Unemployment rising

That title reminds of the very bad horror movie, "Deep Rising". Like that movie, this story sucks, but unlike the movie you can't just get up and leave. As Xanthippas posted recently (like, this morning), the Treasury has decided to focus more on the consumer side of the economy. I'm not an expert, but I'm just really skeptical that this kind of plan will work. I know there are different theories of what part of the economy is the most important to keep it growing. Well, the American economy's growth was definitely pushed by consumer spending, more than just about any European or Asian country's. The reason for that, of course, was the ease of availability of credit. But that credit is exactly why we're in the situation we're in now. We know that in real terms, American wages have not been growing. People just don't make as much as they used to compared to the cost of living. Credit came in to help fill the gap between how people could live and how they wanted to live. Unfortunately, that's had a ruinous effect on the economy. I'm saying that perhaps the answer is not to try to lubricate the economy with credit, but rather that we find a way to free people's income up from debt to begin with. This will take a bit of work, sure, but in reality people just need to be paid enough to live and buy plenty of goods with cash. We don't need auto dealers selling cars again to people who can't really afford them.

Besides which, consumer optimism is going down. How many people are going to walk into the car dealership right now and try to get a new car? It's not just that the money's not there, it's that even people who have money are thinking twice about spending it on something they may not really need. Check out the latest jobless numbers:

The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.

The Labor Department on Thursday reported that jobless claims last week increased by 32,000 to a seasonally adjusted 516,000. That nearly matched the 517,000 claims reported seven years ago, and is only the second time since 1992 that claims have topped 500,000.

The total also was much higher than analysts expected. Wall Street economists surveyed by Thomson Reuters expected claims to increase only slightly to 484,000. Initial claims from two weeks ago were revised upward Thursday by 3,000 to 484,000.

The increase puts jobless claims at levels similar to the recession of the early 1990s. The four-week average of claims, which smooths out fluctuations, increased to 491,000, the highest in more than 17 years.The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.

The Labor Department on Thursday reported that jobless claims last week increased by 32,000 to a seasonally adjusted 516,000. That nearly matched the 517,000 claims reported seven years ago, and is only the second time since 1992 that claims have topped 500,000.

The total also was much higher than analysts expected. Wall Street economists surveyed by Thomson Reuters expected claims to increase only slightly to 484,000. Initial claims from two weeks ago were revised upward Thursday by 3,000 to 484,000.

The increase puts jobless claims at levels similar to the recession of the early 1990s. The four-week average of claims, which smooths out fluctuations, increased to 491,000, the highest in more than 17 years.The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.

The Labor Department on Thursday reported that jobless claims last week increased by 32,000 to a seasonally adjusted 516,000. That nearly matched the 517,000 claims reported seven years ago, and is only the second time since 1992 that claims have topped 500,000.

The total also was much higher than analysts expected. Wall Street economists surveyed by Thomson Reuters expected claims to increase only slightly to 484,000. Initial claims from two weeks ago were revised upward Thursday by 3,000 to 484,000.

The increase puts jobless claims at levels similar to the recession of the early 1990s. The four-week average of claims, which smooths out fluctuations, increased to 491,000, the highest in more than 17 years.The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.

The idea behind the new plan is that if people start buying stuff, the economy will at least halt the decline in actual growth. But I say let's not be short-sighted here. It was not the freezing of the credit markets that popped the bubble that started all this. It was the fact that at some point, a critical mass of people erupted who couldn't live up to all the debt they'd taken on. And now, what, we want to start lending mortgages again and selling cars? To whom, may I ask? I've kept my job but I'm certainly no better off now than I was 3 months ago. And my next pay raise ain't gonna bring me up to that magical next socio-economic level. In short, at best, we're right where we were when the bubble popped: people are still over-stretched and cash-short. Credit can't help that. Not for must of us, anyway. Millions of people have been saying, "Hey, if we can bail out the giant companies who were so irresponsible, why not bail me out?" And why not indeed? If we're going to waste that kind of money, just cut me a $2,000 check.

Or better yet, use it to begin an agency that helps people renegotiate their debts, with the power to mandate changes in principal to lenders and set interest rates, and also minimum payments. If you want people spending more on consumer goods, well, they need to have cold, hard cash. Cut their debt payments in half, make them unable to take on so much as a $100 store card at Kohl's, and let them go. Deduct their debt payments straight from their pay. Make sure they're getting groceries and other necessaries, and that they have enough cash to waste some on consumer goods. Also, create a federal job force (yes, just like the WPA) to put some actual cash in people's pockets. It may sound like an enormous expenditure, but even many conservative economists say it's ok to run up a deficit to get the economy going in a recession (or depression). As a side note, Congress shut down the WPA in 1943 because there was no need for it. With the onset of the war economy, employment ran at nearly 100%. So, why, in all these years since, has no one thought to reinstate a federal work program to keep employment high? It would exert a positive pressure on wages, as people in low-paying jobs could always defect to the federal workforce. Just my thoughts.

In a related story, Business Week tells us that in this recession, you are more likely to lose your job than take a pay cut. Take that as good or bad, whatever you will.

Pay hikes may fall below current expectations, and while employers are planning to raise pay, they are simultaneously cutting jobs. The jobless rate hit 6.5% in October, and many economists think it could reach 8% by late 2009. Employers are also looking for less conspicuous ways to save on benefits, such as reducing 401(k) matches or increasing deductibles and co-payments in health plans. A Watson Wyatt Worldwide survey in mid-October showed that 26% of employers were planning layoffs or other reductions in force in the coming 12 months, while 25% planned to raise employee contributions for health care. In contrast, only 4% were planning to cut salaries. "Firms are cutting workers instead of wages," says Ethan S. Harris, co-head of U.S. economics at Barclays Capital in New York.

By raising pay while cutting jobs, companies can "thin the herd" while giving remaining workers "the big corporate hug they need," says William C. Yoh, CEO and president of Yoh, a unit of Day & Zimmerman Group that supplies high-tech temps. Starbucks (SBUX) recently announced it was cutting jobs but isn't cutting pay or benefits. "We have to take care of our partners [i.e., employees] and keep them engaged," says spokeswoman Tara Darrow.

Uh, thanks, that's mighty gracious of you. Well, at least they're not saying they're going to start paying people in coffee.

Anyway, now you know more than you did. What say you?

Update: Krugman repeats that drastic times call for drastic measures.