Are Americans Entitled to Extended Unemployment?

Tea Partiers are ignited about the idea of abolishing long ago formed agencies that have been cemented in stone buildings along Constitution Avenue. They believe that good government concepts never really die and eventually become entitlements that stymie original intent.  However, once formed, these ideas take hold in the American consciousness and we begin to believe we are entitled to them as unalienable rights.

Take unemployment insurance for example. Like defense, education, and the rule of law, unemployment compensation has its roots in increasing the efficiency of capitalism.  With a temporary stipend, unemployed workers are free to move from businesses that are sliding past their plateau of usefulness to those that are innovating.  Without the fear of losing their homes and other assets, employees move to healthy businesses even during economic downturns.  Because this idea supported the beliefs of both parties of congress, unemployment insurance passed by an overwhelming majority in 1935 as part of the Social Security Act.

In most downturns, the unemployed are able to find jobs within the insured period of 26 weeks. However, an underlying sickness gutted our sustainable job base during the last thirty years as we borrowed our way through successive economic bubbles.  Only after the credit default swap bubble collapsed our economy did we understand that our jobs were gone.  Not only had our manufacturing blue collar jobs been shipped overseas, but our technically skilled jobs were exported as well. Our average period of unemployment has now swelled to 37 weeks.

It was only natural that Congress quickly adjusted the unemployment period as a stop gap measure when faced with the Great Recession.  They rightly protected our longer term unemployed to keep them from losing all they have gained in contributing to our country.  Now that the ranks of the 99ers, those that have fallen past the safety net of extended unemployment, are swelling, America is debating if unemployment benefits should extend further, and whether the unemployed are entitled to a longer benefit period.  

The debate on entitlements needs a paradigm shift.  Instead of discussing whether unemployed should receive more than two years unemployment compensation, we should be creating a process that allows our citizens to quickly re-enter the workforce and once again contribute to America’s success.  

My voucher plan is a paradigm shift.  Instead of paying unemployed to sit on the sidelines of our economy, America instead invests in our future by getting our people back to work.  Small businesses can hire voucher employees at their unemployment rate. In return, Voucher employees can work twenty five hours per week and receive the same pay they would have received through unemployment. The Federal Government can then reimburse employers the employees’ wages without increasing the unemployment budget.

Tea Party members will be concerned that this voucher plan will become yet another entitlement. They can rest assured that the voucher plan will be a relic of the Great Recession, created to automatically expire as the economy improves. Voucher dollars will decrease as the percent of unemployment decreases, requiring employers to cover more of voucher employees’ wages.  As a result, voucher employees in barely sustainable businesses will transfer to healthier ones.

Some claim that the unemployed feel entitled to remain unemployed, collecting extended payments.  While we can all find a few examples of misuse of American altruism, I have found that most people want meaningful employment.  The entitlement argument stems from the disincentive our unemployment system creates for rejoining the workforce.  It’s not unreasonable to compare available jobs with current unemployment payments. When a worker leaves a job that paid $14 per hour, is getting $8 per hour for unemployment, and is faced with a job that pays $9 per hour, their incentive to work is only $1 per hour; substantially less than their former job and only a dollar more than unemployment. Unemployment should not create a re-employment inertia differential.  My job voucher plan creates the largest re-employment incentive because unemployment extension payments end.

Americans might be concerned that my voucher plan would be used to balloon what they believe is already too large a government providing too many entitlements.  They cite previous government programs that raised social benefit costs without creating profit generating, taxable products or services. My job voucher plan, however, grows jobs only in private sector small businesses, and can be supported by existing government agencies without expanding their budgets. 

Others claim that my voucher plan is just an entitlement to small business, creating an inefficient makeshift set of jobs for the unemployed.  While I agree that my plan can rapidly employ all Americans, and as such may create some early, inefficient placement of workers, it nonetheless will also create a micro-venture capitalist function for millions of small businesses.  Some of these ventures will successfully create taxable revenue, and some will be incredibly successful, paying back America’s investment through future taxes on corporate profits and employee compensation.

Finally, concerns have been raised that any program such as this may create an entitlement mindset that all Americans must work.  Government work programs have been abused by some to collect compensation while performing work at subpar levels.  This problem is self correcting in my voucher plan.  Employees would still be governed by private sector principles.  If the job is not a good fit, employees will not find safe harbor in this program. For the program to be successful, government intervention will have to be restricted to current EEO and ADA requirements.  But, in the end, one entitlement should fly true.  America will find it is entitled to renew its future.

