The three of us -- the president of the United Steelworkers from Pittsburgh, a Corporate CEO now living in New York, and the former senior U.S. Senator from Michigan -- wrote in this space on August 5 about the jobless economic recovery we believe the nation is in, one in which, 20 months after this recession began, more than 18% of the nation's workers -- 30 million in total -- are still effectively unemployed and even the nation's full-time employees are working only an average of 33 hours a week.
We offered a precise three-part prescription of what we feel needs to be done.
Part one calls for Congress and the administration to immediately enact an all-of-government industrial policy that puts American workers first, is comparable to the policies of our major trading partners, and is integrated with our nation's efforts to be the world's dominant manufacturer of green technologies and components.
Part two calls for four related initiatives by the Administration and Congress:
1. Fund a 10-year (not the current two-year) program of significant public investment to upgrade and rebuild our nation's infrastructure.
2. Adopt a "Buy American" requirement for all federal procurement, as America is now the only nation among the major developed nations and China without a meaningful "buy domestic" program.
3. Enact major corporate tax reform that creates new incentives for corporations to create jobs in America and eliminates the current incentives for them to relocate jobs overseas. This reform should include reducing the corporate income tax and payroll tax and moving to a value-added-tax or VAT to replace that lost revenue.
4. Ensure that loans and credit facilities are readily available to the nation's small and medium size businesses and manufacturers.
Part three calls on the administration and Congress to demand that our trade agreements have meaningful labor and environmental standards, forbid illegal subsidies and currency manipulation, and do away with "one size fits all" approaches that ignore significant differences in levels of development, forms of government, and reciprocity. Most urgently, we need to fundamentally rework our trade relationship with China to counter the unfairness of China's severely undervalued currency and its massive and often illegal business subsidies, which have been decimating our economy and destroying millions of American jobs for nearly a decade.
We thought our prescription was pretty simple and compelling and that it would get the immediate attention of the administration.
Boy, were we wrong.
Instead, the administration, the Treasury and the Fed seem to feel that we have already more than hit bottom, and they have already declared or are about to declare the recession officially over.
It's almost as if the administration is opting for a rose-colored-glasses PR strategy rather than taking a hard-nose look at actual consumer and employment figures and their trends, and modifying its economic policies accordingly.
It is still very clear to the three of us that the economic stimulus plan will not move the country toward anything approaching full employment and, most important, that the jobless recovery has already started "feeding back" on itself, as evidenced by four key indicators:
First, consumer spending, despite the benefits from millions of $500 stimulus checks and the "cash-for-clunkers" program, remains in a very deep malaise, which is understandable given the current massive unemployment and under-employment. For example, we are already seeing some truly horrible back-to-school retail numbers.
(This said, however, we shouldn't, at the same time we are considering the current low level of spending, be wishing for consumer spending that is overly robust. How disappointing it was to recently hear Fareed Zakaria say that "U.S. consumer spending is the key to global economic rebound", when relative to all other major developed countries, the U.S. economy has in fact for years been overly dependent on individual consumption, at a staggering 70% or so of GDP. The correct "key" going forward is not re-inflating the consumer spending balloon, but rather it is consumer investment and savings derived from fair wages paid to a near fully-employed workforce.)
Second, the percentage of U.S. homeowners who owe more than their house is worth will nearly double to an almost unbelievable 48% in 2011, from the already numbing level of 26% today, according to Deutsche Bank. And as the household mortgage problem persists and home equity values continue to shrink, the commercial real estate sector is quickly becoming the next great Sword of Damocles - already the amount of non-performing commercial real estate loans is massive and the thread that's keeping this particular Sword from dropping is wearing very thin.
Third, the continuing trade deficit, which is currently around 2.2% of GDP, subtracts more from the demand for American-made goods and services than the stimulus plan adds, and yet with the trade policies now in place, this deficit is certainly not going to shrink and in fact it is probably going to get worse.
Fourth, even if one accepts GDP growth as the primary measure of economic vitality, which notably we don't, the so-called "recovery" of GDP in the second quarter was mostly due to one-time accelerated government spending in general and on transfer payments, and the expected GDP "recoveries" in the third and fourth quarters will be just as questionable, because they will be mostly the result of a resuscitated Wall Street rather than, as we need, a revitalized Main Street.
(Frankly, the continued use of GDP growth as the primary measurement of economic strength is beyond lame - to quote Eric Zencey in the New York Times, if we "kept our checkbooks the way GDP measures the national accounts, we'd record all the money deposited into our accounts, make entries for every check we write, and then add all the numbers together", which of course would measure only our combined in-and-out activity and teach us little about our true financial condition. The same can be said about GDP growth as a measure of the true state of the U.S. economy.)
U, V or W - or L?
An economic recovery typically takes one of three shapes: a U-shape (sharp downturn followed by slow and gradual rebound because consumers are slow to start spending); a V-shape (dramatic tumble which produces a similarly sharp upswing that is ignited by quick re-hiring of employees); or a W-shape (recovery cut short by a second recession followed by a second rebound, which is what happened in 1980-1982).
