LONG TERM UNEMPLOYMENT--BECOMING JAPAN

The GOP (“Gallant Old Party”, “Guardians of Privilege”, party of “Greed, Obstructionism and Paranoia”) has used the tragic events of the Great Recession (GR), most of which their policies either precipitated or encouraged, to press for austerity. The economic proposals of these “austerians” would slash the budget and cut discretionary spending to the bone, rather than build consumer demand by pumping money into the economy in these tough times. Their real motives seem to be to keep the economy in a mess up to the next election so as to maintain power and weaken the Democratic Party, and advance the goals of the rich clients who support them. Following this agenda, they often claim that our budget deficits will make us into another economic basket-case like Greece. But the “austerians” are really setting us up to become another kind of basket case---Japan.

The economy of Japan, once the third largest in the world, has been faltering for the last two decades. Economists and other commentators frequently refer to Japan’s “lost decade”. In circumstances similar to our own GR of 2007-2008 Japan experienced the collapse of a massive real-estate-bubble in 1991. Its economic depression lasted a decade--to 2001 and the faltering recovery continued over the last decade and into present. The Economist magazine published an article by R.A. in August 3, 2012 on Japan's economic plight in August 3,2012 entitled: “Lost decades, The Japanese tragedy”. the author characterized the economic consequences of Japan's “lost decade” thus: “Japan (its GDP) is now 40 to 50 percent below what the world in 1991 would have estimated their GDP to be in 2012.”

Back in the USA, With the austerians in charge in the (gerrymandered) House of Representatives and a similar group in the (“60 votes needed to belch”) Senate, it appears that we may be heading toward our own Japanese style “setting sun” of economic stultification. One factor that appears to support this dire prediction is our persistent unemployment problem. With the political party of “privilege and paranoia” forcing Obama into a “cut-the-budget economic box”, and with a hardening cadre of 12 million unemployed, our economy is puttering along without sufficient consumer demand, and it will continue to fizzle and sputter like a tenderfoot's rainy-day campfire until something is done to increase demand. Austerity will turn us into a Japan----not Greece. Persistent high unemployment is the canary in the miner’s cage that warns us of this Niponese-like future.

Cultural and other factors have traditionally tended to keep Japan's unemployment rate very low---in the 1-2% range. That rate is unheard of for modern western nations. But after the Japanese real estate bubble burst, post 1991, the rate of unemployment skyrocketed (in Japanese terms) to 5-6%, and during the last decade of slow recovery it has hovered in the 4-5% range, or more than double what its traditional levels were. In western terms, that would be about what we are presently experiencing, rates hovering in the 7-8% level. (See Google “images” of Japanese unemployment rates). Is that what we can expect for the next decade or longer?

In his recent NYT article, Prof Krugman underscores some startling facts about US unemployment. In our nation, even in good times, unemployment generally hovers at about 5%, a figure which is expected in an ethnically diverse country, with a vibrant, changing and evolving economy where employees lose jobs, change jobs, or seek higher salaries or better positions. Krugman reminds us that back in 2007 on the cusp of the Great Recession, there were about 7 million unemployed (out of a workforce of about 153 million, about 4.6% out of work). But according to Krugman, only a bit more than ONE MILLION of these individuals were unemployed for more than six months.
After the financial crisis of September 15 2008, the bankruptcy of Lehman Brothers and our “terrifying economic plunge”, a slow, stumbling (Japanese-like) weak, recovery followed. The market recovered, the banks and businesses are sitting on trillions of dollars, but the economy is not generating enough jobs to make up for the natural growth of the population and its work force. When businesses are not selling the widgets they have in stock why make more or hire new employees. Today, almost five years after our GR, unemployment remains elevated above “average norms” with about 12 million out of work (or about 7.8 %). (Also see “America's labour force and the economy,”The missing five million), The Economist, May 4th 2012, 20:55 by G.I., Washington, D.C.)
But what really strikes Krugman, and this author, as significant is the “huge number of long-term unemployed”. Today, according to the Nobel laureate economist, nearly 5 million are unemployed for more than six months, or nearly FIVE TIMES what we experienced prior to the GR, while over three million have been jobless for more than a year. These long-term unemployed may never return to the work force or to the skill level of employment they achieved prior to the GR.
Krugman states “It goes without saying that the explosion of long-term unemployment is a tragedy for the unemployed themselves. But it may also be a broader economic disaster.” The disaster of persistent unemployment means lower consumer incomes and spending and reduced rate of household formation both of which directly affect consumer demand and growth expectations for the economy. Those factors adversely affect government tax revenues and increase costs to the States which pay for unemployment benefits, all contribute to the slow recovery and also make the deficit worse not better.

But the problem goes further, ignoring the stress and tension of unemployment on the individual which can lead to coronary disease or shortened life spans, the erosion of the skills of the long-term unemployed impacts our national efficiency. Bank accounts shrink when workers have to tap their savings and retirement accounts, causing future economic woes down the line. Some workers will, out of necessity, curtail spending on their or their children’s education, wasting natural talent and creating supra-generational consequences. Social unrest, political unrest and simple lack of confidence in the future all have decade-long consequences for an economy, especially ours in which 70% is driven by consumer demand. Indeed, even our medical and health care systems may be threatened. Hospitals are often in precarious balance with their costs and expenses. Typically they only break even when servicing Medicaid and Medicare patients. It is while providing care to the 150 million workers who have employer-sponsored health care that they are able to maintain a knife edge profitability. Hospitals typically glean about 35% of their revenue from these employed, younger, and higher paying patients. Without them (recall that there are now more than 12 million un employed and without such care), hospital profitability, solvency and operational viability may fall and with these declines so falls our excellent and vaunted national medical system. Long term unemployment is indeed a pending disaster.

Get the picture?

rjk Peru VT.