OSAKA – Economists and other pundits in the United States played the guessing game and got it most dreadfully wrong early this month. The consensus was that 180,000 new jobs, give or take a few thousand, would be added in March. Instead, only 88,000 jobs were created. Though the monthly numbers are sometimes erratic, this suggests that the U.S. economy is in a big mess.
More worryingly, if you scratch below the surface, there are good reasons for alarm about the American economy, both in the short term, where the political deadlock is beginning to do harm, and the medium term, where President Barack Obama above all people should be asking, “What price the Great American Dream?”
The answer is that the American dream is becoming unaffordable for too many people. That fits with the classic answer: If you have to ask the price of something, you cannot afford it.
As for the March numbers, even the skittishly optimistic markets shuddered. The March report was the first since automatic budget cuts began to take effect after the Obama administration and Republicans in Congress failed to reach a deal on the budget.
Pundits weighed in with their prognostications of doom and gloom. Mohamed El-Erian, the chief executive officer of Pimco, the world’s largest bond fund with almost $2 trillion, described the report as “somewhat worrisome.” Economist Brad DeLong wrote simply, “This is a bad employment report.”
Beneath the headline figures, there were troubling indicators. The employment-to- adult-population ratio is 58.5 percent, exactly where it was a year ago, and the labor force participation rate has fallen by 0.5 percent in the past year and is now at the lowest level in more than 30 years.
America’s young are facing a tough struggle in finding work. The official unemployment rate for Americans under 25 years old is 16.2 percent, or more than double the figure for the population as a whole. But the official figures understate the reality of the problem because they only count people as unemployed if they are looking for work.
Many people seem to be giving up. The labor participation rate for young Americans has fallen dramatically, from 59.2 percent in 2007 before the recession started to 54.5 percent. If people who have not bothered to look for jobs were included, the real unemployment rate among Americans under 25 would be 22.9 percent.
Critics have begun to ask pertinent questions about whether the policies of low interest rates and easy money are working.
David Stockman, the White House budget director under President Ronald Reagan, caused a stir last week by accusing Ben Bernanke, the chairman of the Federal Reserve, of running a “serial bubble machine.” Stockman claimed that the benefits of the Fed’s policy never escaped the canyons of Wall Street.
Fed policy has indeed been compared to pushing a string uphill, with the danger that it will only create a rise in asset prices and won’t affect the creation of new jobs.
Job creation is beginning to suffer a double whammy from the political standoff: The payroll tax increase is taking money out of pockets and making consumers more wary of spending even with what remains of their income, if they are working; the sequester is also having an impact by cutting federal spending, which reduces both jobs and confidence.
The surprise may only be that stock markets have been so optimistic in the face of political deadlock and the prospects of the damage to economic growth. There should be a real concern about the capture of the U.S. economy by the super-rich.
Louis Brandeis, the supreme court justice, warned decades ago that “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”
Since then, the biggest American companies have grown in size, income, power and influence. Wal-Mart Stores Inc. has annual sales of more than $440 billion, which is higher than the gross domestic product of all except 25 countries in the world. Argentina, in 25th place in the World Bank tables, has GDP of $ 446 billion, and Austria, in 26th place, has $420 billion.
Economist Jeffrey Sachs of Columbia University warned in his book, “The price of civilization” that: “Corporate wealth translates into political power through campaign financing, corporate lobbying and the revolving door of jobs between government and industry; and political power translates into further wealth cuts through tax cuts, deregulation and sweetheart contracts between government and industry. Wealth begets power, and power begets wealth.”
He draws attention particularly to the grip of four big industrial groups in the corridors of power: the military-industrial complex, of which President Dwight Eisenhower warned in his farewell address; the Wall-Street Washington complex, the power of which has grown through the revolving doors between government and finance; Big Oil, with its military links; and the health care industry, which alone accounts for 17 percent of American GDP.
Stockman in a massive book that was summarized in a New York Times article believes that: “The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating ‘demand’, even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.”
For this he has been pilloried by right, left and center, with one of the mildest hostile comments being that Stockman “is one deeply pissed off dude.”
Stockman, like a host of other critics, is right to complain about the greedy 1 percent. Bloomberg BusinessWeek last year wrote an article about a McDonald’s burger flipper in Chicago, who has to work in two of the fast-food restaurants to be able to work 40 hours a week. He has to scrub himself in the bathroom as he scurries between shifts because he smells bad. He makes $8.25 an hour. The average working week in the U.S., according to the March jobs report, is 34.6 and the average hourly pay rose by 1 cent to $23.82.
If the McDonald’s worker wanted to earn the $8.8 million that his ultimate boss, McDonald’s CEO James Skinner, was paid for a year’s work, he would have to work 40 hours a week every week for 550 years.
The gap between the line workers and the bosses has exploded as never before. In 1950, the best-paid CEO in America earned just 40 times more than the shop floor workers.
What is worse is that American bosses have forgotten the ideals of Henry Ford, who way back in 1915 decided that his workers would get $5 a day, a good enough wage, he reckoned, to allow his workers to buy a Model T Ford and allow mass production of the car, a decent wage, a profitable investment all round.
Kevin Rafferty is a professor at the Institute for Academic Initiatives at Osaka University.