The Hangover
I’m pretty sure everyone reading this has experienced a bad hangover after a night of too much partying. You wake up with an oversized cotton ball in your mouth, your head is ringing like a fire bell, you have strange cravings for McDonald’s French fries and you can’t seem to move faster than a poorly fed snail. You want to kick yourself. Yeah, the party was awesome (and you still can’t find that missing lamp shade), but man, the hangover is more price than you wanted to pay.
I get the feeling many on the left are feeling something like that today. First, after the euphoria of Bill Clinton’s speech Wednesday night, they had to deal with a less than impressive performance from Barack Obama last night. Either Obama’s speechwriting team needs a shake-up or the President is out of ideas; most of what we heard last night is best summed up as “Hey, I want a do-over!” Most media outlets, including admittedly left-leaning publications like the NY Times and Politico, panned the speech as not one of his best efforts.
Then, along came this morning’s jobs report from the Bureau of Labor Statistics. No wonder the president wants a do-over.
By now, you probably read all of the doom-and-gloom reporting about it. Make no mistake, this was a pretty lousy report. But worse than the numbers themselves is what it all means when you actually dig into them a little.
First, the headline numbers: the economy only created 96,000 new positions in August, but the unemployment rate dropped to 8.1%. This should be good news for the President, right? The unemployment rate is dropping (if somewhat unsteadily) and may actually get under the magic 8% mark most pundits think is needed if Mr. Obama is to have a real shot at reelection. And 96,000 new positions is better than no new positions, right?
Well, yes, sort of. For a better picture of why the jobs report is foreshadowing a major problem, see figure 1. This is the raw BLS data for the past year. Before your eyes begin to glaze over, there are three numbers to pay particularly close attention to.
3,965,000
1,808,000
2,723,000
The first number is the increase in the working age population over the past year. The second is the number positions created in the past year. That last one? That’s the number of working age Americans who simply gave up looking for a job in the past year. To put it another way, more of your friends, relatives and neighbors gave up the hope of even finding a job than actually found one. Nearly a million more, in fact. That’s one million American’s who are now dependent on some outside source just for survival, be it a friend, relative or the handout machine that’s become the US government.
Most economists say we need between 110,000 and 175,000 new jobs each month just to keep up with population growth. But when you look at the actual increase in working age population, the average number actually needed is around 330,000. This is very bad news for team Obama, otherwise he could point to the average of 150,000 jobs created over the past year and claim that his policies are working, albeit slowly. But the reality is that his policies are, at best, creating jobs at only half the rate needed to bring the US back to full employment.
This is particularly troubling, given that every other indicator says we should have been creating jobs at a much faster pace over the past 24 months. If you look at hourly wages, those increased by an average of 3 cents per month between March 2010 and June 2012. Although not at the level of increase seen during the Reagan, Clinton or Bush recoveries, it is still stronger than historic wage growth. Worker productivity across all sectors is also nearing an all-time high and produced solid gains during the same period. Taken together, high wage growth and productivity gains always produced significant jumps in employment before – but not now. What could possibly be holding back the “jobs engine”?
The BLS publishes an “Employee Cost Index” on a quarterly basis, and a large part of the answer can be found there. While wages and productivity show considerable growth, the ECI is also growing – in fact, it’s grown by nearly 11% since March 2010. Of that, change only 18% is represented by increased wages and a 12% drop in non-cash benefits (things like health coverage and gym memberships) counterbalances that number. So, where is the additional 10.3% in employee cost coming from? The answer is a combination of regulatory costs and taxes, the results of 3 years of this administration’s ceaseless efforts to tie nearly every industry into a Gordian knot of inefficiency. New regulations and business taxes now exceed the productivity gains made by our nation’s workforce by a 4:1 ratio, effectively wiping out the need to hire. Indeed, those costs are probably now the single biggest impediment to real employment growth our nation faces. After all, if you owned a business, you would need to be looking at explosive growth potential, not just modest growth, before bringing that much excess on board.
Many of my friends on the left insist that breakneck pace of regulations passed by the Obama administration are not having a negative effect on the economy. I submit they’re not only negatively impacting the economy, but giving business owners throughout all 57 50 states a hangover of our own.
