America needs new model with more jobs created
Published 4:31 pm Tuesday, November 10, 2009
To the Editor:
So the economy is recovering. Dow Jones passed 10,000, rising 53% since Marchs 10-year low. GDP rose by 3.5% in the third quarter. One market analyst exclaimed, Hey, you know what, things must be getting better, because the Dow is over 10,000! But personal income fell 0.5%.
Goldman-Sachs, the formerly troubled New York investment bank we all billed our grand kids to bail out recently, pulled in $14 billion, their highest ever. Third-quarter profits more than tripled to over $3 billion from a year earlier. Earning $38 million per day, Goldman plans to pay employees $900,000 each, just like the rest of us.
How did they do it? Goldmans un-bailed-out rivals offered less competition, and then Goldman invested heavily in securities, derivatives, and speculative ventures. It was profitable before, so why not do it again?
Whats a derivative anyway? Tom, Dick and Harry were broke. Clever Tom sold a valuable worthless rock to gullible Dick for a one-dollar IOU. Dick sold it for a $2 IOU to guileless Harry, who sold it back to Tom for a $4 IOU. On the last trade of the day, Tom sold the rock to hapless Dick again for two $1024 IOUs, one of which he used to pay off Harry.
Since then, Dick could never get ahead. Everything he earned he owed to Tom and Harry. With no money for school, he cut grass for a living. Tom and Harry read Ayn Rand and invested their new earned income stream in new rocks, which they sold to other gullible folks. They grew up to be derivatives traders at Goldman-Sachs and bought several McMansions, half of which they lost during the great Derivatives Crash of 2008. Dick lost his job, his house was foreclosed, and his family went on welfare. Tom and Harry said that if Dick wasnt so lazy, he could have been rich, too.
So if Goldmans success in selling rocks is so good for the American economy, where are our jobs? After the recession of 2001, unemployment rose for 19 months into the recovery. This time, economists expect poor employment through 2012. In September, 23 states reported increased unemployment. Nevada (13.3 percent), Rhode Island (13.0 percent), and Florida (11.0 percent) had their highest rates ever. Michigan (15 percent) won worst place, South Carolina (12.2 percent) was fifth worst, and North Carolina (10.8 percent) was 10th.
Small businesses create perhaps 70 percent of the new American jobs, yet many cannot get credit despite administration efforts to jump-start lending, which froze during the Great Derivatives Collapse. If employment is good for the USA, and Goldman has billions to invest, why dont they invest in the small businesses that create jobs for working people like us? Because its not as profitable as speculation.
President Obama was right on recently when he said of these small businesses, These are the very taxpayers who stood by Americas banks in a crisis, and now its time for our banks to stand by creditworthy small businesses and make the loans they need to open their doors, grow their operations and create new jobs. However, telling a hurricane to stay offshore has no effect.
The problem is deeper. We are locked into corporate profiteering, where income is limited and labor is the biggest expense. To be profitable, companies slash workers hours, squeeze more work from those remaining, and rely on benefitless temps and hired Indians. Ford made a billion-dollar profit third quarter, in large part by restructuring and starting 30,000 layoffs.
To business, labor is a cost to be eliminated. To working people, jobs are essential to the American dream and must be maximized. Business has long justified layoffs by pointing to the abundant new jobs that flow naturally from the ever-growing economy and the ever-advancing frontier, and greed was fine because the pie was always expanding.
But in 1893, Frederick Jackson Turner said, The existence of an area of free land, its continuous recession, and the advance of American settlement westward explain American development, and he went on to declare that the frontier was now closed. It has taken us over a century to slam into this limit on economic expansion. No longer are unfilled jobs at the frontiers flooding our economy. The growth measures corporate profitability, aided by layoffs and the value of rocks sold to gullible people.
Maximizing this kind of growth leads to a nation of a small wealthy class, many jobless and underemployed, empty houses, a ruined environment, an abundance of cheap consumer goods, but little money to buy much. Is this the future we want our grand kids to enjoy as they pay back their bailout debts?
Former Federal Reserve Chairman Alan Greenspan, when asked by a House committee last year if his ideology had pushed him to make bad decisions, said he had found a flaw in his governing ideology that has led him to re-examine his thinking. His philosophy, rooted in the wishful thinking of novelist Ayn Rand, saw all regulation of financial markets as inefficient and heavy-handed. Piracy would govern itself, if only it were legal, and lawns need no mowers.
Right. Greenspans surrender closed the chapter on the mythical Invisible Hand that Adam Smith believed in 1776 leads self-interested selfish parties to act in the highest interests of all.
The old economic model is dead, and no new model yet guides our course. Jobs are the red-blood cells of our economic body, without which we die. Employed people spend money, which employs others, all of whom pay taxes. Derivatives traders and conscienceless profiteers are job vampires, sucking our economic blood while the anemic patient falls into shock. Jobs will not materialize in good numbers by maximizing profits in a finite world where employment is seen only as a drag.
The choices of economic model are not just Rand, Stalin or Hitler. We can create a better model, in which jobs will have a positive presence in the formula that we maximize for a healthy economy. Until then, the government would do well to create tax incentives to encourage businesses to hire Americans. We need a blood transfusion, and fast.