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Part 2: Unemployment crisis in America — Why?

June 13, 2011

Standing in the rain for the last unemployment check; Source: NY Times

The previous post discussed the severe unemployment situation. How could this happen here in America, bastion of wealth, land of opportunity; a nation blessed with natural resources?  Not everyone is suffering. Corporate profits are way up [1] and the wealthy continue to grow wealthier. This post examines some of the mega-factors that contribute to this paradox.

Outsourcing of jobs and production.  As Robert Reich, former Labor Secretary in the Clinton Administration, says, “[L]ook at GE, the bellwether of American corporations — 60 percent of its business is now coming from outside the U.S. And that’s where 54 percent of its employees are. Almost half the sales of the S&P 500 are now overseas. The Commerce Department reports that in the past decade American multinationals have eliminated almost 3 million jobs in the U.S. while adding more than 2 million abroad.” [2]  In short, the corporations are going to low-wage countries. Hard to see how cutting corporate taxes will stop this process – unless the cuts are tied to domestic job creation.

Failure to invest – corporations: Despite rising profits, U.S. corporations are now withholding $ 2 trillions in capital from the economy.  “Companies like Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates, but few of them are actually spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash until the economy improves. The development presents something of a chicken-and-egg situation: Corporations keep saving, waiting for the economy to perk up — but the economy is unlikely to perk up if corporations keep saving.” [3] My cynical side asks if the mega-corps are simply waiting for the GOP to take the White House in 2012.

Senator John Kerry promotes National Infrastructure Bank

Failure to invest in infrastructure: The U.S. infrastructure from roads and bridges to water and sewerage systems are in a wretched state. As Senator John Kerry put it, “while Europe and Japan have bullet trains that run at 250 miles an error, here we are struggling to keep Amtrak.” [4] Restoration and modernization of America’s infrastructure has multiple benefits including millions of jobs that can’t be shipped abroad and that will spur local economic development, increased competiveness of the U.S. economy, improved health, safety and sustainability of communities, the restoration of confidence in America. Also, it would create an outlet for union and public pension funds invested in countries like China and India where the products we import are manufactured.

*******

Service without the smile

Increased productivity, increased profits, fewer jobs.  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. No medical care or union negotiations with robots.

According to Peter Goodman of the NY Times, “Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks…The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees.” Global economist Allen Sinai  (Decision Economics) quoted in Goodman’s article is blunt, “American business is about maximizing shareholder value. You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”[5]

Feedback loops and vicious cycles: Looking at the laundry list doesn’t explain the whole fiasco. Consider also interconnected feedback loops and downward spirals. Say a large manufacturing company decides to move production overseas and lays off thousands of workers.  Local sales decline and a number of retail outlets go belly up or layoff more people resulting in higher unemployment and fewer sales and so forth. Tax revenues decline and state and local governments facing mounting budget deficits layoff hundreds more.  And so forth. Conversely, economic development which creates local jobs creates feedback mechanisms that boost local economies and more jobs.

Dysfunction: Market economies are supposed to work like this: consumers buy products, the money they spend is invested in production which provides jobs, workers and their families spend money to buy products, and so forth. Resilient, sustainable economies including natural economies (i.e. ecosystems) are inherently local; both production and consumption occur at the local level; excess capital (e.g. revenues or biomass) are recycled within the local economy. However, we have a basic dysfunction; the cycle has been broken because the capital is not being invested  in ways that produce jobs in American communities — the money is being siphoned away.
So long as governments, corporations, and voters fail to address this problem, we can expect to see long-term unemployment rising and the living standard, quality of life and opportunity declining for most Americans.
In part 3: Solutions: What we might learn from ecosystems about economics and employment.  

