The administration has apparently ditched Keynesian economics in favor of Philistine economics, calling for a domestic spending freeze or even spending cuts in the midst of double-digit unemployment.

The Associated Press has the story here.

Focusing on deficit reduction during a depression did not work for Herbert Hoover in 1932, and I’m at a loss to see why Obama’s economists are embracing spending cuts now.  The article does quote budget director Peter Orszag as saying cutting spending too fast could undermine the recovery, so I can only hope that they do not mean to make these cuts until recovery is well underway.  Given the dim prospects for a rapid recovery, the economy may not be ready to absorb any deep spending cuts for many years to come.

Actually, a better analogy than Hoover in 1932 might be Franklin D. Roosevelt in 1936-37.  At that time the U.S. economy had been recovering for about four years (after bottoming out in early 1933) but was still in depression, with unemployment above 9%.  But FDR, deciding it was time to focus on the budget deficit instead of the economy, cut spending and raised taxes (as the Fed doubled bank reserve requirements to soak up the vast excess reserves out there — which also sounds like a recent conversation), and the economy nosedived.  Had FDR and the Fed been less leery of deficits and excess reserves, the depression might not have lasted until World War II.

This morning brings the news that unemployment has reached double digits for the first time since 1983, rising from 9.8% to 10.2%.  And the U.S. economy has had a net loss of jobs for 22 straight months, the longest on record, dating back 70 years (to, yes, the end of the Great Depression).  There are 15.7 million unemployed, including a record 5.6 million who have been unemployed for six months or more. Since the recession officially began in December 2007, the number of unemployed has more than doubled, by 8.2 million.

The U-6 unemployment rate – which also counts discouraged and marginally attached job-seekers and involuntary part-timers – is now at an alarming 17.5%.  That’s the highest in the fifteen years that the government has been keeping track of that alternative measure.

Construction, manufacturing, retail trade, and transportation accounted for the bulk of the job losses.  To the extent that there is a bright side, temporary help services and health care services saw increased employment in October.

And if it’s any consolation, the actual unemployment rate, before making the standard seasonal adjustment (because unemployment tends to be higher in autumn) was “only” 9.5% for September and October.

In a not-altogether-unrelated development, labor productivity growth rocketed by 9.5% in the last quarter, about four times its normal rate of growth and the fastest increase since 2003 (i.e., since the aftermath of the 2001 recession).  This includes a whopping 13.6% increase in labor productivity in manufacturing, the largest since 1987.  This is ambiguous news: labor productivity, or output per hour worked, is ultimately the foundation of our standard of living, so rising productivity is basically a good thing.  But in recessionary times, for productivity to be growing almost three times as fast as output (GDP grew 3.5% last quarter), it means firms are producing more with less labor, which obviously does not do much to benefit the laid-off workers.  It may also just mean that firms have a lot of excess capacity, so workers have more capital to work with, which makes them more productive.  And indeed, industrial capacity utilization remains low, at about 70% or less since April, compared with the norm of 80%.  Daniel Indiviglio of The Atlantic provides more perspective on the productivity surge.

Not good, especially given that most forecasts are for a very slow recovery that could take a long, long time to restore the unemployment rate to pre-recession levels.  Paul Krugman says that even the much-touted 3.5% GDP growth of the last quarter is not nearly enough – it would take about a decade of 3.5% annualized GDP growth to bring us to full employment.  A decade of high unemployment is best termed not a “jobless recovery,” but a depression.

. . . while selling $40 billion of mortgage-backed securities that it claimed were safe.  The article, by Greg Gordon of McClatchy Newspapers, is based on a five-month investigation.

Yves Smith at Naked Capitalism has a few words on the matter and on the article, here.

This week’s news from the Commerce Department is that real GDP grew at a 3.5% annualized rate in the 3rd quarter of 2009, which is the best quarterly growth rate in two years.  And some economists, including the National Bureau of Economic Research’s (NBER’s) Jeffrey Frankel, are saying the recession probably ended sometime this summer.  Meanwhile, a poll of MSNBC readers finds that 82% think the recession is still raging, 9% think the economists are right, and 9% don’t know.  (Yes, online polls are unscientific, but earlier, professional surveys I’ve seen of the public also found them to be more pessimistic about the economy than the experts.)

Are the economists that obtuse, or is the public that dumb?  Even if one’s preferred is answer is “Both,” I think the split is due to two different definitions of “recession.”  The NBER and the economics profession define a recession as a general period of economic decline, whereas I bet most people define it as a weaker-than-usual economy.  I would argue for throwing the word out altogether when discussing the economy.

