Catherine Rampell (h/t Thoma) writes about the depressingly permanent effects of the current recession:
The big ocean of blue represents the portion of the unemployed who have lost their jobs, with the lighter blue section showing those whose jobs are gone permanently.
There are multiple ways to explain why permanent job-losers represent a higher share of the unemployed this time around. Maybe, as others have suggested, many of the jobs gained in the boom years were built on phantom wealth. Or maybe the culprit is a corollary of Moore’s Law, the idea of exponential advances in technology over time. That might suggest that innovation and automation displace more and more workers by the time each recession rolls around.
Whatever the underlying cause, the result is concerning: Compared to previous recessions, many more of the employment gains in this recovery will have to come from new jobs.
That is much easier said than done.
Workers whose entire occupations — not just the previous payroll positions they held — are disappearing (think: auto workers) will need to start over and find a new career path. But the new skills they will need take a long time to acquire.
That’s assuming, of course, that the job market does grow in other occupations, rather than simply stagnating. When we have to revise our NAIRU up to 7 or 8%, will we finally realize that this is no way to structure an economy?
All of which is to say that many of the Americans who are already out of work are likely to stay in that miserable state for a long, long time. And the longer they stay unemployed, the harder it will be for them to transition back into the work force, further fueling America’s growing underclass.
The administration is likely to have a big labor (and class) problem on its hands, and one that won’t be solved merely by an increase in the gross domestic product.
Depressing stuff.
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US politics is based on neoliberal economics, which is based on gold standard principles that no longer apply, as well as the equation of economic policy with economic (theoretical) efficiency, based on non-empirical assumptions that are either unproven, untestable, or disproved.
This arrangement favors capital over labor, and uses workers (wage costs) as an economic buffer to protect profit-making, rent-seeking, and capital wealth.
It is based on the gold standard thinking that there is a fixed stock of money, which is no longer true under a non-convertible floating fx currency monetary regime in which the US is the sovereign (monopoly) provider of its currency of issue. As such, the government is not financially constrained and does not need to tax or borrow to spend (issue currency into the economy.)
As long as the elite can continue to convince the majority of the country that government spends taxpayer dollars or competes for loanable funds when it borrows, this travesty will continue. Warren Mosler has debunked these shibboleths in 7 Deadly Innocent Frauds and shows a way to achieve full employment with price stability.
Se also L. Randall Wray, Understanding Modern Money: The Key to Full Employment and Modern Money (1999) for a detailed explanation. There are numerous working papers on this available at The Levy Economics Institute of Baird College and the Center of Full Employment and Equity.
The reason that this continues is economic ignorance, political disingenuousness, and perpetuation of status quo based on self-interest of the elite.
Exactly, and the depressing thing is that the crisis should have swung the pendulum but has not. I was previously a believer in Social Structure of Accumulation theory, which generally predicts a cyclical nature for relative class power. I suppose it doesn’t take into account how ill-equipped our political system is at answering the desires of its majorities.
I began to read Wray’s book on google, but was blocked after page 36. The chartalist approach seems to be sensical, though, and I’ll have to look next to those working papers until I can find a copy of the book.
[…] A More Permanent Underclass – Open Economics […]
[…] Unemployment gains will come from a new type of jobs, not the same old jobs. This will be limited, creating a permanent underclass.Close […]
“As a recent Congressional Budget Office report put it, “Recessions often accelerate the demise or shrinkage of less efficient and less profitable firms, especially those in declining industries and sectors.”
“Think glassmaking. Or clerical work. Or, for that matter, newspapers.” –Catherine Rampell
I don’t know if Catherine Rampell is an economist or not, but she thinks like an economist. Which either means she thinks incorrectly or she is playing us like Bush played the American people with his attempt to conflate Iraq with Al Quada.
What is being conflated is the difference between jobs lost because of technology and jobs lost because of procedural unfairness. Jobs lost through advances in technology are something most people can live with.
Jobs lost to procedural unfairness is another story. People still need clothes, shoes, furniture and appliances. There are no technical advances to speak of here. The horse wasn’t replaced by the car. Nor were our factories old and inefficient.
