One of the scariest things about the American Great Recession is the shift toward long-term unemployment. As bullish as some people thought last week’s U.S. employment numbers (they included nearly 50,000 census takers in the jobs gain..who could presumably be kept busy by going out and more accurately counting the actual unemployed), did you notice that nearly 45% of America’s 15 million unemployed have been out of a job for over six months?
It’s called “long-term unemployment.” And it sounds like a structural shift in the nature of the American economy. An economy based on consumption sheds manufacturing jobs and produces services jobs. We have a pile of data we compiled two years ago from the Bureau of Labor Statistics that shows this. It also shows that the average hourly wage in service industry jobs (retail primarily) is about half the hourly wage in manufacturing jobs.
But hey, in a world where labour is getting cheaper (that’s what happens when you add 1.5 billion former communists and 1 billion people from the sub continent to the global labour pool) the margins on making stuff are going to shrink. You can make it cheaper elsewhere. So you de-industrialise and loose nearly 8,000 million jobs as China gobbles up market share and productive capacity.
And incidentally, maybe Wall Street decided that if the margins on making “stuff” were shrinking to the vanishing point for firms with U.S.-based labour and legacy costs, then the best business of all would be the business that made nothing…and sold it! There you have the key idea of securitization.
But this seismic change in the kind of jobs the economy is producing is also what happens when the Wall Street Washington Axis makes a conscious choice – as it did during Robert Rubin’s time as Treasury Secretary (not as Goldman Sachs man) – to favour the capital account over the current account. That is, to favour finance over industry. As long as foreign investors wanted U.S. bonds and stocks, America could live beyond its means and consume away and finance large government deficits because there was no upward pressure on interest rates.
Sure, the average wage was going down. But Wall Street made a killing. And the everyday low price of the things Americans were buying went down too. It’s a bit like here in Australia at the moment. You could argue that most Australians are actually better off (in the short-term) because of the GFC. True, interest rates have started moving up. But think about it…
When the oil price collapsed from nearly $150 to the low $30s it delivered a kind of tax cut to motorists. The government chipped in with various schemes to pump money into the economy and job market. The first home buyer’s grant…the squandering of the stimulus (which was a huge bonus for alcohol and gambling establishments)…the school building program…and the infamous insulation (pink bats) program.
The net result of the GFC seems to have left Australians better off in the short-term, although the long-term effects (especially on super) are less clear. No wonder everyone is so content. It’s good to be Lucky.
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