Jobs Picture

From the Wall Street Journal - April 12, 2010

By ROBERT REICH

The U.S. economy added 162,000 jobs in March. That sounds impressive until you look more closely. At least a third of them were temporary government hires to take the census—better than no job but hardly worth writing home about. The 112,000 real new jobs were fewer than the 150,000 needed to keep up with the growth of the U.S. population. It's far better than it was—we're not hemorrhaging jobs as we did in 2008 and 2009—but the bleeding hasn't stopped.

Since the start of the Great Recession in December 2007, the economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers. That leaves us more than 11 million jobs behind. (The number is worse if you include everyone working part-time who'd rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they're in.) This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began.

Given how many Americans are unemployed or underemployed, it's hard to see where we get sufficient demand to support a vigorous recovery. Outlays from the federal stimulus have already passed their peak, and the Federal Reserve won't keep interest rates near zero for very long. Although consumers are beginning to come out of their holes, it will be many years before they can return to their pre-recession levels of spending. Most households rely on two wage earners, of whom at least one is now likely to be unemployed, underemployed or in danger of losing a job. And even households whose incomes have returned are likely to be residing in houses whose values haven't—which means they can't turn their homes into cash machines as they did before the recession.

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Martin Kozlowski

While consumers have been shedding their debts like mad—often simply by defaulting on loans—their remaining burdens are still heavy. At the end of last year, debt averaged $43,874 per American, or about 122% of annual disposable income. Most analysts believe a sustainable debt load is around 100% of disposable income, assuming a normal level of employment and normal access to credit—neither of which we are likely to have for some time.

Some economic cheerleaders say rising stock prices are making consumers feel wealthier and therefore readier to spend. But most Americans' biggest asset is their homes. The "wealth effect" is felt mainly by the richest 10%, whose net worth is largely stocks and bonds. The top 10% accounted for about half of total national income in 2007. But they were only about 40% of total spending. A vigorous jobs recovery can't be based on 40% of what was spent before the economy collapsed.

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What's likely to slow the jobs recovery most, however, is the indubitable reality that many of the jobs that have been lost will never return.

The Great Recession has accelerated a structural shift in the economy that had been slowly building for years. Companies have used the downturn to aggressively trim payrolls, making cuts they've been reluctant to make before. Outsourcing abroad has increased dramatically. Companies have discovered that new software and computer technologies have made many workers in Asia and Latin America almost as productive as Americans, and that the Internet allows far more work to be efficiently moved to another country without loss of control.

Companies have also cut costs by substituting more computerized equipment for labor. They've made greater use of numerically controlled machine tools, robotics and a wide range of office software.

These cost-cutting moves have allowed many companies to show profits notwithstanding relatively poor sales. Alcoa, for example, had $1.5 billion in cash at the end of last year, double what it had on hand at the end of 2008. It managed this largely by cutting 28,000 jobs, 32% of its work force. But for workers, there's no return. Those who have lost their jobs to foreign outsourcing or labor-replacing technologies are unlikely ever to get them back. And they have little hope of finding new jobs that pay as well. More than 40% of today's unemployed have been without work for over six months, a higher proportion than at any time in 60 years.

The only way many of today's jobless are likely to retain their jobs or get new ones is by settling for much lower wages and benefits. The official unemployment numbers hide the extent to which American workers are already on this downward path. But if you look at income data you'll see the drop.

Among those with jobs, more and more have accepted lower pay and benefits as a condition for keeping them. Or they have lost higher-paying jobs and are now in new ones that pay less. Or new hires are paid far lower wages than the old. (In January, Ford Motor Co. announced that it would add 1,200 jobs at its Chicago assembly plant but didn't trumpet that the new workers will be paid half of what current workers were paid when they began.) Or they have become consultants or temporary workers whose pay is unsteady and benefits nonexistent.

This shift also helps explain why the unemployment rate for Americans with college degrees is now only 5%, while it is 10.5% for those with only a high-school degree, and 15.6% for Americans with less than a high-school diploma. The jobs of well-educated Americans, although hardly immune to foreign outsourcing and technological displacement, have been less vulnerable to these trends than the jobs of Americans with fewer years of education.

The likelihood, therefore, is that as the economy struggles to recover and today's jobless begin to find work, the median wage will continue to fall—as it did between 2001 and 2007, during the last so-called recovery.

More Americans will be working, but for pay they consider inadequate. The approaching recovery will be tepid because so many people will lack the money needed to buy all the goods and services the economy can produce.

Americans will once again be employed, but they will also be back on the downward escalator of declining pay they rode before the Great Recession.

Mr. Reich, professor of public policy at the University of California at Berkeley and former secretary of labor under President Clinton, is author of the forthcoming "Aftershock: The Next Economy and America's Future" (Alfred A. Knopf).

