US Economy: The Glass is Only Half-Poisoned
In fact, the glass is half full: the non-bubble parts of the US economy are functioning reasonably well. That suggests that the whole economy could function well, if the glass were not half-poisoned (if oppressive taxes and regulation did not hobble the great American startup machine).
I contrast America’s two economies in piece this morning at Asia Times Online:
- Item: Final sales of domestic product rose by 3.8% (without adjustment for inflation) from the second quarter of 2010 to the second quarter of 2011. Sales of S&P 500 corporations rose by 10%.
- Item: Employment in the S&P 500 corporations rose by 10.6% between 2009 and 2010, to a total of 18.666 million. Total employment in the United States rose by 0.7% over the same period, to 130.26 million. Employees of the S&P 500, that is, comprise less than 8% of total US employment, and their employment pattern bears no resemblance to the aggregate.
- Item: Profits of S&P 500 corporations rose by 19% between the second quarter of 2010 and the second quarter of 2011. Nominal GDP (gross domestic product) of the US rose by 3.7%.
- Item: 47% of S&P 500 sales are overseas.
- Item: Americans with no college-level education have an unemployment rate of 9.9% and (which is much more revealing) a labor-force participation rate of just 61%. Americans with some college education have an unemployment rate of 8.6% and a participation rate of 70%. And Americans with a bachelor’s degree or more have an unemployment rate of 5%, but a participation rate of 76%. Huge numbers of less-educated Americans, that is, don’t ”participate” in the labor force because there is nothing for them to do. But Americans with a college degree (as devalued as those degrees are) have little unemployment and a very high rate of ”participation.”
The problem isn’t that the economy is busted, but that parts of it are busted. But the fact that the other part is working reasonably well is encouraging.
Conclusion:
For the moment, investors will not buy an 8% earnings yield on the S&P 500 even while 10-year Treasury yields trade around 2%. They are all the more reluctant to take risks on startups, which in the past 40 years have accounted for more than two-thirds of job growth. The right combination of economic policies could revive the startup engine, albeit slowly and fitfully. Lower taxes on corporations and capital income and less oppressive regulation (especially US President Barack Obama’s health care mandates for businesses) would help. So would a rational immigration policy that favored entrepreneurs and highly skilled professionals.
‘The problem isn’t that the economy is busted,but that parts of it are busted.’
We may have more unexpected ‘buster events’ on the way which have not been factored in ?
This morning in San Juan Puerto Rico 800,000 are without power as minimal Hurricane Irene passed by.
If it hits a few major cities on the East Coast at a cat 3 or above,that’s not going to help an anemic economy.
I wonder if Irene’s plan is to ruin Obama’s comfy vacation at Martha’s with the big movers,shakers and plunderers.
Remember this when Dems start attacking Texas job growth as being low wage (40%). Sounds to me that those are the hardest hit, those who went to the city schools that only graduate 30%. Anybody know a Republican who runs one of them?
And while I am at it let me also say that it is Dem policies that would cause so-called Middle Class wage stagnation. They are the ones who advocate the union contracts and civil service practice that pays everybody the same and stymies any advancement except by seniority. Anyway it is double speak to call such wage slaves midddle class. Remember when Napoleon called England a nation of shopkeepers? That’s what middle class really means, small business and individual proprietors.
“Americans with no college-level education have an unemployment rate of 9.9% and (which is much more revealing) a labor-force participation rate of just 61%.”
I was just reading an article about jobs in my home state of SC and the real opportunities there seem to be in skilled non-degreed workers, such as electricians, computer repair, medical technicians, and the like. We need those far more than yet another college graduate with a degree in femanist studies or communications, or the study of marine fungi or Russian Literature.
Of course, there is nothing saying you can’t have a BS in something AND know how to weld and wire and fix. In fact, I have a BS in engineering and an MS in systems management and I’m not too proud or too unskilled to do my own repairs, and even at the office I have installed our LAN wiring and fixed our broken server as well as multiple PC’s with problems. When I have time I am going to take a community college course in welding. But people who have gotten their college degree don’t seem to be able to conceive of then getting the skills needed to a job that they did not need that degree for in the first place.
There is no open market when select parties can borrow at no interest to compete against those of us who cannot, and high frequency trading is allowed to manipulate markets with frontrunnning and phony bids. Not to mention naked shorts where the short interest is larger than the amount of shares outstanding.
The SEC burns evidence, and the Justice department has a hands-off policy. Implement mark-to-market and prosecute the fraudsters. That is the part that is broken.
In Britain there are many young people who are barely educated and are not competent to do, or even to aquire the skills needed for important skilled trades or other skilled jobs. Employers in the UK prefer to employ the ubiquitous Polish worker because he is willing to work, turns up on time every day of the week, has a clean sane appearance and can read, write and do arithmetic.
