Too many workers

We've come to a major turning point in history. Our economies, throughout most of the world, can no longer absorb our population increases and provide an increasing number of jobs. While there have been periods of high unemployment before in history, they've been reversed. I don't foresee that happening at all in the future. We are permanently in a situation where we have many more workers than we need, and there's no way for the extra workers to join the regular economy at the full-fledged rate.

Looking just as the US, we have the lowest worker participation rate in 36 years.

Labor Force Participation Rate 1948 - 2013

Image: businessinsider.com

We have high unemployment among our young people, and that's a worldwide problem. It's certainly possible for jobless people to be productive (cleaning, doing small repairs, gardening, teaching, etc.), but not at the going rate. So this extra labor force can work in the gray economy, work at home or in family businesses, or can volunteer, but they must be supported by others--those who are working at market rate jobs.

Why don't paying jobs exist for these people? Because our economies have become much more automated. It's been a goal in innovation to automate actions instead of having workers perform them. I go to an ATM machine instead of the human bank teller earning a wage. An ATM costs $2k (according to the ads on Google). That's a lot less than a teller's yearly salary. Ordering is automated online, saving the cost of a order entry clerk. Crops are planted and harvested with the help of huge machines, shrinking the number of farmers to 2% of the US population.

Too many workers? Yes, and too many people.

With all this equipment, we just don't need as many workers. So what should we do? There's a logical answer, but most people don't want to admit it: we need fewer workers, thus we need fewer humans. We should be shrinking our birth rates. Our birth rate should be lower than the replacement rate--yes, lower. Not zero growth, but negative growth, meaning contraction of the human population. If we don't do this, we will continue to have too many workers for the rest of foreseeable future, barring global cataclysm.

What are the downsides of fewer children and lower human population? Many people don't like the policy. Their cultures emphasize having children to carry on their legacy and take care of elders. It's hard to counter the cultural norms, but that doesn't mean that the cultural norms are logical or well-adapted to our current situation.

We'll have fewer people paying into Social Security, but we have to face that anyway. The huge baby boom generation is an anomaly that shouldn't become the norm just due to worries about how pensions are going to be paid. Besides, if there aren't enough jobs, those unemployed people aren't contributing anyway.

Suppose we underestimate the number of workers we need, and we create labor shortages due to a labor pool that's too small? That's not a big problem. We can either import workers or we can increase our birth rate to correct the problem. As we've seen, we can increase our population very quickly when we want to.

I'd like every country to decrease their birth rates, and they are. Two decades ago, few countries were reproducing below replacement rate. At that time it was considered a dire situation, but it no longer looks that way. Now many more countries are running below replacement rate. That's a good thing ... especially if we want to avoid more of this.

The lucky one has a metal roof (Bangladesh).

Image: paveldospodinov.com

They pray for a rectangular shack instead of a lean-to (Bangladesh).

Image: theguardian.com

Apartment blocks don't solve the problems (Cairo).

Image: ahlu-sunnah.com

Update 12/26/14. An article from The American Conservative pointing out that no one (despite political parties' claims) seems to know what to do about these economic problems.

Why we should build the Keystone pipeline

...because these are the right kind of jobs. These jobs are involved in producing something of value in the world, and that value isn't likely to evaporate in a slowdown. Some industries, like retail, the arts, and casinos, don't have vitality because people cut back strongly in these areas during in a recession. Of course people cut back on energy usage in recessions too, but not nearly to the same degree.

So, if we build the pipeline, we'll have the construction jobs and then the maintenance and control jobs. We should also be collecting transit fees. If the Canadians want to run this pipeline through our country, they can  pay us some sort of royalty, but not so much that it becomes uneconomical for them to use the pipeline. If the oil ends up being processed in the US, there are more jobs in that too. But there's also a strong chance that the oil will be exported, so we shouldn't count on refining jobs. The long-term benefits to this country may be limited to maintenance jobs and transit fees, so that's what we need to lock in.

There may be some strong reasons not to build the pipeline too. If the pipeline leaks and causes expensive environmental damage, there go all the profits! If there aren't profits, why the hell would we want it? But probably the pipeline can be built and operated safely. I don't know for sure because it's outside what I can readily research.

Other considerations, like how dirty the oil is, how much carbon pollution it causes, how the extraction may cause environmental damage to Canada--these considerations are less important than our national need for productive jobs. I wish it wasn't so, but I feel it is. We have lost so many of our productive jobs, and this project would replace some of them. These would be new US jobs and new foreign exchange flowing into the US, not just eating the lunch of some other part of the country, so we need this.

