May 19, 2011


A Flight Plan for the American Economy (Fareed Zakaria, May 19, 2011, TIME)

Ironically, it's the astonishing productivity of the U.S. that has brought us to this place. Usually, productivity gains translate into higher economic output, higher incomes and thus rising employment. That was the experience in the 1990s. This time, we've achieved productivity gains almost entirely by cutting jobs, finding ways of making the same products with fewer people. At many major companies, profits have returned to 2007 levels but with thousands fewer workers. "We've found ways to do more with fewer people," says Klaus Kleinfeld, the chairman and CEO of Alcoa.

Two powerful drivers have allowed for this new productivity. The first is technology, which is producing massive efficiencies across industries. It has already transformed manufacturing and is now beginning to transform white-collar professions, with computer programs able to do, for example, the basic discovery work performed by expensive lawyers. (See "Jobs: Some Light at the End of the Tunnel.")

The second force is, of course, globalization. There is now a single world market for many goods and services, and over the past 10 to 15 years, about 400 million people — from China, India, South Africa, Indonesia and elsewhere — have entered the global labor force, offering to make the same things Americans make for a tenth the price. That's why growth by itself won't create enough jobs. The economy increasingly has the capacity to grow nicely without adding many workers. America's largest companies have over $1 trillion in cash on their balance sheets. But the average American, who has seen his or her wages decline over the past decade, simply cannot find a good job. In a working paper for the Council on Foreign Relations, the Nobel Prize–winning economist Michael Spence and his co-author, Sandile Hlatshwayo, argue that "growth and employment are set to diverge" for decades in the U.S. They point out that over the past decade, most job growth was in two sectors — government and health care — and that neither is likely to grow dramatically over the next decade.

The bottom line: forget about the debt ceiling, Pakistan and Afghanistan. The crisis of our times is the employment crisis. And there are solutions to it. We need to focus on five areas that will create jobs.

The point, of course, is that we have an overemployment problem, not an underemployment problem. Folks like Mr. Zakaria seem to thing that the objective of an economy is to create jobs. In fact, it is to create wealth. Doing that more efficiently is a good thing, not a bad one.

Posted by at May 19, 2011 2:23 PM

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