Permanent Unemployment: The End of the American Dream
Dec. 6, 2011
This graph shows the American dream, 1939-2007. It reveals total non-farm employment in the United States.
Greenspan's Federal Reserve inflated its way out of the recession of 2001. Even before Bernanke came into office in February 2006, the FED had begun tightening monetary policy. This popped the real estate bubble and brought on the recession of 2007-9. This came as no surprise to Austrian School economists. I predicted the popped bubble in November 2005. So did other Austrian school economists and analysts. I predicted the 2007 recession in December 2006. So did other Austrians. No other school of economic opinion did.
Bernanke's FED has inflated, but employment remains below what it was in early 2001. The magic of Federal Reserve monetary expansion has failed to work.
We are now at the point where monetary base expansion can no longer drive the American economy into broad-based growth. Keynesians cannot understand this. Monetarists cannot understand this. Fiscal deficits no longer work. Keynesians cannot understand this. Supply-siders do not understand this.
Austrians understand this. It has to do with decades of misallocated capital: monetary expansion and federal deficits. Deficits do matter. Saving does matter. The American economy will not grow its way into a balanced federal budget. So, there will be a default -- a Great Default.
The dream of full employment is as doomed as the dream of a balanced budget. Neither will return until after the Great Default.
If you had any doubts about the devastation, read this report. The cartoon says it all.
Using this typology, just 7% of the unemployed initially contacted by the Heldrich Center in the summer of 2009 have made it back to where they were before the recession. And just another 23% are on the way back -- they have experienced a minor downward change in their quality of life that they believe will be temporary. Another third of those participating in the initial August 2009 survey can be thought of as downsized. Many here (11%) have taken a minor quality of life hit and say their financial situation is poor, but believe they will work their way out of it in time. Another 10% are in at least fair financial shape but report a minor downward change in their lifestyle they believe will be permanent.The remaining 36% speak of cataclysmic effects of the Great Recession on them and their families. They comprise two groups, both of whom can be said to have been devastated. We consider 21% to be devastated because they are in poor financial shape and have suffered a major quality of life change, even if they believe it to be temporary. Also included in this group are respondents who report being in fair economic shape, but who have experienced a major decline in their lifestyle they expect to be permanent. Finally, there is a sizeable 15% who appear to have been wrecked by the recession. They are at the bottom on all three measures -- they are in poor financial shape, have suffered a major change in lifestyle, and believe this new state of affairs will be a permanent condition.