Weak, Very Weak Jobs Report

At this rate Obama will not be re-elected. At this rate he doesn’t deserve to be. Then again the Republicans present and even more dire prospect. Will no one rid us of this malaise.

My reaction to this morning’s very weak jobs report – the US added a meager 69,000 jobs in May – is to stifle a yawn and then to feel a surge of anger at the awesome ineptitude on display both in Washington and in our various centers of economic and business expertise. This mess is one we created and are refusing to clean up.

First the data:

We added 69,000 new jobs in May, worse yet: the numbers for the prior two months were both revised downwards with April being slashed back to 77,000. This is simply unacceptable. That slight burst of hiring we all were excited by back a few months ago seems to have been a quirk. The unusually warm weather allowed businesses to hire earlier in the year, that uptick was then exaggerated by the seasonal adjustment factor being applied and misled us. Subsequently the usual spring hiring surge was muted – the jobs were already filled – and the seasonal adjustment worked against us again. The best we can do is to look over a longer series of months, which is what we should always do anyway, and extract a trend.

That trend is miserable.

Our economy, for whatever reason, is not generating jobs. Nor is there any substantial prospect of it being able to. Instead of descending into wishful thinking and hoping the summer brings relief, we should all be demanding that Washington and our erstwhile leadership gets off its well padded rear end and does something other than feed us sound bites about how the other side is the problem.

Frankly both sides are the problem.

They both feed at the corporate trough. They both peddle variants on the same economics. They both are feeble. They both appear not to have the true measure of our problems. There is no backbone. No fire. No nothing.

Oh well.

That Wall Street, that center of predictive excellence – the ones that thought mortgage backed securities would never be toxic – could imagine we would add 170,000 jobs goes to show how far off the mark our elite thinkers have become.

When you are so well educated in wrong thinking you become utterly misguided. The recent past is a warning for all of us. It is quite possible to paper your wall with glittery degrees from first class schools and still be a complete fool. If they teach you alchemy you will emerge an alchemist, albeit one with straight A grades.

My advice to anyone wanting to study how an economy works is to avoid those schools and search for one that concerns itself with the economy rather than the dreamland that currently passes for economics at the top tier institutions.

Lest you think I am wrong: look around the world right now and identify a center of expertise – in the US in Europe, or in Japan – that is not mired in erroneous thought, proffering erroneous and damaging policy advice, and stuck up the neoclassical creek without a proverbial paddle. If your fundamental, basic, ground level thinking is wrong all the fancy architecture erected on that foundation, no matter how lauded and rewarded it is, will also be wrong. In economics you can win a Nobel Prize and still be a menace to society. Many have.

The problem is that regular folks pay the price. They actually get the sharp end of wrong theory. Despite what Robert Lucas and his confreres profess, people are fired against their will. They don’t want to be unemployed, but they are.

Gasp.

Perhaps we need a bout of layoffs in economics departments for the profession – if indeed it is a profession – to get the message. Quaint discussions in common rooms have awesome real world consequences. Fancy papers covering up the cracks in favorite theories, twists and tweaks designed to prolong the life of defunct thought, are weapons of mass destruction in the hand of ideologically extreme politicians who are grateful to grasp at any intellectual cover they can.

The steady subsidence of the UK economy into what appears to be a long recession is stark testimony to the complete bankruptcy of the austerity-to-growth notions that still dominate elite thinking. Here in the US the anemic policy response in 2009, followed by years of extraordinary political gridlock and partisan sniping have left us rudderless. We have a President who cannot articulate a strong common-man reason to attack our problems. He is a technocrat. A bureaucrat who loves to tinker and get enmeshed in the details. He is unwilling to slash and burn or to engage in the kind of fierce combat need to press back the fringes of extreme politics that are encroaching – and engulfing – our discourse. Romney is worse. He is steeped in far right business school ideology. He is willing to slash and burn. But only at the corporate level. He has no qualms about adding to unemployment. He knows how to create shareholder value. The problem is that those nostrums he holds most dear are precisely those that created this mess. He will make matters worse.

The MBA creed so deeply entrenched across the US is that shareholder value is the holy grail of capitalism. This is a bureaucratic concept created to allow armies of professional managers to extract value from business and pass that value back to whomsoever is lucky enough to own the shares of those businesses. It treats the workforce as a source of cost not as a source of productive capacity. Labor is something to be squeezed and trimmed. Wages are to be held down at all costs so that profits can be enlarged. It is a class struggle neatly wrapped inside a sanitizing layer of theory, soft touch human relations, and an ever proliferating web of jargon.

Like most things in life, shareholder value may make sense in limited quantities and when handled with care. It especially makes sense at the level of a company seeking to stay afloat. It has a Leninist quality – burn the village to save the village could easily be the operating mantra of private equity firms like Bain. Some jobs can be preserved, but only at the cost of some other jobs. Making that choice is distasteful and should be avoided when at all possible. It should not become the only policy. It should not dominate an entire economy. Yet it does.

And what makes infrequent sense in limited local places is deadly when aggregated into the entire economy.

By pursuing shareholder value and its related theories so relentlessly for the best part of four decades business has destroyed its own consumer market. By ignoring the need for wage growth, and hence mass spending power, business has slowly but surely shut down the engine of the US economy. At first the shift of wealth from wages to profits didn’t matter too much – consumers borrowed in order to keep up the buying habit. Eventually that source ran out. What’s left is an economy enfeebled. It is pointless to shift production to a low cost location if you cannot then bring those products home for sale because no one can afford them. So now companies are leery of ramping up employment because they don’t see a sales surge ahead. That surge is not their because companies have squeezed wages. Profits on the other hand are doing just fine. But this profits are increasingly sterile. They produce hoards of cash sitting under-invested. Banks are awash cash and cannot find enough willing borrowers. Money is abundant but underutilized.

Keynes could have predicted all this.

Those who managed to expunge his thought from the policy record could not.

When you base your entire thinking on the illusion that markets will always circle back to a full employment equilibrium, you are unable to detect, let alone opine about, effects that occur within inefficient markets. You wear intellectual blinkers that limit your vision to only one idea. If that idea is wrong – as I believe it to be – you condemn yourself to total failure. If, however, you acknowledge that markets are quirky, full of anomalies, and prone to odd results then persistent high unemployment doesn’t flummox you. It is a recognizable problem with recognizable cures.

Today’s weak jobs report adds yet another sad comment is an unfortunately long and growing condemnation of orthodox economic theory in all its guises. From rotten central bank forecasting and policy models through to the anti-social activity called shareholder value, the infestation of our economy by bad theory stands as a stark reminder that we are always in the thrall of some dead economists. Only this time the wrong ones.