Workers’ malaise foreshadows wider social issues

By Mohamed El-Erian
September 2, 2011

By Mohamed El-Erian
The opinions expressed are his own.

This weekend’s Labor Day celebrations in America mark a difficult time for workers. Having experienced a multi-year decline in their share of national income, they are now suffering the brunt of the current economic malaise; and there is little to suggest that the situation will improve any time soon. As a result, the country’s economic hardships risk morphing from pressuring specific segments of the population to undermining more general aspects of social justice.

The numbers are striking — and worrisome. Over the last 30 years, labor’s share of the national pie has declined to 44 percent from 52 percent, with profits growing at twice the annual rate for average wages.

This morning’s monthly employment report adds to the concerns. Unemployment remains very high, whether measured by the most-quoted unemployment rate (9.1 percent), the less partial under- and un-employment rate, (16.2 percent) or, most comprehensively, the proportion of total adults who are not working (42 percent compared to 35 percent 10 years ago).

The duration and composition of joblessness is very troubling. The average unemployed American has been without a job for 40 weeks, a record level, and 44 percent of the unemployed have been out of a job for more than 26 weeks. The incidence of joblessness is severe among those lacking a college degree (11 percent compared to 4 percent for college graduates). For 16-19 year olds the unemployment rate is a horrible 25 percent.

Whichever number you look at, America’s labor market problems constitute a full-blown crisis with far reaching economic, social and political consequences. If current trends continue, joblessness will become stubbornly embedded in the system and, distressingly, some of the unemployed will become unemployable.

We all know that such a crisis fuels rising poverty and misery. Shelter is an issue, too, as mortgage and other debt payments are harder to meet. And credit will become even scarcer for those who are already struggling.

Regrettably, there is little to suggest that, left to its own devices, the economy would improve any time soon. It is mired in low growth and insufficient job creation; and the balance of risks is increasingly tilting toward a recession.

Since economic growth will not solve the issue, what about government action? Here, initial conditions are far from ideal.

Budgets — be it state, local or federal — are generally stretched. Indeed, rather than reduce the challenges facing workers, current budgetary policies accentuate them through cuts in education, health care, emergency benefits and other social services. Meanwhile, active redistribution policies are off the table with our extremely divided Congress vehemently disagreeing on what constitutes appropriate policy responses. And the Federal Reserve is already in full policy experimentation mode, with limited durable impact on economic growth.

It is tempting to blame all this on what economists call an “exogenous factor” – a phenomenon that is outside direct societal control. The two most cited factors are globalization and technological advances.

Globalization has brought hundreds of millions of low paid workers into the global labor force, thus putting pressure on higher paid ones in advanced countries such as the US. Technological progress has allowed companies to raise productivity, helping them generate record profits with fewer employees.

Before embracing this explanation wholeheartedly, it is wise to recall Reinhold Niebuhr’s prayer asking God to grant us the serenity to accept the things that cannot be changed, the courage to change those that can and the wisdom to know the difference.

It is not feasible to reverse either of those two phenomena (globalization and technological advances). It is neither desirable to do so either given that, overall, they have beneficial impact on global welfare.

Think of the millions of people around the world who have been pulled out of absolute poverty and misery. Think also of the wider range of affordable goods available to consumers globally (the largest segment of which is in the US). And think of innovations that have saved lives and improved the quality of life.

Rather than try to unwind globalization and technological progress, the challenge for the US is to adapt its labor force and its economy to these realities.

Through better policy making at both the national and international levels, America should — and can — be a bigger beneficiary rather than a helpless victim. No wonder President Obama’s speech next week is so eagerly anticipated, and rightly so.

While we must not underestimate the significant design and implementation difficulties facing the President, many look to him for restoring America’s economic leadership. This involves three challenging and complex steps (especially given today’s economic, financial and political environment): propose a set of policies that decisively lift structural impediments to growth; mobilize sufficient political support to start the multi-year implementation process; and, as the data evolves, provide for timely mid-course corrections as appropriate.

Better off segments of the population may be tempted to dismiss all this as irrelevant to their particular reality. After all, they are doing well — in several cases, extremely well. But such an attitude is short-sighted. It is not just about fairness; the rich have genuine self-interest in reversing the country’s economic malaise and the worsening of income and wealth inequalities.

Whichever way you look at it, the outlook for the wealthier cannot be divorced from society as a whole. Such considerations have already led some American billionaires to react in dramatic fashion.

Warren Buffet and Bill Gates are among those leading the way, through both actions and words. Howard Schultz, the CEO of Starbucks, has urged companies not to wait for government policy but instead to move more aggressively to employ and produce more. Many others are doing their part, albeit in a less public fashion. They know that national prosperity cannot, and should not, be sustained without social justice.

Unlike many parts of the world, America has experienced, until now, few if any meaningful eruptions of social tensions. Yes, there have been some “flash mobs”, but they pale in comparison to what has occurred elsewhere this summer.

This is not about the comparisons out there to uprisings in Arab countries driven by a thirst for social justice. Rather, it is about what the series of unthinkables that has already occurred in several advanced countries where, facilitated by social media that lowers traditional coordination problems, more people are taking to more streets to express frustration and, in some cases, a call for greater social justice.

Britain and Greece have experienced widespread rioting. Car torching in Germany is now way too common for comfort. France, Italy and Spain have had national strikes. Israel has seen the sudden emergence of a large social movement that has taken both local politicians and worldwide observers by surprise.

