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Obama's Search for the Holy Grail

12:00 AM, Sep 10, 2011 • By IRWIN M. STELZER
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Obama’s room for maneuver is also restricted by the fact that Federal Reserve Board chairman Ben Bernanke has done about all he can, despite last week’s speech in which he repeated that he still has “a range of tools” available to reduce the probability of a double-dip recession, now put by many analysts at 50 percent. But most agree that he has few arrows left in his quiver, or rabbits in his hat, or any silver bullets—choose your own cliché from among those echoing around Wall Street.

Bernanke will gather his colleagues later this month to persuade a fractured monetary policy committee to do a central banker’s version of the 1960s dance the twist: reduce the Fed’s holding of short-term government IOUs, and increase purchases of longer-term treasuries in order to lower long-term interest rates and encourage investment. He might also stop paying interest (0.25 percent) on banks’ deposits, reducing their incentive to leave cash with the Fed and encouraging them to lend it to businesses and consumers. Few believe these moves can have much of an impact on job growth, least of all in the short-term.

Stimulative fiscal policy is also effectively unavailable to boost employment. With the deficit in double digits, the national debt approaching 100 percent of GDP, and the last stimulus deemed a failure, the electorate finds the spend-our-way-to-prosperity approach unacceptable, no matter its theoretical attractiveness to Keynesian Democrats.      

Most important of all, the changing structure of the labor market reduces the ability of short-term fixes to make a significant dent in the unemployment rate. There are 3.2 million job vacancies in the U.S., down from 4.4 million at the beginning of the recession, but up by 1.1 million from last year. At the same time, there are 14 million unemployed workers actively seeking work.

These figures are not directly comparable, but they suggest that Maria Canon and Mingyu Chen, economists at the Federal Reserve Bank of St. Louis are on to something when they say that there is “a poor match” between the skills employers want, and the skills the unemployed possess. Over 50 percent of the jobs lost during the recession were in manufacturing and construction, while more than 90 percent of new positions were in other industries.

Which might account for what Bloomberg Businessweek headlines, “The Slow Disappearance of the American Working Man.” The portion of men between 25 and 54 years, the prime working age, holding any job is now 81 percent, down from 95 percent in 1969. The newer jobs rely less on brawn, and women now make up 57 percent of college students. Brawny men are losing out to better educated brainy women in many occupations.

The solutions are obvious: retraining, better education, and increased incentives to move from unemployment and disability benefits to pay checks. None of those is cheap, and none can be put in place in time to improve the president’s shriveled reputation for economic competence. So, like politicians on both sides of the aisle, Obama continues to search for that political Holy Grail—a short-term fix. So far, he has been no more successful than were King Arthur’s knights in their earlier quest.  

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