This week, Top Federal Reserve Tenderfoot Ben Bernanke announced that the worst recession since the 1930s (I know, I hate myself for using it too) “is very likely over” and he’s “pretty optimistic” about regulatory overhauls for the financial system. If those flamethrowers don’t ignite confidence bolts in your veins, get checked for a pulse. Of course the chairman for the body that actually officiates when recessions start and end has said uhhhh, I’ll get back to you in a year or so. He must be dead.
Only people in power (i.e. responsible for this mess) and those who don’t know any better would dare say this crisis is over. Once again, Big Ben points to the beginning stages of a jobless recovery. According to Ben, the economy will expand at a 2.3% clip next year, but unemployment will remain above 9%. This begs the question: what the F is a jobless recovery? Recessions are marked by rampant job loss, so shouldn’t the recovery be marked by job creation? Quite simply the answer is, not in America.
In the good old days, the stalwart characteristic of economic growth was increased output, a.k.a. making stuff. The true measure of a nation’s wealth is the amount of valuable stuff it possesses, not the number of paper dollars pumped through its system. The more valuable stuff a nation has, the more able it becomes to acquire resources needed to increase output. This is known as capital investment. And with capital investment comes increased demand for labor i.e. jobs. When the demand for labor increases, employers must fight harder to win scarce employees, and they win them by competing with greater and greater wages. As a nation’s wages grow, the citizens are able to acquire more and more valuable stuff, and ergo the nation becomes wealthier. As the consumption of the citizens rises, so must output rise with it, which means even more capital investment, even more jobs and even higher wages. At this point, I won’t blame you if you’re confused by the notion of a “jobless recovery.” In light of the aforementioned, how could we have legitimate economic growth without job creation? The pop quiz won’t be until after we’ve covered…
…the American system of economics! The sad truth is that in America, we produce nothing. Minimum wage legislation and the expansion of labor unions rendered most of our outstanding middle class base, our quintessentially American salt-of-the-earth factory workers and craftspeople, too expensive. Once markets like China opened up, these jobs vanished overnight.
With the hemorrhage of value-creating middle class jobs, it seems anomalous that we would still be able to keep pace with our record setting consumption binge. Yes, we have been able to maintain our status as the world’s wealthiest nation despite these mistakes for one reason alone: we enjoy the status of world reserve currency, a status quickly being eroded at China’s demand. As the world reserve currency, we’re considered the gold standard of currencies; other nations will only accept payment in their own currency and ours. To try and put it into perspective, world reserve status would be like you or I getting our hands on Warren Buffet’s American Express Black card; there’s seemingly no limit to the amount we could spend. We’d have to go pretty damn hog wild to ever hit our limit – and, baby, did we ever go HOG FREAKIN’ WILD!
Entitlements, corporate welfare, foreign aid, endless wars, research grants to study the effects of monsoon season on Thai prostitutes – these are just some of the goodies we loaded into our global shopping cart. When that wasn’t enough, we guaranteed student and home loans for nearly anyone in the nation who wanted one. We borrowed and re-borrowed and printed the interest payments; every dime we paid to China and Saudi Arabia for interest and imports was loaned back to us or pumped into our bloated stock market, the Fed at the helm, fueling our fantastic free-for-all with low interest rates and easy money policies. We bought more and more, and erected retail outlets at a dizzying pace. In a matter of two decades, we had morphed from a producer nation to a consumer nation. And though we’re in the throes of its dying gasps, we still are. More than 70% of our GDP is based on consumption. Our once great productive middle class now jockeys cashiers and stocks shelves in retail outlets, not acquiring any tangible skills nor producing anything of real value. And when we can no longer maintain this debt-fueled binge, when we’ve inflated ourselves to the point everyone else wants out, when we can no longer import because we’ve lost our world reserve status, what happens then? America doesn’t maintain reserves of foreign currencies to pay other nations with. The empty shelves will force the retail outlets to shut down, and with no in-house manufacturing there will be no jobs for the jobless. Where will our recovery come from then, Mr. Bernanke?
Until the United States rebuilds its manufacturing and wealth creating capacity, there will be no real recovery. Unless some grand global collusion exists of which we common folk are unaware, the rest of the world will hit their tipping point with us – and that time will be much sooner than later. The cracks have already begun to show. Foreigners will grow impatient with our dangerous policies, and dump us like we got caught in bed with their mother – real hard and real ugly. But it may just be the eye-opening moment of clarity that we need as a nation to get us back on the proper path to prosperity.
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