Monday, July 25, 2011


. Monday, July 25, 2011


Via Uwe Reinhardt, who breaks it down:

Jobs in the tradable sector were added primarily in high-value services. They were lost in manufacturing, through outsourcing of the lower value-added components of the value chain to other countries.

The net effect has been that of the 27.3 million jobs created in the American economy from 1990 to 2008, only 662,000 new jobs were added by the tradable sector. That is only 2.3 percent of total job creation in the economy.

I assume that's gross, not net. This is in line with my view of (no) Great Stagnation, and see also this post from Will Wilkinson. Here's another worrying bit from Reinhardt:

Thus it is not surprising that ... close to 98 percent of the 27.3 million new jobs in the American economy in the last two decades were created in the nontradable sectors, led by government and health care in first and second place.

These two sectors alone accounted for 40 percent of the total job growth over the last two decades. They were followed by retailing and construction, both of which grew on the back of heavy debt financing and a real-estate bubble.

The American people look to the president and Congress to create jobs — or, more precisely, to create the economic conditions in which job growth occurs.

At the same time, the American people now look to the president and Congress to rein in government spending in general and health-care spending in particular, at a time when a sizable deleveraging by consumers and business has sharply put the brakes also on retailing and construction.

So how can these desiderata –- creating jobs and, at the same time, cutting back on government and health care spending –- add up to a rosy future jobs picture? Can any government actually deliver on these conflicting goals?

I'm slowly being persuaded by Karl Smith's argument that a construction boom is looming, and Ryan Avent's general optimism about the economy. I still believe that trade is a large net plus for the US. But the US economy has been shifting over the past two decades, and it will continue to do so. I expect GDP growth to rebound from its current doldrums, but not necessarily in an especially egalitarian way. These shifts and changes lead to political shifts too, and we've been witnessing those as well. It may be awhile before we find the new equilibrium -- I suspect it involves a shift to more social democracy -- and in the meantime we may be in for some more pain.


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