Repost from NetNet: Why the Unemployment Rate Has Become a Bad Joke

Published:  11 Feb 2011 | 2:00 PM ET on NetNet

By: Jeff Cox
CNBC.com Staff Writer

The national unemployment rate is becoming an increasingly meaningless statistic when it comes to painting a true picture of economic and job growth.

While the December drop from 9.4 percent to 9.0 percent might have looked nice on paper, digging through the real numbers shows the actual jobs picture hasn’t improved at all. In fact, the situation is at best stagnating, despite headline numbers that look like things are getting better.

At the heart of the unemployment rate deception are the nearly three million Americans counted as “marginally attached” to the labor force. Those folks would take a job if offered but actually aren’t actively looking and thus not counted in the government’s official statistics. There are a million more of them than there were in January 2008, thanks to the lousy job market that seems to be improving only at the margins.

So when you see a “drop” in the unemployment rate, like we did when the January nonfarm payrolls number came out, it’s best to measure carefully the grains of salt with which one takes

“This is a significant number of people waiting on the sidelines,” Paul Ashworth, chief US economist at Capital Economics in Toronto, wrote in a must-read analysis of the labor force’s participation rate.

“Considering that there are about 7 million more unemployed now than three years ago, it suggests the pool of available labor could be 15% bigger than the unemployment figures suggest,” he concluded.

That puts the headline unemployment rate well north of 10 percent, even as the so-called “real” unemployment number—which takes into account an even broader swath of the working-age population—remains above 16 percent but in a modest decline. In fact, Ashworth attributes the drop from the cycle high of 10.1 percent unemployment to the current level “as much due to a contraction in the labor force” as any illusory improvement in the real jobs picture.

“The 836,000 decline in the labor force since (the October 2009 peak) is only slightly smaller than the 930,000 increase in employment,” he wrote. “Over the second half of last year, the labor force shrank by more than employment expanded. …In other words, the drop in the unemployment rate doesn’t reflect an improving job market, but rather a decline in the labor force participation rate.”

In fact, the participation rate is shrinking, not growing, falling to 64.2 percent, which is an eye-popping 26-year low. That trend makes it even harder to reconcile a drop in the unemployment rate, and also makes laughable the protests of some economists that the paltry 37,000 nonfarm job growth for January was due to weather.

Economists who have held bullish outlooks for the economy are taking notice.

“Never before has such a sharp decline in the unemployment rate been predicated on an ongoing drop in the labor force. The participation rate has crumbled 1.5 (percentage points) since the recovery began,” Bank of America Merrill Lynch economists Neil Dutta and Ethan S. Harris wrote in a research note.

“This labor force detachment tells us two things that should give even the most bullish of market participants room for pause: (1) structural unemployment is rising and (2) the potential rate of growth in the US is slowing.”

What’s more, those glibly dismissing inflation threats also could be in for a surprise.

“More structural unemployment and weak potential growth imply less slack in the economy and raise an inflation risk,” the BofAML team wrote.

Just today, Neal Soss, head of the economics team at Credit Suisse, said the drop in people looking for jobs is unlikely to abate for years.

“One arithmetical consequence of a subdued labor participation rate is that it requires smaller job gains to achieve the same amount of decline in the unemployment rate. Thus, the decline in the jobless rate tends to overstate the improvement in the labor market,” he warned clients.

So what’s it all mean?

Extrapolating from Soss’s analysis, we should be careful how easily we dismiss future rounds of Fed easing, political climate be damned.

“The Fed seems to share our concerns about the mathematical calculation of the unemployment rate and is beginning to downplay the improvement in that statistic in its assessment of America’s jobs problem,” Soss wrote. “We expect the Fed to maintain its accommodative policy stance until the unemployment rate drops for a good reason: because monthly job gains move to a much higher plateau.”

Can the Job Voucher Plan Create Renewal in America?

A sense of purpose is as important to one’s work fulfillment as the financial reward that work provides our family.  I am reminded of the story where a passerby asks a stone mason who is chipping away at a cornerstone what he is doing, and the mason replies not that I am cutting a block, but that I am creating a cathedral.  Here in Florida, I am surrounded by neighbors who have lived in their homes for 30 years only to turn them over to the bank because of hard times.  Their share of the “cathedrals” they created for our country was stored in their home. When the banks foreclosed on them, they lost the results of their life’s work. 

