Last week CNN triumphantly reported that the job market has recovered to its 2008 peak. Here’s the headline:
Not so fast, though.
Sociologist Philip Cohen observes that the real news is hidden in the fourth paragraph. There the author of the piece acknowledges that the job data are numbers, not proportions. The numbers have bounced back but, because of the addition of almost 12 million people to the U.S. population, the percent of Americans who have jobs or are in school remains lower than it was in 2008.
Given population growth over the last four years, the economy still needs more jobs to truly return to a healthy place. How many more? A whopping 7 million, calculates Heidi Shierholz, an economist with the Economic Policy Institute.
Using the Bureau of Labor Statistics, Cohen offers us a clearer look at where we’re at:
At Pew Social Trends, Gretchen Livingston has a new report on fathers staying at home with their kids. They define stay at home fathers as any father ages 18-69 living with his children who did not work for pay in the previous year (regardless of marital status or the employment status of others in the household). That produces this trend:
At least for the 1990s and early-2000s recessions, the figure very nicely shows spikes upward of stay-at-home dads during recessions, followed by declines that don’t wipe out the whole gain — we don’t know what will happen in the current decline as men’s employment rates rise.
In Pew’s numbers 21% of the stay at home fathers report their reason for being out of the labor force was caring for their home and family; 23% couldn’t find work, 35% couldn’t work because of health problems, and 22% were in school or retired.
It is reasonable to call a father staying at home with his kids a stay at home father, regardless of his reason. We never needed stay at home mothers to pass some motive-based criteria before we defined them as staying at home. And yet there is a tendency (not evidenced in this report) to read into this a bigger change in gender dynamics than there is. The Census Bureau has for years calculated a much more rigid definition that only applied to married parents of kids under 15: those out of the labor force all year, whose spouse was in the labor force all year, and who specified their reason as taking care of home and family. You can think of this as the hardcore stay at home parents, the ones who do it long term, and have a carework motivation for doing it. When you do it that way, stay at home mothers outnumber stay at home fathers 100-to-1.
I updated a figure from an earlier post for Bryce Covert at Think Progress, who wrote a nice piece with a lot of links on the gender division of labor. This shows the percentage of all married-couple families with kids under 15 who have one of the hardcore stay at home parents:
That is a real upward trend for stay at home fathers, but that pattern remains very rare.
In a fancy bit of marketing, U.S. capitalists have been reborn as “job creators.” As such, they were rewarded with lower taxes, weaker labor laws, and relaxed government regulation. However, despite record profits, their job creation performance leaves a lot to be desired.
According to the official data the last U.S. recession began in December 2007 and ended in June 2009. Thus, we have officially been in economic expansion for almost five years. The gains from the expansion should be strong and broad-based enough to ensure real progress for the majority over the course of the business cycle. If not, it’s a sign that we need a change in our basic economic structure. In other words, it would be foolish to work to sustain an economic structure that was incapable of satisfying majority needs even when it was performing well according to its own logic.
A recent study by the National Employment Law Project titled The Low-Wage Recovery provides one indicator that it is time for us to pursue a change. It shows that the current economic expansion is transitioning the U.S. into a low wage economy.
The figure below shows the net private sector job loss by industries classified according to their medium wage from January 2008 to February 2010 and the net private sector job gain using the same classification from March 2010 to March 2014. As we can see, the net job loss in the first period was greatest in high wage industries and the net job creation in the second period was greatest in low wage industries.
As the study explains:
The food services and drinking places, administrative and support services (includes temporary help), and retail trade industries are leading private sector job growth during the recent recovery phase. These industries, which pay relatively low wages, accounted for 39 percent of the private sector employment increase over the past four years.
If the hard times of recession disproportionately eliminate high wage jobs and the “so called” good times of recovery bring primarily low wage jobs, it is time to move beyond our current focus on the business cycle and initiate a critical assessment of the way our economy operates and in whose interest.
