The consensus of economic wisdom now informs us that we are facing a jobless recovery. That might not be so bad if it hadn't been preceded by a long period of poorly paid prosperity.
Minutes of the Fed's June policy meeting released last week show that officials now expect the jobless rate to rise above 10% in coming months even as the economy recovers faster than they had previously projected. And while traditional economics deems unemployment a "lagging indicator," this time the Fed thinks the lag will be really long with joblessness in the neighborhood of 9% for at least the next couple of years.
President Obama's chief economic adviser, Lawrence Summers, acknowledges that job losses have been significantly higher than were forecast only a few months ago. In a "progress report" delivered at the Peterson Institute last Friday, Summers also noted that this downturn has been unusual in another way: In a typical recession, productivity--output per worker--tumbles as employers are reluctant to lay off workers and anxious to reclaim them at the first signs of recovery.
This time around the reverse has been the case, with productivity actually rising as companies rush to cut costs. A prime case in point was IBM's announcement of a 12%-boost in second-quarter profits even as its sales continued to decline. One factor behind IBM's surging profits, as the Washington Post noted, is that "IBM has been relentless in cutting costs by automating tasks and shifting labor to cheaper locales, while protecting prices."
IBM is not the only major firm reporting a resurgence of profitability despite continued economic weakness. The big recoupments reported by the bailed out Wall Street giants -- Goldman, J.P. Morgan, Citicorp, BoA -- have been popping the most eyes. But firms that actually make things -- like Biogen and Baxter and even Electrolux -- have been reporting unexpected gains as a result of price increases or cost-cutting or both.
That's all very well, says former IBM senior vice president Ralph Gomory, but what about jobs? The problem, Gormory argued in a trenchant presentation at the New America Foundation last week (as well as in an earlier series of HuffPostings is that, starting in the 1980s, America no longer asked anything of its corporations except that they make money for themselves.
True, over most of these decades, measured unemployment has stayed relatively low, even as millions of manufacturing jobs moved overseas, the U.S. trade deficit ballooned and the amount owed to foreign creditors mounted into the trillions. A burgeoning service economy and, more recently, a soaring housing market -- both sustained in substantial part by an explosion of borrowing -- plus longer working hours and added workers per family kept most Americans able to hit the shopping malls.
Still, as has been amply documented, while measured productivity rose healthily over much the period, little if any of that trickled into the pockets of the average American. Indeed, except for a brief period in the 1990s, inflation-adjusted wages have been stagnant for the last three decades. Nor, contrary to popular mythology, have "knowledge workers" been big beneficiaries of the country's economic growth: economists Ian Dew-Becker and Robert J. Gordon calculate that while the incomes of CEOs doubled and tripled, workers in jobs involving math or computers enjoyed only miniscule real gains and the average engineer took a pay cut!
Worse yet, as Princeton economist and former Fed vice chairman Alan Blinder has warned, service jobs too have been moving to China, India and elsewhere overseas and, thanks to continuing advances in telecomm technology, the pace is likely to accelerate. Yet it does seem that while attention -- and tax dollars -- have been showered upon Wall Street and, to a lesser degree, the dying U.S. auto industry, not much attention has been paid to the specific question of how this country intends to keep its workforce gainfully employed.
True, the president talks about "green jobs" and improving education, but Gomory points out, while new sources of energy are surely needed, there are only so many jobs likely to be created in the design and production of windmills and solar panels. And, he adds, while education is a valuable personal good, when America ruled the productive world, it wasn't because our workers had advanced degrees. It was because they had the right training, organization and equipment to work with. After all, on-the-job training, not an advanced degree, is the requirement for most of the new jobs that the Bureau of Labor Statistics forecasts will be created in coming decades.
As for the notion that America can rely on its brain power and ingenuity to stay rich and strong, Gomory and others who have actually been involved in the production process scoff at the notion that R&D can flourish independently of production. One of Chrysler's Lee Iacocca favorite mantras held that innovation is the product of the assembly line. If you don't see something being made, Iacocca (for whom I had the pleasure of working briefly during his mid-1980s heyday) would say, you're not likely to be inspired by ways to make it better.
Gomory, or even Iacocca, were not the only, or even the first, to attack the conventional economic wisdom that has prevented the U.S. from making needed accommodations to a changed world. Others, such as Clyde Prestowitz and Arnold Packer have long issued similar warnings to a largely unreceptive audience of policymakers and academics. But in recent months, other experienced voices have lent support. Testifying before a Senate Subcommittee last week, Leo Hindery, former CEO of AT&T Broadband argued that America needs to develop a "its own manufacturing and industrial policy" that will go so far as even to(gasp) "pick winners".
Of course, in recent history, the mere words "industrial policy" have been enough to give mainstream economists and policymakers the vapors. Perhaps they still are. Still, that old adage about how "idle hands are the devil's workshop" is worth keeping in mind. Chronic unemployment can get mighty pricey. Even higher than the cumulative bill of decades of poorly paying prosperity.
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