Losing their home is just one step down the painful road that millions of Americans are enduring during this Great Recession.  With the loss of so many millions of jobs, the difficulties of just one jobseeker can get lost in all the noise.  How do jobseekers cope when they have become part of the 99ers, those whose extended unemployment has run out?

During this Great Recession, as each month passes, the job seeker begins to realize that somehow this recession is different. In the first days after he recovers from the shock of losing his job, he determines to quickly pursue businesses which best meet his career and geography requirements. As the months go by, he realizes that opportunities are diminishing, and he must now lower expectations if he is to cover expenses and keep the kids in the same schools.  As unemployment compensation comes closer to the end, he recognizes he may have to move to open up more job possibilities. He reluctantly lists his home only to find over time that it is competing in a surplus market, and that its value is lower than the mortgage.

Yet he persists, getting up each day to comb opportunities till dusk with a hopeful heart of scheduling a job interview. His efforts pay meagerly because interviews are not plentiful in this stagnated market. Each month, more people transition to the unemployed, and they are being called in before him. He has similar qualifications, but somehow because he has been out longer, employers begin questioning why he has not been hired. Sensing their skepticism on the phone, he shows a lack of self confidence in the few interviews he gets, further lessening his chances for hire. His wife and kids quietly grow anxious with him, and he fears they are wondering what his “failure” will mean to their lives, their friendships, and their futures.

At some point, any job would be better than grieving through this spiraling loss of self worth. Then one surprisingly sunny spring 2011 morning, he turns on the TV to see President Obama, surrounded by leaders of both parties on the White House lawn, announcing the “Job Voucher Plan”. As promised, within weeks, the internet and local papers begin filling with job offers in all areas of employment. His spring is renewed with hope.

After several interviews, he begins working again, and not in some makeshift job, but one with career potential and purpose. The owner of a small business has painted a picture of an innovation in need of an American with the skills to make his dream a reality. Now purpose driven, he sets about to create real value for his employer and his community.

He knows that small business ventures are not always successful and that there are no guarantees this job will turn into something permanent. But the American people have committed for the next two years to give him 25 hours a week to help his employer and product to success.  Each morning seems brighter as he gains control through his efforts to build a career in this new small business venture. Not only is his family experiencing this change; he sees a purpose growing in the entire community. There is a belief that we are all working for something larger, for a renewal in America.

While this spot is not where he had hoped he would be in the years leading up to the Great Recession, he now has a sense that things will get better. He is being paid the same wages as before the recession but with fewer hours. He will help this company with hope and loyalty of purpose, and will have done his part to dig America out of its slump. As the economy improves and competition for employees heats up, his small business owner will compete to keep his new, valuable employee. Nonetheless, the job seeker will diligently use his 15 extra hours a week to once again pursue the American dream.

The above chart shows unemployed broken down by time of unemployment.  It does show a slowdown in newly unemployed.  However, it does not accurately depict all unemployed because many have fallen off the curve and are no longer counted.  Unfortunately, it does show that the mean time of staying unemployed is growing.

What is the effect of Economics on the Egyptian Demonstration?

This is a graphical context of middle 60% PPP annual household income for several European, Middle Eastern and Asian countries.   Those countries either involved in direct war with the United States, or that have recent uprising and demonstrations have their annual incomes  boxed in red.

While the issues are so very much more complex than just economics, share of world income  partially explain demonstrations in Tunisia, Jordan, Yemen and much more vigorously, Egypt.  Compared to others in the region that have either created diverse economies like Turkey, or whose populace have benefited from oil revenues like Saudi Arabia, these countries average incomes have lagged well behind, and their citizens sense little say in their futures.

Compared to India and China, they fare better financially, if we look statically at their current purchasing power. However, the latter countries’ citizens look forward to growth through active private and public investment where the former do not.

