It's About the Economy, Stupid

“It’s the Economy, Stupid” was the driving theme used during Bill Clinton’s winning 1992 Presidential campaign. Following the dramatic changes produced in Tuesday’s American elections, this refrain seems as applicable as ever. Two years ago Americans changed leadership in the Presidency, Congress and the Senate out of disgust with the financial crisis and lousy economy. Now, Congress has shifted back the other direction – and the Senate came close – for ostensibly the same, ongoing reason. What seems pretty clear is that Americans are upset about their economy – and in particular they are worried about jobs and incomes.

So why can’t the politicians seem to get it right? After all, economic improvement allowed Bill Clinton to retain the Presidency in 1996. If smart politicians know that Americans are “voting with their pocketbooks” these days, you’d think they would be doing things to improve the economy and jobs. Wasn’t that what the big big bailouts and government spending programs of the last 4 years were supposed to do?

What we can now see, however, is that programs which worked for FDR, or Ronald Reagan and other politicians in the late 1900s aren’t working these days. Everything from Great Depression Keynesians to Depression retreading Chicago School monatarists to Laffer Curve idealists have offered up and applied programs the last 8 years intended to stimulate growth. But so far, the needle simply hasn’t moved. Recognizing that the economy is sick, looking at the symptoms of weak jobs and high unemployment, could it be that the country’s leaders are trying to apply old medicine when the illness has substantially changed?

What’s missed by so many Americans today – populace and politicians – is that the 2010 economy is nothing like that of the 1940s; and bares little resemblance to the economy as recently as the 1990s. Scan these interesting facts reported by BusinessInsider.com:

* In 2009 there were 12M Americans in manufacturing jobs. That’s the lowest number since 1941 (in 1941 there were 133.4M Americans; today there are over 300M)
* In 1959 manufacturing was 28% of U.S. economic output. Today it is 11.5%
* Since 2001 42,400 factories have closed in America
* Since 2000, America has lost 5.5M manufacturing jobs (32%)
* Fewer Americans are working at making computers in 2009 than were doing so in 1975 – when mainframes were the dominant technology and buyers were severely limited.
* From 1999 to 2008 jobs in foreign affiliates of U.S. companies grew by 2.3M
* A list of products no longer made in America includes Gerber baby food, Levi jeans, Mattel Toys, Dell computers, major league baseballs, dress shirts, vending machines, incandescent light bulbs, televisions, canned sardines, ordinary silverware and dress shirts.

These lost jobs are NEVER coming back. The American economy has fundamentally shifted, and it will never go back to the way it was. Clocks don’t run backward.

In 1910 90% of Americans were working in agriculture. By 1970 that proportion had dropped to 10%. Had American policy in the last century remained fixated on protecting farming jobs the country would have failed. Only by shifting to industrialization (manufacturing) was America able to continue its growth – and create all those new industrial jobs. Now American policy has to shift again if it wants to start creating new jobs. We have to create information-era jobs.

But government programs applied the last 12 years were all retreaded industrial era ideas (implemented by Boomer-era leaders educated in those programs.) They were intended to grow industrial jobs by spurring supply and demand for “things.” Lower interest rates were intended to increase manufacturing investment and generate more supply at lower cost. These jobs were expected to create more service jobs (retailers, schools, plumbers, etc.) supporting the manufacturing worker. But today, supply isn’t coming from America. Nobody is going to build a manufacturing plant in America when gobs of capacity is shuttered and available, and costs are dramatically lower elsewhere with plentiful skill supply. We can keep GM and Chrysler on life support, but there is no way these companies will grow jobs in face of a global competitive onslaught with very good products, new innovations and lower cost. Cheap interest rates make little difference – no matter what the cost to taxpayers.

Other old-school programs focused on increasing demand. TARP, cheap consumer lending, tax cuts, rebates and subsidies were intended to encourage people to buy more stuff. Consumers were expected to take advantage of the increased supply and spend the cash, thus reviving the economy. But today, many people are busy paying down debt or saving for retirement. Further, even when they do spend money the goods simply aren’t made in America. If consumers (including businesses) buy 10 Dell computers or 20 uniform shirts it creates no new American jobs. Spurring demand doesn’t matter when “things” are made elsewhere. In fact, it benefits the offshore economies of China and other manufacturing centers more than the USA!

If this new crop of politicians, and the President, want to keep their jobs in the next election they had better face facts. The American economy has shifted – and it will take very different policies to revive it. New American jobs will not be created by thinking we’ll will make jeans, baby food or baseballs, so applying old approaches and focusing on increasing supply and demand will not work. America is no longer an industrial economy.

The jobs at Dell are engineering, design and managerial. Hiring organizations like Google, Apple, Cisco and Tesla are adding workers to generate, analyze, interpret and gain insight from information. Jobs today are based upon brain work, not brawn. An old American folk song told the story about John Henry’s inability to keep up with the automated stake driving machine – and showed all Americans that the industrial era made conventional, uneducated hand-labor of little value. Now, computers, networks and analytics are making the value of manufacturing work low value. Because we are in an information economy, rather than an industrial one, pursuing growth of industrial jobs today is as misguided as trying to preserve manual labor and farm jobs was in the 1960s and 1970s.

Directionally, American politicians need to implement programs that will create the kind of jobs that are valuable, and likely, in America. Incenting education, to improve the skills necessary to be productive in this economy, is fairly obvious. Instead of cutting education benefits, raise them to remain a world leader in secondary education and produce a highly qualified workforce of knowledge workers. Support universities struggling in the face of dwindling state tax funds. Subsidize masters and PhD candidates who can create new products and lead companies into new directions, and do things to encourage their hiring by American companies.

Investments in R&D and product development are likewise obvious. America’s growth companies are driving innovation; bringing forward world-demanded products like digital music, on-line publications, global networks, real-time feedback on ad links, ways to purify water – and in the future trains, planes and automobiles that need no fossil fuels or drivers (just to throw out a not-unlikely scenario.) For every dollar thrown at GM trying to keep lower-skilled manufacturing jobs alive there would be a 10x gain if those dollars were spent on information era jobs in innovation. America doesn’t need to preserve jobs for high school graduates, it must create jobs for the millions of college grads (and post-graduate degree holders) working today as waiters and grocery cashiers. Providing incentives for angel investing, venture capital and other innovation investment will have a rapid, immediate impact on job creation in everything from IT to biotech, nanotech, remote education and electric cars.

A stalled economy is a horrible thing. Economies, like companies, thrive on growth! Everyone hurts when tax receipts stall, government spending rises and homes go down in value while inflationary fears grow. And Americans keep saying they want politicians to “fix it.” But the “fix” requires thinking about the American economy differently, and realizing that programs designed to preserve/promote the old industrial economy – by saving banks that invest in property, plant and equipment, or manufacturers that have no money for new product development – will NOT get the job done. It’s going to take a different approach to drive economic growth and job creation in America, now that the shift has occurred. And the sooner politicians understand this, the better!