We should do this project and other projects that bring production back to the US. That's the only way to rebuild a strong economy. An economy based on service jobs and finance--not so good, as the past decade has shown us.

Image: bakkendispatch.com

What parts of the stimulus worked?

Previously, I've shown some evidence that the stimulus worked in halting the spiral of job losses. There are very legitimate questions as to whether this was true, since the slide stopped before much of the stimulus money filtered into the economy. Looking at the evidence again, I think the stimulus was successful at stemming the recession, and I'll present that case here.

 Tax Credits

First of all, much of the stimulus was in tax credits, some paid in 2010, but about $140 billion in 2009. This money probably benefited the economy right away. Some of the money went into spending as intended, some into paying down personal debt, and some into savings.
Comments: Savings rate went up, so not all the money went into consumer spending. However, it's better for individuals to decide how to use the money, since they better comprehend their financial situation. In this atmosphere, the money probably didn't go into bubble investments.

Payments to States

The federal government gave states approximately $175 billion to make up for their sharply declining revenues. States would have been forced to make significantly deeper cuts in teachers, police, firefighters, Medicaid, Head Start, community development programs, and health programs.
Comments: This portion was very effective at reducing massive public job losses. However, that means that it shielded public employees, who tend to vote Democratic. I doubt that cash infusion into the private sector could have be as effective, unless we set up programs like those in Germany that help companies keep people in jobs at fewer hours.

Infrastructure

The government allocated $184 billion for various infrastructure (highway, other transportation, broadband, water projects, schools, and veteran hospitals).
Comments: These are classic stimulus and/or pork barrel projects, which tend to range from excellent projects for safety and efficiency to throwing money down a sinkhole. On the plus side, it funneled money to a sector especially hard-hit by the recession, and some project were a boon to their regions. But among the negatives, it takes time to plan wisely before construction can begin. There's also a risk of boondoggles, such as the notorious high-speed rail program costing $8 billion. One important lesson: A recession is not a good time to spend on expensive, highly speculative projects. Put away the wishlists and stick with vanilla, well-understood engineering projects.

Direct Aid to the Poor, Disabled, and Unemployed

For those you didn't receive tax credits due to lack of taxable income, the government gave $82 billion. About half was unemployment benefits, but also included extra payments to those on SSI (federal disability) and Social Security and a large expansion of food stamps to meet increased demand.
Comments: I've read many places that money given to the poorer people in society ends up flowing very quickly back into the economy as consumer spending. This is helpful in keeping our economy afloat, but not in building it back up or correcting imbalances. I support food stamps as basic necessity, though the allotment is often more generous than necessary. I'm against raising and disability and unemployment benefits when working people are generally doing with less. This may work as a fairly pure Keynesian stimulus, but it is terrible as a prolonged policy. It also looks like a gift to a favored cause.

Science, Research, Energy, and Technology

This is a grab bag, some of which are like infrastructure spending, but on a smaller scale, only $67 billion. It includes grants for many green energy and efficiency programs, information technology upgrades for many federal agencies, and small grants increases for scientific research.
Comments: As with infrastructure projects, it's hard to tell good projects from wasteful ones, but at lest most of these projects were small and probably created future savings in energy costs. However, it also looks like a gift to favored causes and constituencies--environmentalists and white collar scientists and engineers in government agencies. Again, it may be easiest to stem unemployment by saving the jobs of government workers. But I'd argue that it's an expensive short term benefit and are likely areas to be cut when necessary budget cutting is finally undertaken.

Why (I Think) The Stimulus Worked

The stimulus worked because the federal government showed that it wasn't going to let employment go down the tubes--it would throw money at the country to prevent a depression. That, along with quantitative easing and the auto bailout, reassured businesses and people that we weren't going to let the free-fall continue, and it was safe to spend somewhat, rather than saving every scrap we could.

Parts of the stimulus were wasted, but time was of the essence, so careful consideration wasn't possible. The biggest boondoggle was probably high-speed rail. Probably some of the energy projects were also wastes, but of much smaller amounts of money.

This stimulus definitely had a liberal spin on it--money to ensure jobs for government employees and green energy, but not for large defense systems or oil exploration or coal projects. I can understand Republican anger about it. The stimulus does look like a big jobs program for Democratic constituencies. However, I think a temporary funneling of money into government was the best way to staunch to loss of jobs.

 Why a Conservative Stimulus Wouldn't Have Worked

Funneling money through more corporations probably wouldn't have helped, since corporations that had cash were mostly hoarding it. (The TARP, a different topic, was necessary to unfreeze money circulation). Giving more money directly to people in the form of tax cuts wouldn't have directly saved jobs. State governments would have had to cut very deeply. And people who had extra money mostly saved it to create extra cushions in case they were next to lose their jobs. Giving extra money to individuals and companies that already had money didn't work to the extent it was done.

