Tianjin 2010 – WHAT IF: the United States remains in a jobless recovery in 2011?


Good morning.
Thank for joining us. It’s a pleasure to have you all here
to discuss a subject that is profoundly I think unnerving
and not pleasurable and even as recently as a year or two
years probably too many people would have been unthinkable
and an unimaginable, the notion not only of 9 to 10 percent
unemployment in the United States but sustained high level
unemployment in the United States. And so we’re going to take
as the main idea for this session, the idea is we’re going to accept
the premise that it’s two years from now, three years from now
and we’re looking back at this context that began in April of 2009
when we passed 10 percent on unemployment
and that has continued for one, two, three, four,
or five years. So we’re going to accept the premise
that we are in a high and persistent
unemployment environment and begin to talk about
the implications of that. We’ll talk a little about
how that might be avoided, the kinds of things we should do
to avoid that but we’re gonna try to explore both up here
and on the panel with your input this idea this “What if:
The United State remains in a jobless recovery in 2011? This is a headline that the
World Economic Forum people plot from a newspaper
in 1979 which is, you know, maybe the last time there was this degree
of structural concern about elements of the US economy. What’s been interesting about this today
has been the degree to which most of the experts some present
company excluded in the case of Martin Wolf
missed this comment. Ben Bernanke is famously saying
that the situation was likely to be able to be contained. This chart which does not
appear large enough for you to make any sense of it shows the
unemployment rate in the United States and those three lines are the predictions
of what the worse case scenario for unemployment would be the OMB,
by the White House and the top line is the fed in which predicted in the
worst case stress testing at the banks. Imagine the worst possible thing
that could happen, 8.7 percent unemployment,
a number that was passed last spring. And that you’ll see another chart that’s
unfortunately too small to make sense of, the rate of job recovery its growth has
returned has been very, very low indeed. So, as we look ahead
a couple of years, it’s impossible to imagine
headlines that look like this, challenges that represent a not only
significance structural change in the US economy but by extension
structural change to the world economy. And that’s what
we wanna talk about today. We wanna talk a little bit up here
but we also very much wanna hear your insights and I think that last thing
I’d say before we plunge in to exploring this world of What If
is that this session, this kind of exchange
is a bit experimental. And so we wanna hear
from your stand up, when you’re feeling aggravated
or you feel somebody who says something damn,
raise your hand. This is a crucial issue
for the future of the planet. How we would manage
a situation like this? And so the more transparent
of discussion we have, the more energetic a discussion
we can have among ourselves, the more valuable this
would be to everybody and to serving the mission
of the forum which is really to improve the state of the world. So with that let me start
with Martin Wolf, who is a man needs no introduction
not least because I think in the last 24 months
he has been the primary person who has had the most accurate compelling
view about everything that is unfolded in the financial crisis
and its aftermath. Martin,
I want to start with you, what if the United States remains
in a jobless recovery of 2011? How do you begin
to think about that question? Well, first of all
I think it’s very much not and if I think it’s an extremely probable
outcome but it’s not a certain outcome. So, let’s just think about
why it might not happen. And if we can think about we should
think about how we got where we are. Now,
the US economy from — and I’m just going to think
about the very micro picture, now let’s just look at
the micro picture. The US economy’s performance
in the last two or three years has been really very fascinating
because of the divergence between what’s happened with output as measured
by GDP for domestic product and what’s happened to employment. And it’s an enormous contrast but only
out of the developed countries that matter, all the big ones. In terms of output in my view largely
because of the actions of the Fed until less a degree
of the fiscal authorities, the recovery, US output is closer to where
it was before the crisis hit. Everybody, all the big countries
are still below where they were before the crisis but the US is actually
closer to where it was before the crisis hit than
any other large developed country. So they don’t quite well on output. It hasn’t be much of a recovery
but you should look at some of the others. Now — but the employment shedding
has been dramatic. There’s been
an immense productivity search. Now, there are two things on the line basically the collapsing construction
employment very important and the second is simply the rate of which
American firms have shed labor and this is colossal contrast
with Germany for example, Britain where there’s much more effort
to preserve people to go to work sharing, temporary work,
also the things which preserve employment. So this is really big. Now,
that’s relevant to the future. So there are two questions
then about the future. The first which is the way they always
think about US recoveries is how strong will
the recovery itself be from now? Generally growth needs to be 3 percent
above before an unemployment rises rapidly. But there is a kicker here. There is a —
and this will be the last point I make – there is a possibility that as it were –
there are two, there’s one — there’s possibility
growth will be really strong and the possibility comes from the fact
that US corporations are very cash rich, very profitable and they just might start
a really big investment boom at hand. I don’t believe it but it’s a possibility. And the other possibility
is that they find, they’ve actually were too nervous,
too courteous they shed too many workers, they actually need more and that this
extraordinary productivity surge we’ve seen in the US and quite extraordinary
in a deep recession will be reversed. Unless one of these two things happen, this is in the motive
it’s what’s going to happen and then I think we should stop a bit
discussing how politics society business will respond to what then we’ll look
rather a European sort of situation. Martin, I just want to dig it you raised
something very important which is the nature of the kind of
unemployment we’re looking at now. So, there’s a profound debate that what
Martin Wolf has said touches on that he’s written a lot about which is this
question of is the underlying nature of what’s happening to employment
in the United States right now, is it a structural change?
