Taking the good with the bad on economic recovery
By Leo Canty
Published: Thursday, August 27, 2009 12:00 PM EDT
Good news first: Every day more economists — financial experts, along with re-upped Fed Chairman Ben Bernanke — say the worst part of this bad economy is over. Those claims are based on slowing rates of job losses, excess inventories, consumer confidence — and probably some unscientific observations like the thickness of the wooly bear caterpillar’s fur.Wall Street activities such as stock buying, bonus payments, and TARP futures trading seem to be rising with every happy news story. Good economic news breeds good opportunity for everyone with money. Growing fast profits on the upside is helping to regain the lost net from the previous downside. Hooray!
Now the bad news: The good news is being enjoyed by those most of us can only read about.
Sure, your meager 401(k) is growing a bit, but there’s a lot of lost ground to cover before you’re in full recovery. And the even worse news is that the indicators that move the markets aren’t necessarily the ones that help you pay your bills or boost your pension if you’re retired, as in a 0 percent Social Security cost of living adjustment for the next two years.
As the economy shifts into global mode, the upside of recovery will take on a new form.
In a recent New York Times blog post, Nobel Prize-winning economist Paul Krugman drew a great set of incredibly boring but telling charts to show the impact of global economic change on the recovery. The bottom line: When America has invested more in itself — after the 1981-82 recession, for instance — jobs have grown rapidly as the economy recovered. More people have found work, which in turn generated more income, more spending, more production, and then more jobs. By 1984 employment reached pre-recession levels. That was fast.
Today, with so much of the capital and so many jobs spread out around the world, recovery rates will be slowed. The country may end up with fewer jobs than pre-recession, as companies search for profits with workforce replacements elsewhere.When companies do begin to add jobs, Americans may not be the ones invited to fill them. When fewer jobs are available, there’s less income, less purchasing, slower growth, and a snail’s-pace recovery.
We’re living that experience now in East Hartford, as the big contest unfolds between Pratt & Whitney, which seeks to boost its post-recession profits, and the Machinists union, which is fighting to ramp up job recovery here. As the recovery continues, competition between jobs and profits will escalate.
Pratt/United Technologies can operate anywhere in the world. Capital and plants can move faster than ever to Georgia or Singapore or Japan. The quest to provide investors bigger returns drives decision-making — especially after this lag period. And conditions are ripening for better returns. Layoffs and off-shoring the workforce make analysts happy as they calculate stronger earnings potentials. As for the workforce: Buy up the stock market because the job market won’t be the place to be.
American workers could just fold and accept Third World wages to be real competitors. Thailand’s average wage is $5.29 a day. Business and industry have been successfully ratcheting down wage rates in recent years.
But that’s not what America’s all about.
The better option is to create a more level playing field with smart incentives to get the profit chasers chasing profits right here in this country, and meaningful disincentives to prevent business from abandoning the American workforce. Stronger state and national commitments are needed to actively create more jobs and drive more investment in infrastructure that supports old and new industry and technology. Aerospace, fuel cells, biotech, and green products and systems are a few areas to pursue. Retool by building better mass transit, bridges, and structures that will revitalize worn-down cities. Add value to the workforce with more cost-effective health care and pension plans that work.
These are worthy investments that can help generate good news and better outcomes for American jobs and the workforce after the next economic downturn.But first we need to get through this downturn.
Paul Krugman and the wooly caterpillar suggest that as this slow cycle rolls out we may live through a few good reasons to chase those better options.
I’m not sure if that’s good news or bad.
Leo Canty is executive secretary of the Connecticut AFL-CIO and chairman of the board of the Connecticut Health Foundation. He lives in Windsor.