It's taken as an article of faith that over time the US will not only pull out of a recesssion but that new jobs will be added reducing the unemployment rate back down to an "acceptable" 5%. But what if this doesn't happen? Long term unemployment in the US is greater than it has ever been. There are five applicants for every job. Why should anyone expect a return to the good old days especially given the dynamics of present day economic life? Manufacturing jobs as a percent of total payroll employment have declined significantly from 26.5% in 1969 (more than 1 out of every 4 jobs was in manufacturing) to the lowest-ever level of only 9.25% (about 1 in 11 jobs is in manufacturing) in March 2009. Meanwhile, jobs have been sent overseas to China and elsewhere because labor costs are cheaper there. Besides by now the US has lost so much job infrastructure and China has gained so much that the natural thing to do is to tool up a new factory in China where they have the know-how and not in the US where manufacturing skills are rusty and depleted.
In the good old days the US extracted raw materials from Latin America and elsewhere using cheap local labor. You could say that American companies exploited Latin American labor, and I would not disagree. The raw materials - tin from Bolivia, copper from Chile, oil from Venezuela, coffee from Columbia, bananas from Honduras - were shipped back to the US and processed and turned into manufactured goods here using higher priced American labor. Then they were sold to American consumers who had money to buy the goods since they were employed in rather well paid, unionized manufacturing jobs.
Now the situation is different. Instead of using high priced American labor, the manufacturing process takes place in countries, namely China, where labor costs are low and the finished products are imported into the American market by transnational corporations. Meanwhile, Latin American countries have gotten control of their own natural resources and have started to not allow transnational corporations to exploit them. Instead, they are being used for the profit and benefit of their own people. By putting the profits from these resources into the hands of their own citizens, they are starting to create consumer societies of their own. Despite years of American power being used to control political regimes in Latin America including the overthrow of democratically elected regimes, these natural resources are finally being controlled for the benefit of indigenous people. I'll just mention the CIA controlled overthrow of Salvador Allende in Chile in 1973 and the overthrow of Guzman in Guatemala in 1954 as examples of democratically elected heads of state who were ousted by the US because of their socialist (i.e. using their resources for the benefit of their own people) tendencies. These among others were US attempts to keep Latin American natural resources firmly in the hands of US corporations with the indigenous people just being used as a source of cheap labor and not profiting from their own wealth.
But in the last 10 years, the US has taken its eye off the ball in Latin America due to its preoccupation in Iraq and Afghanistan with the result that Hugo Chavez in Venezuela, Evo Morales in Bolivia, Lula da Silva in Brazil and others have started the quest for Latin American autonomy and solidarity and started to end US domination for the benefit of US corporations. The history of Latin American oppression is detailed in the book Open Veins of Latin America by Eduardo Galeano which is the book Chavez gave to President Obama. The coming to power of Chavez, Morales and da Silva in a sense is the culmination of the attempts by Allende, Guzman and others to bring Latin American resources under Latin American control.
But I digress. Suffice it to say that the old model of importing cheap natural resources to the US where manufactured goods were produced and then exported or consumed locally is history. The new model is importing manufactured goods into the American market where it is hoped that they will be sold. The fly in the ointment with this model is that Americans need the means to buy the imported goods and that means jobs, but these jobs have fled to China and elsewhere where labor is the cheapest. As countries gain control of their natural resources, the labor for extracting those resources can no longer be exploited, and, therefore, the labor that goes into the manufacturing process is now the locus of exploitation. Meanwhile, as US jobs diminish, US citizens are not able to consume as voraciously as they did previously and GDP decreases. Henry Ford paid his workers $5 a day, an outrageously high amount in those days, because he wanted his workers to have the purchasing power to buy the products that he was selling. This is the whole issue in a nutshell right there. That lesson seems to be lost on the US of today as workers' wages are stagnating if not diminishing, and they no longer have the purchasing power to sustain consumption at the rate of 70% of GDP.
American companies are sitting on record amounts of cash rather than creating new jobs by expanding production. The reason is that the market is already saturated. They don't need new workers. They can't sell the products that they are capable of producing with the workers they have now. Robotization and automation have reduced their need for workers. Companies will tend to hire where labor is cheapest and that means they won't be doing the bulk of their hiring in the US. As long as they can continue to import into the US market from abroad without tariffs, they will continue to do so because this maximizes their profits.