Is it a shift? There’s a phrase in economics
where this is called historicist which is an idea almost like if you break
a rule or a glass right you can’t ever get it back together. Is that kind of structural shift
or is it just the cyclical shift? Do you want to run us
through this debate quickly? Well, very quickly
and there’s some economists in the audience have variance
as to their reaction. This is indeed a big debate
in the United States and those people –
I mean essentially breaks down fairly simply that the…
as it were who dominate among others they’re thinking the administration,
I think it’s predominantly cyclical. Of course there is a structural element because of the collapse
of the construction industry. Well, that’s obvious that’s happened
in Spain too, it happens in any country, when the construction industry collapses
so that this will be reversed if only demand was strong enough. So the real issue is the incredible
weakness of demand and investment would help greatly here
and that exports would have a great deal here that’s why the
exchange rates might be involved. So that’s the demand side. Now there are others who would say
that essentially the credit driven boom of the… would call it has musk the reality
that a large proportion of the American population has become
sort of in the globalized, there are semi-unemployable that
the jobs that used to have are just gone, construction boom sort of musk this
and what is now being created is the sort mass unemployment
of marginal workers broadly defined, which we’ve seen actually
in continental Europe. Have much of the last study
is this is now really there in the US and there is no demand expansion
which will – which went the highly inflation rate
which will offset this. And I would say among the economists
at the moment as usual there’s absolutely no agreement
but those are the two alternative years. And based on — I mean if you had
there that there is this notion, you know, as you described in the second
that we have Hoovervilles in the 30, now we sort of have this Obamavilles
which are these unemployed 55-year-old driving around their mini vans
unable to find anything to do. Which one of those,
you know, where you find –? I think it may not matter
for the following reason. I personally think that it is very plausible
that demand growth will be weak and in that situation and you hint at it
this very well with the historicist would in that sort of situation –
I put this in one column I had, temporary unemployment
becomes permanent. If people — we know a lot of this
from European experience – is if people seems to be attached
to the labor force for a year, two, three,
four years they give up. They disappear from the labors.
They lose their skills. They lose their attraction
to employers. You need extraordinary surging
in demand, you know, World War II, something like that
to pull them all back in. So the temporary demand efficient
unemployment comes structural very easily. That is what happened
I think in much of Europe. And if you are as pessimistic as I am –
well I am not very pessimistic, but if you are moderately pessimistic
about the rate of which demand will pick up in the US because the source
is low rather weak then it could easily become structural even right, if
right now the dominant reason was cyclical. That’s very interesting. So, you could have
a switch to a new stable — That is possible and that would be
the most pessimistic outcome. I’ve come on the Southern India anyway
you converge on the structural outcome if the demand doesn’t pick up where the
hell — where is that going to come from? Good. I want to turn to Dr. Jackson in a second
but as you mentioned we’ve got a number of economists in the audience. I’m just curious of people here
who were trained in economics, and everybody who thinks this
is a structural issue today, raise your hand? And everybody who thinks it’s cyclical,
raise your hand. So the structuralists
out way the cyclicalists as by 2 to 1, which indicate possibly
that the cyclicalists have somewhere else to be this morning since
it’s not a very scientific example. It’s almost certainly means
that the cyclicalists are right. Yeah. Dr. Jackson,
let me turn you because we’ve just described one end of
the spectrum which is the Obamavilles, this unemployed people who are
at the end of their working lives. You’re dealing a lot of students who are
at the beginning of their working lives facing record challenges
in finding employment. What does that look like
from where you’re sitting? What does that suggest you about the
nature of the educational institution? Well I sit
in the higher education sector and that’s an interesting sector
in different ways. Yeah, but Doctor if you could give
30 seconds on our RPI so people understand
how significant it is? I’m the President
of Rensselaer Polytechnic Institute. It’s actually the oldest technological
university in the United States. More of you may know about MIT,
it’s like a slightly smaller version, very strong in engineering and science
and architecture in certain fields of humanities, arts, and social sciences
particularly media and the arts and then now the management
of technology. And so we are getting students
who are at a different end of the scale. We get among the highest performing
students that come out of high schools in the US
and around the world. And we have a lot of international demand
for our education particularly those who are interested in Engineering
and Science and Design and so forth. So when you talk about
the higher education sector in the US, there are couples of points to be made. First, it is not a monolithic sector
because there is a difference between what has happened
in the public higher education sector and what has happened in the private. And would you characterize