Additional Data:

Qatar	$          68,600
Switzerland	$          34,600
UAE	$          53,200
U.S.	$          37,100
Kuwait	$          34,000
Israel	$          21,700
Greece	$          24,600
Cypress	$          24,800
Saudi Arabia	$          22,900
Oman	$          22,200
Libya	$          14,400
Turkey	$            9,700
Iran	$            8,200
Lebanon	$            8,100
Tunisia	$            5,900
Egypt	$            4,200
China	$            3,900
Jordon	$            3,800
Syria	$            3,400
India	$            2,100
Yemen	$            1,800
Afghanistan	$            1,500

Bruce Nussbaum’s Blog on HBR

 

Bruce Nussbaum recently posted this blog on Havard Business Review.  His message was spot on.  He heralded the issue with trumpets. Multinationals are not just transferring jobs overseas through direct foreign investments.  To gain access to China’s markets, they must couple DFI with technology transfer.    Here is my short editorial.  Our great American hope for competition, American innovation is being sold to the highest foreign bidder.  The way to compete with this innovation drain is to reseed innovation here in the fertile ground of small domestic American businesses.   Now Bruce’s great article:

What’s Wrong With America’s Innovation Policies

10:12 AM Wednesday January 26, 2011
by Bruce Nussbaum  

President Obama gave a stirring speech last night, saying “We need to out-innovate, out-educate, and out-build the rest of the world.” He used the word “innovate” more times in his State of the Union than any other U.S. president. To those of us who believe the future of the country depends on its innovative capabilities, this was hugely positive. But the obstacles to boosting innovation in the US are far higher than the President acknowledged. Indeed, as CEOs gather at the World Econimic Forum in Davos, they are much greater than most business leaders are willing to say.

Here are some harsh truths that President Obama did not face in his State of the Union speech: there is very little actual innovation taking place within Big Business; Washington innovation policy is placing big bets in the wrong places; China’s innovation policy is superior to America’s.

Let me explain. A devastating National Science Foundation Business R&D and Innovation Survey that generated almost no media discussion when it was released in the fall showed that only 9% of the 1.5 million for-profit public and private companies in the U.S. had any product, service or process innovation between 2006 and 2008. Of manufacturing firms, 22% innovated. In non-manufacturing, a mere 8% innovated. As economist Michael Mandel has observed, “you can’t be an innovation economy if only 9% of your companies are innovating.”

Under both Democratic and Republican administrations, for nearly 20 years, Washington has been placing the wrong bet on R&D. Hundreds of billions in government funding has gone into bio-sciences without any significant return. Genonomics was heralded as the Next Big Thing after silicon, the driver of future economic growth. It isn’t producing results in terms of new companies, jobs, or economic growth in general, yet billions more flow into NIH and universities every year.

China’s brilliant “Fast Follower” innovation policy is generating the biggest transfer of technology in history. A combination of state-driven policies is driving this policy — requiring Western companies to partner with Chinese firms to do business; demanding transfer of the latest technologies in exchange for access to markets; favoring “indigenous innovation” in government purchasing; fencing off green and other industries from foreign competition; offering low-interest state-bank loans to local champions. This industrial policy is at odds with WTO standards, but is a boon to Chinese economic growth and a long-term threat to U.S. global competitiveness.

A realistic American innovation policy will need to take these three harsh truths into account. We need a much more skilled business leadership than we have currently, capable of creating as well as managing. We need to refocus government investment into manufacturing, energy, and materials. And we need much more vigorous global economic policy that meets the challenge of China’s innovation policies.

When President Obama speaks of a “Sputnik moment,” he clearly understands the need for innovation. The next step is crafting policies that deal with the harsh truths of American innovation and move us forward.

Bruce Nussbaum is a member of the Council on Foreign Relations. A former assistant managing editor for Business Week, he is professor of Innovation and Design at Parsons The New School for Design.

A Math Example Clarifies The Debate About Free Trade

Sharpen your pencils, get a cup of coffee, and grind through this simplified math example that clarifies why jobs are being lost to places like China and India through free trade.  Hopefully the exercise will be enlightening.  It also explains mathematically why America must innovate to make up for lost jobs and to keep wages from being depressed.  If you have any questions while going through the exercise, leave it in the comment section and I will promptly answer it for you.

The Debt Ponzi Collapse Exposed the Real Crisis: A Transfer of Investment and Jobs

Notwithstanding that the current economic crisis was initiated by a debt ponzi scheme that collapsed inflated home prices, creating credit and capital illiquidity, the real crisis is what the collapse finally exposed.  Over the last 25 years, a series of bubbles and bursts have masked the underlying long term transfer of investment and jobs from America to other countries.  The following is an extremely simplified but useful example of how this occurred and why debate continues to surround free trade.

