WASHINGTON – In his Contra Corner blog David Stockman (Budget Director under Ronald Reagan) has been warning us that we live in Fed-induced economic fantasy, possibly a hallucination, in which soft numbers pass for indications of solid growth.
Back to where we were
The ugly truth is that, notwithstanding the unprecedented length of the Fed-mandated zero per cent interest policy, America is barely back to where it was before the 2008 recession. As for jobs growth, it is real. However, we should carefully look at the economic reality behind these numbers. What kind of jobs are we creating?
Jobs losses in manufacturing, gains in health care
Indeed, the just released August figures provide a warning. The mildly good headline is that we have added new jobs, (+ 173,000). However, this is a bit less than what was expected, and this is a bit disappointing.
If we break this number down, the real story is that the smaller than expected jobs growth is due to a net decline in the sectors that actually have an impact on the real economy: manufacturing and mining, (-17,000 jobs). This has been compensated by significant employment growth in services, such as health care.
Stagnation
Which is to say that America is stagnating where it matters: in the true wealth-creating sectors of the economy, while we add jobs in (low pay) services sectors that depend largely on public financing, notably health care. The fact is that nursing assistants, while valuable, do not generate any new wealth, factory workers do. The soft August jobs numbers do not fully reveal this disturbing reality.
Now, the loss of some manufacturing jobs is not so terrible. Because of technological progress and automation, (robots), factories can keep their output while employing fewer people. But, below a certain level, these losses spell decline.
The end game
And if we combine the two trends –loss of jobs in industry and employment gains in low added value services– we begin to see the end game: a feeble economy that no longer generates any real wealth.
How Stockman sees it
This is how Stockman himself presents the issue in his Contra Corner blog. The figures and the graph below, copied from his recent entry, are truly alarming.
“Putting this all together, since the start of the Second Great Depression, the US economy has lost 1.4 million manufacturing workers, but has more than made up for this with the addition of 1.5 million waiters and bartenders”.
