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Please begin with an informative title:

I've taken a fair amount of flack from members of the community (respectful flack, but flack nonetheless) for a few comments I've made in various diaries with respect to unemployment, recovery, and the need to take a realistic view of employment potential moving forward.

I want to try to address that and underscore the need for this community and Americans generally to fully grasp where I believe we're at with respect to unemployment and the things that need to happen to realistically begin to address the employment picture moving forward.

More over the flip.


You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that's approximately 50-175 words without any html or formatting markup).

Let's see if I can simplify what I consider the backdrop to the herculean challenge facing the United States with respect to employment as it stands today.

Hit the rewind button to the GWB years.  I know it's painful generally, but it's necessary to kind of wrap our minds around the employment picture and the troubles that face us today.

I'm going to generalize in this example.  So when I say "you" or "we", I'm referring to the ubiquitous "you" and "we" writ large, in the aggregate.

Throughout much of the first decade of the new century, we spent, as individuals, substantially beyond our means.  Credit was comparatively cheap and relatively easy to secure, even for people who would have had a difficult time obtaining credit just a few years previously.  Let's say my income was $1,000 per month (I'm just trying to keep it simple here).  Let's say further that the total of my monthly expenses, discretionary and otherwise, was $1,200 per month.  There was some so-called "good" debt in there - a mortgage on a house, for example - that contributed to my overall net worth on an asset basis.  There were also necessities in there - utilities, food, etc.  But a lot of my monthly expenses - and debt, because I am spending more than I take in - were "bad" debt.  I simply HAD to have that 52" plasma TV with surround sound and theater seating to be the centerpiece of the Superbowl party that I held (and that I couldn't really afford).  So I just bought the whole shebang on credit - the TV, the sound system, the theater seats, and the catering for the party.  After all - my home values were increasing wildly through a lot of this, and I anticipated that my income would catch up eventually.  Worst case, I could just refinance and take out a chunk of my obscene equity to cover the cost of this extravagance.

So let's dissect this one, small example.  I've purchased the 52" plasma TV.  The manufacturer, Plasmas-R-Us, sees an increase in demand for its products (aggregated across the millions of households doing the same thing as I was doing).  They check their supply chain and know that, to meet the demand, they're going to have to place a sizable order with their parts suppliers to meet the demand.  They know they will have to increase the amount of people they have assembling the plasma TVs at a faster pace than which they had experienced previously.  Plasmas-R-Us has several contracts with physical distributors - primarily trucking companies - for the distribution of those plasma TVs to retail outlets for purchase.  They notify the distribution companies of the need to increase the rate and size of their shipments, and the trucking companies invest in more physical vehicles (which kicks off its own increase in production, supply and personnel requirements) and drivers to operate those vehicles.  The retail chains where the plasma TVs are distributed increase their payroll to accommodate the increase in consumers entering their establishments to make purchases of those same plasma TVs.  Ditto for the people who manufacture the sound systems and the theater seating.  The catering company is also seeing an increase in demand for its services, and all of their suppliers (food, dishes, alcohol, beverages, etc.) feel the increase and ramp up production and distribution to meet the increased demand.

Hopefully I'm painting for you a picture of a host of industries that have to hire and "bulk up" to keep pace with a substantial and sustained increase in demand.  Hopefully as well, I've given you an image that extends, realistically, far beyond simply the original plasma TV supplier to ITS suppliers, distributors, and retail outlets.  

Now apply that very high-level example to the millions of households buying discretionary items with credit.  For the sake of simplicity, let's assume as well that the vast majority of those households are spending $1,200 monthly when they make only $1,000 monthly.

What you hopefully have in your mind is an image of businesses and industries hiring individuals at an increased rate to meet an increased demand.  No one is thinking about the idea that the demand can't possibly be sustained over time because it's being paid for by fictitious money.  We're all riding high across-the-board with unemployment figures hovering at or below 5% for a sustained period of years, which fuels the false impression that everything's ok and we can spend money we don't have because our assets (home, investments, etc.) are our safety net.

Then, in 2008, the economy almost literally drives right off a cliff.  Suddenly, virtually every American is aware of their own personally precarious financial situation.  Banks, a central (but not exclusive) culprit in the irrational financial exuberance that defined the decade immediately pull back on credit.  Safety nets like 401(k)s and houses start to lose value quickly.  Credit becomes tighter - harder to obtain and much more expensive for those who can actually secure it.  The contraction in the flow of money is abrupt and profound.

Suddenly, Plasmas-R-Us sees a marked decline in demand.  They stop placing large orders for the parts they need to manufacture the plasma TVs, and their parts suppliers lay people off.  They slow down production on their own line and lay off workers.  They aren't shipping as much product due to the decline in demand, and the shipping companies they use lay people off.  The retail outlets also lay people off in the face of a severe contraction in demand.

This is all fueled, in the aggregate, by the disparity between what we, as individuals, earn on a monthly basis and spend on a monthly basis.

So here's the simplified analysis.  The at or below 5% unemployment rate was fiction.  Yes, the jobs were real at the time and they earned real money at the time that they existed.  But they were fueled by an aggregated practice of spending more than we made on items that we didn't actually need, and or spending on items that ARE considered assets (homes) but well beyond that which we would have otherwise normally been able to afford.