Assume:

• 2 countries X, Y
• 10 people per countries X and Y
• 1 International banker / multinational company (Banker)
• 10 products each requiring 1 person /year of work
• Products expire in 6 years requiring replacement
• Capital has infinite life, interest rate is 0%, material and transportation costs are free

 

Country X

• Banker lends to multinational who creates 10 factories
• 10 Factories each hire 1 person to create a total of 10 products per year
• Workers are paid 1 dollar for each unit of work and products are priced at 1.2 dollars
•  At the end of each year, each person borrows .2 dollars and buys 1 product
• After 6 years, all people have earned labor wages to pay back loans and own 5 products
• After 6 years, 60 units are produced and 50 are consumed
• In 6 years, Banker nets 10 units, zero dollars (60 dollars revenue less 60 dollars) labor, and creates  2.4 dollars value per factory
• With excess units, Banker seek more consumers
• Some products are already reaching obsolesence so cycle must repeat

 

Country Y

• For first 6 years country Y is agrarian but educates its people preparing for industry
• With high unemployment, workers are willing to work for .2 dollars
• Country Y government collects .2 dollars for multinational privilege to invest in country Y
• After first 6 years, Banker builds a factory to produce 1 product (a)
• Banker hires 1 person and loans person 1 dollar to buy product (a)
• During next 5 years, factory produces 5 units and 1 is consumed by country Y, 4 units of product (a) are sold to Country X
• Banker nets 3 dollars, selling 5 units for 5 dollars, labor costing 1 dollar, country Y collecting 1 dollar
• Banker benefits .6 dollars by moving factory to country Y
• As capital is returned, Banker reinvests in country Y
• Country Y invests dollars gained by multinationals in securing future benefits for its people

 

Country X responds

• Because prices are lower, workers in country X buy 4 units of product (a) from country Y
• Plant producing product (a) reduces output to 1 unit during next 5 years
• Worker from factory (a) is laid off and replaced by part time worker
• Small company with innovative idea generates product requiring loan and worker
• Banker loans small company to build factory to produce product
• Small company hires worker that was producing product (a) so that employment is maintained

 

Over Time

• Banker corporation continues to invest in country Y
• Country X must continue to innovate to create new products to replace jobs taken by country Y
• The rate at which country X cannot keep up with the transition of jobs to country Y correlates to the rate at which jobs are lost and wages are depressed in country X

 

Benefits and costs of free trade to residents of Country X

• Workers who have jobs benefit .8 dollars over 5 years from buying lower cost product
• If innovation keeps pace with the transfer of jobs overseas, creating high paying jobs within country x, residents of country x receive more goods and are wealthier
• However, if the following occur, residents of country x is poorer, and country X borrows 2.5 dollars over 5 years from banker to pay unemployment benefits to laid off worker:

o   If innovation does not keep pace

o   If investment wealth is limited and bank receives higher rate of return for funding multinational transfer of jobs than on innovation investment

o   If multinationals purchase innovation and transfer innovation to country y

o   If economic shock creates illiquidity and halts investment in innovation

 

Benefits and costs of free trade to Banker / multinational

• Under scenarios listed above, the banker / multinational continues to benefit

o   With innovation, banker has additional investment options

o   Without innovation, wealth of the working class is transferred through multinational transfer of jobs to the banker

• However, if free trade and excessive investment in country Y cause jobs to shift too quickly, then:

                o   Country X deficit increases to unsustainable level

o   High unemployment in country X causes widespread default on consumer loans

o   Banker / multinational is at risk of negative return

Fish Story II – Village Elders make wrong decision. But why?

I enjoyed the magical context of “Who Moved My Cheese” and wrote my fishing village blog, trying for a similar simple imagery. To provide some insight on the America’s structural unemployment issue, I did take the liberty of starting with a uniform landscape; one combined currency and product, and two distinct villages.

The elders in the story agree on a wrong conclusion, to have able bodied fishermen sit on the bank of their economy when they could obviously reduce their village’s debt burden. The perplexing question to ponder from the story is why they or any nation that has trade imbalances would come to the “elders” conclusion.

Certainly adding more products to the mix allows less able fishermen to find other talents. But within the constraints of the story, with no other options and being unable to fully contribute their own sustenance, it still makes sense for the fishermen to fish. The west village let all eat till satiated. Having all people fish would lessen the charitable burdens of others in the village.

