President Obama, the Jobs Crisis and Corporate America’s Game Plan

by Jack Rasmus
Tuesday, February 15, 2011 by In These Times

On February 4, the Labor Department released its latest jobs report for the month of January. It showed a deep decline in net jobs created—only 36,000 last month, according to the Bureau of Labor Statistics (BLS).

This was about a third of the average 90,000 jobs created in each of the two preceding months, November-December 2010. For the past three months, November through January, the average number of net jobs created per month has totaled about 70,000. (To put this in perspective, 150,000 jobs need to be created each month just to absorb new entrants into the workforce.)

This dismal job creation of the last three months followed last summer’s even worse jobs performance, during which job creation was negative for three consecutive months, from May through July 2010—a total of 391,000 jobs lost. Barely half of those jobs were ‘recovered’ from that summer slump. That ‘recovery,’ given last month’s mere 36,000 jobs, appears to be faltering even further once again.

The overall jobs picture for the past nine months has thus been one of renewed collapse in jobs, followed by stagnation in job creation. Together with the current double dip decline underway today in the housing market and the rapidly deepening fiscal crisis in state and local governments, the failure to generate a recovery in jobs represents the three great economic failures of the so-called current economic ‘recovery’—three great failures that the Obama administration still continues to inadequately address.

Following publication of the dismal January jobs report, in his weekly radio address Obama asked the nation's businesses to start creating jobs. After all, it had more than adequate funds to do so—i.e. more than $2 trillion in cash on hand it was hoarding.

Two days later, on February 7, Obama appeared before the U.S. Chamber of Commerce in its annual meeting in Washington D.C. and raised the same theme: Business should start creating jobs given its record level of cash. As Obama put it in his speech to the Chamber, it was time they “get into the game” of investing in the U.S. and creating jobs in America. Business investing offshore instead of in the United State, Obama added, “breaks the social compact” and “makes people feel as if the game is fixed.”

The response of the attendees at the Chamber of Commerce event was not particularly warm. CEOs' remarks in the business press ranged from saying that merely hiring more workers won’t necessarily stimulate consumption, which is what was needed first. Other CEOs added they wanted still more deregulation, more tax cuts and reductions in Medicare and other entitlements to reduce the budget deficit before they would invest and create jobs.

In short, what they wanted was even more incentives and concessions from the Obama administration before they would “get in the game,” as Obama put it.

The other game plan

What Obama and his advisers apparently don’t understand is that the Chamber, and Big Business in America in general, are pursuing a ‘different game plan’ than Obama’s. They have no intention of committing any large part of their current $2 trillion cash hoard on investing and job creation in the U.S. The lion’s share of that $2 trillion is already pre-committed in corporate business plans today to other uses. Those other uses include a massive stock buyback program and dividend payout increases to enrich their major investors and senior managers, which is now just beginning to roll out.

Obama’s team should learn a lesson from recent U.S. economic history. Between 2002 and 2006, Corporate America embarked upon a similar record stock buyback-dividend payout game. During those years they disbursed $2.6 trillion in corporate retained earnings in buybacks and payouts. The buybacks-payouts were most timely, given the then-historic $3.4 trillion in Bush tax cuts introduced between 2001-2004 that primarily benefited investors.

Capital gains, dividends, inheritance, and other taxes were reduced dramatically for investors between 2002-2006. The record buybacks-payouts promptly followed. Their corporate benefactors quickly ‘passed through’ the $2.6 trillion to their investors and senior managers. Afterward, investment in new plant and equipment barely grew in the U.S. And it took 46 months, not until late 2004, for jobs just to recovery to levels that prevailed in January 2001.

Given the recent extension of the Bush tax cuts for another two years, the timing is now perfect once again for a repeat in 2011 of that multi-trillion dollar handout that occurred in 2002-2004. The timing is once again perfect for corporations to pass through trillions of dollars more, given its cash hoard of $2 trillion on hand, in stock buybacks, dividend increases, and offshore acquisitions. That is the corporate ‘gameplan’ for 2011—not Obama’s plea to invest in America and job create here.

It is Obama who is “not in the game” because Corporate America’s game is not the one he wants to play. They will ‘play,’ but only on their terms and according to their rules—not his. And if he doesn’t like it, then he can just take his ball and bat and go home. That’s the message of February 7. (And, oh yes, someone should also tell Obama and his team that the so-called ‘social compact’ he says corporations are risking by not creating jobs was broken at their initiation decades ago, under President Ronald Reagan or even earlier.)

The new age of 'concession bargaining'

What we are witnessing today is the extension of ‘concession bargaining’ that was introduced by Corporate America and its managers at the industrial level three decades ago. The result at the industrial level was stagnating weekly real earnings, loss of ten million manufacturing jobs, and a collapse of the union movement in the private sector from more than 20% to less than 7% of the workforce unionized today. The last remaining bastion of unionization, the public sector workers, are now firmly in the corporate-government crosshairs for a similar rollback in membership, earnings, and benefits.

What we are witnessing today is the expansion of concession bargaining from the industrial to a social-wide scale. We are entering a period of social programs and social benefits ‘concession bargaining’ on a grand scale. And Obama and governors or states are the ‘negotiators’ in charge of delivering the ‘sweetheart’ contracts that will lower the standard of living for the country's 100 million middle and working-class households.

The problem with job creation in the U.S. today is not that business has not been given sufficient incentives to create jobs or invest in the U.S. Quite the contrary, they’ve been given historically generous incentives and cash injections by the Obama administration in its first two years, with even more apparently planned.

(Just a few examples: the $400 billion in business tax cuts in Obama’s original 2009 stimulus package. Hundreds of billions of dollars more in additional tax cuts, accelerated depreciation write-off rules, direct corporate subsidies, and government subsidized low cost loans between June 2009 and December 2010. Add a further $400 billion more in the recent extension of the Bush tax cuts last December. And let’s not forget the biggest handout of all—the $9 trillion in zero rate loans extended to virtually all banks and financial institutions by the Federal Reserve over the 21 months between the collapse of the banking system in late 2008 and last summer.)

Without this historic handout and subsidization of Corporate America by the federal government, big business could never have accumulated the $2 trillion cash hoard it has on hand today. Obama’s original 2009 ‘gameplan’ was to bailout banks, businesses and investors in the expectation they would eventually create jobs, lower mortgage rates and adjust terms to save homeowners and boost state tax revenues again. But that did not occur and there is little sign, moreover, that it will in 2011.

The president's recent encounter with the U.S. Chamber of Commerce clearly reveals that Corporate America has already changed the game and left the field in the middle of the fifth inning, leaving Obama standing there alone with no one to pitch to.

Another view on why there is no robust job growth

John Crudele - February 10, 2011
The economy should be creat ing jobs.

That, anyway, is what everyone says. President Obama thinks that. And so does Federal Reserve Chairman Ben Bernanke, every Wall Street economist and all the unemployed folks sitting around Starbucks logging on to Monster.com.

But jobs aren't being created -- at least not nearly enough by even the most forgiving definition of an economic recovery.

Even if last Friday's disclosure by the Labor Department that only 36,000 new jobs appeared in January was flawed on the pessimistic side (as I showed in my last two columns), private measures of employment aren't showing a labor market that is even the least bit robust.

So, what gives?

The easy explanation is that companies simply don't want to hire.

Executives are being stubborn even though their profits are rising nicely. Please, please start adding workers, the president implored the other day, as if all companies had to do was flip a switch.

They want to keep earnings up so that the stock market will reward them with higher share prices.
Or, maybe, they just aren't sure these profits gains will stick, especially with higher inflation expected in the future.

And there are other possible explanations as to why companies might not be adding to their payrolls.
Maybe they are afraid of the future costs of health care reform. Why take on more medical obligations when you aren't yet sure what your current workers are going to cost you?

But there's something else that almost nobody is considering: perhaps the economic recovery just isn't as strong as Washington thinks (which, incidentally, isn't very strong to begin with.)

Nobody, of course, wants to hear this. But let me make the case.

Take a look at the Gross Domestic Product announcement put out by the Commerce Department a few weeks ago. It showed that the economy grew at an annualized rate of 3.2 percent during the final three months of 2010.

The 3.2 percent rate was a smidgen better than the 2.6 percent annualized growth recorded in the third quarter.

Take away the word "annualized," divide the quarters' performance by four and you see just how small the improved expansion really is: 0.8 percent actual growth in the fourth quarter compared with 0.65 percent in the July-Sept. period.

So, maybe companies simply aren't hiring because they really cannot see much economic expansion.
Maybe they are right to be cautious in expanding payrolls because it's the only way they can protect their profits.