These jobs and their technology were sent whole to other countries because multinational corporations saw an opportunity to practice labor arbitrage, or environmental arbitrage, or just get a better deal by playing one country off against another to get a tax break, or a subsidy, or shed a union.
In other words they went looking for the political economy where they could shed cost and add to profits. And they justified the whole process in the name of competition. These jobs were lost because they were reduced to their lowest common denominator and not because of technological advances. As Harvard economist, Dani Rodrik, has observed, economists seem to be the last people to recognize the distinction.
There is a cure for jobs lost to procedural unfairness: tariffs. Tariffs would put a stop to multinational corporations practicing global anarchy, where the rules and regulations of democratic political economies have to compete against the rules and regulations of authoritarian regimes. Where political economies are shaken down for the benefit of multinational corporations.
There need be no jobs lost to procedural unfairness because we can stop multinationals in their tracks with an old fashion collar tackle: tariffs.
And please, no more nonsense about how low skilled jobs should be let go so we can use our resources in areas where we have a comparative advantage. Our financial sector just finished with the greatest misallocaion of resources in the history of the world. And as fast as new products come to fruition production of them is sent out of country.
I don’t know much about the WTO, but it doesn’t seem particularly amenable to tariffs based on what you describe well as “environmental and labor arbitrage.”
I do think, however, that there are a number of unexploited opportunities for quality jobs even if the job flight continues (if it doesn’t continue, it’s already bled to the point that *most* of those jobs aren’t coming back). I really like the discussion by Randy Wray and others about the government serving as employer of last resort. There are a number of productive uses where the government can provide jobs- yesterday Obama was at the ground-breaking of high-speed rail in Tampa. There are literally dozens of similar opportunities around the country, and that’s just one aspect. The whole “green jobs” thing seems hackneyed at this point, but the reality is, if the government took an active role in creating jobs in that sector, it would be much more vibrant.
“I don’t know much about the WTO, but it doesn’t seem particularly amenable to tariffs based on what you describe well as “environmental and labor arbitrage.” –Nick Krafft
Nick,
I never mentioned the WTO. I see it as an organization set up by multinationals to insure they can continue to do what they are doing without fear of the old fashion collar tackle, tariffs. I’m not amendable to it.
I perfer the EU approach to free trade where trading partners share like values. For instance, members have to be democracies and workers have the right to assembly.
There is also an ethical component involved: in ethics “ought” must equal “can.” Why have an organization such as the WTO in which members couldn’t enforce its rules and regulations even if they wanted to.
And why should opening up the world to trade mean I lose my rights. This doesn’t happen with the EU’s common market. For instance, EU rules protecting women from job discrimination are stricter then any of it’s member countries. And as a EU member, if I’m a Spaniard working in England, I have the right to vote in local elections. As an EU member my rights are increased not diminished.
I don’t think it’s so great either. It does exist, however. In the medium term, the US can’t opt out, and in the long term it won’t. Thus, any tariff measures will invite penalties. It sucks but it’s true. I’m trying to think about what the US ought to do and can do given the climate.
Nick,
Here is another reason to reject globalization WTO style and opt for internationalism EU style.
Eduardo Gudynas’ “More than a dilemma, the trilemma of globalization.”
…. Participating in globalization means giving up certain things, and while these aren’t mentioned very often, amongst the most painful losses are the weakening of the state and of democracy….
The premises for the tension between international goals and national sacrifices have been recently recalled by Dani Rodrik, an outstanding economist from the University of Harvard . When one examines three objectives: globalization of trade, protection of national sovereignty and democracy, one arrives at inevitable contradictions given that emphasizing any one of these aims requires downplaying the others. Rodrik presents this problem as more than a dilemma: it’s a “trilemma” which makes it practically impossible to achieve the three goals simultaneously.
This new global framework is based on rules and agreements that go much further than the conventional trade of goods, extending into areas as disparate as services or capital flows. In addition, the nation-state signs up for or accepts international commitments under which it yields part of its regulatory functions and to which it ties its operations to the global economy. In constant competition with other countries to attract investors, environmental demands are relaxed, labor standards are reduced and land use planning is left aside. Sooner or later, global agents assume control of the majority of the benefits while local communities must deal with the social impacts and environmental drawbacks. Citizen reactions are ignored, and in some cases fought against since they obstruct the flow of capital, which results in the deterioration of democracy.
