Wednesday, July 29, 2009

It's the Unemployment, Stupid!

July 29, 2009, 6:00 a.m.

Perry County: If the Question is Economic Recovery
The Answer is Jobs

(brought to you by FromDC2Iowa.blogspot.com*)

James Carville, the political consultant who once famously tried to keep presidential candidate Bill Clinton "on message" with the wall sign, "It's the economy, stupid!" is today giving Afghanistan presidential candidate Ashraf Ghani similar "stay on message" advice. If Carville were content to stay in his own country, and on message, I suspect his wall sign for President Obama might well be, "It's the unemployment, stupid!"

Our unemployment numbers continue to climb to roughly 10%, with some pockets more than double that, and most economists projecting at least a year before meaningful improvement, noting that the jobs picture is the last to improve when coming out of a recession.

Despite these realities, the response of Congress and the White House has been bailouts for the corporate CEOs credited with the largest campaign contributions rather than America's working men and women.

Nine months ago I urged a jobs program as the most efficient and effective "stimulus package." Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008.

Earlier this week the Times reported that at least one of America's 3100 counties is now successfully taking that approach. Michael Cooper, "To Create Jobs, Tennessee Looks to New Deal Model," New York Times, July 27, 2009 (the site offers a multimedia slide show including the voices of some of the new job holders).

Excerpts from my earlier recommendations, and the Times' report on the Perry County, Tennessee, project, follow.

My own view -- buttressed by [reports regarding] (1) the automobile industry (especially General Motors), (2) retail sales, and (3) unemployment -- is that the best interests of the business community, as well as the American people, will be served by providing public jobs programs, and economic support to the unemployed, rather than continuing to pour billions of dollars into failed and failing businesses. . . .

[A] major part of GM's problem is that laid-off GM workers, and the 10 million other unemployed Americans, don't have the money to buy anybody's cars right now . . ..

[T]here's little likelihood much of the billions given to GM (whether "loans" unlikely to be repaid, "bailouts," or money said to be for "re-tooling" or research on more energy efficient vehicles) is going to find its way to UAW workers, suppliers and dealers -- unless GM would be stupid enough to increase its production, and inventories, of cars that neither its dealers nor its customers can afford. . . .

If the automobile industry is the lynch pin to economic recovery the new president thinks it is, the solution is to get more money into the hands of consumers -- especially the unemployed (and soon to be unemployed). Enabling auto executives to have tens of billions of additional dollars to spend at their discretion in postponing bankruptcy doesn't strike me as a solution to anything . . ..

Another problem with Washington's willy-nilly giveaways, aside from the fact that they are unfair, don't work and will ultimately bankrupt our nation, is that they are irrational. . . .

I have no more enthusiasm for bailing out, or subsidizing, the retail sector than I have for the automobile sector. If Target's sales are down (as they are), I'm not confident that giving its executives billions of dollars will increase its "discretionary spending" sales to customers who barely have money for food.

But if Obama is looking for economic sectors to which to transfer taxpayers' money, wouldn't the one that represents "two-thirds of the nation's economic activity" make more sense in a recession/depression than bailing out the one that makes $30,000 new vehicles? . . .

Why We Need a Jobs Program

Look at the numbers. There are now over 10 million unemployed. Unemployment stands at 6.5 percent, and is projected to go to 8 percent next year -- 22 percent of whom have been out of work for more than six months, something we haven't seen for a quarter-century. The rates are increasing. Of the 1.2 million jobs lost this year 284,000 were in September and 240,000 in October.

In the 1950s over 50 percent of the unemployed received benefits; today, because of various restrictions, only 32 percent qualify -- more unemployment, more holes in the safety net. . . .

[T]he answers seem, to me, rather obvious.

You can't improve business (profits, returns to shareholders, executive compensation) without improving retail sales; you can't improve retail sales without putting money in the hands, and confidence in the heads, of potential consumers; and unemployed consumers don't have money unless they are provided either unemployment compensation or wages from a public sector job (in an economy with a shrinking private sector).

Given our rotting, unattended, infrastructure (roads, bridges, pipelines, schools) resulting from the last 30 years of "tax cuts" it seems to me, given the same amount of money, that using it to create "jobs" makes more sense than providing it for "unemployment compensation."

