Labor Day 2011

The numbers are well know, U-3 unemployment 9.1%, the more accurate U-6 measure stands at 16.2%, roughly 22.8 million Americans are unemployed, discouraged and no longer seeking work, or forced to work at a part time job, 45.8 million Americans currently receive food stamps. This is the third time I have written a Labor Day post for this blog. In my mind it is becoming my most important post of the year.

“The harvest is past, the summer is ended, and we are not saved.”

The so called recovery following the Great Recession of 2008 has been called the Jobless Recovery. I do not call it a recovery at all. Employment numbers started down 43 months ago. In that time over 8 million jobs have been lost, less than 2 million have returned. I contend this is not a recession but a depression. It doesn’t feel like a depression because 45.8 million Americans are receiving food stamps. The most recent number I could find (not referenced to an original source) indicates 13.8 million Americans are receiving unemployment benefits. These benefits have been extended to 99 weeks, essentially becoming a new form of welfare. Finally, a lot of people are taking Social Security at 62 because they can not find employment. While I am glad this social service net still exists, we are paying for it with borrowed money we have no way of repaying.

I fear we are facing something new, the beginning of the end. The United States experienced an extraordinary run. At the end of World War II we were the only industrialized nation in the world with an infrastructure not bombed into ruin. The run from 1945 to 1965 was completely unprecedented. For the first time in history, unskilled labor earned a solid comfortable middle class wage. Then hubris began to take its toll. We attempted to put a man on the moon, fight an extended mid-sized war in Vietnam, and end poverty in this country all at the same time. To paraphrase the song, “One out of three ain’t good.”

Ronald Regan, Paul Volcker, the PC and Internet revolution, and most importantly historically unprecedented numbers of women in the workforce gave the American Dream a good 15 year run from 1985 to 2000. Since then, as a nation, we have been headed down.

The following is a work in progress. I have shared a couple different versions with a couple of different people. I am not yet completely happy with it but it captures the spirit of my fears. All of it is true, but it did not all happen at the same time. Imagine that it was written by a Roman Officer on his reassignment from Britain to Gaul.

I feel deeply ashamed that we are leaving our British allies to the mercies of the barbarians who live north of Hadrian’s Wall, but the truth is we can no longer afford to field the 35 legions necessary to defend our empire and still provide bread and circuses for the unemployed masses in Rome. Our leaders pretend that they can solve the problem by just adding a little copper to our gold coins or shaving a bit off their edges. They think no one will notice. However, even out here on the frontier the old money has gone out of circulation and the prices of necessities purchased with the new coins are rising quickly.

I am sorry to hear so many of our neighbors are losing their farms, but with such high taxes they can no longer compete with cheap imported Egyptian wheat tended by slave labor. It is disturbing that such good people are being driven into the capital to live on the Emperor’s (May he live forever) bread. I have always believed the freeman on his own land was the backbone of our Empire. Now they are wards of the state.

Perhaps with our legion reassigned to Gaul we can stop the flow of German tribesmen into our heartland. I know members of our senate view these aliens as cheap labor and a good source of new recruits for our army, but I fear if we do not stop this invasion soon the light of Rome will be extinguished. We in the West could be facing a 1,000 years of darkness.

The way I see it, our biggest problem is too much bad debt. Our national debt is following a predictable pattern. As it approaches 100% of GDP the increase is becoming less linear and more parabolic. If we do not get a handle on it soon, our economy is doomed. Only one country in history, Maggie Thatcher’s England, ever returned from a 150% debt to GDP ratio without a revolution and/or a major economic collapse. The individual American family is carrying almost an identical debt load as the Federal Government, about 14 trillion dollars. All this debt is strangling potential productive economic activity, as interest payments are bleeding our nation and our families dry.

I fear our leaders from both parties have run out of ideas. We have tried over 3 Trillion dollars of various kinds of stimuli. The bank bailout was going to generate a huge increase in investment and spending through the magic of fractional reserve lending. It hasn’t happened. The banks are finally afraid of lending money to people who can’t repay. Sensible individuals and corporations are refinancing at lower rates and paying down their debt totals. They don’t want to borrow any new money.

Infrastructure projects are not the answer. I am all in favor of filling pot holes and repairing bridges, but then what? They are temporary jobs paid for with borrowed money. Given the current demographics of the construction trades, it is reasonable to expect some of the wages paid will be handed off untaxed under the table at less than minimum wage. Undoubtedly some of those funds will be repatriated by electronic transfer to other countries.

While increasing taxes almost certainly will result in more lost jobs, cutting taxes does not guarantee an increase in employment. Companies large or small only hire new employees when they are certain that the potential profit that could be generated by these individuals exceeds the cost of such a commitment.

We are often told new technology is the answer. What new technology? There is nothing on the horizon to replace the 20,000,000 factory jobs we have lost in the last 20 years. In our current situation, the only thing that matters is the creation of wealth producing (as opposed to service sector) jobs in the private sector. These are the kind of jobs that can pay our debts and build a surplus of wealth to invest in more wealth producing activities.

