What If This Is As Good As It Gets?

I generally disagree with Harold Meyerson but in his column this morning he gives voice to some things that have concerned me for some time:

The GM model typifies that of post-crash American business: massive layoffs, productivity increases, wage reductions (due in part to the weakness of unions), and reduced sales at home; increased hiring and booming sales abroad. Another part of that model is cash retention. A Federal Reserve report last month estimated that American corporations are sitting on a record $1.8 trillion in cash reserves. As a share of corporate assets, that’s the highest level since 1964.

Why invest in new plants, offices and workers, particularly here at home? Spooked by the 2008 crash, corporations want to keep more money under the mattress. More important, they’re sitting pretty as profits rise.

Is this model sustainable? It’s hard to say — a double-dip recession could plunge their profits yet again. But from the American worker’s perspective, the model, no less than a new downturn, is an unqualified disaster. It portends the kind of long-term, structural unemployment that we haven’t seen since the 1930s. It locks into place a generation of reduced incomes.

This dystopian America already stares us in the face. Fully 46 percent of the unemployed have been without work for six months or more — the highest level since the Bureau of Labor Statistics began measuring such things in 1947. Two years ago, just 18 percent of the unemployed were jobless for more than six months. America’s private-sector job machine — the marvel of the world since 1940 — has clanged to a halt, and there’s no place for it in corporations’ new business model.

The restoration of American prosperity, then, isn’t likely to be driven by our corporate sector. Across-the-board business tax cuts make no sense when business is already sitting on oceans of cash. Targeted tax cuts and credits for strategic investment and hiring within the United States, on the other hand, make excellent sense. The Obama administration has proposed expanding the tax credit for the manufacture of green technology here at home, and congressional Democrats will soon unveil legislation creating further incentives for domestic manufacturing.

What if this is the recovery? What if unemployment hovers around 10% for the foreseeable future or, at least, until the next economic downturn when it goes higher? It’s not merely that people aren’t willing to take the jobs that are there, it’s that there aren’t enough jobs to take. Should we be willing to support 10% of the populace forever? Will we be?

Just as I don’t believe that any company has ever cost-reduced its way to greatness, I don’t think that the federal government can cut its budget to national prosperity. Other things have got to happen, too.

I think I’ve made my views pretty clear. I’d like to see means-testing of entitlements, a radical reformation of the healthcare system, major cuts in the defense budget, and substantial reforms in employee compensation of government employees at all levels. I don’t think that those things alone are going to get us on the right track again, however.

What if this is as good as it gets?

Update

Mish:

Given that housing leads recoveries (more specifically housing starts followed by new home sales), this is another nail in the coffin that suggests there has been no recovery except in financial assets. Moreover, that financial recovery is only a result of unsustainable stimulus that is now quickly fading into the sunset.