But either makes more sense than trying to turn an economy around with "trickle down" -- whether tax cuts for the rich, or bailouts for the rich.
Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008.
[* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson]
Now read what's happening in Tennessee:

Critics elsewhere may be questioning how many jobs the stimulus program has created, but here in central Tennessee, hundreds of workers are again drawing paychecks after many months out of work, thanks to a novel use of federal stimulus money by state officials.

Here in one of Tennessee’s hardest-hit areas, some workers were cutting down pine trees with chainsaws and clearing undergrowth on a recent morning, just past the auto parts factory that laid them off last year when it moved to Mexico. Others were taking applications for unemployment benefits at the very center where they themselves had applied not long ago. A few were making turnovers at the Armstrong Pie Company (“The South’s Finest Since 1946”).

The state decided to spend some of its money to try to reduce unemployment by up to 40 percent here in Perry County, a rural county of 7,600 people, 90 miles southwest of Nashville where the unemployment rate had risen to above 25 percent after its biggest plant, the auto parts factory, closed.

Rather than waiting for big projects to be planned and awarded to construction companies, or for tax cuts to trickle through the economy, state officials hit upon a New Deal model of trying to put people directly to work as quickly as possible.

They are using welfare money from the stimulus package to subsidize 300 new jobs across Perry County, with employers ranging from the state Transportation Department to the milkshake place near the high school.

As a result, the June unemployment rate, which does not yet include all the new jobs, dropped to 22.1 percent.

“If I could have done a W.P.A. out there, I would have done a W.P.A. out there,” said Gov. Phil Bredesen of Tennessee, a Democrat, referring to the Works Progress Administration, which employed millions during the Great Depression. . . .

The impact has been enormous, all across the county. Even the look of the place is changing, following the old W.P.A. model. In addition to the jobs for adults, there are 150 summer jobs for young people, some of whom have been working with resident artists to paint murals depicting local history on the buildings along Main Street in Linden, the county seat.

Over all, two-thirds of the new jobs are in private sector businesses, which are reimbursed by the state for the salaries of eligible stimulus workers. Some, in retail, might be hard to sustain when the stimulus money runs out in September 2010. Other businesses say the free labor will help them expand, hopefully enough to keep a bigger work force.

The Commodore Hotel Linden, a newly restored 1939 hotel that has brought new life to downtown, has seen an increase in its bookings since it has expanded its staff thanks to the stimulus. And the Armstrong Pie Company expects to be able to keep on the new bakery assistants and drivers it hired with stimulus money, saying the new workers have helped the company triple its pie production and expand its reach through central Tennessee. . . .
Michael Cooper, "To Create Jobs, Tennessee Looks to New Deal Model," New York Times, July 27, 2009 (the site offers a multimedia slide show including the voices of some of the new job holders).

My only disagreement with the Times' story is its characterization of the Perry County approach as "novel." As it alludes later in the piece, we did this in the 1930s and called it the "Works Progress Administration" and "Civilian Conservation Corps" -- the creations of which we are still enjoying to this day (in, for example, our state parks).

Why are we not doing it today -- outside of Perry County? Your guess is as good as mine. But my suspicion is that it has more to do with the big money corruption of our political system than with some new, Nobel-prize-winning insight into the mysteries of economic theory.
____________

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson

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2 comments:

Pete Murphy said...

Mr. Johnson, think unemployment is bad in Iowa? Try living in Southeast Michigan! For Michigan as a whole, unemployment is above 15%, and that's U-3 unemployment, not the more inclusive U-6. In the southeast portion of the state, where the auto industry is concentrated, unemployment has reached depression era levels. Rush hour has literally vanished from our roads here.

In 2007 I published a book that advanced a new economic theory that links rising unemployment to declining per capita consumption caused by population density that rises beyond some optimum level. This effect can be both "home-grown" (due to rising population density here in the U.S.) but a greater effect is the consequence of free trade with nations that are badly overpopulated. Gross disparities in population density actually drive global trade imbalances. Trade deficits and job losses are inevitable, making free trade in such situations tantamount to economic suicide.

One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world's population.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)

Please forgive me for the somewhat spammish nature of the previous paragraph, but I don't know how else to inject this new theory into the discussion of unemployment without drawing attention to the book that explains the theory.

Pete Murphy
Author, "Five Short Blasts"

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