Henery Blodget, : Scarest Job Chart Ever.

This has been around for more than a week, and I have pondered it quite a bit. Now, I am not going to minimize the pain out there, but the reality is that the ~2001 and ~1991 recessions were quick and mild on a historical basis. Yet, this graph makes it look like they were terrible because it took forever to get the jobs back. Yet, the unemployment stats don't reflect that.

I believe that what is happening is that as the economy is more and more technology and service-based, that the government is not as good at tracking what is going on in the job market. That is, as we come out of recessions more and more people are working for themsleves or for 1-2 man shops in a manner that is not tracked by the normal employement statisticians.

Again, this is not to argue that we are not up shits creek now.. the graphic clearly shows that the job losses here are very, very steep, I am just not certain that things are worse every recession.. in general (with this one being the exception) I think that recessions have been milder and milder.

But I am frightened for our country, mainly because so many good manufacturing jobs just don't exist anymore. Sure there are college educated jobs, and many service jobs, but what about supporting a family. People need job retraining, but there are insufficient programs for that retraining. We may be creating a much larger class of permanently unemployed with no place to go. I hope not.

A recession is, in essence, (AND THIS IS ALL ASSUMING FREE MARKETS BEFORE YOU CHAVEZISTAS COME DOWN ON ME) the market's recognition that inputs into the economy are not properly deployed.

So, for example, you have people employed in energy intensive industries in the 70's. Along comes the OPEC embargo, and those industries are no longer profitable. The economy goes through a recession which is really just the economy re-aligning itself to deploy capital and labor most efficiently. In the late 1980's, vast amounts of capital in labor were employed building un-needed commercial office space. This was due either to the normal way markets work in that they overreact, or due to governmental interference and/or corruption (the reason doesn't matter for the purposes of this discussion). So, people building commercial office space need to be re-deployed where the economy needs it, and capital needs to be redeployed where the economy needs it.

Same thing for the internet in the late 90's.

Now, we had millions of people and lots of capital inefficiently employed in an unneccessary expansion of the residential housing stock. No new houses are needed, so housing prices drop in order to signal the market "hey don't build any more god dammned houses that nobody needs to flip" and lots of highly paid people needlessly employed in leveraging hedge fund strategies based on the slicing and dicing of these mortgage and other debt products.

These people need to be redeployed elsewhere, and this capital needs to be liquidated and redeployed elsewhere... or at least that is what Austrian economic theory would state (the austrians would also claim this is also all the fault off the gov't, and not with the nature of markets themselves).

On the other side would be people who don't really trust the markets, and think that those involved at the top are not so much involved in markets gone wrong as they are people who leech off off those at the bottom. Therefore, the solution is to protect those at the bottom (keep them from losing their homes.. redeploy them in jobs provided by the gov't or perhaps supported by the government).

My personal belief is between the two.. I believe in markets but also think they need regulation becase A. They go awry, and B. Those at the top do exploit others.

But I digress..

What scares me now is perhaps a middle path.. we are not going to let the workers be liquidated.. or are we? We claim to want to help them but it is not doing much good. We are going to spend a trillion dollars keeping the capital from being liquidated.

We are keeping the top execs in the same jobs...

So what happens? From a free market standpoint, if you prop up housing prices you send the wrong signals to the markets.. you still have more people in the housing industry than the economy really wants. If you prop up failed capital, that capital does not shift from those who screwed up with it to those who want to deploy it in new industries.. instead it sits with the dinosaurs.. who have also learned that so long as they spend enough in the gov't and the media that they will be ok.

From a more socialist standpoint: OK, lets protect people.. but we aren't doing a good job of it, and we ARE protecting the top. You can't protect the workers and the top in a reccession, the result is uncontrolled deficits and debt.

So in short, I am fairly negative right now, just not for the reasons in the above graph, and I hope that I am wrong.

"If you prop up failed capital, that capital does not shift from those who screwed up with it to those who want to deploy it in new industries.. instead it sits with the dinosaurs.. who have also learned that so long as they spend enough in the gov't and the media that they will be ok."

Obama and the banks...and maybe the health care/insurance sectors too. Military too.

The auto companies went down because they spent too much on influencing congress and not enough on adapting to coming realities?

If you look at the chart it's easy to see that jobs won't be back for AT LEAST as long as in 2001...more likely taking a good bit longer. Already over 100% deeper losses...and counting. The rate of decline is still the same as only 9 months into the two previous recessions.