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Monday, February 09, 2004

A Jobs Recovery? Look Again

Prime Minister John Howard in his response to claims that he sold out Australian sugar farmers -in effect making them sacrificial lambs in the bilateral trade agreements reached with the U.S. over the weekend- basically said it was true. He didn’t pressure America to drop its sugar subsidies in order to gain better footing for the rest of Australia’s industrial and agricultural exports (the biggest prize being a gradual reduction of beef tariffs).

Though I disagree strongly with John Howard’s politics, his honesty is refreshing. This frankness is something that’s missing in American politics, and sadly probably will be for some time The demise of Howard Dean’s campaign shows that honesty carries you so far, but glitz carries you farther, and spinning equals winning. Obviously one of the best spinners of our time currently resides in the Oval office and yesterday in an interview with NBC’s Tim Russert, he showed some of that winning form. John Kerry take note, questions about Bush’s military record spin into an implication of an assault on the National Guard itself and its service men and women. This of course could be expected with the unpatriotic defenders of terrorism that question the war with Iraq. Don’t they care about those families of the victims of September 11?

Anyway, spin as he might, Bush showed particular weakness when it came to the economy, he said he “welcomed the chance to debate that” but he tried to deflect all the follow up questions back to Iraq and terrorism. Despite his exuberance, his economic policy rambles toward a fairly massive train wreck (and I don’t mean just for the soon to be defunct Amtrak). Bush’s team, John Snow in particular, have been using some fairly risky actions to fuel what could be called a voodoo recovery. Jobs are increasing (113,000 the last two months), albeit far more slowly than the 300,000 a month number Snow and Bush said would happen. The location of these jobs troubles me the most, as few are occurring in the manufacturing sector, with most of January’s 112,000 net gain (100,000) being in retail and construction. Think about it.

How much does the average retail job pay? How many hours do they give? If you need help, I can tell you that over the last two weeks I, in my humble retail job as a stockperson for Victoria’s Secret , have worked a total of four hours for $7 an hour -which just happens to be the minimum wage here in Vermont. Of course I don’t have health insurance, can’t pay rent or heating costs, but who cares? I have a job. 76,000 retail jobs in January, wow, that’s a robust recovery if I ever saw one. Construction isn’t much better, ask construction workers how secure their employment is and you might get laughed off the lot.

In order to create these jobs, American policymakers have had to erode the price of the dollar (it dropped another three cents against the euro today despite the G7's admonition against “excess volatility”) and keep interest rates at historic lows for a dangerously long period. The political benefits are clear, the lower dollar makes the country’s GDP gains look larger in dollar terms, even if they are relatively weak. An added bonus, at the expense of our European allies who already hate Bush anyway, exports also will increase and our overall trade deficit will decline. Again in dollar terms, the difference will seem much larger than it would have seven months ago. Meanwhile, by keeping interest rates low, consumers are encouraged to spend money they
don’t have for products they don’t need, or otherwise wouldn’t be able to afford.

As soon as the inevitable happens and rates rise, those stuck in flexible rates feel the pinch and pass it on down the line until you have an economic crisis. Even conservative economists see as many as 20% of American property loans going into default by 2012. At that point, the federal government will have to intervene with a bailout, because 20% of American homeowners losing their property is a political catastrophe (think 1980's S&L's only exponentially larger). Oh, and by the way, at the same time you have Baby Boomers clamoring for their Social Security checks. The longer rates are kept low, the larger this pending fiasco becomes.

However, in the meantime, retailers have to hire to keep up with consumer demand for cheap imported Chinese (nothing against the Chinese, human rights issues excluded, their recent economic policies have fueled a real and remarkable economic resurrection) merchandise and home builders have to keep up with demand for large overpriced tract housing in gated communities. People aren’t paying for these products with their seven dollars an hour from the local branch of the nationally recognized chain boutique, and they aren’t buying homes with large reserves of stockpiled cash. Yet all the numbers look good and if certain powers that be can just keep spinning it that way until November...

Bran 5:10 AM : |


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