This article first appeared in the St. Louis Beacon, July 8, 2010 - Because I tend to be a pessimist, I hate it when I’m right. In the wake of the financial collapse of 2008, I was among the first to predict that the calamity was no cyclical economic downturn from which we could quickly rebound. To the extent that the June jobs report can be trusted, it would appear that I was right.
Though the report reflected a modest increase in private sector employment, that gain was insufficient to satisfy the demand for jobs from young people entering the workforce and from the previously unemployed. Worse, it was more than offset by the scheduled layoffs of temporary Census Bureau workers. We are nearing the second anniversary of the start of the Great Recession, and the employment horizon continues to darken.
Economists are now concerned that we may be in the midst of a “double dip” recession — a stark downturn followed by brief and incomplete recovery followed by another, more severe, drop in fortunes. The proposed remedies for this grim forecast vary according to your politics.
Conservatives advocate on behalf of free market solutions. Cut taxes, the theory goes, and the private sector will create jobs that will, in turn, generate new tax revenues. Liberals tend to favor massive government intervention and point toward FDR’s efforts during the Great Depression as the model to emulate. There are deficiencies in both approaches.
The fundamental flaw with free-market economics can be summed up in two words: people cheat. As societies evolved and commerce developed, this tendency was widely noted, which is why laws were enacted to regulate business in the first place. Remember that both the crash of 1929 and the collapse of 2008 were preceded by boom times of increasingly de-regulated speculation.
Further, no company has ever hired anybody in response to a tax cut. The company exists to generate profit. Easing its tax burden will enhance its profit margin, but it does not follow that it will celebrate its windfall by hiring an employee it does not need.
Jobs are created in response to demand. For a private sector job to be self-sustaining, the new employee has to produce enough income to pay his or her wages and benefits plus provide the employer with additional profit.
On the other hand, the problem with socialism can be summed up in three words: people like it. I first learned the virtues of free market economics and the evils of socialism from a tenured professor at a state university.
In the classroom, he was a champion of the market force efficiencies of risk and reward. In his private life, he enjoyed guaranteed employment and a salary set by state statute. In theory, he was a capitalist lion; in practice, a socialist sheep who made Karl Marx look like J.P. Morgan.
In fairness, the good Prof was hardly unique. Government programs that provide socialist benefits are enormously popular. Social Security is considered the “third rail” of politics — touch it and you die. And who can forget the tea party protesters during the health-care debate demanding that the government keep its slimy mitts off Medicare?
Indeed, even the Bush-Cheney administration — which did for de-regulation what Lady Gaga has done for black underwear — added a drug benefit to Medicare despite the fact that it had no way to pay for it. People like free stuff, and politicians like to make voters happy.
Unfortunately, we don’t have the option of evolving into one big, happy socialist utopia with a homogenized standard of living and guaranteed income for everyone. This pipe dream has never materialized anywhere it’s been tried, but it’s not even theoretically possible in our case for reasons that can be summed up in one word: debt.
The government is broke. It will borrow over $1.2 trillion this year just to pay its bills. That’s 1,200 billion. Meanwhile, the overall debt has grown to over $13 trillion (13,000 billion, or 13,000,000 million). Looking for a hand-out from this group is like trying to negotiate a loan in bankruptcy court.
Those who would follow FDR’s lead would do well to remember that his economic nostrums mitigated the pain of the Great Depression but it took WW II to cure the disease. Once everybody went to work on the war effort, the depression disappeared overnight. Admittedly, this full employment was fueled by deficit spending, but the government didn’t start borrowing already $13 trillion in the hole.
It pains me to acknowledge it, but the guy who got this one right was Ross Perot. In the interest of full disclosure, I was not a Perot voter. In fact, his more ardent supporters struck me as being rather nutty. But he’s the guy who predicted that “big sucking sound” of jobs leaving the country because of NAFTA and other free trade agreements. He also correctly predicted the aftermath.
Once labor became a global commodity, it naturally flowed to places where it was the cheapest. Initially, this provided a domestic boon because under-developed nations had to purchase the means of production from the advanced economies that had them. Initially, it seemed we would be the high-tech supplier to the world. Once up and running, however, these slave-rate manufacturing centers began relentlessly sucking jobs overseas.
Private sector job loss reduces tax revenues, which results in lay-offs in the public sector. As unemployment spirals upward, consumption heads in the other direction. Reduced demand results in even more unemployment and the attendant lower wages of a depressed jobs market. The classic downward cycle.
Henry Ford argued that good wages were good for business because they allowed his workers to purchase his product. Today, his antiquated notion of sustainable demand has yielded to the allure of short-term profit. Favorable quarterly reports jack up stock prices and CEO bonuses — let tomorrow worry about itself.
Watching free trade work its magic is like watching a snake eat its tail. As unfettered capitalists seek ever-cheaper sources of labor, they destroy the very markets that consume their products. China, for instance, is currently furloughing workers due to decreased demand for its exports.
I believe it was Lenin who remarked that a capitalist will sell you the rope to hang him if he can do so at a profit. It would seem that he had a point.
M.W.Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.