Jobs -- everybody is in such total agreement that we need more of them that the word is in danger of becoming meaningless, of going from tangible policy to talking point. In Washington, saying you're for jobs has become just another obligatory, perfunctory throat-clearing preamble.
At a fundraiser last week, Joe Biden pledged, "Some time in the next couple of months we're going to be creating between 250,000 jobs a month and 500,000 jobs a month."
That sounds great, if it's true -- a very big "if." But, even if it is true, the vice president didn't say what kind of jobs these are. And make no mistake: not all jobs are created equal.
Since the recession began in late 2007, we've lost 8.4 million jobs. Over 2 million of those were manufacturing jobs, the kind of jobs that have traditionally delivered American families into the middle class -- and kept them there. We lost 1.2 million manufacturing jobs in 2009 alone. And while job numbers go up and down, the loss of these blue-collar jobs has been going on for decades.
In 1950, manufacturing accounted for more than 30 percent of non-farm employment. As of last year, it's down to 10 percent. Indeed, one-third of all our manufacturing jobs have disappeared since 2000. This devastating downward trend has contributed greatly to the erosion of the middle class.
There have been a number of recessions over the last few decades. And our economy rebounded after each one. But each time it has bounced back in a way that made it harder for those in the middle class to stay there -- and even harder for those aspiring to become middle class to get there.
Yet the way that the useful section of our economy is being replaced by the useless section of our economy is rarely talked about in Washington. But the numbers don't lie: the share of our economy devoted to making things of value is shrinking, while the share devoted to valuing made up things (credit swap derivatives, anyone?) is expanding. It's the financialization of our economy, and its symptoms were described by Andrew Ross Sorkin on Charlie Rose last week:
When you think about what a synthetic CDO is -- [as with] so many of these instruments on Wall Street, it's really just a casino, there is no underlying assets, they don't actually own these mortgages, people aren't getting mortgages because of this... What is the social utility of that?
According to Thomas Philippon, professor at NYU's Stern School of Business, in 1947, the financial industry made up 2.5 percent of America's GDP. By 1970, it had grown to 4 percent. By 2006, just before the meltdown, it was 8.3 percent.
The trend is even starker when you look at the financial sector's share of U.S. business profits. As Simon Johnson recounted last year in The Atlantic, between 1973 and 1985, the financial industry's share of domestic corporate profits topped out at 16 percent. In the 1990s it spanned between 21 percent and 30 percent. Just before the financial crisis hit, it stood at 41 percent.
That's right -- over 40 percent of the profits of the entire U.S. corporate sector went to the financial industry. James Kwak explains why this is a problem:
Remember that financial services are an intermediate product -- that is, we don't eat them, or live in them, or put them on in the morning. They are supposed to enable a more efficient allocation of capital, so that the nonfinancial economy is more productive. But what we saw since the 1980s was the unmooring of the financial sector from the rest of the economy.
In other words -- it's supposed to serve our economy, not become our economy.
The expansion of the financial industry has come at a significant cost to the rest of us. And those that have paid the highest price are the members -- and former members -- of America's middle class.
As Paul Krugman put it this weekend: "A growing body of analysis suggests that an oversized financial industry is hurting the broader economy. Shrinking that oversized industry won't make Wall Street happy, but what's bad for Wall Street would be good for America."
One out of every six blue-collar workers has lost his or her job in the latest recession -- a number commensurate to what happened during the Great Depression. According to Professor Andrew Sum, "Our ability to maintain a healthy middle class is very dependent on being able to get a lot of these individuals back into the workplace and back into jobs to keep the rest of the economy going."
"There are very high multiplier effects from many manufacturing activities," says Sum. "So the loss of jobs spills over into the rest of the economy."
But isn't wringing our hands over the loss of manufacturing jobs the 21st century equivalent of 19th century concerns about America turning from an agrarian society into an industrial one? Isn't America's future to be found in newer, better, more modern service industry jobs?
Actually, no -- for a number of reasons.
For starters, it turns out that manufacturing jobs aren't just more productive and valuable than jobs in the Wall Street casino -- they're also more valuable than service jobs. As economist and author Jeff Madrick points out:
Making goods is on balance -- with exceptions -- more productive than providing services, and rising productivity is the fundamental source of prosperity... a major nation must be able to maintain a balanced current account (and trade balance) over time, and goods are far more tradable than services. Without something to export, a nation will either become over-indebted or forced to reduce its standard of living.
In other words, in the absence of manufacturing, the only way to compete with Third World nations is to become a Third World nation, which is exactly what will happen if we allow our middle class to disappear.
What's more, it's not just manufacturing and lower skilled service jobs that are disappearing. According to the Hackett Group, companies with revenues of $5 billion and over are expected to take an estimated 350,000 jobs offshore in the next two years alone -- nearly half in IT, and the rest in finance, procurement and human resources.
Linda Levine of the Congressional Research Service says that some see "perhaps a total of 3.4 million service sector jobs moving overseas by 2015 in a range of fairly well paid white-collar occupations."
And Booz Allen Hamilton, in a 2006 study, found that white-collar outsourcing is no longer just about call center and credit card transactions. Now "companies are offshoring high-end work that has traditionally been considered 'core' to the business, including chip design, financial and legal research, clinical trials management, and book editing."
Do you hear that? It's Ross Perot's giant sucking sound being cranked up to a deafening roar -- and it's about a lot more than NAFTA.
Accenture now employs more people in India than in America. And IBM is headed in the same direction.
And the horizon looks even darker. A Harvard Business School study found that up to 42 percent of U.S. jobs -- more than 50 million of them -- are vulnerable to being sent offshore.
Even more troubling is the reason so many of these jobs are being sent overseas. It's not just about cost control. "What used to be a tactical labor cost-saving exercise," the Booz Allen Hamilton study says, "is now a strategic imperative of competing for talent globally." In other words, America's talent pool -- especially when it comes to professions like engineers and computer scientists -- is drying up. At the same time the demand for these highly skilled workers is growing, the number of Americans earning Master's degrees and PhDs in engineering has fallen.
We are continuing to feel the sting of our lack of investment in our people -- particularly when it comes to education, the other primary pillar (along with a good job) of a healthy middle class.
This is what happens when a country is willing to spend trillions of dollars fighting unnecessary wars while allowing college tuition to rise out of the reach of so many of its citizens. And it's what happens when a country turns its economy over to the casino of Wall Street.
It's not too late to change course. The financialization of our economy didn't just happen. Decisions were made that made it possible -- and decisions can be unmade. But first we need to decide, as a country, what kind of economy we want to have: one that's good for middle class families or one that's built to enrich Wall Street.
In the Financial Times last week, Martin Wolf wrote about how "the financial sector seems to be a machine to transfer income and wealth from outsiders to insiders, while increasing the fragility of the economy as a whole."
When the chief economics commentator at the Financial Times is sounding like the second coming of Karl Marx, you know things have gotten way out of hand.
It's time to start separating the real economy from the casino economy. And to make sure that with all the talk in Washington about "jobs," we don't let the platitudes become a substitute for urgently needed policies.