TOPICS > Economy

Krugman: Jobs Report Shows Labor Market ‘Going Sideways’

November 5, 2010 at 5:52 PM EDT
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Private-sector job growth in October surprised analysts, but U.S. unemployment held steady at 9.6 percent. "This is not progress," economist Paul Krugman told Judy Woodruff, while Douglas Holtz-Eakin said job growth has hit an "unacceptable anemic pace."
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JUDY WOODRUFF: Today’s U.S. jobs report was better than forecast, with private sector hiring more than double what economists had expected. It wasn’t enough to put a dent in the jobless rate, but it suggested businesses may be getting more confident.

The gains came in several sectors, from retailers adding workers for the holidays, to restaurants hiring more staff, and hospitals and schools expanding. Overall, the Labor Department reported a net gain of 151,000 jobs, the first increase since May. Private employers hired 159,000 workers, the best number since April, while government payrolls cut back by 8,000 positions.

MATT FERGUSON, CEO, Career Builder: I think at both the high end and the low end, we have seen companies start hiring again. In fact, entry level is up almost 50 percent when you look year-over-year.

JUDY WOODRUFF: In addition, revised figures showed private employers added 103,000 more jobs in August and September than first reported.

Still, it wasn’t enough to budge the unemployment rate from 9.6 percent, where it’s been for three straight months. And, with nearly 15 million Americans out of work, economists say it would take at least 125,000 jobs a month to make a real dent in the jobless rate.

Before leaving today on a trip to Asia, the president said the October news was encouraging, but not good enough.

U.S. PRESIDENT BARACK OBAMA: The unemployment rate is still unacceptably high. And we have got a lot of work to do.

In order to create the jobs to meet the large need, we need to accelerate our economic growth so that we are producing jobs at a faster pace, because the fact is, an encouraging jobs report doesn’t make a difference if you’re still one of the millions of people who are looking for work.

JUDY WOODRUFF: On the Republican side, Congressman John Boehner, the man expected to be the next speaker of the House, called again for extending the Bush-era tax cuts across the board to encourage more hiring.

In a written statement, he said, “Any job growth is a positive sign, but stagnant and stubbornly high unemployment makes clear why permanently stopping all the looming tax hikes should top Washington’s to-do list this month.”

Congress returns to work on November 15. In the meantime, the federal reserve has already weighed in this week with a $600 billion effort to help cut interest rates and get companies to accelerate hiring plans.

The jobs report had little effect on Wall Street, coming on the heels of yesterday’s big gains. The Dow Jones industrial average added nine more points to close at 11444. The Nasdaq rose one point to close near 2579. For the week, both the Dow and the Nasdaq gained nearly 3 percent.

Well, we get two takes now on unemployment and the broader economic picture just days after the midterm elections. Paul Krugman is an economist at Princeton University and a columnist for The New York Times. And Douglas Holtz-Eakin is a former director of the Congressional Budget Office. He’s now president of the American Action Forum, a policy think tank.

Gentlemen, thank you both for joining us.

DOUGLAS HOLTZ-EAKIN, former director, Congressional Budget Office: Thank you.

PAUL KRUGMAN, columnist, The New York Times: Thanks.

JUDY WOODRUFF: So, this is the first increase in jobs, private sector jobs, in five months, better than in — than was expected.

Paul Krugman, how do you read it?

PAUL KRUGMAN: There’s not much news here. This is still a picture of a labor market going sideways. So, if you believe one survey, we’re adding jobs at a pace that, if continued, would bring us to full employment around the year 2030. And if you believe the other survey, actually, things are getting a little bit worse, because the job growth isn’t keeping up with population.

This is not progress. It’s better than a big negative number, but it’s not good.

JUDY WOODRUFF: Doug Holtz-Eakin, not progress?

DOUGLAS HOLTZ-EAKIN: Certainly a glass that is neither half-full nor half — nor empty. I mean, we saw top-line job growth. That’s good. We saw wages grow. That’s good. We saw hours grow. That’s good.

But, as Paul pointed out, in the household survey, we saw a quarter-of-a-million people give up and quit looking for work, drop out of the labor force. We saw 330,000 jobs lost. And, if you looked inside the places where employers reported adding payroll, it was largely concentrated in health and education. This isn’t the kind of broad-based job growth you need to really declare victory.

JUDY WOODRUFF: Is that — when you look inside the numbers, Paul Krugman, do you see the same thing?

PAUL KRUGMAN: Yes, I mean, just the general point.

Look, we are very deep in the hole. We have lost more than 7 million jobs since the previous peak. It takes a lot of job growth to make up for that. If you look at the great boom during the Clinton years, we were adding 230,000 jobs a month for eight years running. And so one report of 150,000 jobs is — is nothing to celebrate. This is not a turning point.

JUDY WOODRUFF: Doug Holtz-Eakin, I read one economist today who said, after reading this report, he thinks the prospects for a double-dip recession are really out the window. What do you think?

DOUGLAS HOLTZ-EAKIN: Well, I have never been in the camp that thought a double-dip was on the horizon. I mean, you certainly can’t rule it out, and a policy error might produce that.

But I think the best interpretation of what is going on is that the United States economy has been growing for a year, but it’s growing at an unacceptably anemic pace, and that all of our attention being focused on taking the six million American employers and asking them what would it take for to you hire one more person, that would take care of the six million of the unemployed, and it would be huge progress.

JUDY WOODRUFF: Paul Krugman, why aren’t businesses hiring?

PAUL KRUGMAN: Because they don’t have enough sales. I mean, think about just in general. Why would businesses expand? Why would manufacturers add capacity, add workers, when they’re operating at about 72 percent of capacity right now?