But there is another problem with taking the government's word on how fast the economy is growing.
The December estimates put into the GDP are about as solid as a Jello mold.

Worse, according to economist John Williams, 3.44 percentage points of the annualized growth in the fourth quarter -- more than the total 3.2 percent reported -- came from a sudden, inexplicable decline in imports.
Without the reduction in imports GDP would have been down in the fourth quarter and we'd be hearing talk right now -- again -- about a possible double-dip recession!

The Commerce Dept. also attributed a lot of the gain in fourth quarter GDP to retail spending.

But we already know -- from a column I did during the holiday shopping season -- that much of the sales increase in December wasn't coming from a sudden burst in consumerism, but instead from rising prices on things like energy.

That isn't growth; it is inflation. And inflation is bad.

Despite all the inflation that you and I see in the real world, the Commerce Dept. barely noticed that prices were rising in its GDP calculations.

It used 0.3 percent as the annualized deflator in the GDP report when the consumer price index (the CPI, which itself understates inflation) is up 2.6 percent from a year earlier.

Let me explain it a different way.

Each point that inflation rises decreases the GDP by a point.

So, for instance, if the GDP deflator had simply stayed at the 2.0 percent reported in the third quarter the annualized GDP growth in the final three months of the year would have been an extremely modest 1.2 percent annualized, not 3.2 percent.

Countries get them selves into trouble when they publicize false eco nomic data, whether the deceit is intentional or not. And they confuse people. The Russians, in the 1960s couldn't figure out why they were going hungry when the Kremlin was reporting huge grain crops.

And Americans today are equally baffled about the lack of job creation -- despite the crop of optimistic economic numbers coming from Washington.

U.S. Underemployment Steady at 18.4% in July (the real rate)

Among those aged 18 to 29, 28.4% are underemployed
by Dennis Jacobe, Chief Economist | August 5, 2010

PRINCETON, NJ -- Underemployment, as measured by Gallup, was 18.4% in July, essentially unchanged from 18.3% at the end of June and in mid-July. Underemployment peaked at 20.4% in April.

Gallup's underemployment measure includes both Americans who are unemployed and those working part time but wanting full-time work. It is based on more than 17,000 phone interviews with U.S. adults aged 18 and older in the workforce, collected over a 30-day period and reporteddaily and weekly. Gallup's results are not seasonally adjusted, and tend to be a precursor of government reports by approximately two weeks.

Changes in Unemployed and Part-Time Employees Wanting Full-Time Work Offset

The unemployment rate component of Gallup's underemployment measure fell to 8.9% at the end of July -- down from 9.2% at the end of June and 9.3% in mid-July. However, this decrease was more than offset by an increase to 9.5% in the percentage of employees working part time but wanting full-time work.

Substantially Higher Underemployment Persists Among the Young

Americans aged 18 to 29 had easily the highest underemployment rate in July of any age group, at 28.4%, including 11.8% who were unemployed and 16.6% who were employed part time but wanted full-time work. Among all U.S. adults in the workforce, a higher percentage of women than of men are underemployed.

Less Educated Face High Underemployment

Workers without any college education are more likely than those with more formal education to be underemployed.

Underemployed Are Less Hopeful

The percentage of underemployed Americans who are "hopeful" that they will be able to find a job in the next four weeks fell to 40% in July -- down from the better levels of May (43%) and June (42%).

No Real Improvement in Job Market Conditions

Gallup's modeling suggests that July's U.S. unemployment rate will remain at 9.5% or possibly decline to 9.4% -- below the 9.6% consensus -- when the government reports its figures on Friday. This is consistent with the ADP report of 42,000 private sector jobs being added and the Challenger report that layoffs remain down. Of course, the hiring and firing of census takers and seasonal adjustments make the jobs picture particularly murky right now.

While any decline in unemployment may be cheered on Wall Street, the real focus should be on the lack of improvement in underemployment. The magnitude of the 28.4% underemployment rate among those aged 18 to 29 and 23.0% among those without any college education creates significant social and economic challenges for the U.S.

On Monday, Federal Reserve Chairman Ben Bernanke noted that, "significant time will be required to restore the nearly 8½ million jobs that were lost over 2008 and 2009." That same day, Treasury Secretary Tim Geithner stated that the unemployment rate is likely to increase at some point during the coming months. If this is the case, then the country's leaders need to figure out how the nation deals not only with the long-term unemployed, but also with the long-term underemployment facing younger and less-educated Americans.

Gallup Daily tracking will provide continuous monitoring of the jobs situation in the weeks and months ahead.

Forget the Deficit and Take a Stand for Job Creation

Congress will either cut government outlay before a full economic recovery, or increase public spending and put Americans back to work. Much depends on Obama's leadership.
By Robert Kuttner, AlterNet
August 4, 2010

This fall, Congress will either follow the conventional wisdom and prematurely cut government outlay before an economic recovery arrives, or it will increase public spending, put jobless Americans back to work, and reduce the deficit in a less painful fashion thanks to increasing economic tailwinds. The road that Congress takes depends on presidential leadership.

Until very recently, deficit hawks were hogging every available megaphone, claiming that deficits and debts were more ominous than protracted joblessness and recession. But you know that this foolish consensus is beginning to crack when political moderates such as columnist Matt Miller, budget guru Robert Greenstein, and Yale economist Robert Shiller take a different view.

Greenstein, who heads the influential Center on Budget and Policy Priorities (CBPP), bows to nobody in his longstanding concern about unsustainably large deficits. CBPP's latest paper, by Greenstein's close colleague Paul Van de Water, takes issue with the premise articulated by Erskine Bowles, chair of Obama's own commission on budget reform, that the federal budget should be balanced at about 21 percent of GDP, roughly the postwar average.

But as Van de Water points out in his paper, released July 28:

Such recommendations, however, fail to take account of fundamental changes in society and government -- the aging of the population, substantial increases in health care costs, and new federal responsibilities in areas such as homeland security, education, and prescription drug coverage for seniors. These factors make the expenditure levels of several decades ago inapplicable today. A careful analysis of these factors indicates that it will not be possible to maintain federal expenditures at their average level for decades back to 1970 without making draconian cuts in Social Security, Medicare, and an array of other vital federal activities.

Matt Miller, a longtime budgetary moderate, made a similar argument in Wednesday's Washington Post, noting that spending was well above 21% of GDP under Reagan.

Miller added:

Reagan ran government at this size at a time when 76 million baby boomers weren't about to hit their rocking chairs. In 1988, 32 million retirees received Social Security and 33 million were on Medicare, our two biggest domestic programs. By 2020, about 48 million elderly Americans will receive Social Security, and 62 million Americans will be on Medicare (then the numbers really soar).... Health costs in the Reagan era were around 10 percent of GDP, while they're now 17 percent, headed toward 20. Obviously we need a national crusade to make health-care delivery more efficient. But until there's progress on this front, the 21 percent goal would be tantamount to Democrats agreeing that Uncle Sam should handle health care, pensions, defense and little else.

Obviously, government needs to spend more money, both to get the economy out of the deep jobs recession, and then to meet other commitments valued by citizens. The only way to accomplish these goals is not to get hung up on deficits in the short run -- to spend what it takes to put Americans back to work and then raise taxes on the wealthy so that we can have a more balanced fiscal picture -- but that could be social outlay of 25 percent or even 30 percent of GDP.

Another mainstream economist, Yale's Robert Shiller, author of the book that warned of the financial collapse, Irrational Exuberance, recently wrote in the New York Times that government needed to spend more money putting people back to work directly -- breaking an Obama administration taboo. Obama economic policy chief Larry Summers opposes Roosevelt-style direct jobs programs, and stimulus spending has been carefully directed to the states and the private sector. But Shiller wrote:

Why not use government policy to directly create jobs -- labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research?

Would this be an effective use of resources? From the standpoint of economic theory, government expenditures in such areas often provide benefits that are not being produced by the market economy. Take New York subway stations, for example. Cleaning and painting them in a period of severe austerity can easily be neglected. Yet the long-term benefit to businesses from an appealing mass transit system is enormous.

Meanwhile, senior Republican economists as orthodox as former Fed Chairman Alan Greenspan and former Reagan budget director David Stockman are excoriating the Republican Party and leaders like Senator Mitch McConnell for wanting to extend the Bush tax cuts at a time when a long-term path to fiscal discipline needs to be a combined recovery program.

So here is the state of play:

Republicans are setting themselves up as the wildly irresponsible party by arguing that we can have both tax cutting and effective fiscal and economic policies, too. Sensible moderates are breaking with the orthodox view that we need smaller government.

