Was it just a coincidence that less than 24 hours after I declared the “recovery’’ over that Tim Geithner op-ed piece “Welcome to the Recovery” appeared in the New York Times? Is the White House reading this blog? (If so, I may want to review my tax returns). Maybe they are looking at the same data I am and coming to the same conclusions. However while it is safe for me to declare the recovery over, Tim needs to convince us that it is just beginning. It reminds me of the dead parrot skit from Monty Python. (Link at the end of the blog).
Me: “This recovery is dead.”
Tim: “Oh no. The recovery is certainty not dead. It’s just resting a bit.”
So I disagree with Tim Geithner. And many economists also disagree, so Tim you just got faced.
Romer Also Gets Faced
My March 25 blog (Jobs Are Job One) put forth the idea that there is a big problem with structural unemployment. In April, White House economic advisor Christina Romer declared in a speech that structural unemployment is not a significant factor. In the past few weeks several economists have written articles about the impact of structural employment in this recession (Come on guys, try to keep up. For the love of Maynard Keynes, I don’t even have an economics degree!).
I disagree with Christina Romer as do bunch of real economists, so Christina you also got faced. She was so embarrassed, she resigned.
The Long-Term Unemployment Problem
In my last post I presented the idea that the economy was operating in a traditional manner, except for there were 14.6 million people “officially” unemployed and millions more that were either working part-time or had dropped out of the labor force. The unemployment problem is huge due to the unique economic conditions. This recession is different because of the many professional, white-collar, workers who lost their jobs. These are engineers, accountants, information technology workers, production support and other “office” workers. Many had been with their companies for over ten years and many are over 50 years of age. In previous recessions, fewer white collar workers were cut and most decisions were based on seniority. This time it was largely based on salary and workers who had been with their companies the longest and therefore made the most money were let go.
These workers are having difficulty finding new jobs. The competition for the few jobs being created is fierce. The number of people unemployed more than 27 weeks was a record 6.75 million in June and still at 6.57 million in July. After factoring out all the noise, a paltry 12,000 jobs were created in July that and available to the 20-million plus job seekers. You don’t need a calculator to do the math. Does this look like a recovery to you? Many economists do not expect the unemployment rate to drop to acceptable levels until 2015. I think if you add in all the potential job seekers it could stretch well into 2016.
The New Structural Unemployment Problem
Structural unemployment is unemployment caused by fundamental changes in the structure and make up of employment markets. It differs from cyclical unemployment which is caused by the business cycles. The recession caused the increase in unemployment, but I contend it is structural unemployment that is keeping the unemployment rate high.
One type of structural unemployment involves geography. If jobs exist in Seattle and the workers to fill those jobs are in Miami, then you have structural unemployment. (Note: You do have some of this now in that many workers cannot move to new jobs because their mortgages are “upside down”. Traditionally we have considered this geographic structural unemployment only within our borders. But if this is a “world economy”, then this model is outdated.
I believe that when we started exporting production jobs to other countries in the 1990’s, we laid the groundwork for the exporting of the professional jobs that were supported by a balanced workforce. The reason why the professional jobs did not exit sooner is that they were being supported by the housing bubble. When the bubble burst, so did the support.
Now the investment capital, innovation, new factories and pure economic growth is in China, India, and other countries. The professional jobs that support this growth are where the factories are. The workers that have the skills to fill these jobs are older workers in the U.S. who do not speak Chinese and are not going to move to China. I questioned my logic until I saw an article on MSN Money titled “Should GM just move to China?”
Who Moved My Job?
Millions of unemployed workers are left to ask, “Who moved my job”? And of course it was your government. This was done by all your government, both parties, for a long time. No matter what the excuses, the U.S. has not played the game well. When you look across the poker table and your opponent has most of your chips and hasn’t been hitting any lucky draws, then son, you have been outplayed.
Our government needs to realize this is mainly structural, not cyclical unemployment. Stimulus programs are useful for cyclical unemployment, but ineffective for structural (that’s why we saw a limited impact to the huge stimulus plans). Unemployment compensation is designed to help workers during cyclical unemployment, but becomes welfare at some point during structural unemployment. I’ve seen this from both sides (having received unemployment benefits during my job search) and I have no good answer to this one.
More Than Just Votes
To get out of this mess it will take more than just voting to change the party in power (although this may help eliminate some of the factors holding the economy back). It will take more government intervention. But just throwing more stimulus money at the problem will not work for the reasons listed previously. What is needed is a strategy to rebuild and restructure the U.S. economy. It will take skilled people with expert knowledge to do this. These people exist, but they are not in the government today.
We desperately need more people with solid, international, business experience in our government. The consequences of not utilizing these skills at this time are dire. In 2008, facing the biggest economic challenge of our lifetime, we were given the choice of the financial Tweedle brothers and we firmly rejected Tweedle Dee.
Dead Parrot Video