The Narcissistic Liar-in-Chief
It doesn’t come as a surprise to readers of this blog that I am not a fan of Barack Obama. I never have been. I’ve never seen in him the things the media generally transposes onto the Obama persona. I’ve always seen him as nothing more than another cold, calculating politician. Just another in a long line of despotic Chicago politicians; a man after whom Bill Daley would find more in common than the typical working stiffs that populate the Windy City. And like all politicians, I always figured he was more than a bit narcissistic.
But then today came word that the Obama White House is attempting to actually rewrite history, to include one Barack Hussein Obama in some of our country’s greatest Presidential moments. If you’ve heard about this already, then it was probably the rewrite of the Reagan Presidency that got your attention:
“In a June 28, 1985 speech Reagan called for a fairer tax code, one where a multi-millionaire did not have a lower tax rate than his secretary. Today, President Obama is calling for the same with the Buffett Rule.”
Reagan speaking at Northside HS, 6/6/1985
It’s actually beyond narcissistic to rewrite this bit of history. Reagan was not arguing for higher tax rates on anyone, as Obama contends with his historical rewrite. Rather, the Gipper was proposing a complete revamping of the tax code – lowering rates for everyone and eliminating loopholes. You can read the full text of the speech here, but I figured I would give you the portions where he talks about the need for a simpler, fairer tax code. Keep in mind, this speech was given at the commencement for Northside High School in Atlanta. The main thrust of the speech was celebrating the students achievement in turning their once failing school into one of the ten-best in the nation, while also lauding the nation’s economic turnaround. Neither of these are accomplishments that the Obama administration can even hope to match.
“We’ve already come a long way. Just 5 years ago, when some of you were in junior high, America was in bad shape, mostly bad economic shape. Rising prices were making it harder for your parents to buy essentials like food and clothing, and unemployment was rising; there were no jobs for seniors in high school and college to graduate into. It was as if opportunity had just dried up, and people weren’t feeling the old hope Americans had always felt. And that was terrible because hope was always the fuel that kept America going and kept our society together.
Just a few years later everything’s changed. You and your parents are finally getting a breather from inflation. And if you graduate and go out into the work force in June, there will be jobs waiting for you. Hope has returned, and America’s working again.
Now, you know how all this came about, how we cut tax rates and trimmed Federal spending and got interest rates down. But what’s really important is what inspired us to do these things. What’s really important is the philosophy that guided us. The whole thing could be boiled down to a few words—freedom, freedom, and more freedom. It’s a philosophy that isn’t limited to guiding government policy. It’s a philosophy you can live by; in fact, I hope you do…
As you know, that last week I unveiled our proposal to make the Federal tax system fairer, clearer, and less burdensome for all Americans. Now, someone might say it’s odd to talk about tax policy with young people in their teens. But I don’t think so. You not only understand what taxes are, what effect they have in the average person’s life, but if you don’t understand, you will pretty soon when you get your first job. I know some of you already have part-time jobs, and I know you keep your eye on the part of the check that shows what Uncle Sam is taking out.
What we’re trying to do is change some of those numbers. We want the part of your check that shows Federal withholding to have fewer digits on it. And we want the part that shows your salary to have more digits on it. We’re trying to take less money from you and less from your parents…
We’re going to close the unproductive tax loopholes that have allowed some of the truly wealthy to avoid paying their fair share. In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary, and that’s crazy. It’s time we stopped it.”
Of course, Warren Buffet was already a successful investor by the time President Reagan assumed office in 1981. And he was one of those millionaires Reagan was referring to, the ones who were paying nothing while bus drivers were paying 10% of their salary. The only difference is now, Warren Buffet still pays nothing, but that bus driver (assuming he’s still employed) is paying over 1/3 of his salary in taxes. And do you know who was at the forefront, leading the charge against the type of tax reform Reagan advocated? Yep, the same Warren Buffet who today is still against tax reform – instead opting for the Obama option of the “Buffet Rule.” And the reason for that is as simple as can be. Today, there are even more loopholes in the tax code than there were in 1985. Guys like Warren Buffet will still pay nothing. Note the difference in approaches: Reagan supported eliminating loopholes to equalize the tax rates. Obama just wants to raise rates.
