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The War on Work: Part 2

January 30, 2011

Unemployment lines in Newark, NJ; Photo: Jennifer Brown, Newark Star Leger

Systemic unemployment: This week the Dow Jones Industrial Average stuck its toe across 12,000 — up more than 4000 points since

Why is Mr. Blankfein smiling? Photo: J. Lee Bloomberg News

the big collapse in 2008. The Gross Domestic Product (GDP) is on rise. Corporate profits have risen nicely and the biggest financial firms have clearly benefitted from hundreds of billions in government bailouts and favorable borrowing rates. Goldman Sachs CEO Lloyd Blankfein clearly has a lot to smile about – his salary more than tripled – up to $2 million for 2011 not to mention a big bonus of more than $12 million for 2010. Nor was Blankfein alone – you can read about other Wall Street moguls in the NY Times. See also an earlier Times article on how companies are profiting by cutting jobs.

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Trickle down? For millions of unemployed Americans finding a job is a discouraging prospect – for every five people looking for work there less than one job available. Searching for work these days is being in Lewis Carol’s Wonderland where Alice found it impossible to get any tea, crumpets or even a seat at the table.

 

The Mad Hatter and March Hare stuff the sleepy dormouse into a tea pot. The tea party seems like an apt analogy to today's Tea Party. Classic illustration by John Tenniel

 

True there is a glimmer of hope; the U.S. economy is slowly adding jobs and unemployment has dropped from 10 % to 9.1 %. However, these oft-stated rates don’t count those whose work hours have been slashed or who have given up looking for jobs. According to a report by CBS 60-Minutes report, the real rate of unemployed and underemployed is 17 %. Another problem is the number of people who have been without jobs for long periods of time – 5 million for one year and 1 million for two years.[1] (A must see).

Systemic disconnect: But what worries financial expert Simon Johnson (13 Bankers and Baseline Scenario Blog) and others is that the

Simon Johnson, MIT's Ronald A. Kurtz (1954) Professor of Entrepreneurship

corporate rebound is providing very little job growth. Secondly, Johnson points out that job growth over the past two years has been much slower than in other post-recession periods.

These two findings suggest there have been distinct systemic changes that have weakened the historical link between job creation and the growth in GDP and corporate earnings.

Systemic disconnect: We suggest that there are a number of factors that contribute to what might be called “systemic disconnect” or “marginalization” of the work force. These factors boost corporate profits (and so called “productivity of labor”) but diminish rather than create jobs in the U.S. Some of the trends may lower consumer costs. However, the negatives are huge, massive unemployment and a shrinking middle class.

Financialization: We might call Kevin Phillips a Neo-Progressive. A former Richard Nixon strategist, Phillips is now a leading critic of capitalism run amok. In his NY Times best seller, Bad Money, he documents the over-financialization of our economy. Simply put: the percentage of capital invested in risky globalized financial markets has risen dramatically while the portion being invested in the manufacturing and other job-creating sectors has declined. Unbridled and unregulated financialization leads to situations where local profits and local savings are invested outside of the community with little in the way of job creation. (See author’s further comment below).

The total assets of the 6 biggest banks is worth more than 60 percent of the U.S. GDP: Source, Johnson & Kwak, 13 Bankers, 2010

Outsourcing: Many companies that historically provided jobs and spinoffs have moved their production facilities and jobs abroad to take advantage of low wages and little or no protection for workers rights and health or the environment. So called “free trade” is not necessarily “fair trade;” millions are left to breathe the dust.

The Mall-Mart Effect:  Big box stores, national chains, malls have their advantages; they offer low prices and do provide jobs. However, the retail jobs are barely living wage and many of the products are imports from the above mentioned countries (especially China).

Mega-container from China to U.S.

Service without the smile

 

Automation: Walk into most supermarkets and look at the present ratio of electronic checkout counters to the traditional ones operated by people. Similarly, many corporations are investing in equipment that increases productivity and profitability but reduces the size of the work force.

Infrastructure – shrinking investments: As President Obama said in his State of the Union speech, this country cannot remain competitive without investments in the infrastructure – not just modern and efficient transportation and communications systems but a well educated and technologically literate work force. However, as we stated in Part 1 of this series, such vital investments are under attack by those who cry deficit, except when it comes to tax breaks and subsidies for the wealthy.

In conclusion, these are some but not all of the interrelated factors creating systemic risk and high unemployment. In Part 3, we will look at approaches to creating jobs.



[1] Annie Lowrey, “As Long-Term Unemployment Deepens, 99ers Look for Answers,” Washington Independent, June 10, 2010. http://washingtonindependent.com/86700/as-long-term-unemployment-deepens-99ers-look-for-answers


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4 Comments leave one →
  1. Henry S. Cole, Ph.D. permalink*
    January 31, 2011 9:03 am

    Coupled with decades of deregulation, the highly financialized state of the U.S. economy was a factor in the collapse of 2008. Deregulation for one allowed commercial banks to become financial institutions, to reduce the amount of capital on hand (overleveraging) and allowed a whole new generation of speculative innovations such as derivatives, and credit default swaps. Lending institutions were also allowed to issue vast numbers of sub-prime mortgages which were bundled into “securities” and sold on financial markets. With an increase of foreclosures in a few states (CA, FL, NV), the value of the securities plummeted. But this was just the beginning. For example, regulators had previously allowed giant firms such as AIG to issue credit default swaps. Here’s how it works. An investor (or firm) pays a fee akin to an insurance premium to AIG. If the asset goes bad, AIG has to pay the claim. But the investor doesn’t even have to own the asset, but can bet on rises or fall in a certain stock or market. As it turns out a lot of savvy investors began to see that the housing bubble wouldn’t last and bet against all those mortgage-backed securities. AIG in several days was flooded with billions in claims that it couldn’t pay. It was saved by $180 billion federal bailout.

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