Sunday, September 9, 2012

Slow and Unsteady

This past week, the jobs report from August was released, which showed that less than 100,000 jobs were created. Furthermore, the unemployment rate dropped to 8.1%, down from 8.3%, as more people dropped out of the workforce and stopped looking for jobs. Overall, it was gloomy report, marred even further by the fact that projections for June and July job growth were overblown, and had to be scaled back.

Pundits took to the airwaves, claiming this or that factor, that it was all because of Obama, or all because of Republicans in Congress, or all because of Europe, the private sector, the job market, manufacturing woes, etc. In truth, it was all of these things, in part, that is causing a major economic slowdown and this unsteady, unpredictable recovery we have been facing as a whole.

Of course, our elected officials are to blame. But is it just one group? Absolutely not. Obama, for his part, has struggled to come to an agreement with House Republicans over how to address the jobs issue. Furthermore, he has not been very direct with the Fed over solutions to the economic crisis we are still staring at down the road. The Fed, in turn, as been very lax in its response, taking a careful and conservative approach to recovery that has little impact. Congress, meanwhile, has not been able to get out of its own way for two years now, as Republicans throw up roadblocks on basic bills and legislation, while trying to score political points with ridiculous, doomed-to-fail votes. Democrats have also been feeding into the gridlock, though at least they have not brought the same bill to the floor thirty-something times to have it rejected so they look like they're trying to do something.

Economists themselves deserve some of the blame as well. Economists, thanks to the hyper-focus on our our economy, have been given a prominent role in explaining our situation, what caused it, and what will fix it. But, like politicians, economists have begun with a premise for success and cherry-picked information that supports it. This goes both ways, but we see it most with those who advocate austerity and trickle-down economic policies. There is ample evidence that these policies don't work the way they are supposed to, but that doesn't stop some economists (those paid by organizations like The Heritage Foundation) from expounding on the merits of these theories. The debate shifts between three issues: jobs, the economy, and the debt and taxes. The funny thing is, these are not distinct problems, even though politicians and economists treat them as though they were. When the experts on economic policy cannot be upfront about what works and what doesn't, it stalls out any hope of progress.

Then we have the Eurozone. It's ironic that we here in America have stopped hearing daily stories on this issue, because it has never gotten better, and has actually become much worse in the last few months as the summertime economy has cooled off. The problem with the Eurozone crisis is very complex, but in relation to the American economy, it is the equivalent of a ball and chain around the ankle of the American recovery as it tries to stay afloat. The reason is that America has become a global economy, has contributed and invested in the global market, and any impact anywhere in the world has a major impact on us. Why is disruption in the Middle Eastern nations such a big deal? Because we get oil from them, and any halt in the production or export from that region will have catastrophic effects on the global market. Similarly, the economies of Europe are all trying to hold it together (with a single currency no less - much harder to do) as some countries grow and others shrink, some are swallowed by debt and others are prospering. The issue with the Eurozone is that those at the top (Germany) don't want to help those at the bottom (Greece, Spain) because those countries borrowed beyond their ability to pay back. They want to teach them a lesson, even if that lesson comes at the expense of the global economy. So, while Europe tries to sort out loans, fiscal cliffs, and debt defaults, we here in America are struggling against slow trade, jumpy investment markets, and fear from Wall Street about the global economy we helped forge.

Those are the big issues, but there are a number of smaller ones. Take, for example, the housing market. Most recoveries in the past have occurred thanks to the housing market, which tends to bounce back big time in a recovery because of low interest rates that are usually part of the recovery package. In this case, the recession was caused in large part because of easy credit and a housing bubble. What this means is that housing is still on the mend, people are wary, and the market is making very small gains. Another issue that is having an impact is the problem of middle class shrinkage. More people are falling out of the middle class than any time in recent years, and the middle class is still suffering from high unemployment. What this means is that our economic engine of consumer purchasing is at a near-standstill. Average household income is falling, there are threats to cut programs that aid the middle class, and the constant reminder of debt are all keeping people from spending their money, which is reducing demand. Then you have the private sector of America, the big corporations that are sitting comfortably on mountains of cash, not hiring or investing, and shelling money into election campaigns while trying to shirk tax obligations. With talk of further deregulation, tax cuts, and more freedom for the private sector and investment sector that led to the collapse in the first place, it's clear that our leaders have not learned from the mistakes of the last eight to ten years. We need some common-sense restrictions on special interests and private sector influence over our economic policy.

Finally, there's the changes in our economic demographics to consider. Manufacturing lost thousands of jobs in August. Thanks to Free Trade agreements, America has been turned into a consumer nation, meaning we no longer produce our own goods but rather import them from other countries. In an economy like this, when consumerism is an essential piece to economic recovery, we're at a disadvantage. As we move away from manufacturing, we're either going to spend the money to create new industries, or we're simply going to fall apart as a producer. This process, which started back in the 1990's with NAFTA, is a much greater liability when we face an economic slow-down. It gives us fewer options and less flexibility to respond to market variables. After all, if Americans are consuming as much, we're not trading, which means the global economy starts to shrink, causing more headaches, and the process begins all over again.

While the recent economics report leaves a lot to be desired, it has had the advantage of once again focusing people's attention on something other than the debt. It's brought people into the discussion about jobs and economic forces, and this has meant renewed focus on the real core issues of the problem. I would like to see more collaboration between the Left and Right, more discussion between economists, more common-sense and flexibility in Europe, a stronger stance for American products, and more help for the American middle class. If we can do that, we can lay the groundwork for recovery, and shift the discussion from principle to definitive policy.

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