Glad to see the "Washington Post" editorial board take a "centrist" position. Now if they would only work on their reporters and editors!
washingtonpost.com
The Jobless Recovery
Editorial
Tuesday, January 27, 2004; Page A16
AS THEY AWAIT the results of the New Hampshire primary, Democrats should take a lesson from the nation's central bankers. Out on the campaign trail, the candidates (with the honorable exception of Sen. Joseph I. Lieberman of Connecticut) have been blaming the "jobless recovery" on President Bush, the trade system and the new phenomenon of "offshoring" service jobs to India. In rather less arresting tones, meanwhile, the Federal Reserve has been trying to explain why this blame is exaggerated. As Chairman Alan Greenspan said yesterday, the United States has lost jobs to foreigners before, yet it has always created others. The Fed committee that sets interest rates meets today and tomorrow, and will demonstrate one of the reasons why the new protectionism is misguided.
This is not the first jobless recovery. In 1991-92 the economy grew steadily, but job growth was almost nil. The reason for such recoveries, as a study by the New York Fed argues, is that the structure of the economy is changing faster than previously. In the 1970s and '80s, unemployment was roughly 50 percent "cyclical": Recessions drove firms to lay off workers and recoveries drove them to hire workers back into the same jobs. Now, by contrast, the "structural" component of unemployment accounts for most job losses: Technological and organizational shifts are driving firms to close jobs down permanently, and laid-off workers are having to look for entirely new work. That takes time. Firms have to create jobs they never had before, which takes longer than re-creating old ones. As a result, the new structural nature of unemployment means that job creation lags in the early stages of a recovery.
Mr. Bush should not be blamed for this, though his irresponsible fiscal policy harms business confidence and therefore job creation. But the bigger question is whether jobless recoveries are a bad thing. They are, after all, the flip side of good news. There is less cyclical unemployment these days, so recessions are milder; fewer jobs are being created now because fewer jobs were destroyed during the downturn. Moreover, a jobless recovery means, by definition, that each worker is producing more. Higher productivity, in turn, is the best promise possible of higher wages and employment in the future. Just look at the past decade: The jobless recovery of 1991-92 ushered in the longest economic expansion of the postwar period, which drove unemployment down to previously unheard-of levels, and fueled improvements in poverty, crime and other social indicators.
It's true that the shift of service jobs to countries such as India, like other trade-related dislocation, adds to the temporary pain of structural unemployment. But, as Mr. Greenspan says, new jobs will be created. If a U.S. firm shifts employment abroad, the savings flow back to the United States in the form of lower prices for consumers and higher dividends for shareholders; the consumers and shareholders will direct their new spending power at things that create employment. Meanwhile, the fall in prices will allow the Federal Reserve to keep interest rates lower, boosting the job-creation engine. At its meeting today and tomorrow, the Fed is almost certain to keep short-term interest rates at a rock-bottom 1 percent because forces such as "offshoring" are keeping inflation in check despite a rebounding economy. Offshoring, like trade, creates winners and losers, which is why open trade should be accompanied by social safety nets. But the winners will outnumber the losers, because the adjustment creates new efficiencies. Each worker can produce more, meaning that he or she can be paid more. Do the Democrats really mean to oppose that?
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