Happy Days Are Here Again - as Long as You Ignore the Jobs Crisis
Monday 31 January 2011
Traders on the floor of the New York Stock Exchange before the closing bell, Tuesday afternoon, May 25, 2010. Shares on Wall Street recouped almost all of their earlier losses to end the day flat. At one point, indexes were down more than 2 percent. (Photo: Hiroko Masuike / The New York Times)
If Tina Turner was to reprise her 1980’s hit in 2011, it would surely be called, “What’s jobs got to do with it?” Unemployment and underemployment remain dangerously high, at around 17 percent, but you wouldn’t know it listening to the optimism ringing out from Wall Street to Washington last week. The New York Stock Exchange flirted with 12,000, a level not seen since 2008, everyone celebrated economic growth data, and the annual gathering of global finance and business leaders at the World Economic Forum in Davos, Switzerland, was dominated by declarations of an American rebound. A fundamental disconnect between the finance economy and the real one couldn’t be more apparent.
Wall Street may be signaling that the economy is on a pre-recession roll, but in actuality most Americans will not see a return to prosperity for years, due to the ongoing jobs crisis. America is not built for long-term, structural unemployment (and the events in the Middle East show what happens when economic stagnation festers). In order to create employment and opportunity for everyone, the country’s political leaders need to accept that the interests of average people and the top 1 percent are divergent, not convergent. Unfortunately, there is every indication that they will continue to do the opposite.
On Friday, the Commerce Department announced that in the last three months of 2010, the economy grew at 3.2 percent and, for the full year of 2010, at 2.9 percent. In response, The New York Times trumpeted, “US Economic Growth Bounces Back to Rate Seen Before the Recession.” The Wall Street Journal chimed in on its front page with, “Economy Picks Up Steam, Output Returns to ‘07 Levels.” Sensing that 4th Quarter growth would be strong, by midweek the Dow had achieved a three-year high. In investors’ eyes, America had come full circle.
On the same day as the Commerce Department’s GDP release, Treasury Secretary Tim Geithner, speaking at the Davos meeting, expressed his “confidence … in a sustainable expansion” and faith in America’s avoidance of a double-dip recession.
But the bright portrayal offered by Geithner and echoed by mainstream press was strikingly different from that delivered in the World Economic Forum’s official 2011 report. The document says that there is a “new reality” at hand. This altered landscape, which will “reshape global norms,” is one where there is widening disparity between the hyper-rich and everyone else; stubbornly high unemployment; and explosive growth in the developing world, contrasted by anemic growth in industrialized countries. The report points ominously to the combined unemployment and underemployment rate in the U.S., hovering close to 20 percent, as a source of instability for the international economic system.
The Davos report gets it right: The lack of jobs is the worry, and a 2.9 percent increase in GDP is far from what’s needed to put people back to work. As Jeanine Aversa of the Associated Press writes, economists agree that “growth would have to be 5% a full year just to drive the unemployment rate down by 1 percent.” So the American economy would have to be expanding at a rate at least 60 percent higher than it is presently, and continue doing so for five years, to return to 2007 employment levels. That’s why the unemployment rate has remained virtually unchanged.
Next year’s predicted 3 percent GDP increase is still below what’s needed to create millions of jobs. Economist Nouriel Roubani, who has been nicknamed “Dr. Doom” for his accurate 2008 predictions of economic collapse, believes that today’s employment will remain basically the same for years. Even the Dow’s approach to 12,000 didn’t look as good as analysts first thought. By the end of the week, Wall Street number crunchers concluded that the high was attributable to a re-weighting of the Dow. In other words, the surge was statistical, not actual.
Out of 7,000 words in the State of the Union, the president mentioned the word jobs only 24 times. This was mostly in the context of his call for a new “Sputnik moment” centered on an “innovation” agenda that would make the U.S. “a better place to do business” and allow it to “compete for the jobs … of the future.”