So, yes, Warren Buffet is being disingenuous with his chicanery. But Barack Obama is, once again, flat-out lying to the American people – and all to make his ego feel better.
Don’t Pass the Payroll Tax Cut
FDR Signing the Original Social Security Act
Yesterday, the House of Representatives may have given the American people an early Christmas present – although the majority of my fellow citizens won’t realize it and (urged on by the President) will cry bloody murder. And yes, the motives of the House members are hardly pure. Those are certainly little more than angling for political gain. But the result is the same; an end to the insanity that is the payroll tax cut.
It isn’t that I’m opposed to tax cuts, in general principle. Anything that reduces the inflow of money from the private sector to the public is usually a good thing. But the consequences of reducing this particular tax levy amount to far more than the few pennies saved by the average taxpayer. Why? Because this is a targeted tax, whose revenue is designed purely to keep the Social Security system afloat.
Okay, some background here. The payroll tax amounts to 12.4% of the earned income of every wage earner in the country, up to $100,000. Of that, you normally pay 6.2% and your employer pays 6.2% (unless you’re self-employed, in which case you pay the full 12.4%). For 2011, Congress and the President reduced the amount paid by employees to 4.2%. That cost the Social Security system $117 billion. Now, here’s the rub: most people think there’s this massive social security trust fund, into which new revenues get deposited and from which existing current beneficiaries receive their monthly stipend. Reducing the amount coming for a year or two won’t matter, because the trust fund is earning interest on past deposits and there is plenty of time to make up the current shortfall. The reality is there isn’t a trust fund. There never was one; there never will be. Rather, the money you pay in is turned right around to retirees. Smart people realized that the system as it existed was untenable back in the 80’s; they worked out some changes in the ways benefits are paid and increased the payroll tax. Depending on who you talk to, the system was saved from insolvency until 2037 or 2052.
Except the $117 billion that came out of this year’s Social Security funding left us with an $83 billion shortfall, either 26 or 41 years before it was supposed to happen. If the payroll tax remains at 4.2% for this year, the CBO expects the shortfall to top $105 billion. (Actual reduction in revenue amounts to approximately $120 billion). The folks in the Senate came up with some neat trickery to “pay” for the reduced payroll tax, mostly relying on forecasting budget cuts 10 years down the road to pay the difference. That’s not exactly a reliable funding formula, but it is what passes for budget restraint these days.
What I find really amazing about the whole thing is the way Democrats – supposedly the guardians of the Social Security system from all assaults – have caved on this issue. Most of them probably haven’t realized yet that by breaking the essential funding formula created by the original Social Security Act and relying on general revenues to keep the system solvent, they’ve subjected their sacred cow to the whims of future Congresses. I can’t imagine they actually thought through the idea that Social Security is now on the general budgeting table, open to political negotiation on funding – and payments.
I think most people realize that Social Security needs to be revisited, if for no other reason that retirees are living longer and collecting more. Pro-rating payments, delaying the official retirement age, means testing, even incorporating private retirement accounts should all be on the table. But if Congress continues reducing the inflow of funds in to the Social Security system, the idea that we can address the topic later rather than sooner will be gone.
A Word About Class Warfare
This post began as a reply to a thread on Facebook. Some friends and I were debating the essence of what constitutes class warfare. At one point, one of them reiterated the ageless ism that “class warfare is painting poor people who are struggling as lazy, shiftless and hopeless.”
I do not consider people who do not have as much wealth as I as being lazy, hopeless or shiftless. Some are, but most are indeed, very hard-working individuals. Their great disadvantage is they lack certain talents that I do have. It might simply be that they lack the drive to succeed that I have – I know more than a few people who look at a “work week” as being 40 hours, maybe 50 – but the idea of working 24 hours a day, 7 days a week to make an enterprise successful isn’t what they want from life. And that’s fine, but they shouldn’t expect the same financial results as those of us who do put in that type of time and effort.
