|The unemployment timebomb is quietly ticking
By Ambrose Evans-Pritchard
ONE DOG HAS yet to bark in this long winding crisis. Beyond riots in Athens
and a Baltic bust-up, we have not seen evidence of bitter political protest
as the slump eats away at the legitimacy of governing elites in North
America, Europe, and Japan. It may just be a matter of time.
One of my odd experiences covering the US in the early 1990s was visiting
militia groups that sprang up in Texas, Idaho, and Ohio in the aftermath of
recession. These were mostly blue-collar workers, – early victims of global
"labour arbitrage" – angry enough with Washington to spend weekends in
fatigues with M16 rifles. Most backed protest candidate Ross Perot, who won
19pc of the presidential vote in 1992 with talk of shutting trade with
The inchoate protest dissipated once recovery fed through to jobs, although
one fringe group blew up the Oklahoma City Federal Building in 1995.
Unfortunately, there will be no such jobs this time. Capacity use has fallen
to record-low levels (68pc in the US, 71 in the eurozone). A deep purge of
labour is yet to come.
The shocker last week was not just that the US lost 467,000 jobs in May, but
also that time worked fell 6.9pc from a year earlier, dropping to 33 hours a
week. "At no time in the 1990 or 2001 recessions did we ever come close to
seeing such a detonating jobs figure," said David Rosenberg from Glukin
Sheff. "We have lost a record nine million full-time jobs this cycle."
Earnings have fallen at a 1.6pc annual rate over the last three months. Wage
deflation is setting in – like Japan. Interestingly, The International
Labour Organisation is worried enough to push for a global pact, fearing
countries may set off a ruinous spiral by chipping away at wages try to gain
Some of the US pay cuts are disguised. Over 238,000 state workers in
California have been working two days less a month without pay since
February. Variants of this are happening in 22 states.
The Centre for Labour Market Studies (CLMS) in Boston says US unemployment
is now 18.2pc, counting the old-fashioned way. The reason why this does not
"feel" like the 1930s is that we tend to compress the chronology of the
Depression. It takes time for people to deplete their savings and sink into
destitution. Perhaps our greater cushion of wealth today will prevent
another Grapes of Wrath, but 20m US homeowners are already in negative
equity (zillow.com data). Evictions are running at a terrifying pace.
Some 342,000 homes were foreclosed in April, pushing a small army of
children into a network of charity shelters. This compares to 273,000 homes
lost in the entire year of 1932. Sheriffs in Michigan and Illinois are
quietly refusing to toss families on to the streets, like the non-compliance
of Catholic police in the Slump.
Europe is a year or so behind, but catching up fast. Unemployment has
reached 18.7pc in Spain (37pc for youths), and 16.3pc in Latvia. Germany has
delayed the cliff-edge effect by paying companies to keep furloughed workers
through "Kurzarbeit". Germany's "Wise Men" fear that the jobless rate will
jump from 3.7m to 5.1m by next year. The OECD expects unemployment to reach
57m in the rich countries by the end of next year.
This is the deadly lag effect. What is so disturbing is that governments
have not even begun the spending squeeze that must come to stop their
countries spiralling into a debt compound trap.
French president Nicolas Sarkozy, with a good nose for popular moods, says:
"We must overhaul everything. We cannot have a system of rentiers and social
dumping under globalisation. Either we have justice or we will have
violence. It is a chimera to think that this crisis is just a footnote and
that we can carry on as before."
The message has not reached Wall Street or the City. If bankers know what is
good for them, they will take a teacher's salary for a few years until the
storm passes. If they proceed with the bonuses now on the table, even as
taxpayers pay for the errors of their caste, they must expect a ferocious
We are fortunate that the US has a new president enjoying a great reservoir
of sympathy, and a clean-broom Congress. Other nations must limp on with
carcass governments: Germany's paralysed Left-Right coalition, the
burned-out relics of Japan's LDP, and Labour's death march in Britain. Some
are taking precautions: Silvio Berlusconi is trying to emasculate Italy's
parliament (with little protest) while the Kremlin has activated
"anti-crisis" units to nip protest in the bud.
We are moving into Phase II of the Great Unwinding. It may be time to put
away our texts of Keynes, Friedman, and Fisher, so useful for Phase 1, and
start studying what happened to society when global unemployment went
haywire in 1932.