Re-Learning Thrift

from city journal:

__________________________________________________

GERALD J. RUSSELLO

Thriving with Thrift

Americans must recapture their old habits of frugality and restraint.

12 February 2010

Thrift: Rebirth of a Forgotten Virtue, by Theodore Roosevelt Malloch (Encounter, 238 pp., $16.95)

Waste not, want not. A penny saved is a penny earned. A bird in the hand beats two in the bush. Phrases like these were once part of America’s common economic wisdom. Especially in the twentieth century, Americans learned, through the Great Depression and two world wars, that it was better to hold on to your resources and use them wisely than to spend them recklessly or to gamble with them in the hope of making a greater gain. Indeed, the 1920s saw the rise of the National Thrift Movement, which took its inspiration from our nation’s thriftiest Founder, Benjamin Franklin. Many Americans who grew up in that era never forgot its privations, which imposed at least a partial check on their characteristic economic optimism.

These venerable phrases haven’t been heard much over the last 20 years, however. First came the Internet era, which seemed to suggest that there was no limit to the Dow Jones Index or to our personal fortunes; then the subprime-housing bubble, in which overly easy credit was joined to an unrealistic view of the free market and a failure of nerve in Washington. Traits like frugality and thrift were regarded as arcane ideas from another time, as if those practicing them wore the top hats and frock coats of somber Victorian burghers.

In his new book, Thrift, the impressively named Theodore Roosevelt Malloch seeks to return thrift to its place among commercial society’s respectable virtues. After all, the word “thrift” is cognate to the verb “thrive,” and it is Malloch’s view that thrift, properly understood, should be joined with a constellation of other characteristics that make society more just and ultimately more prosperous. Thrift does not mean poor, and its opposite is not wealth but waste. Tracing its roots to the Scottish Enlightenment, Malloch describes thrift as “a matter of the wise use of assets—accumulating where this was possible, investing where this promised a return, and avoiding waste.” Thrift is, in a sense, a principle of good stewardship and could apply to caring for the environment as well as to tending one’s bank account. It requires judgment, reflection, and the forging of sound habits that will lead to happiness. One can be generous and thrifty; the term need not, as Malloch makes clear, be equated with stinginess.

Thrift ranges widely across intellectual history, from Aristotle to the Enlightenment, from George Weigel’s reflections on European malaise to the policies that the developed world should adopt toward less developed nations, from economic theory to debates over the religious causes of prosperity. The result is a sometimes-chaotic ride through several complex subjects. Malloch is concerned, among other things, with the transition into a new kind of capitalist economy: “Instead of an economy based on saving and thrift, which launched Europe on its path of growth and prosperity, . . . we have an economy based on consumption, debt, and credit, in which saving is discouraged not only by the culture of affluence but also by the fiscal policies of governments.” Economic policy, he argues, should be directed toward reinforcing good habits of saving and proper consumption.

That doesn’t mean greater government involvement or expenditure. The rise of the welfare state over the last century, for example, has contributed to the corrosion of thrift. A government that promises everything eventually convinces the populace that it need not save or prepare for anything. This position becomes ultimately untenable, Malloch argues, sapping people’s ability to develop the habits necessary to maintaining a free society. Reliance on the government also masks the reality that government resources ultimately derive from a prosperous populace; if government action reduces those resources, its own effectiveness becomes limited. It’s curious, though, that Malloch offers not a word of complaint against the private institutions that helped further our economic troubles. While it’s true that Washington failed to restrain debt spending or to inculcate thrift, the boom and inevitable bust in housing wouldn’t have been possible without thousands of private, profit-seeking individuals and firms seeking to cash in on the frenzy.

No doubt Malloch would say that an emphasis on virtue and community-building would help lessen such destructive private actions. He notes that in a society focused on consumption, “the insatiable urge to acquire things, whether or not they are needed, has reached epidemic proportions” and “has caused severe social and cultural dislocations and warped the basic values of American society.” His shorthand solution for restoring the balance is “spiritual capital.” Michael Novak and others have long argued that a disciplined capitalism requires a complex structure of social sanction, education, and often, if not always, religious belief. While Malloch concedes that calculating spiritual capital is difficult, he brings to bear an impressive array of data that shows a correlation between prosperity and traditional religion.

Shifting at times from diagnostician to sectarian, Malloch may lose some readers, but his analysis addresses the fault lines of our current predicament. A nonjudgmental secularism combined with an amoral economic system is a recipe for economic loss and cultural degradation. Perhaps it is time to bring Franklin back into the picture.

Gerald J. Russello is a fellow of the Chesterton Institute at Seton Hall University.

