The Jobs Question, Part II

In my last post, I wrote about the underlying issues in the US job market.  I’m not the first person to put those ideas forward.  I think what I wrote is more or less becoming the consensus opinion.  What I’m not finding are many ideas about the solution.  

I read a Time magazine article where economists are predicting we’ll get to normalized (6%) unemployment by 2015.  I don’t know what they’re basing it on.  Even if we do get to that point by then, it doesn’t solve the problem of the loss of manufacturing-based wages.  If a line worker can’t get a position at GM, they’ll wind up with a position in the service sector that pays less money.  If you are a UAW member in a plant, you’ll be making less money and paying out more for benefits. 

Now I’m not arguing workers on the line deserve more than their current wages.  What they’re making now is realistic to their worth in the market.  But that doesn’t discount the fact there’ll be a lot less money spent in our economy.  So how does our economy thrive when the money is flowing to the top earners, who will spend a far lower percentage of it, and away from the middle class workers our success has been dependent on?

How about if everything got cheaper?  Big leaps in productivity are supposed to equal lower prices for the consumer.  We’ve seen this in consumer products.  You’ve seen how much a laptop computer costs, right?  We’ve seen productivity gains in every industry in our economy.  It follows logic that prices should be plunging on everything.

Imagine if they were.  Falling prices (deflation) has always been viewed as a terrible thing for an economy.  There’s no doubt it would cause a lot of short term suffering.  But it may be the key to solving the issues I’ve been talking about.  If grocery and heat bills went down, it could erase the problems caused by the growing income gap in this country.  Coming from a two-income household, I think everyone should have the opportunity to have a fulfilling career.  But wouldn’t it be great if having two incomes was a choice instead of a necessity.  If one person is laid off or has to get something part time, it might not be the ruination of a family. 

Hell, working full time might not even be a necessity.  Two people working part time might be enough to keep things afloat.  All I know is there’s a large portion of our society that has lost or is losing its economic power.  It’s bad for them but also hurts the rest of us.  Maybe our thinking has to adapt to their new reality.

As I mentioned, higher productivity is supposed to lead to lower prices.  So how come food and gas prices aren’t going down like they should?  If you can get a computer for less than four hundred dollars, why can’t you get a gallon of milk for eighty cents?

Consumer Products is a fast moving industry where competition doesn’t let you rest on your laurels.  You’ll be punished right away for products that aren’t at the right price point, don’t function properly, or do far less than advertised.  In this industry, the consumer makes the companies do more for them.

Now let’s look at food.  Buying it isn’t a choice, the control of it has dwindled to a handful of companies, it’s shielded from economic realities by massive government subsidies, and the public is out of the loop on its innovations.  In other words, there’s a beauracratic and political dimension to the industry that has shielded it from market forces. 

The same can be said of energy, health care, and government-derived industries like defense.  All of these industries have implemented money-saving, labor-reducing technologies without having to be burdened into passing the savings on to us.  In order for prices to match up with the new reality, we have to look streamlining practices and entitlements (agriculture, defense spending) or in some cases, building new infrastructures and practices more in line with our current needs (health care, energy).

The real estate and automotive industries have been forced by the recession to adjust themselves to the real world.  Homeowners who made their purchases/refinanced five years ago or earlier are screwed but the next generation will be the first in a while to see reasonable home prices.  This adjustment has caused a lot of pain and heartache.  It’s even ruined people.  But by not doing the same across the board we’re just making it worse.

Now I don’t know if massive price reductions are the solution to all of our problems.  I’m sure there’s an economist out there who can pick the idea to pieces.  At the same time, I don’t know why the discussion isn’t even on the table.  Even in rebutting it, we may find some of the answers we need.

To pull this off, we need to harness the collective will of the people in our society.  The question is, are we still too complacent to do it?

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2 thoughts on “The Jobs Question, Part II

  1. To give you an idea of how they calculate the return to what is considered full employment (6%+/-), Paul Krugman has given this as a rough way to calculate it – generally, 2.5% annual GDP growth is what is required for employment to keep up with productivity gains and population increases, thereby keeping unemployment steady. Above 2.5%, it takes an additional 2% annual GDP increase to reduce unemployment by 1%. Some economists are predicting 4% growth for the coming years. This means that we are exceeding 2.5% by 1.5%, which is enough to lower unemployment by 0.75% per year. In 4.5 years, that would put us right around 6%.

  2. I don’t accept that we should just allow all of the income to flow to the top earners. I don’t see that as being a free society nor a democratic society. What that creates is two separate societies. This exists to a certain extent now, with gated communities, private jets, etc. If the income disparity continues to increase, this will only become more true. It is non-democratic as well, because we have seen time and time again that economic power, while not guaranteeing political power, nearly guarantees political power. I refuse to accept that this is the way that it is and it cannot be changed.

    Now to your theory on deflation. I’ll give you a couple of reasons that deflation would be incredibly bad for us. First is that it would completely crush any manufacturing that we do have left. Deflation makes your exports less competitive because our dollar would become too valuable (sounds weird, but it’s true). Think about China – they devalue their currency specifically to maintain their exporting power. If a Canadian needs to pay $2 Canadian now for something that used to cost $1, they’ll get it from someone else. This is a proper example, since Canada is the #1 importer of American goods. This would further increase our current account deficit, which means a net loss of wealth for our country. Second, our National Debt would crush us instantly. As it now stands our debt is around 75-80% of GDP. If GDP drops 50%, you could be looking at a debt of 150% of GDP, which is higher than after WWII. In the past, reductions in our debt to GDP ratio have been more about the rate of growth than have a balanced budget or a surplus. Our economy needs to grow faster than our debt. The third reason is that deflation would only serve to widen the income inequality in the US. Deflation helps those who have lots of money in the bank far more than it helps someone with no savings by giving them lower prices. Lower prices would create even lower wages. Our economy would actually benefit from some moderate inflation and many economists believe that the Fed should be setting their inflation targets quite a bit higher than they are, but the big money opposes it because they stand to lose.

    I’m not trying to be critical of your ideas, but these discussions need to take place and solutions start with ideas. Yours are probably not 100% right and I’m sure that mine aren’t, but it is finding the right combination of ideas to get the desired solution. Also, we could’ve had this conversation in person, but I’m hoping that our exchange will get other people to participate. Besides, if we can’t even find time to watch a damn movie, how are we going to have time to talk economics and solve all of the worlds problems?

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