This is another of those teachable moments.

But where is the high-profile Obama speech making clear that the top priority for now is putting America back to work, that deficit reduction will come when the economy is back on track -- and that the budget will not be balanced on the backs of those who depend on Social Security, Medicare, and other key social outlays?

The misguided Erskine Bowles, with his austerity program, did not drop into the budget debate from Mars. He was appointed by Barack Obama.

The New York Times reported Sunday that Obama has been meeting with vulnerable Democratic members of Congress, offering to do anything to help them -- including staying out of their districts. The front-page piece, by political reporter Jeff Zeleny, was headlined, "To Help Democrats in the Fall, Obama May Stay Away."

Uh, why does this not sound like a winning political strategy? Maybe if Obama got serious about putting Americans back to work and explaining the real connection between an economic recovery and deficit politics, incumbent Democrats -- and voters -- might welcome the president into their districts.

Pre-Recession Unemployment Rates May Not Be Reached for a Decade

(It's amazing to me that so many people don't take this crisis more seriously, or that it's the unemployed's fault they can't find a job when there are 5 people for every available job. This means, no matter how good they are, 4 applicants are shut out of the process by no fault of their own.--jef)

***

July 20, 2010 by Center for Economic and Policy Research (CEPR)

WASHINGTON, DC - As recent calls for additional stimulus and the extension of unemployment benefits meet with stiff opposition, Congress appears to have underestimated the profound effect of the current recession on the labor market. A new report from the Center for Economic and Policy Research (CEPR) shows that with a job growth path comparable to the last recovery, the economy will not recover all of the jobs lost in the recession until March 2014. Assuming the trend rate of growth in the labor force, the unemployment rate will not fall back to the pre-recession level until April 2021.

"The economy desperately needs action on job creation," says John Schmitt, a senior economist at CEPR and a co-author of the report. "At current and projected job creation rates, we will still be suffering from the effects of the downturn well into the next presidential term."

The study, "The Urgent Need for Job Creation," compares various job growth scenarios with the job loss seen in the recession and projects when the lost jobs will be regained and when the unemployment rate will return to pre-recession levels in each case.

Considering more rapid periods of growth, the analysis shows that using the fastest period of growth of the 1990s expansion, the economy does not reach the December 2007 level until September 2012 and does not create enough new jobs to return to the pre-recession unemployment level until September 2014. If the even faster growth rates of the mid-1970s and early-1980s are applied, the economy returns to December 2007 employment levels in November 2011 and pre-recession unemployment rates by October of 2012.

Current CBO projections indicate that future job growth will fall somewhere between the rates of the two most recent expansions. This means that absent serious job creation policies, the economy will not reach pre-recession levels until well after the 2012 election cycle (June 2013), and not return to an unemployment rate near the pre-recession level until August of 2015.

The full analysis can be found here.

Job Creation Tax Credit For Hiring The Unemployed May Be Killed

Huffington Post | Nathaniel Cahners Hindman | 07-15-10

One of the few job creation bills that squirmed through the halls of Congress earlier this year is back on the chopping block.

The HIRE Act of 2010 (Hiring Incentives to Restore Employment), signed into law last March, is designed to boost the hiring of long-term unemployed workers who in June made up a record 46 percent of unemployed people in the US.

The program currently exempts employers from payroll takes on new workers who've been unemployed for at least 60 days. Normally, an employer must pay 6.2 percent payroll taxes on the wages paid to a new hire. If the newly hired employee stays for at least a year, companies get an additional $1,000 tax credit.

As of now, December 31st, 2010 is the last date that new hires can trigger the tax credit for firms, but the White House is pushing to extend the current deadline.

"The immediate and targeted nature of this tax cut makes it easy to understand why this program is showing early signs of success," said Senator Chuck Schumer (D-New York), who co-wrote the bill with Senator Orrin Hatch (R-Utah), told The New York Daily News. "We are planning to work to extend it for another six months."

Since the president's mention of the program in his State of the Union address "there's been little further marketing, which Treasury is now trying to correct," writes the Wall Street Journal:

"The Obama administration, stymied by a deficit-wary Congress reluctant to replenish stimulus spending, hopes to combat unemployment by using existing programs that have not been fully implemented."
A report released by the Treasury Department on Monday examines whether the bill is working to spur job creation. Officials highlight the 4.5 million long-term unemployed workers hired from February to May 2010. Their employers are eligible for $5.1 billion in 2010 tax relief, a subsidy that will cost the government $13 billion by 2019, according to estimates by the Joint Committee on Taxation.

Even though, as New York Times Economix blog's Catherine Rampell points out, "it's a relatively small amount of money at stake, when you consider the overall costs of taking on another employee" -- an unemployed worker hired at $50,000 a year who is retained by an employer for a year will save the employer $4,100 in annual tax relief -- "it may be just the incentive that employers on the fence about expanding may need."

But to gain congressional approval for an extension, the White House will first have to convince lawmakers that the tax exemptions are adequate motivation for employers to add jobs. Critics say the tax credit has had little effect, and is being claimed mostly by companies already in expansion mode that would have hired regardless of the tax credit. Further, government officials say anecdotal evidence suggests companies are unaware the incentive even exists.

The Congressional Budget Office predicts the bill could create around 300,000 additional jobs by the end of the year, the Atlantic notes, adding "it's a tough count, since many employers who claim the credit would have hired anyway."

How to Make an American Job Before It's Too Late

By Andy Grove - Jul 1, 2010 | Bloomberg

Recently an acquaintance at the next table in a Palo Alto, California, restaurant introduced me to his companions: three young venture capitalists from China. They explained, with visible excitement, that they were touring promising companies in Silicon Valley. I’ve lived in the Valley a long time, and usually when I see how the region has become such a draw for global investments, I feel a little proud.

Not this time. I left the restaurant unsettled. Something didn’t add up. Bay Area unemployment is even higher than the 9.7 percent national average. Clearly, the great Silicon Valley innovation machine hasn’t been creating many jobs of late -- unless you are counting Asia, where American technology companies have been adding jobs like mad for years.

The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called “Start-Ups, Not Bailouts.” His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups.

Mythical Moment

Friedman is wrong. Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.

Scaling used to work well in Silicon Valley. Entrepreneurs came up with an invention. Investors gave them money to build their business. If the founders and their investors were lucky, the company grew and had an initial public offering, which brought in money that financed further growth.

Intel Startup

I am fortunate to have lived through one such example. In 1968, two well-known technologists and their investor friends anted up $3 million to start Intel Corp., making memory chips for the computer industry. From the beginning, we had to figure out how to make our chips in volume. We had to build factories; hire, train and retain employees; establish relationships with suppliers; and sort out a million other things before Intel could become a billion-dollar company. Three years later, it went public and grew to be one of the biggest technology companies in the world. By 1980, which was 10 years after our IPO, about 13,000 people worked for Intel in the U.S.

Not far from Intel’s headquarters in Santa Clara, California, other companies developed. Tandem Computers Inc. went through a similar process, then Sun Microsystems Inc., Cisco Systems Inc., Netscape Communications Corp., and on and on. Some companies died along the way or were absorbed by others, but each survivor added to the complex technological ecosystem that came to be called Silicon Valley.

As time passed, wages and health-care costs rose in the U.S., and China opened up. American companies discovered they could have their manufacturing and even their engineering done cheaper overseas. When they did so, margins improved. Management was happy, and so were stockholders. Growth continued, even more profitably. But the job machine began sputtering.

U.S. Versus China

Today, manufacturing employment in the U.S. computer industry is about 166,000 -- lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers -- factory employees, engineers and managers.

The largest of these companies is Hon Hai Precision Industry Co., also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenue last year was $62 billion, larger than Apple Inc., Microsoft Corp., Dell Inc. or Intel. Foxconn employs more than 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co., Intel and Sony Corp.

10-to-1 Ratio

Until a recent spate of suicides at Foxconn’s giant factory complex in Shenzhen, China, few Americans had heard of the company. But most know the products it makes: computers for Dell and HP, Nokia Oyj cell phones, Microsoft Xbox 360 consoles, Intel motherboards, and countless other familiar gadgets. Some 250,000 Foxconn employees in southern China produce Apple’s products. Apple, meanwhile, has about 25,000 employees in the U.S. -- that means for every Apple worker in the U.S. there are 10 people in China working on iMacs, iPods and iPhones. The same roughly 10-to-1 relationship holds for Dell, disk-drive maker Seagate Technology, and other U.S. tech companies.

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work -- and much of the profits -- remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work -- and masses of unemployed?

