There are 10 million fewer jobs than there should be

U.S. Is Still 10 Million Jobs Away From Normal:

To get a better idea of where the job market stands, consider a different question: What percentage of the civilian population aged 16 to 65 is employed, and how does that compare to the pre-crisis average? This measure covers everyone, including those who have given up on finding jobs and hence are not counted in the unemployment rate. It also attempts to correct for the effects of an aging population by focusing on one age range.

As of May, the 16-to-65 employment-to-population ratio stood at 67.5 percent. That’s up from 67.2 percent a year earlier, but still well below the average of 72.5 percent in the 10 years preceding the recession that began in January 2008.

In terms of jobs, as of May, the economy was 9.98 million short of the number needed to put the employment-to-population ratio back at its “normal” level of 72.5 percent. That’s better than a year ago, when the number was 10.50 million, but worse than in May 2009, when it stood at 8.93 million.

Think we can create 10 million jobs in the next five years? Keep dreaming. This is what a lost decade looks like.

The government needs to spend money in an economic crisis

Austerity Principles, or How to Save an Economy in Crisis:

Automatic stabilizers work. In the U.S., when it comes to fiscal policy in times of economic crisis, there isn’t much disagreement between the political parties. But if a separate debate over the proper size of government is allowed to intrude (as it has), the result is gridlock.

Policy makers should instead agree in advance to a system of automatic stabilizers that kick in during recessions. These include unemployment insurance extensions and relaxed eligibility standards for food stamps when the jobless rate exceeds, say, 6 percent. By the same token, lawmakers could agree to spend, say, 20 percent more on public works programs when unemployment increases. Automatic stabilizers offset about 20 percent of an economic shock after two years, according to research by Federal Reserve economists. The effect is even bigger in Europe, where automatic stabilizers are more prevalent.

Republicans shouldn’t care if the U.S. spends more this year and less next year so long as the permanent size of the government remains the same.

Maybe there wasn’t disagreement between Democrats and the Republicans of yesteryear, but the Tea Party Republicans from 2010 and 2012 would beg to differ. These are the people who would rather jeopardize the health of children than provide the poor with assistance.

If any good has come out of the last 5 years, it’s that there will be a solid case for  stimulus and stabilizers the next time we have a severe recession.

Serious problems found in study that supported austerity

Well that’s embarrassing:

This error is needed to get the results they published, and it would go a long way to explaining why it has been impossible for others to replicate these results. If this error turns out to be an actual mistake Reinhart-Rogoff made, well, all I can hope is that future historians note that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel.

Long story short, the original study vastly overstated the correlation between high debt and low growth.