April 9, 2016

Everyone seems to agree that jobs are the main problem. There aren’t enough of them, and what there are don’t pay well. Even Americans with one haven’t seen real wages increase in years, unless they are in the “C class” (meaning the title starts with Chief, like Chief Executive, Chief Financial Officer, etc.).

My Conservative friends say this is all we need to solve our inequality problem. Jobs, good jobs. Mostly they say we just need economic growth to get them. That’s all. That will provide jobs and wage increases, and that will solve the inequality.

But how? How will we be able to create enough of those kinds of jobs? None of our Presidential candidates are articulating just how that can be done. We are faced with slow growth globally. Workplace changes are dramatically impacted by globalization (jobs going abroad) and technology (digitization, robotics, artificial intelligence, reducing needs for humans).

The easy answer from the Conservatives takes two primary tacks. The first is to hark back to the past, recounting previous workplace transitions, and arguing that somehow the same will happen again. Best example is to remind that once we had 30% of Americans working in the fields. Now it is 3%. All those displaced eventually found jobs in factories. No problem. I must say it doesn’t comfort me to say that somehow, inexplicably, we can count on that happening again, and that we should do nothing but wait. This notion is likely to go the way of the now discredited “Kuznets Curve,” which argued that inequality will rise and then will naturally fall–without government intervention.

GE employs 305,000 people and  Coca Cola 700,000 (counting bottling partners). The largest US based employers are Walmart and McDonalds, with 2.2 million and 420,000. Many of these kinds of companies are finding increasing ways to replace staff with technology.  The companies of the technological revolution employ far fewer than their industrial predecessors. Google employs 61,000 and Facebook only 13,000. And, the drivers who comb our streets in giant buses with darkened windows to haul developers to and from San Francisco and Palo Alto are protesting their wages.

The second conservative argument is that the technological revolution we are now undergoing does produce jobs. For example, here in the Bay Area, it is reported that for every tech worker hired, 5 jobs are created elsewhere in the economy. But what kinds of jobs are these–restaurant workers, grocery clerks, drivers, house cleaners…?  In a previous post I outlined the likely impact of driverless vehicles coming across the next 10-20 years–about 5 million jobs at risk. Can anyone explain how all the good jobs lost to technology will be replaced with good jobs, plus many more for the many currently underemployed, with two jobs to make ends meet, or driving a night shift Uber.

Summary on technology–it is far from clear just how the technological revolution is going to produce large numbers of good paying jobs. We’re in a country which needs around 250,000 new jobs per month, just to sustain this very slow growth. I’m not optimistic.

If we try bringing jobs home by punishing companies using foreign workers, pulling up the ladder at our borders, placing high tariffs on foreign imports, and denying immigrant workers (as Donald Trump threatens), we will raise the cost of our goods. We will also depress US economic growth (the jobs creating engine), which is heavily dependent on foreign trade.

Health care for our aging population will provide some of the jobs needed, but many of these will be in the form of personal care, again largely lower paid jobs which are dirty and difficult.

The nature of the jobs being produced illustrates a big problem with this line of thinking. Stipulating to the ability to produce those kinds of jobs, that still won’t fix inequality without a lot of other changes. That’s because the system is now rigged to drive the preponderance of gains to the top 10% and the top 1%.  Conservatives will say that’s ok, if everyone has a decent job–they say the workers won’t care that the super rich gain immensely, as long as they have a job, a house, a car, and a chicken in the pot. That’s the economic theory called “trickle down.” All is well, as long as a little trickles down.

Just consider how long it took Coca Cola and GE to reach market value of combined $464 Billion vs how little time it took Google and Facebook to reach combined value of $939 Billion. Consider the amount of executive wealth creation that has been amassed by Google and Facebook founders and executives in a very short period of time. Certainly, considering developer pay, there is some “trickle down” in Google and Facebook. Employees of those companies get paid well, but not so much elsewhere. Trickle down might have been OK for most Americans for a time, when inequality was at reasonable levels, but it has risen to near oligarchic proportions, and people do care. That’s why Sanders and Trump are drawing big crowds.

Then there is the matter of whether it is even mathematically, economically, possible to generate enough growth to provide the jobs and wage growth during this stage of the long term cycle. The World Economic Update Outlook for January 2016 from the IMF is titled “Subdued Demand, Diminished Prospects.” I think it is not possible, without major structural changes in our government which will permit a broader distribution of incomes, opportunity, and wealth in our future. For my Conservative friends, yes, those changes should include reduced entitlements for us older citizens who do not need those, and we need a restructuring of pensions for public employees.

I’m all in favor of stimulating the economy and creating more jobs. I’m in favor of reducing regulations that inhibit those starting new businesses. But it’s not enough. Changes akin to the recommendations of Stiglitz, Reich, and Sanders would be necessary–and politically that’s not going to happen without a cataclysmic world event like the Great Depression or WWII, which drove such changes in the middle of our previous century.

No one should be surprised that we’re fighting for small solutions like minimum wage, “blunt instruments” as economists call them. But these will not make much impact.

Anger will continue to grow.