Since the early days of Silicon Valley, the money invested in companies has increased dramatically, only to produce fewer jobs. Simply put, the U.S. has become wildly inefficient at creating American tech jobs. We may be less aware of this growing inefficiency, however, because our history of creating jobs over the past few decades has been spectacular -- masking our greater and greater spending to create each position.

Tragic Mistake

Should we wait and not act on the basis of early indicators? I think that would be a tragic mistake because the only chance we have to reverse the deterioration is if we act early and decisively.

Already the decline has been marked. It may be measured by way of a simple calculation: an estimate of the employment cost- effectiveness of a company. First, take the initial investment plus the investment during a company’s IPO. Then divide that by the number of employees working in that company 10 years later. For Intel, this worked out to be about $650 per job -- $3,600 adjusted for inflation. National Semiconductor Corp., another chip company, was even more efficient at $2,000 per job.

Making the same calculations for a number of Silicon Valley companies shows that the cost of creating U.S. jobs grew from a few thousand dollars per position in the early years to $100,000 today. The obvious reason: Companies simply hire fewer employees as more work is done by outside contractors, usually in Asia.

Alternative Energy

The job-machine breakdown isn’t just in computers. Consider alternative energy, an emerging industry where there is plenty of innovation. Photovoltaics, for example, are a U.S. invention. Their use in home-energy applications was also pioneered by the U.S.

Last year, I decided to do my bit for energy conservation and set out to equip my house with solar power. My wife and I talked with four local solar firms. As part of our due diligence, I checked where they get their photovoltaic panels -- the key part of the system. All the panels they use come from China. A Silicon Valley company sells equipment used to manufacture photo-active films. They ship close to 10 times more machines to China than to manufacturers in the U.S., and this gap is growing. Not surprisingly, U.S. employment in the making of photovoltaic films and panels is perhaps 10,000 -- just a few percent of estimated worldwide employment.

Advanced Batteries

There’s more at stake than exported jobs. With some technologies, both scaling and innovation take place overseas. Such is the case with advanced batteries. It has taken years and many false starts, but finally we are about to witness mass- produced electric cars and trucks. They all rely on lithium-ion batteries. What microprocessors are to computing, batteries are to electric vehicles. Unlike with microprocessors, the U.S. share of lithium-ion battery production is tiny.

That’s a problem. A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer-electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies didn’t participate in the first phase and consequently weren’t in the running for all that followed. I doubt they will ever catch up.

Job Creation

Scaling isn’t easy. The investments required are much higher than in the invention phase. And funds need to be committed early, when not much is known about the potential market. Another example from Intel: The investment to build a silicon manufacturing plant in the 1970s was a few million dollars. By the early 1990s, the cost of the factories that would be able to produce the new Pentium chips in volume rose to several billion dollars. The decision to build these plants needed to be made years before we knew whether the Pentium chip would work or whether the market would be interested in it.

Lessons we learned from previous missteps helped us. Years earlier, when Intel’s business consisted of making memory chips, we hesitated to add manufacturing capacity, not being sure about the market demand in years to come. Our Japanese competitors didn’t hesitate: They built the plants. When the demand for memory chips exploded, the Japanese roared into the U.S. market and Intel began its descent as a memory-chip supplier.

Intel Experience

Though steeled by that experience, I remember how afraid I was as I asked the Intel directors for authorization to spend billions of dollars for factories to make a product that didn’t exist at the time for a market we couldn’t size. Fortunately, they gave their OK even as they gulped. The bet paid off.

My point isn’t that Intel was brilliant. The company was founded at a time when it was easier to scale domestically. For one thing, China wasn’t yet open for business. More importantly, the U.S. hadn’t yet forgotten that scaling was crucial to its economic future.

How could the U.S. have forgotten? I believe the answer has to do with a general undervaluing of manufacturing -- the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. It’s not just newspaper commentators who spread this idea.

Offshore Production

Consider this passage by Princeton University economist Alan S. Blinder: “The TV manufacturing industry really started here, and at one point employed many workers. But as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.”

I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.

Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best economic system -- the freer, the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.

No. 1 Objective

Such evidence stares at us from the performance of several Asian countries in the past few decades. These countries seem to understand that job creation must be the No. 1 objective of state economic policy. The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal.

The rapid development of the Asian economies provides numerous illustrations. In a thorough study of the industrial development of East Asia, Robert Wade of the London School of Economics found that these economies turned in precedent- shattering economic performances over the 1970s and 1980s in large part because of the effective involvement of the government in targeting the growth of manufacturing industries.

Consider the “Golden Projects,” a series of digital initiatives driven by the Chinese government in the late 1980s and 1990s. Beijing was convinced of the importance of electronic networks -- used for transactions, communications and coordination -- in enabling job creation, particularly in the less developed parts of the country. Consequently, the Golden Projects enjoyed priority funding. In time, they contributed to the rapid development of China’s information infrastructure and the country’s economic growth.

Job-Centric Economy

How do we turn such Asian experience into intelligent action here and now? Long term, we need a job-centric economic theory -- and job-centric political leadership -- to guide our plans and actions. In the meantime, consider some basic thoughts from a onetime factory guy.

Silicon Valley is a community with a strong tradition of engineering, and engineers are a peculiar breed. They are eager to solve whatever problems they encounter. If profit margins are the problem, we go to work on margins, with exquisite focus. Each company, ruggedly individualistic, does its best to expand efficiently and improve its own profitability. However, our pursuit of our individual businesses, which often involves transferring manufacturing and a great deal of engineering out of the country, has hindered our ability to bring innovations to scale at home. Without scaling, we don’t just lose jobs -- we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.

Blade Didn’t Drop

The story comes to mind of an engineer who was to be executed by guillotine. The guillotine was stuck, and custom required that if the blade didn’t drop, the condemned man was set free. Before this could happen, the engineer pointed with excitement to a rusty pulley, and told the executioner to apply some oil there. Off went his head.

We got to our current state as a consequence of many of us taking actions focused on our own companies’ next milestones. An example: Five years ago, a friend joined a large VC firm as a partner. His responsibility was to make sure that all the startups they funded had a “China strategy,” meaning a plan to move what jobs they could to China. He was going around with an oil can, applying drops to the guillotine in case it was stuck. We should put away our oil cans. VCs should have a partner in charge of every startup’s “U.S. strategy.”

Financial Incentives

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars -- fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability -- and stability -- we may have taken for granted.

I fled Hungary as a young man in 1956 to come to the U.S. Growing up in the Soviet bloc, I witnessed first-hand the perils of both government overreach and a stratified population. Most Americans probably aren’t aware that there was a time in this country when tanks and cavalry were massed on Pennsylvania Avenue to chase away the unemployed. It was 1932; thousands of jobless veterans were demonstrating outside the White House. Soldiers with fixed bayonets and live ammunition moved in on them, and herded them away from the White House. In America! Unemployment is corrosive. If what I’m suggesting sounds protectionist, so be it.

Choice Is Simple

Every day, that Palo Alto restaurant where I met the Chinese venture capitalists is full of technology executives and entrepreneurs. Many of them are my friends. I understand the technological challenges they face, along with the financial pressure they are under from directors and shareholders. Can we expect them to take on yet another assignment, to work on behalf of a loosely defined community of companies, employees, and employees yet to be hired? To do so is undoubtedly naive. Yet the imperative for change is real and the choice is simple. If we want to remain a leading economy, we change on our own, or change will continue to be forced upon us.

1.2 million to lose benefits in days if stalemate continues

Millions of people will lose their health insurance and unemployment benefits because of the Senate stalemate over a tax package.
By Vicki Needham - 06/27/10

More than 1.2 million Americans will exhaust their unemployment benefits by the end of June if Congress fails to work out a deal on an extension of unemployment benefits, according to the National Employment Law Project, a group studying the issue.

In addition, neither the House nor the Senate bill have approved an extension of the COBRA subsidy that requires unemployed workers to pay only 35 percent of a premium to maintain health insurance. That subsidy was originally included in last year’s stimulus bill.
The premium generally costs hundreds of dollars, a price many unemployed people are unlikely to be able to afford without the subsidy.

GOP Sen. Olympia Snowe (Maine) on Friday suggested the unemployment benefits be offered as a stand-alone package, but it is unclear whether Democrats are willing to go along with that deal.

Democrats have argued the unemployment benefits should be considered emergency spending that does not have to be offset with other spending cuts or tax increases. Republicans have balked at the $33 billion cost, which would be added to record deficits.

The latest version of the tax bill package paid for every provision except the unemployment benefits extension, but it still failed to move forward in a 57-41 vote.

