Right Thinking From The Left Coast
You will never live if you are looking for the meaning of life - Albert Camus

Thursday, February 10, 2011

The Jobless Recovery

Easterbrook has an interesting spin on the latest economic numbers.

In all respects save employment numbers, the United States economy is back to normal. Real growth in 2010 was 2.9 percent — not spectacular, but any developed nation would take that figure. The adjusted U.S. GDP just rose back above its prior peak of late 2007 — meaning U.S. economic output has never been higher than right now. Sales numbers are good across most industries, corporations are sitting on ample cash, banking and equity liquidity is fine, no primary resource is scarce and the index of Standard & Poor’s 500 earnings per share is at an all-time high.

That’s a healthy economy — except for unemployment. Job numbers have improved somewhat but are nothing to write home about. Even considering that hiring usually trails a recovery by several months, unemployment numbers are spooky.

He then starts citing some numbers on manufacturing, pointing out how much faster and cheaper we can make cars, airplanes and electronics these days.  The reason is automation.  Bottom line?

The drop in manufacturing employment — often blamed on jobs fleeing to China — emphatically is not happening for that reason. In the last 20 years, the United States has lost eight million manufacturing jobs. Over the same period, China has lost 26 million manufacturing jobs. China and the United States both have great numbers for industrial production, and should for decades. But steadily fewer people are needed, owing to improved productivity and advancing technology.

Should we ban productivity improvements? Outlaw better technology? If we’d done that in the 1950s, we would all be driving 10 MPG finned Cadillacs without seat belts.

One important thing, which Easterbrook does not note, is that unemployment is almost entirely confined to those without a college education.  Among those with degrees, the unemployment figures were low to begin with and are back to normal now.  The demand for skilled labor may be falling but the demand for educated labor remains as high as ever.

Easterbrook posits that we may simply be entering an economic phase in which high unemployment numbers are a permanent or at least long-standing phenomenon.  He has a point—I think the certain industries have gone and are never coming back.  But I’ve heard this sort of thing before.  When the Keynsians faced the supposedly impossible economy of the late 1970’s—high unemployment and high inflation are not supposed to co-exist on KeynesWorld—they said we’d reached the zenith of economic progress.

I think what we’re seeing is partly a hangover.  A hangover caused by a bloated housing sector that created millions of bullshit construction jobs and a bloated manufacturing center whose numbers were artificially propped up by tarrifs and subsidies.  To go back to the 1970’s, when Volcker brought inflation under control, we had a temporary but severe recessionary hangover.  I think we’re having a longer hangover now, with the wake-up juice having been delivered by a crashed housing sector.  In time, those sectors will recover somewhat.  Foreclosures are going back up which means we may at long last start to clear out inventory—the first step toward construction jobs coming back.

But, in the end, Eastebrook is right.  We will never go back to where the economy was even twenty years ago.  So what do we do with all these unemployed people?  Have them on the dole permanently, creating a new underclass?

I don’t think so.  The thing is that Americans are far more flexible and capable than they or our politicians realize.  High school dropouts can move on to other industries, given the chance.  Government can not this; but government can enable it.  There are three key needs.  First is education, which I’ve blogged on enough.  Second, is job training, but not government job training (Tom Coburn has been documenting what a massive disaster federal job-training is).  Job training is best done by employers.  And that segues into he most important need—giving employers the capital and flexibility they need to hire and train new people.

Maybe the one year costing of business expenses will help with that.  But that infusion of funds will be clawed back and then some by the health insurance mandates.  A permanent fix is needed to make it cheaper and easier to hire and train people.  I don’t think anyone in Washington knows how to do that.

Posted by Hal_10000 on 02/10/11 at 09:10 PM in Politics   Law, & Economics  • (0) TrackbacksPermalink
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