Tuesday, August 4, 2009

National Politics: Solving Unemployment Problem in America.

Unemployment is naturally not a subject that this blog is known for. It is also not one area that I would like to spend much of my time. The only reason it got on this blog today is the alarming rate of house foreclosures in my State. National Foreclosure Listing informs me that Washington State is ranked 16th in the rate of foreclosures among the fifty states of the Federation. Most recent foreclosures I understand are as a result of people loosing their jobs not the dubious adjusted rate mortgage debacle that banks like Washington Mutual, Merrill Lynch, Lehman Brothers and other banks are accused of. Incidentally, many of these banks have been found in the throes of willing and dealing which are hardly acceptable in good bank and financial institutions management. The unusual nature of mortgage loans that were underwritten and the frantic pace at which many of these loans were closed or wrapped up, make one wonder?

Further, I hate to discuss unemployment, because it was one area of Macroeconomics that I never could get grips of while in graduate school. With unemployment climbing to 10% and some predictions saying it may rise as high as 16%, I could not just let the problem go untouched. Yes, I am a Keynesian economist, but I just didn’t fancy the relationships between unemployment and inflation. I felt some inconsistencies in the subject matter and my suspicion is borne out by the Phillips curve: When economists perceive inflation and unemployment in the short run, they see roughly an inverse correlation between both. When we have low inflation rate, unemployment is supposed to be high, and when unemployment rate is high, inflation rate is supposed to be low. The relationship between inflation and unemployment offers a difficult explanation, most policy makers find themselves in a quandary, when attempting to explain the concept to the everyday Jane Doe. Maybe that was why I never could comprehend the relationship while in graduate school; and if I did, I was never able to convince my undergraduate students, whom I taught for over 15 years, that I understood that aspect of macroeconomics, very well. Unfortunately today, I have to revert back to a bitter subject for the sake of millions of Americans out of a job and looking for answer to the question: Why me?

Discussions on Meet the Press on Sunday with its guest Dr. Larry Summers, Director of National Economic Council, did not make the subject matter any palatable for me to discuss. With his assessment of the job market as being a serious one that would not readily adjust to change very soon, I was tempted to ask him directly: Are you saying that unemployment is going to remain with us for a long time to come? Since I was watching him on the television, I considered this effort as fruitless. Not withstanding though, I am inclined to believe that this type of assertion would not sit very well with many Americans who have remained unemployed for a number of months. Unemployment and associated problems are often difficult and families who have their breadwinner out of a job are sometimes bewildered by the sudden nemesis of unemployment.

Many unemployed Americans probably want a job some would even consider positions that are not traditionally classified as white color job, even if only to put food on the table. The reality though, from Dr. Summer’s comment, is that this is not likely to happen very soon. Maybe that was why he repeated or horned on the following comments: the Obama’s administration will work with Congress to make sure that unemployment insurance continues to perform its basic function of protecting the unemployed. The unemployment insurance compensation will continue to ameliorate the pains of unemployment; however, it will not solve the problem of chronic unemployment. In one sentence: Suck it up America, no jobs for those of you who are unemployed for now, but you can continue to live on the bread crumbs! Incidentally, many Americans are not interested in a welfare check, they would rather like to have a job, some activities to occupy their precious day and time.

Here are some rather unconventional approaches to solving the current unemployment problems in America, without stressing the U.S treasury to its limits:

Unlike Classical economists, who view inflation as a problem of ever-increasing money supply, Keynesians economists concentrate on the institutional problems of companies increasing price they demand for their products. Keynesians argue that firms raise wages to keep their workers happy. Firms then have to pay for that wage increases and keep making a profit by subsequently raising product prices. This causes an increase in both wages and prices; and, subsequent pressure on treasury to increase money supply to keep the economy running. Government can then issue more and more money backed up by production of more goods and services to keep up with inflation. This of course, the classical economists disagree with.

Since the Federal Reserve Chairman, Dr. Ben S. Bernanke, seems to default on the part of the Keynesian economists, I would encourage the Feds to intertwine their money releases with the rate of unemployment, not inflation alone. Even if inflation is low, until unemployment declines to a very appreciable margin, money supply should be kept to a minimum. Encourage US government to quit fighting those nasty wars started by the Bush Administration, and divert saved money to boost employment, via more job creation. Re-evaluate public policies supporting the military industrial complex that seems to be bankrupting the nation, with everyone pretending all is well with us going to war and staying at war for so long without suffering the repercussions of extended war costs.

Ask those stock Analysts on Wall Street who are very sold on companies' annual reports from CEO's to stockholders to be a little bit more circumspect. Many of those firms that were rated triple A, went under during the real estate fiasco. Scrutinizing annual reports from CEO to stockholders for moral, ideological, and emotional characterization of future plans and past mistakes, would not be enough to guarantee the financial health or liquidity of a company. When companies are rated rather too proficient and they loose heavily from poor financial decisions, money is not the only thing lost, lives and way of life for many people also get trodden. When financial regulatory agencies look away from insider's trading and or, exempt appropriate scrutiny of back room deals going between financial institutions, then we end up with the type of mess that exacerbates unemployment. Unemployment from past mistakes of well rated companies has shown us the need to be a little more careful in our interpretations of business annual reports.

Using government college grants to tease back the unemployed to school may not be sufficient to solve the unemployment problem. I know a Ph.D without a job. What would you recommend him to do? Retrain and acquire another Ph.D that would get him unemployed all over again? We need to unveil new strategies to help those that are hard to place in employment, once they have a good education. Transfer payments for companies that employ or reemploy those hard to place workers may be a viable option for keeping unemployment low among Americans, but frankly, that would hardly solve the problem. We need new initiatives in public policy to help the private sector create jobs. We need new public sector infusion of money into public projects to help build our crumbling roads and schools. We need a combination of both private and public sectors job creation initiatives to really confront the problems of rising unemployment.
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