If the Wall Street Journal is to be believed, there was a shift in thinking at the annual meeting of the American Economic Association in Chicago. America's top economists are coming around to the view that the labor market is not simply going to "clear" this time around; the long-term unemployment problem is probably a lot worse for the country than the high unemployment rate (8.5 percent); and a whole generation of workers, especially older ones, is simply not going to be rehired despite the desperate desire of many of them to get work. According to the WSJ: "The risk, economists say, is that the U.S. will develop an underclass of semipermanently unemployed workers, with severe consequences for productivity, public finances and even social stability."
Now you tell us. This is the problem I described in my article, The Left-Behinds, back in November: created by 30 years of shamanistic thinking about markets--thanks to economists and policymakers alike-- a new American underclass is growing at an alarming rate, built on what’s left of the middle class. "We just never had this problem before," Betsey Stevenson, until recently the Labor Department's chief economist, told me in an interview Monday. "A problem of millions of people who are potentially quite productive and have been out of work through no fault of their own for a long period of time."
In truth, long-term unemployment has been like a slowly growing cancer over three decades. It's only now getting noticed. The share of left-behinds has generally ratcheted up with every economic downturn since the early 1980s, when the era of deregulation and globalization--and reduced government support for the job-dispossessed--began under Ronald Reagan. Today, two and a half years after the Great Recession technically ended in June 2009, the number of long-term jobless has continued to climb to record levels. It shot up from 29.3 percent of total unemployed workers in June 2009 and peaked at 44.6 percent as recently as September. The Labor Department has not seen numbers like this since it began tabulating data in 1948.
Did all this have to happen? Was it inevitable? A whole generation of economists and trade experts and policy makers, including both Republican and Democratic presidents, have told us in effect that it was -- that there was little we could do about the advent of globalization and the open-market system, so we might as well get used to it. It was a sense of fatalism, shot through with American hubris that we’d somehow come out on top in the end anyway, without any additional social protections. It infected both political parties, beginning with Bill Clinton. Those who second-guessed this wisdom were branded protectionists and driven from the discussion.
Washington, dominated by a free-market consensus ever since the Reagan era, has ignored this 30-year pattern. One mistake appeared to lead another. As America lost manufacturing (down to 9 percent of the economy today) and the ability to make things, economists began to talk up the “services economy,” and America’s best “service” was finance. This led to what renegade Republican Kevin Philips, in a series of highly regarded books over the last decade, has described as the the “mega-expansion” of Wall Street, deepening the hold that America’s “plutocracy” has on politics. It was also the beginning of an era of permissiveness to give Wall Street what it wanted, no questions asked. After all, Wall Street was one of our great "export" sectors, as Larry Summers and the other ex-Rubinites never tired of saying.
We have listened to Summers and other economists for three decades as if they were scientists when they have behaved more like shamans.
Now there are millions of workers who are dropping out of the workforce--some 3.9 million have been unemployed for a year or more. And we have almost no programs in place to help them, as my colleague Fawn Johnson and I documented last summer. Republicans are so delusional about the market totem that they actually want to cut Pell grants and other support programs. Democrats just seem clueless.
I'm still waiting for a similar light to go off when it comes to underwater mortgages, and the need for government programs to take large numbers of foreclosed homes off the markets and pressure banks to reduce principal so other homeowners can become active consumers again. Here too, as I previously posted, economists and government have been pretending that this is a natural market condition that markets will cure, when they won't. You need intelligent government intervention, just as you do with the long-term unemployed.
The lesson is the same: the dominant paradigm in Washington must be overturned.
(Picture credit: http://www.politifake.org/image/political/1009/mission-accomplished-trickle-up-poverty-team-update-political-poster-1284666991.jpg)
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