I can’t say their circumstances are a result of a lack of education. After all, I never finished grad school but have been more successful in my business career than many of my friends who have MBA’s. And people like Steve Jobs, Steve Wozniak, Bill Gates and other celebrated tech purveyors don’t even have undergrad degrees. This isn’ t to knock formal education. Certainly, for most people a great formal education is a key stepping-stone to career advancement. But given the choice between hiring a Harvard MBA and a kid with no more than a CTIA+ certification and a dream to be the next Woz, I’ll hire the kid. Every time – even though I know he won’t be around long; he’s going places I can’t take him.
I respect what those gentlemen (and hundreds of other entrepreneurs) have accomplished as a reflection of their particular talents, abilities and willingness to take risk. Being successful isn’t a matter of being “fortunate” so much as it is the residue of effort. I think most of us agree on that point (at least, I hope we do). A friend of mine recently launched a taxi company – and he has my ultimate respect. He saw a need, took a chance, made the investments in time, energy and capital and now have something he can call his own. And I’ve no doubt that if he wanted to grow further, expanding his market and footprint, those same qualities would guarantee his success.
Certainly, there are people of great wealth who arrived at their fortunes by dumb luck. Lottery winners, trust fund babies and the like. And if they don’t work hard at maintaining those fortunes, they generally wind up destitute – without any help from anyone. Just think of the stories you read about people blowing a $100 million lottery prize in a few years or the rich kid who partied his inheritance away. Life has an interesting way of dealing with the truly lazy in our society.
Class warfare has been a symptom of our political discourse far longer than the current administration, though this one has embraced it more fully than any since FDR. In fact, what started the entire discussion thread was when I posted this blog post from Ted Leonsis. Leonsis is one of the Obama administrations biggest supporters; he admits maxing his contributions to the Obama campaign. But even this stalwart has had enough with the administration’s bashing anyone with a dollar in their wallet. As Leonsis points out, “Why do we devalue success in the US when the rest of the world is trying to emulate what we have created as an economic system?”.
In the US, we’ve never fully accepted the idea that the general citizenry should pay for their government. Originally, the federal finances would funded by a mix of tariffs and fees, along with specific taxes placed on interstate commerce. By the dawn of the 20th Century, populists such as William Jennings Bryant and Theodore Roosevelt were agitating for a more expansive role for the federal government. Then, as now, there was a general hue and cry against men of wealth and the political ethos of the day demanded a “progressive” tax system. The original formulation was such a drastic change from the nation’s founding ideals that it required the 16th amendment to the Constitution. Prior to then, taxes levied directly on the citizenry had to be apportioned according to the most recent census. The charge among progressives was that the existing system was regressive – in that everyone had to pay the same share. They first attempted to circumvent this by passing a progressive income tax in 1894, the Supreme Court (in Pollock) ruled it unconstitutional in 1895.
There is a perception that those of us with means are opposed to paying taxes. We don’t enjoy paying them (nobody I’ve ever met actually does), but we understand that some government is a necessary evil. To that extent, we realize somebody has to pay for it and in a republic, it falls on the citizens to ensure the government is funded properly. If taxation were truly fair and equitable, there would undoubtedly be less grousing. However, there are two issues that have been brought to the fore with the recent debate (and devolution into class warfare) but not addressed:
First, those of us with means are not in the habit of tossing our money down the sewer in the vain hope that it eventually comes out the drain. We’re accustomed to being able to get a full accounting of where our money is, what it’s doing and when it’s doing it. (Well, most of us, anyway. There are always Bernie Madoff types). Our current budget morass lends itself to no such accounting. In fact, quite the opposite. As just the most recent example, consider the recent flap over FEMA funding. Once it became apparent that the government was about to shut down over the relatively small pittance, the administration suddenly “found” $780 million of funding that they had misplaced. The same thing happened over the summer, when the deficit mysteriously shrunk by $400 million. When you are a nation that is taking in 20-23% of national income as taxes, it is only fair to ask where the heck all of that money is going before asking anyone for more.
