Bubble and Meltdown - Jobs, Jobs, Jobs

I have been meaning to write this for sometime. One of the most underreported aspects of the American economy is the loss of jobs and the decrease in middle class wealth and income. These are long term issues that preceded the bubble and still exist today.

Let's start with the loss of jobs. The reasons are obvious. Technology and globalization. It would be possible to write an entire book about how technology in the long term eliminates jobs. Some argue that technology increases productivity and therefore wealth and income and it has from time to time and in some parts of the economy. But the long term trend is inescapable. From small manufacturers, to farming, to large scale agriculture, and now to services.

The impact on globalization on US jobs is obvious to us all. Impacts started with manufacturing and have extended to low value services and now extends to professional services such as accounting and computer science.

Next combine the loss of jobs with loss of wealth and income for the middle class. The main drivers of this are also long term. First the competition for jobs due to job scarcity drives wages down. The reduction of the power of organized labor has hurt all US workers. Some claim that the unions were too powerful but that was clearly not the case. The unions never had that much power. But while they were viable they supported wages and benefit levels for non-union workers. Almost all gone now.

All of this would eventually lead to a reduction of consumer spending. This was avoided for awhile. First wives entered the work force in the 70s and 80s. In the 90's there actually was a peace dividend and the subsequent economic growth and asset appreciation (housing and stock market) supported consumer spending.

By 2000 all of these short term influences had been spent. Jobs were still being lost and wealth and income was beginning to become concentrated. But we had two bubbles in the 2000's that disguised the longer term trends. After the Internet bubble we had a jobless recovery. We would likely have fallen into a long recession but then we had even a bigger bubble. The bubble was not just housing. It was an overall asset bubble, a credit bubble and a leverage bubble. All of this excess spending saved or created jobs.

Now that's over and the longer term trends have re-emerged.

I would not be surprised if the unemployment rate stays over 8% for 5 to 10 years.

I would not be surprised if we had a Depression with offical unemployment at 15%.

There are government policies that can improve this situation but they will seem so radical to the American voter that they will not have a chance for success until it gets much worse.