The job machine grinds to a halt
Ain't no hiring. And ain't likely to be any for a good long time.
The problem isn't merely the greatest downturn since the Great Depression. It's also that big business has found a way to make big money without restoring the jobs it cut the past two years, or increasing its investments or even its sales, at least domestically.
In the mildly halcyon days before the 2008 crash, the one economic outlier was wages. Profit, revenue and GDP all increased; only ordinary Americans' incomes lagged behind. Today, wages are still down, employment remains low and sales revenue isn't up much, either. But profits are the outlier. They're positively soaring.
Among the 175 companies in the Standard & Poor's 500-stock index that have released their second-quarter reports, the New York Times reported Sunday, revenue rose by a tidy 6.9 percent, but profits soared by a stunning 42.3 percent. Profits, that is, are increasing seven times faster than revenue. The mind, as it should, boggles.
How can America's corporations so defy gravity? Ever adaptive, they have evolved a business model that enables them to make money even while the strapped American consumer has cut back on purchasing. For one thing, they are increasingly selling and producing overseas. General Motors is going like gangbusters in China, where it now sells more cars than it does in the United States. In China, GM employs 32,000 assembly-line workers; that's just 20,000 fewer than the number of such workers it has in the States. And those American workers aren't making what they used to; new hires get $14 an hour, roughly half of what veterans pull down.
The GM model typifies that of post-crash American business: massive layoffs, productivity increases, wage reductions (due in part to the weakness of unions), and reduced sales at home; increased hiring and booming sales abroad. Another part of that model is cash retention. A Federal Reserve report last month estimated that American corporations are sitting on a record $1.8 trillion in cash reserves. As a share of corporate assets, that's the highest level since 1964.
Why invest in new plants, offices and workers, particularly here at home? Spooked by the 2008 crash, corporations want to keep more money under the mattress. More important, they're sitting pretty as profits rise.
Is this model sustainable? It's hard to say -- a double-dip recession could plunge their profits yet again. But from the American worker's perspective, the model, no less than a new downturn, is an unqualified disaster. It portends the kind of long-term, structural unemployment that we haven't seen since the 1930s. It locks into place a generation of reduced incomes.
This dystopian America already stares us in the face. Fully 46 percent of the unemployed have been without work for six months or more -- the highest level since the Bureau of Labor Statistics began measuring such things in 1947. Two years ago, just 18 percent of the unemployed were jobless for more than six months. America's private-sector job machine -- the marvel of the world since 1940 -- has clanged to a halt, and there's no place for it in corporations' new business model.
The restoration of American prosperity, then, isn't likely to be driven by our corporate sector. Across-the-board business tax cuts make no sense when business is already sitting on oceans of cash. Targeted tax cuts and credits for strategic investment and hiring within the United States, on the other hand, make excellent sense. The Obama administration has proposed expanding the tax credit for the manufacture of green technology here at home, and congressional Democrats will soon unveil legislation creating further incentives for domestic manufacturing.
Another source of jobs would be public, and public-private, investment in infrastructure. As Michael Lind and Sherle Schwenninger of the New America Foundation have argued, building a new American infrastructure of roads, rail and broadband is not only an economic necessity but also the investment with the highest multiplier effect in creating new jobs. A U.S. infrastructure investment bank, such as that proposed by Rep. Rosa DeLauro (D-Conn.), could leverage significant private capital to begin America's rebuilding, though the idea has encountered rough sledding in (surprise) the Senate.
What won't work as an economic solution -- indeed, it amounts to cruel and unusual punishment -- is blaming the unemployed for their failure to find jobs. There are now roughly five unemployed Americans for every open job, according to the Economic Policy Institute's most recent calculations, and that ratio isn't likely to decline much if we leave it to the corporate sector to resume hiring. Corporations have figured out a way to make money without resuming hiring. Their model is premised on not resuming hiring. If the public sector doesn't fill the gap, the era of American prosperity is history.