The Great Deformation

by David Stockman

  The 3 million jobs recovered since the recession ended in June 2009, in fact, have been entirely concentrated in the two far more marginal categories that comprise the balance of the national payroll. More than half of the recovery (1.6 million jobs) occurred in what is essentially the “part-time economy.” It presently includes 36.4 million jobs in retail, hotels, restaurants, shoe-shine stands, and temporary help agencies where average annualized compensation was only $19,000. This vast swath of the jobs economy—27 percent of the total—is thus comprised of entry level, second earner, and episodic jobs that enable their holders to barely scrape by.

  The balance of the pick-up (1.1 million jobs) was in the HES Complex, which consists of 30.7 million jobs in health, education, and social services. Average compensation is slightly better at about $35,000 annually and this category has grown steadily for years. Its increasingly salient disability, however, is that it is almost entirely dependent on government spending and tax subsidies, and thus faces the headwind of the nation’s growing fiscal insolvency.

  When viewed in this three category framework, the nation’s job picture reveals a lopsided aspect that thoroughly belies the headline claims of recovery. A healthy Main Street economy self-evidently depends upon growth in breadwinner jobs, but there has been none, even during the bubble years before the financial crisis. The Bureau of Labor Statistics (BLS) reported 71.8 million breadwinner jobs in January 2000, yet seven years later in December 2007—after the huge boom in housing, real estate, household consumption, and the stock market—the number was still exactly 71.8 million.

  The faux prosperity of the Fed’s bubble finance is thus starkly evident. This is the single most important metric of Main Street economic health, and not only had there been zero new breadwinner jobs on a peak-to-peak basis, but that alarming fact had been completely ignored by the smugly confident monetary politburo.

  Alas, the latter was blithely tracking a feedback loop of its own making. Flooding Wall Street with easy money, it saw the stock averages soar and pronounced itself pleased with the resulting “wealth effects.” Turning the nation’s homes into debt-dispensing ATMs, it witnessed a household consumption spree and marveled that the “incoming” macroeconomic data was better than expected. That these deformations were mistaken for prosperity and sustainable economic growth gives witness to the everlasting folly of the monetary doctrines now in vogue in the Eccles Building.

  To be sure, nominal GDP did grow by 40 percent, or about $4 trillion, between 2000 and 2007. Yet there should be no mystery as to how it happened. As has been noted, total debt outstanding grew by $20 trillion during that same period. The American economy was thus being pushed forward by a bow wave of debt, not pulled higher by rising productivity and earned income.

  Indeed, the modest gain of 7.5 million jobs during those seven years reflected exactly this debt-driven dynamic and explains why none of these job gains were in the breadwinner categories. Instead, about 2.5 million were accounted for by the part-time economy jobs described above. On an income-equivalent basis these were actually “40 percent jobs” because they represented an average of twenty-five hours per week and paid $14 per hour, compared to a standard forty-hour work week and a national average wage rate of $22 per hour. Thus, spending their trillions of MEW windfalls at malls, bars, restaurants, vacation spots, and athletic clubs, homeowners and the prosperous classes, in effect, temporarily hired the renters and the increasing legions of marginal workers left behind.

  Likewise, another 5 million jobs were generated in the HES (health, education, and social services) complex. Here the job count grew by 20 percent, but it was mainly due to the fact that the sector’s paymasters—government budgets and tax-preferred employer health plans—were temporarily flush.

  As shown below, however, these, too, were “debt-push” jobs that paid modest wages. While the steady 2.6 percent annual growth of HES jobs during the second Greenspan Bubble did flatter the monthly employment “print,” it was possible only so long as government and health plans could keep spending at rates far higher than the growth rate of the national economy.

  THE CRASH AND NONRECOVERY

  OF BREADWINNER JOBS

  The Wall Street meltdown of September 2008 accelerated the recessionary forces already in motion, causing a total job loss of 7.3 million between the December 2007 peak and the end of the recession in June 2009. That the Fed’s bubble finance had camouflaged the failing internals of the American economy then became starkly apparent. Nearly three-fourths of this reduction was accounted for by the above mentioned loss of 5.6 million breadwinner jobs; that is, nearly 8 percent of their pre-recession total.

