Getting Past the Paralysis on Jobs

June 16, 2011 by · Leave a Comment 

By Fareed Zakaria

TV CNN ZakariaEvery week brings fresh evidence that America’s unemployment crisis is much deeper and more systemic than predicted — yet Washington seems unwilling or unable to do anything about it. Fears of the budget deficit and a dysfunctional political climate have paralyzed people on both sides of the political aisle. The result is that America is “sleepwalking” through its biggest crisis, writes Mohamed El-Erian, the low-key co-CEO of PIMCO.

Around 24 million Americans are unemployed or underemployed (the latter in part-time jobs that average $19,000, half the median wage). If these people don’t find jobs soon, they will lose skills and work habits and become permanently unemployable, with grim consequences for their families, communities and the country. And if employment growth does not pick up significantly, tax revenue will stay depressed, unemployment costs will rise and the deficit will balloon well beyond current projections.

We still seem to be hoping that somehow this problem will resolve itself, but it won’t. Federal Reserve Chairman Ben Bernanke explained this week that the economy has gone through the worst financial crisis and the deepest housing collapse since the Great Depression. In fact, the problem is even worse. Employment growth has been stalled since 2000. If not for the housing and credit bubble, this jobs crisis would have revealed itself much earlier.

We’re in a new world for the American worker. Technological change and globalization allow companies to get more output with fewer workers. Emerging markets provide millions of skilled workers who can produce the same products at a fraction of the price that Americans can. The Bureau of Labor Statistics notes that from 1947 till 2000, productivity growth was correlated with employment growth. Since 2000, they have diverged. Productivity has risen while employment has fallen. The Nobel Prize-winning economist Michael Spence has concluded that in America, growth and employment will diverge in the future.

Does this mean that we are stuck in a low-growth, low-employment future? No, but the crisis is structural, and we have to recognize its scope and urgency. “Shutting off the alarm and pulling the blanket over one’s head is not a solution,” says El-Erian.

Republican concerns about government spending over the long term are understandable, but cutting spending in the short run will result in more unemployment and slower growth. President Obama talks about jobs but seems too paralyzed to do something ambitious to help create them. Even Bernanke said this week that there isn’t much he could do about the slow-growth, high-unemployment trajectory we are on. Have we all become fatalists?

In fact, we could enact some measures that would spur job creation, many with a limited effect on the deficit. Most immediately, Washington needs to find ways to employ the millions of workers whose jobs disappeared with the housing bust. The simplest way to help them, and the country, would be to create a national infrastructure bank to repair and rebuild America’s infrastructure — which is in a shambles and ranks 23rd globally, according to the World Economic Forum — down from sixth only a decade ago.

House Majority Leader Eric Cantor has played down this proposal as just more stimulus, but if Republicans set aside ideology they would see it is actually an opportunity to push for two of their favorite ideas: privatization and the elimination of earmarks.

The United States builds infrastructure in a remarkably socialist manner; the government funds, builds and operates almost all American infrastructure. In many countries in Europe and Asia, the private sector plays a large role in financing and operation of roads, highways, railroads and airports, as well as other public resources. An infrastructure bank would create a mechanism by which such private-sector participation would become possible here as well. Yes, some public money would be involved, mostly through issuing bonds, but with interest rates at historic lows, this is the time to rebuild. Such projects, with huge long-term payoffs, could genuinely be called investments, not expenditures.

A national infrastructure bank would also address a legitimate complaint of the Tea Party — earmarks. One of the reasons federal spending has been inefficient is that Congress wants to spread money around in ways that make political sense but are economically inefficient. An infrastructure bank would make these decisions using cost-benefit analysis, in a meritocratic system, rather than basing decisions on patronage and whimsy.

The country needs much more: a revival of manufacturing, emphasizing technical training and apprenticeship programs; aggressive measures to promote those industries that are booming, such as entertainment and tourism; an expansion of retraining; streamlining the patent process; more visas for skilled immigrants to stay and create companies and jobs in America. These should be part of a national plan for jobs that President Obama must lay out soon. But start with something that would have an immediate impact and put people back to work — the rebuilding of America.

comments@fareedzakaria.com

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Hard Times

July 16, 2009 by · Leave a Comment 

By Richard Benson

Our measure of how bad it is in this economy for a broad swath of Americans can be analyzed by asking three basic questions: Are people working, are they making any money, and do they have any money in reserves? To answer these questions and more, below are some shocking facts!