Secondly, we constantly hear the refrain that “the rich don’t pay their fair share.” I’m not quite sure what that refers to, but when nearly 1/2 of the nation doesn’t pay any income tax – and the bottom 1/5 receive more in federal benefits than they pay through any form of taxation – it seems that the rich are certainly paying at least their fair share. The greatest share of the tax burden is well-known by now, but in case you missed it – the top 10% of all earners (which begins with a family of 4 earning $114,000) pay 70% of all taxes. Not just income taxes, but all federal revenues. Those in the 11 – 50% bracket provide 22.3% of the nation’s revenue. So, once again, who isn’t paying their fair share?
What class warfare of this type does is inflame passions. The only reason the “progressive” wing of American politics uses it is for one reason: to shake us down, so that they can grow government even further. If you don’t think so, then consider this. In 1937, at the height of FDR’s New Deal, the federal government consumed 16% of total GDP. In 1970, as LBJ’s “Great Society” took hold, that increased to 31%. Last year, it rose to the highest peacetime level ever at 39.55%. Now ask yourselves: Is the government really doing anything in 2011 that it didn’t do in 1937? And then ask yourselves why.
When you arrive at the answer, you’ll understand why the Obama Administration is resorting to class warfare and striving to divide us as a nation.
Let the “Silly Season” begin
Once every two years, Labor Day signals the opening of the “Silly Season.” What is this “Silly Season” you ask?
In a nutshell, the “Silly Season” is when the general populace joins political junkies in paying attention to the politicians running for office in November. And the politicians, on cue, begin campaigning in earnest. But what it makes the season silly is the way the politicians act. Suddenly, Democrats begin espousing conservative ideals. Ordinarily, they’re joined by Republicans discovering their love of liberal programs.
But this year promise to be sillier than most. With an unsettled economy, unemployment rising and public dissatisfaction in both political parties rising to all-time highs, Democrats are in serious trouble heading into the
campaign season. Many Congressional seats once considered safe for the Donkey Party are now in play; seats once considered as being in-play or toss-up’s are now leaning Republican. As reported in yesterday’s New York Times, the DNC is cutting loose many candidates, hoping to minimize losses in the November mid-terms.
In short, what many Democrats are discovering is that the positions they’ve spent the past four years carving out are not exactly what the country wanted. The reason they won most of their seats – including the Presidency – was national dissatisfaction with the Bush administration. The initiatives the current administration have pushed through have proven even more unpopular than the ones proposed by GWB. How bad is it? 56% of Americans want the abomination that passed as health care reform repealed. Republicans now lead Democrats in all ten of the major issues polls.
Not surprisingly, in light of these developments many Democrats are running as far from their own party as possible. It’s amazing how many Democrats are now against the very health care package they passed earlier this year. (Remember when Nancy Pelosi declared that once we knew what was in the bill, we would love it? Oops.) Even President Obama is finding his conservative voice, as reports suggest he will ask Congress to pass “targeted” tax breaks on Wednesday. To add to the sense of desperation from the Democrats, many are hoping to cast their opponents as extremists who would destroy the fabric of American life.
Of course, Republicans are tempted to equally join in the insanity, but so far have held the line on leaning left. They fully understand that the nation has peeked behind the Progressive curtain and been repulsed by the view. This is turning into one of the strangest elections ever seen, where the minority party is the one fending off negative attacks. Normally the reverse is true, but Republicans don’t need to go on the attack in this cycle. The news, even left-leaning organizations like MSNBC and the NY Times, can’t help but report the dismal employment numbers. So Republicans are remaining more or less silent, except to point out that the news hasn’t been good since the Obama administration took over. That’s attack ad enough. Besides, the left is self-immolating itself well enough that the Republicans don’t need to join in.
So kick back and enjoy the Road to November. It promises to be a fun – if bumpy – ride.
Joe Fed Makes Twice What You Do (and for Doing 1/2 the Work)
More depressing news from Washington. According to this article in USA today, if you work for the federal government you’ll earn; er, make about twice as much as if you worked in the real world.