A Non-Delirious New York

From Wall St Journal:

• OPINION
• JANUARY 22, 2010, 10:06 A.M. ET

By MARK HELPRIN

Midway between the first intoxications of borrowed money that does not exist, and the red-hot bearings of presses that roll to correct such inconsistencies, lies a wonderland in which human nature can become a subsidiary of the making and spending of money. Not steadily and honorably in furtherance of well being, charity, and art, but at the speed of summer lightning and for its own sake.

When pay-out exceeds pay-in, balance is maintained only by the weight of illusion—as in real-estate bubbles, or welfare states in which benefits vastly exceed contributions. Within such failing systems one finds nevertheless highly visible concentrations of wealth, like lumps in tapioca, that persist in setting a tone that has long gone flat.

Take Manhattan, but first take the Hamptons, where symptoms are readily apprehended, just as the pulse at the wrist is a telltale of the heart. Mere multimillionaires cannot afford anymore to go where within living memory actual people made a living from the farms, clam beds, and sword-fishing grounds. Now the potato fields are covered with houses that look like the headquarters of Martian expeditionary forces, ice-cream factories, vacuum cleaners on stilts, the Seagram building on its side, or shingled New England cottages monstrously swollen into something you might see after eating a magic mushroom. In simple and quiet towns that once deferred to the majesty of the ocean, the streets are now clogged with a kabuki theater of Range Rovers and $35,000 handbags.

In Manhattan the knock-the-wind-out-of-you rich used to be a relatively silent freak of nature who could easily be ignored, but of late they are so electrically omnipresent, jumping out of every flat screen and magazine, that they indelibly color the life of the city. Having multiplied like Gucci-clad yeast, they have become objects of impossible envy.

You cannot ignore them as you sit in your $2,000 a month 7 x 10 "efficiency," eating your $5 street pretzel. Or when private schools—where scholarships are reserved for peasants who subsist on $300,000 or less, and where if you haven't been admitted by the time you're an embryo you're toast—have become like the class redoubts of Czarist Russia.

Or when Mayor Michael Bloomberg spends a hundred million of his own money, $175 per vote, to crown himself like Napoleon, perhaps forgoing the purchase of the presidency because at that rate he would have to fork over $22 billion. What if he had spent comparably to his predecessors—Fiorello La Guardia, or even Jimmy Walker, whose corruption when compared to Mr. Bloomberg's well-established honesty seems nonetheless like the innocence of a fawn? (It is possible that he would not have won on his own merits.)

Ostentation has always been a hallmark of mankind, and part of the price of freedom and power in ascendant nations. But the day the baubles shine most brilliantly is the day when the civilization, distracted from what made it, begins to go down the drain. This is not an argument for restricting economic liberties, but rather a lamentation of circumstance and a condemnation of taste. The right may envy by competition and the left by expropriation, but the objects of such envy are not worthy of its ruinous influences, and the city is at its best when the fury of acquisitiveness is least.

Now that New York may be exiting yet another of many eras of irrational exuberance, it presents an opportunity in the midst of defeat, for when it is quiet it is far more lovely and profound than when it is delirious. For a long, clear moment, September 11 blew the dross away and the real city appeared. When such things arrive, as they always have and always will—whether in the form of conquest, riots, depression, epidemics, or war—they and their aftermath should be the cause of reflection.

Whenever New York has endured a blow, its real strengths have emerged. If it is now on the verge of a long-term diminution of wealth, or at least a roughly attained sobriety, all the suffering should not be for nothing. Recovery should mean not just a return to the fascination with excess that betrayed so many. For one, excess is too limited a thing to be genuinely satisfying. Grab the first billionaire you see (it should be easy) and he will tell you that stuff simply doesn't do the trick.

This is why New York has for too long been a city in which even the rich are poor. To the contrary, it should be a place in which even the poor are rich. How to accomplish this is a riddle to which public policy often proves inadequate and is anyway just a distant follower of forces of history that assert themselves as far beyond its control as the weather. As the waves of history sweep through the present what they leave will depend in large part upon how they are perceived and how each individual acts upon his perceptions, which law and regulation follow more than they shape.

How things will turn out is anyone's guess, but it would be nice if, as in the quiet during and after a snow storm, Manhattan would reappear to be appreciated in tranquility; if cops, firemen, nurses, and teachers did not have to live in New Jersey; if students, waitress-actresses, waiter-painters, and dish-washer-writers did not have to board nine to a room or like beagles in their parents' condominia; if the traffic on Park Avenue (as I can personally attest it was in the late 1940s) were sufficiently sparse that you could hear insects in the flower beds; if to balance the frenetic getting and spending, the qualities of reserve and equanimity would retake their once honored places; if celebrity were to be ignored, media switched off, and the stories of ordinary men and women assume their deserved precedence; and if for everyone, like health returning after a long illness, a life of one's own would emerge from an era tragically addicted to quantity and speed.