There is a similar problem in the U.S. When a large part of the potential workforce is barely educated, looks crazy and is too expensive then many unskilled jobs, particularly in bog standard manufacturing, fly away to other countries.
It is hard to see how this barely literate/numerate congealed lump in the total unemployment soup can be dispersed into jobs, even when the economic recovery eventually arrives. It is dismaying to think that recovery won’t even begin until President Obama is removed from the presidency by the voters.
Spengler is way off base here, displaying basically no real understanding of the US economy. Commodity prices being driven by both Chinese demand (particularly for corn, metals, and cotton) and a debased currency (Fed money-printing) means the average person is hit hard by stagnant wages (no real wage increases) and fairly substantial inflation. Yes the Fed defines “core” inflation as low, but how often does one buy a new fridge (core) or gas and food (the latter every week).
Inflation is killing the working people of this country.
Moreover, as most American jobs are in the Service Sector, they are hideously vulnerable to out-sourcing and H1B visa-ing and replacement by alien workers, many of them illegal. At a time of record high unemployment (real U-6 unemployment approaches 20%) there is no call at all to deport illegal aliens to open up jobs they are doing (many above min wage, good paying/benefits jobs) for citizens. How revealing! Let alone of course pushing illegals off welfare by sending them back to countries of origin (nearly all are Mexican in fact). The economy is structurally weak, creaking under the strain of paying welfare for “unaffordable family formation” by Mexican-origin illegals, downward wage pressure by illegal immigration, shoving manufacturing off-shore to China (Germany still makes high value machinery with high manufacturing wages) because it’s “icky and dirty,” and hollowing out of the knowledge workforce by importing loads of H1B visa holders and/or foreign Phds.
Whiskey, no disrespect – and I do miss you most of the time – but I challenge your description of inflation as “substantial”. I compared my own food and gas prices from last year and in my area it looks like the increase is less than 2%. It’s true wages are stagnant, but quite frankly Spengler has a much higher proven economic stature than you, and I’m thankful he shares his opinion online. Cheers.
As I said, the good news is that Americans with a BA seem to get jobs pretty readily. The bad news is that less-educated Americans seem marooned. I’ve raised this idea in the past, in a July 2010 post at the old First Things blog–perhaps we need a National Infrastructure Corps paying $15 an hour (rather than paying $40 an hour to construction unions):
How many Americans will never work again? Perhaps a lot. A close look at the Bureau of Labor Statistics’ Current Population Survey raises some alarming questions about the prospects of significant parts of the American population.
Thirteen percent of Americans twenty-five years and over without a high school diploma were unemployed in June (down from a peak of 17.9 percent in February, but much of that decline was due to a fall in the labor force participation rate from 62.4 percent in February to 61.4 percent in June). Ten percent of workers with only a high school diploma, were unemployed in June. Workers with a Bachelor’s degree, by contrast, had an unemployment rate of only 4.5 percent that month.
For African Americans over twenty years of age, the official unemployment rate in June stood at 17 percent. Most striking, only 58 percent of African-American men over twenty are employed, compared to 67.7 percent in 2000. For white Americans over twenty, the employment-population ratio fell from 64.9 percent in 2002 to 60.2 percent in 2009, a far smaller decline. There is almost no decline for Hispanics; the employment-population ratio stayed around 68 percent between 2000 and 2009.
The data suggest that black men with a high school education or less are dropping through the cracks in the economy. Adjusting for the decline in the employment-population ratio, the true unemployment rate for African-American men probably stands close to 30 percent. That is a frightening number.
Another striking data point is the collapse of employment for labor-force entrants aged sixteen to nineteen years. Jobseekers of this age have a low educational level and seek unskilled positions. In 2000, 45 percent of this population was in the labor force, but by 2009 the level had dropped almost to 28.4 percent. While unskilled workers of all ages are having difficulty finding work, young unskilled workers are finding it even harder.
Why is this significant? Unemployment for African Americans and those with less education has always been higher than for others, but most were eventually employed. The economic crisis has only magnified the differences. That would be bad enough. As matters stand, many of these workers may never find a steady job again.
As of June, 6.4 million Americans were on unemployment for more than 27 weeks, and the average duration of unemployment doubled from sixteen weeks in early 2008 to 32 weeks in June. These figures are, for the workers we are discussing, only going to get worse. Americans without educational qualifications are suffering levels of unemployment on the scale of the Great Depression, and for them that Depression may never end.