I did some back of the napkin calculations to see how much money that wastes in a year, even assuming we need all of those federal workers. (I don’t think we do, but until we get the private sector hiring again, leave ’em where they are). The number is…staggering. This is based on the average fed worker receiving $121K in annual compensation, the number specified in the article.
(Number of federal employees x $121,000) / 2=estimated overpayments
(2,150,000 x $121,000) / 2 = $130,075,000,000.
That is 130 billion, 75 million dollars.
Or, as my dear departed Granddad would say, “that’s a shitload of samoleans!” (I never really found out what a “samolean” was, but I always assumed it was something mean that traveled in big packs – like government employees).
I don’t know about you, but if the Keynesians want to spend some government dough around, I’d suggest they have a way to pay for it without adding to the debt. Simply tell all those federal employees they’re getting a 50% reduction in pay. It would also accomplish something else: all those beauracrats would actually begin to understand what it’s like to take drastic pay-cuts, only to see your job disappear 6 months later.
We can only hope…
Time for a New Consensus
One thing is becoming painfully obvious: the way we, as Americans, view economic opportunity is out of step with the way the world operates today. It is time that we recognize this and address it in a positive manner, without the political fire-bombing that is hurled daily on both the left and the right.
The left is stuck with an early 20th century Keyensian view of economics. I’d argue that particular view didn’t really work then and won’t work today. Massive infusions of government capital during the 1930’s into public works projects did build some marvelous edifices, such as the Hoover Dam, but did not absolutely nothing to end the Great Depression. America didn’t return to full employment until the advent of World War 2 – the result of increased war production and more than 10 million men entering military service. Once the war ended, the economy again returned to near-Depression era levels of unemployment. What finally proved the cure for the economic ills of the 1st half of the 20th century was that in the post-war period, only the US remained capable of providing the goods and services needed by the world. It was an export economy, fueled by international demand, which put America back to work.
The right seems permanently wed to supply-side economics. Strict adherence to that model might have worked, but we’ll never know. While government receipts during the supply-side era (1981-2008) outpaced inflation by (See fig. 1), government spending at all levels increased at an even more dramatic pace, leaving us with unsustainable levels of debt and continuing government deficits – and a seemingly insatiable public demand for services that we cannot afford.
Fig. 1
The current model being followed is a strange amalgam of the two diametrically opposed economic philosophies, with government interventions and expanded spending coupled with “targeted” tax breaks. In one sense, this new model has worked: businesses are sitting on a virtual mountain of cash. But in a much larger sense, these haven’t worked to stoke the economy – and for one simple reason, the demand needed by businesses to invest that capital doesn’t exist now. Employment data continues to remain bleak, representative of the fact that businesses are not investing in human capital. Part of the reason is undoubtedly tied to regulatory uncertainty, since anyone running a business needs to properly plan and account for the funds allocated for human resources. But that uncertainty alone cannot account for the downward pressure July’s economic data displayed on employment.
What is needed is recognition by both those on the right and the left that a new demand model is required for our current age. Modern technologies have made many labor-intensive occupations of the late 20th century redundant. Cloud computing and SaaS technology reduce the need for office and technical staffing, closing off two of the high-growth industries of the past 30 years. Manufacturing tasks that once required dozens of people can now be fully automated, with only one operator required. (Just last night I watched a documentary on Zippo lighters – the entire assembly line only needs 5 people to run it; a perfect example). Even many low-wage jobs have been replaced – the other day I went food shopping. No cashiers were available; the entire checkout line was self-service with two people running 20 checkout lanes.
In other words, there are two possibilities now facing the country:
- Current unemployment levels are now the “new normal” and a return to sub-5% unemployment is unlikely. In this event, the current social services are inadequate and need serious revamping. Unemployment insurance as currently exists needs to be discarded, replaced by a system that is more proactive in returning the unemployable to the workforce while ensuring that people are not discarded like yesterdays news. Such a program needs to be structured so that chronic unemployment and other abuses are not permitted. In short, in such a world, unemployment services should not be a state duty, they should very much be a federal-corporate symbiosis. It is impossible – and against a state’s interests – to train somebody for employment opportunities in another state, but it is in a company’s best interest to do so.
