7/6/2011 5:16 PM ET|
2 keys to a real economic recovery
Experts say the US economy is improving, but it's hardly humming along. Bold, creative solutions to high unemployment and the trade deficit could get things back on track.
Here we are, two years into the recovery. It's easy to be disappointed.
Although economic growth is reaccelerating after a scary slowdown in the spring, the overall pace remains sluggish. A broad measure of unemployment still stands near 16%, down only marginally from its high of 17.2%. Home prices are skidding along the bottom. And over the past three years, government social benefits have accounted for a larger share of income gains than wages and salaries. (It's almost nostalgic to call what we have today capitalism.)
As I discussed in a recent column, middling growth is to be expected in the wake of a serious, penetrating recession. Driven by an asset price bubble and credit overgrowth, the hangover was bound to be painful. An ugly fiscal position at the Treasury, two wars and a Federal Reserve that's pushing the boundaries of prudence serve to complicate matters.
But history is not destiny. And we're not a country that leaves fortunes to the whims of fate. We march to our own beat. And right now, by just about any measure, America isn't moving fast enough. Sure, there have been bailouts, stimulus packages and tax cuts. Yet there is a nagging sense that those efforts were either ill-designed or too incremental. It was in-the-box thinking from the inside-the-Beltway crowd.
We need more. An economic resuscitation initiative with the kind of ambition that powered the moon shot, Manifest Destiny and all the rest. It's time for drastic measures. Here are two areas that are prime candidates: unemployment programs and free trade.
The scourge of long-term unemployment
The problem of stagnant job growth in the United States needs no preamble. We're all aware of it. Most of us are fearful of it. And for the army of unemployed, especially the long-term unemployed, it's a problem every minute of every day.
I think we can do better. Indeed, a glance across the Atlantic reveals an enviable example of how to tackle structural employment problems and jump the hurdles of recession at the same time. And it's happening in a country once considered the "sick man of Europe."
I'm talking about Germany, which has enjoyed a recent resurgence despite the handicaps of a strong euro and its role as fiscal nursemaid to the likes of Greece and Ireland. Teutonic resolve resulted in 3.5% growth in gross domestic product last year, with an additional 3.2% expected this year, according to the latest projections by the International Monetary Fund. Compare that with the 1995 to 2005 average of 1.4%.
And compare the trajectory of unemployment rates in the chart above. After years of struggling with double-digit unemployment, the German government enacted the so-called Hartz IV labor reforms. Unemployment benefits were cut, drawing thousands into the streets of Berlin in protest. The term was derided in the popular consciousness, with Hartz IV entering the German lexicon as something akin to "redneck" here at home.
But the secret sauce was in the innovative work-sharing arrangements instituted. The government would pay to keep people attached to the workforce by encouraging employers to cut hours instead of workers. Lost wages would be offset by unemployment benefits known as kurzarbeit, worth up to 67% of lost income. People would keep their jobs while companies would enjoy a more flexible, fully trained work force.
The reforms also compelled the long-term unemployed to take jobs -- any jobs -- in order to continue receiving benefits. This got to the heart of the problem of extended unemployment periods: lost skills, broken contacts and reluctance of employers to hire applicants with big gaps in their work histories.
The results speak for themselves. What's more, the steady reduction in German unemployment came despite a deeper recession than the one in the United States.
Problems related to rising long-term unemployment are serious hindrances to the economic "re-recovery" I've been writing about in recent columns and blog posts. And it's been frequently mentioned by Federal Reserve Chairman Ben Bernanke as a top concern over the past six months.
That's because higher long-term unemployment has potential to reduce the economy's natural, noninflationary rate of growth as it becomes harder for job seekers and job creators to make a match. There is already evidence this is happening: Research from Minneapolis Fed president Narayana Kocherlakota finds that labor market matching efficiency declined as much as 44% between 2007 and 2010.
This explains why CEOs can complain of an emerging talent shortage, as illustrated by this recent survey (.pdf file) by Manpower, even as millions of Americans collect unemployment checks. And that means that the unemployment rate could in fact bottom around 8% or higher without structural reforms.
The solution could involve German-style reforms of our own unemployment system. Research by René Fahr of the University of Cologne and Uwe Sunde of the University of Bonn found that the Hartz efforts "had an impact in making the labor market more dynamic and accelerating the matching process." That is precisely what the U.S. economy needs.
Instead of merely extending benefits, Congress should consider subsidizing on-the-job training programs and temporary-worker placements, as well as using its power to force people back into the workplace -- even if it's not in the same position or the same industry. Community colleges and state universities could help by increasing vocational offerings. The point is that the White House and congressional leaders need to directly address the structural reasons for long-term unemployment instead of simply throwing more money at the problem via unemployment benefits.
VIDEO ON MSN MONEY
We need our political leaders to think big.
Excellent article and suggestion. Here’re a few measures to help our politicos think big:
a) Abolish Congressmen privileges and automatic pay increases. A Congressman work period is 40 hours a week like everybody else, not 20.
b) Congressmen get the average health insurance Americans get.
c) Congressmen get the average wages and benefits Americans get.
d) EVERY CONVERSATION A CONGRESSMAN HAS WITH A LOBBYIST IS POSTED ON THE WEB WITHIN THE NEXT 24 HOURS.