More than 2 million workers have benefited from the COBRA healthcare subsidy, according to NELP. It estimates that 144,000 people per month will lose out on the subsidy due to its discontinuation.

The elimination of the subsidy will also hurt those still collecting unemployment.

Without the subsidy, a much greater share of money included in unemployment checks would be spent on health insurance. Many are likely to drop their insurance.

The Senate measure had previously cut an extra $25 per week in unemployment insurance that was included in the stimulus bill.

Snowe has been seen as a possible yes vote, and unemployment is a concern in her state.

The jobless rate in Maine stood at 8 percent in May, third among New England states.

Other Republicans have said pressure is mounting to pass unemployment benefits but it's unknown who might vote for a stand-alone package.

Republican Sen. Bob Corker (Tenn.), whose state is one of 17 with double-digit unemployment at 10.4 percent, said on Friday that he can't vote for any bill that isn't fully offset.

“My heart goes out to Americans who are hurting because Washington can’t agree on a way to pay for an extension of unemployment benefits,” Corker said in a release. “I voted several times to pass and pay for an extension, but I cannot in good conscience continue voting for bills that aren’t paid for.”

The Snowe solution is unlikely to satisfy Nebraska Democrat Ben Nelson either, the lone member of his party to vote against the bill, who has remained steadfastly against any legislation that adds to the deficit.

Nelson said his state's 4.9 percent unemployment rate has made it easier to wait out his colleagues in hopes that they can solve the deficit-spending issue.

He doesn't oppose the extension of unemployment benefits but he doesn't want the cost adding to the deficit.

"At some point they need to be paid for," he said. "Some people think it's an emergency. I think it's important."

Outlook Grim For Jobs Bill Ahead Of Vote

Unemployment
June 24, 2010 by Huffington Post
by Arthur Delaney

Democratic leaders in the Senate have apparently failed to win enough support to overcome a Republican filibuster of a bill to help the poor, the old and the jobless, despite making a series of cuts to the measure over the past several weeks to appease deficit hawks.

"It looks like we're going to come up short," said a senior Democratic aide on Wednesday evening. "It looks like Republicans are prepared to kill aid to states, an extension of unemployment benefits, and ironically, the Republicans are prepared to kill efforts to close loopholes that allow companies to export jobs overseas."

The legislation, known as the "tax extenders" bill, would reauthorize extended unemployment benefits for people out of work for six months or longer, would protect doctors from a 21 percent pay cut for seeing Medicare patients, and would provide billions in aid to state Medicaid programs.

Come Friday, 1.2 million people will lose access to the extended unemployment benefits, a number that will grow by several hundred thousand every week after that. Fifty million Medicare claims from June are currently in process at the reduced rate, which the AARP says has already caused some of its members to have trouble finding a doctor. And the Center on Budget and Policy Priorities estimates that dropping the $24 billion in aid to states will cause 900,000 public- and private-sector layoffs in 2011.

Both chambers of Congress had already passed the measure, deficit spending and all, but when it came time to combine the bills in May, conservative Democrats and moderate Republicans lost their previous will to help the economy and forced party leaders to begin the nickel-and-dime process of trimming the bill.

"I've never been involved in anything that's been revised so often and in so many different ways," said Sen. Max Baucus (D-Mont.), who worked with Senate Majority Leader Harry Reid (D-Nev.) to try to win support for the bill.

The House shortened the Medicare physicians' fix, dropped the Medicaid money, and also $7 billion in subsidies for laid off workers to buy health insurance. The Senate cut $25 per week from every unemployment check and shortened the so-called "Doc Fix" even further, to six months, and on Wednesday Dem leaders trimmed another $8 billion by reducing the Medicaid assistance. The bill has shrunk over the past few weeks from $190 billion, to $80 billion, to $55 billion, to just over $30 billion in the current Senate version.

"Sen. Baucus and Sen. Reid did everything they can to try to pick up the handful of votes needed to overcome the Republican filibuster" said the Dem aide. Nebraska Democrat Ben Nelson has said repeatedly he would not vote for the measure unless its cost was completely offset, so Reid and Baucus focused on moderate Maine Republicans Susan Collins and Olympia Snowe, who demanded more cuts to the bill, apparently, than the Dem leaders were willing to make.

"Remember, Republicans voted for legislation that both extended unemployment insurance and reduced the deficit," said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.). "Democrats, on the other hand, introduced and voted for legislation that increased the deficit. There was bipartisan support for ours, bipartisan opposition for theirs."

The Republican alternative to the tax extenders bill, which Ben Nelson supported, would have extended unemployment benefits and offset the cost with budget cuts so steep it "would essentially shut down much of the federal government for the last two and a half months of this fiscal year," according to the CBPP.

Democrats also softened a provision that would raise taxes on investment fund managers by closing a loophole that allows some of the richest people in the world to pay a lower tax rate than their secretaries. The debate has largely focused on the deficit, however.

The process has been infuriating to employment and labor activists.

"Let Senator McConnell, let Senator Senator Collins, let Senator Brown and every other Republican explain why one of their own constituents doesn't deserve to keep their job, shouldn't be able to send their kid to college, can't put food on their table without maxing out their credit cards," said Lori Lodes of the SEIU. "Rooting against America, Republicans are taking pride in keeping families out of work as their only strategy for winning elections."

The Senate will vote on Thursday or Friday.

Amid Unemployment Crisis, Senate Gridlock Leaves Jobs Bill in Limbo

Republicans Appear United in Opposition
by Annie Lowrey

WASHINGTON - This week, Senate Democrats will attempt to push through a jobs bill that has stalled in the chamber for seven weeks. Majority Leader Harry Reid (D-Nev.) filed for cloture on Monday afternoon, leaving just days before a vote on the American Jobs and Closing Tax Loopholes Act, or House Resolution 4213, a $23 billion bill to extend federal unemployment benefits and other emergency stimulus measures. The cloture motion signals that Reid believes he has the votes to pass the long-mired legislation. But there are still signs that the contentious, job-saving bill might not pass - leaving people on unemployment benefits, doctors and states in financial limbo.

If Congress does not pass the bill, hundreds of thousands will lose their federally extended unemployment insurance. Doctors will take a 21 percent cut in Medicare reimbursement rates, possibly causing them to drop needy patients. (Image: US Chron)Calling for an end to debate on the floor, Reid warned, "We'll learn a lot this week about who wants to fix problems, and who wants to make excuses." He castigated the opposition party's intransigence: "If Republicans have their way, next week will be yet another without a lifeline for the most needy, those willing and wanting to work. The other side has slowed and stalled just about every piece of legislation this year - just as they did last year and the year before that. That's not a secret. The numbers don't lie, and Republicans make no efforts to hide their strategy of delay."

What is at stake? If Congress does not pass the bill, hundreds of thousands will lose their federally extended unemployment insurance. Doctors will take a 21 percent cut in Medicare reimbursement rates, possibly causing them to drop needy patients. Starting in December, the federal government will provide less backing to the Federal Medical Assistance Percentages program, or FMAP, which provides states with money for Medicaid so that the "poorest of the poor," in Reid's words, can see doctors.

The bill has broad support, but not broad enough. Reid needs a Republican to cross the aisle to vote for the legislation, and needs to hold the Democratic coalition together. As of Monday, that was not happening. The floor debate was contentious - with Republicans bashing what they view as Democrats' free spending, and Democrats detailing the impact of job losses and the possible effect of Medicaid cuts in their states. No Republicans have yet come out in favor of the bill, with moderate Sens. Olympia Snowe (Maine), Scott Brown (Mass.) and Susan Collins (Maine) apparently remaining in opposition. Additionally, Sen. Ben Nelson (D-Neb.) has signaled that he might not vote for the bill as it ups deficit spending.

That means that Democrats might need to pare the bill down. And changing it comes with its own problems. The Senate has altered the House version enough that Congress will need to reconcile the versions or the House will need to re-approve the bill. Differences between the two might make that difficult: Moderate "Blue Dog" House Democrats, for instance, successfully fought for the removal of the $24 billion in Medicaid funding - which Reid hopes to keep in. And every week that Congress does not approve the bill is another week that thousands of the long-term unemployed go without unemployment insurance checks.

Against this backdrop of contentious fighting over deficit spending, President Obama has renewed calls for more stimulus to battle sky-high unemployment rates. Fifteen million Americans - about 9.7 percent of the work force - remain jobless. In a letter to Reid, Senate Minority Leader Mitch McConnell (R-Ky.), House Speaker Nancy Pelosi (D-Calif.) and House Minority Leader John Boehner (R-Ohio), Obama called unemployment a "crisis" and asked the congressional leaders to pass Medicaid funding as well as a new provision to save local workers' jobs.

