"Productivity is what ultimately determines employment, and that looks good so far."

Casey Mulligan with the employment numbers. Oddly, I don't much like Ricardian Equivalence if it means anything more than if you shift resources or money in one part of the economy, it will have an effect on other parts of the economy. But I do seem to agree with him on where we are going, although not on the reasons we're getting there:

"In October I predicted that U.S. nonfarm payroll employment would never fall below 134 million (a level that would make this recession almost as deep as 1982). This prediction still makes sense to me, even though I did not anticipate that the Treasury and the Fed would themselves contribute to labor market damage.

Friday's employment report put nonfarm payroll employment at 136 million, having fallen 0.5 million in a month. Thus, I am predicting that we will not have four consecutive months like last month.

Productivity is what ultimately determines employment, and that looks good so far. On Thursday we learned that output per hour grew at 1.3% (annual rate) from 2008 Q2 and Q3, which is similar to the overall pace for 2007 and exceeds the pace for 2006. For the entire calendar year 2008, it looks like productivity will have grown more than it did for either of the prior two calendar years. By comparison, productivity growth was NEGATIVE in 1982 and (according to Cole and Ohanian) in EACH of the years 1930-33.

You may have noted the contrast between this year's employment performance and GDP performance. When productivity grows, output can grow even while employment falls. We are in a recession (and have been since late 2007) by the employment definition (NBER uses this) but not yet by the GDP growth definition. We likely will finish 2008 with more GDP than in any year in history, yet less employment than in 2007. The GDP and productivity performance is quite different from "severe recessions." What is severe about the 2008 economy is the news coverage, and the assault on the taxpayer!"

I think that the drop in housing prices and bank failures and stock market drop have been quite severe, as is the rise in unemployment. However, and I know that this can sound foolish, but I agree with him that the economy, and, in fact, I'll add the world economy, is in much better shape than people think. Which is why I don't find this 1930s reminiscence all that enlightening.

I also agree with Mulligan that government is a main culprit in our current crisis. However, it is rather more the fault of the business community which, whatever the government has done, made a serious of idiotic, and sometimes criminal, decisions, that were truly of momentous proportions.

I'm sure Mulligan is glad to know that if he turns out to be completely wrong, he'll have one other idiot to point to.

"History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own "

Real Time Economics on the WSJ, which I constantly read, sums up the employment news:

"Economists React: Employment Report ‘Almost Indescribably Terrible’

Economists and others weigh in on the substantially worse-than-expected decline in nonfarm payrolls, and the increase in the unemployment rate.

This is almost indescribably terrible. In the past six months the U.S. has lost 1.55 million jobs, almost as many as were lost in the whole 2001 recession, which included 9/11 and the two months after. The pace of job losses is accelerating alarmingly, as this report attests, with steep drops in most sectors but the biggest deterioration in services — down 370,000 in November after 153,000 in October. Note education/health and governmentt added 59,000, so core private payrolls even worse than headline. Desperate. –Ian Shepherdson, High Frequency Economics

Desperate.

"Quite simply, there was nothing good in this report. Even though some might take comfort in the relatively modest uptick in the jobless rate (from 6.5% to 6.7%), this is actually quite misleading. In fact, the household survey’s measure of employment came in at -673,000, an even sharper plunge than seen in the payroll figures. The jobless rate was actually restrained by a large decline in the labor force — as we had suspected… It is worth noting that the November payroll figures would have been even worse were it not for a special factor. We estimate that the direct and indirect effects of the resolution of the Boeing strike probably added about 35,000 employees to manufacturing payrolls in November. –David Greenlaw, Morgan Stanley"

Nothing Good.

"The September-though-November period saw an average 419,000 average monthly job losses, as the recession deepened. More timely unemployment insurance claims data suggest no let up in the current pace of job losses. While the unemployment rate rose only 0.2 percentage point to 6.7% in today’s report, the labor force shrank by 422,000 in November and 237,000 over the September-November period. While this suggests a discouraged worker effect, the severe worsening in labor markets has been relatively recent, with employment declines in January-August deviating little from the -82,000 per month average. There is little doubt that labor slack is rising rapidly, and the unemployment rate will jump in the months ahead. –Steven Wieting, Citigroup"

The Rate Will Jump.

"The November decline stands as the largest single month drop since December 1974, when employment plummeted by 602,000. With the latest revisions averaging nearly 100,000 per month, the November job loss could easily end up being the new post-World War II benchmark for severe job declines. The current job losses however are a much smaller share of total employment. For instance, the 535,000 decline represents a 0.39% drop in employment from October while the December 1974 drop was 0.77%. Nonetheless, the scale and speed of job losses over the last three months remains the worst since the 1973-75 recession. –David Resler, Nomura Securities"

Worst Since 1973-75 Recession.

"The bottom drops out of the labor market… History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while. We expect labor market conditions to be dreadful for many months to come and consequently for consumer spending to continue to decline. The U.S. consumer, which for so many years was the global engine of growth, will remain a significant drag on economic activity in coming quarters. –Joshua Shapiro, MFR Inc."

Now, this is hugely important from my point of view:

"History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while."

I believe that this shedding of jobs is also an overreaction due to the overshoot on aversion and fear of risk.

"These are god-awful numbers. The economy is headed downhill and the brakes are not working. There are so many layoff announcements that it is hard to keep track of. Some businesses are cutting jobs in anticipation of tougher times. This is especially true for retail, manufacturing and finance, which accounts for the bulk of jobs in the country. They want to trim fats and stay lean and mean for the tough times ahead. Also, business spending will be a drag on the economy in the foreseeable future. –Sung Won Sohn, Smith School of Business and Economics"

In anticipation. The same point as above.

"A shockingly weak report that suggests the fourth quarter could see a drop in real GDP of 5% or more at an annual rate. The large downward revisions to employment in September and October suggest that the economy was even weaker than we thought when the credit crunch intensified (indeed the employment report for September, which now shows a larger than 400,000 decline in jobs, was surveyed in the week before Lehman Brothers failed).,, These data will spur the calls for a massive stimulus plan, increase the chances of a rescue package for the domestic auto industry. –RDQ Economics"

I'm sure that's correct. The jobs lost in the Auto Industry and its tributaries would make this number veer upward even more drastically.

"Jobs plummeted again in November with deep and widespread job losses. Much of this collapse in jobs was due to the collateral effects of the credit crunch which is only slowly being repaired. So far this year, 1.91k jobs have been lost with half of those jobs being lost in the past 3 months as the downward spiral has accelerated. The recession is intensifying and the economy is rapidly shrinking. –Stephen A. Wood, Insight Economics"

Intensifying And Rapidly Shrinking.

"This was much worse than was expected and represents wholesale capitulation. The threat of a widespread depression is now real and present. –Peter Morici, University of Maryland "

What we need to battle is this capitulation. It's a matter of attacking and overcoming the presuppositions and conclusions causing this capitulation by human beings in the face of this crisis.