Job Prospects In The Bubble Economy

In a wild burst of optimism, Calculated Risk predicted the economy will add 2.4 million jobs in the private sector this year.

It now appears that job creation is picking up, and it also appears that the construction sector will add employees for the first time since 2006. There were over 2 million construction jobs lost during the downturn, and a relatively small number will be added next year - but every little bit will help.

This suggests to me that private payroll employment will increase by over 2 million jobs next year, maybe as high as 3 million jobs! My guess is around 2.4 million jobs as shown on the following graph.

I marked up the graph as discussed below. Ben Benanke referred (in 2004) to the era of almost uninterrupted economic growth (1983-2007) as the Great Moderation.

Mike Shedlock ("Mish") responded to CR's estimate, asking "what is the driver for jobs?" and concluding that "I simply do not see any driver for jobs." Mish believes that the economy will add 100-125 thousand jobs per month. To arrive at his lower estimate, Mish goes through the BLS jobs data sector by sector. I urge you to take a look his detailed article.

Mish notes that at the height of the Tech/Internet/NASDAQ bubble in 1999, the economy added 264,000 jobs per month (3.16 million total, including public sector jobs). At the height of the Housing bubble (including commercial real estate), the economy added 212,000 jobs per month (2.54 million total).

So the obvious questions are:

• Does the United States have an economy which can stand on it's own two feet? Or do we have a Bubble Economy that requires some sort of artificial stimulus (easy money, rising asset prices) to drive jobs growth?

You already know what I think—I have called the period 1995-2007 the "Bubble Era." We should distinguish between the two bubbles that drove growth during this time. The Tech bubble did not represent an almost total misallocation of capital as the real estate bubbles did. We got the internet and improved telecommunications out of the deal, which created the basis for much of our productive economic activity today. On the other hand, the housing (and commercial real estate) bubbles should be considered an almost total loss of many trillions of dollars that might have gone into revitalizing America's manufacturing base or rebuilding its infrastructure.

If we can agree that there has been no underlying structural change in America's economy that promotes the allocation of capital toward productive activity—there hasn't been—then we can ask another set of obvious questions:

• Are we on the cusp of a new technological revolution that might lead to both productive and speculative growth as we had during the Tech bubble? Failing that, what new bubble (unwarranted asset inflation) might drive growth?

The moment we ask the right questions we already know the answers. The correct answer is "No" in both cases. Biotechnology? No. Alternative energy? No. Nanotechnology and materials? No. Try as we might to think of one, there is no technological revolution on the horizon that might spur an economic boom leading to millions of new jobs. What we see instead are slow, incremental improvements in technologies that have already been around a long time. Sorry, Facebook and Twitter do not cut the mustard. Neither do wind turbines.

In so far as there is no technological driver for jobs growth, we might then ask if there is a new bubble that might fuel jobs creation. Those bubbles we have will either have little effect on jobs growth (e.g. stock values in the S & P 500) or negative effects on jobs growth (e.g. food & energy inflation). You can't have a Bubble Economy without a bubble.

As Mish notes, Calculated Risk's optimism stems from his now obselete belief that there is an eternal round of "business cycles" in which boom inevitably follows bust (and see here). The "Great Recession" was not in any sense an ordinary business cycle recession. The last "normal" recession we had was in 1990-1991, and you will notice that Calculated Risk's prediction for jobs growth in 2011 closely resembles what happened in 1993. In both cases, the prior years (1992, 2010) showed a slow jobs rebound followed by vigorous growth. Unfortunately, a lot of water has flowed under the bridge since 1992, and most of it was polluted.

I believe there will be some jobs rebound in 2011, and I agree with Mish's estimate of 100-125 thousand jobs added per month. However, I view that as a best case scenario. If it works out that way, the economy will add just enough jobs to keep up with population growth and the concomitant entry of new workers into the labor force.

Robust jobs growth in the United States will never occur again until deep structural flaws in our economy are acknowledged and redressed. Until then, our best bet is to hope for another (ultimately destructive) bubble or some miraculous technological breakthrough. Neither appears imminent.

Comments

[John D]

While focusing on the employment percent numerator, we accept the denominator as a given. Population increase, much of it fueled by legal immigration, is assumed to be unchangeable? Without appearing racist, we need to rationally look at legal immigration. While we are a 'nation of immigrants', we've reached a point where we need a moratorium until we can get our act together.