US in turmoil as unemployment refuses to drop
While the UK Government frets about happiness, or the lack of it, the US administration worries about jobs.
America doesn't have enough of them. On Friday, we learned that the US unemployment rate had, unexpectedly, jumped to 9.8% in November from 9.6% in the previous month, only a whisker below the 10.1% peak recorded in October last year.
America's much-vaunted labour-market flexibility is badly misfiring. Despite a massive policy stimulus, not enough people are managing to get back to work.
Continual difficulties within the US real estate market provide one obvious reason for persistently high US unemployment. An eye-watering 19% of construction workers are currently without jobs. They won't be finding new work within the construction sector any time soon.
Admittedly, last year's 10.1% peak was not, historically, America's highest unemployment rate.
Post-war, that dubious honour belongs to November 1982, when unemployment rose to 10.8%.
At one point, short-term interest rates threatened to rise beyond 20%.
The cost of successfully squeezing the inflation of the 1970s out of the economic system was a huge increase in unemployment.
Today, there are no such excuses. Interest rates are down at zero. Far from being too high, inflation is remarkably low. Yet the labour market continues to misbehave.
In the post-war period, this lack of progress has been seen on only two previous occasions — at the beginning of the 1970s and in 1980.
The first of these signalled the beginnings of a major Western crisis which was associated with both an absence of growth and excessive inflation, while the second took place in the middle of what is now referred to as the “double-dip” recession.
America's jobs misery stands in stark contrast to the experience of other nations.
Even though its recession was extraordinarily deep, Germany's unemployment rate has been falling.
There is, however, a good reason why America's economic performance has been so slovenly. This is not a post-war crisis. It is, instead, a pre-war crisis, a crisis which unfortunately shares many traits with the Great Depression in the 1930s.
House price declines, defaults, bank failures, low interest rates, hopelessly weak credit expansion, high unemployment, depressed levels of economic activity: the ingredients were all there in the 1930s and they're back again today.
The good news this time around is that policymakers have been far more aggressive.
The headwinds, however, are huge and it's for that reason that there has been no return to business as usual.
How should US policymakers react to these difficulties?
They should start by injecting a much-needed note of realism, admitting that their macroeconomic box of tricks cannot fix all problems. The US needs to wean itself off its debt dependency.
It needs to forget about “quick fixes” such as dollar depreciation.
Instead, it needs to focus on the microeconomic foundations of past economic successes: the mobility of labour, the flexibility of finance in areas such as private equity and its pioneering entrepreneurial spirit.
Without a return to these values, the danger is that the US increasingly looks to blame somebody else for its problems.
That, however, will only take us into a world of isolationism, protectionism and worse. And that won't make any of us happy.