So what to do about American workers who need jobs as a source of income in order to pay for mortgages, food and other necessities? Reaganomics clearly won't work because lowering taxes on corporations and businesses clearly won't get them to create new jobs especially in the US. They are already sitting on record amounts of cash which could be used for investment. They don't need tax breaks from the US government in order to get the cash to invest. Venture capitalists also have huge amounts of money to potentially invest due to the financialization of the US and the huge increase of wealth for the upper 1%. They don't need to gain any more by means of tax reductions. Inequality of income and wealth are already at record levels.
Keynesian economics is also unlikely to produce permanent jobs. The idea behind Keynesian economics is that the government should deficit spend in order to get money into the hands of jobless workers so that their spending can stimulate the economy thus creating jobs. The problem with this is that the stimulation, while alleviating the pain of jobless workers through unemployment insurance and other means which is good in and of itself, is not creating permanent jobs as the Obama administration is finding out. When the stimulus is ended, the economic activity created by it dries up creating the need for perpetual stimulus and thus never ending deficits. Stimulus, while helpful temporarily and while it's the humanitarian thing to do to help the unemployed, is not translating into sustained economic activity.
Therefore, the government must do more than merely stimulate the economy. The government must get involved in creating sustainable industries rather than just putting money into consumers' hands and hoping that this will stimulate sustainable job creation by existing businesses. In short the government must develop an industrial policy. The government needs to get involved in the creation of industries that can provide sustainable jobs that won't be outsourced. This does not mean that the government has to be hiring the workers and paying them itself. If the government provides seed money much as a venture capitalist would, then private enterprise can do the actual business of creating jobs and paying workers. Is this socialism? I hardly think so. The alternatives are not big government or small government. The alternatives are laissez faire capitalism which as you may have noticed is not working and a form of capitalism which you may have noticed is working better in other countries.
China, for example, is sitting on a pile of cash. In fact they are the US' chief creditor. They are actively involved in steering their economy and thus creating jobs. They don't, however, micromanage the whole economy. They leave that to various privately run enterprises which are in it for the money, the moola, the profit motive. The Chinese government just manages the commanding heights of the economy. This does not mean that they own the commanding heights of the economy which is what socialism represents. What the Chinese form of authoritarian capitalism really represents is that the Chinese government is actively involved in pursuing the interests of the Chinese economy and hence the Chinese people absent presently a welfare role as in the European model. This fact and the absence of any industrial policy in the US is the reason why China is eating the US' lunch.
Europe is another example where government is actively involved in pursuing the interests of the economy without controlling or being involved in every aspect of it. (See Europe's Promise by Steven Hill.) Rather than a "welfare" economy, the European economy can be more accurately described as a "workfare" economy. They will do everything possible at the governmental level to create jobs and get people employed in the private sector. Storefront government employment agencies bend over backwards to find people jobs. The whole idea is to get people in the position of becoming productive members of society thereby increasing tax revenues and diminishing welfare payments. For those who can't be employed for any reason, Europe provides generous welfare benefits (this is the the main difference between Europe and China insofar as the economy is concerned), but the primary impetus is to get people employed.
Many other countries including Japan with its Ministry of International Trade and Industry have government level industrial policies. Public-private partnerships can kick start industries which are capable of providing sustainable jobs. It's obvious which industries need to be created: green energy, infrastructure rebuilding, high speed rail, a modernized electrical grid, hardened and secure computer systems among others. For some reason private enterprise is not willing or able to create large scale industries employing American workers in these fields. Instead other countries are stealing a march on the US. A cabinet level department of trade and industry would oversee import and export policy, seed start-up industries, maintain a jobs policy in the interests of American citizens and seek to accumulate a surplus rather than a deficit for the American government which was funded in its early years solely by the money it made from tariffs and not by an income tax.
In conclusion, waiting around for the US economy to "recover" is bound to be a policy of failure. Stimulating the economy through giving consumers money to spend into the economy (Keynesianism) will only produce a temporary stimulus with ongoing deficits. Lowering taxes (Reaganomics or supply side economics) will only add to the balance sheets of large corporations since they are already sitting on piles of cash. The government must get actively involved in creating self-sustaining industries of the future in order to compete with other countries whose governments are actively involved in creating those industries and in looking out for the employment and well being of their citizens.