I am so pleased to have stumbled across a short excerpt from a talk by Alan Watts, forwarded by a Twitter follower. Watts makes a truly profound argument about what money really is. I’ll summarize it here and you can watch the full three-and-a-half minute video below if you like.
Watts notes that we like to talk about “laws of nature,” or “observed regularities” in the world. In order to observe these regularities, he points out, we have to invent something regular against which to compare nature. Clocks and rulers are these kinds of things.
All this is fine but, all too often, the clocks and the rulers come to seem more real than the nature that is being measured. For example, he says, we might think that the sun is rising because it’s 6AM when, of course, the sun will rise independently of our measures. It’s as if our clocks rule the universe instead of vice versa.
He uses these observations to make a comment about wealth and poverty. Money, he reminds us, isn’t real. It’s an invented measure. A dollar is no different than a minute or an inch. It is used to measure prosperity, but it doesn’t create prosperity any more than 6AM makes the sun rise or a ruler gives things inches.
When there is a crisis — an economic depression or a natural disaster, for example — we may want to fix it, but end up asking ourselves “Where’s the money going to come from?” This is exactly the same mistake that we make, Watts argues, when we think that the sun rises because it’s 6AM. He says:
They think money makes prosperity. It’s the other way around, it’s physical prosperity which has money as a way of measuring it. But people think money has to come from somewhere… and it doesn’t. Money is something we have to invent, like inches.
So, you remember the Great Depression when there was a slump? And what did we have a slump of? Money. There was no less wealth, no less energy, no less raw materials than there were before. But it’s like you came to work on building a house one day and they said, “Sorry, you can’t build this house today, no inches.”
“What do you mean no inches?”
“Just inches! We don’t mean that… we’ve got inches of lumber, yes, we’ve got inches of metal, we’ve even got tape measures, but there’s a slump in inches as such.”
And people are that crazy!
This is backward thinking, he says. It is allowing money to rule things when, in reality, it’s just a measure.
One conventional explanation for our economic problems seems to be that our businesses are strapped for funds. Greater business earnings, it is said, will translate into needed investment, employment, consumption and, finally, sustained economic recovery. Thus, the preferred policy response: provide business with greater regulatory freedom and relief from high taxes and wages.
It is this view that underpins current business and government support for new corporate tax cuts and trade agreements designed to reduce government regulation of business activity, attacks on unions, and opposition to extending unemployment benefits and increasing the minimum wage.
One problem with this story is that businesses are already swimming in money and they haven’t shown the slightest inclination to use their funds for investment or employment.
The first chart below highlights the trend in free cash flow as a percentage of GDP. Free cash flow is one way to represent business profits. More specifically, it is a pretax measure of the money firms have after spending on wages and salaries, depreciation charges, amortization of past loans, and new investment. As you can see that ratio remains at historic highs. In short, business is certainly not short of money.
So what are businesses doing with their funds? The next chart looks at the ratio of net private nonresidential fixed investment to net domestic product (I use “net” rather than “gross” variables in order to focus on investment that goes beyond simply replacing worn out plant and equipment). The ratio makes clear that one reason for the large cash flow is that businesses are not committed to new investment. Indeed quite the opposite is true.
Rather than invest in plant and equipment, businesses are primarily using their funds to repurchase their own stocks in order to boost management earnings and ward off hostile take-overs, pay dividends to stockholders, and accumulate large cash and bond holdings.
Cutting taxes, deregulation, attacking unions and slashing social programs will only intensify these very trends. Time for a new understanding of our problems and a very new response to them.
Officially our most recent recession began December 2007 and ended June 2009. The following chart provides an important perspective on the recovery period.
Stocks and profits have enjoyed a remarkable recovery. While income is slightly up over the period, it is critical to remember that this is average income and the increase largely reflects gains for those at the very top of the income distribution. Jobs and housing have yet to recover.
So, with returns to capital booming, it is easy to understand why business leaders are relatively content with current policies and, by extension, political leaders are reluctant to rock the boat.