First, are people actually employed? The glum employment situation continues to unravel and on the summer jobs front, 16-19 year olds are facing the worst environment since 1954, before their parents were even born. In 2007, 51 percent of graduating college students had jobs lined up before graduation. This year, less than 20 percent had jobs. Because they can’t find work, the youth of America are staying at home with their parents (maybe forever) and parents can be categorized as “payrents.”

The number of unemployed workers reported in the “headline” unemployment rate of 9.5 percent is now 15 million, but only seven million are eligible and collecting unemployment insurance benefits. Each week, when initial unemployment claims of over 600,000 are announced, it’s a virtual certainty that a million people have actually lost their jobs, considering 400,000 workers are out of the work force and not eligible to file. When a million jobs a week are lost, there is no way our current economy can replace them!

In America, only about 60 percent of workers are eligible to file for unemployment benefits. The rest are part-time, contract workers, and those that worked only a short time and don’t qualify to receive benefits.

An alternative measure of unemployment reported by the Bureau of Labor Statistics (“BLS”) shows a 16.5 percent unemployment rate. This measure, called the U-6, includes workers who would like a job but have stopped looking, and part-timers who want full-time work (there are approximately nine million part-timers seeking full-time employment). Unemployment and underemployment are massive.

Second, is anyone making any money? With 28 million people working part-time and 10 million self-employed (this includes dog walkers, yoga instructors and independent contractors, such as real estate sales agents), 38 million Americans in the work force are working but not making that much. Many firms and state and local governments have also begun to cut payroll hours and eliminate overtime altogether. The weekly hours worked were at their lowest level ever recorded in the BLS survey – if you don’t work, you don’t get paid! But the survey is very likely still overestimating personal income (hourly wages are multiplied by hours worked to give a good indication of income), so another way to measure income is to examine tax collections. If you are working part-time or are self-employed you’re counted as working in the survey, but if you’re not paying taxes, it’s because you didn’t make any money! State income tax receipts from January 2008 – April 2009 were down 26 percent from the year before, and money wired back to homes in Mexico from America is down 20 percent.

Small businesses are also failing at a catastrophic rate. These businesses used to be a major source of job growth and income, but not anymore! Mom and Pop businesses have been gutted and many used personal credit cards to fund their operations, resulting in a default rate that has grown to 12 percent on small business credit cards.

Third, does anyone have any financial resources? The government recently reported the savings rate had increased to 7 percent, but with personal income so grossly overestimated, it’s likely the numbers are way off. There’s a big difference between paying down your credit card debt (as your credit limit is cut), and stashing real cash in the bank. Cash in the bank is real savings, paying down credit card debt is not. But since the Fed cut interest rates to zero, many older Americans, who relied on the interest to help pay the bills, are scrambling and uncertain about the future.

In addition, 51 million Americans are collecting Social Security benefits. Nobody would consider this demographic rich or well to do. Indeed, given the high cost of living, you don’t live on Social Security, you simply subsist. Another 12 million people are collecting Social Security Disability (“SSI”). (If you’re 55 and used to work at an auto plant and have exhausted your unemployment benefits, SSI is likely where you will find your friends until you turn 62 and start collecting Social Security.) And still another 34 million people are collecting food stamps, and the total is rising at the rate of 4 million a year. (To be eligible for food stamps you need to have less than $2,000 in resources such as a bank deposit).

RECAP: Seven million people are collecting unemployment benefits, and another eight million are unemployed and collecting nothing! There are 38 million part-time or self employed workers, and 2.4 million people in jail (1 in 100 adults). 51 million are collecting Social Security benefits, 12 million are on Social Security Disability, and 34 million are on food stamps. What financial resources can this huge segment of the population have? Not much!

I bet no one under the age of 70 can remember an economy this bad. Tens of millions of Americans subsisting on government handouts are one paycheck away from homelessness and hunger. The hard times we are experiencing today, due to the misalignment of over-consumption financed by debt, are severe. It will take at least a few more years to work down the debt, build real savings and put the economy on a sound footing. If the American press focused on the economic statistics that reflect the seriousness of the economic catastrophe, the officials in Washington will surely panic. Americans could step up to the plate and ask for some of that bailout money that Wall Street received. It’s time to get grumpy and politically active!

You have to wonder what the government will do to try and jumpstart the dying economy. We expect three major policies by the end of the year:

First, there will be another massive stimulus for job creation;

Second, there will be another round of quantitative easing from the Federal Reserve to finance the job creation stimulus; and

Third, expect a major devaluation of the dollar to encourage exports and discourage imports.

God help the Federal Deficit and the saver because printing money like crazy, and devaluing the dollar, will only get inflation started…

…Whoever said that Hard Times weren’t interesting?

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