- Current unemployment levels are an aberration; a temporary result of career displacement due to a technology upheaval. Such upheavals have occurred before and the nation weathered those storms, most recently in the late-1970’s as the nation shifted from a manufacturing base to a services based economy. In this case, the government needn’t do much of anything, except make career retraining available and mandatory, in order to continue receiving unemployment insurance payments. Once, that is, the new employment needs are identified.
I’m not going to pretend I’m smart enough to know which of the two scenarios is correct. What I do know is that until we begin to honestly discuss them, no action can be planned or undertaken. But as I mentioned at the top of this post, neither side seems ready to abandon decades-old dogma. I doubt either will over the next 90 days, as we begin a new national election cycle and both sides seem to only care about scoring political points by feeding raw meat to their adherents.
It’s up to the American people to put aside our natural inclination to fear in uncertain times and force our political leaders to engage in an honest discussion of the situation. And if they won’t?
Then it’s up to us to replace them this November with people who will.
Are the jobs REALLY gone?
There’s been a lot of talk lately, from both the left and the right, that most of the jobs lost in the current recession are lost forever. Robert Reich is a well-respected former Labor Secretary for President Clinton. In his article The Future of American Jobs, he contends that American jobs were permanently lost to a pair of factors: technology and outsourcing. Technology allows companies to increase employee efficiency (more employee productivity at lower labor costs); outsourcing is enabled by technology that enables foreign workers to remain competitive with Americans and can be closely monitored using new technologies. Although philosophically opposed to Reich, James Sherk of the Heritage Foundation reaches the same many of the same conclusions in Reduced Investment and Job Creation to Blame for High Unemployment. The only difference in these two articles is that Reich focuses on job losses, while Sherk focuses on job creation. But in both articles, the authors contend that both near- and long-term unemployment will remain at or near 8%. ( I wrote about the disappearing jobs phenomenon earlier this month)
There are many causes for this, of course, beginning with the fact that United States (and most of the developed world) began moving earnestly away from labor-intensive manufacturing economies towards knowledge-based service economies in the late 1970’s. Although well aware of this, nobody did much to prepare the citizenry for this fundamental economic change. Much as the US experienced a dramatic cultural and demographic shift in the late 19th century as we moved from an agrarian economy to a manufacturing economy, we are experiencing the same now. Policies over the past 30 years at both the federal and state level, rather than focusing on restructuring education and employment policies, were largely concentrated on sparing the status quo. Although the days of a high-school dropout being able to get a well-paying job for life at the local manufacturing plant ended a generation ago, we’ve continued to subsidize both the labor unions (who rely on perpetuating this myth) and the educational systems (whose labor unions and administrators have been resistant to changing the formulas they’ve worked under for 6 generations). As a result, we have a large segment of the population that is ill-suited for the type of work the modern economy provides.
Both liberals and conservatives in this country (and other Western nations) are calling for a return to 20th century economies. Liberals believe that the US can return to a manufacturing-based economy, if only certain policies are enacted. Some of these include: engaging in protectionist trade policy (apply punitive tariffs on goods produced in low-age countries); requiring a percentage of all goods sold in the US to be produced in American factories and tightening labor and banking regulations to “protect” the American worker. Conservatives are championing reduced immigration, business credits and lower taxes as the way to spur manufacturing growth. Both of these approaches – or any combination thereof – is wrong, immoral and ill-conceived. They are intended primarily to appease the 60% of Americans whose jobs will disappear or have disappeared in the past three decades.
