Every week it’s the weekly job numbers, and every month it’s the monthly job numbers. And as they’re always awful – when they aren’t flat and one or two commentators venture that maybe things might be getting better, slowly, but better nonetheless, maybe – when these pitiful job numbers are released the markets tank for a day or two. It’s not like the old days, before things fell apart in late 2008, when the announcement of a company cutting thousands of jobs made that company’s stock suddenly soar, and take most of the market up along with it. That was a sign those folks were getting rid of deadweight – useless employees and pointless layers of middle management – and their profit margins were going to be really fat from here on out, and there’d be plenty of cash coming in to pay big dividends to the shareholders. That must be one really well-managed company. They were streamlining things brilliantly. And man, you’d want to get in. And then the buy orders rolled in and the price of a few hundred shares of this baby might even double, so you too had to get in quick – all because they announced a restructuring that dumped all those employees – especially the older ones who cost so much in salary and benefits – and that they closed a plant or two, or three or four.
And there was an additional benefit. All those well-trained and eager former employees, now unemployed, would be flooding the market, and they’d be desperate, and that would drive down labor costs. Even the best of them would be glad to work for half what they once earned, or a sandwich on Tuesday, and if you wanted you could pick up real talent on the cheap. And when labor is cheap profit margins soar. Wall Street loved that sort of thing.
And then they didn’t. All the brilliant streamlining has been done. All the useless deadweight has been jettisoned. That had been done long ago. Everyone is now running with bare-bones staffing and Japanese-inspired just-in-time no-expensive-inventory supply chains. All the fat is gone now. And now all those glorious job numbers, those massive layoffs showing American businesses getting lean and mean and super-duper efficient, and thus really, really profitable, are not glorious at all. Now we have well over fourteen million unemployed, seemingly permanently, and they are not buying goods and services. They may not make their underwater mortgage payment this month. They may lose their homes. And they have no spare cash for whatever it is you’re selling. They may not have the cash for the basics. American businesses getting lean and mean and super-duper efficient, and thus really, really profitable, is fine and dandy, but demand is now an issue. You may be able to produce a widget for half of what it used to cost you, and it may be the best damned widget ever, but now no one is itching to buy your widget. They just can’t. They don’t have the cash, and they used up all their credit – the cards were maxed-out years ago – and they’ve run through their savings, all their savings. And of course they now have no equity in their homes. They cannot take out a second mortgage for some quick cash – you cannot do that when you now already owe the bank far more than the current market value of the house. So, if you’re selling widgets, no amount of clever and stunning advertising – you cannot live without this latest widget – is going to do you much good. You cannot create demand. That’s structurally impossible now.
The best you can do is to develop a new market. General Motors sells a whole lot of Buicks in China – Buicks are amazingly popular there. No one knows why. And Coca Cola makes more than two-thirds of its income overseas, even if they’re based in Atlanta. That’s the way to go. Americans are tapped out. The trick is to find a foreign market where the local economy is not about to tank. Don’t try to sell your widgets in Greece.
But do consider the new business model – American is the land of cheap labor and no-benefits sweatshops, where state after state is working to take away the bargaining rights of workers, so soon there will be no unions at all. And those sweatshops will provide the world with what it thinks it wants, at low cost. There is a reason IKEA relocated a lot of manufacturing here – here they can treat the labor force like dirt, at low cost, which is something they cannot get away with back in Sweden – but Danville, Virginia, is another matter.
But even if the rest of the world recognizes us as the land of cheap labor that can be abused, with the government’s sanction, it still would be nice if more people actually had jobs. Even if the Republicans think the biggest problem we face is the deficit, or abortion, or gays in the military, or too much gun control. Wall Street gets it. America needs local customers, with cash in hand or a credit card that is not maxed-out just yet, and massive unemployment just isn’t that charming any longer. We need to pull out of this jobless recovery, because it isn’t much of a recovery. No one on Wall Street is worried sick about gays in the military.
So where do new jobs come from? Kevin Drum, in this item, points out that you’ve probably been hearing for years that small businesses are the engine of job creation in the United States. But that’s just not true any longer. The number of new startup businesses has declined, sharply since the beginning of the recession, while the number of jobs created by startup businesses has been declining for over a decade. And at the link he has a chart from the Bureau of Labor Statistics that shows that the number of jobs created by new businesses peaked in 2000 and began to decline at the start of the Bush administration, and the Bureau of Labor Statistics notes it then fell off a cliff:
The number of new establishments for the year ending in March 2010 was lower than any other year since the series began… The number of jobs created by establishments less than 1 year old has decreased from 4.1 million in 1994, when this series began, to 2.5 million in 2010. This trend combined with that of fewer new establishments overall indicates that the number of new jobs in each new establishment is declining. …
The number of jobs created from establishment births peaked in the late 1990s and has experienced an overall decline since then. The decrease in birth-related employment during the latest recession is the largest in the history of the series, followed closely by the period of “jobless recovery” after the 2001 recession.
