Unemployment and Social Investments in America: Short Term Jam, Long Term Stew
The goal of sustainability is both by definition and practicality an evolutionary and long- term goal, albeit one with an increasingly urgent time horizon. Understanding the economic context in which sustainability goals are set is always appropriate. In this blog, I took some time to review troubles brewing in the world’s largest economy, the United States of America, as preface to examining CSR/sustainability investments/strategies during economic slowdowns in subsequent blog articles.
What the Americans do – or not do – to stimulate their economy over the next several months will have great impact on sustainability initiatives in the long-term and, in the short-term, particularly with a world economy quite intenton inching its way towards a nasty bit of a slow-down.
A great deal is being made about the Fed’s decision to make way for more quantitative easing as a result. But like the fizz from a can of soda, this “big decision” is more of a short-term spectacle and of much less interest than what is being done –- or not — by those taking the long-term view. Let’s look at each in turn.
A Short-Term Jam
Does the US economy need stimulation is the question on everyone’s minds currently. We know that the Fed is appropriately concerned about both inflation and unemployment, though it seems slightly more worried about the former than the latter. Many, including myself, believe unemployment is far more worrisome, but doubt what, if anything, the Fed can do or will do to fix even the short- term jam America finds itself in. Still many pin their hopes on Fed action.
The Economist, in its unparalleled oblique certainty, recently put it best declaring the Fed could or could not provide more quantitative easing, with equally mixed results for both inflation and unemployment being likely. And despite Fed Chairman Bernanke’s greater efforts towards transparency than those of his grammatically discombobulating predecessor, the Fed continues to play its cards close to the chest.
So is QE2.0 a ways off, imminent, or not at all on the table? We will know more in September: either way, doubt, not uncertainty is bound to rule.
Doubt. Doubt. Doubt.
Doubt. Can you say that? Doubt. Say it again, but out loud because this feeling, more than any other, rules the economic day.
Plaguing economic decision-making for over four years now, doubt is much worse than uncertainty because doubt implies set of likely probable outcomes against which risk can be measured, hedged, and/or acted upon.
You are as young as your faith, as old as your doubt; as young as your self-confidence, as old as your fear; as young as your hope, as old as your despair.
General Douglas MacArthur
Doubt, by contrast, implies little other than confusion and its corollary, the inability to take decisions: it is the very word that best describes current economic perspectives – otherwise why would companies be staking cash like firewood for cold Alaskan winter? (see http://on.wsj.com/piPa4e)
Drop by Drop – John, Jane, Phyllis and Ed will Leave.
US unemployment stats are a bellwether indicator for my doubtful perspective/argument and it underpins my lack of confidence in the Fed’s power alone to remediate America’s economic woes.
At around 8.4%, unemployment in the United States is horrible, and will improve only as the
under- and unemployed leave the economy – mostly through sheer hopelessness – and as boomers retire.
Unless something big and unexpected happens – such as a miraculous, immediate and very large fiscal stimulus – US unemployment will not get close to “normal” until around 2015, perhaps later, but certainly not earlier. Employment numbers will change, but drop by drop, and not in waves of new employment as per recessions past. Lethargic consumers stultifying 70% of the economy and wary companies result.
Until this de-employment rebalances employment numbers, “doubt”-driven despondency will underlie the economy, retarding value creation and, in the case of many companies, make CSR and sustainability investments more difficult to justify given they are still wrongly viewed by many to be made in good-times only. (More on Sustainability in slow economies in my next blog)
Optimistically, full “de-employment” of the US will coincide with two things.
First, trends suggest private debt levels should normalize by 2015 or so (see http://1.usa.gov/kwKh1b); and second, continued low interest rates will cause companies to finally invest some their firewood (cash that is!), albeit turgidly, and with great misgivings. These three factors should be enough to establish a solid footing for the medium-term growth required to get the American economy back on a track towards greater financial stability (i.e., people and governments being able to pay for all the things they need).
The Long-Term Stew
There are a many structural economic issues of which the long-term impact on US economic development requires immediate attention if companies are going to feel secure enough to make game-changing investments in the USA any time soon.
US immigration policy needs fixing, if only to accommodate/pay for aging boomers and their retirement needs. To fuel economic growth in Canada, some pundits are contemplating the need for more than one million new immigrants into an economy of just over 30 million. Americans, as a rule, love and hate immigrants, and the chaotic, contradictory policy that ensues leaves few winners. It is an unavoidable fact: the US needs immigrants if it is to continue to maintain healthy economic development over the long-term.
The credo of the C.E.O. today is: “You only hire someone — anywhere — if you
absolutely have to,” if a smarter machine, robot or
computer program is not available.
Thomas L. Friedman
Education policy in America needs to promote and provide higher quality technical and innovative/creative career opportunities, and not just for the well-off or those willing to take on mind-numbing education debts. Losing the education war is not an option for long-term economic stability.
Finally, nothing needs to be said about tackling Social Security, health care and failing infrastructure (heck, the roads in Mexico are starting to look good compared to those in some US cities).
Obama Wasn’t Wrong – No One Does it Alone
To overcome both the short-and long-term challenges facing America, policy makers must also, and absolutely, fix the “we-can’t-raise/spend income tax on anything but the military but we-can-borrow-to-finance – whatever-ridiculous-earmark-possible stew it finds itself.”
But it seems Americans either can’t or won’t accept making the social investments that help everyone advance, even the self-starters and entrepreneurs that some pundits and politician (publically?) believe need no government support at all to achieve the success America is famous for.
Paralytic politics severely restrict badly-needed social investments required for healthy economic development, from the easy-to-agree-upon stuff of roads, airports, etc., to the harder to negotiate issues such as social safety nets, education, health care etc.. Done well, social investments not only lay the foundations for good growth, but done well also promote the economic equality so necessary for a country to advance socially and culturally. And they make for happier and healthier folk: just ask the 26 countries ahead of the USA on the Human Development Index (see http://bit.ly/eJ4vE1)
If America can’t fix this problem, the country’s “austerity-by-default” policy will eventually improve government balance sheets to the point where re-investment is possible on a less than scrape-by basis . This path, however, has great, almost incalculable economic opportunity and human development costs, without guaranteed outcomes. No matter how it gets done, once America’s finances are fixed, the question becomes: will it be able to raise and spend the taxes required to reverse its downward economic and social spiral? Doubt, again, dominates the discourse.
If American won’t fix this mess, and make the needed long-term investments, may the Gods bless them, and let’s all invest in China or Brazil, whose long term prospect seems much brighter by contrast. (See http://bit.ly/NKhes3 for a Mckinsey study on emerging market fortunes)
Up to the Fed of Just Fed Up?
Ultimately the question of whether the Fed intervenes with more quantitative easing may be more moot than not for an economy and society so plagued by derisive perspectives. Still, doing something is, in my mind, better than doing nothing, if only because it sends the signal that someone is both at the helm and cares about others. If the Fed focuses on unemployment there is a chance for change, if on inflation alone… well, again, go east my friend.
I guess all we can practically expect more doubt in the mid-term with the occasional bright spot illuminating what is immediately in front of us, but not much more. This may make greater integration of sustainability in corporate America more difficult over the next few years, but really that nothing new now, is it?