Tuesday, 29 September 2009
What arguably secured a second term for George W. Bush was the way in which he dealt with 9/11. The strong, hardline response was just what the American people expected from their President. Now, eight years later, Bush's successor faces his own 9/11 which provides an opportunity for another term in the White House and furthermore the chance to secure his legacy.
Many economists agree that unemployment rates in the U.S. could persist around the 9-11% mark for years to come with the global recession pushing whole communities onto the backfoot. One only has to look at Detroit with it's jobless rate of 17.7% to see the effect of the collapse of the automobile industry though this has affected towns and cities across America. And of course it isn't just transport manufacturing that has suffered with unemployment in furniture manufacturing at 22.5% and the construction industry is suffering with 16.5% unemployment.
At least it's a good time to be an economist with theories being thrown at the crisis left, right and centre. What is perhaps most interesting is that Okun's law seems to be faltering. The principle basically states that as the economy shrinks it sheds job at a similar rate and vice versa. On this basis, unemployment in America at the moment should be at around 8.5%; not the substantially greater 9.7% it is suffering.
What does all this mean? Well for some economists such as the renowned labour theorist Larry Summers, this could well signify a hysteresis in the economy and this seems to be backed up by the Peterson Institutes's Jacob Kirkegaard who recently stated that "a lot of the jobs that have been lost will never come back".
So if economic growth alone won't re-employ America, what can Obama do? The way to create a job stimulus seems to come in two parts and suits a Democrat President. Firstly, people have to be able retrain and learn new skills whilst out of work but the thing that stands in the way is a lack of economic freedom to do so. A sort of Medicare bill but for skills education would perhaps give mature students a right to healthcare or subsidised mentoring so that they could, for instance, learn a useful skill without worrying as much about their family. Secondly, more support must be given to new companies; the future economy. This can be done through tax breaks or even direct loans but unless new companies receive initial help they will not survive for long in this time of economic hardship.
These policy ideas aren't exactly in line with my normal Randian way of thinking, but as George W. Bush said a year ago; I am abandoning free-market principles in order to save the free-market.