THE NEW UNEMPLOYMENT

there is a lot of conversation about income inequality, net worth inequality, unemployment, the 1%.

i think it is important to try to distinguish between symptoms and causes.

there is significant income and net worth inequality. there is some ratio between high and low; i dont think anyone knows or agrees what that is, beyond which there are real social fabric and just plain social fairness issues. however, i dont think the 1% or for that matter the top 10% are evil people as a group. they have no idea what it is like for the bottom 25% and could use something akin to A Christmas Carol where Scrooge is visited by Marley's ghost and when faced with the horror of how the lower classes live, has an epiphany.

but lets go to causes. there have been an aggregation of trends over the last 20 years that have decimated the middle class, manufacturing, and employment that at this point is structural and likely to get worse. these trends or factors in no coherent order include

globalization of trade and manufacturing and labor arbitrage. in the face of ever increasing wages and inflexible work rules mostly driven my labor unions in manufacturing industries like auto, steel etc. jobs migrated to China, southeast asia, mexico, etc. in some cases entire steel mills where disassembled and shipped to asia and reassembled there. labor in america had built a Maginot Line. well we know how that worked out. services also migrated out of the US. BPO or business process outsourcing is the industry where when you call your credit card company about a fraud issue it gets answered in India. when faced with 25/hr versus 5/hr jobs will migrate in a global economy. the global labor force has gone up by 1-2 Billion workers in the last 20 years. this cant but have a big impact on employment and wages in the US. by the way, i am not blaming unions for the mess we are in; though i could. what i am saying is they brought a knife to a gun fight. or like Custer at the Little Big Horn, they were out of sych with global forces and ultimately made it worse for american industry and themselves.

technology. has been a blessing and a curse. almost any citizen can buy a smart phone today that is more powerful than the biggest mainframe of decades ago. technology has led to amazing productivity that has effected everyones life; both at the top and the bottom.  however, technology also displaces traditional jobs. when it does, what will these people do, where will they go, how will they find new jobs, what should society do to help them. is giving them unlimited unemployment insurance the answer? this is bothersome as it seems to not have incentives to find new work. we need incentives for such but also programs to help them. this trend of technology destroying jobs will not stop. it is likely to get worse. we seem to be getting to a point where there is a disconnect between value and wealth creation and labor such that a small % of society creates most of the value, as GDP thinks of value and accrues most of the wealth. these are not inherently evil people, though some are selfish jerks. what do we do when a society creates enough wealth for everyone but many are left out to an extent that is just not acceptable or safe?

every month we see statistics on job creation, unemployment, etc. but as we all should know mere unemployment numbers are misleading because they dont count people who have just given up and as not statistically counted as looking for work. so the real unemployment rate is much higher and many of these people dont have a clue to get on the new train. this is a problem that cant be ignored.

everyone is saying the Fed needs to do more. but the Fed has been around for a long time and for most of that time it had a single mandate, price stability. only recently was it given a twin mandate of employment. the Fed in the face of an epochal financial crash has done amazing work but there are limits to monetary policy and risks to indefinite Quantitative Easing, QE. i believe those limits have been reached and the risks quite real. whether LIBOR is .58% or 1.58% at this point wont make a difference in whether a particular company hires or doesnt hire an incremental employee. they will hire that person when they need them; based on increased demand. what might help is consistency of policies; tax, fiscal, regulatory, etc. making an investment in business is a long term commitment; whether making capital investment or human investment. the current uncertainty, with  a trend to every more hard to navigate regulations makes business cautious.  the recent left agenda of increasing the minimum wage is unlikely to help either. it may help people with jobs but it will hinder job creation

we are in a new world. using the old tools the old way is not likely to work. we need to educate our children and our workers. we need to incent job creation; not from manipulating interest rates but creating an environment where risk has a chance of reward. we need to figure out how to help the structurally unemployed get back into the work force. we need to be open to some radical exploration also without going down the road of Argentina and Venezuela. society wont work if Google and Facebook have all the money.

the new reality involves a global world, a global market for goods and services, a global labor pool. traditional leverage has been lost. if rates are too high in Detroit jobs will move to Alabama or Vietnam. Technology is our friend and our enemy. Fixing education might be the most important thing we can do.

the Fed cant save us. we must save ourselves