I have an unfortunate sense that the "green shoots" in the economy that everyone is talking about are nothing but dandelions. Sure, forcing $1 trillion of taxpayer money—in direct capital, guarantees, and diminished cost of borrowing—into the banking sector has permitted the major banks to claim solvency for the moment. Yet we should not forget that this solvency has come not through a much needed deleveraging of the banking sector but rather from a massive transfer of the obligations of private banks to the public, with the debt accruing to future generations. And overall loan quality at U.S. banks is still the worst in 25 years and deteriorating at the fastest pace ever.
It's a terrible mistake to confuse the momentary solvency of the financial sector and the long-term health of our economy.
While we have addressed the credit collapse, we have not begun to tackle the far more daunting, and more significant, structural problems in the economy. Instead of focusing on the green shoots, let's examine the macro data that will determine our national prosperity in the next generation. These data are terrifying.
Start with the job front. Long term, nothing is more fundamental than good jobs to creating the middle-class wealth that must drive the economy. The creation of true middle-class jobs was the great success of our economy from 1950s through the mid-1990s. Consider the job data, in aggregate and by sector, from the past decade. (All data are from the U.S. Department of Labor, Bureau of Labor Statistics.)
|Unemployment Rate by Industry|
|Year||Unemployment rate|| Manufacturing Jobs |
|Serv. Jobs||Gov't. Jobs||Total Jobs||Population|
One-third of our manufacturing jobs have disappeared in a decade! And while population grew 12.1 percent over the decade, jobs grew by only 6.4 percent. The unemployment number, moreover, doesn't count those who are "marginally attached to the labor force," because even though they want to work and are available to do so, they have not sought a job in the past four weeks. In raw numbers, the total number of individuals counted as currently unemployed and those who are marginally attached is a staggering 15.8 million. That is an enormous mountain of job creation to climb.
This transition away from actual goods production is not merely a consequence of the current economic cataclysm. The trend line has been clear for years and is reflected in the overall escalation in the trade deficits we have incurred:
|Year||Aggregate Deficit |
(in millions of dollars)
The actual deficit in goods has multiplied fivefold in 15 years. The notion that service exports will somehow balance our increasing goods deficit has not been borne out and is increasingly less likely to be in the future, given that certain service sectors, such as financial services, are in sharp decline domestically. Moreover, the services we had expected to export are increasingly becoming sources of growth overseas. It is hard to believe that China will want or need to import U.S. investment banking services a decade (or a month) from now.
Even more dramatic than the growth of the trade deficit, of course, is the escalation of the federal budget deficit.
|Annual Deficit/Aggregate Federal Debt|
|Year|| Annual Deficit |
(in millions of dollars)
|As Percent of GDP|| Aggregate Federal Debt |
(in trillions of dollars)
|As Percent of GDP|