The banks ARE at the center of this, make no mistake.  And they led us down the primrose path of cheap money.  Our culture as well played a role as conspicuous consumption (Hummer, anyone?) became a false but highly praised measure of personal human worth.  And we followed.

Today the picture is entirely different.  Credit and its availability has contracted substantially.  It's harder to get and more expensive when you DO get it.  Vast numbers of Americans have been literally forced into living within their means, and cash is king.  If you're lucky enough to have excess cash, you're not spending as much of it on Plasmas-R-Us and you're holding on to more of it, jittery that the other shoe is bound to drop.

Truth be told, we're likely at the rather austere end of the credit and spending pendulum.  While it had swung wildly in the first eight years of the decade towards the "too easy" side, now it's swung wildly towards the "too difficult" side.  It's completely reasonable to expect that as we move forward, credit will become easier to obtain for certain people - though it won't (and shouldn't) be as easy as it was in the preceding decade.  Some people will be able to to buy a 52" plasma TV and host a Superbowl party in the coming years.  But it won't be nearly the number of people that it was before the bubble burst.

And so there's the crux of the issue.  The idea that we can return to at or below 5% unemployment is ludicrous (there's a big caveat coming, before you panic).  The unemployment rate can improve from where it is, but can't currently get back to where it was.  That level was artificially low, corresponding to the artificially high discretionary spending that was occurring for all of those years - spending with what I like to call "fake" money that people didn't actually have.

The thing that should be the MOST concerning to people right this very moment is the fact that the job-driving part of the economy is static and will only continue to support, in the new reality, X% of jobs, which will NOT square up with at or below 5% unemployment.  Without people spending money they don't have, we can't get there from where we are right now.

In its own way, the irrational financial exuberance dealt a double-blow to the economy.  Had we been spending only within our means and had we not allowed the banking industry to behave (to put it mildly) irresponsibly, the holes in our economic foundation would have shown through more gradually and starkly.  To revive an incendiary phrase, the fleet-footed credit availability allowed us to put lipstick on our economic pig.

What it means we did NOT do was invest in new areas for economic growth.  The fact that everyone was spending more than they had didn't ameliorate the fact that manufacturing jobs continue to flee the United States.  We did literally nothing throughout the GWB years to begin re-investing in our manufacturing economy and the availablility of solid, working middle-class jobs.

One of the things that always attracted me to Obama even before the 2008 primary was his willingness to discuss openly the need for domestic investment in a new manufacturing economy, and specifically the green economy.  Some steps, well beyond lip service, have helped already in this regard.  The PACE (Property Assisted Clean Energy) Program (PDF) gave stimulus money to states who turned around and lent it to homeowners to make environment- and energy-friendly improvements to their home.  The beauty of the PACE program was that the debt of energy efficient modernization was tagged to the property and not specifically its owner and could be financed out over time while garnering a real return in reduced energy costs.  Never mind that it's also environmentally friendly.  While there are still some kinks to be worked out, localities that have used funds for PACE improvments have seen a decline in the loss of construction jobs as compared to localities that have NOT used PACE funds.  

To me, though, PACE - while a GREAT idea that should be utilized and expanded - doesn't really come back to address the core problem: the lack of good working middle class manufacturing jobs in the US.  I've been somewhat encouraged over the past two weeks to see a renewal of the Green Economy Jobs Tour.  Another step in the right direction seems to be the HOMESTAR Program.  It would be implemented much like the Cash for Clunkers program, whereby homeowners get a point-of-sale rebate for purchasing certain energy saving items like new windows and insulation and the like.  The program is further touted as one where the majority of the products are produced domestically.

A third less solid potential advantage to both of these programs is to provide real, tangible value to existing homes that are having trouble appreciating at a normal rate in the current economy.

Both HOMESTAR and PACE are, I think, good first steps that help stem the unemployment pain in the near term.  Add to that the upcoming (but temporary) uptick  in workers due to the 2010 Census and employment figures might not look bad for a brief period of time.

But again - I don't see these as long term sustainable items that move the needle with respect to overall employment capacity and utilization in the US.  

If I've learned anything by watching the whole healthcare issue unravel in Congress it's that getting out in front of these issues that have critical importance to all Americans is tantamount.  This President can tout and conceptualize, but we have to provide the cover to him and to Congress (I know - they don't deserve it, but WE do).  For my part, I will be calling my Senators and Representative to encourage them to take up a Jobs Bill and second stimulus package that continue to invest in items like PACE and HOMESTAR but that go further in providing real investment incentives to people to conceptualize and manufacture groundbreaking green energy products domestically.  I will further more underscore the improtance of seriously evaluating our trade policies to strike a balance between the need to retain good jobs domestically and the reality that we operate in a global economy.

I may already be too late in starting this - but it is now my focus.

I hope this diary was helpful to those who have otherwise been a little put off by some of my comments on the subject.

Extended (Optional)

Originally posted to RenaRF's Random Ramblings on Mon Mar 15, 2010 at 10:22 AM PDT.

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