Quote of the day

The quote below was taken from the abstract to a worthy article (h/t Yves Smith) written by Robert J. Gordon, an economist located at Northwestern University:

The US is missing millions of jobs. This column argues that the total is 10.4 million. It claims that 3 million of these can be traced to the weakened bargaining position of labour and the growing assertiveness of management in slashing costs to maintain share prices. Moreover, this employment gap is not shrinking because of the ‘double hangover’ effect — an excess housing supply and besieged consumers unwilling to spend.

Finding good sense in the Wall Street Journal

Economist Ha-Joon Chang rightly informs his readers that the first phase of the post-2008 recovery had a distinct Keynesian flavor, and included activist government and stimulus spending. Most governments eventually abandoned the Keynesian approach, replacing it with one that reflected neoliberal verities. Ha-Joon Chang believes the neoliberal approach will end in failure. His reasons focus on the false premises embedded in that approach. These premises are:

  1. Governments must reduce their deficits before a recovery can begin.
  2. Governments must reduce welfare spending
  3. Governments must reduce welfare spending in order to secure long-term growth
  4. It is a mistake for governments to tax the rich
  5. Governments must reduce or eliminate regulation in order to secure long-term growth

Succinctly put, Chang’s analysis reflects an approach to modern economies which treats them as demand-constrained, not supply-constrained. I can’t argue with that.

Budget cuts and pain sharing

Catherine Rampell of The New York Times delivers a gloomy prediction:

If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.

Given the tumult of the Great Recession, this may be hard to believe. But the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009.

After reciting the kinds of pain a demand constrained economy can impose on a people, Rampell goes on to note:

There is at least one factor, though, that could make a second downturn feel milder than the first: corporate profits. Corporate profits are at record highs and, adjusted for inflation, were 22 percent greater in the first quarter of this year than they were in the last quarter of 2007.

Nervous about the future of the economy, corporations are reluctant to make big investments like hiring. As a result, they are sitting on a lot of cash.

While this may not be much comfort to the nation’s 13.9 million unemployed workers, it may be to their employed counterparts.

Do you find it hopeful knowing that America’s corporations are sitting on a lot of cash, money they might use to retain part of their labor force? I do not. Eventually, the American economy will need to grow if it is to master the unemployment and private debt problems. Growth, however welcomed it would be, should not be expected from a stagnating demand constrained economy during a time of politically imposed austerity.