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[1] Robert Powell, NY Times, “Profits are Booming. Why Aren’t Jobs?,” January 8, 2011, http://www.nytimes.com/2011/01/09/weekinreview/09powell.html

[2] Robert Reich, radio opinion on Marketplace, Wednesday, May 4,  2011,http://marketplace.publicradio.org/display/web/2011/05/04/pm-corporate-profits-dont-translate/

[3]Graham Bowley,  NY Times, “Debt for Cheap Corporations Fails to Spur Economy,”   October 3, 2010,http://www.nytimes.com/2010/10/04/business/04borrow.html

[4] U.S. Senator John Kerry, Colloquium, A Bank to Rebuild America? June 8, 2011. Kerry is co-sponsor of a bipartisan bill that would initiate a national infrastructure bank that would issue long-term loans for infrastructure projects. You can see a video of his stirring speech at: http://www.newamerica.net/events/2011/a_bank_to_rebuild_america

[5] Peter Goodman, NY Times, “The New Poor: Despite Signs of Recovery, Chronic Joblessness Rises,”  February 20, 2010, http://www.nytimes.com/2010/02/21/business/economy/21unemployed.html

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9 Comments leave one →
  1. June 22, 2011 4:05 am

    Great post. It’s interesting this is happening in so many places, yet still we refuse to learn from history.

    I’ve written quite a few posts about this sort of thing myself…in Australia things are much the same. I also just saw a program the other day about Brazil’s quest for superpowerdom – they spoke to various political/industry figures who bragged about how Brazil’s economy is so good, and how they’ve been quietly building up for years…and now they want to rip up all their natural resources, build massive infrastructure projects and ship everything offshore!!! Methinks they won’t be so happy in a few decades time.

    Local independent sellers of pretty much anything are being moved out by global corporations, jobs are lost and economies go bust yet we still keep on globalising, multi-nationalising and “centralising” all over the place. People seem to want either a one-stop-shop (a la Kmart, Target, Walmart etc.) where they can buy everything they need in one trip, or to buy everything online and have it delivered – this is a product of our increasingly busy, “technologised” lifestyles and it’s not natural! How many ecosystems do you know that submit a remote request for nutrients/energy transfer to an ecosystem in another country and get it delivered to its door?!

    The most important thing we have to learn from ecosystems is that Diversity is the crux of everything. Function, economy, and health all go down the drainpipe without it.

  2. David permalink
    June 17, 2011 7:17 pm

    Haven’t increases in productivity been the driving force of economies and living standards, for centuries?
    If you want to go back to hand-made furniture, tailor-made clothing etc, employment will in theory rise, but because the cost will be a multiple of the machine-made goods, far fewer people will be able to afford them, so there would be a counter-acting downward pressure on employment. Even those who can afford these more labour-intensive goods will have less money left over, so another part of the economy suffers.
    And that is ignoring the possibility of another country ‘stealing’ sales by making them cheaper. If you counteract that with tariffs, you get a trade war with all the damage that implies.

    Here in the UK we have a ‘tax on employment’ (National Insurance, employer contributions) that could be manipulated to try to discourage lay-offs, but both our main parties are committed to increasing the tax.

    As regards ‘infrastructure’, it sounds like a no-brainer, but because of the time it takes to get approval and finalise plans, by the time work actually starts and the government money starts flowing into the economy, the recession will likely be over and that money will just be adding unneeded fuel to the recovery (or boosting the next boom cycle).

    • Henry S. Cole, Ph.D. permalink*
      June 17, 2011 8:23 pm

      David asks good questions. However, here is another thing to consider. Increases in productivity are fine and beneficial so long as the benefits are plowed back into local, regional and national economies. However, the financial sector (essentially an international casino) does very little to create new jobs or to benefit communities. I would contend that the current globalized economy is driven by those who best manipulate the financial system to their own ends (e.g. Credit Default Swaps, etc. — betting on failure). In other words, the great wealth of the nations is being squandered for short term gains by elites. As far as infrastructure goes; sure it takes time, restoration takes time and effort; but it does more good than the financial chicanery going on now and will
      have a much greater return in the long run.
      What do you think?

  3. June 14, 2011 10:07 pm

    Another strong blog post from Hank Cole. Sadly this is pretty much how it is.

  4. Aaron Nicholson permalink
    June 14, 2011 5:12 pm

    It is a sad world when the “LUCKY” want to humiliate the UNLUCKY
    considering our civilization started from a desire for mutual support.

    Abuse of power is a slippery slope, In the history of Man it has never ended nicely.

Trackbacks

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