Unemployment in Real Terms
Below are my remarks at an event hosted by the Philadelphia Unemployment Project yesterday called “Surviving the Recession: A Resource Fair for the Unemployed.” I have to confess more than the usual nervousness about this speaking gig. How would an audience that was predominantly low-income and Democrat take to an Ivy League-educated Republican who has never been involuntarily unemployed and has come from an embarrassing amount of privilege?
Thankfully, my comments were fairly well-received, even though I zigged at times where other speakers had zagged. Perhaps people appreciated a balanced perspective, and perhaps peoples’ take on life wasn’t as monolithic as I had casually assumed.
Unexpectedly, since I was so worried about how the audience would hear me, it didn’t occur to me that I would have a lot to learn from them. In fact, I did. We economists speak of unemployment all the time, but there’s nothing like standing in front of a room full of 125+ of the unemployed to bring the reality of unemployment to the human scale.
I did not want to come off as unempathetic, but nor did I want to come off as inauthentically empathetic. In a very real sense, I don’t know what it is like to be in their situation: besides the government, I have countless safety nets to rely on, and am far farther from the brink than those who I spent the morning with. And despite living, working, and worshipping in an inner city neighborhood (albeit a gentrifying one) for several years now, I do not feel at all in tune with the plight of this population. Being barely above water if not constantly under water is a way of life for this universe, and the tidal wave that is the current recession is more than enough to leave one flailing and gasping.
Hopefully, I struck a delicate balance between soberness and optimism in my words. These aren’t the exact ones I used yesterday, but they are close enough to capture my sentiment. I’m grateful that for me this topic is one that is purely intellectual and theoretical in nature. And I’m grateful as well to have very real contact with a growing mass of locals for whom this topic is not at all intellectual and theoretical but rather real and despairing, and whose struggles I have a new appreciation for after yesterday’s time together.
***
Thank you. I am honored to be here, but humbled by the occasion and the context. I don't have to tell you that the economy is in the tank; for many of you are on the frontlines of the pain. Our country's rising unemployment rate is for many of you not just a reported statistic but an oppressive reality. Health care and entitlement reform, foreclosures, and what to do about the declining auto industry – for many of you, these are not just the subject of policy debates on CNN and NPR; they have spilled painfully into tough talks around the dinner table. It would be a disservice to gloss over your hardships, or to promise a rosy future in response.
However, what we can do in our time together is join in the sentiment expressed by President Obama in his inaugural address last month. Soberly, he affirmed that we are facing unprecedented challenges; but, resolutely, he affirmed that Americans are made of good stuff, and that the combination of individual hard work and government support will not only lift us from our struggles but inspire and lead a world that wants to look to us for inspiration and leadership. And one need only scan this room to be buoyed by the human capital and the committed agencies that have been assembled here this morning.
As an economist, I'm often asked the following questions, which you may yourself be seeking answers for. First, what happened? Second, what's next? Third, what'll it take to turn this around? And fourth, what can I do? Truth be told, we economists don't know the answers to any of these questions. The Great Depression ended over 70 years ago, and yet there's still disagreement about its causes and about whether various solutions made things better or worse. In this regard, I suppose we are even worse than meteorologists, who may get today's weather wrong but can at least tell you with certainty what yesterday's weather was. But let me give this a shot anyway.
What happened was a perfect storm of overbuilt housing markets, over-leveraged financial institutions, and slumping global demand. Cheap credit plus the false sense that real estate prices could only go up meant that too many people bought houses and took out mortgages they couldn't afford. Notably, this was particularly the case, not in inner cities, but in upper-middle class neighborhoods in places like Vegas, Phoenix, and Miami, places which then got doubly hit when everything came crashing down AND higher gas prices and heightened environmental concerns made spread-out places less attractive.
Meanwhile, mortgage companies didn't care about properly assessing the risk of their borrowers because they learned they could package these mortgages and sell them in bundles, thus ridding themselves of any downside and collecting all their profit upfront. In turn, financial institutions bought up these bundles in record amounts and baked them into their investment portfolios. Insurance companies earned their fee by promising to defend against defaults they assumed would never happen. And ratings agencies got their cut for quickly sniffing these bundles and declaring them legit.