that difference? Well many of the publics have suffered
because of what has happened to state budgets and even though
not such a large proportion of the actual budget of most major state
universities comes from state revenues, nonetheless is an important component and so that’s caused some
restructuring and shifts. Private universities primarily have been
effected both because of cost issues for potential student body
and because of what has happened to… in the great crash. But the real question is this,
there are number of different constructs that are shifting and Martin talked about
an overall shift in the economy, in the employment picture. But there’s another kind
of construct going on. One relates to that and one
has to do with larger global forces. The one that relates to what Martin
talks about has to do with what’s happening
to families in the US and their choices and their ability to
afford higher education for their children. But also their view about whether
they can afford higher education. Right. So then tell me
what that means practically? People are very price sensitive. So they worry a lot about
the cost of higher education. And as a consequence,
some people are making choice so that those who might go to a 4-year
university they opt to go to a 2-year. Those who might go to a private
may choose to go to a public. Those who go to a private look
for a lot more financially and support. Now you said earlier when we’re talking
that this might be a blessing in disguise. Well, it maybe a blessing
in disguise in the sense that I didn’t quite put it that way. It’s very well disguised. That it’s very well disguised. That it may cause a shift in how
higher education has organized, how universities
are ran as an institution. If you were to guess,
if we’re sitting here in 2011 or because of the pacing which
education moves up 2015 or 14 — Yes. -Which sustained 9
to 11 percent unemployment, the so-called Obama’s 9-11,
what does that mean to the university structure in the United States? Universities are going to become more
by necessity more efficient. The makeup
of their faculties will change. There was a lot of partial employment
in universities. I think a lot of that will change. But I think in the end
the higher education sector has the greatest opportunity
to survive irrespective of what happens with
the overall employment picture because they are particularly
the research universities, the engines of innovation
and they are the pathway to the kind of education
and skills that people need for what I think
is happening in the economy. And so I hope that we talk about
what the new economy has to look like and the role of innovation.
Great. Well, I hope we welcome back
to the next American economy. And Michael I want to turn to you
in a second but before we do that I just want to give… to David Lee
as I see he is sitting in the front row who is the Head of the Tsinghua Center
for China in the World Economy and sits on the adviser board
of the peoples back of China. One of the points that we’ve just raised
about what this would mean internationally. We agree to eventually to turn you
and get a little bit of feedback if you don’t mind that
I will give you sometime to think about how high sustain
unemployment in the United States might have an impact in China. Can I make one last point? Yeah please, please. I do think there is an impact
for the student bodies of universities. Many of the great research universities
in the US have had graduate populations that have been
predominantly international. And so a construct that one
has to think about is while there’s still a great demand for US
higher education particularly at the graduate level, the rest
of the world is evolving and developing and making great investments
in their university systems and so more students
have opportunity elsewhere and so I think that has implication. Okay,
it’s a very good point. Michael can we turn to you for a view
of what’s life like on the – tell us what it feels like
to be in Los Angeles today trying to balance a budget? Well the problem
that Los Angeles County has along with the
other 53 counties in our state, we have a 20-billion dollar
deficit at the state level and we still don’t have a budget
as I speak to you right now. It’s been nearly 70 days since we’ve been
of sync with having a budget. What has that done? Well, the state has now come up
with a proposal that they’re going to take inmates
who have three years or less and have them spend their time
in a county jail. They cost the country
over 28,000 per inmate. The state is going to give us
11,000 plus for the inmate and then expect the county
also pick up the mental health and the drug and alcohol rehabilitation
and supervision after they are released. And also we have to move people
out of our jail to accommodate those people
coming from the state penitentiary. Just in the past month or so
that cost is – it’s a multimillion dollar
hit just to our county of Los Angeles. The county has 88 cities. Los Angeles City is just one
of our cities and we a have a million and a half people who live
in a community that is not a city, they’re called on incorporated areas. If they were a separate city they’d be
one of the ten largest cities in the nation. As a result, we have
a 23-billion dollar budget it would be the 17th
largest economy in the world. But when we have unfunded
mandates from the state, followed by unfunded mandates
from the Federal Government, we are still responsible
to provide that service and if we fail to do that,
we can be sued for failing to provide the service
as required by law. So the local governments are asking the
state if we have to have these mandates, then once this state does not provide
sufficient funding for these mandates, then we don’t have a legal responsibility
