Within the next few minutes I can hit up the McDonald’s drive-thru and digest over half my daily recommended calorie intake with one Big Mac meal, order all of my Christmas gifts online, stream a movie new release directly on my computer without even having to travel to the theater, and use my credit card at an ATM to withdraw sums of money that I might not even have. The list can go on. We live in a world of instant gratification.
Apparently, economists are prone to instant gratification just as much as the rest of us. Gene Epstein, writer for the esteemed Barron’s magazine’s Economic Beat column, lamented the “pitifully small” gains in last Friday’s job report. He goes on to say:
The official rate of joblessness hit a peak of 10.0% exactly three years ago, in October 2009. It has therefore taken 36 months to fall just 2.1 points, to 7.9%. That 7.9% is no way to run a labor market. Based on any economist’s reckoning, only when the jobless rate falls below 6.0% are we approaching “full employment.”
How long might it take for joblessness to fall below 6.0%? Assuming the same monthly rate of decline over the past three years, it will take almost another three years, or not until September 2015, for that state of near-full employment to be achieved.
So make that nearly six years to achieve a decline from 10% to below-6%. Now compare this with three decades ago, when the economy was also recovering from a deep recession.
In December 1982, the unemployment rate peaked at 10.8%. Yet it took less than five years for it to fall below 6% from that loftier level.
So, let me get this right, by Epstein’s own calculations, our current recession will take maybe 12-months or so more than the 1982 recession to reach a state of “full employment”? Is a 12-month differential reason to be so glum?
It also appears that Epstein hasn’t been following the works of the economists who have actually gotten every move in this financial mess almost 100% correct. Kenneth Rogoff and Carmen Reinhart, in their economic masterpiece (can I say that?) This Time it’s Different, debunk the notion that all recessions are created equal. They do this through exhaustive data sets. Their findings show that the 1982 recession was not a credit infused crisis, and thus not as traumatic as the one we just experienced.
Earlier this year, in answering the question about the employment situation, Rogoff told CNBC,”I think it’s a long road ahead. It can take many years for it to hit bottom and it has. And it takes many years for it to come back up.”
Rogoff, even with a more dire employment forecast, remains cautiously optimistic. Epstein, with a rosier employment scenario that basically compares to the 1982 run rate, is clearly more pessimistic. Can you guess which economist is stuck in the grasp of instant gratification?