And Drum notes that since the recession began in 2008, the biggest net generator of jobs has been neither small businesses nor large businesses. It’s been medium-sized businesses, just scraping by. So much for that talking point – small businesses create all the jobs. That sounds cool. It’s not true.
But what are people talking about? Steven Benen explains that:
Wealth financier Pete Peterson hosted a “summit” this week on debt reduction, and NPR described it this way: “American political heavyweights … met to tackle the biggest problem facing the nation: the massive public debt.” Given the “Beltway Deficit Feedback Loop” this isn’t terribly surprising. It is, however, ridiculous.
Here’s his item on the Beltway Deficit Feedback Loop – it’s all folks talk about these days, precisely because it’s all folks talk about these days. But Benen does note that the New York Times’ David Leonhardt is fighting his way out, showing that nearly all of the recent economic news has been discouraging – jobless claims moving in the wrong direction; growth forecasts getting revised in the wrong direction; oil prices are holding back growth, the housing market still struggling badly, state and local governments laying people off – and Leonhardt wonders, “Are any policy makers paying attention?”
When the economy weakened in the first quarter, Ben S. Bernanke, the Federal Reserve chairman, and Obama administration officials said the slowdown was just a blip and growth would soon pick up. Today, many Wall Street economists are saying much the same thing: any day now, things will improve.
Maybe they will. But the history of financial crises shows that they produce weak, uneven recoveries, with unemployment remaining high for years. That history also shows that aggressive government action – the kind of action Washington took in 2008 and 2009, but not for most of 2010 – can make the situation much better than it otherwise would be. …
The most sensible response for Washington would be to begin thinking more seriously about taking out an insurance policy on the recovery.
If “sensible” was the appropriate adjective to describe policymaker’s attitudes, there wouldn’t be so much cause for alarm. Alas, the Fed is worried about non-existent inflation; Congress is wedded to austerity measures and Bush-era failures; and the media is convinced the debt is “the biggest problem facing the nation.” There’s a jobs crisis, which isn’t getting better. The unemployed are feeling forgotten, because they have been forgotten. “Sensible” responses aren’t even on the table.
And Mark Thoma at Economist’s View is on the same page:
I first started worrying about the possibility of a slow recovery of unemployment long ago, e.g. I criticized policymakers in 2008 “for not anticipating the slow response of employment when putting the stimulus package into place.” Ever since, I’ve tried to keep this issue alive here and in columns, reminding everyone at every opportunity that we need to do more about the unemployment problem, calling or jobs programs, more from the Fed, etc., etc. It’s been frustrating. A year ago I gave up on policymakers, but promised “I’ll still complain – there’s no reason to let policymakers off the hook.”
I’ve tried to do that, to the point where I’ve sometimes wondered if I’m overdoing it by making the same point again and again. I’m still pessimistic about anything being done to help the millions of unemployed…
But he is comforted that Paul Krugman is on his side:
Unemployment is a terrible scourge across much of the Western world. Almost 14 million Americans are jobless, and millions more are stuck with part-time work or jobs that fail to use their skills. … Nor is the situation showing rapid improvement. This is a continuing tragedy, and in a rational world bringing an end to this tragedy would be our top economic priority.
Yet … on both sides of the Atlantic a consensus has emerged among movers and shakers that nothing can or should be done about jobs. Instead… one sees a proliferation of excuses for inaction, garbed in the language of wisdom and responsibility.
Yes, this is a mess, but for no reason:
There’s nothing wrong with our workers – remember, just four years ago the unemployment rate was below 5 percent. The core of our economic problem is, instead, the debt – mainly mortgage debt – that households ran up during the bubble years… Now that the bubble has burst, that debt is acting as a persistent drag on the economy, preventing any real recovery in employment. And once you realize that the overhang of private debt is the problem, you realize that there are a number of things that could be done about it.
For example, we could have WPA-type programs putting the unemployed to work doing useful things like repairing roads – which would also, by raising incomes, make it easier for households to pay down debt. We could have a serious program of mortgage modification, reducing the debts of troubled homeowners. We could try to get inflation back up to the 4 percent rate that prevailed during Ronald Reagan’s second term, which would help to reduce the real burden of debt.
But Krugman knows that’s not going to happen:
In pointing out that we could be doing much more about unemployment, I recognize, of course, the political obstacles to actually pursuing any of the policies that might work. In the United States, in particular, any effort to tackle unemployment will run into a stone wall of Republican opposition. Yet that’s not a reason to stop talking about the issue. In fact, looking back at my own writings over the past year or so, it’s clear that I too .said far too little about what we really should be doing to deal with our most important problem.
Everyone just gave up:
As I see it, policy makers are sinking into a condition of learned helplessness on the jobs issue: the more they fail to do anything about the problem, the more they convince themselves that there’s nothing they could do.
That’s ridiculous, but Steven Benen says it can be explained:
If I had to guess, I’d say many White House officials would approve of this kind of approach, but tend not to say so. Why not? Because of political realism – the president and his team don’t see much value in pushing a series of proposals that have no chance of passing Congress. An ambitious approach to lowering unemployment was effectively taken off the table the moment Americans elected a Republican-led House. If voters wanted policymakers to focus on jobs they shouldn’t have backed candidates who are intent on making unemployment worse.