to carry that out, so we can keep our budgets in balance. Otherwise, we have to –
we are in charge of all the hospitals, the jails, the corner, the property taxes,
we get you when you’re born, we tax you when you’re alive
and then the corner gets you at the end and were there full service operation. It has a severe impact along with
out multibillion dollar pension fund. That’s having a severe impact. And as a result, many are saying
there ought to be some type of a bankruptcy that would take place
where you would have a structural reform as to all of your agreements
that you have contracted with, the various vendors,
otherwise we are bankrupt. So this one of this kind
of slow lurking variables in the system that we don’t pay a lot of attention to
but if we’re about something that will lead to an acceleration
of sort of a phase change in American unemployment. You’re talking about a collapse
of a lot of the infrastructure that would fundamentally be responsible
for blunting something like to 9 to 11 percent unemployment? And we have about a 12.3 percent
unemployment rate. In our Central California
we have unemployment that’s higher than
in Detroit because of some policies. Our wonderful fertile agriculture lands
have become now wastelands with very high unemployment. There’s going to be a dramatic change
in the legislative representation. Why is that?
Is food demand down? Well, there was an argument
over a fish and as a result they cut off some of the water
and the supply and others now say that fish doesn’t have that problem etc.,
etc., but some of the political issues, Federal court making a decision,
court making a decision, civil legislature
and it has impacted Central California. It impacted Southern California
because we are, you know,
dependent upon water. So it’s a very interesting and then with
hyperinflation which is around the corner. This is really going to destabilize
your local governments who are in the forefront in providing
the services from public safety and other social services
and we are in a catch 22. So really this is not a situation
where high levels unemployment and now bring out the best
and the system becomes more resilient, it become better able to sort of catch
this falling unemployed American citizens and bounce them back
rather it’s a situation where there unemployment accelerates that leads
to a cascade of problems in the environment
that you are trying to manage. We are — where there’s left
after everybody goes home we have to deal with the people
who have the problems, many of those problems created
by higher levels of government, who had deficit spending,
reckless spending and is expecting the communities
to pick up this lack. So with that in mind, what’s turned to the
American political landscape a little bit? Margery, how would you characterize
both the view today of the implication
of this high level of unemployment. You know, Obama make a huge mistake
a year ago in not saying the minute across 10 percent,
this is a hundred percent of my bandwidth. Was that an error or in fact a year ago? Yeah, I think there was a miscalculation
on the part of the administration in terms of anticipating what would happen
and I think very traditional views tools were used to address
a very untraditional problem. I don’t think people saw that except
from Martin who immediately said that, you know,
both these requires bold action. Do you change the football coach
at this point as a time for Harvard to –? Well I think there’s number
of things going on. I think that one of the things that people
may not fully appreciate especially outside the US is that we have
a very divided system of government to begin with. It was originally there for some reasons
and now it’s working to the detriment I think of the country when you have to
deal with such difficult problems. So, you have two parties
that the response is really yelling at each other rather
than coming up with solutions. And I think the bulk of –
the mood of the American people going into November elections
is actually in a very dangerous place. Tell me what you mean by that? I think that most people,
you know, I think Obama got elected
on the platform of change and I think what was misread
that isn’t change of policy. It was change of process. It was change of trying
to be more post partisan. So, instead of kind of yelling
at each other from one party to the other of being above that
and coming up with solutions. And so he got votes of a lot of people
who didn’t feel they were particularly Democrats or Republicans
but now we’re their independence and they went in one direction where
maybe now they feel they’ve been misled and that what they bought isn’t
what they thought they bought and there’s a bias remorse… So with that let me take another
unscientific poll of the Americans in the room, how many think Obama
is a one-term president? And of the Americans in the room,
how many think he is a two-term president? And of the non-Americans in the room,
how many think he is a one-term president? And of the non-Americans,
how many think he is a two-term president? All right,
well hopefully he will be running. You’ll be able to vote. I actually think there is a very
interesting point to be made from that and that is I think the view
from the outside of the US and I spent a lot of time outside
as well as in Washington. I think the view from the outside
is that Obama was a big change, change in direction, change in the way
in which the US operates in the world, change in more collaboration and change
in more multilateral solutions to things. And I think the world sees that
as a great thing and I personally do too. I think inside the US where the focus
is on what we’re talking about which is how do
I get my kids to go to college? What do I do everyday when I got up?