We now know that what goes up can indeed come down. And the interconnectedness of our housing and financial markets was such that the casualties came swiftly: Bear Stearns, AIG, Lehman Brothers. Because many of us used our houses as piggy banks to sustain our buying binges, the housing downturn led to a downturn in spending; and the financial crisis prevented businesses of all stripes from getting the working capital they needed to stay afloat. Next thing you knew, homeowners were underwater, holiday retail sales were a bloodbath, and states and cities saw massive decreases in their bread and butter revenue sources.
2.6 million jobs were lost in 2008, and January’s numbers, which were just released at 8:30 this morning, were even worse: 600,000 jobs lost in a single month. Keep in mind that because of population growth, to maintain a steady unemployment rate we need to add about 100,000 jobs a month; so in the past 13 months, instead of adding 1.3 million jobs just to keep up, or more, so as to lower the unemployment rate, we have instead bled 3.2 million jobs.
Unfortunately, stimulus or no – and whether the current package that is being debated in Congress is the right move or not is a whole other presentation – these weaknesses are going to take a long time to unwind. The consensus among economists is that the unemployment rate is going to continue to rise for the remainder of 2009, peaking at 9% or more, which would mean an additional 1.5 million or more jobs lost.
By the way, let me say a word or three about the stimulus bill. First, let's remember: this isn't free money just sitting around in DC; it's our money, and if we use it today, we have to repay it with interest tomorrow. So it behooves us to make sure we spend our kids' and grandkids' money wisely.
Unfortunately, just as many Americans went deeper into debt to fund short-term pleasures like vacations and flat screen TVs, our elected representatives in Congress appear to be allocating far too much of the stimulus dollars for things that do not improve our long-term competitiveness as a nation, but perhaps might win them some votes in their next election.
The Republicans would like to point the finger at the Democrats, but then they respond with an equally careless proposal, which is to guarantee 4% mortgages. Didn't I just get done saying that what got us into this mess was that we borrowed too much? Besides that, the Republicans haven't offered anything better, and some stimulus is clearly needed, so the longer we bicker, the more we delay much-needed relief.
I'll end my rant about the stimulus bill on a more positive note: there are some good things in there, notably some extension of unemployment benefits, some relief for cash-strapped states, and some strategic investments in much-needed infrastructure projects that will also put people to work. But the overall take-away, if you're hoping that massive government spending is the solution to all of our economic problems, is: be careful what you wish for. Do be worried that federal mucking around might make things worse or make the pain last longer. Do hold your elected officials to the same standard you would put on the spending of your money for your sake and your kids' sake, because ultimately, that's exactly what we've elected them to do, is to spend our money and our kids' money prudently. And do push those elected officials to put aside partisan bickering so we can get something sensible passed that can provide relief where relief is needed, and stimulus where stimulus is needed.
There is, however, hope for Philadelphia and for Philadelphians. We have a diversified economy, world-class educational and research institutions, and a dense urban fabric well served by transit. These are all characteristics that will typify resilient and sustainable cities over the remainder of the century. But there are at least three important things we need to do to get there.
First, we need to organize ourselves to capitalize on potential job creation associated with what people are calling the Green Economy: installing solar panels, retrofitting schools, conducting energy audits. Thanks to the efforts of the Sustainable Business Network of Greater Philadelphia, Philadelphia is seen as a national leader in Green Economy grassroots activism; but we need to continue to work aggressively to translate this early work into lasting results, both in terms of greening our city and creating well-paying employment opportunities.
Second, we need to concentrate our development efforts near transit stops. Orienting residential, office, retail, and other neighborhood-serving uses to transit stations can make communities safer, connect people more easily to employment and shopping opportunities, and reduce transportation costs for working families. After almost a decade of boom, both in Center City and in our neighborhoods, we’re going to have to get more selective about where and how we grow. And the biggest payoff – for the environment, for the economy, and for our neighborhoods – is near transit stops.
