Pete Ferrara has a good piece in the Spectator about the perils of running an economic policy that is pretty much the precise opposite of Reaganomics. He thinks, as many people seem to these days, that some version of GD2.0 is maybe just around the corner. We certainly agree that punitive tax and regulatory schemes are killing the robustness that is normally in evidence by this point in a recession. But we think there is an additional step that needs to be highlighted today.

China is running an explicitly mercantilist set of policies that are assisting in the killing of US job creation. And it’s not just China — the oil exporters and others also have created a problem that we’ve ignored too long. The structural imbalances between the borrowers/consumers and the producers have finally gone too far, as we first warned in this space years ago. In order to grow the domestic economy again as we should, we need to go one step further than Reaganomics did 30 years ago. We need to take explicit and detailed steps to stop making offshoring US jobs the default best strategy for US businesses. (We’d start with the energy industry, which is a no-brainer, but that’s a topic for another day.)

We’re in a jobs crisis more serious than most think. Middle class, “breadwinner” jobs number currently about 54 million of the 130 million total jobs in the economy — 41.4% of total employment. These are particularly important since they are the industrial and service backbone of the US economy and average about $50,000 in pay. According to David Stockman’s analysis of the BLS numbers on CNBC, these jobs are in a crisis now, and have been very troubled for a decade.

Since the onset of the Great Recession over the last two years, the US has lost about seven million jobs — one in nine middle class breadwinner jobs. This is bad enough in itself, and something we have been raising the alarm about for at least the past year. But that’s not the whole story, nor in some ways the worst part of the story.

The chart below shows that even in the period of economic expansion during much of the decade, peak-to-peak the economy shed about a million jobs. Stockman says that while construction, technology, finance and service industries added jobs during this period, the economy shed 7-8 million manufacturing jobs. Many of these jobs were “offshored” to small and large enterprises in China, etc.

This simply cannot continue without gutting the middle class, and without gutting the US as a producer as well as consumer of goods and services. We have no hope of getting to reasonably full employment again without solving this problem. So-called “stimulus spending” won’t solve the problem, and neither will tax cuts by themselves. It is certain that ill-informed and defeatist attitudes by politicians that the “jobs won’t be coming back” is the exact opposite of what is needed.

We are not naive. We know that the buggy whip industry is dead, and so are a lot of other businesses. But as a CEO and business owner, we know that there are a lot of businesses that could be operated in the US, but are not — often because it’s so much easier and cheaper to do things elsewhere. We have observed some of the US’s largest companies moving certain operations to Singapore and China, first because of labor cost issues, but later because labor, regulatory and tax regimes incentivized the companies to locate higher value-added activities in those locales (versus punitive treatment back home).

This should not be a partisan issue, though it has partisan overtones, because taxes, regulations and litigation are all important issues. The CEO’s of diversified US multinationals are not going to lead the charge on this — they now have too many fish to fry in the BRIC countries and elsewhere to propose even a sub-rosa mercantilism of any sort. We see useful comments and contributions by Andy Grove and other Intel executives, but such statements are too rare. Mostly we see a gloomy outlook for the US when the question of where to expand capacity is raised.

Fixing the economy is not rocket science, as we’ve often said. But to do so requires a clear vision of what needs to be done, and a commitment and agreement at the highest levels of government to take a scythe to unnecessary and counterproductive accounting, legal, regulatory and other impediments to American businesses’ creating jobs at home. This isn’t just a set of policies, it’s a mindset — and it’s a mindset that mostly doesn’t exist either in the government or our large corporations.

This entry was posted on Friday, June 10th, 2011 at 10:51 am and is filed under business, China, Democrats, EU, General, Republicans, taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.