Lack of demand makes recession worse

Businesses are not creating jobs for one simple reason, says Jan Eberly, assistant treasury secretary for economic policy: lack of demand for the products those businesses make or sell.

One of the lingering effects of the 2007 housing crash and the ensuing 2008 stock market crash is a lack of spending among those who are holding on to decent jobs, and the obvious lack of available disposible income among those who have found themselves either unemployed or underemployed. Ken Lansing, an economist at the San Francisco Federal Reserve Bank, found in July that since the the recession began in 2007, Americans spent $7,356 less per person (in inflation-adjusted dollars).

Yet right-wing politicans continue to blame the jobs crisis on either existing government regulation of businesses or on proposed regulations in such areas as greenhouse gas emissions. But data presented by Eberly today demonstrates that the assertions of the anti-regulation crowd are patently false.

He writes:

If regulatory uncertainty was a major impediment to hiring right now, we would expect to see indications of this in one or more of the following: business profits; trends in the workforce, capacity utilization, and business investment; differences between industries undergoing significant regulatory changes and those that are not; differences between the United States and other countries that are not undergoing the same changes; or surveys of business owners and economists…none of these data support the claim that regulatory uncertainty is holding back hiring.

Among owners of small businesses, more than twice as many cite lack of sales as the major reason they’re not hiring (29.6 percent) than those who say government regulation is the sticking point (13.9 percent), according to a report by the National Federation of Independent Business, which Eberly cites.

In addition, Eberly writes:

[I]n a recent Wall Street Journal survey of economists, 65 percent of respondents concluded that a lack demand, not government policy, was the main impediment to increased hiring. 

Eberly’s article at the Department of Treasury site is replete with charts and data to back up his claims.