In reading this post of Scott Sumner’s I suddenly came up with an example that illustrates what bugs me about the description of the recession, economic downturn, slow recovery, or however you describe what’s going on now. Imagine a company that last year sold $100 million worth of widgets through a dealer network. This year for unknown reasons sales declined to $90 million. However, an unscrupulous sales manager in collusion with some equally unscrupulous dealers booked the entire $100 million and, via a scheme of phony sales, cancellations, and inventory transfers managed to make it appear as though everybody had made their numbers and, consequently, maintained their incomes. This may sound far-fetched but 30 years ago I worked for a company in which something very much like this actually happened.
The company ultimately uncovered the scheme and fired the sales manager. That made top management feel better about the situation but it didn’t solve the real problem at hand: sales weren’t as high as they thought they had been.
The analogy I see is to total employment. I think that the problem we’re having with creating jobs actually has been in process for decades and, with a succession of bubbles, has been made to appear much less severe than it actually is.
We’re no longer in a recession. We’re in a recovery. However, the jobs that were created during the successive bubbles have been wrung out of the economy and don’t appear to be coming back. As I’ve noted in previous posts none of the economic sectors we might typically expect to start booming and creating jobs at a rapid pace are likely to do so.
Pointing to the current president or his predecessor or even his predecessor for blame may be satisfying but it doesn’t actually solve the underlying problem.