This weekend, American workers will understandably temper their celebrations. Their malaise is about more than the challenging economic headwinds. It is about fundamental social issues.

America is now on the growing list of advanced countries where social cohesion is coming under increasing pressure. If left to fester through inadequate public and private sector responses, this phenomenon will damage the welfare of current and future generations. Loud alarm bells should be ringing everywhere.


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Wow, the idea that the US should put global wellfare above its own people is so….. capitalist bull. The time is now to reign in globalization and let each country put their citizens first. China, India and Brazil all have made strides in building a middle class and the US middle class should not have to carry them on our collective backs. We can not continue to have massive trade imbalances and let other country protect their citizens while ours are hung out to dry in this global wind of “free market” baloney.

Posted by RulesToo | Report as abusive

I disagree with Moss_GR to the extent that I don’t think that this type of scientific objectivity is available to us.

Society would benefit from increased awareness of philosophical issues, with the study of ethics and justice at the fore. Setting “realistic and appropriate goals” can be only as useful as our understanding of what we value.

The social sciences provide us with interesting data about the world, but this data should not be confused with the world itself.

Posted by effoff | Report as abusive


Why haven’t we heard this well before now from all of the vaunted economists, Wall Streeters, financial analysts and reporters?

This is the kind of focused analysis that would and will greatly benefit those who want to participate in solving our economic problems. We can only do that through understanding and coping with reality, not ideological clap-trap.

We have a huge and long-term jobs and debt crisis and we need all the knowledge we can garner to develop plans to improve our economy. A knowledegable electorate is the only hope for our democracy.

It’s also time to consider ending the class warfare that has been degrading our society. The United States is now #64 on the list of countries relative to the gap between rich and poor, and the gap is increasing. Is this the country our Founding Fathers envisioned? What happened to “promote the general welfare”?

Posted by ptiffany | Report as abusive

I saw nothing in El-Erians’ words that asked if we should reverse globalization. He asked about the possibility of “government action”, then answered that it is unlikely. Saying the “wrong question” and “wrong answer” is anything to do with globalization is reading something into this piece that is simply not there. What El-Erian is pointing out is that if those who are doing well (some astonishingly well) financially in the current economic and social climate need to be concerned about the welfare of the entire society. To snuggle into a warm happy place because you are doing well is to ignore a very real threat to our larger culture and, ultimately to your own welfare. The Tea Party idea that all one need do is buy a gun and stand at the door to your own house and fight off the deranged marauder is a fantasy. El-Erian points to the brittle and inequitable systems that have recently shattered in other countries as a warning. None of can know the tipping point for our culture or the height of the “tsunami” that may come if the social contract shatters. If the wave that follows a breakdown is high enough, your fantasy defenses will be washed away, along with everything you have worked a lifetime to build and save.

Posted by HRMayer | Report as abusive

I’ve been saying for over 15 years: it is the trade deficit! Excess consumption imports takes jobs away and with it income growth. Back in mid 1990s I made an exact math proof that changes in savings is a function of income growth. The evidence between savings-income and trade is straightforward. Obama’s economists just don’t get it. This is real world and trade balance won’t adjust naturally when Asian countries such Taiwan/Korea/China don’t let their currency appreciate. See my chart on the inverse relationship between imports and savings at wth#

Posted by cwucnspt | Report as abusive

Excellent article.
Thank you for your courage, Mr. El-Erian.

However, one thing that doesn’t really work is re-training the workers. Why? Here’s an example. There are many unemployed American computer programmers today who regularly train themselves in the very latest programming technologies, yet they cannot find work. Why can’t they find work?

Because the job market for programmers has been flooded by hordes of young graduates of Indian schools, on H1B visas who will work very cheap.

It’s a simple case of supply and demand. If one sends thousands of busloads of newly trained plumbers into any American city, it will drive down plumbers’ wages. This is what the H1B visa system has done to the American programming profession. The US corporations want cheaper and cheaper labor.

This is happening today all across America. Re-training Americans is a complete waste of funds, if, simultaneously, we bus in throngs of foreign graduates.

The Indians are great people. It’s just that there are so many of them, over a billion. They have flooded the American labor markets using the H1B visa program.

Posted by AdamSmith | Report as abusive

Economists are not realists. While theories sound nice, they rarely relate to actual happenings in the market.
Now to legislators who rarely think about the unintended consequences of their actions. The best example is the sub-prime lending practices encouraged by several legislators who promoted ” no job, no credit, no money,…no problem”. Everyone should have a house.

Posted by lenenegrad | Report as abusive

@cwucnspt — Well said.

It seems to me that America needs to re-enact the American tariffs. Here is the Wikipedia entry for the word “tariff.”

It explains that from the time of George Washington and Alexander Hamilton, to almost WWII, American tariffs have played a crucial role in America’s rise to economic power.

Posted by AdamSmith | Report as abusive

Adam Smith? Really?

However, also working in the information technology industry, I heartily agree with your comment. The old idea of giving people a few weeks of training or retraining doesn’t apply to jobs that require years of education and experience. White-collar jobs have been targeted particularly by India and their concerted efforts have been very effective at displacing highly qualified Americans by the tens of thousands. This is a new issue in the history of coping with the needs of retraining or redirecting American roles in industry. Carefully developed trade agreements such as those fomented under the Clinton Administration (I’m a Republican, so no bias) can help to ameliorate these issues.