Adding more products to the story opens up more possibilities to reduce the trade deficit. Through innovation, we can create foreign demand for our products and command a higher than commodity price. I hinted at this possibility when I suggested that the children might be able to catch more fish in less time and pay back the east with innovation inflated fish dollars. Innovation is a product of America and must be guarded.

But within the constraints of the story, with no other options and being unable to fully contribute their own sustenance, it still makes sense for the fishermen to fish. The west village let all eat till satiated. Having all people fish would lessen the charitable burdens of others in the village.

In addition, having one product for the story is sufficient if we make the assumption that utopian free trade existed for these two villages. I suggest that in one world market dominated by multinational corporations, “utopian free trade” is the ultimate trajectory point. We have a long path to that point I know. However, America is already experiencing the effects of traveling down this path.

In my utopian market, all products have become a commodity and, therefore, neither community has a product advantage over another, other than transport distance and geography. In the story, utopian trade existed. The elders of both villages agreed on a market clearing price of fish. Investment capital freely flowed to keep both villages fully employable with boats, fishing gear and bait. All trade secrets were fungible and, therefore, neither village had any technology innovation advantage. Access to raw materials and skilled labor was unconstrained. Profit sharing between workers, management, shareholders, and government was equal for both villages, they shared fish to satiation. Neither camp showed any civil unrest, government instability, uncooperative weather, natural disaster risks, or harm for the environment. They coexisted sharing the one lake peacefully. Demographics of both camps were similar, so neither carried, for example, the burden of an excessive aging population. The means of exchange was also transparent and constant, fish in boats.

The difference between these two communities therefore was in their motivations. The east was willing to accept less than the west for their work and to produce more than they needed, saving the results of their labor in future currency. The west was willing to trade later labor for current leisure given that 1) later labor was less work than they would currently have to work for the same fish and 2) the potential that the work might be borne by future generations and that they might escape the work altogether.

Skipping whether the west village’s motivations were pure, one issue must be explained for the story (and our current trade imbalance) to be logical. Why would the western villagers not allow the able bodied fishermen to fish on behalf of their village? It certainly would be less burdensome on the other villagers who would have to fish later to make up the debt that could have been lessened if they fished. How could this decision have been reached?

If Our Debt of Leisure Must Be Repaid, Should We Not All Fish Today?

Two villages grow beside a lake, one to the east and one to the west. The lake is almost paradise for there is no need for shelter or much other sustenance.  The villagers simply must fish the lake each day for food and take leisure.  At the beginning of time when the fish are few in numbers, everyone must fish many hours. But as the fish populate the lake, the townspeople on both sides of the lake find they have more time for leisure.

 The fishermen in the eastern village are a driven clan, choosing not to take leisure but to catch more than enough fish for their own needs, and to offer their excess fish to the western village.  To entice the west, the eastern village offers to give more fish today and to take less fish back from the west at a later date to settle the debt. 

 The people of the western village find the offer irresistible because they can receive many more hours of leisure now knowing that some day when they must repay the fish, they will have to fish fewer more hours than the leisure that they gain today.  They even imagine that the fish in the lake might continue to grow so numerous that when the eastern villagers eventually ask them to repay the fish, the western villagers’ children will have learned to catch many more fish, and may not even have to work more hours to repay the debt.  So the western village willingly accepts the offer of fish from the east.

As the eastern villagers begin to deliver fish, the western villagers learn that some of their village’s fishermen are no longer needed.  When the western village’s catch is combined with the basket of fish borrowed from the east, the western village has more than enough fish.  The western village elders meet by the campfire and decide that their less skilled fishermen must sit on the bank, looking pitifully toward the lake and the other fishermen, and take full leisure.

 The less skilled fishermen take full leisure even as the debt of fish grows ever larger to the village on the east side of the lake. The less skilled fishermen are willing to catch as many fish as they can even knowing that with less skills, they eat more than they catch.  Yet, the less skilled fishermen must take full leisure each day and share in the basket of fish that has been borrowed.   Nonetheless, the elders have spoken.  They must sit out the catch and watch the villagers from the east deliver fish to their shore.  How did the village elders of the west come to this wise conclusion?

China and India are Winning the Jobs War

China and India are winning the “jobs war”.  American jobs are being lost most to developing countries where the average wage is less than $3,000 per year. What is the impact of trade deficits on jobs? With a trade deficit of about $700 million, and with about 45% of trade volume representing labor and private sector multipliers of 2.0, America’s trade deficit represents about 14 million lost American jobs. 

