Jobs and Recovery

Quoting Paul Krugman again, this time in agreement with him as he did a column yesterday answering questions for readers. He was asked for a definition of “the economy” and replied,

I’d say that the economy is everything that involves making or using goods and services.

He also has said recently that the economy is improving but that “jobs are a lagging indicator” and at that point he and I part company. How can “making and using goods and services” improve while jobs are being lost at a very rapid pace?

When a recession ends unemployment is a lagging indicator because “employers are reluctant to rehire until they have evidence that the recovery is real.” That means that unemployment does not reduce from the level that obtains at the time that the recession ended. It takes time after the end of the recession for unemployment to begin to improve.

That’s not what we have here. The unemployment picture is not merely failing to improve, it is still getting worse. Employers are not “reluctant to hire,” they are still rapidly shedding jobs. They are not “waiting to see if the recovery is real,” they see no recovery and are forecasting that they cannot maintain their status quo.

I would suggest that until unemployment at least levels off we should not even be talking about recovery. I am not suggesting that we should require that employment be improving, but when it is still declining, and declining rather rapidly, I think it is insanity to be swooning over the stock market numbers and claiming that the economy is “recovering.”