The American jobs market has been gaining strength the past few months. On Friday, the Labor Department reported that employers added 171,000 jobs in October. The department also adjusted upward the employment numbers from August and September, job growth averaging 173,000 a month the past four months.
That pace falls short of the 200,000 jobs to 300,000 jobs per month in a strong recovery. Yet there was even a positive element in the unemployment rate ticking higher from 7.8 percent to 7.9 percent. It reflected more workers returning to the labor force in search of work.
None of this is satisfactory, the unemployment rate having peaked at 10 percent and then stubbornly declined, the private sector adding 5 million jobs since February 2010. The country remains 4.2 million jobs short of the number when the recession began in December 2007.
What is important to recall at this juncture is why the recovery has been so sluggish, a topic too little discussed in the election campaign.
Writing in the Financial Times this week, Richard Koo, the chief economist of the Nomura Research Institute in Tokyo, returned to the underlying cause of the trouble, the bursting of a debt-financed housing bubble. The fallout has been a huge overhang of debt and diminished assets. Thus, many in the private sector have moved to pay down debt or increase their savings.
Those are good things, in many ways. It makes sense, too, that interest rates would fall to spur borrowing and economic activity. Yet, as Koo stresses, when so much of the private sector is focused on debt and savings, even interest rates at zero, essentially, aren’t incentive enough. The Federal Reserve has been maneuvering, rightly and creatively, at the margins to increase demand, but it doesn’t have much room.
That is why Ben Bernanke, the Fed chairman, has all but pleaded with Congress to add a dose of stimulus, the government supplying the absent demand, its spending countering the private saving. Koo advises that stimulus must be applied “until private leveraging is completed.” More, he notes that in these circumstances, the government isn’t like a family needing to balance its budget. Add the government to the many savers, and the economy will continue to sputter, even lose ground.
Koo points to Japan in the late 1990s, practicing austerity, its economy sagging, the troubles prolonged. Great Britain has provided a recent example, returning to a recession. That’s not to cast aside the problem of putting this country’s fiscal house in order for the long term. Rather, the focus now, a “fiscal cliff” of austerity ahead, must be managing well the tool of the government to bolster and speed the improving job market.