The Paradox of Jobs and Wealth

Introduction


In every economic dip, most especially those slow recoveries from financial freezes like the one we currently enjoy, jobs disappear and productivity soars as organizations of every stripe turn lean and mean to survive.  This dip -- the Great Recession -- may permanently lose the most jobs yet.

Theories explaining this abound, but none of them are comprehensive enough to give a useful answer on which to base a recovery program with broad support.

One theory explains by asserting that remaining workers are toiling scared, driven by meaningful glances from sadistic bosses. Perhaps jobs will pick up when employee exhaustion sets in and strong unions return to popularity.

Another opines that things will hum again when the fired malcontents and time servers no longer monopolize the water coolers and tribal cohesion improves among the residue.  Grateful employers raise some salaries. Unions not open to concessions don't share in the bounty.  Profits return before jobs.

Yet another school of thought notes that the better managers are capitalizing on the opportunity to streamline, automate and innovate. Equal measures of fear and ambition cause resistance to change to melt away in the remaining ranks and work becomes permanently more efficient.  Unions are shunned by fearful workers and lesser firms are bought at bargain prices.

Meanwhile, other commentators gleefully describe how businesses, so bold and confident when riding the bubble, turns timid and  fearful.  Business bosses stow the cigars and champagne and break out the stop watches and green eye shades.  Costs are cut, cash is horded and new ventures put on hold.  Business spokespersons loudly blame government for their loss of confidence due to its over regulation and other interventions that distort the marketplace, while some businesses quietly hit it up for easy credit, tax breaks, even direct loans.

Glee disappears when the behavior of consumers, also newly fearful, turns thrifty.  Household savings soar; credit cards are scissored; home cooking returns; vacations becomes short, nearby and simple, and the old car gets new respect.  These consumers of course are the lucky ones, with jobs and homes.. 

Notable, too, is that the disappearing jobs are mostly of unskilled labor, doable with inattentive minds and broad backs.  Instead, workers -- men especially --  must vie for jobs requiring ever higher and constantly obsolescing skills for which they are not prepared either culturally or educationally.

Given this rich set of actors to blame, we are like those blind Hindus baffled by the elephant, we have no clear integrated theory of why wealth endures, even increases, even as demand for more of the work which created the abundance of riches becomes short on offer.  We know the analyses just advanced each may explain part of our condition, but how they fit and interact together escapes us.  We can only describe aspects of what is happening without knowing why.  

Pundits conclude that “some” of the vanished jobs aren’t ever coming back. They point to the hard facts of soaring social security applications and college enrollments, the growth in “consultants” and involuntary part timers, and  the rising ranks of the hopeless as job prospects fall further and stay down longer with each successive downturn.

Meanwhile economists note that economic activity bounces back,well before job growth  They explain this by terming unemployment a “lagging indicator” of the prosperity that will surely return.  At least the problem has a name, and isn’t that a comfort while the misery lingers on, especially afflicting the most vulnerable?

All this while the politicians, frantic to do something, and always happy for a chance to borrow and spend (the GOP no less than the Democrats), shower tax holidays and spending stimulus on anything with an economic pulse. Then they shudder over the mounting public debt, for few rainy day funds were adequately fed during the late boom (we are only half Keynesian's, and the easy half at that).

But step back now from the current crisis, and consider a longer view of the USA since we first ejected the Brits. It is as clear as capitalism that frothy bubbles followed by financial panics followed by economic woes are as predictable as sun spots, Florida hurricanes and California earthquakes..They keep coming: we just don’t know when or how bad the next one will be.

Panics differ from natural disasters, however. Real wealth is destroyed when an earthquake or flood pulverizes the civic landscape. While those without chairs take a hit when the music stops, the whole community loses little that is tangible in a panic. Our assets – land, plant and equipment, personal possessions, community structures, intellectual capital – stay intact even while their prices fall and buyers drive bargains, sellers lose personal wealth they never had except on paper and creditors line up like raw recruits for their haircuts.

