The conventional wisdom says that, if you save Wall Street, this will help the mainstream economy. Only the conventional wisdom is wrong. The Obama administration saved Wall Street, and now job creation, that proverbial "lagging indicator," continues to lag behind. Why? Because the conventional wisdom is wrong, and the Obama administration economic advisors should have been smart enough to realize this, but, alas, they weren't. For some time now Wall Street has cheered whenever a corporation has cut jobs - not when they've added them - because cutting jobs decreases costs and increases profits. Private equity funds buy up companies and the first thing they do is to cut jobs. Cutting jobs has become almost synonymous with increasing profits. So why did the Obama administration think that bailing out the Wall Street banks to the tune of trillions of dollars was going to cut unemployment, was going to put people back to work? Why did they think that bringing the economy out of recession was going to put people back to work? Because that's the old paradigm. GDP growth equals more jobs.
But we've had a jobless recovery. In fact as GDP has started increasing again, so have job losses. Obama advisors are rubbing their heads trying to figure out why there has been an inverse relationship between GDP growth and job creation. It's not hard to figure out if you realize that cutting jobs increases profits and adding them decreases profits. Profits go up when high priced American workers are replaced with either low priced foreign workers or computerized robots and automated production lines. Automation kills jobs just as the agricultural combine eliminated the need for so many farm workers. In fact the elimination of farm workers due to the invention of agricultural machinery was partly responsible for the Great Depression. Any time you have "labor saving inventions" you have labor eliminating inventions and thus job elimination. This only stands to reason. Thus superfluous workers - tenant farmers in our example - are no longer needed.
Dennis Kucinich has said the following:
Recent rises in unemployment indicate a widening separation between the finance economy and the real economy. The finance economy considers the health of Wall Street, rising corporate profits, and banks’ hoarding of cash, much of it from taxpayers, as sign of an economic recovery. However in the real economy—in which most Americans live—the recession is not over. Rising unemployment, business failures, bankruptcies and foreclosures are still hammering Main Street.
What the Obama administration has failed to do is to have a bottom up approach to job creation. Their big mistake was to think that by bailing out the banks and the large corporations such as GM that these large corporations would hire workers. Instead they fired workers and used the bailout money to buy and install labor saving (and hence job reducing) computers, robots and automatons. They automated their production lines instead of hiring back workers. GM used the money to build plants in China where not only is hired labor cheaper, but also there is a burgeoning consumer market. The demand for automobiles in China is probably more promising than the tapped out demand in the US. Just as American laborers have been replaced by foreign laborers, American consumers can and will be replaced by foreign consumers.
Captains of industry well understand that the American consumer cannot continue to prop up retail sales. That's why they are starting to change their focus to emerging consumer markets. "Free trade" facilitates this. Having access to the growing Chinese consumer market for cell phones and automobiles is a fair exchange for the Chinese having access to the American market for toys and cheap trinkets. America becomes a low tech consumer market produced for by low wage foreign labor. China becomes a high tech market produced for by American corporations using cheaper Chinese labor. In addition the cost of health care is socialized in foreign markets and corporations don't have to pay for it thereby making foreign workers even cheaper to hire than American workers for whom health care insurance must be provided even under the new health reform bill.
For all the above reasons the US labor market has been decimated. Necessary labor for increased production has been decreased. Productivity is skyrocketing not because the American laborer is doing more work per hour but because he is being replaced by automated machines that are far more productive than he ever was or could hope to be. The myth that labor is responsible for increased productivity and thus should get higher wages is exploded as CEOs realize that machines are responsible for increased productivity and they own the machines. Human labor has nothing to do with it and thus is left out of the loop.
Corporations will not necessarily hire even if they have access to credit. Instead they will replace labor with automated devices. If Obama wants to increase the number of jobs, the way to do it is not to give money and favors to Wall Street and the corporations. The way to do it is to hire workers directly for jobs that private enterprise won't do because there is no profit in it or to let contracts to private enterprise with the express proviso that they hire so many workers as a condition of the contract. The provision of jobs by the private sector won't just happen. Infrastructure repair, mass transit and the creation of a green economy are good candidates for government involvement in job creation either through direct investment or public/private partnerships.