The “Made in America” campaign supported by ABC World News in recent months is an example of the misunderstanding of what needs to be done to put America back on top. ABC kept harping on “creating” jobs by buying American, but didn’t realize (yet) that means minimum-wage jobs that would actually displace higher-paying jobs that we need. The same is true in Texas, the McJobs center of the United States.

The solution isn’t short-term training, but long-term improvements in our educational system from bottom to top. Of course, Congress never has been very good at long-term solutions and has gotten considerably worse in the past decade. We are exacerbating our own economic problems through ignorance.

As far as educating foreigners to compete with us – not all bad – we throw them out of this country after they graduate, including those who might want to stay and could greatly add to our educated labor pool. How weird is that?!

The bottom line is that we don’t just need more jobs, we need better jobs for a better and sustainable economy.

Posted by ptiffany | Report as abusive

@ptiffany — Good points.

What are your thoughts on re-instituting a real American tariff? What would it do for American jobs?


Posted by AdamSmith | Report as abusive

Bernanke is right. Housing market is a key to American recovery. People stopped buying main America’s product: American way of life.

The reasons are many: one of them Bush in his caucusus- the rednecks. “America for Americans” led to colapse of collapse of skilled immigration and housing market, plus the babyboomers thought to cash in on their life achievements- turn to be none.

The Tea Party will drag America even further, to oblivious.

I think America should change its immigration policy for skilled workers. A pool of skilled workers will bring business back to America, and give more jobs to the rest of US.

Americans have to stop to be bitter, and look why they are on self-destructive way.

Posted by kommy | Report as abusive

I too am in the technology sector and software development. I think the reference to “grant us the serenity to accept the things that cannot be changed” is in answer to the H1 and off-shoring of jobs. As long as there is great disparity in labor costs, it cannot be changed. Back in the late 90s I could get a programmer in India for $8 to $14 fully loaded cost. Now its closer to $24 – $32 or higher. Many programming jobs are now sent to ex-soviet bloc and south Asian countries that are still cheap. In another few years those too will climb. At the same time, America is promoting inflation, and printing money in boat loads. This is effectively “Giving America a pay-cut” as Mr. El-Erian stated once in a previous article. Adding immigration pressures and high unemployment also drives American wages down. At this rate, if all keeps going without protectionism, in a short time programmers in India will cost the same as Americans. Problem solved, fair playing field attained. I don’t see how “they” could do it any other way. This applies to many industries, not just technology. Globalization is a great thing for the world. But there will be some bumps along the way.

Posted by tmc | Report as abusive

It would be wonderful if jobs training programs were the answer. Unfortunately, the federal government already has dozens of job training programs – one more will not make a difference – the jobs have to exist to be trained for.

Posted by SayHey | Report as abusive

Just to clarify, to be fair to Mr. El-Erian, he did not suggest jobs-training or even mention it.

I only brought it up because it is a common notion in the news today.

His article is excellent, courageous, and important, it seems to me.

Posted by AdamSmith | Report as abusive

Great comment by tmc and others on the dark side of globalization and technological change. In fact many of the so called “professional” jobs like Doctors, Dentists, Lawyers, Engineers etc. are protected by immigration policies and “guilds” like the AMA, Law Societies etc. However the pressure for professional jobs is increasing and I see may private colleges opening up offering professional degrees like MD, JD etc. The market for new lawyers is already collapsing will Doctor’s and Dentists be next?

These elites will face their day of reckoning just as the programmers, airline pilots and customer service reps have.

Posted by Senta | Report as abusive

Judging from the words of a respected state representative, “national prosperity [is and will continue to be] sustained without social justice.” When reading his weekly newsletters, emphasis is always on government and the middle class while increasing hords (say 400,000 weekly) of disfranchised individuals form a class that is deliberately hidden from view. Social justice in America is a delusion and those who might believe in wealth (at $7.25 hourly) for hard work—oh well—you will be fifty-years-old one day. Some observations: A man (meaning the feminine, masculine and the neuter), from infancy to fifteen-years is worthless to government and the private-sector. The same is a liability. The same man, once sixteen-years-old enters the realm of the over-exploitable that continues until he is, let’s say, fortyish. Then, America’s laissez faire, private-sector-controlled economy and its forever “mood swings” ravage such an one until by the time he is fifty-years-old, his youth, health, employability and will is gone. Just as national prosperity is now being sustained by over-exploitation of cheap labor globally, yielding the greatest possible wealth to multinationals, nations have throughout history been built on the backs of the poor.

Posted by awayneramsey | Report as abusive


I hear that the base is now shifting from India to Philippines

I wish the top 40 cities of this nation had displays possibly funded by some selfless philanthropy folks, that show the top-20 irresponsible corporations that take the most of the US funds but create jobs else-where and and the top-20 politically corrupt folks that align with these policies, in an attempt to steer public choice of purchase of products and or services away from these entities.

Posted by Mott | Report as abusive

Simply put, the end of American entitlement (aka, a rude awaking for the American (Western) middle class).

Outside of the philosophies of the industrial revolution and Marxism, have we forgotten the changes and realities these ideas – my father was born on a farm on a kitchen table without a doctor during the depression of the 1930’s – for perspective – also a zero footprint by today’s standards.

