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about that tale of two numbers

Michael Roston points out a very interesting tale of two numbers in the news yesterday:

Perhaps you’ve heard that the Dow Jones Industrial Average reached 10,000 today, finally, at long last…

But it turns out that while Mr. Dow Jones believes that our Great Recession is over (that’s a joke), one invisible hand in our market doesn’t know what the other is doing.

That’s right, the Pentagon reported on this day of Dow 10,000 that our strained Armed Forces have beat their recruiting goals for the fiscal year, driven by economic unease. (h/t: the Daily Dish).

Here here! for pointing out the obvious. Seriously.  The man makes a good point.

The AFL-CIO and the Economic Policy Institute make another good point: the current recession is hitting women worse than men, and  minorities worse than non-minorities.

One reason women workers are so adversely affected by manufacturing job loss is that they are concentrated in industries that have been drastically affected by the surge in cheap imports over the past decade, such as textiles, apparel and leather. Women make up more than 50 percent of the total workforce in these industries. Faced with high levels of foreign competition, these jobs have had high levels of trade-related job displacement.

Not good.  So what to do?

One idea that has been proposed is to redirect stimulus and TARP funds to smaller regional banks where it is more likely to go to support small businesses where conventional wisdom suggests more jobs will be created in the short term.

That’s not a bad idea, per se.  But it doesn’t solve the larger problem which is that the U.S. economy has been putting off a denouement with itself for decades: the engine that built and sustained the middle-class is broken and we need to figure out what to do about that.   Sometimes its important to take a step back and think about the big picture.

Once upon a time, our economy had a clear logic. This was the so-called “social contract” by which American industry grew by simultaneously feeding the growth of a middle-class of workers.  That contract broke down in the 1970s.  It was replaced by the idea that we could keep the party going by feeding the growth of China’s middle class and by leading the world in terms of creating great new industries.  Discussions about “globalization” and “innovation” erupted from the lips of policy makers throughout the 1990s.

I still see the logic of globalization and innovation as the bases on which to build.  But we seem to have lost our way in the effort to build that base.  I think that’s true in part because it’s not a quick solution: we are building a cathedral here — not a gold-rush village — and so you have to build a large, solid foundation.  In other words, it is a strategy that must play out over decades.  But we are in a rush.  And so we interpreted the illusion of credit and investment inflated prosperity as proof that we were succeeding.  That illusion crashed to earth first during the post-9/11 dot.com bust.  And now with its even more evil younger sibling, the financial crisis of 2008-9.

That doesn’t mean that focusing on globalization and innovation were the wrong strategies.  It means we took our eye off the ball.  So while it’s important to take stop-gap measures to get people back to work, that is not really a solution to the “jobless recovery.”  Neither, however, is simply doing nothing; that is, waiting for the economy to correct itself.  It is a jobless recovery for deep-seeded structural reasons: the nature of the U.S. economy has shifted dramatically over the last 30 years, yet we have not been proactive enough to build an economy and a social safety net that is really consistent with the economy we have.

The question I don’t hear enough people asking is: where will the capacity to sustain our middle class come from over the medium- to long-term?  Will it come from growing new industries like clean energy?  Is it really possible to base an economy on brand-management to the exclusion of producing and exporting goods and services?  Can we rebuild high value-added manufacturing and productive capabilities in this country?  Or, should the U.S. military continue to be the best option for kids coming out of high school looking for a job they can be proud of?  Is the time quickly approaching when we start to go every-man-for-himself and abandon this ship to find our fortunes in China and India where the next great expansion of a middle class will come?

I fear that if we fail to take any of these paths and simply patch up or rebuilt along the lines that existed prior to the crisis, we will just be setting ourselves up for the next major crisis.

What I would really like is for the great economic minds working in the White House and at the Fed (and don’t forget the high-profile economic pundits who make a living thinking about the big picture) to take a step back from crisis management mode and give some thought to the longer term vision of where they are taking the country.  Where are we going, Larry?

Written by seansafford

October 15, 2009 at 6:52 pm

5 Responses

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  1. Hitting the 10,000 mark is interesting. As Brad DeLong points out, equities seem to huddle around the “nominal value of 1” point (logarithmic jumps) far more than you’d expect.

    On the broader comment: any job gains in green energy will to an extent displace jobs in the dirty energy sector. Nor is high-value manufacturing gone; the US makes more manufacturing goods than ever, and the goods/GDP ratio has stayed roughly constant over time. It’s just that manufacturing requires fewer jobs than before. China is losing manufacturing jobs on net too (and at a faster pace than the US), as are Brazil, Japan, etc.

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    Thorfinn

    October 15, 2009 at 8:55 pm

  2. […] I read a post by Sean Safford about a different topic – some of the causes and impacts of the current economic recession. He says: still see the logic of globalization and innovation as the bases on which to build. But […]

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  3. While I’m certainly in favor of government investing more in science, in education, and renewable energy (among other things) I would take the position that in terms of producing economic growth, the primary thing government has to do is invent/maintain institutions that reward entrepreneurs. I mean, I favor the provision of public goods, some redistribution and some regulations as well, but I don’t trust any group of genius economists including Larry Summers to try to plan the future of our economy in any detail.

    Here are my top two recommendations for the long-term:
    1. major reform of education starting with pre-k.
    2. give a green card to every highly-educated person who wants to immigrate.

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    Michael Bishop

    October 15, 2009 at 10:30 pm

  4. @Thorfinn: I think the idea would be that we’d end up exporting some of that technology so… not exactly zero sum.

    @Michael: no arguments from me. I’m not saying I want Larry to plan the future. I want him (and really much more importantly, the President) to articulate where they think we’re going. Its important to shaping a lot of the policies that come after to have something to orient towards. As it is, we’re simply reacting.

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    seansafford

    October 15, 2009 at 10:34 pm

  5. Sean,

    The only estimate of green jobs that I know of, a recent report by Gabriel Calzada Alvarez in Spain, suggests that the US would lose 2.2 jobs for every green job created. He also finds that Spain spent over 500,000 Euros per green job. You can argue with these numbers, but there’s little evidence for a large job impact of green technology.

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    Thorfinn

    October 19, 2009 at 2:53 pm


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