Posted on 10/21/2009 6:12:15 PM PDT by Libloather
The free market is not up to the job of creating work
By Mort Zuckerman
Last updated: October 18 2009 19:21
America has always been a country that thrives on hard work, thrift and self-reliance. We have all absorbed Benjamin Franklin’s maxim: “Early to bed and early to rise, makes a man healthy, wealthy, and wise.”
This helped create jobs. In an application of Schumpeter’s notion of creative destruction, the US lost 44m jobs in the last two decades of the 20th century, but simultaneously created 73m private sector jobs. A stunning 55 per cent of the total workforce was in new jobs by the turn of the century, two-thirds of them in industries that paid more than the average wage. This is no fluke. It is because we benefit from a unique brand of entrepreneurial bottom-up capitalism.
Today there is no evidence of job creation. Quite the opposite: unemployment is rising and millions of jobs have disappeared. In place of thrift we have become a nation of debtors, staggering beneath mortgages that exceed the value of our homes, and credit lines that exceed our ability to repay. But the “Great Recession” has also changed the nature of unemployment, making it harder for those out of work to find a job. Only by investing in infrastructure and innovation can we mend the system.
About a third of the 15m jobless have been out of work for at least six months. This is the highest proportion since records began in 1948. Meanwhile, those in jobs find their work week reduced to an average of 33 hours, again the lowest in 60 years. Firms are cutting hours, wages and benefits rather than laying off still more workers. Today all elements of labour income – jobs, hours and wages – are under pressure.
Many Americans who lost their jobs now have no way to replace their lost income. Take unemployment benefits, which pay about a third of the lost salary, up to a cap. Generally, the requirement for the benefit is to have worked full time on the last job for at least a year. But more than half the unemployed do not qualify because they had been in their jobs for less than a year before the axe fell; or worked part-time; or were independent contractors. Only 43 per cent are eligible for unemployment benefits. Even for them, the anxiety is intense: 61 per cent worry their benefits will expire before they find a job. This is driven home by the dramatic increase in those dependent on food stamps, up by 6.2m since the recession began. Food stamps now feed a near-record one in nine Americans.
These men and women are well aware that long-term unemployment will make them harder to re-employ. Their fears are justified: there are now nearly six people available for every job opening – up from 1.7 per opening when the recession began.
The mix of the labour force has also changed. The proportion of over-55s working has risen 8 per cent. They felt forced to keep labouring away because the value of their homes and investments declined. In fact, 63 per cent of workers aged 50 to 61 expect to delay retirement, thus restricting openings for younger workers. During the last two recessions, those in their mid-40s to mid-50s showed employment gains, while younger workers bore the brunt of cutbacks.
Of course this time younger workers have not escaped – a quarter of teenagers, about 1.6m youths, are without work. The unemployment rate for young Americans has exploded to 52 per cent, a post-war high. But even the 45-to-54 age group has seen job losses, with employment down by more than 1.2m. These are people who should be in the prime of their wage-earning years. It will take these older workers longer to find jobs; some will have to settle for considerably less pay.
Another consequence of the prolonged recession is that many more men than women have lost jobs, probably because women are paid less. Women’s share of the workforce may have reached a record 50 per cent last month as a result.
Alas, the prospects for re-employment are diminished by the fact that many jobs may never come back, for example in finance and car manufacturing. This means growth alone will not fully employ America again. If there is any growth in jobs, it will come mostly from healthcare, education, restaurants and hospitality services. Healthcare alone made up all the net jobs created in the last decade. Such service jobs cannot, however, support growth and innovation.
We knew the skies had darkened but now we learn the unemployment figures are worse than previously thought. This is the only recession since the Great Depression to wipe out all job growth from the previous business cycle. The broader measure of unemployment, the “household index” encompassing people who are unemployed and underemployed, has reached a record 17 per cent. The household survey revealed staggering job losses of 785,000 for September. It includes about 571,000 people who dropped out of the workforce last month, presumably because they despaired of finding work.
Similarly, unemployment for the 12 months to March was understated by 824,000. The US lost about 3m jobs in the first three months alone. Jobs have been lost for 21 months in a row, the longest losing streak since publication started in 1939.
The US Bureau of Labor Statistics limits the official unemployment rate by its definitions. For example, if people stop looking for a job for four weeks they don’t count as unemployed. Absurd! An estimated 2.2m discouraged workers thus are not counted in the unemployment numbers. Were they included, the unemployment rate would be 11 per cent, not 9.8 per cent – and this does not include another 1.8m who retired or became stay-at-home parents.
The official rate does not include 1m people who once worked in residential construction, where three-quarters of jobs have been lost. These people did not show up on the employment rolls when they were working, and do not show up on the unemployment rolls now they are out of work – but they are still (illegally) in the country. Nor does it include approximately 2m people who have entered the labour force since the recession began and are still without jobs. If it were not for short-time working, the same work could probably be done in the normal work week with 3.5m fewer staff, which would drive the unemployment rate up another 2.5 percentage points.
No wonder job anxiety has soared. Soaring unemployment numbers have undermined the confidence that we might be nearing the bottom of the recession. The outlook is bleak. If there is a recovery, firms will fill additional work loads by adding hours to the truncated work weeks.
Since spending depends on employment it is critical to determine whether the labour market will remain weak. Given the level of household debt, the drop of confidence, the decline in the value of homes and the tightness of credit, it is hard to see how consumer spending will rise enough to improve economic prospects beyond a weak recovery – which creates few new jobs.
Labour markets have not faced such problems in more than 70 years. The official unemployment rate will shortly cross 10 per cent. Half of US retailers say they will be adding fewer seasonal jobs this holiday season. We may be looking at long-term, double-digit unemployment with official unemployment figures that understate the extent of the problem.