Globalism and technology- do you see anyone who has experienced a western shower to return to dumping a bucket of river water over themselves to get clean happily (within reason), or give up their iPhone for a ten year old Motorola analog mobile phone? Having been blessed with an indoctrination in the finer, and more abstract, aspects of military science, geopolitics, and technology, I have seen both sides, and could survive quite comfortably either way, but I don’t think I can’t say the same for mainstream America or the Western World.

Sacrifice, something the Europeans (in current memory) have learned the hard way and still wrestle with to this day is something North America does not understand unless you fall into the previous historic reference. Sorry, be very careful how you entertain sacrifice in the name of national interest.

But then again, who am I to say what to do. In times like this it would be nice to have some leadership that could galvanize a society towards a new way of life without the realities of a Luddite reality.

So, where is the leadership to navigate these waters? American (Western) politicians, corporate leaders, and grass roots. who, where, and when?

Posted by jonmckee | Report as abusive

The jobs situation is indeed worthy of attention but this article alludes to a more encompassing problem… the increased concentration of wealth.

Rightfully so, much ado has been make of people who bought homes they could not afford, but in millions of cases Americans bought homes they actually could afford as as long as they were working. Through no fault of their own, many of those people now either have no job at all or they have a new job that pays only a fraction of their former income.

Compounding the problem, when the real estate market collapsed a few years ago, people who made large down payments on their homes have watched most or all of their down payment evaporate as each month passes. Though it took one or more decades to put that kind of money together, it was gone in a flash and those responsible, middle-aged Americans must now try to accumulate enough money to fund their retirement years.

How can those “middle class” Americans possibly spend the way the did previously with an economy that has barely survived under QE life support? Those are the Americans who need to be unburdened or made partially whole. Their motives are compatible with re-igniting the American economy; corporations have demonstrated that their motives are counter productive.

Obama’s future plan regarding mortgages should include principal reductions, funded by fines against the financial institutions that profited by participating in the greatest fraud the world has ever seen.

Posted by breezinthru | Report as abusive

Yes, social cohesion is in the process of coming to an end in the USA.

Most Americans have absolutely no experience with what this means, which nearly guarantees its arrival before long. We are about to experience divisions along class lines or along ethnic / racial lines or both. This fragmentation is not simply about which politician to “vote” for in our essentially “rubber stamp” elections. It is about a struggle that will be a life or death struggle for the large majority of the people who live in America. Make no mistake, for a sizable proportion of Americans this desperate moment is upon them. Time to cut Food Stamps, Federal funding for health clinics and health insurance, time to cut unemployment payments. Yes, throw gasoline on the fire to put it out.

We could have another Civil War, but not based on regions. Will the US Army kill US citizens by the tens of thousands? For how long?

Posted by txgadfly | Report as abusive

Over the past few years I’ve seen an increasing lack of civility in my workplace and in society in general. This seems more prevalent in the east (my home is in New York) than out west in the plains and Rocky mountains, but this is just anecdotal.

So far our Government has dealt with the economic problems by lowering interest rates to zero and encouraging more borrowing.

As a life long investor I began selling off stocks in 2010 and bonds in 2011. I now sit safely in FDIC insured bank accounts. Not much return but safe given the lack of direction in todays markets.

As for spending – our personal spending has plunged. We have plenty of assets but since we can get little return due to repressed interest rates and refuse to participate in what appear to be manipulated markets we have no choice but to cut back.

I wonder if we’re the only people who feel this way?

Posted by Missinginaction | Report as abusive

“Over the last 30 years, labor’s share of the national pie has declined to 44 percent from 52 percent, with profits growing at twice the annual rate for average wages.”

NO WONDER! Look how we got here:

1969-1973 Richard Nixon Republican
1973-1977 Gerald Ford Republican
1977-1981 Jimmy Carter Democrat
1981-1988 Ronnie Ray-Gun Republican
1989-1993 George HW Bush Republican
1993-2001 Bill Clinton Democrat
2001-2008 George W Bush Republican
2008-present Barack Obama Democrat

28 out of the last 42 years,or 67% of the time,the GOP has run this country. Add into that the GOP-controlled Congress under Clinton and the percentage is higher. Democrats and Republicans are not equally to blame for the shape our country is in today.

Main Street got the crumbs while Wall Street profited. 40 years without any leadership got us where we are today. Wages are stagnant at 1970′s levels. Billionaires and millionaires abound. As a favor to Big Business, Clinton signed our death sentence with NAFTA which fostered globalization. The rest is history.

Our prosperity is gone…to Swiss bank accounts and offshore corporations of the wealthy. Greed has destroyed our economy. This is a direct result of the power of Big Business and their lobbyists, and Republican ideology and policies over the past 40 years. Now Big Business determines who wins elections. We handed over our way of life and our children’s futures and were given pablum in the form of reality TV, porn, celebrities and electronic toys.

We need to get our money back from the the Rich who are hoarding cash and not creating jobs with it.

Tax the rich.

Posted by 5280hi | Report as abusive

I think the problem is too many “experts” and “politicians” where we need common sense.

Where and When Did This All Begin?

