Why Americans Are Jobless

Here is my reply to a joke circulating in the cyberspace blaming globalization for US job losses.

The faulty insinuation is that the world has been “stealing” jobs from the US.

This is a mercantilistic perspective that tries to shift the blame on Filipinos, Chinese, Brazilians, Russians or the world for her economic woes.

For further explanation on these see my posts here: Trade Fallacies: Big Business Sucks Out Lifeblood From The Consumers and Mercantilism: Misunderstanding Trade And The Distrust Of Foreigners

Here is why Americans have lost jobs

1. Americans lost jobs primarily due to the misdirection of resources and employment (as revealed) in the aftermath of bubble policies:

a. monetary policy-low interest rates that fueled a credit boom,

b. housing policies- encouraged speculative purchases and subsidizes mortgage indebtedness via the GSEs (fannie Freddie fha etc..), community reinvestment act,

c. tax- encouraged banks and other firms to assume and maximize debt relative to equity and

d. bank capital regulations- which prompted for regulatory arbitrage which resulted to financial innovation such as securitization (and its offspring-the shadow banking system).

Simply said, when a big segment of the population got employed as mortgage or real estate brokers, bankers, contractors or investors indulged in real estate flipping, construction or constructed related investments, traded mortgage backed securities and ancillary industries because that’s where prosperity seems to be, a burst in the bubble exposed popular delusion and rendered a massive dislocation in the economy. In short, this resulted to lost jobs and lost investments. (the retail, financial and construction sectors are the largest employers see chart below)

2. Existing circumstances such as burgeoning fiscal deficits aside from political reforms towards cap and trade and health seem to be causing regime uncertainty or anxiety in the investment environment which is assumed to entail greater risks of higher taxes, more rigidity in employment requirements and etc.

Furthermore, with over $10 trillion of expenditures and guarantees on the assets of the US banking system, this may have “crowded out” potential investments elsewhere (albeit current interest rates have not yet been validating these, on the other hand interest rate markets are being skewed by government “quantitative easing” or money printing).

And the resulting fiscal policies have a major influence in the investing decisions when considering alternatives [see my post Competitive Global Tax Structures As Major Investment Determinant]

Simply said diminishing competitiveness and [indirect] consequences from political actions may have had a substantial impact on the investing and employment dynamics.

Nevertheless in spite of the crisis, the US still is the primary recipient of Foreign Direct Investments [see my post Global Foreign Direct Investments Down; US Still Dominates]

3 . The composition of the US economy could be transitioning to a post industrial or the information age. When 20-30% of the public’s time in OECD economies (including the US) are estimated spent on social media (facebook or twitter or myspace) then such magnitude of lifestyle changes are likely to impact economic output (investment and employment decisions)

Current statistics have been designed to measure industrial era output and not metrics geared towards the information age, so employment data may not be “accurate”. But again there are evidence that implies of such transition [see my post US Leads In Global Service Exports].

Although many argue that the contribution of the technology is small, my impression is that this is being underestimated (see chart below from McKinsey Quarterly)

So while there are still many other factors that may contribute to the state of “unemployment” in the US, blaming the world for the losses is another popular delusion founded on false premises.