  That devastating hit left the nation with only 66.2 million prime jobs and set the clock back to the level of early 1998. This is an astonishing fact: before any of the Greenspan-Bernanke maneuvers to coddle Wall Street and pump up the wealth effects elixir—that is, the 1998 LTCM bailout, the 2001–2003 rate-cutting panic, the August 2007 Bernanke Put, and the Fed’s post-Lehman tripling of its balance sheet—there were more breadwinner jobs than there are today.

  Since the BlackBerry Panic the Fed has relentlessly pumped freshly minted cash into the bank accounts of the twenty-one government bond dealers. Not surprisingly, therefore, there has been a jarringly divergent outcome between Wall Street and Main Street.

  By September 2012, the S&P 500 was up by 115 percent from its recession lows and had recovered all of its losses from the peak of the second Greenspan bubble. By contrast, only 200,000 of the 5.6 million lost breadwinner jobs had been recovered by that same point in time.

  To be sure, the Fed’s Wall Street shills breathlessly reported the improved jobs “print” every month, picking and choosing starting and ending points and using continuously revised and seasonally maladjusted data to support that illusion. Yet the fundamentals with respect to breadwinner jobs could not be obfuscated.

  On the eve of the 2012 election, for example, there were 18.3 million jobs in the goods-producing sectors: manufacturing, mining, and construction. These core sectors of the productive economy had taken a beating during the Great Recession, shedding 3.5 million jobs, or 15 percent. Yet after three and a half years of so-called recovery, the jobs count in the goods-producing sectors had not rebounded in the slightest; it had actually declined slightly from the 18.5 million jobs recorded at the end of the recession in June 2009.

  Likewise, there were 7.8 million jobs in finance, insurance, and real estate, meaning virtually no gain from the 7.7 million jobs at the end of the recession. As to lawyers, accountants, engineers, architects, and computer designers, there was no pick-up there, either: the 5 million jobs counted by the BLS in September 2012 barely exceeded the 4.8 million recorded in June 2009; and in the information industries—publishing, broadcasting, telecommunications, motion pictures, and music—the data had slightly deteriorated, with the 2.8 million jobs posted in June 2009 slipping to 2.6 million in the month before the 2012 election.

  Similarly, the 10 million jobs in transportation and wholesale distribution in September 2012 had changed hardly a tad from June 2009. Finally, the other heavy-duty category of breadwinner jobs—that is, government employment (outside of education) where average compensation exceeds $65,000 annually—had actually gone south. The 11 million of these high-paying jobs on the eve of the 2012 election had shrunk by more than 4 percent since the recession ended in June 2009. In short, after forty months of “recovery” there was virtually no change in every category of breadwinner jobs that had been slammed by the Great Recession.

  THE “BORN AGAIN” JOBS SCAM

  These data are extremely important. They belie the sunny paint-by-numbers jobs picture peddled by the Fed to distract the public from the fact that monetary policy is all about fueling the speculative urges of Wall Street, not the economic health of Main Street. This obfuscation is especially true with respect to the aforementioned headline gain of 3 million jobs. Never told is the fact that the majority of these, as indi
cated above, were part-time jobs in bars, restaurants, retail emporiums, and temporary employment agencies.

  That fully 55 percent of the rebound has been in low-paying, part-time jobs not only illuminates the phony nature of the Fed’s so-called recovery, but it also comes with a news flash; namely, every one of these 1.6 million new part-time “jobs” had already been “created” once before. During the second Greenspan bubble the part-time job count had risen from 34.7 million in early 2000 to 37.2 million in December 2007. In still another episode of Charlie Brown and Lucy, however, the football had been moved backward during the Great Recession. By June 2009, in fact, the part-time job count had tumbled all the way back to its turn of the century starting point at 34.7 million.

