Straight Story: The economic jitters

Marketplace Staff Feb 9, 2007

KAI RYSSDAL:
It is time once again for our economics editor, Chris Farrell, to help you sort out what is smart, what is stupid, and what’s the Straight Story. This week, Chris, some thoughts on cognitive dissidence I understand?

CHRIS FARRELL:
That’s right, and here’s what I mean: On the one hand, the economic numbers look pretty good. The economy is growing at a healthy pace. Unemployment rate is at a low 4.6 percent. And yet, by all indications the good news doesn’t wash with a lot of employees. In fact, they’re worried. Now one popular explanation: the media. That’s you, Kai, by the way. The media is obsessed with bad news. So all the good economic news isn’t getting heard. Another theory: Maybe people just don’t appreciate how well off they really are, to both of which I say nonsense. Here’s the Straight Story: Workers are right to worry. In the global economy, the negative consequences of losing your job have gone up, period.

RYSSDAL:
All right, well then, I usually start with a question, but this time I’ll begin by picking a nit, if I might. You said the global economy has problems with its labor market, and workers getting in trouble. I would offer that the American economy has its own troubles. The heck with the global economy.

FARRELL:
I don’t think that’s picking a nit, that’s the $64,000 question.

RYSSDAL:
That’s a perspicacious observation.

FARRELL:
Absolutely. When I’m talking about the global economy, it’s a catch phrase for a lot of things. Technology, people lose a lot of jobs because of technology, correct? So a lot of times we’re talking about the global economy, globalization, it’s a catch phrase for technology, competition overseas, deregulation here in the U.S. has lead to a lot of job losses. We had deregulation in financial services, telecom. Bottom line is this economy is more intensely competitive than it was before, and that is showing up – now here I’m going to throw out the jargon word, but I think this is an important jargon word. It’s showing up in what we call economic volatility; that over the course of your lifetime, incomes fluxuate a lot more than they used to.

RYSSDAL:
Is that inherently a bad thing? I mean when we talk about volatility in the stock market, at stocks going up and down; just for example the Dow Jones Industrial Average over the past 75 years up 7 percent despite all that volatility.

FARRELL:
Well, volatility by and large has been a good thing. Let me just give you a number. I mean you could do this at any period of time. You could do the 12 months up to November 2006. And this comes from the congressional budget office.

RYSSDAL:
All right.

FARRELL:
OK, each month during that period of time, 4.9 million workers were hired. Four point five million workers were fired, laid off, whatever reason, all right? This is the great churn in our economy. However, here’s the nerve-racking part: There are signs that long-term joblessness is growing, which is why I think a lot of workers are fearful if they lose their job. No one wants to lose their job, but if you think you’re going to get a another job in two-three months, that’s one thing. But what if it’s a permanent change in your industry, and that job is not going to come back. And, by the way, there’s other studies that show if you do get your job, the odds are you’re going to make less money. You’re not going to have health insurance, and you’re not going to feel very good.

RYSSDAL:
All right. So in an economy that’s growing plus or minus three percent a year, and unemployment is by historical standards low, inflation is not really a factor.

FARRELL:
We should be cheering.

RYSSDAL:
We absolutely should . . .

FARRELL:
We should be cheering right now.

RYSSDAL:
But we’re not because of, you know, sort of the unseen news of people losing their jobs and having all these bad things happen to them. What’s the solution? How do you fix it and still keep the economy going?

FARRELL:
Yeah. Well, one thing you don’t want to do here is protectionism, which is the classic thing. “Hey, those Chinese; they’re unfair competitors. We got to put up some trade barriers.” That’s absolutely the wrong thing to do. We’ve also learned from the European experience you don’t want to put in a lot of rules and regulations that say, “Well, you can’t lay people off.” Because there is clearly a relationship. The easier it is to lay people off, the easier it is to hire them. I think what we really need is a change in the way we think about our safety net; universal healthcare coverage, national 401K plan. And it was interesting; John Snow, I don’t know if you saw the interview with him the other day.

RYSSDAL:
He’s the former secretary of the treasury.

FARRELL:
Former secretary of the treasury. He said, “Look, you know, we made a mistake. What we should’ve been talking about is an add-on to Social Security, a national 401K that everyone could participate in. It would be above your Social Security benefits.” And I say bravo.

RYSSDAL:
Of course, maybe that’s why John Snow is the former secretary of the treasury.

FARRELL:
That’s exactly what I was thinking.

RYSSDAL:
There you go, the Straight Story from our man, Chris Farrell. Thank you, Chris.

FARRELL:
Thanks, Kai.

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