iOS app Android app More

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors
Leo Hindery, Jr.

Leo Hindery, Jr.

Posted: April 27, 2010 09:29 AM

What If Summers and Romer Are Wrong Again?

What's Your Reaction:

On December 13, when the U.S. economy was still shedding jobs like water off a duck's back, Larry Summers, the Director of the President's National Economic Council, went out of his way to assert, on the record, that "everyone agrees that the Great Recession [of 2007] is over."

Those of us who believe that the health of a very large economy such as we have here in America is best measured by the economic vibrancy of its labor force -- particularly real unemployment and real wages -- found this Pollyanna-ish assertion of Summers' to be especially unwarranted and without any grounding. For at the time of his announcement, the number of real unemployed workers in the United States was 30 million, real unemployed workers represented 19 percent of the adjusted civilian labor force, and at least 10 million workers had been unemployed a half year or longer -- a figure in each case worse than at any time since the Great Depression of 1929.

Four months later (Apr. '10), when the number of real unemployed workers had improved very little despite the federal government hiring tens of thousands of temporary workers to assist with the 2010 Census, in another of his unwarranted displays of optimism, Summers said that "the process of job creation has started [and] we expect it will accelerate."

Even more concerning than Summers' several bullish pronouncements, however, was the contemporaneous assertion by Christina Romer, the Chairwoman of the White House Council of Economic Advisors and a long-time cohort of Summers', that:

"The overwhelming weight of the evidence is that the current very high levels of overall and long-term unemployment are not a separate, structural problem, but largely a cyclical one [due to] the effects of the collapse of demand caused by the crisis."

While Summers and his colleagues in the Administration have mostly been using their expressed optimism regarding the U.S. economy to justify cutting back on federal stimulus efforts when instead we should be advocating for more stimulus monies not fewer, Ms. Romer has been blaming reduced corporate and individual demand for goods and services for our nation's high real unemployment (see "Unemployment Is Tied to Big Drop in Demand").

The reason that accepting Romer's unsupported conclusion regarding 'structural' versus 'cyclical' is so much worse than just being bamboozled by Summers' unwarranted optimism, is that Romer's assertion that everything that's been going wrong in the country employment-wise can be blamed simply on being 'out of sync' timing-wise takes away any imperative for the Administration and Congress to address:

(1) The massive relative decline in manufacturing as a percent of GDP that has occurred over the last thirty years;
(2) The unfair offshoring of millions of jobs, mostly manufacturing, that occurred over the last decade or so;
(3) The nation's massive ongoing trade deficit; and
(4) The persistent income inequality that is now the greatest since 1928; or
(5) The demands from the House Populist Caucus and other Members that all focus go to "putting people back to work."

Romer's assertion, and the conviction with which she holds it, also frees up the Administration's economists and the nation's "free traders" to advance Summers' core belief -- even though almost universally discredited -- that a "job is a job" and that at any point in time drop-offs in America's manufactured goods (and, by extension, the labor force that makes them) can be made up by a favorable trade balance in such products as software, legal services, university tuition, and motion pictures.

According to a recent speech by Jeff Immelt, the CEO of General Electric, the U.S. took a macroeconomic misstep when it concluded 25 or 30 years ago "that we could move from being a technology and manufacturing-based economy to a service-based economy with a $1 trillion annual trade deficit" with no fundamental adverse result. Later, when he was asked why it was so important to keep manufacturing in the United States, he responded "American companies have to remember that we also have a responsibility to create jobs in our own country."

Well, it's pretty apparent that neither Larry Summers nor Christina Romer ever read Jeff Immelt's speech, since it's obvious to anyone whose head isn't in the sand that the four or five massive unemployment issues now plaguing the United States are mostly 'structural' and only modestly 'cyclical':

  • It's certainly not 'cyclical' when the world's largest economy runs, year after year, annual current account and trade deficits in the hundreds of billions of dollars;
  • It's certainly not 'cyclical' when the world's largest economy has seen manufacturing's share of its GDP plummet from 21% in 1980 to under 12% today, while more than 6 million high-quality jobs were shipped overseas just since 2000;
  • It's certainly not 'cyclical' when the world's largest economy has more income inequality than at any time since 1928, which was when we first started keeping track of this statistic; and
  • It's certainly not 'cyclical' when the principle of 'meritocracy' on which America was founded and under which it prospered for more than two centuries can be torn asunder in just 30 years or so.

Larry Summers has said over and over again that the Obama Administration "inherited a terrible situation," and I completely agree. Nonetheless, it's time -- in fact, it's way past time -- to play the cards we've been dealt over the past thirty years by 'Reagan-Bush-Clinton-Bush.'

For all his talk about 'resuscitating Main Street' and 'reforming Wall Street', President Obama has to date largely failed to rein in the economic policy determinations of that small group of individuals now at the center of his Administration, most of whom previously served under Bob Rubin when he was at Goldman Sachs, the Department of Treasury, or at Citibank.

As a result, with no particular suasion coming from the White House regarding either the proper makeup of America's workforce or the proper role of large financial institutions in our economy, most large multinational corporations shirked their responsibilities to save existing, and create new, jobs on Main Street. At the same time, most large investment and commercial banks have resisted with every capability they have regulations that might curtail the risky financial schemes that were such a major impetus of the 2007-2008 financial crisis.

President Obama needs to get seriously engaged in these issues, and in doing so he needs to resist the lobbyists and special interests that still unduly influence both his Administration and Congress. The President especially needs to stop his extreme over-reliance on inputs from men and women who 'studied' at the 'Bob Rubin School of Economics', a School whose theories and laissez faire 'curriculum' have for too long errantly dominated the nation's thinking when it comes to globalization and trade, the proper role of Wall Street, and the true economic and moral strength of this country.

Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.