Friday, December 4, 2009

Plenty of Work Still to Do

The United States economy lost only 11, 000 jobs in November and the unemployment rate dropped to 10.0% from 10.2%. Good news!

There is still plenty of work left to do, however.

President Obama held a summit on jobs yesterday, bringing together many leaders from business, economists, labor leaders, and others to discuss the state of the jobs market and what can be done about it. To the President, this was just an “idea seeking” exercise.

Thomas Freidman, editorial writer for the New York Times, was in attendance at this jobs forum. I just happened to catch his appearance on Chris Matthews’ “Hardball” program yesterday afternoon.

Matthews asked Friedman what impression he took away from the summit. Friedman replied that the impression he walked away from the summit with was one of the uncertainty that existed among the participants. People didn’t know what health care reform was going to be and going to cost; people didn’t know what would be the full cost of the added troops going to Afghanistan; people didn’t know what carbon emissions were gong to cost; people didn’t know what more economic stimulus was going to cost; people didn’t know how the financial system was going to be regulated; and he mentioned two or three other unknowns.

Friedman argued that so much was being done and none of it was fully defined and none of it was fully costed. As a consequence, people didn’t really know what to do. They didn’t know what direction to move in.

We read that the President, himself, presented another problem: he said that “our resources are limited.” We only have so much money.

Unfortunately, I take this statement with the same seriousness that I do the statements of Treasury Secretary Geithner and Fed Chairman Bernanke when they say that they are for a strong dollar.

Washington D. C. seems to have adopted the wisdom of the world famous philosopher Winnie-the-Pooh who, when asked, “What will you have, Honey or Milk?” replied “Both!” This attitude is just another sign of the hubris of the leadership of the United States. They believe that they can go after anything they want and there will be no consequences.

We are near the end of a 50-year period in which the government of this country, Republican as well as Democrat, has constantly advocated a bias toward inflation. This bias has distorted the economy in such a way that we have plenty of excess capacity in our businesses and a labor force that is trained for jobs that existed years ago but are not trained for where things need to go. (There were several newspaper articles this week about plant closings and employees that had no where to go because they only had “one skill.”)

The inflationary bias has encouraged individuals, families, businesses, and governments to “leverage up” and this drive to achieve additional leverage has underwritten the growth of the financial industry to its present size.

The structural changes in the economy that have resulted from this bias are substantial. A lot of the uncertainty that exists, both in the private sector as well as the government, is a consequence of these changes that have taken place in America.

Even now, another structural shift in the society is being recognized. Elizabeth Warren, Professor of Law at Harvard and Chair of the Congressional Oversight Panel, overseeing bank bailouts, has highlighted another change needing consideration. See her “America Without a Middle Class,” .

“Families have survived the ups and downs of economic booms and busts for a long time, but the fall-behind during the busts has gotten worse while the surge-ahead during the booms has stalled out. In the boom of the 1960s, for example, median family income jumped by 33% (adjusted for inflation). But the boom of the 2000s resulted in an almost-imperceptible 1.6% increase for the typical family.

Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can't make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.”

Our leaders are uncertain because they are facing something they have not faced before. And, the problems that are being faced are numerous. But, the old thinking and the old policies just don’t work like they used to, if they ever did work the way they were supposed to. As a consequence, they are running around looking for an answer, but everything they do is incomplete and unfinished.

On one side, people are saying that we are trying to do too much. On the other side, people are saying that we are not doing enough. It is not surprising that a “jobs summit” like the one held yesterday can result in someone like Thomas Friedman saying that people really didn’t know where the train is heading.

The economy seems to be improving but everyone is still very cautious. There are just too many dark clouds that are hanging over the horizon. Readers of this column know that I am still very anxious about the health of the banking industry. Also, profits, in general, have risen, but the improvement has been because of cost cutting. Little strength has been registered in revenues, for the reasons given above by Elizabeth Warren. And, the value of the United States dollar continues to slide. The rest of the world is telling us that our “Winnie-the-Pooh” philosophy of government debt creation cannot go on forever.

Yes, there is still plenty of work to do in the economy. However, right now, our leaders don’t seem to have a very good focus on what it is that needs to be done.

No comments: