Why Is the Recovery the Same as Always?

The Atlantic

Welcome to the same recovery in 2013 that we had in 2012 and 2011.

The particulars of the May jobs report weren't all that interesting: the economy added 175,000 jobs, but unemployment ticked up to 7.6 percent because more people were looking for work. But what was interesting was how uninteresting it all was. Job growth has stayed the same the past two and a half years no matter what obstacles we put in its place. Indeed, as you can see below, the story has remained the same: there were 175,000 new jobs a month in 2011, 183,000 in 2012, and 189,000 so far in 2013.

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You wouldn't know it from looking at it, but this steady job growth has happened despite pretty significant austerity (or, as my colleague Jordan Weissmann puts it, we just love firing government workers). As Paul Krugman points out, total government spending -- that is federal plus state and local -- has collapsed as a percent of potential GDP since late 2010. First it was state and local governments slashing spending to balance budgets as they are required during the slump; now it's the federal government sucking demand out of the economy with the payroll tax hike and the sequester. 

But growth has stayed steady through all this fiscal tightening. Why? Part of it is just time. Households aren't paying off (or defaulting on) as much debt as they used to -- plus home prices are finally rebounding. In other words, they feel richer, and aren't saving as much. But part of it is also the Fed. It's latest bond-buying program has pushed up stock markets and pushed down mortgage rates, both of which make households feel even richer. This monetary stimulus has been enough to offset some of the fiscal austerity, although how much isn't entirely clear. That's what make the Fed's talk about "tapering" its bond purchases soon all the more puzzling: job growth is only at trend, and core inflation is at a 50-year low. Nothing about this says the Fed should ease off the accelerator.

7.6 percent unemployment is much too soon to declare mission accomplished.




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