20,000,000 additional taxpayers would solve a lot of problems.

Sadly attempts by the Government to cherry pick technologies in the alternative energy field have been a disaster. Recently a solar energy company that received over $500 million in Federal largesse declared bankruptcy. Fraud is suspected. Our Government’s attempt to encourage the development of a wind energy industry was somewhat more successful. As a result there are now several new wind energy factories -- in China.

Education is not the answer. First of all, most people are just average. It is extremely unlikely that education can turn an assembly line worker or a roofer into a chemical engineer or a medical doctor. I went back to college in mechanical engineering when I was 30 years old. I was married and extremely motivated. Engineering school damn near killed me. I thought I was pretty smart until I ran into integral calculus. I literally studied some of that material until I was in tears. There were concepts I never understood. I simply memorized the derivations and moved on. Even if successful, who is going to hire a 50 year old computer programmer with no experience when 4.5 perfectly healthy young computer programmers with 5 years of relevant experience are available at a lower cost? Who is going to pay for all this education? If the taxpayer, we have increased the nation debt. If the individual, we have increased the very serious problem of student loans that cannot be repaid.

We are past the point of fixing blame. We need to fix the problem. It won’t happen in a year or even ten years. It took us roughly 50 years to get ourselves into this mess. There are things I believe we could do to help turn around the situation if it is not already too late.

Offering tax credits for corporate research conducted by American citizens in this country might trigger the discovery of the next big thing. Comprehensive tax reform that eliminates loopholes and subsidies in exchange for a lower overall corporate tax rate seems like a no brainer, except to the beneficiaries of those loopholes. A tax code that rewards good behavior, like bringing corporate profits back to this country to create jobs in this country seems like a good idea. Currently we reward companies for exporting profits and jobs through the tax code. Insanity.

Carefully, ratcheting down safety and environmental regulations will help encourage a return of industry to this country. When I worked in the textile mills of South Carolina in the 1970s I watched the destruction of about 250,000 American jobs by a single regulation. Brown lung was a real problem in the greige mills that wove cotton cloth. Cotton dust really caused lung cancer and emphysema. Taking out 90% of the cotton dust was accomplished with inexpensive simple technology. Misters placed over the looms that knocked the dust out of the air. Charged plates in sheet metal ducts pulled the dust out of the air as it was sucked through these contraptions by a fan. When OSHA demanded a 95% reduction of airborne cotton dust, expensive new technologies, like enclosed looms were required for compliance. At the time the return on investment for textile equipment was about 3.5%. A pass book account at a savings and loan was paying 5%. The textile companies just threw up their hands in despair, shut down their factories, and sold their surplus equipment to places like Korea and Pakistan where it was operated by 14 year old girls working 12 hour shifts for near slave wages with very little in the way of safety or environmental regulation.

Most importantly, we need some kind of reform in the current free trade laws. They haven’t worked, they aren’t working, and they aren’t going to work. In the early 1980s our country was threatened with an invasion of high quality, low cost Japanese cars, subsidized by a government intent on exporting its unemployment problem to other countries. The Regan administration threatened the Japanese with extremely high tariffs unless some of those automobiles were produced in this country. Today every major automobile manufacturer with exception of Volkswagen has an assembly plant in this country, more of that kind of thinking in necessary if we are to have a future.

Our situation has been compared to a family earning $40,000 a year, spending $70,000 a year, and carrying $300,000 in uncollateralized debt. We are in deep trouble. The only bright spot is that family has a press in the basement that can print money. However, some of their creditors are growing suspicious of their paper. It isn’t my little holding of gold in an exchange traded fund that is driving the price of precious metals. The price of gold is being driven primarily by the Chinese and Indian governments hedging their position in US Government securities. Now even the European Central Banks are net buyers of Gold.

Hopefully, there are enough men and women of good will in our Government who are not bought and paid for by special interests to begin to turn the tide. At this point we can only pray and support these men and women if we can find them.

Let me end this post with the same words found at the conclusion of my column for Labor Day 2010. To me, they are more meaningful than ever.

On this Labor Day, let us take at least a moment, look into our own hearts, confess our sins, and ask God to extend his hands in mercy to our Nation. Let us try and understand that when we stand with Christ we can not separate ourselves from our neighbors.

Psalm 70

[1] Make haste, O God, to deliver me; make haste to help me, O LORD.
[2] Let them be ashamed and confounded that seek after my soul: let them be turned backward, and put to confusion, that desire my hurt.
[3] Let them be turned back for a reward of their shame that say, Aha, aha.
[4] Let all those that seek thee rejoice and be glad in thee: and let such as love thy salvation say continually, Let God be magnified.
[5] But I am poor and needy: make haste unto me, O God: thou art my help and my deliverer; O LORD, make no tarrying.