Four Reasons Why Many Jobs Won’t Come Back

We at The Independent Agenda don’t usually get in the middle of spats between Beltway commentators. But there’s a doozy going on now involving two A-List columnists from The New York Times who are throwing mud at each other without naming names. And the issue really matters.

David Brooks. Photo: Flickr/Miller_Center

David Brooks is a rare bird—a conservative New York Times columnist. Paul Krugman, of course, is the Keynesian Nobel Prize-winning economist turned partisan Democratic warrior.

This week, the dispute boiled over, as Brooks penned a column suggesting much of today’s unemployment is structural, i.e., long term. Krugman countered with an angry blog post and a chart he claimed clinched the Keynesian, cyclical case. Peter S. Goodman reported on the whole you-know-what match in The Huffington Post and sided with Krugman. (So does Federal Reserve chairman Ben Bernanke, for the most part.)

To Keynesians, the problem is simple. There’s an “output gap” caused by a sharp decline in GDP and consumer spending that’s causing massive unemployment and underutilization of resources. The only way to fix it is for the federal government to spend enough to fill that hole and spur a recovery

And there is a huge output gap: When the bottom fell out in the fourth quarter of 2008, GDP plummeted by nearly 9%. The housing crash knocked out one leg of the typical recovery’s stool, and long-term unemployment is particularly high.

But what’s really unusual about the Great Recession and semi-recovery is the structural, i.e., long-term, nature of much of the unemployment. Here are four reasons it’s different this time.

1. Capital is global, and so is technology. Capital allows multinational companies to go where the  growth and low costs are; technology lets them knit their global networks together seamlessly. That’s why in the 2000s US multinationals added almost two million jobs in rapidly growing Asia and Latin America while cutting nearly 900,000 in the mature US. Most of that change occurred before the Great Recession.

2. Free trade elevated China and other competitors. The US lost six million manufacturing jobs from 2001 to 2009—maybe a third of those since the beginning of the recession. A 2011 report from the liberal Economic Policy Institute said the US trade deficit with China cost 2.8 million US jobs from 2001 to 2010. In 2001, China entered the World Trade Organization. How was that cyclical?

Workers at an electronics plant in Shenzhen, China. © BartlomiejMagierowski /Shutterstock.com.

3. Housing and finance played much too big a role in the economy. The housing bubble was fueled by rock-bottom interest rates, speculative finance, and a misguided government emphasis on home ownership. When housing collapsed, it cost hundreds of thousands of construction jobs, but more importantly left millions of overleveraged consumers under water on their homes. The mortgage market remains broken, too. I can’t quantify the total impact, but it is profound and long-lasting.

4. Baby boomers are moving into retirement. I don’t know how many of the millions of aging baby boomers have taken early retirement after losing their jobs. But nine million people have applied for Social Security benefits since 2009 and 10,000 new people qualify each day. And age discrimination for 50- and especially 60-plus workers is rampant, so the trend will continue. Nothing cyclical about that, either.

Yes, there are cyclical aspects of this Great Recession. But there are also big constraints to spending our way out of it—namely the huge fiscal burdens on the state and federal level. And even if we spent as much money as Krugman advocates–and spent every dollar well– we’d still be down a lot of jobs.

So, put me in the camp of Brooks and Raghuran Rajan of The University of Chicago. We have a long, tough slog ahead with no easy answers and, unfortunately, lots of pain.

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3 Responses to Four Reasons Why Many Jobs Won’t Come Back

  1. Jack Kessler May 14, 2012 at 1:24 pm #

    The paradigm shift under way to online digital is a major structural factor here too. Older workers–50s, 60s–don’t “get” online digital, not because they can’t but primarily because they fear it; younger workers–30s,40s–“get” it just fine, and still younger workers now are coming on board to whom online digital is their life’s blood.

    A major part of the current employment-transition, then, is firms replacing–perhaps using a normal business-cycle recession to replace–workers who lack online digital skills with workers who do. The new workers just happen to be younger…

    OTOH job-retraining of Baby Boomers, for online digital, is a major growth industry now: a little late, for the mainstream job market, but if we’re all going to live to be 95, now, we’re going to need something to do!

    • HowardRGold May 15, 2012 at 3:15 pm #

      Jack: You make a very good point. As a Boomer myself who\’s had to learn lots of new digital tricks–like putting together this blog–I can tell you it\’s certainly possible to \”get with the program.\” But it\’s going to mean making more of an effort, and that\’s not cyclical, either!

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