Many people point to offshoring/global wage arbitrage as the key driver of stagnant
wages and employment in the U.S., and this is certainly a factor. But we would be remiss
not to note the other equally important drivers:
1. A system in which inefficient quasi-monopolies/cartels (defense, healthcare, education)
are protected by a debt-based, expansionist Central State.
2. The exhaustion of the consumption/debt-based economic model.
Consider this thought experiment. Suppose the offshoring of jobs was suddenly banned;
only U.S. workers could be hired (setting aside that this is impossible in an economy where
50%-60% of U.S. corporate sales, profits and labor are non-U.S.; how are corporations
supposed to compete in markets that generate 60% of their sales/profits if they can't hire
local workers?)
Does a ban on offshoring suddenly make it profitable to hire more employees in the U.S.?
No, it doesn't. Healthcare costs are still double those of our global competitors
America's Hidden 8% VAT: Sickcare (May 10, 2012), and stagnant
wages and high debt levels leave few opportunities for big profits.
Instead of developing new products and services, corporations either slash labor costs
or belly up to the State
trough of favored cartels: defense, healthcare and education. It is no mystery
why these three State-protected sectors have seen costs skyrocket in a low-inflation,
low-growth economy: college tuition has leaped by 1,100% above inflation
and healthcare has risen 600% above the CPI (consumer price index).
Once the State enforces quasi-monopolies and cartels, inefficiencies rise because the
feedback from reality (i.e. price) has been severed. This is how you get an economy
where a biopsy costs $70,000, new fighter aircraft cost $200+ million each (six times
the previous top-of-the-line fighter) and a conventional (i.e. non-Ivy League) college
education costs $120,000 - $200,000.
In other words, the erosion of private-sector employment has structural causes that
are the consequence of the debt-burdened, crony-capitalist domestic economy
and technological innovations.
Private full-time employment as a share of total employment: new low, and four years
of unprecedented fiscal/monetary stimulus has pushed it back up to merely recessionary levels:
Private full-time employment minus health services jobs as a share of total employment:
remove the State-protected sickcare cartel and the picture is even worse.
Private full-time employment minus health services jobs as a share of the total labor
force: subtract government and healthcare jobs and roughly half the labor force
has a private-sector job.
Part-time employment as a share of total employment: roughly 1 in 5 jobs is part-time,
and does not pay enough to support a household, even a one-person household.
Part-time employment as a share of the total labor force: much of the vaunted increase
in employment of the past four years is part-time jobs that cannot support mortgages,
consumer debt, healthcare costs, auto loans, or even rent.
Less government and health services employment, only about half of the labor force is
employed full-time.
This is precisely why half of college grads are unemployed or underemployed, i.e.,
part-time work at low pay. Statistically, if they are not employed in government or health care,
they have no more than a 50% probability of obtaining ANY full-time private employment.
At ~18% of the labor force employed part-time, those 50% grads who do not obtain full-time
private employment outside health care must compete for the 1 of 5 jobs in the
labor force that are part-time, implying that no more than 59-60% of college grads will
obtain ANY employment under current labor market conditions, leaving ~40% of grads with
no prospects for earning purchasing power.
Is it a surprise why student loan delinquencies have begun to soar? How will the housing
market grow with as many as 40-50% of high school and college grads unemployed,
underemployed, or unemployable?
From my experience, perhaps as few as 10% of the population know the information above.
Most in the top 10% don't know because they are largely unaffected and thus don't care
and will not be persuaded that they should care until they have to (i.e. when their children
experience the aforementioned conditions).
The vast majority of the bottom 90% don't know
because they spend their waking hours trying to survive and can't do anything about it
were they to know. Those who do know tend to be well-positioned economists, politicians,
and similar types who have no financial or professional incentives to share the information
because no one in the top 1-10% cares to know or do anything about it.
How do you maintain a mass-consumer, debt-based economy with only half of the labor force
with full-time private employment outside of health care, accelerating automation of labor
and loss of incomes and purchasing power, 40% of the youth with little or no purchasing
power, and 90% of the population relying in old age on transfer payments from the wages
of younger wage earners and their struggling employers? You can't.
So the mass-consumer economy and welfare-state for the bottom 90%, elderly,
underemployed, disabled, young, and poor is not sustainable. Now what?
1. Healthcare, defense and education are all bubbles that are about to burst as debt-based
government spending must slow, and this means the "you have a guaranteed job in this sector"
mindset that has been true for the past 50 years will change.
Rather than obtain a guaranteed full-time job, those entering these fields (other than M.D.s, in which
a critical shortage looms large) will be competing with vast hordes of other job seekers who
also believed these were "safe" careers. The same can be said of law, as the era of
"Big Law" is over as large law firms shed attorneys and reduce compensation.
BigLaw Growth is Dead: Here's What's Next.
2. Sickcare acts as a systemic tax, as does the cartel defense industry.
Politicians love defense and healthcare spending because they believe it "creates jobs."
But since these are largely unproductive mal-investments, for reasons I have highlighted
here many times, State spending on these sectors is extraordinarily ineffective at
creating not just jobs but productive investments of labor and capital.
To take but one example of thousands: western Pennsylvania has about as many MRI machines than the
entire nation of Canada. Those who own the machines funnel thousands of people into
their labs to take unnecessary or duplicative MRI tests as a profit-mill. Since the State
(Medicaid and Medicare) and insurance will pay for any and all tests deemed "necessary"
in a system that revolves around defensive medicine, i.e. doing whatever it takes to avoid
future lawsuits, this waste makes perfect sense in terms of generating profits.
Add in massive amounts of fraud (billing Medicare for tests that were not even given)
and 40% of the system costs wasted on paper-shuffling, and you have a system that
is literally crippling the entire U.S. economy with its high costs, fraud and waste.
3. Where does the leadership of our multiple layers of government think future
tax increases will come from when private sector employment is eroding and
half of all college graduates are unemployed or earning low pay in part-time jobs?
The wage-base for higher taxes to pay for ballooning entitlements is eroding, too.
4. We suffer from a systemic failure of imagination. The financial and political Aristocracy that
rules the neofeudal, financialized economy have no other model other than debt-based
misallocation of capital and endless growth of debt-based consumption. That this model is broken
and cannot possibly get us where we need to go does not matter; they will continue
to do more of what's failed because they have no alternative model that leaves their
power and wealth intact.
