Profits, But No Jobs

The dichotomy could not be more stark. Profits have recovered, so companies are generating plenty of cash internally, and few, if any, face the kind of threat that destroyed GM a couple of years ago. Yet unemployment remains stubbornly high. The stand-off between business and its workforce has reached an impasse. If you have a job then you are likely to be getting some sort of wage increase. If you don’t you probably will see your financial security destroyed and your future undermined. The growing split between the haves and the have nots will be the central front in our economic discourse over the next few months.

Why?

Because chronic unemployment levels as high as we are experiencing undermine confidence, encourage unnecessary savings, discourage spending, and spread alarm throughout the economy. The longer it persists the worse the underutilization of our labor pool becomes. Worse: discouraged workers lose their skills, become harder to employ, and ultimately drop out of the workforce altogether. That impoverishes us all as it reduces the effective capacity of the economy and thus its ability to create wealth in the future. Thus, we have a collective interest in reducing unemployment and getting our fellow citizens working.

Today’s news that first time claims for unemployment insurance rose unexpectedly to 484,000, the highest level in months, simply drives home the point that all our efforts to reduce unemployment have been inadequate. The excuse for the recent rise in claims was statistical. There was an anomaly in the data caused by erroneous seasonal adjustments: the auto manufacturers were not taking their normal summer hiatus for retooling as they, especially GM, looked to the fall selling season. This was supposed to have distorted the numbers. It probably did. But that excuse is now wearing thin. Obviously the job market is still extremely weak. Unemployment will remain as our primary issue well into the next few quarters.

The hesitancy to deal with unemployment staggers me. Congress has been tentative and fractious. The White House weak and focused on damage limitation rather than problem solution. Both political parties have engaged in pointless pandering to their respective bases as they posture in advance of the midterm elections. Meanwhile millions of Americans are abandoned to the pain and humiliation of unemployment.

This should not be so.

It need not be so.

Yet it is.

Profits, but no jobs, is a sign of a divided economy. It represents an imbalance that will not last. It cannot last. Economies seek balances. The forces within them tend to settle asymmetries. That can be through political upheaval, or through a return to a more democratic view of what an economy is supposed to produce. Spreading the wealth is in everyone’s long term interests. It puts cash into the hands of those who will most likely spend it, and away from those most likely to hoard it. Consumption rises. Sales rise. Future profits are assured. Businesses can invest with more confidence. And the economy lurches into a vigorous life.

This is a model of a more democratic view of capitalism. It is that of the 1950’s through the 1960’s. It is a stark contrast to the hyper concentration of wealth we now experience as a result of the harsher version of capitalism introduced since Reagan began his attack on the middle class.

One reason, perhaps the main reason, that we are not returning to the democratic model is that our politics are so divided. Unemployment in some of our smaller states has not risen to the threshold of pain reached in those states most damaged by the recession and the bursting of the real estate bubble. Politicians from those states take a narrow view and fail to understand the national limitation that unemployment is having. They are numerous enough to prevent a change. And they are ideologically driven to impose harshness by way of a moral lesson. The unemployed are without work because they are lazy, not because they have no job to seek. Those who hew to this view encourage bloodletting and pain because it ‘teaches’ and returns workers to the proper path of seeking whatever is available at whatever wage. Couple this base Puritanism with the indifference of our elites, who have amassed an extraordinary share of our national wealth in recent decades, and we produce the toxic cynicism that pervades current policy.

Unfortunately this inhuman attitude has sufficient resonance with the electorate that we will continue to suffer through high unemployment for longer than we need have done.

That is the America we are.

Profits, but no jobs.