The issue here is very simple. A structural change has occured in the American economy - the jobs that have gone away in the bubble burst are not coming back. Instead, they are going elsewhere. Now, the powers that be chuckle and say "just take a pay cut, silly - that's what economics is about. The poor take the risks, the rich get the gains. Global competition for you, corporate protection for us. That's the deal, and you agreed to it by not stopping Bush's taking office. Better luck next life serfs."
But a serious examination of the jobs picture leads to a rather simpler conclusion: America is on a collision course - higher and higher housing values were used to pump more and more money into the global economy - though even this effect has stopped. At the same time, there is more and more pressure on wages. What is overpriced is not American labor - it is the inputs to American labor - energy and land.
You want to know what is keeping you unemployed? Your house costs too much, and the energy you burn costs too little. Until these two structural imbalances are corrected, the jobs picture will improve only temporarily. Until then, jobs will be shipped overseas to people willing to live in smaller houses, and using less energy for their own consumption.
We can fix this the easy way, or the hard way...
Most of the cost of labor is input cost - that is, people's fixed expenses. Discretionary spending is the smallest fraction of spending. The single largest inputs are food, housing, and energy.
Why can some one in India take a much lower salary - because he or she needs a great deal less money to outbid everyone else for scarce resources - housing, food and so on. It isn't that they are "willing" to take less - it is that they can take a lot less and still be much better off than their peers.
At the same time - the unduly low interest rates are pricing us out of house and home in the job market. To get a job means getting a place to live, to get someplace to live means being paid enough. The current high price of housing in metropolitan centers of job creation means these engines cannot hire, because the marginal cost of a hire is too expensive. Better to hire in an underdeveloped city.
The solution is to reprice housing and energy.
The easy way to do this is just wait. Nothing is easier than waiting for a bubble to burst, and then accepting the depression that comes with it. No problem, just let it happen.
The hard way is to actually address the structural problems: namely, we incentivize burning way too much energy, and we have incentivized building way too many homes in proportion to the number of jobs we are creating, and we have incentivized parking money rather than investing it.
There is a solution:
- Open some new area for public exploitation - as the internet was.
- Change the yield curve to reward short term borrowing, not mortgage borrowing.
- Change the tax structure to reward investment and not parking of money.
Doing this will require carefull negotiation and crafting of priorities. It will also require shifting to a single payer health system to slash the health expenditures: we are an older country, and we aren't as willing to do without healt care as many others.
But all of this is moot if we do not cut the energy cost of the middle American life style by a rather large amount.