For a dreary while we dwell in the doldrums while gathering the nerve to get moving again. Stuff and know how we don’t create or keep up while in the slough of our despond is the only wealth that actually goes missing. Stocks and durables such as housing are no longer worth their bubble prices of course, and sellers are the poorer for it, but buyers are richer by an off-setting amount. 

The longer view also reveals that work has been vanishing all along. Only three percent of us farm. Once most of us did. Manufacturing is going the same way and it’s not all the fault of the Chinese. Car factories are in surplus world wide because they are way more efficient and produce better vehicles that last three times as long. 

In fact much of the hard work on farms and construction sites, in factories and mines – even the battlefield – can now be done by manipulating machines, often indirectly, even from afar, using computer and communication systems teamed with satellites and far fewer people.  This trend will only grow and continue.

Old information technologies will go next. Nostalgia for “real” letters, records, books, magazines and newspapers will not save them – or the post office -- from the Internet.  Even the classroom model of education is under siege, militant teacher unions not withstanding.  An average teacher and a white board can't compete with educational videos indistinguishable on their computer screens from the more sophisticated and entertaining games, and featuring master teachers when a teacher is needed at all. 

"But," you exclaim, "prosperity will return.  We'll never run out of work to do."  That has been true, but as wealth piles up over time, what’s left to acquire becomes ever less vital, less desirable, even overwhelming.  The act of piling up possessions beyond any need has become a recognized illness and the stuff of televised comedic entertainment.

It’s also true that for the most productive days of our lives – the ones in the middle years – we are working longer and harder than ever.  Most women especially work like pistons  They remain most responsible for raising kids and keeping house while getting and keeping jobs, starting and stopping careers, tending to the old folks and in general keeping families together and functioning.  It would seem that the old saw  "a woman's work is never done" is only more true today than when it was coined an age ago. 

But during our national life we have banned slavery, indentured and child labor; educated far more of us for nearly a decade longer; invented the vacation, sick and family leave and the sabbatical; reduced by law working days and hours, and opted for ever earlier retirement to cap a lengthening life.

Even housework is not the drudgery it was in the days before electrical appliances, detergents, scotch guard and wrinkle free clothing. And some husbands do help, if only to mix the martinis at the end of the day.

We did this while looking down our noses at unearned leisure, extolling the value of honest labor to society and the worker and crying out the crying need for jobs! Jobs! More good jobs! Suppose we were to really try to create and distribute wealth and eliminate rather than make work? What would life be like without the tread mill and what will it take to get off?

You could ask a pundit, an economist and a politician how to achieve such a Utopian vision and  all you will get is another Sunday morning round table of  pontification by clueless talking heads.  Our thinkers and leaders have not yet wrapped their minds around a simple truth:  we do not need the labor of all to create wealth enough for all.  There is a signal measure of truth in the commonplace saying that eighty percent of the work is done by 20 percent of the workers. But it is even possible to ease the eighty percent to the sidelines iin dignity and comfort? 

Most poverty today is the result of cultural ignorance and inertia, and is now dissipating more rapidly than at any other time in human history.  But the approximate end of poverty will not be the end of humankind's troubles. Our species is due to learn this hard and tragic lesson: when something cannot logically continue indefinitely, it will stop.  One such something is economic growth.  We cannot fill earth's every niche with human beings, their needs and their stuff..  Nor can we live indefinitely.  Nor can we endlessly violate the planet's cycles and limits, while plundering its riches, without ending its ability to sustain our species' life.

If jobs are disappearing even as growth continues apace in much of the world, and if growth itself cannot continue indefinitely without proving Malthus, Darwin, and Hobbs right, what are we to do?   We might start by ending the current rift between political and economic theory as if economic life could exist outside a political frame.


