Gregory Bull, Associated Press
WASHINGTON — President Obama and Democrats want more jobs. So do Republicans. Heck, everyone does. Yet, job creation is weak. It's true that the economy has generated 5.5 million jobs from its low point. Still, there are 3.2 million fewer jobs now than at the previous high. The official unemployment rate is 7.9 percent, but it would be 14.4 percent if it included part-timers who would like full-time work and discouraged workers who have stopped looking, notes Janet Yellen, vice chair of the Federal Reserve Board. Scarce jobs are the nation's first, second and third most important economic and social problem.
What's especially disheartening and mystifying is that, until now, job creation was considered an inherent strength of the American economy. Despite some years of recession-induced joblessness, unemployment averaged 5.6 percent from 1950 to 2007. The Congressional Budget Office doesn't expect it to fall below 7.5 percent until 2015. That would make six years above 7.5 percent — the longest stretch of high joblessness in 70 years.
Something's changed in how the economy works. One theory is "deleveraging": Americans paying down their high debt. The economy won't accelerate until this process is complete, the argument goes; the fact that debt-service ratios have dropped to early-1990s levels is considered a good omen. Another approach is to examine the economy by sectors and see which ones are lagging compared with past recoveries. Yellen did this and indicted housing (its deep slump) and state and local governments (spending cuts). Again, there are said to be encouraging signs. Home construction, prices and sales are up; state and local spending is stabilizing.
This analysis helps but, I think, misses the main story. To overgeneralize slightly: We have gone from being an expansive, risk-taking society to a skittish, risk-averse one. Before the 2008-09 financial crisis, the bias was toward more spending. The inclination was to surrender to immediate gratification. Want a new car? Sure, why not. More meals out? Great idea! Businesses behaved similarly. Banks made the next loan; companies hired the next worker and approved the next investment project. An ever-expanding economy justified optimism, and optimism supported an ever-expanding economy. Hello, bubble.
The psychology has now reversed. The bias is against extra spending. Eat out? Try leftovers. Remodel the basement? Oh, leave it alone. In the boom years, the personal saving rate (saving as a share of after-tax income) fell from 10.9 percent in 1982 to 1.5 percent in 2005. Now it's edging up; from 2010 to 2012, it averaged 4.4 percent. It could go higher, imposing a further drag on the economy. Businesses have also retreated. They resist approving the next loan, job hire or investment. Since 1959, business investment in factories, offices and equipment has averaged 11 percent of the economy and peaked at nearly 13 percent. It's now a shade over 10 percent, reports economist Nigel Gault of IHS Global Insight.
Note that these attitudes govern sectors accounting for roughly four-fifths of the economy: consumer spending is about 70 percent of GDP; business investment is the rest. They dwarf housing construction, about 2.5 percent of GDP. The caution and risk-aversion aren't so great as to cause a recession, but on the margin they have limited the economy's expansion to rates — lately, 1 percent to 2 percent — too weak to absorb most jobless.
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