I think it was with Trade Agreements that were NOT managed well. Jobs were outsourced overseas, resulting in fewer jobs in America. Many entrepreneurs jumped on that bandwagon, importing cheaply made and dangerous products into the US for pennies on the dollar cost and selling minutely below the American made products cost. This all occurred in Washington D.C., where corporations lobby to get what benefits them without regard to the population as a whole. So, while we ship jobs out, which other countries are hiring our laid off workers when there are very few jobs left? None, unless you are degreed in something they want, and may I add what should stay in America rather than bringing over someone else’s degreed workers – the Engineers at Boeing, for example.

How Do We Reverse This Sooner, Rather Than Later?

First, stop bickering and pointing fingers in Washington unless you point at your own self. You are all guilty of sabotaging the US work force.
Second, stop all tax breaks for companies except for those that perform ALL work in the continental USA where the pain is felt most. Starting up manufacturing plants for clothing, appliances, toys and cosmetics again will put more people to work than any stimulus can. As a side benefit, our products will once again be safe, clothing will fit better and working people paying more income tax will reduce the country’s debt.
Trade with other countries needs to be on a basis of I will purchase some much from your country in (product), but you need to purchase X amount of dollars in products that are American made-Tit for tat.
Third, our unions do not need to be busted, they need to stop protecting workers that do not want to do a decent days work or come to work drunk or high. Unions, you were first put in place to fight for livable wages and workplace safety. Go back to your roots and stop being greedy yourselves.
Fourth, (it will never happen) outlaw lobbying so that corporations no longer run this country.

Get serious Washington, or bend over and kiss your behind good-bye; you are causing this counrty’s suicide, not the people.

Posted by pjdxxxwa | Report as abusive

As an international investor live in Hong Kong, what I saw in HK, China, Asia and around the world does worry me. The evident of wealth distribution worsening is everywhere. It is the seed of chaos and riots.

Posted by kwokfai | Report as abusive

This is a very good article examining different aspects of the global crisis, pointing out that we cannot examine certain symptoms in isolation, and the events in the US are closely related to events in other countries from the Middle East to India, through Europe, Africa and China and so on.
After all this is what “global” means, that we are all interconnected, and we all depend on each other.
That is why such comments, like one above are still surprising, when the commenter talks about “…guiding globalization for the benefit of the US, and its democratic allies…”
Such comments show signs that we still do not understand how a global, integral system works, where we cannot do something for the advantage of one element, against another element, or leaving out another element for the benefit of someone else. We are now chained together, however uncomfortable this state makes us, and thus for any planning or solution we have to take the whole system into consideration.
The good side of the coin is, that if I make a positive input towards such interconnected system, the benefit comes back to me multiplied, so it is worthwhile to take others into consideration as in a mutual system both positive and negative impact returns to the cause as a boomerang.
We can now clearly see that knee jerk reactions, superficial number crunching only makes things worse, first we have to digest our true situation, the system we exist in, adjust our thinking, attitude accordingly, and then make changes.

Posted by ZGHerm | Report as abusive

It is an excellent article showing that in a global integral system all elements are interconnected, not only within one nation, but all over the world. That is why I do not completely understand the first comment about “…guiding globalization for the benefit of the US, and democratic allies..”.
In a mutually interdependent system there is no possibility to guide anything for the benefit of one against another, or more for one and leaving the other behind.
In a global system we all move together, either forward or backwards, as it is very clear nowadays looking at the economical, political, social, etc events of each day.
Whether we like it or not, we are chained to each other, the whole of Humanity, thus we have to think, plan, and act together.

Posted by ZGHerm | Report as abusive

Dear Mr. El-Erian, I would have hoped for a little more ‘outside the box’ thinking on this from you. Is it not clear by now that acheiving social justice and lifting structural impediments to growth are going to require a new business model for free market capitalism? What we are doing to the planet now in the name of growth is unsustainable.

Posted by changeling | Report as abusive

It is an excellent article showing that in a global integral system
all elements are interconnected, not only within one nation, but all
over the world. That is why I do not completely understand the first
comment about “…guiding globalization for the benefit of the US, and
democratic allies..”.
In a mutually interdependent system there is no possibility to guide
anything for the benefit of one against another, or more for one and
leaving the other behind.
In a global system we all move together, either forward or backwards,
as it is very clear nowadays looking at the economical, political,
social, etc events of each day.
Whether we like it or not, we are chained to each other, the whole of
Humanity, thus we have to think, plan, and act together.

Posted by ZGHer | Report as abusive

We know that America continues to split into: 1) the “owners” with stock, real estate etc., and 2) the “workers”.

There is a third group: educated professionals, that we must nurture much more. Our attitude towards education needs to be stronger, especially in sciences and technology. Very few Americans get Ph.D.’s in technical fields now. It is only technology that is propelling America forward. Our tech leadership remains strong only because we continue to attract educated, legal immigrants.

Educated legal immigrants from India, China, Eastern Europe, or anywhere else bring skills, good work ethic, low to no crime, and stable families. They pay good taxes and their kids go to good schools. A vast majority of tech startups have immigrant founders–including Google (no longer a startup). In this debate about jobs, don’t mess with them. If they stop coming, America will decline fast–and let me tell you, they have choices in their homelands today that they did not have earlier. If anything, we should encourage more to come. It is a great deal for America, and yes, for them as well.

I am one of them. I salute America for accepting me in an honest, hard working society. In turn, I have paid well over a million dollars in taxes so far, advanced technology, and helped create well paying jobs. It is a great win-win that we need more than ever.

