Which Is it: "Cyclical" or "Structural"? Just a Very Late Train or a Train Wreck?

It's time to put job creation, trade reform and further finance reform above all but our national security. It's also time to stop obfuscating the true nature and depth of the current jobs crisis to suggest that it's structural and unfixable.
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There've been ten recessions since the Second World War -- I've lived through nine of them, and although the Great Recession of 2007 is "officially" over only because GDP growth is again (modestly) positive, it persists in most everyone else's view with a jobless recovery of a magnitude not seen since the Great Depression.

There are things about this last recession, however, which are so sobering and unprecedented that as we again celebrate the life of Dr. Martin Luther King, we need to reflect, more than ever, on what's happened to the American Dream, the vibrancy and even the definition of the middle class, and the premises of fairness and equal opportunity that distinguished those other periods.

As long ago as 2006, well in advance of the flurry around the 2008 presidential campaign, it was clear that for the first time since World War II the number of uncounted unemployed workers would soon equal the number being "officially" counted each month by the Bureau of Labor Statistics. In contrast, in all prior recessions, the number of 'uncounted' unemployed -- i.e., part-time-of-necessity, marginally attached, and those who've removed themselves from the labor force in frustration -- was never more than about one third of the officially counted.
Just as structurally foreboding, we were seeing stagnant wages for, on average, 90% of workers for twenty years in succession, plus more income inequality than at any time since 1928.

And so as Progressives, many of us began to rigorously advance, for whatever new administration would come our way and for Congress, large-scale job creation initiatives, including a national manufacturing policy that would balance and offset the policies of our largest trading partners, especially China; individual income tax reform that would restore the principle of progressive taxation that had been subsumed by the "trickle down" policies of Reagan and every administration since; new corporate tax policies that would incentivize companies to create jobs in America rather than ship them overseas; and trade policies that would be 'free and fair' and not just 'free'.

Later on, when the unethical practices of Wall Street and the 'big banks' became so apparent -- and the linkage between remedying them and restoring the health of the middle class so obvious -- we also joined the likes of Rob Johnson, Mike Lux and the Roosevelt Institute in advancing progressive finance reform.

Now in 2011, no one can say that in the public debate there are not meaningful solutions, reflecting FDR's DNA, targeting every aspect of our still broken economy and jobless recovery. Solutions which should find bipartisan support and the support of both the deficit 'hawks' and the deficit 'postponers'.

With far too few actions yet taken in response, however, maybe even the 'Chicken Littlest' among us still aren't fully perceiving and assessing the predicaments we're mired in.

The Columbia University labor economist Till von Wachter, as reported by Sudeep Reddy in the Wall Street Journal, has done good work on the breadth of the economy -- i.e., the "swath of the labor market" -- that's been impacted by this recession, compared to every recession and downturn since the Great Depression. And that breadth is unprecedented, with clear evidence, according to von Wachter, that, "The deeper the recession, the lower the wage you're going to get in the next job and the lower the quality of your next job."

According to Reddy, more than half (55%) of the full-time workers who've lost jobs in this recession and who've now found new employment have experienced wage declines, two-thirds of which exceed 20%. And in what is now clearly an employers' labor market, it seems inevitable that the majority of the workers who are still unemployed will similarly be rehired only with significant wage cuts, cuts so large that it will be many years, if ever, before their wages return to pre-recession levels.

The pain of this on workers is obvious, but it is the insidiousness of what it portends that must also concern us. Already, some in power are using the deep cuts of this recession as an opportunity to embed into the long-term lower wages throughout American industry.

Recessions, while always taking place on the backs of American workers, are not, in their recovery, supposed to be used by robber barons to slash wages, take away employee rights and benefits, and emasculate unions. For most of the last century, the hallmark of American business was shared and equal corporate responsibility to shareholders, employees, customers, communities and the nation. It would be a sin if the Great Recession of 2007 became the last nail in the coffin burying this principle, with financial returns to shareholders and management trumping everything else.