"I am concerned ... that the lingering economic damage left by the financial crisis we inherited has left a mounting employment crisis at the state and local level that could set back the pace of our economic recovery," Obama wrote. "The lost jobs and foreclosed homes caused by this financial crisis have led to a dramatic decline in revenues that has provoked major cutbacks in critical services at the very time our Nation's families need them most. ... [If] additional action is not taken hundreds of thousands of additional jobs could be lost."

McConnell responded, "[B]ecause Democrats can't seem to resist any opportunity to use a must-pass bill like this as a vehicle for more deficit spending, they've piled tens of billions of dollars in unrelated spending and debt on top of it, all at a moment when the national debt has now reached $13 trillion for the first time in history. This is fiscal recklessness, plain and simple."

Republicans last week released a counterproposal to the Democrats' jobs bill. But it funds the new jobs bill out of stimulus spending and forces across-the-board governmental budget cuts (exempting defense spending). Democrats oppose the measure.

The Jobs Bill and Other Faux Remedies

The Need for Large Scale Public Investment and Employment
By ALAN NASSER

On March 17 Congress passed the “Hire Now Tax Cut” giving companies a break from paying Social Security taxes for the remainder of the year on any new workers hired who have been unemployed for at least 60 days.

The legislation is a token response to the emerging consensus in both the mainstream and independent media that the economy’s unemployment problem is cumulative, structural and long term. But the prescription is entirely inadequate to the diagnosis. This should come as no surprise, as official sources have offered muddled and confusing accounts of the patient’s malaise.

The Official Story: Unrealistic Optimism and Misleading Statistics

The White House and the Fed can’t seem to coordinate their stories. In January the president’s Council of Economic Advisors reported that the official unemployment rate would remain close to 10 percent for at least 3 years, through 2012. The Council foresees unemployment above 6% through 2015 and above 5% through 2020. But on Feb. 24 Ben Bernanke reported to Congress a projected unemployment rate of 6.5 to 7.5 percent by the end of 2012.

Both estimates almost certainly display the typical overoptimism of official economic forecasts. There are two main reasons for the chronic unrealistic optimism. The official measure of unemployment excludes both those who have given up looking for work because of the lack of jobs, and involuntary part-time workers. If these are taken into account, the more realistic unemployment rate would be at least 16-17 percent.

A second factor distorting unemployment projections is the unrealistic rate of economic growth projected by official sources. The Council assumed real GDP growth of 3.0 percent this year, and 4.3 percent in 2011. Bernanke forecast “a moderate-paced economic recovery, with economic growth of roughly 3 to 3.5 percent in 2010 and 3.5 to 4.5 percent in 2011, consistent with modern economic growth.” By “modern economic growth” Bernanke refers to the healthy growth rates of what economists call the “Golden Age”, the period from 1949 to 1973. This was the longest period of sustained economic expansion in American history: the economy grew at an average annual rate of 4.3 percent -the growth rate foolishly predicted, recall, for next year by the Council of Economic Advisors- and private-sector jobs increased at a rate of 3.5 percent a year. And in 1973 the real median wage was the highest it’s ever been.

The Golden Age is a benchmark for the authorities, and “recovery” is taken to mean a return to growth and employment rates at or close to those of 1949-1973.

It is worth looking at some of the ways the administration and the media suggest the implausible scenario that Golden-Age economic conditions are on the way to resurrection.

Statistical manipulation and half-truths are not uncommon. For example, in January the economy continued to bleed jobs, which is bad; it was also widely reported that the unemployment rate fell, which looks good. Both stats are accurate. How is this possible? The official unemployment rate fell because the number of workers leaving the workforce declined more rapidly than job losses.

For the week ending February 20, first-time jobless claims increased by 20,000. But we were told there was a silver lining: the number of unemployed workers collecting federally sponsored extended benefits dropped by 323,000. But this does not mean that those workers found employment. The decline is almost entirely due to workers having exhausted extended benefits prior to Congress approving another extension.

On February 25 the Commerce Department reported a 3 percent January increase in sales of durable goods. This looks especially promising: increased purchases of consumer durables such as autos, refrigerators and other big-ticket items had been a major factor in reversing most post-Second-World-War recessions. But a closer look reveals that when defense and aircraft purchases are subtracted durable goods sales fell by 2.9 percent. This comes as no surprise: with the number of unemployed continuing to increase, we should expect sales of higher-priced consumer goods to decline accordingly.

The media have claimed a rebound in manufacturing over the last few months, suggesting a corresponding job rebound in the making. In fact, an inventory bounce was in play. Businesses were re-stocking after an extended hiatus on new orders. The evisceration of US manufacturing which began with the “deindustrialization” of the late 1960s persists through the recession, with the reorganized General Motors currently planning the export of more jobs to low-wage countries. There is a telling indicator of the state of US manufacturing: we have no domestic consumer electronics industry.

Wal-Mart’s fortunes are considered a good measure of consumer spending. The company is after all the world’s largest retailer and the country’s single biggest employer. The business press reports that Wal-Mart’s profits continued to climb during the downturn, implying that consumers are managing to hold up in spite of the recession. But we want to know about the company’s domestic sales, a more accurate indicator of consumer purchasing power than total profits, which include overseas sales. In fact, Wal-Mart recently announced its first drop in domestic sales in its history, a decline of 1.6 percent, compared to a 2.4 percent increase for the same period a year ago. The relatively rosy profit picture is due to international sales, especially in Brazil and China. The sales decline is of course yet another indicator of cumulative unemployment.

Finally, there is the statistical sleight-of-hand of the Bureau of Labor Statistics (BLS). BLS performs a "net birth/death adjustment" on its unemployment data. The birth/death model uses business deaths to "impute" employment from business births. Thus, as more businesses fail, more new jobs are imputed to have materialized through business births. The birth/death model is based on statistics covering 1998-2002. This was a period during which explosive telecom and dot.com startups outumbered business failures. That period bears no resemblance to today's flat economic landscape. While the "surplus" jobs created by start-up firms has been revised lower this year, BLS continues to report from the indefensible assumption that jobs created by start-up companies tend to offset jobs lost by companies going out of business. John Williams of Shadow Government Statistics estimates that at least 50,000 birth/death jobs were conjured up in this way in the most recent BLS report.

The Overall Employment Picture and the Handwriting on the Wall

What’s relevant for assessing the health of the economy is that job losses continue to be cumulative. Things continue to get worse at a slower rate, but this should be no comfort in the context of an economy that has lost 8.4 million jobs since December 2007, including more than 4 million in the last 12 months alone. More than 15 million Americans are looking for work, and 6.3 million have been unemployed for 6 months or longer, the largest number since the government began keeping records in 1948 and more than double the number in the next-worst recession, Reagan-Volcker’s downturn of the early 1980s. 2.7 million will lose their unemployment benefits before the end of April unless Congress extends payments. On top of all this, the economy must add 100,000 new jobs every month just to absorb first-time entrants to the labor force.

Obama acolytes will point out that while this is a regrettable picture, it does not imply that administration policy has produced no jobs whatsoever. But on examination none of the job additions announced by the administration since the fourth quarter of 2009 is indicative of an economy in recovery or the return of permanent jobs. Most fall under the category of “saved” jobs. Employment improved for a while in sectors that are the direct beneficiaries of monetary or fiscal stimulus: government, healthcare, financial services, education and retail sales. These jobs don’t reflect the independent strength of the real economy; they would not have materialized absent the stimulus. Meanwhile, sectors such as manufacturing, the most reliable indicator of an intact real economy, continued to shed jobs at an alarming rate. The stimulus will not persist forever, and when it is withdrawn, the "saved" jobs will be among the first to go. Some have already begun to evaporate: schools, hospitals and state and local governments have been shedding jobs like crazy.

These data point to the atypical nature of the current stream of job losses. We are not witnessing the kind of unemployment that attends a garden-variety recession. That type of unemployment disappears as the economy recovers. Peter S. Goodman points out in a detailed analysis in The New York Times that the recovery, whenever it begins, will not bring sufficient jobs to absorb the record-setting ranks of the long-term unemployed. (“The New Poor: Millions of Unemployed Face Years Without Jobs”, February 21, 2010) He describes the new poor as “people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives – potentially for years to come.”

