The Myth of a Jobless Recovery 23 comments
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Like all good parrots, the talking-heads in the North American media can be counted upon to regurgitate buzz-words over and over again – even when they don't have the faintest idea what those words mean. The latest example of mindless droning from these pseudo-reporters is that the U.S. economy is headed for a “job-less recovery”.
As with all oxymorons, no intelligent person would/should be foolish enough to add these buzz-words to his/her lexicon. By definition, an “economic recovery” means a net increase in economic activity, which also dictates positive wealth-generation. When an economy is producing wealth, this must also result in job-creation.
We can invent scenarios where such job-creation is delayed. For example, an economy with a large, but mostly automated manufacturing sector could see a surge in demand (and production) as economic conditions improve. Over the short-term, it is certainly possible that such an economy could sell most of its production abroad. Thus, an economy generating a significant increase in net wealth could temporarily produce little new employment in the domestic economy.
However, this must only be a temporary situation. Though the “trickle-down” theory of right-wing capitalists has been thoroughly discredited as a model for economic growth, there is a kernel of truth buried within this propaganda. When an economy produces significant amounts of wealth, even if that wealth-creation is focused primarily in the hands of the wealthiest members of society, these people spend some of that money – creating wealth and employment opportunities for the “little people” further down the economic ladder.
The “trickle-down” theory fails as an economic model for the same reason the phrase “job-less recovery” fails the test of rationality. When only the wealthiest people in a society have disposable income (people with enough wealth that they don't need employment income to keep spending), it is mathematically impossible to have a robust economy.
The reason for this revolves around an economic concept known as the “marginal propensity to consume”. While this sounds complicated, like most jargon, it is actually quite a simple and obvious notion when explained in ordinary English. Basically, the lower a person's level of wealth/income the more they spend out of each new dollar they receive.
Thus poor people have a marginal propensity to consume of “1” (or 100%), because due to their minimal wealth, they are forced to spend their money as fast as they receive it – just to survive.
Conversely, at most, a billionaire might have a marginal propensity to consume of 0.1 (or 10%) - and likely far less – since these people have so much wealth (and consumer goods) already, that there is little need or motivation to spend any more each time their wealth increases by another dollar.
Plutarch, a Greek philosopher, uttered this famous quotation over 2,000 years ago: “An imbalance between rich and poor is the oldest and most fatal ailment of all Republics”. The reason this is true is based upon our marginal propensities to consume. When wealth is evenly dispersed in a society, this means that a high percentage of that wealth is in the hands of people with a high marginal propensity to consume.
These people spend a high percentage of each dollar they take in. And then the person receiving that dollar spends a high percentage of that dollar, and so on and so on...
Conversely, in a society where wealth is highly concentrated in a tiny percentage of the population (like the United States, today), only a small fraction of each new dollar of wealth which is produced gets spent. This small “multiplier effect” dictates weak economic activity – since instead of being spent and re-spent, money collects in large pools of “idle wealth”, which produces no economic benefit for a society.
Nowhere are these economic principles more true than in a consumer economy like the United States. With the exodus of manufacturing, the U.S. economy now produces little wealth. Therefore, for well over a decade this economy has become totally dependent on ultra-high levels of consumption to sustain the economy. In fact, for over two years, the U.S. as a whole had a negative savings rate – meaning a marginal propensity to consume of greater than 100%.
As we have seen (and as any child could predict), this was totally unsustainable. However, what makes this brief period of insanity truly frightening is that with an extremely heavy concentration of wealth, during the time when the economy had a negative savings-rate, the wealthy were still socking-away billions of dollars per year – meaning those at the bottom were spending much more than 100% of their incomes.
This brings us back (finally) to the mythical “job-less recovery”. Apart from the phony, “economic growth” of the U.S. tech-bubble, followed by the even more-fraudulent housing bubble (where illusory “wealth” produced temporary jobs), all that Americans have experienced for roughly twenty years are “job-less recoveries”.
However, as I have illustrated with fundamental principles of economics (which are based upon both mathematical and logical certainty), you cannot have a healthy economy (i.e. a real “recovery”) without the masses having significant spending power – since at no time in human history has the spending of the wealthy been enough to produce a healthy economy (this was “old news” 2,000 years ago).
Therefore, if the masses don't have jobs, then the only way they can spend money is to borrow money. Here, at last, we expose the truth of the “job-less recovery”: in previous years, Americans were able to create the (temporary) illusion of economic health through excessive borrowing – and then spending those borrowed dollars virtually as fast as they borrowed.
Essentially, simply saying “job-less recovery” became a sort of self-fulfilling prophecy, where like “Pavlov's Dogs”, Americans would automatically begin spending again (with borrowed dollars) as soon as they were told the economy had “recovered”.