But an improved business climate and a more competitive economy are already underway. That’s how we got to 2.9 percent growth. The existing economy is more productive—“competitive” to use the president’s frame—precisely because it shed 8 million jobs. The jobless recovery is necessarily so—companies are “growing” by laying off employees and paying those they keep less.
America in 2011 doesn’t need nostalgia for a 1957 technological challenge; it needs a new grand strategy to put millions of people back to work. Solely through initiatives that encourage broad-based employment that, as President Bill Clinton once said, “put people first,” can we generate nationwide prosperity in which we can all share. An economy that works for everyone is the only way to achieve dramatic, exponential economic growth. And we can have that, if the administration moves past Geithner’s happy talk and takes the actual Davos report seriously.
Take, for instance, the total erosion of American home values that’s so crippled our economy. The foreclosure crisis is often cited as a housing and individual responsibility problem. Rather, it is about $9 trillion in lost resources. Kick-starting the jobs engine will be difficult until the housing finance morass is adequately addressed. The Obama administration seemed to understand this when it announced its foreclosure prevention plan back in 2009. But that effort, underfunded and with rules too weak to force banks to the bargaining table, has had little impact. Close to one out of 10 Americans still face foreclosure and one out of five homeowners’ properties are worth less than they paid for them. This is a structural problem that must be addressed before we can talk seriously about a rebound.
Similarly, a greener, low-carbon economy will allow the U.S. to grow faster by using less energy to produce more goods and services. America currently sends $1 billion a day abroad to pay for imported oil. With the equivalent of a 40 percent reduction in just one year’s worth of oil imports, the U.S. would generate up to 2.5 million jobs—or 2.5 times the number of jobs created last year. Capital markets are poised to inject massive investments to do so, but they can’t. The private sector is waiting for the government to design the regulatory framework for these investments and put a price on carbon. These two essential starting points for a new economy were encapsulated in last summer’s climate bill, which died in the Senate due in part, according to an October New Yorker profile, to the White House’s lackluster support.
Finally, there’s the job-rich and desperately needed work of reversing 30 years of underinvestment in U.S. transportation infrastructure. According to the Department of Transportation, every billion dollars spent on infrastructure creates 30,000 jobs. The American Society of Engineers estimates that the U.S. economy needs $2 trillion worth of improvement.
As a candidate, Obama embraced an innovative proposal to help pay for this jobs stimulator: an “infrastructure bank” that, using a relatively small amount of seed money from the federal government, could attract up $500 billion in private capital. But the administration hasn’t mentioned the idea since the fall. Nor has the president sent Congress his transportation reauthorization bill, drafted two years ago, which would direct billions of potential-employment dollars to urban areas that are home to some of America’s most jobless communities.
Of course, tackling America’s jobs crisis by implementing these policies would require the administration take on some of the country’s biggest special interests. The finance industry, the oil and gas industry, and the highway lobby have spent hundreds of millions of dollars in the last decade on political contributions and lobbying. It’s paid off. These K Street heavy hitters have consistently killed or hollowed out reform legislation. Finance and housing legislation, the climate change bill, and transportation legislation all bear the mark of industry lobbyists.
That’s why a new economic rule book would also require dismantling a society-wide belief, planted during the Reagan years, that what’s great for billionaires is great for struggling families and individuals on the edge. Starting in the 1980s, the country developed collective amnesia around the fact that it had become the world’s largest and strongest nation by building a strong middle class, not just an economy for the top 1 percent. America’s collective memory loss has caused the political class to cast its lot with the finance economy and against the rest of us. And as a result, we have the largest wealth disparity since 1927—and an ongoing jobless recovery. By all signs, it will only continue to get worse.
Imara Jones is a New York based blogger. He holds a masters in economics from the London School of Economics and in 2006 was cited by the World Economic Forum as a Young Global Leader. His blog, Caffeineator.com is about life in our disruptive world and what comes next. He is also the editor of Slaveryblog.org. His Twitter handle is @imarajones.
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