This past week has been eventful. On Tuesday, the DOW closed at 13,279, marking its highest point since December 2007. This moment signals a significant landmark for the stock market, reminiscent of the pre-financial crisis era.
December 2007 was a time just before Lehman Brothers disappeared and a series of unforeseen economic calamities, or “black swans,” struck the financial world, causing chaos in the LIBOR market amidst what seemed like constant turmoil. Back then, we witnessed daily statistical impossibilities as the financial landscape unraveled in late 2008.
One remarkable event was when the Reserve Primary Fund experienced a drop in its money market shares, breaking the buck and falling to $0.97. Today, although the stock market may be echoing the levels it reached over four years ago, the global economy has shifted dramatically.
For instance, in December 2007, the yield on a 10-year Treasury Note was 4.23 percent. Now, that yield is less than half. All of this change comes in the wake of expansive measures like TARP, CPFF, MMIFF, TAF, ZIRP, QE, QE2, and Operation Twist, each designed to “reinflate” the financial markets.
Despite the stock market rebounding to its pre-recession levels, one notable failure persists: the absence of new job creation, which may have even been stifled by these fiscal and monetary interventions.
The Job Market’s Struggles
As you read this, the Labor Department will likely have unveiled its job report for April. While we hope 125,000 new jobs will be added to accommodate population growth, substantial increases seem unlikely. Clearly, the economy is not generating sufficient new employment opportunities.
According to the Hamilton Project, our nation currently faces a job shortfall of 11.4 million positions. This number includes 5.2 million jobs lost since 2007, along with an additional 6.1 million jobs that should have emerged absent the recession.
If the economy manages to create around 208,000 jobs per month—reflective of the best job creation year in the 2000s—we won’t close this jobs gap until February 2020, nearly eight years later.
Regrettably, given prevailing conditions, it seems apprehensive to predict that we will recover to the employment levels we would have reached had the Great Recession never occurred. Some outcomes regress rather than progress, and occasionally they decline rather than advance.
From our perspective, the U.S. job market is caught in a cycle of regression and decline. In a sense, the job market is reclining, and here’s why…
Understanding Job Scarcity
At Economic Prism, we don’t claim to have complete knowledge of how the world functions, but we do have opinions on how we believe it ought to operate. When it comes to finances, we think of the adage “what goes around comes around.”
For example, if you consistently spend more than your income, bankruptcy is inevitable. In the stock market, purchasing high and selling low guarantees losses. If you fail to generate revenue for your employer, they cannot sustain your paycheck. Ignoring tax obligations invites trouble. Businesses that produce unwanted products at uncompetitive prices are destined to fail.
Yet, despite knowing how we think the world should operate, we find that it seems to function in ways contrary to our expectations. It leaves us with more questions than answers.
Why do American taxpayers subsidize the Chevy Volt? What justifies the extravagant bonuses for Wall Street bankers? Why are graduates returning from college with degrees in American Studies or Art History? What is Joe Biden’s role as Vice President? What do those in Washington do all day? What drives Ben Bernanke’s enthusiasm for quantitative easing?
These queries provide just a small glimpse into the myriad complexities surrounding us, each deserving a comprehensive response. However, when we dissect these considerations, one notion stands out.
We suspect that the financial bailouts may be closely tied to these questions, and this could explain the persistent scarcity of jobs.
Sincerely,
MN Gordon
for Economic Prism
