Not a good "job"!

The unemployment report released by US Bureau of Labor Statistics(BLS) is so depressing and worrisome. The unemployment rate was unchanged at 10% in December from a month earlier. Non-farm employment dropped by 85,000 in December. I have been hearing many economists and government officials saying that the recession is over and the US economy would grow in the coming quarters. It is true that the recession in the US is technically over and the economy would grow in the coming quarters. But my question is how sustainable is that growth? When we look at the BLS report, we have some very clear indications. First of all, 10% unemployment rate is very very high (total number of persons unemployed currently = 15.3 million and this is without taking into account the persons who are unemployed but have given up searching for work). There was a decrease in unemployment rate from 10.2% to 10% in November from October and it remains unchanged in December. But when you look at the individual sectors, I find this marginal decline in unemployment rate with zero-significance. Infact the 10% unemployment rate worries me to the same extent as I was worried during the peak of the recession.

I looked at the past 5 months trend (from August to December) and I can see that the core sectors that include construction, manufacturing, wholesale trade, goods-producing sector (durable and non-durable), leisure and hospitality have all shown steady decline in terms of employment (there are some minor up ticks in these sectors here and there but on the basis of a straight August-December comparison we have had a steady decline in employment and an increase in unemployment). In December alone, construction has shed further 53,000 jobs; manufacturing-27,000 jobs and wholesale trade-18,000 jobs. The increase in employment was seen in temporary help services and health care. But here, as the name suggests it is only temporary and the increase in the number of physicians reported in health-care only adds to the scare. If it is true that more number of people are needed in health-care (read supply) then can we assume here that the demand is high (which means more sick people) and can we further assume that a measurable percentage of the increase in sickness in individuals is due to recession? If my assumption is true then this doesn't look good for the sick individuals and the for the country.

So to put it bluntly, all the stimulus programs introduced by the US government have simply not had the effects that were expected. Yes it decreased the unemployment rate but did NOT create efficient and sustainable jobs. The US government rightly spent $700 billion in rescuing the troubled banks but at the same time committed the biggest mistake of not nationalizing the banks. The government has poured billions of dollars of taxpayers' money and is now begging (should i say literally) the banks to lend to businesses in need. Not just businesses but the country as a whole needs that to. But in the meantime, the banks have gone to the old system of speculative-trading in the secondary markets. And with the global economic system currently being so volatile, so fragile and so awash in liquidity, it only makes it easier for these banks to speculate and earn profits. And this speculation only leads up to higher commodity prices thereby causing a further slack in consumer-demand. At the same time, these banks, saved by taxpayers money, are caught in a fever of suspicion to lend. If only the government had nationalized these bailed-out banks after their rescue, we would have had an efficient lending to businesses that would have then added jobs and created demand. The government stimulus then working in parallel would have helped to boost further demand. Some might argue and actually did argue that nationalization of banks would mean socialism, but pouring hundreds of billions of dollars of taxpayer money into private banks that played with the taxpayer money, on the principle of, as Dr.Paul Krugman would say, heads bankers win, tails taxpayers lose, without nationalizing the banks is the ugly side of capitalism. Some good capitalists would call this "bad capitalism". (Please note: I am NOT a socialist but I would like to be a good capitalist). And I am not talking about permanent nationalization of these banks but I would have preferred a short-term nationalization of these banks till we reached a point of sustainable recovery.

But let's look ahead and see what could/should be done. Currently we face a difficult situation of a shortage in supply of credit and an all-time low aggregate demand. And the current situation looks like demand must be created before supply for which jobs need to be created by the government. Programs like the "short-term work" program introduced by Germany need to be considered. Special loan programs to small and medium enterprises (SME), direct incentives to American export industries etc are some of the other things that need be considered. I might prefer the federal government to borrow from private banks and then set-up something like a federal-loan institution which would lend money directly at subsidized interest rates to businesses and consumers. This might increase the willingness of the banks to lend and at the same time we can have a check on the money supply in the system without printing anymore money or atleast printing less money. I have not looked/studied all the pros and cons of the above suggested programs but the stimulus program that will be inevitably extended should be something on this line and thinking. Some economists keep saying that if the "jobs" part is not taken care of then the economy might face another recession (double-dip). I don't know if I would agree that a double-dip recession is likely but if the jobs part is not taken care of then there might be an inevitable and prolonged slump in the economy.
So far, it's not been a good job by the US government but let's hope they the get the job done, WITH PERFECTION!