Monday, March 23, 2009


Given last week's blowup over Wall Street bonuses, and today's ruckus over the asset relief proposal, it's worth remembering for a moment what Karl Marx once called the reserve army of labor--the unemployed.

Prediction--we are headed for a double digit national unemployment rate by the middle of the year.

The West Coast is already there. California, Nevada and Oregon all have unemployment rates of over 10%. I'm not sure about Washington State, but between Nordstrom's, Starbucks, Boeing and Washington Mutual headcount reductions, it is coming. The reason Obama was talking so much about job creation last winter was that his advisors could see it coming in the numbers they had then. I suspect the equity markets are already pricing in these kinds of numbers, although I don't think the current stress testing for financial institutions anticipates it.

In addition, though harder to measure, annecdotal reports of a reduction in hours worked by full time and part time hourly workers are making the rounds. In my own extended family, I'm aware of a truck driver, hospital employee and retail clerk who've all had their hours cut. Making sense of this will be difficult, because you've got seasonality in lots of the businesses that hire part time hourly help. Admittedly, those jobs are generally at the lower end of the payscale, which means that their impact in diminished in the aggregate. On the other hand, all of those paychecks get spent, so in terms of economic stimulus, they are more important than the tax cut for a relatively better off recipient who uses it to rebuild his household balance sheet (the currently popular 25 cent phrase for saving, rather than spending, the government's stimulus package).

Rising unemployment will have as big a political impact as it does economic consequences.

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