How do I spend my money? You know, is my life –
is might the life of my children, my grandchildren
going to be any better than my own or is it really
going in the other direction? They don’t particularly care about
the view from the outside and this is an important dichotomy
for a couple of reasons. First of all, you know,
there’s about between 70 and 80 percent of the American people who think the
economy is not going in the right direction and don’t have confidence which leads
to all kinds of issues we’ll get into whether
it’s consumer spending or investment. But I think the other side of that
is that when the mood of the American people is like this
and turns inward, we have all kinds of dangerous policies
because congress is a mirror of the people. And you know,
you have the dangers of protectionism, you have the dangers of
a very anti-China sentiment for instance. You have a lot of things
that could happen. So your view of the world economically though you’re still completely
pro free trade, no trade barriers? Absolutely. David that’s a great note
to turn to you if you don’t mind. David is a very insightful economist. He seemed ashamed not to get
his insights on this. Is there a microphone
that David can use otherwise I’ll come and give you a hug
and you can talk in mine. That microphone is at the back there,
isn’t it? Yes.
-Bring in one up. David, why don’t you stand up
so they can see you? David it’s two years from now 9 to 11 percent unemployment
in the United States. How is that seen from China? What does it mean economically
for China? Well we would be extremely concerned
because knowing the nature of the politics in the US
we would know that the exchange rate and China will be the target
of blame in the White House, in the Capitol Hill I would say,
not the White House. So, I would take this opportunity
to urge our American friends and the European friends and British
friends to think out of the box, to think about new ways
of collaboration between China, the US and the Europe. By this I mean that we have to go deeper. The collaboration between China and US
should be beyond between Zhongnanhai and White House should really go
to the country to country level. Like China should really go out
and to find ways to collaborate with conflict like Los Angeles,
countries like… in Detroit, in that way we can help
the structure change in the US and in the process we can prosper
at the same time. Thank you. Yeah,
so that’s a very interesting issue. It’s another one of these things
where when you’re operating in a systemic environment
where everything is connected, so the sub prime crisis is connected
to the real economy as we now discover and David’s point is something
like unemployment in the United States becomes connected
to currency policies. So you have a regime shift
in one area that might lead to profound regime shift
in another area. So what are the ways that people argue
that the United States is very resilient against these kinds of shifts
and particularly often in contrast places like China is as a very robust civil
society and a lot of NGOs that function and serve an important role in trying
to sort of backstop various where the government itself can’t work. Towards where do you look
to the future do you see that as being a piece
of the puzzle here? Well I think it would be a piece
of the puzzle if the NGOs and the organizations had work
in urban communities fundamentally shift how they imagine their work to be. So, let me give an example
in terms of workforce training. A lot of the work I do is in urban
communities in the United States where some what marginal people
want to join the economic mainstream of the United States
and there are job training programs and other services
that help move people into jobs that exist amongst regular employer and that’s the fundamental way
that the work it’s done. That’s how government fund organizations
that are NGOs to do this work and with the structure on unemployment
that we’re already experiencing that model no longer works. To some extent, we were canneries
in the coal mine where for several years the primary job
of organizations that I work at and with was to help prepare
people for employment. They already learned two
and three and four years ago, there was no absorptive capacity
of regular employers to take them on. And now as this becomes more structural
as it becomes just a given that if you live in a particularly poor community,
it’s increasingly unlikely you’ll be able to get employed no matter whether there
is a job training program that the City of Los Angeles
or the Federal Government pays for, NGOs are going to have to think
and the Federal government is going to have to fund a very different
job creation strategy within these communities rather
a job training strategy. I can tell you that I have two touch
points into this issue. I teach also at Stanford University
with similar to… had some of the most selected
students who come and when we had a crisis people were bemoaning
the fact that it took them three months to get a job after they graduated
as supposed to having jobs waiting for them as supposed
to people in the urban communities who now are looking at two,
three several years of being unemployed. So there’s inequity that is continuing
to grow in the United States is particularly being felt by larger
and larger numbers of people. And so the Federal government
and the NGOs that should be the backstop can no longer operate with the current model
and that’s what’s going to have to change. Martin if I made you Minister of Labor
