Posted Tuesday, July 13 2010
More and more it seems like the our economic anxiety is fully captured by just two measures — the employment numbers and the unemployment rate. While corporations are generally well positioned cash-wise, that cash hasn't been used to significantly expand payrolls thus far. So while we sit and watch economic indicators like consumer spending, home prices and GDP roll in, there's a sense that what we really need to quell the underlying anxiety is employment growth well beyond what we've seen in this recovery to date.
Towards that end, there has been a ton of debate about whether the government can or should do anything to address the jobs issue directly. But any debate about government stimulus for jobs very quickly runs into the other economic anxiety of the day: deficits. It's tough to know what to do. On the one hand you have economists like Paul Krugman insisting that the the US can manage a lot more deficit spending than we're currently engaged in, and on the other you have the Europeans leading an austerity charge in the hopes that there is no repeat of the Greece debacle in places like Spain, Portugal or Ireland. Many think the US should take the austerity route as well.
Former Intel CEO Andy Grove suggests that a large part of the employment problem is that we've accepted the idea that innovation and knowledge work are primary and that we lose little or nothing by outsourcing manufacturing and production. He points out that in the innovation engine of Silicon Valley unemployment is higher than the nation as a whole and that employment is still well below its tech bubble peak. He even goes as far as inviting a trade war if neccessary to make it more costly for domestic companies to move parts of their operations abroad.
To make matters worse, it seems like a central component of every country's economic recovery plan (including the United States) is to grow exports and presumably shrink (on a relative basis) imports. We can't all export our way to employment growth without some frightening exchange rate magic.
Economic decisions are always a matter of trade-offs. Thankfully, moderates like David Brooks help illuminate some of the choices we can be reasonably certain are wise such as extending unemployment benefits; it's probably not a good place to go looking for meaningful deficit reduction and would likely undermine the recovery already in place. And I think Barry Ritholtz (via AR) gets it exactly right when he points out that you can stimulate short term and cut debt long term if you choose the right targets. Addressing the long term issues with Social Security and Medicare while providing short term resources to stimulate job growth almost seems like an area where you could get Republicans and Democrats to work together if you had any faith that the folks in Congress could cooperate with one another. And while I think Andy Grove makes a very important point about the value of research, development and production ecosystems to a robust local and national economy, I don't think we gain anything by instigating a trade war or by instituting currency policies that make exports more affordable abroad.
In the end, addressing the short term challenge of unemployment is difficult, but I expect we'll muddle through this period and then find some narrative to explain how we carefully crafted our emergence after the fact. In the long term, the robust, stable economic system we seek will only emerge if we can produce a broad middle class engaged in productive work (key word productive) within an economic system that values innovation while at the same time considering the long term effects of outsourcing components of the economic food chain — our economy's capital and infrastructure — on future innovation potential.
Did I mention that I added a new employment data section to the site? That's all I intended to point out in this post initially.