A Good Convention, a Bad Jobs Report

The August jobs report of the Labor Department is not great news either for the U.S. economy or for the Obama campaign. The headline drop on the measured unemployment rate, from 8.3 to 8.1 percent, conceals deeper weaknesses.

The economy generated only 96,000 jobs in August, far lower than the monthly average of around 200,000 in the spring. The nominal unemployment rate declined only because more people have given up looking for work. The ratio of employment to population declined by 0.2 percent. 

The Labor Department also revised the July and August monthly jobs numbers downward by about 20,000 each, leaving the 2012 job-creation performance below that of 2011.

Average wages also declined. An important report released last week by the National Employment Law Project showed that the majority of new jobs being added pay less than $13.83 an hour, and that while low-wage jobs accounted for only 21 percent of jobs lost in the recession, they are 58 percent of jobs gained in the recovery.

We are still stuck in a deflationary cycle, where purchasing power is inadequate to allow the economy to reach its productive potential. The Fed is trying to levitate the economy with very low interest rates. But that isn’t sufficient, because too few businesses see good reasons to invest and too few underwater homeowners are qualifying for refinancing at those lusciously low mortgage rates.

Very substantial public investment is the only way to cure this sick economy, but both parties are in a competition to display deficit-cutting laurels, and the case for a big stimulus is just not part of the mainstream debate.

The Democrats had a very good convention, partly because the Republicans had such a dismal one. But everyone, from Clinton to Michelle to the president himself, was in good form. If Obama does win, it will be because Romney is so much worse—not because the Democrats have a persuasive plan to move beyond a glacially slow jobs recovery.

In fairness, if Obama proposed a more robust recovery program, the Republicans would trash it and block it. But he should at least open this debate and try to move public opinion off the idea that deficit cuts are the royal road to recovery. Otherwise, we can expect the economy to sputter along in second gear for many years, while wages keep declining and we wonder why working class Ameircans are not motivated to vote.

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