of the United States tomorrow, are there any policies you’ve heard
that means this issue about the long term structure unemployment
people not being able to find jobs. What sort of programs
to put people who worked have you heard about that struck you is interesting? Before I answer that I just want to make
one comment which interest me about the political salience
of unemployment and there are sort of two views
of this among and this is a very cynical view
which is that what matters is not the level politically,
it’s the change. And the reason is very roughly
and this is very much European experience, once unemployment stabilizes,
most people who have jobs are reasonably comfortable
with the idea that gonna keep it and the people who didn’t jobs sort of
disappear and who cares about them. So you can use the high unemployment. And one of the most striking news
that happened and this is why the reference is so powerful to me
in the continent which often forgotten. Before the ‘70s the average rate
of unemployment continental Europe was 2 percent or less, right,
much lower than the US. From the ‘80s onwards
it was 10 percent, right? Did this create
revolutionary politics? All politics would
sort of be wildly left. They used to be communist parties
then everybody used to it because everybody gets used
to the idea on high unemployment and the people are unemployed the poor,
they have imprisoned or whatever. The other view is that the US
is different because it doesn’t have the same sort of social safety
net such continental Europe, then clearly on going to be more
because the resistance is to taxes so that there will be
much more fear as a result of the fact
that this becomes a real possibility. I think it’s a very important question
about how the politics of high unemployment will play out in US
and I don’t know the answer. I’d be very interested
in other people’s reaction. What can you do about it? Well, they are broadly speaking,
you know, the economist would speak. There are the following three
rough things you can do. You can really be serious
about creating demand and that means wildly bigger
more aggressive manner through fiscal policies
than we’ve seen so far. I happened to be one of those
“mad” people who think that should happen
but it’s not going to happen. But that would be
going for break on demand. The second thing you can do is really do
something about incentives of the macro. I’m talking macro and I mean I think
one of the great misopportunities of the “similar” that they did not use it
as an opportunity based that they did get rid
of payroll taxes for five years. The basically shift relative prices
in a very big way. The sort of
spending and the tax got… in the discussion was irrelevant
to this as well as the stimulus. All the discussion
on the structure of spending and all tax got in the US
strikes me as amazingly irrelevant. The third thing you can do
is actually stop messing around with the labor market directly. As I’ve already pointed out,
the Germans have essentially subsidized, supported work sharing and we think of
the Germany economy as very successful. They’ve actually cushioned
the shedding of workers. You could think of jobs programs.
The US used to do jobs program. They don’t do them anymore
but when I lived there in the ‘70s they did job programs. You can do lots of those
and they could be much more effective again than the sort of stimulus you had. What struck me so extraordinary
given the scale of the deficits the US had been running
is how unimagined to do if they had been about
making the more job friendly. I see no sign about changing
but there are clearly things you could do that could ameliorate this extraordinary
job losses which had been associated with what I said, I’ve told you already
has been a really believe it or not a relatively mild recession
by the standards of the world. It’s an “extraordinary treatment”
that the US which was the epicenter of this crisis has had
such a really mild recession. Can I just challenge
one with what Martin said. -Sure. You know and this about the relevance
of the tax discussion because I’m also chairing
a group of women business owners, 1600 business owners that account
for about a hundred thousand jobs. And the thing that the tax cuts discussion
about this rich people over $250,000, a lot of them are small business owners
which is always in the United States been a great source of new jobs,
innovation and services. And one of the things that is
of great concern is that when there has been
high unemployment, you know, a lot of people can, you know,
there’s a lot of entrepreneurship that happens
and there’s a lot of lending. All those tools
are not going to be there. I mean lending is harder
and if these tax cuts do – if there is an end to the tax cuts
for people overturn of $50,000. A number of those people are people
who have small business and that’s the money
they invest in the new jobs and we’re going to lose the ability,
the flexibility to address this from a grassroots level because it’s clear
that at the Federal level we have all the things
that Martin is talking about. Sure that is fixed of all tax policy,
right? -Yeah. Martin,
you can go ahead. I just comment on the comment
because this is a big issue of course. The question is the difference
in the tax where a multi tax rate for the relevant group is as I understand
it slightly over 3 percentage points. I really find it very, very difficult
to believe that that’s alone is going to make a fundamental difference