Yes, all the austerity programs of the Republican deficit hawks do lower the deficit, and kill jobs – and they admit it. You make your choices. And Benen adds this:
The administration could still push the issue, even if a jobs-agenda can’t pass, but Obama’s team sees political risks in such an approach – the more the president sticks his neck out, the more he appears ineffectual when Congress ignores him.
It’s a trap. Nothing will get done. And David Dayen here comments on how Washington is consumed with reducing the deficit, finding common ground on the budget cuts that would theoretically make those reductions, and committed “to messing around with Medicare” and slashing other vital safety-net programs. They’re missing the point.
And then he cites Jared Bernstein with a response to Krugman – interesting because Bernstein used to be Joe Biden’s chief economist and was involved in most of the economic policymaking of the first Obama term. Now he’s back at the Center for Budget and Policy Priorities, and while he praised Krugman’s column, he reframed the discussion, splitting what we “should” do from what we “could” do:
I totally agree that we mustn’t let “political realism” shut down our thinking on the best way out of this mess. And while that kind of writing sometimes feels academic to me, if done well (as Paul does it), it can slowly but persistently set the stage for actually doing the right thing when the political landscape shifts …
But then there’s this: There will be no WPA-type programs in our near future. There was no appetite for them in the Obama admin in the midst of the worst recession since the Great Depression and there’s a lot less now. The reasons for that are interesting and I’ll speak to them another day. But it ain’t happening.
What? That’s a tease:
I stressed above the importance of making those arguments, and I frequently made them myself as a member of the President’s economics team. It’s also congenitally hard for politicians to get behind “a serious program of mortgage modification.” Those who advocate for this (the NYT editorial page, e.g.) are right – but they’re also downplaying a very binding constraint. The politics of this idea are deeply wound up in moral hazard. People forget, but it was precisely this action – giving mortgage relief to someone at risk of default and not to someone who was struggling to keep up their payments – that birthed the Tea Party.
Yes, Bernstein is referring to the famous Rick Santelli rant – good people shouldn’t have to bail out fools. Screw them – they got themselves into this. It seems that was too powerful for the White House to counter. And Dayen adds this:
On mortgage modification, Bernstein agrees that this would be a wise course of action. But he adds that there’s a restraint on politicians, presumably also at the White House, about moral hazard, about the “wrong kind of people” getting a mod. He references the Rick Santelli rant, which happened over two years ago, as proof for this difficulty.
Now, the most interesting thing about this is that the Obama Administration, through federal regulators, are RIGHT NOW attempting to negotiate a program of mortgage modification with the country’s major banks, as part of the foreclosure fraud settlement. This raises very troubling issues about what the eligibility would look like on that deal. Clearly, the White House is preoccupied with the “right” type of person getting help; Obama has mentioned this on several occasions. Yet who is that “right” type of person when the banks have engaged in systematic fraud? They didn’t just defraud those deserving of aid, whatever “deserving” means; they defrauded everyone, with their fake documents and breaking of the chain of title and fee pyramiding and the like. There’s no way to slice the salami at this point, and divvy up the “deserving” from the “undeserving” of a mortgage modification. That simply doesn’t make sense in this case.
However, it is driving the thinking inside Washington, and will almost certainly be a preoccupation with any settlement (if there even is one at this point). … And instead of attacking that ludicrous constraint, Bernstein accepts it. Or rather, he reports that his former bosses in Washington and policymakers on the Hill have accepted it.
Clinton’s experience shows what such pressure can do to a president’s agenda. Promises of spending on education, public works and a middle-class tax cut fell by the wayside as advisers led by Robert Rubin, who later became Treasury secretary, convinced the new president the best thing he could do for the economy was to show investors his resolve on fiscal discipline.
“You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?” Clinton raged at aides, according to journalist Bob Woodward’s book, The Agenda.
And now Digby adds this:
I guess they really believed that offering help to people destroyed by the greatest case of systemic mortgage fraud and reckless Wall Street gambling in history would send the wrong message to the polloi. They should have known better. We just can’t sanction such lack of personal responsibility and moral hazard in our society.
No, what we needed to do was discharge a nuclear powered fire hose full of money at the people who perpetrated the fraud and ask them nicely, if they didn’t mind, not to do it again. Just as the institutions in question are all Too Big to Fail, these very, very important people are Too Rich to Fuck With.
Well, that sums it up nicely. So no help with the mortgages – there’s that moral hazard thing – so clean up you own mess, even if you were defrauded by a third party. And no WPA jobs program sort of thing – just don’t be so lazy. And there will be no jobs programs in general, and the safety net will be dismantled – the debt, and what we owe on the deficit, is more important. And so foreign companies will relocate manufacturing and assembly here – as we do seem to have chosen to remake ourselves into a third-world nation. So be it.