Really now? I thought that Senator Gregg ( who approached the Administration for the position of Commerce Secty ) made himself look like a Fool. For some reason, in his press conference he looked like a babbling "star-struck" teenager that forgot to turn on his BRAIN. And you blame this on the current Administration? Wow, that's pretty rich.
No problem. The humble but central point I've been harping on, not just here, but when I speak with people anywhere, is that without a resolution that solves the employment problem, no healing of the economy can happen. Everything is about jobs. Here, in China, Japan, Spain, Canada - everywhere. We keep losing jobs in the U.S. I see pundits on Bloomberg or CNBC saying that they see unemployment topping out at 9% or 10% or 12% or whatever, and I doubt they are doing anything but hazarding a guess - that's fine to do, but don't try to dress a guess up and make it sound like a rationally arrived at estimate. No one knows how high the jobless rate will climb. What we do know is that it is rising, and it is rising quickly. History tells us that consumers and businesses are now in a negative feedback loop whereby they'll keep cutting consumption and expenditures, and that this vicious cycle will keep repeating until something of a great magnitude breaks the cycle. I've asked these questions so many times that I can't recount how many times it's been, and no one - not a single person - has even given me rough answer: What industries will replace those that are laying off workers today? What will the next industry be that hires as many employees as the auto industry, the financial industry, even certain professional sectors such as IT? I believe Volcker is primarily concerned with this structural change in employment, where nations are starving for jobs, and competing against each other in the process. Labor is the cheapest commodity in the world. Just ask those Chinese factory workers who have been laid off in this downturn, who worked very efficiently and cheaply, but still saw their jobs go bye-bye. Volcker's main nemesis in the 70s and 80s was stagflation and then inflation. Those problems are much easier to deal with than a structural employment problem in a world where goods and services move at the speed of light, and trade barriers are insignificant.
One response to your question is - nationalism. Nationalism will rise and the great call of nationalism will be the rebuilding of jobs and industry. My question is will amercans work in the factories of our future. The U.S. will either crater and eventually welcome a bailout which will create a world wide currency and wrold wide economic system run by internationalists - in exchange for the relief from its debts.... Or - the nationalists who love America and freedom will win out. Their program is bound to include protectionism. That program needs to considered. We should consider raising our own food, creating our own goods and employing our own people. Our stand of living might be lower than if we truly had free international trade. But then again it might be higher than the international system that arises. For those of you who were indoctrinated into the economics like I was by my econ major. Before you post about the production frontiers and how everyone profits from trade - remember all the assumptions that went into those graphs. Before you tell me that protectionism caused the great depression.. remember we were the exporter nation back then.
A very excellent and thought-provoking post, Jem. I absolutely agree that there will be a rising trend towards nationalism (if that's what you believe), and I also agree that comparing the effects of Smoot-Hawley in the 30's and protectionism today is a very difficult analysis, in terms of predicting consequences.
Because no educated person would even try to answer such a question. What would you have answered to your own question in 1931, 1937, 1942, 1974, 1981, 1990, 2002 -- unless you were blessed with the magic crystal ball of hindsight?
It's pretty simple really. 2/3rds of our Nation's GDP comes from the Consumer. The consumer is done for quite awhile given that he increased his consumer debt from $7 Trillion in 2000 to $14 Trillion in 2008 even though wages were flat. Add that to the fact the consumer is suffering from a negative wealth effect of $8 Trillion in housing and another $10 Trillion in the stock/bond markets . . . not too mention losing or afraid of loosing his job . . . There is not much hope for him to be able to come back anytime soon. Thus, the Govt. needs to change the tax code in order to benefit and grow the MANUFACTURING sector so that we can EXPORT again.
mak, I can answer as to 1981, at least. Yes - A lot of people knew that those getting laid off by factories in the U.S. would be rehired. It was a classical cyclical downturn, due to inflation, interest rates, etc., and there was a solid history of those who were laid off getting paperwork and priority to be the first ones hired back when production picked back up. Compare that to now, when factories are closing permanently. My family made a ton of money in the aftermath of the 79-81 recession, because they had a ton of land they acquired when RE prices crashed, knowing that things would pick back up, which they did. It all played out very predictably. Those who were in debt had to liquidate at fire sale prices, but those who were liquid picked up steals, knowing demand would return within a few years. Factories weren't literally being dismantled and shipped overseas.
Factories have been closing for good (and opening) for the past 100 years. Entire industries have been shipped offshore. Furniture, shoe, clothes, toys. All this to the benefit of the G7 nations, not to their detriment. Here is a quote I found interesting for the "overseas" argument: If you don't shut down the unprofitable and uncompetitive US factories, what would happen? Industries are not static, international competition is not static. Would America be better off today if you still had legions of highschool dropouts putting together low cost furniture or sewing shoes that cost $35 a pair? Can you imagine the long-term productivity growth (or lack thereof) chart if that was the case? It would be flatlined, like the USSR's.
What's so interesting is that you guys are bringing up the subjects that will make or break us. I think there's a lot of sobriety on Capitol Hill, because they know our country is at a true turning point. How we handle this will turn us into a stagnant Europe or a new leader of the global economy. I think no matter what side or school of economics you come from, you have to be humble. Who would have guessed China's policies would make them almost overnight into an economic superpower using currency's pegs and communistic capitalism? And who would have guessed that the great American, with its fierce all out competitive spirit, would be stagnant and moribund and almost irrelevant right from the start of the millenium. It's an interesting time and I can only say that I'm glad I'm into trading so I can follow the money wherever it goes...