Third, we need to double down on our investment in education, both for our children as well as for ourselves. In our nation's first century, we were an agricultural economy, so those who owned the land held the power. In our nation's second century, we were an industrial economy, so those who owned the capital held the power. In our nation's third century, we are now an information economy, so those who own the knowledge hold the power.
Sadly, as with land and capital in previous centuries, the extent to which we have knowledge is too often predicated on the family and neighborhood into which we are born. But the present inequities in education access, education funding, and education quality do not have to continue. A knowledge economy allows for more social mobility than an agricultural economy or an industrial economy; but only if we work hard to make more education more available to more people.
In fact, there are many on-ramps to success, as we are seeing a proliferation of educational resources like online learning, customized degrees for working adults, and technical assistance resources for small businesses. Wherever you’re coming from, all of us need to commit to constantly reinvesting in our human capital, lest we become as obsolete and marginalized as yesterday’s machinery. In fact, you will find in this very room assembled for you a number of outlets and individuals who are here for the express purpose of sharpening, retooling, and reconnecting you. Let me particularly single out Community College, a great and affordable connection to education and employment opportunities; as well as The Enterprise Center, where I worked for ten years and where I now serve on the board, which does so much in West Philadelphia and beyond to help minority entrepreneurs of all ages grow their businesses and create new jobs.
And, lest tough times cause us to focus inwardly to the neglect of those around us, all of us can commit to doing what we can to educate the next generation, with a particular focus on those children who lack for educational and other resources. All of us can be a mentor, a social resource, a role model to those who will carry the torch after us.
When times are tough, it can be tempting to throw in the towel, to give up on ourselves and our future, or at the very least to close off from opportunities to extend a hand of support to others. But this nation is great because, far from shrinking back, we resolutely press forward. We use challenging times to motivate us all the more to do what we can for ourselves, our families, and our communities. As individuals and as a country, our darkest hours were also the times we shook off what was holding us back, innovated our way to better places, and demonstrated our value for family and for community and for those less fortunate in the way we prioritized service even as we ourselves were struggling. And so I urge you to make the most of the resources that have been assembled here, and – having been helped much – to help others. Thank you.
Thankfully, my comments were fairly well-received, even though I zigged at times where other speakers had zagged. Perhaps people appreciated a balanced perspective, and perhaps peoples’ take on life wasn’t as monolithic as I had casually assumed.
Unexpectedly, since I was so worried about how the audience would hear me, it didn’t occur to me that I would have a lot to learn from them. In fact, I did. We economists speak of unemployment all the time, but there’s nothing like standing in front of a room full of 125+ of the unemployed to bring the reality of unemployment to the human scale.
I did not want to come off as unempathetic, but nor did I want to come off as inauthentically empathetic. In a very real sense, I don’t know what it is like to be in their situation: besides the government, I have countless safety nets to rely on, and am far farther from the brink than those who I spent the morning with. And despite living, working, and worshipping in an inner city neighborhood (albeit a gentrifying one) for several years now, I do not feel at all in tune with the plight of this population. Being barely above water if not constantly under water is a way of life for this universe, and the tidal wave that is the current recession is more than enough to leave one flailing and gasping.
Hopefully, I struck a delicate balance between soberness and optimism in my words. These aren’t the exact ones I used yesterday, but they are close enough to capture my sentiment. I’m grateful that for me this topic is one that is purely intellectual and theoretical in nature. And I’m grateful as well to have very real contact with a growing mass of locals for whom this topic is not at all intellectual and theoretical but rather real and despairing, and whose struggles I have a new appreciation for after yesterday’s time together.
***
Thank you. I am honored to be here, but humbled by the occasion and the context. I don't have to tell you that the economy is in the tank; for many of you are on the frontlines of the pain. Our country's rising unemployment rate is for many of you not just a reported statistic but an oppressive reality. Health care and entitlement reform, foreclosures, and what to do about the declining auto industry – for many of you, these are not just the subject of policy debates on CNN and NPR; they have spilled painfully into tough talks around the dinner table. It would be a disservice to gloss over your hardships, or to promise a rosy future in response.