There have been no “job-less recoveries” in the past – not in the United States, or anywhere else in the world. All that happened in previous “job-less recoveries” is that Americans mortgaged their futures (and the futures of their children) through dramatically increasing their debt levels, and then recklessly spending those borrowed dollars on mostly pointless consumption.
As stated before, this is completely unsustainable – and now, today, that binge is over. Americans have maxed-out their credit. The days of borrowing-and-spending are over. As a result, the only thing which can pull the U.S. economy out of what appears to be a terminal, downward spiral is real economic growth – and the jobs which always accompany such growth.
When the talking-heads (and the propagandists who put those words in their mouths) say the words “job-less recovery”, what they are really saying is “no recovery at all”. While in past years, the magic of credit-cards could conceal that false propaganda, that “magic” is a thing of the past.
Today, the absurdity of the “job-less recovery” is about to be exposed in the U.S. once-and-for-all – with sufficient clarity that even the mindless, media talking-heads will be able to see the inherent falsehood in this myth.
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So one needs to look outside the US for signs of recovery.
too much money in the hands of too few...
you're right...they don't spend it...
Jeff, I hope you are correct, for my kids' sake. We can't borrow our way to prosperity. I fear, however, that the Fed and the feds will pressure banks to lend even as the consumer is attempting to delever. This can only have more horrible consequences for the overextended American.
I don't think the trickle down theory was never meant to work, it was meant to delay!
As far as jobless a recovery, talking heads and parrots goes, my parrot is more convincing (when squawking for food), than the talking heads that push their own self-interest stories and we have more chance of trickle down economics working, than we have of a jobless recovery!
Roger,
It seems the Greek claim may be stronger.
www.livius.org/pi-pm/p...
While health care costs are skyrocketing, the true net effect on number of employees is minimal. We cut benefits or shove more cost on our employees.
But, what IS killing us is foreign "competition," new & never-ending regulation and taxation, and overall insurance costs relative to business.
The current Health care "reform" (which isn't, it is just a huge government grab for power and wealth), will cost many more jobs than it will create.
And once foreigners totally lose appetite for our government printing presses, will call the time when it is over.
Health care cannot be self-supporting. Our jobs, your future wealth, were sent off shore.
Health care and green jobs will never replace what the government destroys. Never.
On Sep 08 02:00 AM punk_ash wrote:
> Jobs will come back quickly if only the health care costs could become
> sane.
I will admit that this weekend it looked like Americans were spending a little money, at least in Michigan. My fear is that they are charging up their credit cards, or cashing out their 401(k)s. Or spending their first time home buyers cash. Only time will tell.
What we're seeing in this alledged brief economic spurt is a like an engine being started with starting fluid...
The engine will run great for a few seconds, but die because there is no gas to keep it running…
The starting fluid being the last stimulus input… and the gas being manufacturing jobs…
I’m guessing we’ll soon see some more “starting fluid”…
Jeff, all money has to go somewhere. Rich people can spend it or they can save it. Both places have use. If Bill Gates puts 1 Billion bucks in the bank, it gets lent out for what should seem profitable... worthwhile economic activity.
You don't create weath by dividing it.
On Sep 08 03:04 AM Roger Knights wrote:
> "Plutarch, a Greek philosopher,"
>
> Oops! (Roman)
Now, with stock markets and megabanks primed with some of that lucre, commodities set to rise, the bubble economy patched enough not to immediately, completely implode, the dollar about to plunge, what savings are left must go towards risk. Covered by the last of our balance sheet, they are probably planning on one more debt-fueled binge without jobs, without sanity, because they don't have absolute control just yet.
I would argue that there are many countries in the world, with healthier economies than ours, where the masses don't have significant spending power. Instead, they have relied on our spending power. This is part of the bigger picture of global imbalances and why there won't be growth in employment, or in the "real" economy, without devaluation of the dollar.
It's hard to argue these other economies have been "helped" by the U.S. - with these nations holding TRILLIONS in U.S. IOU's which will never be repaid.
The fact that the U.S. was buying all these goods with BORROWED dollars has DELAYED the growth of the domestic economies of these nations (along with the uncollectible IOU's).
This is why these countries are showing that they no longer want to be "helped" by the U.S. - as demonstrated by the rapid decrease in the amount of U.S. borrowing which they are willing to fund.
On Sep 08 09:51 AM Mark123 wrote:
> Sorry Roger---Try again.....Mestrius Plutarchus (ca. 46- 127) was
> a Greek historian, biographer, and essayist. He lived in Rome.
> Another one of his quotes is, "To find a fault is easy; to do better
> may be difficult."