  What happened by election eve of 2012, therefore, was nothing more than a partial retracement. At that point the BLS reported 36.4 million part-time jobs, meaning that after three and a half years of “recovery” just 60 percent of the gain from the 2000–2007 bubble had been recouped. These were self-evidently “born again” jobs, but in a display of astounding cynicism the Bernanke Fed claimed to be meeting its statutory mandate to promote maximum employment.

  The larger truth is that when these job rebirths are set aside there isn’t much left. The part-time job sector has gained an average of just 11,000 authentically new jobs per month during the twelve years between early 2000 and September 2012, thereby contributing hardly a drop in the bucket relative to the working-age population growth at 150,000 per month.

  In fact, this “born again” syndrome actually applies to the entire non-farm payroll, and the modest rebound it has registered since the recession officially ended in June 2009. As shown by the data, the Greenspan-Bernanke policy was the monetary equivalent of a Billy Graham crusade: the same jobs got “saved” over and over.

  Thus, there had been 130.8 million total jobs in January 2000, and this figure had reached 138.0 million by the December 2007 peak. The Great Recession sent the jobs count tumbling all the way back to the starting point, actually dipping slightly lower to 130.6 million by June 2009.

  Then, after forty months of “recovery,” the BLS reported 133.5 million nonfarm payroll jobs for September 2012. The Bernanke bubble had thus “recreated” only 40 percent of the jobs that had been “created” by the Greenspan bubble the first time around.

  That the Bernanke bubble policies have not recouped even half of the total payroll gains that the Fed had already previously counted is still another testament to the sham nature of the “recovery.” When the Fed’s pump-and-dump cycling of the macro-economy is set aside, it becomes starkly evident that the American economy has been nearly bereft of sustained job growth. For the entire twelve-year period since early 2000, it has generated a net gain of only 18,000 jobs per month, a figure that is just one-eighth of the labor force growth rate.

  The reason for this anemic figure on total payroll growth is that the great expanse of the nation’s economy outside of the HES complex has been a jobs disaster area. Alongside the rounding-error growth in the part-time sector, the 66.4 million breadwinner jobs in September 2012 represented a drastic shrinkage from the approximate 72 million jobs in that category recorded in January 2000. This was the smoking gun: the prime breadwinner jobs market has been shrinking by a net of 35,000 jobs per month for more than twelve years!

  Indeed, the tiny gain of 5,000 breadwinner jobs per month since June 2009 means that it would take 90 years to recoup the 5.6 million such jobs lost during the recession; that is, it would take until the twenty-second century to get back to the job count that existed at the end of the twentieth century! The absurdity of it surely puts paid to the notion that a conventional business recovery is underway.

  Indeed, it is only the utterly politicized calculation of the “unemployment rate” that disguises the jobless nature of the rebound. Upward of 8 million working-age Americans were no longer classified as being in the labor force due to purely arbitrary counting rules. In fact, the unemployment rate on the eve of the 2012 election would have posted at about 13 percent based on the same labor force participation rate as January 2000, and would have clocked closer to 20 percent if further adjusted for the drastic shift from full-time to part-time employment.

  THE HES COMPLEX:

  BONANZA OF DEBT-FINANCED JOBS

  The HES complex accounted for 1.1 million, or just under 40 percent of the 3 million jobs recovered after the recession bottomed. These were actually new jobs not born-again ones, meaning that the only true post-recession employment growth was embodied in the 27,000 per month gain of HES jobs. And that figure, in turn, represents the continuation of a long established trend. During the seven years ending in December 2007, about 4.7 million HES jobs were created, or about 50,000 per month. That trend continued right through the Great Recession. While part-time and breadwinner jobs disappeared by the millions, the HES complex hardly skipped a beat, generating new jobs at a rate of 35,000 per month right through the eighteen-month shakeout.

  A larger theme thus emerges. When the Fed went fully in the tank for Wall Street around the turn of the century, its excuse was that financial repression was a necessary tool to comply with the “maximum employment” component of its dual mandate. But that is a smoke screen to justify the Fed’s levitation of risk assets and continuous coddling of Wall Street speculators.