ON ECONOMICS

The central tenant of this materialistic religion of ours has been the notion of "the free market." The notion is wrong. There is no such thing as the market. Look around and note the many markets. Note too that each one is organized, manipulated, regulated or otherwise shaped by some group or other with an avid interest in doing so. No market is truly, purely free, or, in the jargon of economists, perfectly competitive.  When one occurs, either by accident or design, it does not stay that way for long.

How could it be otherwise when every market participant struggles and connives to escape market discipline at every turn?  The closest thing to an economic free for all in modern times is the lawless Gangsta Capitalism practiced briefly in post-communist Russia. Resurrected Cossacks are no economic model for a civilized society.

Less agreeable is the inconvenient truth (thank you, Al Gore, for that useful phrase) that our corporate cowboys, Wall Street raiders and hedge fund pirates have become our Cossacks. In suits and ties they wield computer screens as effectively as sabers. To risk another metaphor, in the name of  free market theology we let them off the reservation Franklin D Roosevelt allotted them and now we have to corral them again.

To round them up we must revisit another central tenant of our economic theology, most aptly phrased by Ronald Reagan: government is the problem, not the solution. The Great Communicator was not totally wrong. History backs his assertion all too often. The more enlightened concepts of Adam Smith, for example, replaced mercantile dogmas that had strangled ambition and innovation for centuries. Now, though, Smithian theory has congealed into a computer modeled theology. 

The first modern economist to find a principal (rather than supporting) role for government was British economist John Maynard Keynes. It is his play book that the principal actors in Washington today are reading from. Keynes demonstrated that economic downturns such as the one we lately enjoyed are not always self correcting. Supply and demand can reach a stable equilibrium well below the level of economic activity that fully employs us all. When, as lately, this happens, governments cannot and, after Keynes, should not, fail to fill the gap. Free market theologians will argue that governments simply can’t, and on the record they have a point. But there is nobody else to do it so we had best bend ourselves to learning how.

Still, following past Keynesian fixes will not be enough. We have recently rediscovered that dumping mounds of cash into the coffers of reluctant lenders and traumatized consumers is like pushing on a string and expecting the other end to go somewhere. Government investments in infrastructure -- roads and bridges (hopefully to somewhere), a smart electrical grid, electronic medical records, new sources of energy and such -- are agonizingly slow to ramp up. They tend to stimulate just as business, too, revives, and the reinforcing combination twists the economy into an inflationary spiral.

If Keynes as traditionally applied is not enough, what is?  Set aside the possibility of a Marxian style revolution.  The world's economic systems evolve.  Attempts to invent one from scratch fail  miserably, often horribly.  Traces of old systems linger in the mercantile policies of China, Japan and South Korea.

 The beginnings of capitalist theory were built on the foundation of the fundamental factors of production: land, labor and capital. The witches brew we call wealth was concocted presumably from the toil and trouble of their proper mixture. Capital was the catalytic ingredient though; land was passive and labor docile or reactive. At least as equally fundamental today as this trio are two more active ingredients: energy and information, and tomorrow’s theories would do well to take them fully into account.

Our approach to evolving markets should be scientific and creative rather than prayerful and passive. Such thin theories as perfect competition, rational actors and perfect information need to be demonstrated or discarded. With personal consumption counting for two thirds of all economic activity, "economic man" needs to be replaced with homo sapiens in all his and her evolved glory. This will not go down easy, for economists just love the simplifying assumption, and do not like fuzzy minded psychologists, game theorists, data miners, political scientists, evolutionary biologists, ecologists and (especially) sociologists mucking up the elegant simplicity of their take on humankind.

Some markets cannot abide unfettered competition. We have recently learned anew that the financial markets are first among them. Governments and international institutions cannot let go of the reins of money and credit without risking an inevitable runaway. That fact needs to be embedded in the DNA of all political parties serious enough to be allowed to govern and conduct diplomacy.

Another such market is the financing and provision of health care. The best care anywhere in the US is provided entirely by government to our aging veterans of past wars. The Veterans Administration builds and operates the hospitals, hires the doctors and nurses, bargains hard for low drug prices and even exports the only electronic medical support system in the country worth calling comprehensive. And they do it in the face of resources that are chronically delayed by a dithering Congress that continually ignores the post war consequences of the wars it funds.