The administration, the Treasury and the Fed, who, as we said, feel that we have already more than hit bottom, believe that we are already on the upward part of either a U-shaped or even a V-shaped recovery. We -- and others -- strongly disagree, and that's bad news.
A number of world-class economists whom we respect believe that at best we are in for a W-shaped recovery, with a double dip recession hitting us by 2011. However, we are even more concerned.
Looking closely as we do at both effective unemployment and the quality of existing employment, we believe that we are in fact looking at the worst possible shaped recovery of all, which is an L-shaped one.
An L-shaped recovery reflects a precipitous decline, which is what we started to see in December 2007, followed by a prolonged period of large-scale unemployment and economic malaise, which is what we are seeing now. And "L-shaped recovery" is just shorthand for the much more personally-felt characterization, which is jobless recovery.
We come to our conclusion about this being a jobless recovery because of the massive number right now of uncounted unemployed workers. Each month the Bureau of Labor Statistics determines the number of workers officially unemployed, and in doing so they largely ignore workers who are either part-time of necessity, marginally attached, or have quit the labor force out of frustration.
Even in past recessions, the number of unemployed workers not counted almost never exceeded a third or so of the official number. Now, however, there are 600,000 more uncounted unemployed workers than counted ones, which makes the total number of unemployed workers 29.5 million, instead of the official 14.5 million, and makes the effective unemployment rate a staggering 18.4%, instead of 9.4%.
If BLS doesn't pay much attention to these all-inclusive numbers, middle and lower class Americans in every city and town certainly do, because they are either experiencing them firsthand or watching their neighbors do so. This is why U.S. consumer confidence has just fallen back to the very low level it was just after the Inauguration, and why Main Street disagrees so strongly with the Federal Reserve's and the Administration's assessment of the state of recovery of our economy.
As we said, this contrast of views is now so extreme that it's almost as if some in the Administration and on Wall Street are trying to employ false assessments and pronouncements in order to create a "consumer confidence multiplier".
So, what does a jobless recovery today mean for tomorrow?
For one thing, it means that budget cutting and slashing by the States will continue around the country for at last another year or two (or even three), since the $70 billion that is still forthcoming to them from the February stimulus plan is but a third of their current overall budget shortfall of around $210 billion. And few things will be more de-stimulative into the medium term than these trashed budgets.
It means that we haven't seen the end of the rise in the savings rate, which has already gone from less-than-zero during the housing bubble to around 7% today and which now looks poised to increase to 10 or even 13% in the near future. In principal, as we've said, much more consumer savings than zero is a very good thing, and 7% would be a pretty good level to stay at. However, because of the pervasive uncertainty which a jobless recovery generates, a reasonable savings rate can quickly turn into an over-savings rate, which would be as de-stimulative into the long term as the nation's broken State and municipal budgets.
It means the destruction or, at best, deterioration of our human capital. Workers who tend to be unemployed for long period of times tend to lose skills or fail to keep up with the latest work practices and innovations, and thus they are less prepared and less productive than those who remain actively engaged in the workforce. Future productivity and wages suffer as a result, and we end up with even more mismatches of skills and jobs.
It means that we will not soon be able to rebuild, and sustain, the great commercial engines that fostered the broad American middle class of the past century and underpinned the global prosperity of the past quarter-century. Nor will we soon be able to bring an end to America's sorry status as the world's largest debtor nation, which carries great risks to our national and economic security.
Finally, and very important, a jobless recovery today means that tomorrow we will struggle greatly to pay for the health care reform and energy reform that the vast majority of Americans want to see. How can we comfortably give more than 100 million Americans some amount of expensive health care coverage that they don't have now and at the same time give the entire nation energy that is materially carbon freer when nearly 30 million workers are effectively unemployed, when the other 131 million workers are working on average only 33 hours a week, and when, at enormous additional cost, we must remain the world's greatest military power?
And so one more time...
In order to carry out these important national missions, the Obama Administration must focus, in ways it has not done so far, on making sure that we soon again have a vibrant middle class. And so one more time:
We need an all-of-government national manufacturing & industrial policy.
We need significant public investment in infrastructure, a "Buy American" requirement for all federal procurement, major corporate tax reform, and robust loan making to the nation's small and medium size businesses and manufacturers.
We need trade agreements, especially ones with China, that are fair to American workers, balanced between the parties, and have teeth.
And because we have so delayed implementing these initiatives, we now also need to do an even better and much more extensive job of extending unemployment benefits, reworking home mortgages, and providing basic needs for unemployed workers and their families. Ten million workers have now been unemployed for at least six months, and all of them for sure, as well as most of the 20 million additional workers who became unemployed after them, have by now lost their safety nets.
Leo Hindery Jr. is chair of the Smart Globalization Initiative at the New America Foundation and an investor in media companies. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media. Leo W. Gerard is international president of the United Steelworkers and a member of the executive council of the AFL-CIO. Former Michigan Senator Donald W. Riegle Jr. is also a member of the Smart Globalization Initiative and chair of government relations at a global advisory company. He was chair of the Senate Banking Committee from 1989 to 1994.
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