Those dreaded words you never want to hear as an investor. But check out the Fortune Magazine graphic of the this recession relative to others since the WWII. Yes it’s a balance sheet problem and the economy needs more time to heal and delever.
We also maintain, however, at least some, if not much of the weakness, especially in the labour market, is structural and not cyclical. Take the U.S. Postal Service (USPS) as the poster child of the current problems plaguing the U.S. labour market. The USPS has 571,566 full-time workers making it the country’s second-largest civilian employer after Wal-Mart. It has eliminated 110,000 jobs in the past four years and according to the FT,
During the next five years, the service plans to cut 220,000 staff – about 120,000 through lay-offs – and close up to 300 processing centres on top of plans to shutter up to 3,700 post offices released last month.
Now why is this? Not enough stimulus? Monetary policy too tight? Insufficient quantitative easing? To paraphrase James Carville, “It’s technology, stupid!” The rise of the internet, e-mail, and Twitter coupled with some piss poor management, which failed to adapt to the changing times, and the result is one the nation’s largest employers facing bankruptcy and mass layoffs.
Borders Books Inc. is also in the process of liquidating the last of its stores, which will result in a final mass layoff of close to 11,000 employees. True, they failed because of “lack of demand” for their goods and services. But not because of cyclical forces that could be offset by fiscal and monetary expansion. The rise of the e-book, Kindle, and iPad shut them down.
The Shumpeterian “creative destruction” of one sector is not being equally and instantaneously offset by job creation in the sectors benefiting from technology. This takes time, retraining, political vision and strong leadership. Companies can’t hire enough software engineers in these fields because the current labour pool lacks the education, training and skills.
Policymakers must recognise the global economy is sitting at the elbow of an exponential curve in technological advances that is and will uproot everything from manufacturing to how we read our mail and books to how medical services will be delivered. We’ve posted several pieces on the Global Macro Monitor blog about the role of transformative tech, including medical apps where smart phones can be transformed into EKG monitors and cataract detecting devices. How do you think this revolution will impact the traditional health care workforce?
Retail salespersons and cashiers were the occupations with the highest employment in 2010. These two occupations combined made up nearly 6 per cent of total U.S. employment.
The painkillers of fiscal and monetary stimulus, including negative real interest rates and quantitative easing, has no doubt cushioned the blow of the great crash of 2007-08. We’re the first to thank Paulson, Bernanke, Geithner and Co. that we are not all farmers living under the freeway. They all deserve the Presidential Medal of Freedom in our book for saving and stabilizing the global financial system.
But the continued use of cyclical policies to deal with structural issues has created an acute addiction in the markets and economy causing more uncertainty, political angst, and volatility, in our opinion. This is especially true in the equity markets, which was evident yesterday in its reaction to Mr. Bernanke speech.
The policy medicine has now become an additional disease afflicting and distorting markets and the economy, which are now hooked on the painkillers.
Policies that address structural issues, though painful, will go a long way in healing the economy. A long-term credible budget plan which addresses the structural deficit will instantly reduce much of the uncertainty holding back investment. Punishing savers with negative real interest rates “for at least two more years” will not and may actually consume the rest of the decade in cleaning up the unintended consequences of the Fed’s serial distorting of the relative price of money.
There’s now talk of the Fed targeting unemployment. How ’bout this. As part of the next quantitative easing, the Fed creates a $1,000 checking deposit for every citizen who agrees to write 10 letters to friends, especially in rural parts of the country. This stimulates demand for postal services and thus eliminates, for a time, the need for mass layoffs at the USPS.
In no way do we intend to be insensitive to the workers at risk of losing their jobs. But is this really where economic policy is headed? Where is the leadership?
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