The conservatives are definitely right about something though. You can't maintain stimulus year after year without getting into a monstrous level of debt. As I've said before, it's high time to end stimulative spending and start intelligent cuts.


Extras:
The graphic is from Wikipedia, but I put some of the money into different categories. These are also interesting sources:

• video with charts
• Politifact on job creation
• New York Times article on stimulus success
• Good breakdown on stimulus spending
• IHS global insights (economics firms cited by other sources)

The Shredded Safety Net

I was thinking about what could loosen the purse-strings and get people spending again. Now, I'm not an advocate of profligate spending at any time (my family will confirm that), so I wouldn't want people to falsely feel safe to overspend.

For some people, having a bonus in their pocket is enough stimulus to spend, but most of us take a longer view. We want to feel sure that we won't regret the expenditure, so we have to believe the money will keep coming in.

It's hard to do that now with the job market as lousy as it is. Being able to count on our jobs or the good chance of getting another job is the safety net for most people. Rather, it was the safety net. No other safety net is going to take the place of a robust job market. Even if we once counted on our home equity or credit lines, no one these days realistically believes they can live on their home equity, credit cards, or savings for very long.

With the job safety net so tenuous, most of us are going to try to bulk up our other safety systems--our savings and any other income streams -- and pare back our obligations so we can live on less if the dreaded event occurs and we lose that job.

The renewed focus on jobs by all political parties is welcome, but I'm not hopeful that we can stimulate job creation by supply-side methods (lowering taxes) or by government programs. Both methods will raise both the deficit and doubts about our future, which isn't good for our job climate. I eagerly await the job proposals by all serious national leaders.

Why the medicine stopped working

Our economic woes haven't been solved with supply-side tax cuts or Keynesian stimulus, but why? Both cures depend on redirecting money, but lack of money isn't the root of our economic problems. People have buckets of money to invest. Our stock market sloshes around $69 billion every single day. People (including me) have poured $11.8 trillion into mutual funds. Money sloshes into oil futures, CDOs, ETFs, REITs, hedge funds, etc. Everyone is trying to get good return on their bucket of money. Sometimes people are being enticed with slightly higher returns or considerably higher returns to invest with Bernie Madoff or in offshore Icelandic banks or in well-rated but not-so-solid American mortgage-backed securities.

OK, that isn't happening today. But it was happening in the 2000's until about 2008. Some of that money (including some of mine) vaporized in 2008-2009. But much of it was replaced somehow, maybe with quantitative easing (QE) cash, maybe with money we had shipped to China, maybe with money that was sitting on the sidelines. I don't know where all that replacement money came from, but the Dow soared from a low of 6626 in 2009 to a high of 12810 in 2011.

I may not know where all the money came from, but I can guess what it means. Our economy, and economies around the world, are going to be unusually susceptible to financial bubbles. Since around the mid-1990's, we've had a tech bubble, a housing bubble, and an oil bubble. Maybe there's a stock bubble right now. Maybe there's a gold bubble.

With all the available money, why isn't there more investment and growth? Because there aren't strong new ventures to invest in or expansion opportunities, particularly in the US, but also elsewhere in the world where bubbles have popped. Demand is strongly depressed in the US, where people and business are belatedly paying down debt instead of spending and investing. It's not wrong for people and business to do this, because there was too much debt burden. But how can our economy start growing again?

I wish I knew, or wish that old cures (supply-side or Keynesian stimulus) showed signs of working. We might be in for Japan-style economic drift. The only hope I have is that better fiscal management of the federal budget will encourage optimism and new investment. I'd love to see some manufacturing return to the US, new manufacturing that starts small and local with potential to grow, and export-oriented manufacturing based on our natural resources like farming and forests.

To me, this seems like the kind of organic growth that can work... if the environment is right. That means regulation that is light enough to both protect and encourage. We also need taxation rates that don't unduly add to the risk or subtract too much from the reward. However, decreases in taxation need to be measured against the loss of the revenue. Perhaps easing regulation is the more fruitful approach.

Conservatives are saying "Duh!" but that's OK, because this is more a message for liberals. If you want a stronger economy with more jobs available, get over your instinctive distrust of business. What suffocates business suffocates our economy and suffocates our country. The purpose of regulation isn't to tie business up in knots, but to keep people safe. Use it for that purpose only! Abusive regulation is no one's friend.