Sunday, August 21, 2011

Layoffs Increasing as Stimulus Money Runs Out

The most frightening aspect of the renewed market crash here in the U.S. is the realization that if we see a repeat of 2008 there will soon be another massive spike in unemployment as financially distressed companies again shed workers to try and ride out the storm. The problem is that during the first go-around three years ago the federal government had not yet spent itself to the brink of disaster. Regrettably, most of the increased deficit spending back then went to bail out the big banks and Wall Street. The only real help Main Street received was Obama’s $700 billion Recovery Act, which is now running its course just as the economy is apparently about to enter the second dip of the recession.

While the stock market carnage garnered all of the headlines late this past week, two news stories that appeared on Friday that tell the tale of the effects of the expiring economic stimulus from the Recovery Act. The first, from the Tacoma Tri-City Herald, is about layoffs at a radioactive waste cleanup site along the Columbia River:
The Department of Energy has authorized its environmental cleanup contractors at Hanford to lay off up to 1,100 more workers in the fiscal year that starts Oct. 1.

That's in addition to up to 1,985 layoffs already announced this year, the majority of which will be Sept. 29.

The layoffs announced earlier this year are mostly linked to the end of federal economic stimulus money. Hanford received $1.96 billion in American Recovery and Reinvestment Act money that should be mostly spent by Sept. 29.
The second story is out of Ohio from Columbus Business First:
As many as 700 Ohioans who worked to weatherize homes with stimulus funding could be laid off as the federal dollars run out, the Dayton Daily News reports.

Community action agencies writing to the state said the layoffs would take place by Oct. 31, adding that more than 250 of the 700 already have been cut. Ohio received $267 million in June 2009 under the federal stimulus program for weatherization and more than 1,000 workers were trained to update homes, the paper reported.
The Recovery Act was a typical Washington boondoggle, designed to throw massive amounts of money at a problem with little thought as to whether the taxpayers were going to get a good value for what was being spent in their names. It greatly contributed to the enormous imbalance in the nation’s budget that helped lead to the recent debt ceiling debacle in Congress.

All of that said, there’s also no denying that the program DID help arrest the precipitous downturn in employment that followed the 2008 market crash. As these two stories demonstrate, some Americans WERE put to work using Recovery Act funds whom without it would now likely be “99’ers” just falling off of the long term unemployment rolls.

We will likely know by the end of the year whether this new crash is going to lead to another massive bout of unemployment. If we start seeing the monthly jobs report printing at -500,000 or more again like it was during the first half of 2009, things are going to get really ugly out there, and given the current political climate there likely will be no second Recovery Act to help arrest the fall this time around.

It looks entirely likely that we are going to head into the presidential election year with the economy having resumed its free fall. The consequences of that happening, given how infantile the rhetoric coming out of the campaign has already been to date, can only be imagined.


  1. "Regrettably, most of the increased deficit spending back then went to bail out the big banks and Wall Street."

    I'm not sure this is the case. A good chunk of TARP has actually been payed back. I think we may have spent more on unemployment benefits by now. This in no way detracts from your larger point, though.

  2. @surferelf - allegedly. All we have is their word as to what has been paid back. To say I don't trust any of what I hear in that regard is an understatement.

    Let's also not forget the ZIRP and QE policies of the Federal Reserve that have devalued the dollar and crushed small savers as an even larger "back door" bailout of the big banks and Wall Street.

  3. As Dave Cohen (Decline of the Empire blog) likes to point out, there are two economies... the money economy and everything else (the "real" economy). The recovery act actually did provide quite a bit of assistance to the regular everything else economy (see for accounting of funds). While some of it still went into the money economy, most went into the "real" economy.

    The problem is that the recovery act was only a tiny percentage of what the government actually spent in "stimulus" and virtually everything else went entirely into the money economy, with no tangible benefits at all to the real economy. As the stimulus (recovery act) money runs out, the little bit that main street got is going away. However, the banks can still borrow at nothing and buy up treasuries (or foreign debt) and make a bundle on the carry trade. This is probably the single largest piece of government bailout that was undertaken and it's never talked about in the MSM and it's still going on with no end in sight. This is basically a direct transfer of wealth from the government to the big bank money economy. While real Americans are once again going to be left on their own to suffer, the banks continue to cash out at our expense. Ain't capitalism grand?!

  4. @bmerson - actually I wouldn't really call it capitalism anymore. Socialism for the rich and Darwinism for everybody else is more like it.

  5. @Bill - true. Generally, I consider us to be an oligarchic kleptocracy, but I thought "capitalism" fit the sarcastic tone of the last question. ;-)