First of all, thanks to technologies that were not even conceived a century ago, the modern world is more tightly interwoven than at any time in history. When combined with the fact that the days of imperialism ended with WWII, it is now impossible for any nation that relies on exports for economic vitality to successfully engage in protectionist trade policies. Imposing excessive tariffs or limiting imports in any way will, in the end, prove counter-productive as other nations reciprocate the move. Many persons in what we often derisively refer to as the “developing world” consider the steady income provided by manufacturing economies as a vast improvement in their situations. Despite wages that are considered substandard in the west, the mere fact that workers have a steady source of income – and therefore, food and shelter – provides a sense of security previously unknown. This was, by the way, the same attitude that drove many former tenant farmers to migrate to cities during the late 19th and early 20th centuries, in the US and Europe. This was despite the advance knowledge that most would work in conditions that we find abhorrent and for wages that we can’t countenance today. Combined with the interactive nature of modern economies, no nation can afford to block goods coming from these nations.These types of policies were tried during the heights of the Great Depression – the result was over 50 million human beings killed in the greatest conflagration in history. Secondly, imposing inane limits on immigration will rob the US of a tremendous source of energy and vigor, both of which are priceless commodities in the new economy (and I suspect that very vitality is what many are afraid of). Finally, any restructuring of tax and revenue policies that ignore the modern economic realities in favor of a long passed age robs the emerging job market of strength and future generations of Americans of a sorely needed simplified tax code.
So, if the modern economy in the West will not be based on manufacturing, what will we do in the future? Where will the jobs come from? Well, first of all, not all manufacturing will be permanently off-shored. For several reasons (including national defense), there will always be some sort of manufacturing in the US. However, the reality is that as a percentage of employment and average compensation, American manufacturing will never return to the halcyon days of the 1960’s and 70’s. The new economy will be services based and requires a more educated and more flexible workforce than the one that currently exists. I realize that when I say “services” many people conjure visions of hotel maids and McDonald’s cashiers. Those type of jobs have always existed and will always exist, but nobody should think we’ll become a nation of gas station attendants. What I’m referring to by services are the types of positions that require more brain power than brawn power; fields like medicine, technology, research, aerospace, education and banking are all services. All are creating jobs right now. The problem is, their growth is restricted by a lack of skilled workers. It’s a fact that none of your politicians want to talk about, because they know in large part they’re directly responsible for this fact.
The answers about what to do for the next generation of Americans is pretty obvious and I applaud President Obama for starting education initiatives that may prove fruitful. (I’m no fan of the President, but you have to give credit where it’s due). However, there are 2 generations of Americans now in the workforce and a third about to enter, whose citizens are ill-prepared for the current economy. The big question is what do we do about restoring some semblance of full employment, and at tolerable wages now? The first thing is for the labor unions to understand that the world has changed and they need to get with the times. Once, the antagonistic approach between organized labor and business in the US led to a system that worked well, in the contained system that was the US. Once the US was no longer the dominant player in manufacturing, though, the unions failed to keep up with pace of global economics. It is long past time for them to seriously engage foreign governments and labor markets -by working to raise living standards oversees, they can reinforce those standards back home. Secondly, our own politicians need to work in ways that remove the yoke of debt from our collective shoulders. The projected national debt for 2020 equates to $150,000 for every family in the US – or more than 3x the anticipated per family income for that year. That level of debt is unsustainable and is largely driven by “entitlement” spending – Social Security and the new Health Care package. It is past time to revisit how these programs are funded before they drive the entire nation into bankruptcy. Until debt projections are reduced, funding for projects needed to revitalize the economy cannot be pursued. In the same vein, the political class needs to be honest about the limits of government intervention in economic policy – aside from fiscal and tax policy, there really isn’t anything they can do for immediate and sustainable growth. At the moment, fiscal policy is stagnated -interest rates are at zero. That leaves tax policy – which will not unfreeze capital markets. However, by implementing a strategic tax policy in coordination with a debt reduction plan, lawmakers can relax market tensions by demonstrating long-term fiscal sense.
However, even if the various entrenched factions were to begin immediately putting these ideas in action, the near-term effect would be negligible. We would still need high spending on unemployment compensation and other safety net program to prevent our society from devolving into absolute chaos. I would like to add a caveat to this spending, though. One thing obvious to anyone who’s driven any road in Pennsylvania or watched a manhole explode in New York City knows our infrastructure is aging badly. I would offer those receiving government assistance the option of either attending training in a new field or showing up for manual labor repairing our bridges, schools and the like. This recreation of the WPA would at least prevent the nation from just throwing money down a rat-hole.
Political Baseballs 