Ed,
Yes, a good article.
My hypothesis, as you know, is that from about the 1980s there were no more
uniquely new (mass producible) status goods to motivate the masses. This
was the real, underlying reason why credit expanded so enormously at that
time. However, whether one believes that my view is correct or not, there
still remains the problem that the Western industrial economy seems to have
reached structural buffers in employment, as Steven Pearlstein well
describes. There are no resource constraints -- so far -- to account for this.
Meanwhile, the birth rate of the advanced countries is declining fast. Even
if an amazing new technology with a full-employment structure were to be
presented to us right now, we (parents or governments) couldn't afford to
educate our children to the higher standards that would be required. The
only solution I can think of -- and it's one I don't like -- is that the
20% or so of the population who are still thriving in today's (and
tomorrow's) recession, and can afford to educate their children in the best
schools and universities, will have more children in the coming years and
reverse the negative replacement trend. There is anecdotal evidence (enough
to convince me) that this trend is already starting. (It's in the category
of being fashionable at present.) But there is no hard evidence as yet that
this is a real trend.
Keith
At 15:12 08/09/2010 -0400, you wrote:
From the Washington Post
Ed
----------
The bleak truth about unemployment
By
<http://projects.washingtonpost.com/staff/articles/steven+pearlstein/>Steven
Pearlstein
Tuesday, September 7, 2010; 9:04 PM
Somewhere between the rantings of the Republican right, which is peddling
the nonsense that excessive government spending is to blame for high
unemployment, and the Democratic left, which clings to the false hope that
another helping of fiscal stimulus is all that is needed to get millions
of Americans permanently back to work, is this stubborn reality:
The loss of 8 million jobs reflects problems that are largely structural,
not cyclical, which means they won't be brought back by fiddling with a
magic dial in Washington that controls how much the government spends.
When I say that the problems are structural, I mean something more than
what labor economists refer to when they talk about the mismatch between
the skills of the people who of are out of work and the skills needed for
the jobs that are being created - although that certainly seems to be a
factor.
Since 2007, the manufacturing and construction sectors have each lost 2
million jobs, with finance, hospitality and retailing accounting for 2
million more. Those categories alone account for three-quarters of the
nation's job losses, and while a fraction of those jobs might return as
the economy recovers, it will be a long time before automakers or home
builders or investment banks or retailers see the sales numbers they had
at the height of the biggest credit bubble the world has ever seen. Some
of those laid-off workers may have been in this country illegally and have
now returned home, but most will be looking not only for new jobs but also
new careers.
In other cases, the mismatch has more to do with geography than skill -
the businesses with jobs are in one place, and the people with the
necessary skills in another. But with many Americans living in homes they
cannot sell, or can sell only at a price less than the value of the
mortgages they took out to buy them, the willingness and ability of
workers to move to a new city have been noticeably diminished.
One telltale sign of this mismatch is the number of job openings and the
length of time it takes to fill them. As Narayana Kocherlakota, president
of the Federal Reserve Bank of Minneapolis, noted in
<http://www.minneapolisfed.org/news_events/pres/speech_display.cfm?id=4525>a
recent speech, those numbers have been going up over the last year, not
down, as you would expect. Another sign, he said, was the widening gap in
unemployment rates between the states with the highest rates and those
with the lowest. Before the recession, it was just over four percentage
points; now it is more than six.
The structural problems, however, go well beyond these mismatches. The
reason there were 8 million additional jobs back in 2007 is that demand
for goods and services was artificially - and unsustainably - inflated by
cheap, plentiful credit. Between 2002 and 2007, household debt was
increasing at the torrid pace of more than 10 percent annually, while
business debt and the debt of state and local governments was growing at
an average of 9 percent. Much of that money was used to finance present
consumption.
Now all that has reversed. Household debt is shrinking at a rate of 2.4
percent per year as the savings rate has risen from nearly zero to more
than 5 percent. Meanwhile, business debt declined 2.5 percent last year
and is now flat, as is the case for state and local governments.
All that deleveraging and living within our means is obviously a good
thing in the long run. But what it means for the economy in the short run
is that neither the excess consumption nor the jobs it supported are
coming back. During the past two years, the federal government has been
actively trying to take up some of the slack by going on a
borrowing-and-spending binge of its own. But continuing on that path is
also unsustainable - certainly politically, and probably economically as
well. And once federal deficits begin to decline next year, we'll have yet
another drag on economic growth and employment.
At this point, there is only one clear path out of the unemployment box we
have created for ourselves.
Right now, the United States is running a trade deficit that is likely to
reach $450 billion this year. That's down considerably from the $750
billion at the height of the economic bubble, but still more than a
wealthy advanced economy should have. Bringing it down - either by
producing more of what we consume (fewer imports) or more of what other
countries consume (more exports) - represents the path toward sustainable,
long-term job creation.
The problem with that strategy is that for the past two decades we have
allowed our industrial and technological base to deteriorate as talent and
capital were grossly misallocated toward other sectors of the economy,
even as other countries were able to attract the investment, the
technology and the know-how to serve the U.S. and global markets.
For a time, none of this seemed to matter because we were consuming so
much that we were able to support job creation at home as well as
overseas. But now that the debt-fueled consumption binge is over, we find
that we don't have the companies, the workers or the competitive products
to replace the stuff we now import or expand our share of export markets.
Even when we do, our companies are disadvantaged by an overvalued currency
or unfair trading practices.
As Daniel Gros, director of the Centre for European Policy Studies, wrote
this month for <http://www.project-syndicate.org/>Project Syndicate, a
wonderful new economics Web site: "It is relatively easy to manage a
structural shift out of manufacturing during a real-estate boom, but it is
much more difficult to re-establish a competitive manufacturing sector
once it has been lost."
A structural shift toward exports and import substitution," Gros warns,
"will be difficult and time consuming." He might have added that it will
also be expensive, requiring sustained investment by government and
industry, and internationally disruptive, requiring a much tougher line
with trading partners that consistently tilt the playing field in their favor.
In this election season, the politicians who are really serious about
creating jobs and bringing down
<http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR2010090301979.html>unemployment
won't be the ones screaming about tax cuts, or stimulus or some imagined
government takeover of the economy. They'll be the ones talking about how
to make the American economy competitive again.
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Keith Hudson, Saltford, England
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