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Wednesday, December 17, 2008

It's a political economy

We know that at least 65% of the working-population will take a decent job if it is available. That’s the employment to population ratio.

Actually, from places like the Dakotas or Minnesota, where poverty and lack of basic education is not a drag on the local economy, we really know that, in the culture of today, including women working outside the home, retirement ambitions and education, it’s more like 72% who will take a job when they are plentiful.

We know that when Bill Clinton stepped into office, 61.4 % of the working-age population had a job, and that the percentage grew to a peak of 64.7, and held at 64.4 in January, 2001 when he left office. That was a gain of three percentage points in eight years – actually quite a lot in that short a period, since by 1993 it had grown by less than six percentage points in 32 years since John Kennedy took office.

The Clinton years showed what Americans will do when they are confident they can go out and get a job: almost three-quarters of them will go out, find a job, and take it when it’s offered. Given that growth of participation in the work force during the Clinton years, a strong economy under GW Bush should have generated another three percentage-point gain in the employment to working age population ratio.

In other words, and now bear with me if you’re still with me at this point, the 137.8 million Americans holding jobs the month George Bush took office, or 64.4 % of the working-age population, should have grown to 67.4% of the population now, or 158.3 million. Instead, that rate has dropped back to where it was when Bill Clinton took office 15 years ago, or 61.4 %. That’s only 144.3 million who are working. So there’s your true loss of jobs from what should have been if the economy overall – yes, apart from the early recession – had stayed strong: 14 million jobs. Just about 14 million more Americans would be working now. The number of jobs would have been increasing by an average of almost 2 million every year.

There have been times in the GW era when the GDP seemed to be soaring, and even the official unemployment rate has been low, and yet consumer confidence has at no time reached the heights it was reaching in the Clinton years. Sometimes, pundits would declare it baffling that Americans did not express more confidence in the economy or in Bush when those official unemployment rates were announced. That’s because, I would submit, Americans themselves sensed that the economy was not generating enough new jobs merely to keep up with population growth. Iraq and the decline of American world prestige were certainly a contributor, but I would also submit that the sense of things not being as they should be, and not as good as the big statistics said they should be, with some trepidation that the fantastic growth of real estate values was too good to be true, was a big part of why it always seemed Americans at a high rate were saying things were “moving in the wrong direction.”

* * * * * *

All of this leads me towards saying that the numbers economists seemed to be looking at – the macro-economic statistics like “capital infusions” and “liquidity” are barking up the wrong tree. It’s about the gestalt, the weltenschaung of the day. The critical thing is for Americans to start thinking the Titanic’s path has been shifted, that we finally have people in the pilot house who know how to run a ship, and we will not, after all, hit the iceberg. Roughly, it’s in the consumer confidence measures, but it’s probably deeper than any survey. When a critical mass of Americans start thinking we are now “moving in the right direction,” even if progress is slow at the start, consumer confidence will see a new day dawning. It’s a social science measurement, not an economic input measurement.

How do we get there? Jobs, jobs, jobs – and good jobs, ones that people believe will last and will not just disappear. Picking up paper and broken bottles, OK as a stopgap, but infrastructure jobs will last a generation. Green technology jobs will be forever, so to speak, and will only grow in number. Health insurance reform will allow companies afraid of skyrocketing benefits to offer real jobs again, and take away the fear of financial devastation from a health problem. But it is only jobs – the belief that I will probably get a decent job offer within a month or so of losing or giving up the old one – that will get us out of this mess. It’s fundamentals like health insurance reform, seeding new manufacturing opportunities and spending on real infrastructure improvements, not gimmicks like random fiats making more money available for lending to people who don’t want to borrow it, that will get us moving in the right direction.

Economists got us into this mess, and now confess they had no idea what they were doing. Maybe some good old outcast political economists -- the holistic economists who recognize that an economy is based on a social contract and will fail when the most powerful break the promises of that social contract -- who are best positioned to help us work our way out of it.


Blogger marketingace said...

A reader friendly parallel related to the contributions of economist Albert Hart who statisticaly connected expectations of both labor and capital to the performance of the economy.

12:23 AM  

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