Alan Greenspan appeared on ABC's 'This Week' saying some scary things:
STEPHANOPOULOS: You know, for most Americans, this jobs issues is the one that hits home the hardest. And that report on Friday was a surprise, much worse than people expected. What should Americans expect right now? How much worse is this job situation going to get for how long?
GREENSPAN: Well, it's very difficult to make judgments at a time like this, largely because we don't have so many incidents in history to be able to compare it to. But basically I think the issue is this.
The job report was pretty awful, no matter how you looked at it. Indeed, not only, of course, did the unemployment rate go up, but I was particularly concerned about the number of Americans who have been unemployed for six months or longer. And that went up...
STEPHANOPOULOS: Five million Americans.
GREENSPAN: But that went up sharply in September. And remember, the reason that is a problem, obviously, other than the obvious personal difficulties that families have in such a context, is that the economy loses skills. And people who are out of work for very protracted periods of time, lose their skills eventually.
And remember that what makes an economy great is a combination of the capital assets of the economy and the people who run it. And if you erode the human skills that are involved there, there is a real and in one sense an irretrievable loss.
STEPHANOPOULOS: So what do we do about it?
GREENSPAN: Well, the issue is essentially economic activity. And the reason I say that is that there is a silver lining in that particular report. And it's difficult to find one. It's that American business after Lehman Brothers collapsed and the whole financial system imploded, business expected that the economy would go down far more sharply than it in fact did.
The result was they laid off a very substantial number of people to the point that the actual hours worked fell even more than the economy. So that what we're getting is artificial numbers which give us productivity gains of horrendous amounts, meaning the amount of labor input per unit of output has been going down and down. And that can't continue.
So that silver lining is at some point we're going to start to see an improvement in employment. But remember that unless there is a monthly increase of more than 100,000 a month, you've still got the unemployment rate continuing to rise.
STEPHANOPOULOS: And that's why the administration's projections show more than 8 percent unemployment through 2011. You saw the president yesterday say now he's going to look at new ideas to spur job creation.
What should he be doing now? What would you advise him to do?
GREENSPAN: Well, I think the focus has got to be on trying to get the economy going, but you also have to be careful that in trying to do too much you can actually be counterproductive. And we are in a recovery, and I think it would be a mistake to say the September numbers alter that significantly.
It is true, the last couple of weeks that some of the numbers that are coming in have been a little bit soft. But this is what a recovery looks like. In retrospect we always look back and we see the ups and the downs and the ups and the downs, and we just visually (ph) go right through it.
It's premature to act on this type of information.
[...]"GREENSPAN: Well, no, I think we're getting close to that. But remember, the end of the job loss is not the same thing as if the unemployment rate is going to start down. My own suspicion is that we're going to penetrate the 10 percent barrier and stay there for a while before we start down."