  The actual jobs data show that if the monetary central planners have been trying to create jobs through the roundabout method of “wealth effects,” they ought to be profoundly embarrassed by their incompetence. The only thing that has happened on the “job creation” front over the last decade is a massive expansion of the bedpan and diploma mill brigade; that is, employment in nursing homes, hospitals, home health agencies, and for-profit colleges. Indeed, the HES complex accounts for the totality of American job creation since the late 1990s.

  Some details on the internals of the HES complex provide needed perspective. In September 2012, for example, there were 6.4 million jobs in ambulatory health care alone; that is, physicians’ offices, outpatient care centers, and home health agencies. That was more jobs than in the nation’s entire construction industry (5.5 million) and far exceeded nondurable goods manufacturing including food, beverages, paper, chemicals, plastics, and petroleum products (4.5 million).

  On top of these ambulatory care jobs there were 8 million in hospitals and nursing homes and nearly 14 million in education from kindergarten through university. In all, the 30.7 million jobs posted for the HES complex on 2012 election eve represented a 27 percent expansion of the job count from when George W. Bush took the oath in January 2000 promising to rejuvenate capitalist prosperity.

  Health and education are important social and economic functions, but their role as the sum and substance of the nation’s jobs machine also engenders obvious questions of sustainability and financeability. The 6.5 million new jobs in the HES complex since January 2000, in fact, amounted to 2.3X the total number of new payroll jobs over the past twelve and three-quarter years.

  What was lurking behind this anomalous trend was the pull of financing from the state, not the flourishing of enterprise and invention on the free market. Direct government financing of medical entitlements and private business outlays spurred by deep tax subsides (i.e., tax excludable employer health benefits) accounted for virtually all of the HES sector growth. These fiscal inputs, in turn, largely represented borrowed funds.

  Federal spending for Medicare and Medicaid, for example, had grown from $300 billion in 2000 to $800 billion by 2012, or nearly double the rate of nominal GDP growth. Having gone from a modest surplus to a $1.2 trillion deficit during the same twelve-year time frame, it was evident that the robust growth of federal health spending and the consequent bonanza of new jobs, on the margin, had been deficit financed.

  In fact, had the federal health-care boom been financed properly out of current taxation there would have been an offsetting reduction in demand elsewhere in the American economy, meaning less outpu
t and jobs in those sectors. The same was true of the single most important category of education spending: the job count in nonpublic higher education had risen by nearly 45 percent during the twelve-year period, and there was no doubt whatsoever as to the source. During this same interval student debt outstanding had exploded from $150 billion to $1 trillion, meaning that the for-profit diploma mills became flush with tuition revenues and soaring payrolls.

  Again, had the huge expansion of higher education been funded out of family income and taxes rather than new public debt, there would have been an offsetting reduction elsewhere in the economy. Households would have had less to spend on, say, restaurant meals or mall visits or home improvement projects.

  So the Fed’s cover story that it was busy fostering job growth is even more specious than it initially appears. What was actually happening was that Washington’s fiscal machinery financed 42,000 new jobs per month in the rapidly expanding HES complex during the last twelve years. Since the Fed and other central banks were “open to buy” unlimited federal debt at inordinately low, pegged yields, fiscal financing of the HES complex did not crowd out other current spending; it just burdened future taxpayers.

  From a paint-by-numbers perspective, these HES gains were just enough to offset the 35,000 breadwinner jobs lost each month during the same twelve years. Yet since all jobs are not created equal, there can be little doubt that this statistical swap left the Main Street economy badly impaired in terms of income-earning capacity and the true ingredients of economic prosperity.

  This juxtaposition has especially adverse implications for future economic growth because there are virtually no productivity gains in the health and education sectors. Instead, health and education output in the GDP accounts is essentially a reflection of inputs, and labor is the preponderant constituent of the latter. The heavy flow of labor into the HES complex thus drags down average productivity and sharply dilutes the overall growth capacity of the American economy.