The masked unemployment that we saw on the horizon in 2006 and the jobless recovery that we are now living through is, first and foremost, a "jobs crisis", as the economist James Surowiecki has identified with great insight (The New Yorker, January 3, 2011). But the part of Surowiecki's analysis and commentary that is most valuable is his discussion of whether the paucity of new jobs being created each month and the swelling of the ranks of the long-term unemployed is "structural" in nature or "cyclical".

To quantify this, each month our economy needs to create some 150,000 jobs just to keep up with population growth. Yet in the eighteen months since June 2009, when the Obama administration says this recession officially ended, instead of creating those 2.7 million jobs (18 times 150,000) plus the millions of new jobs we needed for the already unemployed, the number of real unemployed workers in all four categories of unemployment decreased by only 638,000, from 30.3 million to 29.6 million.

To a worker who has been unemployed for months on end -- there are now at least 9.6 million employees who've been out of work for at least six months -- the reason he and so many of his neighbors are unemployed may sound like a purely academic argument, but as Mr. Surowiecki notes, it's an argument whose consequences are all too real. It's also an argument that is now being manipulated by some for purely selfish reasons.

If a recession is marked by a lack of demand and based on cyclical economic factors -- even if one of those factors is financial meltdown due to financial malfeasance -- then government policies that boost demand will assuredly help us recover. And this is clearly the recession which we Progressives saw coming back in 2006 and for which we have advanced numerous solutions and responses which would reignite hiring, strengthen our global trading, and incentivize companies to expand capacity here at home.

Right now, however, with no evidence to support it, the nation is hearing from the big business community and its acolytes in Congress that today's prolonged unemployment is, as Mr. Surowiecki writes, "mainly structural". They say that there's little we can do about it, that the unemployed just need to wait for the market to sort things out, and that a big part of the problem is a mismatch between the jobs that are available and the skills that people have.

How often have we as a nation been told in the past two-plus years that all we have to do in order to 'fix our economy' is 'fix education'? According to this view, many of the jobs that existed before the recession are gone for good and the people who held them don't have the skills needed to work in other fields. A big chunk of current unemployment, this argument goes, is therefore structural, not cyclical, and resurgent demand won't make it go away.

This is such poppycock.

Mr. Surowiecki points out that if the problems with the current job market really were structural, then the job losses since 2007 would be heavily concentrated in those industries that have been ravaged by the bursting of their bubbles. At the same time, there should be vacancies and rising wages in those industries that are not so disadvantaged. Instead, jobs have been lost and hiring is slow across almost the entirety of our economy.

The "structural" argument has, in my view, always been the "cop out" argument, and it is certainly the preferred argument for those large businesses -- especially the multinational corporations, the big banks and Wall Street -- that have profited outrageously off of the imbalances which many in Congress have allowed to define our economy since the '70s. These imbalances have resulted in unprecedented real unemployment, stagnant wages and income inequality, while shifting fully half of the nation's income to just the top ten percent of income earners.

High(er) unemployment is here to stay only if we elect not to take the government actions that would offset the biggest decline in consumption and investment since the Great Depression. Government actions are not an option, they're the imperative.

Today is not the time to attack either the administration or Congress for inaction, although I've done that from time to time when it seemed right. Rather, it's time:

  • To present the correct view of the epic scale of the economic problems our nation faces.

  • For the nation as a whole to appreciate the basic mechanics and embrace the supporting narrative that can lead our country toward another genuine "morning in America".
  • To adopt a "growth" strategy rather than the "bleed the patient" strategy being pushed by the likes of the U.S. Chamber of Commerce and the Peterson Group, deficit hawks in Congress, and the wealthiest of Americans.
  • To reestablish genuine progressive taxation and cease the attacks on Social Security, FDR's most important and enduring legacy.
  • It's time to put job creation, trade reform and further finance reform above all but our national security. It's also time to stop obfuscating the true nature and depth of the current Jobs Crisis: It's mostly cyclical, it's not structural, and it's eminently fixable.

    Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.

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