Goodman fleshes out an emerging consensus among mainstream business observers that he had described this time last year. In “Job Losses Hint at Vast Remaking of Economy” (NYT, March 7, 2009) we were told that “…growing joblessness may reflect a wrenching restructuring of the economy…. In key industries – manufacturing, financial services and retail – layoffs have accelerated so quickly in recent months as to suggest that many companies are abandoning whole areas of business. “These jobs aren’t coming back,” [said a chief economist at Wachovia] “a lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than in the United States. There are going to be fewer stores, fewer factories… Firms are making strategic decisions that they don’t want to be in their businesses.” The article quotes a Stanford Hoover Institution economist as saying “The decimation of employment in legacy American brands such as General Motors is a trend that’s likely to continue. We have to stimulate the economy to create jobs in other areas.” This was one of the first allusions to what is now referred to as “the new normal.”

The especially intractable unemployment problem is the result of structural and institutional changes in the economy. Institutional investors have come to own an increasing percentage of large companies. The new owners are driven to increase shareholder value by going for quick profits. Cutting payroll is standard procedure. The structure of the labor market has been affected by the decline of union power: employers can reduce costs by relying increasingly on part-time and temporary workers. Exporting manufacturing and even white collar jobs to lower-wage countries further reduces the demand for US labor.

Unless a political movement emerges with the explicit goal of directly reversing these tendencies, none of this will change under current policy.

That these developments have been in the making for decades is evident in employment changes in business cycles -the economy’s inhaling and exhaling, successive periods of expansion and contraction- since the 1950s. During the Golden Age, from the 1950s through the mid-1970s, private-sector jobs increased during economic upturns/expansions at a rate of 3.5 percent a year. During 1980s and 1990s expansions, job growth dropped to 2.4 percent annually. Since 2000, the figure fell to 0.9 percent. The pace of job growth has steadily declined in each post-Golden-Age expansion.

That this is indicative of an unfolding structural deficiency in the economy is also shown by trends in the time it takes for a cyclical upturn to regain the jobs lost in the preceding recession. Between 1950 and 1990 it took the economy an average of 21 months to return employment to its previous peaks. After the 1990 and 2001 recessions the respective durations were 31 and 46 months.

This ongoing deterioriation in the performance of the labor market has led to the notion of the “jobless recovery.” For most of US economic history this term would have been considered self-contradictory. That it is now part of common economic discourse is testimony to a major conceptual revision in the discourse of propaganda: that the economy is recovering is no reason to expect unemployed workers to find work. Economic recovery is now treated as consistent with declining standards of living. Lowered expectations and acquiescence in long term working-class hardship are now built into what we are told to regard as recovery.

The Old Economics as Irrelevant to the Current Crisis

Within the framework of mainstream neoclassical economic theory, there are two outstanding confusions concerning the notion of “recovery.” There is the misconception that once the economy begins its recovery it is on the way to sustained growth. That is not how capitalism works. The standard use of ‘recovery’ connotes a resumption of economic growth out of a cyclical recession. An economy has recovered when it has regained what was lost since the peak of the previous expansion. A new period of expansion is under way only if growth persists beyond the recovery. Restoring the economy to health requires not only a period of successful recovery, but also sustained growth beyond the previous peak. The prevailing talk erroneously assumes that only the first condition is at stake. As things stand now with respect to employment, spending, bank lending, sales of consumer goods, the downward trajectory of wages, and investment in the real economy, there is no policy in place that gives reason for optimism regarding a recovery. A fortiori, there is even less reason to expect renewed expansion.

A second confusion surrounds the very use of the term ‘recovery’. No alternative terminology is at hand, but ‘recovery’ needs to be replaced. For the term suggests a return to a prior state of economic normalcy, a healthy economy. But the state of the economy prior to the onset of the meltdown, prior to the burgeoning of the housing bubble, and even prior to the dot.com bubble, was neither normal nor healthy.

The bubble years began in the early 1990s, around the time Al Gore started nattering about the “information superhighway.” Bubble- and debt-driven growth is neither normal nor healthy. Since the late 1970s the US was well into deindustrialization, depressing net investment in the widget-producing economy and correlatively goosing investment in the financial sector, which began its now-infamous disproportionate growth relative to both total investment and GDP growth. Household debt had also begun racing ahead of the growth of both disposable income and GDP. Since 1973 the median wage has essentially flatlined. Put this all together and what do you get? GDP growth increasingly driven by speculative activity rather than real production, and household spending decreasingly fueled by current income and increasingly driven by debt, the mortgaging of future years’ expected income. “expected” is key here. Bubbles inevitably burst and the connection between the real and the financial economies reasserts itself with a vengeance. Income expectations are not met and debts cannot be repaid. Crisis ensues.

No serious commentator expects a return to anything resembling Golden-Age prosperity. The economy is in the process of reconfiguration. Postwar recessions through the 1970s were typically reversed by means including Fed monetary policy of reducing interest rates. The Fed is now treating the crisis as if it were a standard downturn, only a lot bigger. Accordingly, Bernanke has been releasing a virtually continuous flood of liquidity to no discernible effect.

A greatly expanded stimulus is needed, and one that directly creates jobs. The Obama administration has no such intention.

Obama’s Jobs Policy

The administration wants to get the credit machine running again so that the private sector can resume what is taken to be its natural function as principal creator of jobs. Obama’s advisors reason that since most Americans are employed by small businesses, priority must be given to enticing these operations to start hiring. So Obama proposed $33 billion in new tax credits for small businesses, and on Wednesday the Senate sent the “Hire Now Tax Cut” for Obama’s signature. The administration is pitch blind to the fact that businesses will not invest and hire unless they have reason to believe that they will have customers, consumers ready, willing and able to spend. Consumers would be ready and willing to spend were they able. But they are not. Piss-poor and declining wages, joblessness and record indebtedness are of course the principal obstacles. Commercial establishments hire when they expect customers/buyers, and capitalists invest in production when they expect profits. No rational employer/investor has any such expectations. The circle is vicious: businesses won’t hire because workers have no money, and workers have no money because businesses won’t hire.

The circle will remain unbroken unless the lead actor in this tragedy, the consumer/worker, is provided with the means of spending from a source outside the circle. This can only be government. As labor militancy forced FDR to acknowledge, government must become a direct provider of employment. Obama has ruled this out. At the December 3, 2009 “jobs summit” he repeated one of his favorite refrains: “I want to be clear: While I believe the government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector.” He admonished those who push for a government jobs program “to face the fact that our resources are limited….It’s not going to be possible for us to have a huge second stimulus, because frankly, we just don’t have the money.” He was of course referring to the massive federal budget deficit of $1.4 trillion. He left unnoted that the major reasons for the tripling of last year’s deficit and explosive growth of the national debt was the bailout of the banks and the titanic “defense” budget. (The administration plans to spend more on defense in real terms than any administration since 1948 – a period encompassing the entire duration of the Cold War. Recall that this includes two large-scale, protracted regional wars in Korea and Vietnam.) One searched in vain among the newspapers and magazines of the Ministry of Information for any critical suggestion that imperialism and the plutocracy are for Obama a higher priority than rescuing working people from creeping mass destitution.

Wednesday’s gesture towards addressing the jobs catastrophe is recognized as play-acting. A February 10 Associated Press report titled “Promises, Promises: Jobs bill won’t add many jobs” commented that the Senate bill “has a problem: It won’t create many jobs…. Even the Obama administration acknowledges the legislation’s centerpiece – a tax cut for businesses that hire unemployed workers – would work only on the margins.” The Congressional Budget Office has estimated that the tax break just passed will generate only 18 full-time jobs per $1 million spent.

The ineffectiveness of these policies is crystal clear. The administration either doesn’t care, or will not allow itself to grasp the obvious. It’s commitment to market fundamentalism requires blindness, and the requirement is met.

The Longstanding Travails of Small Business

The focus of the current legislation on small business is oblivious to finance capital’s decades-long disdain of this sector. In December 2009 the Federal Deposit Insurance Corporation (FDIC) released figures showing that the amount of loans outstanding in the nation's banks fell $210.4 billion in the third quarter of 2009. That was the largest quarterly decline since the FDIC began tracking loans in 1984. "We need to see banks making more loans to their business customers," Federal Deposit Insurance Corporation (FDIC) Chairwoman Sheila Bair told reporters. The FDIC figures show that banks have been deemphasizing business lending for many years, long before the current contraction commenced. Since September 2008 the trend has intensified, with business lending contracting at a much faster pace than consumer lending.

