Thursday, June 19, 2014

Unemployment Is Not Always Cyclical

If you are going to write a dissertation on an economic theory it probably does not enhance your credibility as an economist to start your dissertation with a sentence such as, “One of the things you can always bet on with surety is that the conservatives will always try to convince the public that a cyclical event is, in fact, a ‘structural’ event.” A thoughtful and unbiased reader might suspect from that opening, as several commenters did, that the writer has an agenda, which very much turns out to be the case.

His topic has to do with the failure to recover from our low level of employment which he attributes to “cyclical factors” and inadequate government stimulus.

In a nutshell, notwithstanding all of his charts, graphs and statistics, the offshoring of manufacturing and information technology jobs was not by any means a “cyclical event.” It changed the employment picture in this nation in a profoundly structural manner, and until we recognize that and change the way we seek recovery to accommodate that we will not see any meaningful recovery for the working class.

We are still seeking to restore our economy by restoring consumer spending because “consumer spending is 70% of our GDP,” and that is a fundamental problem. Consumer spending is consumption, not production, and the reason it is an element of our Gross Domestic Product is that it has been assumed that consumer spending is a valid measure of this nation’s production of consumer goods. That was valid at one time, but the offshoring of production jobs changed that to a profound degree, and it is no longer even close to being true.

When it was true an increase in consumer spending caused an increase in the production of consumer goods and an increase in the jobs producing those goods. That no longer happens. What happens now is that an increase in consumer spending mostly causes an increase in imports and a concomitant increase in our balance of trade deficit. Thus, an increase in consumer spending actually harms our economy more than it helps.

To restore the economy for the working class we have to do one of two things; either restore the production jobs so that consumer goods production once again is equal to consumer spending, or develop a new economic model that does not use consumer spending as the basis for our economy.

Economists and politicians know this, and they are lying to us by not admitting it because both alternatives are hard and complicated. They have no idea how to bring those jobs back, and they have no idea how to create a model that replaces them. Hyping an increase in consumer spending is the easy answer, but not only is it the wrong answer, it is not an answer at all. It is a lie, and our leaders know it is a lie. They will continue to tell that lie until we force them to tell the truth.

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