Other critical economic activity would never occur if we waited on markets to join supply with demand. Still other markets grow like weeds and can’t be eradicated even by the most draconian methods. Thus government largely succeeds in providing the market for basic science research and utterly fails to quash the markets for illegal drugs and illicit sex.

We need better measurements of what we do economically to replace the gross national product and other such aggregates. A system that adds Hurricane Katrina’s recovery without subtracting its loss measures what is easy, not what is real.

Equally a system that doesn’t deliberately include "externalities" -- from garbage disposal to polluted land, air and water to accelerated species extinction to global climate disruption – in the cost of goods and services bought and sold, should not be called capitalism. 

Finally, as John Kenneth Galbraith, the finest student of economic phenomena never to win a Nobel Prize, long ago said, and I paraphrase, none would select the squirrel wheel for an economic model. Growth, in other words, must end some day. Either we achieve wealth beyond measure just before our well deserved extinction or we learn how to create and distribute basic goods and agreeable comforts in tune with that somewhat longer journey called a sustainable future.

The next economic system will not be handed down from above as holy writ. It will have to be deliberately built and continuously perfected by dedicated human beings for humankind. We will probably call them economists and politicians for lack of better four letter words.

ON POLITICS

Left to its own devices capitalism concentrates wealth even as it "lift all boats" during the growth phase of the business cycle.  Then it is ruthless about cutting costs and preserving capital when the bubble bursts.  Labor is just another cost in most nations.  In only a few countries, notably Germany, do firms routinely reduce hours worked rather than lay off "redundancies" among the rank and file.

In bad times the business comes first, of course.  Those who have, or seize, power over its assets rank next.  Those in control of personnel decisions survive just ahead of employees deemed "key."   For the rest, survival depends on how bad things are; many through no obvious fault of their own become unemployed.

Enter government.  Just about everything bad you hear about government is true.  At best it merely muddles through.  Democracies are no better, occasionally even worse, than authoritarian models, because the rabble will rob the rich with their votes, cooking and eating the capitalist goose stuffed with the seed corn until all are impoverished.

Yet as the centuries drift by,  government  does get better. While this sunny view is hard to credit in the sharply divided American electorate, the government's performance over the past five years under two polar opposite administrations has been outstanding.  Yes, really, outstanding.  Compared, you might ask, to what?

To the last time we grappled with a similarly bursting financial bubble in the 1930's.  Our present doldrums have been  as nothing compared to the meltdown and decade of stagnation of the Great Depression. We have greatly benefited from the application of lessons learned from close study of that world-wide debacle. The game we have played has been one of damage control, and for that reason our performance will not get the accolades it deserves.  With millions kicked out of their jobs and homes, it feels like we lost, and when you tell the genuine losers of this time around that it could have been much worse, all they can do is wonder how.

For there is nowhere in the American Dream a place for hailing a set-back that was measurably better than the last one.  Two steps forward and one back is not the way this nation strides toward the future. So the speed and acumen with which the Federal Reserve and the Treasury secretaries of two presidents moved to shore up the financial system, rescue the auto industry and contain the contagion to an acceptable degree within our borders, must await the verdict of history for their attaboys.

There is much that could have been done better.  Weaknesses and abuses in the home mortgage industry need careful study and remedy.  The national enthusiasm for home ownership needs tempering.  The risk of leverage applied to opaque financial innovations rquires better understanding and a system of adult supervision that is accepted as something other than a bothersome meddle by the government in the workings of free markets.  The "Masters of the Universe" must meet their master.

And that is how we will proceed.  The political economy will evolve by the workings of tension between the goverment and private institutions.  One fine day we may even get the tensile strength of this interaction tuned just right and lovely harmonies will play.  If Mother Nature doesn't order us out of here before that new Eden can flourish.