Our Economy Is Sick – The Cure is Jobs, Not Deficit Reduction
(By Mark McCutchan)
While the Obama Administration successfully kept the Bush Recession from becoming a depression, our economy is still struggling on jobs, housing prices, foreclosures, and household debt. Below are some ideas for taking action to let our elected officials know that we want them to create jobs, not cut government programs.
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President Obama declared at a joint news conference with visiting German Chancellor Angela Merkel. last week that he was “not concerned about a double-dip recession”, although he did express concern that we are “not producing jobs as quickly as I want it to happen.” The recession that was declared over in June 2009 by the National Bureau of Economic Research (NBER) has never ended for most Americans, as these indicators show:
1. Unemployment – normally a lagging indicator of recovery, unemployment remained in the mid-9% range for 2010, and around 9.0% for 2011 through May. The current recession is much deeper than previous recessions over the last 60 years, and if history can be used as a guide, it will take much longer to return to higher levels of employment.
Percent Job Losses in Post WWII Recessions
2. New Foreclosures and Bankruptcies – Both indicators have fallen since 3Q2009, but 400,000 new foreclosures a quarter is still unacceptably high, and puts downward pressure on house prices.
Number of Consumers with New Foreclosures and Bankruptcies
3. House prices – the average house price has been in decline for 57 months as of March, which puts financial and psychological pressure on homeowners to cut back. Lower house prices also reduce job mobility, as sellers are reluctant to take a loss on their house.
Change in US Zillow Home Value Index – March 2011
4. Household debt – The 1Q2011 Federal Reserve Quarterly Report on household debt and credit released last week shows that household debt has declined about 8% since the 2008 meltdown on Wall Street , most of it due to mortgage defaults. The average American owes about $38,000 in mortgages and other loans.
Total Debt Balance and its Composition
A McKinsey Global Institute report just out finds that only in the rosiest economic scenario will the U.S. reach “full employment” (about 5% unemployment) … by 2020!
Other findings include:
* Recoveries are increasingly becoming “jobless” due to firm restructuring, skill and geographic mismatches between workers and jobs, and sharp decline in new start-ups.
* The US workforce will continue to grow until 2020, but under current trends, many workers will not have the right skills for the available jobs. Technology is changing the nature of work: jobs are being disaggregated into tasks, work is becoming virtual, and firms are relying on flexible labor (temporary, contract workers). These trends offer new opportunities for creating jobs in the United States, a trend that some companies do not fully appreciate.
* Progress on four dimensions will be essential for reviving the US job creation machine:
1. Develop the US workforces’ skill to better match what employers are looking for.
2. Expand US workers’ share of global economic growth by attracting foreign investment and spurring exports.
3. Revive our innovation by supporting emerging industries, ensuring more of them scale up in the United States, and reviving new business start-ups.
4. Speed up regulatory decision-making that blocks business expansion and new investment. [Note the report does not recommend reducing current regulations]
The McKinsey Global Institute report ideas are a good start; here are some others:
* Drop all discussions of cutting government spending until the unemployment rate drops below 7%; slashing the federal budget when consumers are also cutting back only accelerates the demand side slump, worsening unemployment.
* Medicare for All – According to a recent Kaiser report, health insurance programs cost employers about $3.35/hour per employee, or roughly $6700 per worker annually. During the Affordable Care Act debate of 2009, why did corporate America not fight to get this expense off their books, and support a single-payer system like every other industrialized country? This cost puts America at a substantial disadvantage in the free market, and keeps health care costs unnecessarily high. Medicare administration costs are only 5.2 percent, compared to private insurance companies’ 16.7 percent average administrative costs (including profit). As a single payer, Medicare could negotiate for substantial savings from suppliers of prescription drugs, equipment and services. Instituting Medicare for all should make hiring new workers cheaper, although the elimination of corporate tax loopholes should be the price for the federal government taking on this additional expense.
* Devise an American industrial policy to compete in the global marketplace – to quote a recent Daily Kos piece:
“Germany’s method of creating wealth is straightforward:
1. Produce a highly educated workforce.
2. Have that workforce create and make advanced, precision things for high wages.
3. Export the things at a high price and then re-invest that money back into item 1.
This stands in stark contrast to the America’s current policy, which can basically be summed up as:
1. Let the market work by having government not interfere.
2. If the market doesn’t work, give the market a bunch of public debt money.
In short, America has no industrial policy or framework for future growth. Worse, many American officials don’t want one. Whenever you bring up an American industrial policy, the first thing Republicans trot out is the old “don’t pick winners and losers” shtick. The problem is that no policy at all does pick winners and losers. The winners will be financial speculators and others who can manipulate information faster than everyone else.
If America is going to grow and prosper, it has to make, build and export things around the world in far greater quantity than we do today. The information, finance and consumer economy, as we have seen, do not produce tangible wealth for the middle class. The first step toward making things again is having a government that makes heavy industry a priority over banking.”
* The Federal Reserve must adjust its goals to make full employment its priority – currently, the Fed has three goals that often conflict with each other: to promote “maximum” sustainable output, “maximum” sustainable employment and to promote “stable” prices.
* Eliminate accelerated equipment depreciation and other tax policies that encourage companies to prefer new equipment to new workers. This NYT article says equipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign goods purchased. Labor costs have risen 6.7 percent, in large part due to costlier health benefits.
Robert Reich’s column, “Why Washington Isn’t Doing Squat About Jobs and Wages”, realistically describes why our federal government is making such feeble attempts at reviving this anemic economy. The Republicans are happy to block every bill that aims to increase jobs, because it increases the likelihood that President Obama will be blamed at the polls next November. Most Democratic lawmakers don’t want to remind voters of the 14 million jobless in our midst, or the 10 million workers that have become discouraged or work part-time involuntarily, as counted in the U-6 unemployment rate of 15.8%. The unemployed don’t have a “National Association of Unemployed People”, they are politically invisible.
Take Action
It’s time for the unemployed to drop their “invisibility cloaks” and start demanding that the federal government take short and long-term steps necessary to revive the US employment market. I have taken Mr. Reich’s cue to start a Facebook page, the National Association of Unemployed People (NAUP), with the hope that we can change the focus of our economic discussion off the national deficit, and put it back onto improving the lives of real people.
- Please click on the link above, and “Like” the NAUP’s Facebook page to join.
- You can also click “Share/Save” below to spread the word to your friends through Facebook and other social media.
- Write a letter to your legislators, and tell them that America’s top priority must be job creation not “deficit reduction”.
Thanks for taking action!
Tags: economy, Federal Reserve, housing, jobs, President Obama, recession, unemployment