Posted by AG58 | Report as abusive

I have an heirloom passed down from my great-grandfather. A relic of the often lethal labor unrest of the early twentieth century. With the growing number of McWorkers nowadays I sometimes wonder why there isn’t blood in the streets. I don’t think Mr. El-Arian carries his point about social unrest far enough. In the mid 1990′s white married men whose wives didn’t work saw a nearly ten percent decline in real median income from pre-recession levels. At nearly the same time was the height of the militia movement. Just coincidence?

Posted by clifc | Report as abusive

Mr. El-Erian,

I appreciate your thoughts on the global recession and follow them closely, I only have one question and that is, in your mentioning of the beneficial effects of the global wealth effect and raising people out of poverty in other countries, are we not also pushing our middle class further into poverty in the process? I understand you can’t unring this bell, but I think the better quality jobs i.e. higher training and education solution is a red herring, we also need decent jobs for decidedly average but hard working people too. I have no answer to this and am not very optimistic to be quite honest. Social welfare anyone?


Posted by sunyata | Report as abusive

Globalization would be great if we all came from a level playing field with one set of rules and one currency….we don’t and until we do we will suffer to the cheaper labor economy’s.

Posted by Gillyp | Report as abusive

During our years of relative prosperity, we subjected ourselves to inequitable trade and tarrif agreements. We subjected our businesses and industries to the highest corporate tax rate in the world. We set ourselves in competition with developing counties characterized by very low wages and relatively non-existent safety, health, and environmental standards – not to mention the absence of social support systems. As mentioned by Gillyp, the playing field is not level and the discrepancies have not been overcome by productivity.

However, I suspect other factors are at work as well. For one thing, Germany does not seem to suffer from this same malaise. Why not? Also, I have friends who are, or have recently been, small business owners in the electrical and HVAC trades. They both are distressed at the apparent scarcety of young people willing to apprentice in those trades. They are also plagued by individuals with drug problems and others who just seem to lack any kind of ambition or work ethic.

So, while it is fair to say we have not negotiated so well in our business relationships with other countries, I believe there are also issues here at home that might deserve consideration.

Posted by John-B | Report as abusive

I just don´t see in the numbers how have Free Trade Agreements impacted the labor market. From 1995 (with the creation of the WTO) up until 2007 there weren´t any significant movements in the unemployment numbers other than those derived from cyclical crisis. If anything, during that time the US virtually reached full employment.

Globalization is just an easy target, and this is not new, happend in the late XIX century, happened again after World War 1, and again after The Great Depression. And instead of fixing the problems it just exacerbated them.

From 1989 to 1994 exports grew 40.9%, from 94 to 99 35.73%, from 99 to 2004 17.11% and from 2004 to 2007 (just three years) it went back to 40.90% marking 2004-2007 the fastest pace of growth for US exports in 2 decades. So again, I see no data backing the anti-globalization stance, worse case being no relation between the two, and best case being that it actually helped to create more jobs and production IN the US.

Back in 2009 I said the stock market was too extatic over recovery and that mild good news (at best) where just re-inflating an equities bubble, since the fundamentals still looked (even today) shaky. That fundamental being the housing market. Everyone I knew called me a stubborn bear… ultimately… I was right.

Jobs will not start happening unless credit starts flowing, and credit won´t flow unless the real estate market is back on its feet. And to fix the real estate market you need out of the box thinking. With current prices, the US real estate looks like a very good investment opportunity, but the law limits it to local consumers (US residents) that currently are not in shape to push the market up. Foreign investors, however, can… but don´t do it due to (likely) inadvert protectionism.

Ultimately it might be MORE globalization as opposed to less, what could help US to get back on its feet.

Posted by OrlandoGomezT | Report as abusive

The primary reason our economy has been “outsourced” is because the American people have tolerated our Government putting the interests of other countries ahead of our own. The major mechanism used has been the gross overvaluation of the dollar.

When you listen to the foreign reaction to putting the dollar at a competitive valuation in relation to everywhere else you can verify this. It is a screech of horror at losing the grossly unfair currency advantage they have over the US. Our Government has given our economy away and it will never begin to come back until the dollar is fairly valued.

Unfortunately, our country will very likely have begun an irreversible social upheaval before that happens.

Posted by txgadfly | Report as abusive

All our economic problems stem from our political system. If we can successfully solve our politics, we can solve the economics.
The problem is that the politics in this country has been captured by capital (read: greed). We have a very corrupt political system, which in other times functioned to a point. However, we have allowed corruption to totally capture our political system. Our presidency, Congress, and the judiciary are now owned by the wealthy interests and corporations. What voters want does not really matter. What matters is money that donors give to our politicians. Politicians then pass laws and protect those contributors. You cannot solve the problem from the middle. You have to go to the source. And the source is the Constitution. We need to create a publicly financed election system. Or find some way to overrule anything passed by the politicians. Or have the ability to recall our politicians from their offices. Anything to make them feel insecure, that anything they do can be overturned by popular vote. Right now we have a de facto one party system where the wealthy donors control the political system. It does not matter whether you vote Republican or Democratic party. Results will always be the same. That has to be dealt with first. Otherwise, it is impossible to solve the economic problems. These interests will always find a way to tilt the playing field to their advantage. Lets fix the foundation first, then you can deal with problems above.

Posted by contrarianview | Report as abusive

An immediate 50% American tariff is needed.

Someone said to me, “A nation that cannot clothe and feed itself cannot survive.”

That seems reasonable to me.

