Is the Economy Built for a Job's Recovery?
Previously published on Oct 14, 2010
The second and third quarter of 2010 ended with mixed results that basically said those suffering will continue to suffer. With the stock market up, along with corporate profits, the economy grew, albeit at a sluggish pace as compared to the previous half. On the other hand, many companies are hording cash in wait for a more favorable outcome as consumer spending continues to remain shaky with exception to imports. Certainly, we could look at all kinds of economic data, including housing which is down, to make an assessment, but what Americans really care about is the jobs report.
The classical argument goes that jobs are the last thing lost in a recession and the last thing gained in a recovery. The problem in the Great Recession is that we are facing an expectedly drawn out recovery due to an extremely severe economic downturn complicated by ongoing war, massive government debt, and shifts in global ecopolitical powers, i.e. emerging powers like China. Of course, the weak jobs forecast is also part of a broader trend that we can only understand if we look at what was happening before the technical recession began.
As then Senator Obama noted in the 2008 election cycle, wealth has not trickled down; pain has trickled up. Before the Great Recession, wealth distribution was narrowing significantly, the median income was shrinking, and our trade deficit was exploding. Consumer spending was reasonably strong while the stock market was rapidly expanding and home prices were going through the roof. Unfortunately, much of this economic activity was financed by cheap, easily obtained credit. At the same time, we decided our future was internet based and intellectual property was the most valued commodity, so holding onto jobs that required manual and skilled labor was a waste of a time.
"Throwaway jobs," therefore, could be outsourced to help boost the profits of corporations to increase stocks and dividends to the benefit of Americans who owned these companies, though those who do not could not gain and those in need of a job or better wages would not be able to afford investments in the future Meanwhile, less than a third of Americans hold advanced degrees while service industry jobs often pay poorly, with exception to those supported by unions, and the internet, as those who have tried to make living can attest, has few opportunities that actually pay well enough to support the American lifestyle, unless your name is Google. Of course, none of this mattered as long as consumer spending remained high enough to support economic growth.
Quite frankly, reality hit when suddenly people realized the fuel of our economic engine was an imaginary asset called debt. At this point, we should also recognize the engine of our economy is not consumption; it is over consumption. As we are now a truly global economy, this means someone has to over consume to create the economic growth that drives the types of economic activities America needs to grow, i.e. the development of novel technologies, luxury goods, nonessential services, etc. With Americans, as well as Europeans, tapped out, Asians need to step up their spending.
Unfortunately for us, the builders of the world, who make essentials as well as cheap consumables, like China will continue to benefit from mild consumer spending while they are not inclined to over consume for our benefit. It is, therefore, important to remember jobs creation, which does not necessarily mean the creation of Middle Class jobs, is driven by demand. As America has now specialized in those products and services, which are far more costly to manufacture, as well as those that cannot be outsourced, jobs creation is going to be slow. In fact, we must also recognize many of the industries that supported Middle Class jobs have been gutted with few new industries to soak up the unemployed. Economists expected the service industry to offer new jobs, but these sectors often less pay and rely heavily on over consumption. Meanwhile, the green technology industry is a hope that is not expected, in the perceivable future, to generate enough jobs to cover losses and future needs.
In the 1990's, the dot com bubble made up for lost GDP, but today we have few industry popping up to replace the old industries that we have pushed out of our Country. The consequence is an economy built to make top investors rich; not one that creates jobs. Aside from the personnel it hires and lobbyists, government cannot create jobs. It can reward companies for doing so, or discourage them, while it can avert an economic disaster as was the case in the Great Recession. Sadly, even before the Great Recession began, jobs were not being created robustly, so we cannot expect jobs to be created rapidly when we need them the most. Our capitalist system needs retooled so it favors the interests of American citizens in a globalized market system versus one that supports old fashioned views of the economy and businesses that favor the wealthiest of us first.