However, what we can do in our time together is join in the sentiment expressed by President Obama in his inaugural address last month. Soberly, he affirmed that we are facing unprecedented challenges; but, resolutely, he affirmed that Americans are made of good stuff, and that the combination of individual hard work and government support will not only lift us from our struggles but inspire and lead a world that wants to look to us for inspiration and leadership. And one need only scan this room to be buoyed by the human capital and the committed agencies that have been assembled here this morning.
As an economist, I'm often asked the following questions, which you may yourself be seeking answers for. First, what happened? Second, what's next? Third, what'll it take to turn this around? And fourth, what can I do? Truth be told, we economists don't know the answers to any of these questions. The Great Depression ended over 70 years ago, and yet there's still disagreement about its causes and about whether various solutions made things better or worse. In this regard, I suppose we are even worse than meteorologists, who may get today's weather wrong but can at least tell you with certainty what yesterday's weather was. But let me give this a shot anyway.
What happened was a perfect storm of overbuilt housing markets, over-leveraged financial institutions, and slumping global demand. Cheap credit plus the false sense that real estate prices could only go up meant that too many people bought houses and took out mortgages they couldn't afford. Notably, this was particularly the case, not in inner cities, but in upper-middle class neighborhoods in places like Vegas, Phoenix, and Miami, places which then got doubly hit when everything came crashing down AND higher gas prices and heightened environmental concerns made spread-out places less attractive.
Meanwhile, mortgage companies didn't care about properly assessing the risk of their borrowers because they learned they could package these mortgages and sell them in bundles, thus ridding themselves of any downside and collecting all their profit upfront. In turn, financial institutions bought up these bundles in record amounts and baked them into their investment portfolios. Insurance companies earned their fee by promising to defend against defaults they assumed would never happen. And ratings agencies got their cut for quickly sniffing these bundles and declaring them legit.
We now know that what goes up can indeed come down. And the interconnectedness of our housing and financial markets was such that the casualties came swiftly: Bear Stearns, AIG, Lehman Brothers. Because many of us used our houses as piggy banks to sustain our buying binges, the housing downturn led to a downturn in spending; and the financial crisis prevented businesses of all stripes from getting the working capital they needed to stay afloat. Next thing you knew, homeowners were underwater, holiday retail sales were a bloodbath, and states and cities saw massive decreases in their bread and butter revenue sources.
2.6 million jobs were lost in 2008, and January’s numbers, which were just released at 8:30 this morning, were even worse: 600,000 jobs lost in a single month. Keep in mind that because of population growth, to maintain a steady unemployment rate we need to add about 100,000 jobs a month; so in the past 13 months, instead of adding 1.3 million jobs just to keep up, or more, so as to lower the unemployment rate, we have instead bled 3.2 million jobs.
Unfortunately, stimulus or no – and whether the current package that is being debated in Congress is the right move or not is a whole other presentation – these weaknesses are going to take a long time to unwind. The consensus among economists is that the unemployment rate is going to continue to rise for the remainder of 2009, peaking at 9% or more, which would mean an additional 1.5 million or more jobs lost.
By the way, let me say a word or three about the stimulus bill. First, let's remember: this isn't free money just sitting around in DC; it's our money, and if we use it today, we have to repay it with interest tomorrow. So it behooves us to make sure we spend our kids' and grandkids' money wisely.
Unfortunately, just as many Americans went deeper into debt to fund short-term pleasures like vacations and flat screen TVs, our elected representatives in Congress appear to be allocating far too much of the stimulus dollars for things that do not improve our long-term competitiveness as a nation, but perhaps might win them some votes in their next election.
The Republicans would like to point the finger at the Democrats, but then they respond with an equally careless proposal, which is to guarantee 4% mortgages. Didn't I just get done saying that what got us into this mess was that we borrowed too much? Besides that, the Republicans haven't offered anything better, and some stimulus is clearly needed, so the longer we bicker, the more we delay much-needed relief.
