Underpaid Genius

Friedman is up to his old tricks in today’s NY Times, explaining away the responsibilities of business, and laying unemployment at the feet of the working people.

Thomas Freidman, The Uncertainty Tax

If you want to understand why the unemployment rate has been stubbornly lodged around 9 percent, a good place to start is with the eye-popping mortgage statistics released last week by the economic analysis firm CoreLogic: 38 percent of homeowners with second mortgages are underwater. They borrowed against the value of their homes, and they now owe more than their houses are worth. The total number of underwater homeowners in America, with first and second mortgages, is a stunning 22.7 percent. In Nevada alone, 63 percent of all mortgaged properties are worth less than the owners paid; in Arizona 50 percent, Florida 46 percent, Michigan 36 percent and California 31 percent.

When people are so underwater, they find it hard to move to take new jobs, they find it hard to borrow or raise cash for education or start-ups, and banks become even more cautious about lending. Until we as a country figure out how to divvy up these losses on housing and let these markets clear and move on, they will be a serious drag on employment.

Friedman offers up some serious numbers, and makes a point — that we need to get the real estate losses behind us — but as usual, he and I diverge at this point.

Freidman believes we have ‘structural’ problems in the economy, meaning that workers don’t have the skills needed for the new economic world, and he tees that up by talking about this mortgage overhang, explicitly saying people can’t move to where the work is. And, underneath all the watered down ideological mumbo-jumbo is the paternalistic perspective that these workers are responsible for their lack of skills, and improvidence, in the first place.

At the same time, you talk to U.S. companies doing advanced manufacturing and many will tell you they struggle even now to find workers with the blue-collar skills they need to replace their retiring employees. Thanks to a credit bubble over the last decade, we created a lot of jobs for people — in construction and retail — who did not have globally competitive skills or post-high school degrees. Those workers will need retooling.

McKinsey says its research found that “too few Americans who attend college and vocational schools choose fields of study that will give them specific skills that employers are seeking. Our interviews point to potential shortages in many occupations, such as nutritionists, welders, and nurse’s aides — in addition to the often-predicted shortfall in computer specialists and engineers.”

The report concludes, “Progress on four dimensions is needed: Ensuring that the work force acquires skills needed for the jobs that will be in demand, finding ways for U.S. workers to win ‘share’ in the global economy” — by encouraging more foreign investment in the U.S. and by getting companies who have off-shored jobs to take advantage of falling telecom prices to on-shore them to low-cost American cities and towns instead — “encouraging innovation, new company creation, and scaling up of industries in the United States, and removing unnecessary impediments that slow business investment and job creation.”

[…]

Any good news? Yes, U.S. corporations are getting so productive and sitting on so much cash, just a few big, smart, bipartisan decisions by Congress on taxes and spending (and mortgages) and I think this whole economy starts to improve again. Workers with skills will be the first to be hired.

So, if this structural skills gap is true, why didn’t US companies train their workers, instead of firing them and outsourcing the work to Taiwan?

But our mass unemployment hasn’t been caused by an enormous skills gap, as Paul Krugman made clear last September:

Pauul Kruman, Structure Of Excuses

What can be done about mass unemployment? All the wise heads agree: there are no quick or easy answers. There is work to be done, but workers aren’t ready to do it — they’re in the wrong places, or they have the wrong skills. Our problems are “structural,” and will take many years to solve.

But don’t bother asking for evidence that justifies this bleak view. There isn’t any. On the contrary, all the facts suggest that high unemployment in America is the result of inadequate demand — full stop. Saying that there are no easy answers sounds wise, but it’s actually foolish: our unemployment crisis could be cured very quickly if we had the intellectual clarity and political will to act.

In other words, structural unemployment is a fake problem, which mainly serves as an excuse for not pursuing real solutions.

[…]

But some people on the other side of the aisle say similar things. For example, former President Bill Clinton recently told an interviewer that unemployment remained high because “people don’t have the job skills for the jobs that are open.”

Well, I’d respectfully suggest that Mr. Clinton talk to researchers at the Roosevelt Institute and the Economic Policy Institute, both of which have recently released important reports completely debunking claims of a surge in structural unemployment.

After all, what should we be seeing if statements like those of Mr. Kocherlakota or Mr. Clinton were true? The answer is, there should be significant labor shortages somewhere in America — major industries that are trying to expand but are having trouble hiring, major classes of workers who find their skills in great demand, major parts of the country with low unemployment even as the rest of the nation suffers.

None of these things exist. Job openings have plunged in every major sector, while the number of workers forced into part-time employment in almost all industries has soared. Unemployment has surged in every major occupational category. Only three states, with a combined population not much larger than that of Brooklyn, have unemployment rates below 5 percent.

Friedman seems to rely on an anecdotal approach to research, like talking with business owners, who would rather buy machines than hire workers; Krugman and the researchers cites are looking at comprehensive numbers. I am going with Krugman’s reality-based observations, and ignoring Friedman’s screed, as usual.

But the well-off and the business owners want to believe that these problems are structural, so they can put off the day of reckoning, and blame the victims of the current mishandling of the jobs crisis.