Do trade deficits harm America? Since the average income for major trade surplus countries is under $3,000 versus the average American at $43,000, many products overseas can be manufactured at far less costs than in America. If all wage differences were passed back to American consumers, our consumers would benefit from lower prices by about $280 billion. But if we net out the loss of $630 billion in lost American wages, America still loses $350 billion every year. 

Which Americans benefit and which are penalized by trade deficits? Laid off workers lose because they collect only a portion of their wages in unemployment. Their unemployment payments are paid by all Americans, so taxpayers lose. Lower wage consumers benefit more by lower prices than by the taxes that they are required to pay, so their households benefit perhaps as much as $2,000 a year. Of course in the long run, trade deficits are borrowed, causing loan rates to go up for both consumers and government, so all America is penalized. 

Does freeing up trade benefit America? Certainly, more American goods and services can be sold to other countries and more foreign goods can be purchased by American consumers. However, unless our government negotiators are savvy enough to remove specific trade restrictions that will reduce our trade deficits, the large differences in wages between America and developing countries would suggest we will not benefit from more free trade. 

Freeing up trade should grow the volume of trade, and therefore the trading class should benefit. The working class American who has a job may also benefit from some consumer savings at the expense of all Americans. Of course, many Americans who no longer have jobs will not benefit. And until the rest of the world’s wages catch up to America’s, or free trade increases innovation to allow Americans to purchase more goods at less cost, it seems that for a period to come, America will lose financially.

We Can Regain Jobs That Left With The Multinationals

Early on, our nation made the strategic decision to outpace all others in military superiority. With a military budget that now exceeds all other nations combined, America declared and exercised our right to quickly defend the sovereignty of our allies from over 1,000 U.S. bases that extend our dominance throughout the world. We pursued our goal with such steadfastness that we are now the sole super power on earth. Our military influence has created a worldwide economic bastion that has allowed all nations to far surpass the economic output that could have been produced had not such a peaceful expectation existed.

While this exertion of power created great peacetime dividends for this country, it also created unexpected results, the birth of multinational corporations, or “borderless nations”. Our strategy of military dominance created a much safer, stable world that lessoned the risk of U.S. based companies investing abroad. With risks lessened, businesses could more easily justify moving traditional industries overseas. Unprecedented peace allowed multinational corporations to gut factory towns like Detroit, Youngstown, and Pittsburgh.

While our manufacturing strength was slowly eroded from our shores, our citizenry was lulled into the belief that our future was sound by the successively reassuring waves of the savings and loan bubble, the stock market bubble, the internet bubble, and finally, the Wall Street derivatives bubble. By the time the suds cleared, our nation was left without a significant means of traditional production. While we were being seduced into the belief that our country was financially sound, many of the trade secrets, core skills and financial wealth of corporations had been shifted to other countries.

Meanwhile, our citizens believed that the bubble value of our homes and stock market portfolios would support our needs to consume. Instead, when the bubbles finally stopped popping, we found that our consumer debt was of historic proportions and that our federal, state, and local governments had ballooned to consume bubble inflated tax revenues and were awash in deficits. We now have the unenviable position of being the greatest debtor nation that has ever existed.

While it will be painful for all to reverse this trend that threatens to quickly topple America from its century of hegemony, acting decisively with the right prescriptive tools, we can decide that our nation will not endure a decade of languishing high unemployment. However, if we are to escape the fate of our grandparents, government must partner with American business to create historic advances in innovation and productivity.

A partnered solution that can accelerate our country toward full employment is my voucher plan. It replaces extended unemployment payments with hiring vouchers. Small businesses can hire voucher employees at their unemployment rate. In return, voucher employees can work twenty five hours per week and receive the same pay they would have received through unemployment. The federal government can then reimburse employers the employees’ wages without increasing the federal unemployment budget.

A few benefits include: Employees learn new skills and can continue to seek full employment. Employers lower risks of hiring new employees, spur innovation, and reduce prices of goods and services to compete in the global market. Government supports job growth through direct infusion of dollars into small businesses, and lets the free market determine how to maximize resources.

This idea can employ all Americans now, and can move many from the sidelines of our economy onto the field of American ingenuity and global competitiveness. I ask your readers to share with their representatives thoughts about this voucher plan in hopes that a leader might champion its concept now when we need it most.

 http://www.youtube.com/watch?v=8yUhBBxHGTU

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