651,000 Jobs Lost in February, Many Never to Return; Meanwhile, the Banking Crisis Rages On. What Now?

by Damozel | From The New York Times:

Another 651,000 jobs disappeared from the American economy in February, the government reported Friday, as the unemployment rate soared to 8.1 percent — its highest level since 1983.

Most economists now assume that the American fortunes will not improve before near the end of the year, as the Obama administration’s $787 billion emergency spending program begins to wash through the economy.

“The current pace of decline is breathtaking,” said Robert Barbera, chief economist at the research and trading firm ITG. “We are now falling at a near record rate in the postwar period and there’s been no change in the violent downward trajectory.”...

The acceleration has convinced some economists that, far from an ordinary downturn after which jobs will return, the contraction under way reflects a fundamental restructuring of the American economy. In crucial industries — particularly manufacturing, financial services and retail — many companies have opted to abandon whole areas of business.

“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.” (emphasis added)

So....the things the government has done in the past to cope with bad times aren't going to work this go-round.  Handing out unemployment checks, as the article points out, isn't going to help.  The only way forward is to change our whole way of thinking.  People who did jobs that aren't going to come back again are going to have to be trained to do something else. 

The United States has been neglecting job training programs for decades, argues Andrew Stettner, deputy director of the National Employment Law Project in New York. In current dollars, the nation devoted the equivalent of $20 billion a year on job training in 1979, while spending only $6 billion last year.

The stimulus spending bill includes $4.5 billion in additional monies for job training. But under current programs, many of those eligible for training are given vouchers that cover only a semester or two at community colleges, while careers in growth industries like biotechnology and health care typically require two-year degree programs.

“We have to seriously look at fundamentally rebuilding the economy,” Mr. Stettner said. “You’ve got to use this moment to retrain for jobs.” (NYT)

Meanwhile, employers are shedding jobs as fast as they can.

Employers are shrinking their work forces at alarming clip and are turning to other ways to slash costs—including trimming workers' hours, freezing wages or cutting pay—because the recession has eaten into their sales and profits.(CNBC) .

The White House says there's no way to "put a positive spin" on what's happening.

A top White House economic aide said Friday no silver lining could be seen in a surge in unemployment in February but that pieces of a recovery plan are in place and the country needs to "power through" hard times. "There's no way that we could or should put a positive spin on these," Christina Romer, chair of the White House Council of Economic Advisers told CNBC, referring to a report that the jobless rate hit 8.1 percent.  (CNBC)

Getting Republicans to address this crisis is proving to be uphill work.  While they don't seem to have any ideas other than "cut taxes," they have united to oppose any plan that requires anything else. 

Mr. Obama cited the unemployment figures as further evidence that those who opposed “the very notion that government has a role in ending the cycle of job loss at the heart of this recession” are on the wrong side of history. (The president’s stimulus package was approved by the House with no support from minority Republicans...).. (NYT).

Some Republicans can read the 50 miles high handwriting on the Wall Street.  Scarecrow at FDL points out that Republican economist Martin Feldstein, "the guy the Republicans quoted during the stimulus bill debate," seems to think that our only hope lies in another stimulus bill. 

"Meanwhile, determined to be seen as both irrelevant and irresponsible, Senate Republicans held up the Ominibus Budget Bill yesterday because . . . it had too much spending for near-term projects," Scarecrow concludes.  (FDL)   At present, the Republican's input into solving the current crisis seems limited to blaming Obama (in office since for about two months -- for the crashing and burning of the Dow.  The Dow is just scared to death that Obama might be a socialist!  It's that simple. 

One wonders what great ideas they're keeping back for just the right moment.

As to their guy Feldstein, he seems to think that what's needed is more and better stimulus. Having lost $12 trillion in household wealth, the economy now faces a $750 billion shortfall in demand, Feldstein says.  And the current stimulus package isn't sufficient to solve the problem. 

Although the recently enacted two-year stimulus package includes a total of US$800 billion of tax reductions and increased government spending, it would be wrong to think that this will add anything close to US$400 billion a year to GDP in each of the next two years. Most of the tax reductions will be saved by households, rather than used to finance additional spending.

Moreover, a substantial part of the spending will be spread over the following decade. And some of the government spending in the stimulus package will replace other outlays that would have occurred anyway. An optimistic estimate of the direct increase in annual demand from the stimulus package is about US$300 billion in each of the next two years.

The stimulus package would thus fill less than half of the hole in GDP caused by the decline in household wealth and housing construction, with the remaining demand shortfall of US$450 billion in each of the next two years causing serious second-round effects. As demand falls, businesses will reduce production, leading to lower employment and incomes, which in turn will lead to further cuts in consumer spending.

To be sure, an improvement in the currently dysfunctional financial system will allow banks and other financial institutions to start lending to borrowers who want to spend but cannot get credit today. This will help, but it is unlikely to be enough to achieve positive GDP growth.

A second fiscal stimulus package is therefore likely. However, it will need to be much better targeted at increasing demand in order to avoid adding more to the national debt than the rise in domestic spending. Similarly, the tax changes in such a stimulus package should provide incentives to increase spending by households and businesses.  (Taipei Times; emphasis added)

The Republicans don't get it.  Does the Obama administrations?  Krugman suggests that -- with respect to the banking crisis -- the White House is likewise refusing to face the facts.  For one thing:  Geithner.

[S]omehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away...

Thus, in a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.

And the government’s job, he declared, is to “provide the financing to help get those markets working,” pushing the price of toxic waste up to where it ought to be...

What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions. Earlier this week, Ben Bernanke, the Federal Reserve chairman, was asked about the problem of “zombies” — financial institutions that are effectively bankrupt but are being kept alive by government aid. “I don’t know of any large zombie institutions in the U.S. financial system,” he declared, and went on to specifically deny that A.I.G. — A.I.G.! — is a zombie...

The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly.

"What's going on, what's being done?" Taylor Marsh asks in frustration.  "[D]o something."  Such as ditching Geithner and Bernanke for a start...

More at Memeorandum....

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