The sectors of the economy in which workers with less educational attainment were likely to find employment will continue to shrink. Foremost among these is home construction, where recovery may be decades away. By some estimates the US faces a 40 percent oversupply of large lot family homes by 2020, as the great retirement wave of the Baby Boomers leaves empty nesters with larger homes than they require.
Another sector is state and municipal employment. A significant proportion of job losses during the next several years will include unskilled workers employed by local governments.
Why should the discrepancy between white college-educated workers and others be so great? The world economy has changed, permanently. America once enjoyed a monopoly as a destination for capital and labor. The world’s savings poured into America during the 1990s and 2000s, contributing among other things to the homebuilding boom that employed many of the unskilled.
The fall of communism in 1989 and the incorporation of many countries from what we used to call the Third World into the global economy have eroded that monopoly. It has sharply reduced the number of jobs in manufacturing, which now employs only 15 percent of the workforce, and no longer offer unskilled labor an entry-point into the labor force. Again, the end of the housing boom and the decline in public employment in the wake of the financial crisis have also closed off other sources of employment.
There are three ways the situation could evolve, and two of them are bad. The first is that the American underclass might expand drastically, with attendant social and political problems. The second is that we will revert to methods last used during the Great Depression, when the Civilian Conservation Corps employed a tenth of America’s young men, encouraging the growth of government as an employer, even though governments are bad at providing jobs and the economy cannot sustain such programs.
The third way is the restoration of an economic regime that promotes entrepreneurship. The employment situation will not improve until small businesses begin to hire. In America’s creative-destruction economy, jobs lost by big companies usually are lost forever; they are replaced by jobs created by startups. Startups created two-thirds of all new jobs in the U.S. during the past three decades. This is the only real hope for the unskilled — but small business remains dead in the water.
We simply don’t know whether the next wave of entrepreneurship—if we are able to launch it—will absorb the millions of young, less-educated men who seem lost to economic activity. I fear that something like Roosevelt’s CCC may be required, despite my conservative’s aversion to government spending. There is, after all, a good deal of infrastructure to be repaired.
Great post — the reason college grads get hired is that SAT / college acceptance is a surrogate for IQ + some work ethic.
I’d suggest a National Service Corps, voluntary, where the gov’t instills more work ethic discipline in the unskilled, including paying them to learn to read/ write/ do basic math. With less payment for non-workers who refuse to volunteer.
And gov’t workers should be called “government workers” rather than “public”.
Another way to reduce unemployment is to change the working hours of gov’t workers to be half time, 20 hrs week half pay, with more unemployed folks offered half time jobs. Lots more half time jobs will be one way to reduce unemployment.
Great that you’re here at pajamas — conservatives need more good econ.
Another striking data point is the collapse of employment for labor-force entrants aged sixteen to nineteen years. Jobseekers of this age have a low educational level and seek unskilled positions.
Jacobs’ Law, “when the minimum wage goes up, so do the self-service signs,” rules with an iron hand.
“In fact, the glass is half full: the non-bubble parts of the US economy are functioning reasonably well. That suggests that the whole economy could function well, if the glass were not half-poisoned (if oppressive taxes and regulation did not hobble the great American startup machine).”
Yep. This hits the nail right on the head.
The bubble part of the economy (housing, financial services) began tanking the last part of 2007. The rest of the economy actually generated 2.5% growth in GDP during the first 8 months of 2008.
Entrepreneurs, and manual labourers still need literacy and numeracy. If the recent Atalanta public school revelations are a symptom of a wider problem, many young people with high school graduation or even a University degree may still be poorly educated by the standards of 50 years ago. That is why businesses do their own testing of job applicants. They no longer trust paper credentials. At the top end, American education is as good as anywhere, but I don’t think that it is competitive in the vast middle. Ordinary Americans have been screwed by the public education system. Ordinary Canadians have been screwed by our public system too, but apparently not as badly.
That degeneration of the work force quality, combined with the anti-capitalism, over regulation and total misunderstanding of wealth and its creation, by the present U.S. Federal Government is a big cross for the economy to bear. It is also very bad news for Canada and other countries for whom the U.S. is the major trading partner.
Employment is created by wealth creation. The faster the rate of wealth creation, the faster that jobs are created and the faster that unemployment will go down. When a government prevents the creation of wealth the unemployment rate will not go down. Economic recovery in the U.S. is a four beer discussion and a problem that will have to wait upon a 10 – 15 year solution.
Your comparison of modern pseudo-education with the formal learning of 50 years ago can be extended another 50 years into the past. My father received only a pre-WWI education through the 8th grade in the hills of Alabama. Yet he ran successful mid-sized local businesses (the largest commercial bakeries in Birmingham and Panama City, automobile dealerships in NW Florida) as well as other enterprises. His friends all had similar modest formal education and similar business responsibilities. Most of all, the schooling of that generation taught reasoning.
