Our "job creators" don't need to create jobs these days, because permanent long-term unemployment has been actually helping to drive stocks higher --- because an over-saturated labor market depresses wages, helping to increase corporate earnings.
That's why, for moral reasons, the U.S. should have a "path to citizenship" for our current undocumented immigrants, but for economic reasons, should also oppose any further new immigration when the country can't provide enough jobs for those who are already here (such as allowing for more H-1B visas, etc.)
But immigration policy is another matter --- this post is about what the economic wonks are saying about secular stagnation, the labor force participation rate, the employment population ratio, structural unemployment, job creation, taxation, government spending and the reasons for consistent and high long-term unemployment in the U.S. --- but written for Dummies (like myself).
In response to an article at the Wall Street Journal written by a former economic advisor for George H. W. Bush, the economist Jared Bernstein debunks his claim of "The Economic Hokum of Secular Stagnation".
Bernstein: "Larry Summers raised the possibility that the economy is growing below its potential, with all the ancillary problems that engenders (e.g., weak job and income growth), and not just in recession, but in recovery. Stagnation is by definition expected in recession, but not in an expansion, ergo secular stagnation."
Bernstein points to diminished bargaining power (e.g. an over-saturated job market, less union representation, etc.) and stagnant real earnings (after inflation, related to the cost-of-living) as contributors to weak demand and secular stagnation. And to reinforce his argument, Bernstein points to how spectacularly well the stock markets have performed, all in spite of a drop in demand for goods and services during this long period of consistent and long-term unemployment (and in the face of a rising GDP, but more on that later.)
It's become obviously apparent (to most people with common sense) that we currently have an over-saturated labor market and secular stagnation. The U.S. has a lot of people without jobs because the "job creators" have nothing for the jobless to do --- that is, nothing that would increase their profits margins significantly enough that would induce businesses to take any additional risks, such as taking on any additional debt, making any additional capital investment, or hiring any additional workers.
Rather, while earning safer revenue streams, businesses have preferred to simply hold their profits in cash. Job creators don't need any additional expenses related to labor; nor do they need to take any addition risks (and face any of this "uncertainty" we've been hearing so much about).
The most simplified example (using hypothetical interest rates) could be the $700 billion bank bailout and quantitative easing. Because the commercial banks weren't required to lend money to businesses, they could "borrow" money from our central bank (the Fed) at 0% interest, and rather than risking a default on large loans to businesses at 4%, they could earn a much safer 3% by just purchasing 10-year Treasury notes.
Marco Nappolini wrote in November 2013: "If the expected return on investment over the short term is presumed to be lower than the cost of holding cash, then even pushing interest rates to zero will have little effect."
Businesses, in turn, also see no good reason to take on new debt. Rather than taking the risk of borrowing to generate additional returns (which would not justify the expense of labor-to-risk), they have found many other means to increase their bottom lines, stock values and the value of CEOs stock-option grants --- such as outsourcing and offshoring*, stock buy-backs, cutting hours (increasing productively by assigning existing workers more to do), automation and restructuring --- such as bankruptcy, layoffs, union busting (or changes in labor contracts) and pension liquidations (the list is very
creative innovative and almost endless).
* Structural unemployment is a longer-lasting form of unemployment caused by fundamental shifts in an economy and occurs for a number of reasons --- outsourcing and offshoring being one major reason. But outsourcing to another state doesn't affect the overall number of jobs within the U.S. the same way offshoring does --- and because with outsourcing within the U.S., we also don't lose the "multiplier effect" in job creation. That's why America needs to make stuff again. The American jobs that once went to China, are now going to other, even lower-wage countries.
One study shows 1/3 of domestic U.S. jobs are still prone to outsourcing and offshoring; and some offshored manufactured products might be reclassified by the government as domestically manufactured (e.g. Apple's iPhones) to artificially boost GDP and to also artificially lower the U.S. trade deficit. This in turn might artificially boost stock prices as well (and some say, creating another stock bubble).
But profits can't be infinite, not if only the markets and stock prices are being manipulated --- because there also has to be (eventually) real demand for goods and services. And this can only happen with people who have jobs and that also pay adequate wages. So the U.S. has secular stagnation and structural unemployment caused by "fraudulent markets" that are called "free markets".
And then, if one were to add in the tax incentives for not hiring additional workers (e.g. capitals gains on stock-options being taxed at a lower rate than corporate taxes, and then having those stock-options as tax deductions for corporate taxes), this only exacerbates the problem of secular stagnation. One way is because, less tax revenues accelerates the race to the bottom with less investment in infrastructure, facilitates the layoffs of government workers, and forces cuts in investments such as research and other endeavors --- the very things that corporations have benefited from in the past (like putting a man on the Moon.)
Businesses are in business to create profits, not jobs --- "jobs" (human capital) are only a necessary "by-product" in the quest for exponentially increasing investment income (financial capital). The point being, the "job creators" haven't needed to create a great many jobs over the last several years to earn profits because, like our fathers used to tell us, "If it's not broken, don't fix it."