to job creation. Maybe the symbolic aspects
of it are important for small business. But we really are talking about
and this one of the strengths things about this but we’re really talking about
a difference in multi tax rates which just seems to me
too small to matter. Now when Reagan cut tax rates
from 70 percent, that’s a really big deal. But what’s so astonishing is the whole…
massive debate about I think it’s 3.6 percentage point,
so maybe it’s 3.4 something, correct me. This is censorious. I’m sorry, Margery, I always agree
with you but on this side really disagree. I think this tax debate in the US
is unbelievably depressing. I think it is small. And I mean if it’s symbolic
that’s even more frightening because there is so much bigger issues. Michael do you want to say something? Let me just say that you’re talking about
the $250,000 having another 3 percent plus tax increase, they are already paying
over 50 percent in taxes. When you put on the sales tax 10 percent
or whatever in California the sales tax that you have with your state tax
is about 10 plus percent in California. The sales tax is 10 percent –
10.4 percent. We are talking about 50 percent
or more just in taxes and taxes aren’t creating a new job. You need to motivate the private sector. In California it takes 25 private sector
jobs to employ one state employee. So the answer is to get more people
working for having an economic incentive package
as what President Reagan when he came in with double digit
inflation, 21 percent prime rate, a high unemployment
rate about 13 percent and he reduced the corporate tax
from 70 plus percent to I think was 28 percent
and he had some motivation and the economy picked up and he
slowed down domestic spending. But when congress continues
to spend by putting money, those of us in local government
have loss against bankruptcies we’re left in a catch 22 position. We need to have people working
and good jobs. We need to have our schools
providing good training and having educational scholarships
so kids in failing schools will have an opportunity to go to school
and go to college, education by getting
good grades in high school. And our colleges they have
to start focusing on major, major academics
so that people are prepared. Some of these majors
that we have today were just babysitting for four years
and that’s not right. We need to get back to having more
scientist, engineers and doctors. They built this building
where we are today in eight months. The architect was telling
my deputy this morning who also has an office in Georgia, you
can’t do that in United States, can you? He laughed. He laughed. I’m not saying we can do eight months
in the United States but we can certainly streamline
our bureaucracies to be productive
because they don’t produce the jobs. It’s the private sector
that makes the engine run. We got people on both sides. Do you want to respond
to that which is good? And I just want the fair warning
that after these two responses we’ll turn to the audience
and try to get some input. We’ll work all the way down the panels. So just quickly I think this debate
you’re hearing about is relatively small amount
of tax change shows some of the dilemmas
in US politics that, you know, there is a profound structural problem
going on in the United States about a significant number
of people now unemployable. And this is not really the issue
at least from my perspective about whether there is 39 or 36 percent
rate on the highest in of our incomes. That’s not the issue but that has been –
that is presented as if that is the issue in the United States
and if they have the solution. So leaving aside the argument whether it is
or it is not the solution which I don’t believe it is,
it suggests that we have this big structural problem going on
in the United States at a significant number of people
with lower skills are either there’s no jobs for them and unless we have
a fundamentally different approach in the United States
about job creation strategies, not the source of capitals
at higher wealthy folks or whatever which is not really going
to solve as we learned in the past. But what are we going to do about,
you know, garments roll and the industries roll
and the non- profit civil society’s role about innovations
in social business which can in fact — And Rick you’ve headed something,
so in your view is we get another two years in the 9 to 11 percent unemployment. Is the American political environment
become more cohesive or more divisive? Well I’m certainly struck
by Martin suggesting that this will be unexplored territory
for us where people have — What do you mean? Well personally and emotionally
where people feel so worried about jobs that they’ll
actually feel differently than the T-party folks which is that
this is the main motivation for the – so the right wing reaction of the
United States people feel a lot of anxiety. Obama happens
to be the president now and they’re being very effectively channeled
towards defeating or creating stagnation. We’re trying to play,
what’s your instinct the American politics more divisive or more coherent
in a couple years from now? Well I think it will be a constructive
device in this because I think there’s a lot of social innovations
that are in fact going on in the United States that could create
new forms of job creation strategies which in fact if there is in fact
two more years of this innovation — Is constructive device in this
the tagline for Fox News these days? Well that’s — Well, Dr. Jackson
you’re going away in here. Well I am not an economist.
