Posted by Jason | Posted in Economics | Posted on 12-04-2010
After all the stimulus, bailing out Wall Street to save Main Street, devaluing the dollar with the printing press, and TARP, Robert Reich tells us we are looking at a horrible job market for the foreseeable future.
The U.S. economy added 162,000 jobs in March. That sounds impressive until you look more closely. At least a third of them were temporary government hires to take the census—better than no job but hardly worth writing home about.
Reich doesn’t tell you that almost every month previously was basically all government jobs. What do those jobs produce? They produce absolutely nothing, which means all they are doing is consuming what would have otherwise went towards other economic activities that would have produced something, and when there is production, there are real jobs. Every dollar spent by the government is taken out of the real job creating private sector. Considering the current regime, it’s no wonder Reich is so bleak.
Since the start of the Great Recession in December 2007, the economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers. That leaves us more than 11 million jobs behind. (The number is worse if you include everyone working part-time who’d rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they’re in.) This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began.
Lovely. Add ObamaCare on top of that, and what will we be looking at? Maybe Reich’s five to eight years is taking into account how long it will take for companies to adapt to the new costs of doing business. Of course, that ignores the countless businesses that will never form and jobs never created because of the cost of ObamaCare. No worries though! They’ll have free health care!
Given how many Americans are unemployed or underemployed, it’s hard to see where we get sufficient demand to support a vigorous recovery. Outlays from the federal stimulus have already passed their peak (Did I miss the peak? Man I wanted to see the peak. I bet it was amazing considering how much it cost.) , and the Federal Reserve won’t keep interest rates near zero for very long (let’s hope not). Although consumers are beginning to come out of their holes, it will be many years before they can return to their pre-recession levels of spending. Most households rely on two wage earners, of whom at least one is now likely to be unemployed, underemployed or in danger of losing a job. And even households whose incomes have returned are likely to be residing in houses whose values haven’t—which means they can’t turn their homes into cash machines as they did before the recession.
This to me sounds like an admission that Keynesian economics and it’s economic manipulating tools have lost effect. In the past, they would create a false boom that would eventually bust. This is what happened in the DotCom bubble and then the housing bubble. While the Keynesians probably stood around in delight to the boom they manufactured, eventually they came crashing down on us in progressively worse busts. Now it seems the bust is so big, that their tools can’t create the false booms they once did. While I’m glad the tools aren’t working, because maybe we can get back to real growth, I’m sure they’ll keep trying and we’ll keep paying.
What’s likely to slow the jobs recovery most, however, is the indubitable reality that many of the jobs that have been lost will never return.
The Great Recession has accelerated a structural shift in the economy that had been slowly building for years. Companies have used the downturn to aggressively trim payrolls, making cuts they’ve been reluctant to make before. Outsourcing abroad has increased dramatically. Companies have discovered that new software and computer technologies have made many workers in Asia and Latin America almost as productive as Americans, and that the Internet allows far more work to be efficiently moved to another country without loss of control.
Companies have also cut costs by substituting more computerized equipment for labor. They’ve made greater use of numerically controlled machine tools, robotics and a wide range of office software.
Where have I heard this before? Maybe we should just throw all the technologies out. Then maybe we can pay some people to dig holes, while others are paid to fill them. It’s amazing that such a famous economist is so ignorant about technology. Technology doesn’t cost us jobs and drive business overseas. Technology increases productivity, which leads to more wealth and a better standard of living. We’ve had increasing technology throughout mankind, and it has always led to a higher standard of living. There are always going to be people harmed by the changes though, but then they will adjust, and their standard of living will be better as well. Just think of those poor horse carriage builders who were put out of work with the introduction of the automobile.
The problem with driving business overseas is a self inflicted wound. Our government continually piles burdens on business and citizens, which ultimately drives up the cost of each US based employee to the point where the foreign employee is much more competitive.
These cost-cutting moves have allowed many companies to show profits notwithstanding relatively poor sales. Alcoa, for example, had $1.5 billion in cash at the end of last year, double what it had on hand at the end of 2008. It managed this largely by cutting 28,000 jobs, 32% of its work force. But for workers, there’s no return. Those who have lost their jobs to foreign outsourcing or labor-replacing technologies are unlikely ever to get them back. And they have little hope of finding new jobs that pay as well. More than 40% of today’s unemployed have been without work for over six months, a higher proportion than at any time in 60 years.
And guess what, we are all better off for it. Would we be better off if Alcoa didn’t layoff employees, and 80,000 employees lost their jobs when the company went bust? As crappy as layoffs are, they are in the economic interests of the company and the society as a whole. They allow companies to stay in business, to keep the remaining workers employed, and to fight another day.
I guess to a statist like Reich companies should run themselves into the ground, so they can then stand around telling us how the free market has failed and the government needs to take over.
The only way many of today’s jobless are likely to retain their jobs or get new ones is by settling for much lower wages and benefits. The official unemployment numbers hide the extent to which American workers are already on this downward path. But if you look at income data you’ll see the drop.
Among those with jobs, more and more have accepted lower pay and benefits as a condition for keeping them. Or they have lost higher-paying jobs and are now in new ones that pay less. Or new hires are paid far lower wages than the old. (In January, Ford Motor Co. announced that it would add 1,200 jobs at its Chicago assembly plant but didn’t trumpet that the new workers will be paid half of what current workers were paid when they began.) Or they have become consultants or temporary workers whose pay is unsteady and benefits nonexistent.
Americans will once again be employed, but they will also be back on the downward escalator of declining pay they rode before the Great Recession.
So Americans can look forward to declining pay with devalued dollars. Man, Reich is making me feel positive today. The reason you have declining pay in recessions is because the rise in pay during the previous boom wasn’t based on real productivity increases. It was based on false booms created by the Federal Reserve. People need to wake up and see the game that is played here. The government creates false booms and claims credit for it. It creates new government programs, because “In a wealthy nation, no one should go without ….”. Then when it all comes crashing down, government tells us the free market failed and we must implement “insert deceiving name here”, because the “the government must save the free market from itself”
What Reich doesn’t tell you is Keynesian economics promotes declining wages in order to stimulate a recovery. It wants to devalue the currency, so that employees don’t realize they have taken a pay cut. While this might have worked in the past to trick workers, no one seems to be playing along anymore. Pay is still being devalued in real dollars, but companies are still cutting pay in nominal dollars.
With all this pessimism by Reich, can we at least get him to admit that the government can’t fix it, that is has made things worse, that the Fed needs to quit creating false booms, and finally that the government needs to stay the hell out of the economy? Ah, probably not.