The uncertain case for job creation

Unemployment is rising as in any recession, more so than most for sure, as jobs are lost in recessions. What's different this time is that many of the jobs being lost are ones that will not come back when the economy begins to revive. The process that has been experienced in some areas of the country over the past 20 years has now radically accelerated such that it will have serious impacts on areas with a history of prosperity. What has been experienced in the towns of the mid-south that relied on textile mills, furniture factories, and tobacco merchandising, or the towns of upstate New York and western Pennsylvania that were once a core of heavy industry will be learned in spades elsewhere. That lesson is that all of this talk about retraining, new green jobs, and creating diversified knowledge based economies in a sustainable way is pure pie in the sky for the majority of the current generation. Retrain an auto worker or parts fabricator for six months to competently sit at a computer and then they can go out and work at a call center for $12 an hour with minimal benefits if they are lucky.

That sounds like a negative scenario. Overall many jobs will come back in the aggregate although there is now talk by Bill Gross and others of the "new normal", referring to a sustainable level of higher unemployment as we revive, something like 5.5 to 6.5% which is not exactly the kind of sustainability that the word of the year is meant to refer to. While some places will again prosper as before, more areas will be left behind and any revival will be in the distant future if at all in the most affected locales. When the major employers shut down in moderate to small size towns the impact reverberates in a way that over time impacts almost everyone's pocketbook and eventually core services like schools and health care. The way back becomes unclear.

The way back for any place and the country in general is characterized by the words entrepreneurship and innovation. There are some bumps in the road for this vision. First there is the access to credit as, while consumer credit has eased up modestly recently relative to the freeze of winter, commercial credit for small and moderate business is still in short supply. Banks simply could not rationally expand their balance sheets while experiencing ham handed regulation and waiting in the dark for the stress test results to be announced, and now when some financial leaders try to exit TARP funding new capital demands come from nowhere, actually from Treasury and the Obama administration, as if the stress test results meant nothing. How can banks get excited about new lending to entrepreneurs and innovators when any expansion of the balance sheet could lead to more Federal control that it is obviously impossible to predict. It's just not rational that they could. Second, venture capital is all but dead. The money has dried up because of investor risk aversion and because of uncertainty, or perhaps certainty, about the Obama administration's tax policies, regulatory approach and their obvious distaste for people who have made large amounts of money in businesses like venture capital. Third, like it or not, some of the Obama tax proposals, especially related to corporate taxation, are wrong headed and simply will discourage some entreprenuers from investing their time and money. Fourth, and there are more but this is it for now, the absurd visa restrictions that have cut many industries off from the world in the name of U.S. jobs exclude smart and motivated people from other countries similar to many who in the 1990's participated in creating thousands upon thousands of jobs for Americans in Silicon Valley and other technology centers("your passport, yes Mr. Einstein, the purpose of your visit, vacation, business"?, what type, scientific research, this could be done by one of our citizens, visa denied.").

So to those newbies in the midwest who will join the chronic recession cities of other parts of the country, good luck. The scenario does not look good. What the big picture economists don't ever seem to acknowledge is that in this type of city many people, many families, just can't afford to move for the opportunity to look for another job. They don't have the money, they don't have the support system, and they don't have the confidence to pick up and leave. They are stuck with limited opportunity and a week to week lifestyle. In truth, what really ended the Great Depression was WWII, when the huge factories were set up around the country to make war equipment and munitions. Virtual shantytowns developed around these factories as people knew there were certain jobs there and there was decent pay. That was the needed incentive to create real mobility, to get people to leave deadend lifestyles.

It would be tempting for anyone reading this to suggest that the view is too bleak. Americans historically rise to the occasion, band together, and pull themselves up by their bootstraps. Entrepreneurship is in the American DNA. In fact some have suggested that this is just what the country needs to reinvigorate itself, to break down the bad habits and leadership of the past and become a "new" USA, sort of like a "new" GM. That's an attractive thought, perhaps naive, maybe right over a long time frame, but getting from here to there may not be a pleasant ride. It is, however, likely to be in a hybrid for what that's worth.