I’ve got many more ideas but these measures should provide a good mix of carrots and sticks.
As an American living in Germany,I can say Germany basically paid part of a persons salary,to keep them working,during the recession.Unemployment would have been worse here,and companies got to keep most of their workers without taking a big hit.The government had to give out some money,but better to keep people working,and still pay their fair share of taxes,than pay full unemployment,for someone to sit at home for months or years at a time.
No one wants the government to do anything,but we still complain when the gov't sits on their hands and dont do anything.Someone has to make the bold move,and thats basically put people back to work,in real jobs.That will cost some money on the gov't side at first,as I remember,an unemployed person that does not receive anymore unemployment benifits,does not pay any taxes,(less revenue).Before I go,let me throw this in,FLAT TAX!What %,I dont know,but if half of working Americans are not paying any taxes,whats wrong with a flat rate of say,7or 8%.No exceptions and deductions.Consumption tax,say 1%.You pay it only when you consume,and lets say food is exempt from the tax,because everyone has eat.Here is Germany,comsumption tax on most goods and services,19%.Food is 7%.Cant see why it cant be tried,if it doesn't work,can reduce or eliminate tax altogether,or will a special lobbyist whisper sweetnothings in a Congressmans and/or Senators ear,(dont do it,(we)dont like it)!
I have had a problem buying into the argument that corporations and their executives are intentionally manipulating the economy for excess profit.That was until a few days ago and today as I read the article we are discussing and another article I read a few days ago.That article was about a company that was restructuring supposedly to offset todays economy.Part of their restructuring was to outsource 1000 jobs to foreign labor markets.If this is a prevalent attitude among big business and I believe it is,given the number of alien voices coming from customer service departments.The article glossed over this factor in discussing"matching jobs and workers".It is a critical deterrent to "matching".How did Germany solve this ?If jobs are leaving the country;there is n no real solution to our problems.
All great ideas and intentions, but (it would seem) only if the Republicans would play along
How partisan can you be? Take the idea that people have to take some kind of job in order to receive benefits. Does anyone doubt that Republicans would support an idea like that and that Democrats would scream to high heaven?
Do you have any idea what our current unemployement system is doing to millions of workers? Not only is it (quite successfully) paying millions of people to work, but it is simultaneously training them to be permanently unemployed and unemployable.
At the same time, we have a minimum wages that guarantees that millions more low-skilled workers (including teenagers) cannon find a job. But don't worry, when ObamaCare really kicks in, things will be much worse.
You blame that on Republicans?
A high tariff, at least in the beginning, will serve as a nationalized sales tax on certain goods, as the tariff will be paid and the product will be imported and sold to a wholesaler at a higher price than before, and the higher price will be passed on to the consumer. However, it will offer the opportunity for some to create jobs in the US making those same products and paying wages to workers here - and support the growth of industry and our economy.
While some like to point fingers at those who are "rich" and move jobs offshore, consumers vote with their dollars by purchasing goods as cheaply as possible, and they vote to purchase those products created offshore and thereby, cripple many US industries and take part in shutting down factories. On the other hand, one has to question unions who constantly push up the wages of their workers to the point that the products they make become unaffordable.
We are at the point where there are only hard decisions that can be made - by Congress, by business owners and managers, by union bosses and workers, and by the average consumers. We all have to make hard choices, but the sooner we make them, the less hard each choice will be.
I totally agree that imposing tariffs to reduce the current the $600 billion trade deficit would do a lot to stimulate domestic production, I estimate that $300 billion more in domestic production would raise domestic employment by about 6 million full-time jobs, using standard ratios applied in trade-related employment studies (something I did for a living for many years).
I disagree that cutting unemployment benefits would do much to reduce unemployment. Currently there are roughly 5 unemployed persons for every job opening, so adding another person to that ratio will not raise employment. Also, today only about one-fourth of unemployed persons get unemployment benefits which generally provide a maximum of one-third of the wages lost.
If the U.S. closed the trade deficit in half and geneated 6 million more jobs, people will find and take full time jobs. They also will start paying taxes and stop receiving benefits of all types--food stamps, unemployment, church food pantry help, etc. They will also have dignity back that comes from supporting oneself.
Our sales are up but we laid off two people this year due to higher employment taxes, Obama care costs that are coming down the road and gasoline costs. Each year we outsource more work.
This is the result of name calling, higher taxes on our savings, higher taxes, and exploding regulation costs.
Concerning the assult from local government, the increased fines, mandates, and regulations that change by the minute for the worse: this is my largest job killer.
Now, one way , as a nation, to cut our spending is to reduce the $160,000/year minimum salary we pay each congressman/woman.
They are supposed to work for us right?
I don't know about you but, I would be ecstatic with a 13K a month income.
Hmmm The money saved would definitely help out the healthcare and school systems.
Again, just a thought...
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
[BRIEFING.COM] The S&P 500 ended this week with a bang, roaring to a new all-time high on the back of stronger-than-expected economic data, influential leadership, and an ongoing appreciation for the Fed's monetary policy support.
The bullish bias was evident in premarket action as the S&P futures pointed to a higher start without the benefit of any definitive news catalyst. Stocks indeed benefited from a blast of buying interest at the opening bell on this ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|