The problem is, the job creators' problems aren't the same problems as the unemployed. While their revenue streams might be working right now, the job market and the well-being of the U.S. labor force is definitely broken.
There was a time when the opposite was true, when potential job creators had a scarcity of labor, such as during the economics of slavery, when labor was particularly scarce at the time of plowing, planting and harvesting.
Too much unused labor is "secular stagnation". The secular stagnation theory blames inadequate capital investment for hindering full deployment of labor and other economic resources.
One (and for many, the most likely) hypothesis is that the growing levels of productivity (enhanced by technology, such as robotics, automation, etc.) is outpacing economic growth and creating economic slack, in which fewer workers are required to meet any demand for goods and services. So businesses have less incentive (no reason) to invest, and instead prefer to hold cash --- especially larger multinational companies with offshore and untaxed profits.
Economists have asked whether the low economic growth rate leading up to and following the sub-prime mortgage crisis of 2007-2008 was due to secular stagnation. For example, economist Paul Krugman wrote in September 2013:
"There is a case for believing that the problem of maintaining adequate aggregate demand [demand for good and services] is going to be very persistent --- that we may face something like the secular stagnation many economists feared after World War II."
Krugman wrote that fiscal policy stimulus (the use of government taxation and spending to influence the economy) and higher inflation (to achieve a negative real rate of interest necessary to achieve full employment) may be potential solutions.
Economist Larry Summers presented his view in November 2013 that secular (long-term) stagnation may be a reason that U.S. growth is insufficient to reach full employment:
"Suppose then that the short term real interest rate that was consistent with full employment had fallen to negative two or negative three percent. Even with artificial stimulus to demand you wouldn't see any excess demand. Even with a resumption in normal credit conditions you would have a lot of difficulty getting back to full employment."
Economist Robert J. Gordon wrote in August 2012:
"Future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades."
As you can see in the chart below from the St. Louis Federal Reserve, the percentage of people of the U.S. population who had jobs had already peaked in April of 2000, just after George W. Bush first took office. Look how the employment-population ratio has dropped, all while Bush had implemented his tax cuts --- and then see how the employment-population ratio had plummeted during the 2007-09 recession --- where it has since remained.
Today in 2014 the employment-population ratio is now at a 30-year low (as shown in the chart below) --- but yet (as Jared Bernstein had pointed out), the stock markets are at an all-time high --- when America has about 48 million unemployed and obsolete widgets that are no longer in the work force (but who want job).
The Google chart below shows how stocks on the S&P 500 and the Dow Jones Industrial Average performed through the last two recessions --- since the employment-population ratio had peaked --- beating the previous highs of 2007 prior to the Great Recession.
As the Google chart above shows, this was also when the employment-population ratio was also declining (from 2000 to the present) and when the capital gains tax rate went from 20% under Bill Clinton to 15% in 2003 under Bush W. Bush (They returned to 20% in 2013 under Obama, but were once 28% when Clinton took office.)
It should also be noted in the chart below, that the labor force participation rate is at a 35 year low and is forecast to drop further going in to 2022. Note that the all-time peak was in April 2000, and just as the employment-population ratio, the labor force participation rate has also been in a steady decline ever since the Clinton/Bush transfer --- despite the Bush tax cuts for capital gains in 2003 (dispelling the myth that tax cuts for the rich is a "job creating" incentive.)
With the tax policies the way they are now (and have been for the past 40 years), if you are younger than 60 years old today, you may live long enough to see the world's first trillionaire. But at the current pace, it might take another few million more unemployed people without any means to support themselves and a way to sustain life before that can happen.
And the top 0.01% (with all the help they can get from Congress) in their real life game of Monopoly, despite whatever becomes of the average American worker, will do everything they can in their race to become the world's first trillionare --- just to say they did, as a capitalistic badge of honor (not ever admitting that the only reason they became so rich in the first place was for nothing but dumb luck).
Almost all of America's problems with high unemployment and income inequality in the U.S. (the highest among all developed countries), boils down to one thing and one thing only --- our policies of taxation.
Interstate tax "incentives" for businesses to move jobs from one state to another (decimating one local economy to benefit another); tax "incentives" for businesses to move jobs overseas for slave wages without repatriating corporate taxes; the long decline in both "statutory" and "effective" corporate tax rates over the past 40 years (with all the various tax "loopholes" that Congress gave them); and the lowering of capital gains tax rates, which have been lower than marginal tax rates for regular wages (in what's supposed to be a progressive, not regressive tax structure) --- and not taxing capital gains for Social Security (whose "cap" should also be eliminated entirely for regular wages).
Otherwise, without immediate and meaningful tax reform, "governments" (via government leaders aka government workers who are elected by the people to run their government) will have to impose a basic income on the "job creators" to pay people to do nothing at all for life --- rather than pay them nothing, like the do now --- or for only 26 weeks with unemployment benefits if they lose a job through no fault of their own.
In other words, as Bill Clinton once said, it all comes down to arithmetic --- only in this case, as it's related to taxation. What human being really needs $1 trillion when several billion human beings will have nothing at all? For the past 40 years we've had "trickle-up" economics, no matter what others say it is.