Ridgerunner,
One of the reasons I never particularly wanted a university job is that I didn’t feel like teaching junior high school. The four-year summer camps we call colleges are for the most part woefully inadequate. That’s the bad news. But the fact is that the vast majority of Americans with a B.A. degree or higher have found jobs–as I reported, both the labor force participation rate for this group (76%) and the reported unemployment rate (5%) are better than I would have expected. That ought to tell us that despite all our problems, there’s still flexibility and drive at work in the US economy.
I had a state university job for 25 years and can affirm that the kids are less responsible for the poor quality than are the administrators. I taught a sophomore pre-med course that historically had served to filter out the uncommitted students. After the second test I would always offer the opinion that anyone having lower than a B-average should reconsider their career plans or get to work. A new department chair told me to “knock it off” because “we” needed the majors. Some years after that, a new dean of sciences convened all the science faculty and explained to us that we should lower our expectations and the rigor of our presentations because students nowadays don’t have the time to study, given all their other commitments (jobs and social life).
Thanks for providing such detailed employment info, as well as for the words of encouragement.
Anti-employer rhetoric is so prevalent that the left is desensitized to it. They have no idea how painful it is for an employer to contemplate hiring anybody. If the Obama administration and Federal bureaucrats were to change their tune and stop bashing employers today nobody would believe them for a long time, likely for the remainder of the Presidential term.
A change in the White House would help, but it would only be a beginning. As long as Federal regulators continue to live in the 20th century with its demographic windfall and its enormous margin of productivity we won’t enjoy the wealth created by our entrepreneurs as we have in the past.
Good news…for President Paul Ryan.
The right mix of policies might indeed restart the job creation engine. Though I am sure that we would be hearing from Democrats about a “jobless recovery” when unemployment is down to 6%.
It looks like Obama is getting closer and closer to the “Killer Rabbit” point, when even his most die hard allies will desert him. When/if it becomes apparent that the Obama administration is going to be replaced by an anti-regulatory one, all of that cash on hand will start moving back into the economy and the people who went John Galt will move back in. This could have the ironic effect of making Obama’s final months have an economic uptick.
Just a quick qyestion. What would be your uneducated labour participation rate if all jobs done by illegal migrants were done by Americans? Not an easy fix though, as some of your unemployed believe they are entitled not to want some jobs… What did you expect from offshoring low-skilled jobs and importing low-skilled “undocumented” at the same time????
If we waved a magic wand and made all the illegal aliens disappear, and we found a magic formula to get Americans to take all of those jobs, a lot of small businesses in urban areas would disappear, and a lot of middle-class people would cut their own lawns–illegals bust the minimum wage all over the place. Getting Americans to work for $5 an hour at sewing machines in sweatshops or similar jobs is problematic. Expelling illegals is not a magic bullet for what ails us. But in general I’m for making it much harder for unskilled people to enter the US, and much easier for skilled people to come in. We need more Indian entrepreneurs and fewer Central American migrants who barely speak Spanish, let alone English.
Great AT post with lot’s of meat to ponder. Thank you for your challenging point of views.
What would it take for a regional guild of former construction workers to acquire adverse title of the falsely valued abandoned distressed properties in their area and invest a portion of their own sweat equity into slowly stabilizing and possibly even restoring the housing market? What would be a win/win/win/win for the stymied banks, the unemployed workers, the blighted neighborhoods involved and the tax-starved governments affected? I keep thinking there has to be a way to get everybody off the dime!
Plenty of people will see you distressed properties, but who’s going to buy them? Florida was easy: the Latin Americans snapped up distressed condos. But what about Minneapolis? Demographics are against the housing market with the boomers retiring and a low rate of family formation. We probably want construction workers repairing infrastructure. The problem is paying for that.
Yes, location is important. In California infrastructure can’t vote and seems to be kicked further down the road each session by short-sighted short-term legislators. We get what we deserve and our GOP big wigs seem stuck in the 60′s, so not a lot of hope there for change, to coin a phrase. I keep thinking the housing market sucks because it is not being treated as a true “market”, allowed to seek it’s real level. And as a corollary, if the underemployment issue could be “fixed” across the board, there’d be more customers for housing. So I shall dream on.
And yet, “behind” my house, on a ridge in a woods of several hundred acres, is a new development. The builder is a large corporation that has built different developments–houses, townhouses, apartments–throughout the area. The houses look to be 2500-3500 sq ft. in size, on 1 acre plots, and are advertised as started at $300,000, at a pre-building discount.
Even before the first footer was poured, expenses for clearing, roads, and utilities had to be several million dollars.