One of the signposts at the beginning of 2012 is that the U.S. economy seems to be recovering. The troubles in the Euro-zone are still creating great uncertainty and people are still cautious. But manufacturing outputs are continuing to increase. I see “help wanted” signs starting to appear in business doors. (Feel free to disagree with this conclusion.)
One sign of trouble is that the unemployment rate is still very high. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job.
Those of you following the macro-economic responses to 2008s Great Recession know that Ben Bernanke was a student of the 1930s Great Depression. One of the lessons he took away was that the Federal Reserve’s tightening of the money supply as a response to the economic conditions helped cause the Great Depression. Bernanke took the opposite response at the beginning of the Great Recession and opened the monetary spigots wide open as a response to the woes of the financial sector in 2008.
Bernanke saved the banking system, but the economy is still stubbornly not creating new jobs.
The failure to create jobs is unlike any other post-WWII recession. Look at the percentage of job losses in this chart. It’s not just a dramatic loss in jobs. There seems to be structural loss in jobs that the economy is not creating. You can see it in the numbers of the long-term unemployed.
It looks like something has changed in our economy.
Joseph E. Stiglitz, a man much smarter than me, has made some comparisons between the Greet Recession and the Great Depression in the December issue of Vanity Fair: The Book of Jobs. His theory is that the dramatic upheavals in the economy are a result of dramatic changes in the workforce.
Just before the Great Depression more than 1/5th of all Americans worked on farms. By comparison,today only 2% of Americans produce our food, plus a surplus to ship to other countries and to burn as fuel in our cars. Accelerating productivity before the Great Depression created a surplus of farm products, which lead to lower prices, which lead to a decline in farm incomes. Farmers had borrowed heavily to sustain production and were faced with the inability to pay back the banks. This swept the financial sector into the “vortex of declining farm income.” The 1930s America was moving from an agricultural economy to a manufacturing economy.
The parallel to 2008 is that the US economy has realized a tremendous increase in productivity in manufacturing. Contrary to popular opinion, American still has a robust manufacturing base. American manufacturing output has doubled since 1975.
We just don’t make as much of the same stuff as we did in 1975. Labor intensive products are made cheaper overseas. You won’t see the Made in the USA label very often on clothing, toys, and consumer electronics. It takes one third fewer people to manufacture twice as much stuff in America. Bruce Greenwald and Judd Kahn theorize that although the loss of jobs to overseas providers is significant, it’s the increase in productivity that caused most off the job losses in the manufacturing sector.
Andrew McAfee and Erik Brynjolfsson point out that the human workforce has to compete against the automated workforce of computers and machines. If a computer can do your job, then your job may be in danger. This is becoming increasing true in white collar jobs and not just manufacturing.
Stiglitz theory is that the cheap debt and rising home prices of the last decade allowed us to disguise the loss in jobs an income that came from the loss in manufacturing jobs. As a county, we were using our homes as piggy banks creating artificial demand. In 2008, the curtain was pulled back to reveal the true weaknesses in parts of the economy.
Perhaps it’s time to compare the abandoned farms of the 1930s to the abandoned homes of today’s Detroit.
What does this mean for compliance?
I’m not sure. Certainly, it will mean more changes. I expect we will continue to see changes in regulations and business practices as the government and industry grapple with the changes in the economy. We can already see in today’s Iowa caucus that the Republican presidential candidates most discussed topic is jobs. Politicians will continue to pin the blame on fat-cat bankers for quite a while. They make an easy target.