If we see a car that runs into a brick wall at 80 miles an hour, we don't ask why its front end is messed up. In this same vein, why on earth would be looking for a reason for a lack of jobs in an economy that has a gap of close to $1 trillion a year in annual demand.
This is what Robert Atkinson does in a column in the Huffington Post. If we take him at face value, Atkinson is actually confused about the reason that the economy is lacking jobs. He must have missed the housing bubble and its collapse.
See, the housing bubble was directly creating hundreds of billions of dollars of annual demand by spurring record levels of construction. The housing wealth effect also generated close to $500 billion in annual consumption through the housing wealth effect. The bubble generated more than $8 trillion in additional equity, almost all of which has now disappeared.
After the bubble collapsed, housing fell from more than 6 percent of GDP to less than 2 percent of GDP, a loss in annual demand of more than $600 billion. The loss of housing wealth, coupled with the loss of close to $5 trillion in stock wealth, led to a falloff in annual consumption of close to $500 billion. Lost tax revenue also led to cutbacks in annual government spending at the state and local level of close to $100 billion.
In short, we have lost more than $1.2 trillion in annual demand. The stimulus package came to around $300 billion. Guess what, $1.2 trillion is much more than $300 billion.
The long and short is that the economy is operating way below its potential because there is nothing to replace the gap in demand created by the collapse of the housing bubble. The lack of demand means a shortage of jobs and high unemployment. There is nothing mysterious about this picture, it is about as simple and straightforward as it gets.
I suppose, in this weak economy that it is good people can get jobs looking for solutions to mysteries that do not exist. (Make work jobs can make sense if there is no productive employment available.) But there is no reason that the rest of us should be bothered by solutions for non-existent problems.
[btw, the fact that the stimulus was too small is not 20/20 hindsight, it is what those of us who know economics said at the time.]