I'll end my rant about the stimulus bill on a more positive note: there are some good things in there, notably some extension of unemployment benefits, some relief for cash-strapped states, and some strategic investments in much-needed infrastructure projects that will also put people to work. But the overall take-away, if you're hoping that massive government spending is the solution to all of our economic problems, is: be careful what you wish for. Do be worried that federal mucking around might make things worse or make the pain last longer. Do hold your elected officials to the same standard you would put on the spending of your money for your sake and your kids' sake, because ultimately, that's exactly what we've elected them to do, is to spend our money and our kids' money prudently. And do push those elected officials to put aside partisan bickering so we can get something sensible passed that can provide relief where relief is needed, and stimulus where stimulus is needed.
There is, however, hope for Philadelphia and for Philadelphians. We have a diversified economy, world-class educational and research institutions, and a dense urban fabric well served by transit. These are all characteristics that will typify resilient and sustainable cities over the remainder of the century. But there are at least three important things we need to do to get there.
First, we need to organize ourselves to capitalize on potential job creation associated with what people are calling the Green Economy: installing solar panels, retrofitting schools, conducting energy audits. Thanks to the efforts of the Sustainable Business Network of Greater Philadelphia, Philadelphia is seen as a national leader in Green Economy grassroots activism; but we need to continue to work aggressively to translate this early work into lasting results, both in terms of greening our city and creating well-paying employment opportunities.
Second, we need to concentrate our development efforts near transit stops. Orienting residential, office, retail, and other neighborhood-serving uses to transit stations can make communities safer, connect people more easily to employment and shopping opportunities, and reduce transportation costs for working families. After almost a decade of boom, both in Center City and in our neighborhoods, we’re going to have to get more selective about where and how we grow. And the biggest payoff – for the environment, for the economy, and for our neighborhoods – is near transit stops.
Third, we need to double down on our investment in education, both for our children as well as for ourselves. In our nation's first century, we were an agricultural economy, so those who owned the land held the power. In our nation's second century, we were an industrial economy, so those who owned the capital held the power. In our nation's third century, we are now an information economy, so those who own the knowledge hold the power.
Sadly, as with land and capital in previous centuries, the extent to which we have knowledge is too often predicated on the family and neighborhood into which we are born. But the present inequities in education access, education funding, and education quality do not have to continue. A knowledge economy allows for more social mobility than an agricultural economy or an industrial economy; but only if we work hard to make more education more available to more people.
In fact, there are many on-ramps to success, as we are seeing a proliferation of educational resources like online learning, customized degrees for working adults, and technical assistance resources for small businesses. Wherever you’re coming from, all of us need to commit to constantly reinvesting in our human capital, lest we become as obsolete and marginalized as yesterday’s machinery. In fact, you will find in this very room assembled for you a number of outlets and individuals who are here for the express purpose of sharpening, retooling, and reconnecting you. Let me particularly single out Community College, a great and affordable connection to education and employment opportunities; as well as The Enterprise Center, where I worked for ten years and where I now serve on the board, which does so much in West Philadelphia and beyond to help minority entrepreneurs of all ages grow their businesses and create new jobs.
And, lest tough times cause us to focus inwardly to the neglect of those around us, all of us can commit to doing what we can to educate the next generation, with a particular focus on those children who lack for educational and other resources. All of us can be a mentor, a social resource, a role model to those who will carry the torch after us.
When times are tough, it can be tempting to throw in the towel, to give up on ourselves and our future, or at the very least to close off from opportunities to extend a hand of support to others. But this nation is great because, far from shrinking back, we resolutely press forward. We use challenging times to motivate us all the more to do what we can for ourselves, our families, and our communities. As individuals and as a country, our darkest hours were also the times we shook off what was holding us back, innovated our way to better places, and demonstrated our value for family and for community and for those less fortunate in the way we prioritized service even as we ourselves were struggling. And so I urge you to make the most of the resources that have been assembled here, and – having been helped much – to help others. Thank you.
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