Manufacturing Jobs, Manufacturing Jobs, Manufacturing Jobs is finally emerging, 3 years after the great financial debacle, as the number 1, number 2, and number 3 economic and social problems facing not just the US but most developed countries in the World. And its not easy – just ask the Japanese who had to suffer the Lost Decade of 1992 to 2001 due to a similar housing and banking bubble. The latest jobs reports for the US indicates how daunting the task can be – 2 years of $3 trillion in additional government spending with effectively 0% interest rates during that period and the US has official unemployment at 9.6%, unofficially at 17% underemployment, and jobs still on the decline – down by 131,000 for July. Yet banks are hoarding funds with foreclosures continuing to rise plus small and medium size businesses unable to get operating let alone expansion loans. Even worse, taxes have declined in state and local governments so they are cutting off services and laying off more jobs.
This gives the US and the World the following economic choices:
Deflation – that is where prices and wages together decline because both businesses consumers stop spending and wages decline because increasing excess manufacturing capacity does not get used. The resulting decline in prices does not get consumption restarted because a)there is even less likelihood of wage earnings and money to spend and b)the prospects of even further declining prices keeps consumers on the sidelines waiting for even lower prices. The Great Depression is the classic example of deflation doing its worst.
Stagflation – is the rare perfect storm of higher inflation, lower employment and declining economic growth. This sounds like the current US Economy except for inflation which is mixed – high on certain commodity and goods prices but low on others. The 3 years of the Reagan administration were classic stagflationary times.
Stag-deflation – is the worst of both worlds – stagnant growth and employment coupled with falling prices and wages in large market segment. Nouriel Roubini who gained credibility by forecasting the housing-induced financial crisis advocates this as the current scenario.
Not a set of stirring economic opportunities. Takethe5th foresees the triple threat of stagflation dominating the economic scene for the US and most developed countries. US economic growth is anemic[2.5% q2 2010 and likely to be revised downward] and will probably get worse as state and local governments have to pullback, most banks continue to be very stingy loaners, and all kinds of jobs keep getting outsourced. Meanwhile inflation still lingers in key sectors as businesses are surprisingly able to raise prices and inflation hits various environmentally impacted resources – wheat and grain prices, oil and energy prices are drifting upwards. With China unpegging its yuan and experiencing labor strikes, manufactured goods that originate there[many electronics and household durables]will also see upward price pressures. Here is a sampler of current outsourcing and job loss trends:
Legal outsourcing – surprise, surprise, surprise July 2010
Microsoft – outsources its internal IT to India April 2010
HP – downshifting and cutting jobs June2010
US Cities, Counties – projected to cut 500,000 jobs July 2010
US Government – projections for jobs by industry July 2010
There are five factors that make current stagflation a wicked problem[wicked problems by definition do not have easy solutions but require concerted and well planned efforts to control them at best and not succumb to their dire consequences at worst]. Again these factors include huge long term trends whose influence is measured in years if not decades:
1)The developing world of Brazil, China, India, and other Southeast Asian countries have roughly 2.5 billion more laborers willing and able to work at a fraction of Western wages. A substantial portion of these workers are reasonably well educated so they can join the workforce with relative ease. See Legal outsourcing and Microsoft links above.
2)Automation continues to displace or downshift wages for workers. The HP and Legal stories above are classic examples. The jobs which automation does not eliminate are largely downshifted into lower pay categories.
3)The cost of getting educated to meet the ever higher requirements for well paying jobs are becoming prohibitively expensive. This reality is causing students to take on ever larger debt burdens as they emerge onto job markets where they increasingly cant find work.
4)US Wealth inequality continues to grow. The problem is worsened by the fact that inequality is getting worse and the middle class, the engine for widespread prosperity, is getting squeezed out. This situation contributes to factors 3) and 5).
5)Bautocracy, the supplementing of one man one vote by buying access and influence with political decisionmakers, is becoming more prevalent in the US. The result is greater partisan gridlock as politicians compete for campaign funding. In turn, a voting majority in the US Senate is now 60% as competition for electoral subsidies becomes more strident and traditional rules of Senate etiquette are gutted. Finally, the Supreme Court has increased the level of discord by granting corporations and unions unbridled freedom of speech=>unlimited lobbying /political contribution rights.
So it appears more manufacturing jobs, more manufacturing jobs, more manufacturing jobs will be the espoused aim and plans of all politicians and businesses. But the reality will be a continuation of the past decade of stagflation, growing unemployment and ever wider wealth inequality amidst ever increasing political rancor. Not a good prospect.
Jared Diamond has written an instructive book, Collapse. The book describes how civilizations both very large and small have reacted and coped with environmental, social, political, and belligerent neighbor stresses. Some communities survived and even thrived; but a surprising number faded and either downsized drastically or completely collapsed and disappeared. Bad political leadership and decision-making is almost inevitably a key ingredient in the collapse trajectory. This is not encouraging as the political elites are now not manufacturing jobs but rather are busy manufacturing “selling points” for the miderm elections which in any other sport would get them tossed out of the game for gross misconduct. Yes, in classic Collapse fashion, not just the US but the leadership in many coutries are doing anything but leading.