Unfortunately, current policies are unlikely to do much to improve the job prospects or income of most workers. In fact, the rise in business profits owes much to our depressed labor conditions. Unless something dramatic happens, we can expect the next few years to look very much like the past few years.
The current economic recovery officially began June 2009 and is one of the weakest in the post-World War II period. This is true by almost every indicator, except growth in profits.
One reason it has offered working people so little is the contraction of government spending and employment. This may sound strange given the steady drumbeat of articles and speeches demanding a further retrenchment of government involvement in the economy, but the fact is that this drumbeat is masking the reality of the situation.
The figure shows the growth in real spending by federal, state, and local governments in the years before and after recessions. The black line shows the average change in public spending over the six business cycles between 1948 and 1980. Each blue line shows government spending for a different recent business cycle and the red line does the same for our current cycle. As you can see, this expansionary period stands out for having the slowest growth in public spending. In fact, in contrast to other recovery periods, public spending is actually declining.
…public spending following the Great Recession is the slowest on record, and as of the second quarter of 2013 stood roughly 15 percent below what it would have been had it simply matched historical averages… if public spending since 2009 had matched typical business cycles, this spending would be roughly $550 billion higher today, and more than 5 million additional people would have jobs (and most of these would be in the private sector).
The basic stagnation in government spending has actually translated into a significant contraction in public employment. This figure highlights just how serious the trend is by comparing public sector job growth in the current recovery to the three prior recovery periods.
…the public sector has shed 737,000 jobs since June 2009. However, this raw job-loss figure radically understates the drag of public-sector employment relative to how this sector has normally performed during economic recoveries… [P]ublic-sector employment should naturally grow as the overall population grows. Between 1989 and 2007, for example, the ratio of public employment to overall population was remarkably stable at roughly 7.3 public sector workers for each 100 members of the population. Today’s ratio is 6.9, and if it stood at the historic average of 7.3 instead, we would have 1.3 million more public sector jobs today.
In short, the challenge we face is not deciding between alternative ways to further shrink the public sector but rather of designing and building support for well financed public programs to restructure our economy and generate living wage jobs.
The dominant firms in the U.S. and other major capitalist counties are happily making profits, but they aren’t interested in investing them in new plants and equipment that increase productivity and create jobs. Rather they prefer to use their earnings to acquire other firms, reward their managers and shareholders, or increase their holdings of cash and other financial assets.
The chart below, taken from a Michael Burke post in the Irish Left Review, shows trends in both U.S profits and investment .
As you can see the increase in profits (in orange) has swamped the increase in investment (in blue) over the relevant time period; in fact, investment in current dollars has actually been falling.
Looking at the ratio between these two variables helps us see even more clearly the growth in firm reluctance to channel profits into investment. The investment ratio (investment/profits) was 62% in 1971, peaked at 69% in 1979, fell to 61% in 2000 and 56% in 2008, and dropped to an even lower 46% in 2012.
According to Burke, if U.S. firms were simply to invest at the level they did in 1979, not even the peak, the increase in investment in the American economy would exceed $1.5 trillion, close to 10% of GDP.
The same dynamic is observable in the other main capitalist economies:
In 1995 the investment ratio in the Euro Area was 51.7% and by 2008 it was 53.2%. It fell to 47.1% in 2012. In Britain the investment ratio peaked at 76% in 1975 but by 2008 had fallen to 53%. In 2012 it was just 42.9% (OECD data).
So what are firms doing with their money? As Burke explains:
The uninvested portion of firms’ surplus essentially has only two destinations, either as a return to the holders of capital (both bondholders and shareholders), or is hoarded in the form of financial assets. In the case of the U.S. and other leading capitalist economies both phenomena have been observed. The nominal returns to capital have risen (even while the investment ratio has fallen) and financial assets including cash balances have also risen.
So, with firms seeing no privately profitable outlet for their funds, despite great societal needs, their owners appear content to reward themselves and sock away the rest in the financial system. In many ways this turns out to be a self-reinforcing dynamic. No wonder things are so bad for so many.