The FDIC’s tracing of this shift over the past decade underscores banks’ increasing preoccupation with financial shenanigans at the expense of investment in the real economy. At the end of the third quarter of 1999, the assets of the nation's banks totaled $5.5 trillion. As of September 30 of 2009, bank assets had grown to $13.2 trillion. But commercial and industrial loans outstanding barely budged, only growing from $947 billion a decade ago to $1.27 trillion by September 30 this year. At the same time, loans secured by real estate increased from $1.43 trillion in the fall of 1999 to $4.5 trillion this fall. And investment in securities doubled, rising from $1.03 trillion to $2.4 trillion. Last month the FDIC reported that bank lending contracted 7.4 percent in 2009, at the fastest pace since 1942, the first year of US involvement in the Second World War

Banks have lent sparingly to businesses for the past 35 years. Businesses report that in each quarter since 1974 -the very beginning of post-Golden-Age austerity- ease of borrowing was either worse or the same as it was the prior quarter. Business loans were increasingly hard to get over this entire period.

The data reveal a secular shift away from productive lending to businesses toward nonproductive lending to consumers and speculative investments.

Here is yet another indication of the structural deficiencies and institutional transformations discussed above that are generating a reconfigured economy. Neither standard monetary pump-priming nor Obama’s anemic measures are up to the task of addressing this historic transformation of the US economy. The deindustrialized, financialized, debt-bloated private economy is no longer a feasible basis of economic revitalization. The public sector must shift into gear. How? Well, it’s not as if we lack historical precedent.

Two Kinds of Long-Term Public Investment/Employment

The administration’s opposition to long-range public investment is adamant. The Washington Post (November 8, 2009) noted that White House officials reject the idea because it “does not produce long-term value”. One suspects that “long-term value” means long-term private profit. But why should public investment be expected to produce private profit… unless the administration adheres to the metaphysical premise that all public and private needs can and should be met through the market. We have seen above that Obama is just such a metaphysician. He channels his advisors. Lawrence Summers, the chief economic advisor, asserted on October 19, 2007: “[P]olicy measures to spur growth or achieve other objectives should wherever possible go with, rather than against, the grain of the market….There is no such thing as the success of the American economy that doesn’t involve very substantial success for America’s entrepreneurs and for American companies.” This is the old-time economic religion that is adhered to by the Washington powerful, and which can be defeated only by mass action.

If we are talking seriously about a genuine economic recovery, we advocate what we might call a “national economic project”. I mean a large-scale public investment policy that would employ millions of workers in a range of projects and services designed to address immediate and pressing needs. Most advocates of such a plan envisage government-funded public works programs to hire the unemployed. They are right. But more is required, namely public-service employment designed to meet needs not addressed by relying solely on infrastructure projects.

The case for infrastructure rehabilitation is powerful. The most reliable source of information regarding the state of the US infrastructure is the American Society of Civil Engineers, which has released a “2009 Report Card for America’s Infrastructure”. (Read it here: http://www.asce.org/reportcard/2009/grades.cfm) The Report Card stresses the advanced decay of roads, surface transit and aviation, tunnels, dams, bridges, public parks and recreation, schools, drinking water, levees and sewerage facilities. Accordingly, Uncle Sam earned a grade of “D” . The engineers describe in exacting detail the most urgent problems, and price the investment need in infrastructure repair at $2.2 trillion.

In recent years there has been especially rapid deterioration in an infrastructure already in a state of advanced decay. There were, for example, almost four times as many “high hazard” deficient dams in 2007 (1,826) as there were in 2001 (488). The Report states that “Many state dam safety programs do not have sufficient resources, funding, or staff to conduct dam safety inspections, to take appropriate enforcement actions, or to ensure proper construction by reviewing plans and performing construction inspections.”

The $787 billion “stimulus package” monies that might address what is in fact an emergency situation are the $71.76 billion allocated to construction projects, most of which remains unspent. This comes to one thirtieth of the required $2.2 trillion, a shortfall of $1.176 trillion.

It is clear that the relevant project is national in scope and therefore requires the creation of new jobs on a coast-to-coast scale. This task cannot be met by the private sector alone.

In the light of what’s been outlined above, Obama’s promotion of alternative energy and “green” investment as a cure-all for mass unemployment is ridiculous. We have been told that incentivizing homeowners to weatherize their houses -“cash for caulkers”- would represent a major step in addressing the jobs crisis. Like Obama’s other proposals, “cash for caulkers” would have the teensiest impact on unemployment, but it will provide major bucks for special business interests like Home Depot, whose chief executive was the most enthusiastic proponent of this idea at the jobs summit.

The New Deal’s public employment projects were on the whole great successes. The 1933 Civilian Conservation Corps (CCC) provided men (no women) work in the national forests and employed 2.5 million through 1942. In the same year the Civil Works Administration was established by executive order and within one year it created jobs for 4.3 million people. The Works Progress Administration (WPA) of 1935 employed millions and oversaw, over the course of 8 years, the construction and repair of 650,000 miles of roads and the building of schools, libraries and recreational centers. It’s support of the construction of neighborhood parks employed skilled and unskilled workers, architects and artists. It also established the only federal arts program the US has ever had.

As for the administration’s claim that public investment “does not produce long-term value”, the CCC and WPA contributed hospitals, schools, auditoriums, museums, city halls, court houses, fire stations, water works, parks, fairgrounds, farmers’ markets, and a range of other facilities. Many of these are in use to this day. What was created is astonishing: Hoover Dam, the San Francisco Cow Palace, DC’s Reagan National Airport, Houston’s City Hall, the San Antonio River walk, Bandelier National Monument in New Mexico, the Mountain Theater on California’s Mount Tamalpais and the Eighteenth Precinct police station in New York City. Many of us have forgotten, or never knew, that these were New Deal projects. Most remember the collapse in August 2007 of the I-35W bridge in Minneapolis, opened in 1967. This drives home how impressive it is that a depression-era contribution to the US transportation system like New York’s Triborough Bridge still carries traffic every day.

The notion that government should assist or even take the lead in this kind of investment was not born of the Depression. It’s almost as American as apple pie. Alexander Hamilton, and later the early nineteenth century Whigs, advocated “internal improvements” like canals, turnpikes and, later on, railroads. (Hamilton’s motives were mixed. He intended of course to foster economic expansion westward, but he also had in mind the parallel development of America’s financial markets.) That government needed to be involved in these projects was plain economic good sense: because these undertakings required substantial initial outlays but delivered returns only over time, private investors could not foot the bill by themselves. They thus needed government assistance, either in the form of financing, or, as with the railroads, spectacular gifts of public land, to make them possible.
Investing in physical infrastructure and green energy will give the greatest stimulus to two kinds of jobs, construction and manufacturing. We who urge these types of spending have given insufficient attention to the distributive desiderata of public spending. We have not addressed two essential criteria of an equitable jobs program: public investments should be selected with the aims of maximizing the extent of immediate job creation, and of ensuring that the benefits of job creation are available to the broadest possible category of worker, especially the most vulnerable to job insecurity. The results of a recent study by the Levy Economics Institute of Bard College are helpful in this respect. The Levy research shows that social-sector investment in areas such as early childhood education and home-based care are especially suited to meet the needs identified by these two criteria.

Social care investment generates more than twice the number of jobs as infrastructure spending and 1.5 times the number of jobs as green energy spending. And social care investment is more effective than each of the other types in providing work to those with the least education, low-income households and women. It also creates jobs in occupations identified in a 2006 Bureau of Labor Statistics study as among those most likely to add the greatest number of jobs between 2006 and 2010: teaching, child care and home health care. While most social-care jobs would be suited to the above categories, a significant number of jobs would also require some college education and are geared toward middle- and top-income groups. Even Tim Geithner acknowledged two Januaries ago that “social sector job creation delivers more bang for the buck.”

We have seen that the administration’s predilection for indirect job provision, through financial institutions, will not succeed. Social care expansion consists in direct job-creating investment in social infrastructure, unlike the “welfare reform” welfare-to-work of Bill Clinton or public cash assistance. And mainstream-type arguments support social infrastructure investment: it is more cost effective than hospital or institutional care for certain chronic patients, and home-based care lifts a burden off family members and allows them to be more productive at work. According to a 1999 Metropolitan Life Insurance Company study, this would save the economy more than $33 billion a year in lost productivity. That should water the mouthes of private employers.

Appeals to the more progressive are also at hand. Women provide a treasury of unpaid care to children and the elderly. Social care investment would provide direct payment for these highly valued services.

The employment crisis is as urgent as urgent gets, and intractable under the present economic settlement. The inneffectuality of politics as usual could not be clearer. The stubborn liberal hope, that mainstream politicians - financial investments made flesh- can be talked or voted into repudiating their masters’ priorities, persists as if unfalsifiability were a virtue. This delusion cannot be undefeatable. That would mean, by implication, that history has come to its conclusion. But history has no conclusion. America has in hand the a workable and desirable middle-term prescription for ordinary folks’ mounting afflictions. The task is to get it out.