernake fraudulent home loan scandal: http://www.dollarsandsense.org/archives/2009/0709macewan.html

About the Bush/Reagan Savings and Loan Scandal(home loans) http://rationalrevolution0.tripod.com/war/bush_family_and_the_s.htm

McCain: The Most Reprehensible of the Keating Five. The story of "the Keating Five" has become a scandal rivaling Teapot Dome and Watergate ... http://www.phoenixnewtimes.com/1989-11-29/news/mccain-the-most-reprehensible-of-the-keating-five/1

Maddy Griffin 8 years, 6 months ago

Barrypenders- I'd love to hear your solutions to the problems instead of your constant ragging on the POTUS.

just_another_bozo_on_this_bus 8 years, 6 months ago

Such comments would not be troll-worthy, grammaddy.

just_another_bozo_on_this_bus 8 years, 6 months ago

If you could back away from you partisan hackery for just a second, Tom, you'd see that what I'm saying is that the current economic model, as practiced by both Republicans and (so-called moderate) Democrats (represented by both Clinton and Obama) is broken beyond repair. If all that happens over the next five years is a futile attempt to prop up that house of cards, it is going to completely collapse, rather than the partial collapse we are currently experiencing.

notajayhawk 8 years, 6 months ago

grammaddy (Anonymous) says…

"I'd love to hear your solutions to the problems instead of your constant ragging on the POTUS."

We're still waiting to see the POTUS' solution to the problems, grammy.

just_another_bozo_on_this_bus 8 years, 6 months ago

"You do realize that earlier in this very thread you predicted the nation's downfall based solely on which party was in power, don't you?"

What I realize is that you should read the post again.

Flap Doodle 8 years, 6 months ago

merrill, I'm amazed you aren't hitting the Teapot Dome scandal harder. That happened only 87 years ago......

LoveThsLife 8 years, 6 months ago

The problem isn't a Republican or Democrat problem..the problem is the Federal Government spends too much money no matter who is in office. Quit rooting for a political party like they are a football team...both parties are corrupt and neither one has real answers. Both parties have contributed to our problem, because they don't understand economics, nor do they care. They are both extremely short sighted. You can't run a household by spending more than you earn without eventually facing the consequences, nor can you run a nation like that either. There was a really interesting article written in September about our economic problems http://rt.com/Top_News/2009-09-09/wealthiest-america-start-move.html

ivalueamerica 8 years, 6 months ago

I have to agree, that job recovery will haunt dems..mostly beacause my fellow Americans have an attention span of about 7 seconds and they will forget that everyone told them it will take years to clean up the worst financial disaster since the great depression created by a republican administration and the most despised president in history.

Jim Phillips 8 years, 6 months ago

Bozo could be correct in his prediction under one scenario. Unfortunately, that scenario is being pushed by both sides. "Moderate Conservativism" (which is a misnomer in the same vain as "assault weapons"--- neither exists) will do nothing but make the situation worse. We already saw that with the fiscally liberal Bush administration. Yet the libs want the Republicans to lean more to the left? Well, we are witnessing what the far left is doing to our ecomony (how's that hope and change working for ya now?). It's time to give real Conservatism it's chance.

just_another_bozo_on_this_bus 8 years, 6 months ago

"Having no idea who the GOP candidate will be in 2012, you predict doom based solely on which party he would belong to."

Like it really matters, LO?

"Well, we are witnessing what the far left is doing to our ecomony "

How do you figure that the "far left" has anything at all to do with the policies of the Obama Administration? So far, it's been a policy of, by and for Wall Street.

"It's time to give real Conservatism it's chance."

Would you mind telling us what "true Conservative" policies would look like?

notajayhawk 8 years, 6 months ago

TomShewmon (Tom Shewmon) says…

"You've been a bit erratic in your statements the past few days."

The past few days?

You're just noticing?

Jim Phillips 8 years, 6 months ago

"Would you mind telling us what “true Conservative” policies would look like?"

It would look like the policies of 1980 - 1988.

jaywalker 8 years, 6 months ago

This 'joblessness' will haunt us all. Our economy, it's effect on the world, continued stress and joblessness stretching for who knows how long? This is alot more significant than one political party or future elections, for the love of Jake.

leedavid 8 years, 6 months ago

Obama, Reid and Peloski are taking the party down all by themselves. They went from total domination for as far as anyone can see, to a complete meltdown. As a country we are overdrawn, out of jobs, and they want to wreck health care for a minority of uninsured. They are chasing a global warming theroy that is falling apart quicker than an ice cube in a pale of hot water.

Its fun to watch really if so many families were not hurt and will be hurt over the next projected three to four years.

LoveThsLife 8 years, 6 months ago

"Well, he ran with it and we had a nice conversation and he proceeded to tell me it was his strong opinion it was not Bush's fault–-the economy that is, but years and years of bad policies and blamed much of it on the Americans themselves and their need for instant self-gratification in simple terms. He didn't say Bush had nothing to do with it, but was a very small part of it in his educated opinion. He seemed skeptical about Obama/Pelosi/Reid's plan(s)."

I agree with him. I think it's sad that both parties want to blame the other for our problems and people buy into it. However, I guess until we are willing to make the tough sacrifices we'll keep getting unrealistic campaign promises as well as unrealistic "plans" for "fixing" our country. The O/P/R plan is ridiculous and a waste of taxpayer money. It just makes a broken system even bigger and more bureaucratic.

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