Only massive programmes are equal to the challenge of restoring stable growth to our economy. One such programme would be to establish a National Infrastructure Bank, advocated by prominent Democrat Felix Rohatyn, to which the government would assign the $65bn (£40bn, €45bn) annually allocated to support infrastructure construction nationally. The bank would have the capacity to borrow, with federal guarantees, an additional $200bn. This programme would ensure a rational rather than a political investment in infrastructure, and provide long-term infrastructure development on a major scale with a maximum multiplier effect on the economy.
A second programme would be a 100 per cent tax credit for increases in research and development by American businesses. In this way we could stimulate and incentivise the capacity for innovation and technical creativity and thus produce another Schumpeterian period of growth for America. There is no time to lose.
The writer is editor in chief of US News & World Report and chairman and co-founder of Boston Properties
Mort most Americans don’t believe this bilge water for an instant. All you are doing is trying to defuse the coming revolution that is going to send you and all of your liberal cronies to the fate you deserve.
Wasilla???
I don’t blame them. In fact I am doing the very same thing.
Disagree. It is induced (is that the word you were looking for?) by massive malinvestment on a Biblical scale by Goldman and others, in quick-money "investment" vehicles rather than genuine investment in industrial capacity, infrastructure, and research.
It's the same decision that British bankers made before WW I, when they fled reinvestment in British industry for the lure of lush paper returns from foreign investment, consigning British industry to 50 years of decline and 20 years of stagnation and rot.
At Davos in 2007, CEO after CEO got up and told foreign investors that he was dumping as many American employees as he could and would turn his numbers around at the direct expense of his American employees and suppliers, and outsource and offshore his capacity.
Former Fed governor Alan Blinder was there and heard them, and he came back and told Paul Kangas on the Nightly Business Report and Charlie Rose, too, what these guys were saying in Switzerland. We are seeing the full impact of those American CEOs' decisions now.
And those decisions, make no mistake, were impelled by the financial people in New York -- by Goldman and Bear Stearns and Merrill and Lehman Bros. Those guys call the shots. And firing Americans and going Wal-Mart across the board was what they wanted in New York. They've been working on this "project" a long time, as witness the long-term nature of the semi-secret, top-down "revolutionary" SPP/NASCO infrastructure project, which has been in hand since the early 1990's.
Don't worry, she's campaigning already.
She's going to be on Oprah really soon, n/w/s Oprah's a really big Obama backer.
Yes, thank you for correcting me.
"massive malinvestment on a Biblical scale by Goldman and others, in quick-money "investment" vehicles rather than genuine investment in industrial capacity, infrastructure, and research."
And what moral or legal standards compel a company to invest in things that YOU like?
If it did that, it would be abrogation of duty.
"It's the same decision that British bankers made before WW I, when they fled reinvestment in British industry for the lure of lush paper returns from foreign investment, consigning British industry to 50 years of decline and 20 years of stagnation and rot."
I an not an economic historian, but no statement of such simplicity is typically correct. "Every difficult question has a simple answer, which is usually wrong" -- A. Einstein.
"At Davos in 2007, CEO after CEO got up and told foreign investors that he was dumping as many American employees as he could and would turn his numbers around at the direct expense of his American employees and suppliers, and outsource and offshore his capacity."
Yes. And what is wrong with this... exactly?
You misplace here the responsibility for outsourcing --- from us, who became to expensive relative to productivity's, to managers that are simply doing their job on behalf of the shareholders (which you also forget ARE the American people). What's more disturbing is that you allocate blame without amazing ease, as something self-evident. Can you imagine? they wanted to build a foreign business unit? What treason!
Both incorrect and wrong.
"And those decisions, make no mistake, were impelled by the financial people in New York -- by Goldman and Bear Stearns and Merrill and Lehman Bros."
This is the most preposterous thing I have heard in a long time. Please learn what you speak about before you defame people with an incredible ease.
One would expect that a conservative obeys Commandments. You serve as false witness without a moment hesitation.
Nice arrogance. Keep it up.
Choices have consequences.
Now that we see the consequences, we can start drawing conclusions about the quality of the choices. That's true for anyone, in any walk of life.
If it did that, it would be abrogation of duty.
To the shareholders, as narrowly construed by the shareholders' stated wishes and, in many cases, public laws governing the conduct of fiduciaries.
I an not an economic historian, but no statement of such simplicity is typically correct.
Of course not. You can't paint a Canaletto with a three-inch brush. But a broad statement can still be true.
Yes. And what is wrong with this... exactly?
Do you really mean that? I mean, seriously. With the U.S. economy and U.S. manufacturing in the shape they're in? Just look at the decisions, then look at the consequences. Disinvestment in the U.S. has consequences -- and just because it's legal doesn't make it right.
You'd better go get some Austrians to help you out here, with a few pie-in-the-sky promises about how it'll all work out for the best no really we mean it.
You misplace here the responsibility for outsourcing
No, I locate it precisely and accurately, as well as fairly, with the top executives, the CEO's, who ordered it.
Please learn what you speak about before you defame people with an incredible ease.
I live on my investments and savings. Believe me, I spend all my waking time trying to learn more about the markets and business. But you might spend a little time migrating your argumentation model away from ad hominem and toward answers that display less weakness than casual abuse does.
As for "defaming" the executives who went to Davos, said what they were going to do, and then did it -- I repeated what a credible eyewitness, Alan Blinder, saw and heard there and reported to audiences in America. They did what they did, and saying what they did is not "defamation".
10% unemployment is full employment under European style Socialism. Welcome to “hope and change”.
A number of talk radio shows reported that 49 states and territories had more job losses last month; but no one is saying which state(s) did not loose jobs. I can’t find anything here or on Drudge about this. Does anyone know? I figure MI must be one since they didn’t have any jobs left to loose.
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