Thanks to a lot of great reporting, most recently by Bloomberg, we now know how strong the government's reaction to the banking crisis of 2008 was — how quickly and heavily financial institutions were propped up with federal money. This may well have been the right move, but as Paul Krugman says, "The real scandal isn't so much that those banks got rescued as that the rest of the population didn't."
A recent post and set of graphs from Mike Konczal, who maintains the excellent Rortybomb blog, drive this point home. Konczal graphs unemployment projections from the Federal Reserve against the actual unemployment rate over time. These plots reveal that the unemployment crisis turned out to be worse, at nearly every point in time, than the Fed was expecting. In other words the orange lines on the graph (the consensus of Fed unemployment projections) are almost always below the red line (the actual unemployment rate).
(Click on chart to view larger image.)
Konczal spells out why this matters:
"Part of why the bailouts were packaged the way they were was because the bankruptcy of Lehman Brothers went a lot worse than the Federal Reserve had anticipated. The Federal Reserve had an expectation of how the collapse of a major investment bank like Lehman would go, and when it went far worse than their expectation they reacted with maximum force...
Lehman Brothers goes worse than the Federal Reserve's projection and the Fed goes to the most extreme lengths it can find to extend emergency lending. Every single unemployment number turns out to be worse than all of the Federal Reserve's projections, and the Federal Reserve finds every excuse to look the other way."
The unemployment rate ticked downward in November, but we shouldn't kid ourselves that our jobs crisis is over. The Times reports that more than 300,000 people simply stopped looking for work last month, and that the 120,000 new jobs created were only enough to keep up with population growth. The mean duration of unemployment continues to rise, and the employment-population ratio (the percentage of working-age people employed) continues not to rise.
Like a lot of other people, I find our government's response to the employment crisis totally inadequate, especially when compared with our response to the banking crisis. The latter may have been reasonable and proportionate; the former simply can't be characterized that way.
I wrote Race Against the Machine with Erik Brynjolfsson to call attention to technology's role in societal challenges like rising inequality and chronic unemployment and under-employment. But no one needs to call our attention to the fact that a lot of people are out of work.
What's disheartening — and what I suspect is driving some toward radicalization and movements like Occupy — is how tepid proposed solutions to joblessness have been. In his new book, Boomerang, Michael Lewis uses some vivid language to describe what we learned during the years of easy credit leading up to the Great Recession. "The credit wasn't just money, it was temptation. It offered entire societies the chance to reveal aspects of their characters they could not normally afford to indulge. Entire countries were told, "The lights are out, you can do whatever you want to do and no one will ever know." What they wanted to do with money in the dark varied. Americans wanted to own homes far larger than they could afford, and to allow the strong to exploit the weak."
When the easy credit ended, the government leapt in with both feet to help formerly strong financial institutions regain their strength. Why isn't it doing more to help the weak?