America needs to re-institute the American tariff. Like the one Alexander Hamilton first instituted to protect American jobs.

We need an immediate 50% tariff on all imported goods into America.

This would not only create jobs here, it would also balance our budget almost immediately, I think.

Posted by AdamSmith | Report as abusive

ABOUT: “Over the last 30 years, labor’s share of the national pie has declined to 44 percent from 52 percent, with profits growing at twice the annual rate for average wages.” NO WONDER! Look how we got here: 28 out of the last 42 years,or 67% of the time,the GOP has run this country..”
MY COMMENT – IS THAT EVEN DOUBLING THE TOP TWO “Clinton-Tax-Brackets” – yes doubling them to over 70% – would still only bring in an additional 18% max in revenue. The math on this is dead-accurate… Wall Street votes, usually, Democratic – therefore, your whole political solution argument has problems… ‘Taxing the rich’ more (they would just buy tax-shelters anyway) is a useless dead-end waste of time. The ‘rich’ pay well over 80% of running all government programs NOW. One-half of Americans pay ZERO in taxes NOW making America the MOST “progressive” society as far as the tax code on the planet (see this statistic online – done by a progressive organization). Check the math… It’s already widely reported online. There are not nearly enough ‘rich’ to tax enough to help our massive, fast-growing debt problem, which will soon sink our national ship! What a shallow understanding of America’s problems… We need to scrap the tax code (hard to do – lots of tax code beneficiaries won’t like it) and get a BROAD, low & flat tax, and/or National Sales Tax – if we have a hope of escaping marshall-law from social upheaval in 5 or 10 years. A (future) hyper-inflation-sick US dollar won’t buy what the poor and unemployed will need even if the government gives them those dollars… Think Germany in the 1930′s… Fix the US tax code, soon, or risk losing the USA to riots… The handwriting is on the wall.

Posted by DonCFP | Report as abusive


That seems the only way – not 50% but around 18% value-added-tax (VAT) on all imports should do it to restore local manufacturing over time.

These so called cheap goods are in fact no long so cheap goods afterall.

Posted by Mott | Report as abusive

Thankfully, most folks inside the Beltway remember enough economic history to realize the disastrous economic effects that we visited upon ourselves during the 30’s by enacting the Smoot-Hawley tariff act. During the early days of the Depression, there was much hue and cry over international trade and the jobs the US was losing due to imports. Lawmakers came to the ‘rescue’ by passing the Smoot-Hawley legislation. Most of our trading partners quickly enacted reciprocal tariffs of their own resulting in a drastic decline in international trade.

Worldwide trade dropped 66% between 1929 and 1934. U.S. exports dropped from $5.4 billion in 1929 to $2.1 billion in 1933 (figures measured in 1930′s dollars.) That was a loss $3.3B of business that a weak U.S. economy could ill afford. No one blames Smoot-Hawley for starting the Great Depression, but most economists agree the tariffs contributed to turning a 2 year downturn into the worst depression in US history.

To understand the full magnitude of how much economic activity we would jeopardize through tariffs, realize that U.S. companies have international sales totaling trillions of dollars each year. According to an S&P report (S&P 500: 2010 GLOBAL SALES – July 19, 2011) S&P 500 companies sold $2.3 trillion in goods and services outside the U.S in 2010. This number actually understates the true international sales figure as only 255 out of the 500 companies report their international sales. For these 255 companies, almost half of their sales come from outside the U.S.

I’m not even counting those smaller US companies not represented in the S&P 500 who sell goods and services to foreign buyers. $2.3 trillion is a lot of business and a lot of jobs for companies like Caterpillar, Boeing, 3M, GE, Ford, and Johnson & Johnson. If you consider that S&P 500 companies average $360,000 of revenue per employee, $2.3 trillion of revenue works out to 6.4 million jobs. Granted, not all of the 6.4 million jobs are in the U.S, but many in this group are American workers.

China sells us toy airplanes, and we sell them Boeing 777′s. We’ve got a good thing going here, let’s not shoot ourselves in the foot.

Posted by jambrytay | Report as abusive

Nice try.. the trade imbalance and the job-losses through cheap-labor outlets (offshoring, H1B and illegal inflow to replace locals) show the reality with the folks inside the Beltway shooting not in the foot but at the future of the next generation of this nation. The best thing these folks can come up is – keep the show going paving the way to polarization and warding off any change with fear-mongering and some senseless statistics.

Posted by Mott | Report as abusive

Nice try.. the trade imbalance and the job-losses through cheap-labor outlets (offshoring, H1B and illegal inflow to replace locals) show the reality with the folks inside the Beltway shooting not in the foot but at the future of the next generation of this nation. The best thing these folks can come up is – keep the show going paving the way to polarization and warding off any change with fear-mongering and some senseless statistics.

Posted by Mott | Report as abusive

One of the key elements that will result in the return of jobs to the USA rests with how poorly we manage our affairs. The sole use of QE1,2, and subsequent programs can only result in the devaluation of the US Dollar at a fairly constant rate of at least 3% p.a.

At some point, and at great cost and with significant pain, we will again become competitive with the rest of the world.

Currency parity is not the only issue. There are costs associated with the social rules that apply. If they exist; “OSHA”, “Environmental Protection”, “Child Labor Laws” are are a few examples of the rules that are not necessarily followed by offshore entrepreneurs from which we source most of our goods. A program of denying entry from countries that do not meet our standards has to be strengthened.