• Use “contraction” to denote a period of actual decline, just as the 1929-33 collapse was called the Great Contraction.
• Use “depression” to denote a period of economic weakness, just as 1929-early 1941 was the Great Depression.  I argued in March that we were in a depression, but if “depression” sounds too harsh because people associate it with the Great Depression, then say “slump.”

Right now, the different professional and public definitions of “recession” (just as with “money” and “investment”) just makes economists seem that much more out of touch.

It must be cold comfort to the 14.5 million unemployed Americans to hear that unemployment is a “lagging indicator” and that the job market should pick up sometime after the economy picks up.  Especially when the signals for the economy itself are still mixed.  The most frightening news is that there are currently six unemployed job seekers for every vacant position out there.  And even that’s counting only the “officially” unemployed and not the underemployed or the jobless people who’ve given up looking.  The NYT has the story here.

The Kinks have the cautionary don’t-quit-your-old-job-until-you’ve-found-a-new-one tale here:

Great stuff from Matthew Rose in the WSJ.

Ambrose Bierce would surely approve.

(Hat tip: Anina Bennett, on Facebook.)

Krugman’s latest column is a gem.  The problem, he says, is not the level of financial-industry pay but its asymmetry — lavish rewards for short-term profits, no responsibility for long-term losses or systemic damage — and the perverse incentives that result.  Once again, it’s a case of “privatize the profits, socialize the losses.”

Judging from the quote from President Obama, it doesn’t look like this administration is going to do anything about it, though.  Sigh.

Economist Richard Thaler has a thought-provoking, argumentative piece in today’s NYT that takes a critical look at the current debate about a public option, or government-run option, for health insurance. The gist of Thaler’s column is that having a public option is unlikely to make much of a difference, at least if it is required to break even. Interesting stuff, especially coming from a sometime Obama adviser and top behavioral economist.

Democratic National Committee Chairman Howard Dean has a new book out about health care which says a public option is absolutely essential for serious reform, but evidently Obama and Health and Human Services Secretary Kathleen Sebelius have backtracked on that one or were not so keen on it in the first place. Thaler reminds us that the two key issues here are (1) covering the uninsured and (2) bringing down costs. Whether and how that can be done with health insurance cooperatives, the leading proposed alternative to a public option, will be two of the big questions in the weeks to come.

UPDATE, August 18: Rethinking the Economy has a pointed rebuke to Thaler.  So does Dean Baker.  Both suggest he dismisses the public option much too blithely.

Among the latest signs of recovery are positive GDP growth rates for Germany and France in the second quarter of this year.  The media, apparently tired of reporting bad news, are trumpeting this as sensational news, which it really isn’t.

Both of those countries saw real GDP growth of 0.3% (or about 1.2% annualized), which is better than negative, but less than half of what normal GDP growth looks like. (The average for the last 30 years is 2.9% per year.) And in a real, robust recovery the economy is supposed to grow faster than normal; it has to, to get back to its potential. If GDP in those two countries had fallen by 0.1%, they would still be considered to be in recession — should so much importance be attached to a difference of 0.4% in a three-month period?

Actually, minus 0.1% was the GDP growth rate of the sixteen Euro-using nations as a whole in the last quarter, the European statistical office announced yesterday.  And the 27-nation European union’s economy shrank by 0.3%.  And the U.S. economy, as announced a few days ago, shrank by 1.0% in the last quarter.  A ways to go before it’s safe to pronounce recovery as imminent, I think.  But “McLaughlin Group”-style predictions, no matter how inane or inaccurate, are the lifeblood of the punditocracy.

To return to an old hobbyhorse of mine: The media and most people today employ way too narrow a definition of recession, i.e., “two or more consecutive quarters of declining GDP growth.” That is not the “official” definition, just the most common one. That would be a better definition of contraction, an actual shrinking of the economy. A full recovery, not merely an end to negative GDP growth, is what restores the economy to health. To cite an example of an awful time that at least had better terminology, the Great Depression lasted from mid-1929 to early 1941, although the economy was actually contracting for only about five of those years (1929-33, 1937-38). But it was a clearly a depression throughout, with high unemployment and huge amounts of slack in the economy, and nobody disputed that. Again, it is good that we have a president who says that in his mind the recession won’t be over until we stop shedding jobs, but more properly, I think, the recession won’t be over until the unemployment rate is back to normal levels, say around 5-6%.

To be sure, there are some positive signs of recovery out there, like the just-reported substantial rise in U.S. exports, which suggests that our trading partners are doing well enough to buy our stuff, and the recent uptick in the Gallup consumer confidence survey, but reports of the recession’s demise still seem premature.

Pete Rose, Ty Cobb, and this blog.