Why would the service sector be expanding, when vacancy rates in office buildings and shopping malls are at near record levels? There just isn’t that much demand out there. This is an economy where consumers are not spending. It’s an economy where government spending never did go up, actually, when all was said and done.

And so there’s no good reason for them to expend. There is no mystery here. It is not as if there’s great opportunities for expansion that businesses are mysteriously not taking advantage of. There just isn’t enough demand out there.

JUDY WOODRUFF: But, Doug Holtz-Eakin, a lot of people are looking at Wall Street, and they see the numbers climbing, booming for the last several days — today, an exception — and they’re wondering, why isn’t that translating on Main Street?

DOUGLAS HOLTZ-EAKIN: Well, there is often a disconnect between Wall Street and Main Street.

And, you know, one of the great American economists of all time, Paul Samuelson, famously quipped that the stock market had predicted nine of the past five recessions.

I think the issue here is that we know the household sector cannot spend its way out of this hole. They are deeply stressed by debts, diminished house values, and their portfolios have been hurt. Governments at all levels are bleeding red ink and cannot spend in a way that drives this recovery.

The business sector is financially set to do it. They have a trillion dollars of cash on their books. And they are the one sector toward which our attention should be focused, because they can produce that demand that Paul was talking about. They can be the source of increased demand that then provides the feedback that it’s the strongest of recoveries.

So, I think we need strong growth policies directed on the business sector and a really unwavering focus on growth over other priorities.

JUDY WOODRUFF: Well, speaking — you did mention government. And I want to refer to what happened, what came out of these elections, midterm elections, on Tuesday. Voters were asked as they came out of their polling places — and there is no doubt that the economy was number one — 62 percent of those who voted said the economy was number one.

But when asked what the highest priority should be for the next Congress, 19 percent said cut taxes, but they were split on — 39 percent said reduce the deficit; 37 percent said spend money to create jobs.

Paul Krugman, what does that tell you?

PAUL KRUGMAN: I think it tells you that voters don’t have very clear ideas about macroeconomics, which, you know, why would you expect? They want to see results.

People say they want to cut the deficit. They always say they want to cut the deficit. But it turns out — I have looked at the political science research on this — that not only do people not actually reward politicians who cut the deficit; they don’t even know what is happening to the deficit.

In 1996, a plurality of voters and a majority of Republicans thought that the deficit had gone up under Bill Clinton, when in fact it was plunging like a stone. So, I think the voters are really conveying a message: Give us results. Give us jobs.

And I don’t think they are telling politicians anything useful about how to do that.

JUDY WOODRUFF: And Doug Holtz-Eakin, how does government create jobs or create an atmosphere in which jobs can be created?

DOUGLAS HOLTZ-EAKIN: I would agree that you can’t expect your average voter to be an economic policy expert.

But I do think the business community has been quite articulate and well-informed on this issue. And if we could have a sensible plan that controlled the growth of spending and brought future deficits down and stabilized the debt, that would take off the table a great risk to the economy, which is an interest rate spike in the future or rapidly higher taxes. The business community would find that comforting.

I think they are already comforted by the fact that some of the bigger overreach that was potential under a unified Democratic control has been taken off the table, and that that will improve their attitude about the future.

And, certainly, the voters said very clearly that they thought — 60 percent thought America was going in the wrong direction. Of those, 94 percent dislike the new health care law, in part because it represented government overreach.

And it does. The business community complains a lot about the uncertainty about future taxes. They should be kept low. It complains a lot about the burdens associated with that law. That is a danger from an economic policy point of view. You can stop doing some of those things and really do a lot of good for the business climate.

JUDY WOODRUFF: Well, is that going to create jobs, though, Paul Krugman?

PAUL KRUGMAN: Yes. No, Doug is — is — I call this believing in the confidence fairy, believing that if you say you are going to do good things about the long-run future, that somehow all of this private spending is going to come forth.

And, you know, private spending — certainly, business spending is no lower than you would given the depressed state of the economy. Given the excess capacity, given how far we are below the economy’s potential, there — you wouldn’t expect businesses to be spending more.

So, to say, well, what we are going to do is, we’re going to promise, basically, we’re going to have continuation of the policies of 2007, and yet somehow we’re going to have investment spending at levels that would be not at all consistent with the rest of the state of the economy, makes no sense.

This is an occasion. This is why, during a highly depressed economy, you really do need a combination of fiscal policies, spending, yes, spending by the government, and aggressive monetary policies to try and boot us out of this.

The idea that by just going for more deregulation and promises of lower taxes, without explaining how we are going to pay for that with lower spending, is going to make — you know, is going it to make this explosion of business spending, that’s pure wishful thinking.

JUDY WOODRUFF: Brief last word, Doug Holtz-Eakin.

DOUGLAS HOLTZ-EAKIN: There was no deregulation. It’s not adding costs to a business sector that is strapped. There’s no tax cuts. It’s just not raising taxes.

And you could do some proactive things that you wouldn’t have to reverse. Everything that Paul is suggesting, you would have to unwind at some point in the future. Sign some trade agreements, so we can sell our goods abroad. Cut the corporate rates, so that we are competitive internationally, as part of a step toward a tax reform where we raise the revenue that balances the budget in the future.

So, there is a lot you can do. Certainly, you have to focus on the business sector. And you can’t be dismissive of their concerns. For two years, the administration has been dismissive, and this is where we are.

JUDY WOODRUFF: We are going to leave it there. Gentlemen, we thank you both, Doug Holtz-Eakin, Paul Krugman.