…. One has given up the efficiency and justice with which to resolve trade disputes, in order to fulfill the demands of global economic agents which rely upon such a mechanism floating in international space, founded upon entrepreneurial practices, and where decisions are made by international referees.
Rodrik’s “trilemma” flags this problem. If global trade integration is deepened, the demands of a nation’s citizens cannot be addressed in order to reverse its negative consequences, thereby diminishing democracy. These governments are engrossed in assuring a “friendly”, “reliable” and “secure” open market for international capital. Public policies are set back in favour of market measures, and national identity disappears in the process of becoming compatible with the needs of global markets. Political decisions are reduced to the costs of strengthening economic relationships; active pursuit of development fades away as it is assumed to be an automatic outcome of economic growth. This political regression results in the isolation of institutions and mechanisms for political decision making, and limits citizen participation.
The close links between these tensions and the dream of globalization don’t receive the attention that they deserve, and, in many cases, Rodrick’s “trilemma” is altogether ignored….
E. Gudynas is a researcher in D3E (Development, Economy, Ecology, Equity – Latin America), in Montevideo ( Uruguay ).
http://alainet.org/active/20033&lang=es
Thanks for posting that- a good way of framing globalization. I certainly agree that these three goals are impossible to satisfy at once under the current regime.
Nick, here are a few suggestions until you can get Wray’s, Understanding Modern Money, that explain how the modern (post 1971) monetary system permits institution of a monetary policy that balances full employment with price stability after neoliberalism abandoned it. Bill post, Stock-flow consistent macro models provides the basics of MMT aka Neo-Chartalism.
Bill Mitchell, author of Full Employment Abandoned: shifting sands and policy failures, with Joan Muysken, posted a recent blog, Questions and Answers 1, that not only answers a lot of these questions but also provides a plethora of links to other posts and papers.
Paul Davidson wrote a short article, Full Employment AND Price Stability that Warren Mosler at his site. While there, check out Warren’s <a href="Mandatory Readings.
Stephanie Bell has a working paper at The Levy Institute, Functional Finance: What, Why, and How? that investigates Abba Lerner’s principles of functional finance (1943) updated for the current monetary regime. It’s a detailed economic analysis.
MMT is naturalistic and descriptive rather than normative and prescriptive. Bill Mitchell takes a progressive stance toward it, while Warren Mosler is more conservative in his approach. However one applies values to fact, the facts remain the same, and Bill and Warrant have do-authored papers. Conversely, neoliberalism is based largely on myths that are hangovers from the gold standard.
Excellent! As always, thanks, Tom.
This is an excellent analysis of the consequences of the unrestrained concentration of wealth. It shows what results when no one pays any attention to rising Gini Coefficients, and simply assumes the usual economic religion that the poor should pull themselves up by their own bootstraps – which presumes, of course, that they have bootstraps by which to pull themselves up.
The harsh reality is that as wealth is concentrated by the already rich, it is taken away from the poor and middle classes, which reduces their options for creating wealth. In other words, ultimately, the unrestrained concentration of wealth is self defeating, because it leads to cyclical economic activity as markets are destroyed – you can’t sell something to somebody with no money.
That this goes on and no one is lifting a finger to stop it, is a manifestation of the reality that money equals power, and the unbridled concentration of wealth equals the unbridled concentration of power – and the unbridled concentration of power equals tyranny. Those who have the gold make the rules – and they make rules that benefit themselves. So if those conservatives out there that are frightened by the concentration of power in Washington want to know who to blame, they should look in the mirror.
Until Gini Coefficients are brought back down to something close to optimal levels, economic activity will inevitably remain cyclical, and political power will become increasingly concentrated and non-accountable to the governed – i.e., tyrannical. Conservatives, wake up to what the blind worship of wealth concentration is doing to your nation – and to yourselves!
Yes, the cyclical nature of these processes is important to point out. In the case of the current recession, misinformation appears to be preventing the pendulum from actually swinging back to a more redistributive and regulated economy. Disconcerting.