I caught the entire “Squawkbox” broadcast last Friday morning in the lead-up to release and immediate reaction to the monthly employment numbers.
For a couple of hours Alan Greenspan was the guest in the studio, and then they had their mosaic collection of professional economist talkers doing their Greek chorus thing as well.
Strangely enough (or maybe not), Alan and the rest of the economists were all talking nonsense and another guest who isn’t a business leader, isn’t a politician and isn’t an economist was the only one making any sense.
The non-economist I’m talking about is Tom Friedman, foreign affairs columnist for the New York Times.
He asked the basic question “Where do jobs come from?” and proceeded to answer that question completely and sensibly. Far more satisfying to this reality-based observer than all the warmed-over political hackery most of CNBC’s “economists” tend to spout.
His basic answer is just so sensible that I had to transcribe it, especially after talking to a friend I respect who dismissed him out of hand by saying (Tom) Friedman’s nothing but a warmed-over Keynesian. Since I saw more than that, I decided to put it into dark grey and white pixels:
Jobs come from having more and more Americans inventing goods and services that make peoples’ lives more healthy, more secure, more productive, more entertained and more comfortable, and then making them here and selling them to more people around the world….
But making them here with Americans who are so well educated and have such good infrastructure that they’re able to be so productive that one American can do the job of ten Chinese and therefore be paid like ten Chinese.
Very broad brush, and very sensible. Clearly there won’t be the kind of jobs we want competing to make $20 DVD players unless our factories get so automated that ten people can make millions of players. Even if that were true, I suspect that whichever economy lets the rest of society suffer the extra costs of pollution, or subsidizes its parts manufacture, or otherwise alters the true market cost of production, that will be the economy that builds more DVD players.
Friedman’s single best observation, in my (very humble) opinion, is that the end of the Cold War did two economically damaging things to our workforce. First of all, it eliminated what was trillions of dollars of spending on products we hoped to never use (nuclear armaments, the peripheral infrastructure to deliver them and protect them, and the R&D spending to develop them). Secondly, it freed roughly two billion people in other countries to consume (a good thing) and to produce (a bad thing for our wages and jobs).
Instead of redoubling our efforts to be an efficient seller of goods and services from a macro viewpoint, we decided to coast. We stopped maintaining huge swaths of our transportation infrastructure, much less improving it. We ignored the trend of foreign students to come here for graduate school and leave to go back “home”, instead making it harder for them to stay here and succeed, which historically paid us dividends on our educational infrastructure investment in the form of a “brain drain.” We let processing medical payments become one of our largest “industries.”
I’m sure you have a few favorite examples of poor policies that made us less competitive in a suddenly very competitive world.
His second excellent point, which came up in discussion of our international affairs, was the fact that we are “addicted to oil, and became addicted to debt.”
But Friedman went one step farther. He pointed out that addicts always lie to their dealers if they think it will keep their supply coming. Since Saudi Arabia is our main oil pusher, and China our main supplier of debt financing, we will tend to tell them whatever we think they want to hear if we think it will get us another fix. If that means telling China we mean to balance our budget or that we won’t let our banks or mortgage insurers fail, we do it. If that means reassuring the Saudis that we’ll get tough with Israel, or provide another round of first-line military hardware, so be it.
To this point I would add that addicts will also lie for their dealers if they think that will help. We’ll ignore inconvenient facts like the nationality of most of the 9/11 bombers, or the source of the funding for al Q’aeda. We’re for human rights unless China might not buy our bonds or the House of Saud might be insulted by us making a big deal about an upcoming execution by stoning.
That these twin addictions limit our policy choices really can’t be denied. That we leave our domestic and international policy hostage to our pushers really shouldn’t surprise anyone.
After that round of clear thinking from a non-economist, I was treated to another string of puppets all saying that it was uncertainty about the future of tax rates for 2% of our population or 3% of our small businesses that was stopping companies from hiring. As if any company that was running at 95% capacity and selling everything they could deliver might somehow decide that a (possible future) 4% difference in gross profits after tax would keep them from doing the obvious — hiring to take advantage of the demand.
Give me a break! I never heard a CEO say they couldn’t consider adding capacity when orders outnumbered their ability to deliver just because the price of fuel might go up, or interest rates might change in the future, or a competitor might come up with a better product. Those are much larger uncertainties than the tax debate, or even the size of the deficit.
Somehow the economists seem to be able to ignore all the uncertainties that are normal parts of the business environment, and parrot the silly idea that continuing to take in 14% of GDP while spending 20% or more is a good idea, at least if businesses and investors keep the lion’s share of the drop in tax payments from 18% (the 60-year average).
Then the numbers came out. We still have 9.8% unemployment. We are nowhere near full capacity. Hiring won’t happen unless demand grows. And that won’t happen by eliminating the inheritance tax.