I’ve drifted back to reading the Atlantic (thinks in large part to the great coverage of my son’s platoon in Arghandab), and find it – OK. There’s good stuff, and then there’s Sully. I ought to feel kinship with him – neither one of us fits into a neat partisan slot – but mostly just shake my head when I read stuff by him (note – for a great counterpoint re Palin from a progressive feminist, read this).
But I digress. The point of this post is to share my – pretty hostile – reaction to a column by Derek Thompson on why we’re having a jobless recovery.
Thompson suggest three reasons why companies are fast to fire and three why they are slow to hire.
1. Weak Unions
2. Executive compensation
3. The nature [magnitude, I think he means] of the recession
1. Firms expect a slow recovery
2. Blame the modern world [globalization]
3. The nature of the recession and the stimulus
Let’s go through them.
Weak Unions. Yes, highly-unionized industry tends to keep workers beyond where it’s economically sensible because they have to. But – in a recession like this one, what we would have wound up with are a bunch of bankrupt companies as sales collapsed because the consumers closed their wallets. There’s a counterclaim, which is that had fewer people been laid off, the wallets might have stayed a bit more open, but that’s countered by the wealth effect of collapsing home prices and the near-death of the non-public works construction industry. So no, I don’t think we would have been better off this cycle in a counterfactual world where industrial unions were still strong.
Executive compensation. Executive behavior is clearly an immense driver for the bad decisions that many companies made. But the reality is that it’s not (as much) executive’s desire to juice their equity packages and compensation as the fact that executives who didn’t manage quarterly stock prices get fired. It’s the investors, stupid. We’ve built a hair-trigger investment community that trades more than it invests. And for any public company – or nonpublic company where there is investor control – the holders of the reins (who, amusingly include fund managers investing pensioners money) are going to make executives perform in the short run or can them. This is the worst of his misjudgments, in my view, because it leads to the most misguided prescriptions. It’s not aligning executive pay in the long run that will change things, but changing the investment rules so that investors are there predominantly for the medium and long term that will have an impact.
The nature of the recession. Well, yeah, this is a big recession. But other recessions just as big from a GDP perspective were already hiring back (see the charts in his article) – so if the question on the table is “where are the jobs” this is kind of a useless point.
Firms expect a slow recovery. Well, firms expect a slow recovery and are uncertain about what that recovery will look like. (see below)
This is a nub of the issue (see my post below) and the hard reality is that our decline to the norm isn’t going to be universal, it’s going to be targeted as individual sectors of our economy suddenly have to face global competition – at a far lower cost. The image I have in my head is of our economy as a glacier calving off giant slabs of jobs and businesses. People in those slabs are in bad trouble – their old jobs aren’t coming back and neither are their skills going to be very valuable. They’re going to melt into the global ocean of labor.
The nature of the recession and the stimulus. Here we get into meaty territory. We made the decision to bail out the financial sector and got essentially nothing for it (yes, we may get most of our money back, but because it happened so quickly, and was done in such a slapdash manner (and if you don’t believe my assertion, read “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street“) that no meaningful extractions – in terms of improving the impact that the financial sector has on the rest of the economy – happened. We saved them, and instead of demanding as a part of the rescue that they go to rehab and straighten up, we handed them a bottle of Oban and the keys to the economy – again. Those decisions by our policymakers were made, in large part, because of the incestuous nature of the policy, political, and financial leadership of the country (see this) ; Ortzag knew where his next job would be – even if he didn’t know what logo would be on the card – and even if there was no conscious backscratching, no one with an outside perspective who might have asked “why?” was at the table.
At some point, our political class needs to cough that person up, and sit them down with the political and financial elites, and let them ask some hard questions. Our journals of public ideology – like The Atlantic – ought to leading that charge. Maybe someday they will.
Update: added link to story about a specific example of DC’s revolving door