At the same time we have to simplify the many rules that apply to foreign trade. They are complicated, based upon concepts that may no longer apply, with significant personal risk and add to products landed costs through customs.

And given the destructuive sectarian tribal warfare that exists among our politicians, I hold little hope for stopping the slow erosion of the “American Dream”. We are where England was in 1912; the beginning of fall of the “British Empire”.

Posted by mfmu | Report as abusive

The ‘problems’ you complain about are things you’re doing to yourself.

We choose the rental car agency that offers us the lowest price, but then complain that the company has outsourced its call center to India. How do you think they were able to offer you that low price? We complain about illegal aliens, but happily buy the 2 pound tub of strawberries for $5 at the grocery store. Even in the depths of our Great Recession, no gringos showed up at the strawberry farms ready for work. As investors, we applaud management’s cost cutting measures and the 10% jump in the stock price. Oh, by the way, management outsourced most of the company’s AP function to Poland as a part of the cost cutting initiative. We like to blame others, but our actions as consumers and investors create the very ‘problems’ we complain about.

We send a very clear message to business—we want it cheaper, faster, better, preferably all of the above. Companies will stop doing all these things as soon as the consumer stops demanding innovation, better products and services, and lower prices. One problem. The day that happens is the day our economy stops growing. In a mature economy like ours (one with little to no population growth) productivity gains are about the only way for the economy to grow. Economic growth gives us higher pay, a better standard of living, etc, etc. Bottom line, consumers and investors are generally pushing business to do the right things.

Posted by jambrytay | Report as abusive

Well said. The 50% I mentioned for an American Tariff may not be exact. Your calculation may be better. But it must be big enough to appeal to the senses, it seems to me. To the average citizen, 18% sounds too much like the same old, same old.


Well said. But your familiar argument against tariffs could have been made against Alexander Hamilton and George Washington when they created a heavy American tariff specifically to protect American jobs, by taxing imports from Europe.

And don’t forget that one cause of the American Revolution against England was the English Parliament’s attempt, at the behest of its manufacturers, to forbid and prevent manufacturing in America.

And if one looks at the record of history, it’s clear that America’s phenomenal rise from a agrarian colony to a gigantic economic power occured during the years of George Washington’s presidency (1790) all the way through the American Civil War, and up to World War I (1914).

Take a look at the very successful history of American tariffs here:

During all those years of American economic ascendency, during 1790-1914, America had a high tariff on foreign-produced goods. It’s a fact. The purpose was to protect American manufacturers and American jobs, and to balance our budget.

So my question, Mr. jambrytay, is why didn’t your argument, that Smoot-Hawley caused commerce to collapse, apply to America in the years 1790 – 1914, when we were leading the world in commerce and growth?

That is my question to you.

Posted by AdamSmith | Report as abusive

The argument against tariffs applies to our early years although foreign trade as a % of total economic activity was much smaller years ago. Our economy is obviously a lot different today v. 1790. Then we were like the start up company with a winning hand -lots of cheap land, labor, raw materials, etc.

Posted by jambrytay | Report as abusive

Foreign trade was very high in 1790, and so was personal debt. Most plantation owners, like George Washington and James Madison, were heavily indebted to trading companies in England. All their clothes and wives dresses, most of their tableware, carpentry tools, farming equipment, was manufactured in England, and imported.

In return, their plantations produced cotton, for example, that was exported to, England and France, primarily.

But even disregarding that, why didn’t the continuing high American tariffs, even 100 years later, in 1890, cause the world trade to collapse? Even in 1905, the year Albert Einstein published his paper on the Special Theory of Relativity in Switzerland, American science and commerce were rising rapidly, along with American manufacturing — and all this occuring with a powerful American tariff in place.

As can be seen in the Wikipedia schedule:

Mr. jambrytay, why didn’t your argument against tariffs apply in that era?

Posted by AdamSmith | Report as abusive

History shows the general direction of tariffs across the globe is down; not a straight line, but the trend is pretty clear.

What do you think our trading partners will do if we should put tariffs in place?

Posted by jambrytay | Report as abusive

Yes, trading partners would probably respond by increasing their own tariffs. However, many trading partners already have high tariffs. One of our largest trading partners, China, could respond by levying a 200% tariff on imported American goods, and it probably wouldn’t hurt America much, because our trade with China is pretty much one way.

The flow of Chinese goods into America (virtually everything we buy in our stores today) is so immense, that an American tariff of, say 50%, would generate a huge source of funds to balance our budget. At the same time, it would cause American new manufacturers to immediatley spring up like grass after a rain.

It would mean that for the Chinese shirt I buy today at Walmart for $10, I would end up paying $15 instead, after the tariff is imposed, I think. Same with a laptop I buy from Dell. Instead of the $600 I pay today, I would have to pay about $900 after the tariff is imposed.

mott could maybe make a better calculation on that than me.

Posted by AdamSmith | Report as abusive

Raise taxes on corporations and the rich, provide incentives for hiring Americans, raise tariffs on countries that we have a negative trade imbalance with, allow government subsidizing of American corporations that require support to compete against foreign interests, invest and support Americans that participate in the American dream and are willing to work for it, and keep studying the American economy to find the right balance of private and government participation to maximize performance and provide prosperity for all.

Posted by xplic57 | Report as abusive