I am a physicist. And if you look over the last 50 years,
if you look over the last 60 years and you look at, you know,
what the employment has been, we talked about construction
and the great recession, meaning since we have the big downturn,
about 2 million manufacturing jobs had been lost and about 3 million
construction jobs had been lost. And you can ask the following
question, you see and that’s where a lot of the chronic
unemployment is going to remain. And why might that be? If you actually look
at manufacturing employment as a percentage of total employment, it has dropped monotonically
for the last 50 years. Absolutely.
Right. Now we’ve had an exacerbation
within the last couple of years that have highlighted the strength. The only time since 1940
where manufacturing employment went up was in the ‘40s
and that was fundamentally related to… But other than that manufacturing
employment has gone monotonically down and you could say why? And what I would say the why is
it has to do with the introduction of technology and an increasing kind
of productivity all the time. Women went to work so that families could
try to keep their incomes at a certain level. People work longer hours. But now people got to a point
where they started leveraging up and they leveraged a lot based on what they
taught they had in the value of their homes. And with that whole bubbled burst thing and
I don’t think it’s that’s coming back soon. Right. That affects the employment
in the country. So let me finish because
you got to have the context. So now we can talk about the taxes
and I have taught about those. But innovation is the key. Innovation and education and also things
we don’t spend time talking about. We argue about differential tax rates
that maybe 3 percent, they maybe 5 percent, they maybe 2 percent
and municipalities are squeezed. I see it I live in a small town
in up state New York. But in the end we can talk about those
things until the cows come home. And so the question becomes
what are we willing to invest here? Right. So what kind of innovation
policy would you like to see? I would like to see the following. First of all in innovation ecosystem
requires about four things. One, strategic focus. What are some common goals?
Where is the world going? Where does one need
to really think about investing? Secondly,
you never have innovation — What would that strategic focus be? Well of course I happened to believe
that you have to look at energy security, look at the nexus with water and water is
becoming a big issue in the United States. Like at this present time
where the most ambitious new energy program
in American history, do you think it’s insufficient? Well I mean this President and I happen to,
you know, be on an advisory panel has, you know, made more investments
in a green energy and more focus there. But let’s look at demographic
trends people are getting older. So, you know, healthcare
is going to become a bigger and bigger issue
and if we are going to — Would the president
just pass health care reform? Well let me finish please. If we are going to deal with providing
the healthcare people should have but not have the cost to explode,
we need innovation and process in technology in delivery of medical care
and how, you know, healthcare has organized in the use
of new technologies to streamline and optimize what we do,
there in lies opportunity. So you look at the need for energy
security with environmental stewardship. You have an aging population. You need
to look at health care, etc. You have to think about where
you will invest that strategic focus. Secondly, you’ve got to have ideas
and if you don’t have breakthrough ideas in people who are innovators,
nothing is going to happen and that requires the willingness
to continue to invest in basic research and to support and have a system that
responds innovator and entrepreneur. The third thing you need is infrastructure
and you need a new type of infrastructure. Yes, we’ve got to repair our roads. Yes, we got to fix up the grid. But if you’re going to do those things,
think about broadband investments, think about what kind of grid
you’re really going to need if you are going to have smart grid. I’m sorry, in this President
he has also launched the most ambitious national internet
infrastructure program and he is spending, is a factor of 10 times
more than the last administration. Do you think that’s insufficient also? I think we have to have
multi sector cooperation. Sorry, yes I mean…
We’re trying to explain — No, no, no I mean
I think Obama has focused on the right thing
if that’s what you’re asking me. But do you think it was small? Well, I think it’s not — it cannot
just be driven from the Federal government. There has to be private sector involvement. The universities have to educate people
to be able to do these things. So there’s no silver bullet. There’s no one sector bullet
and that’s where the common wheel has to come to get. That’s where
the civil discussion has to take us. And until and unless we have
that discussion and are able to have those investments,
then we’re not going to get anywhere. And finally, we better deal
with baseline education for everybody. Again this President wants
the most ambitious educational spending in the last,
you know, in 40 years. Do you think it’s insufficient? I think it is definitely the right –
in the right arena. But as long as this gentleman
is still dealing with the kinds of things he is dealing with in inner cities
with the folks coming to college relatively unprepared,
we haven’t tackled the problems. This is a beginning
but we got to see it through to the end. But as you think about this
is a physical system, the reason I ask you because, you know,
for those — I live in China… years. We’re about to have the announcement
of the 12 five-year plan in October which addresses
at a very specific level a lot of the things
that you’re talking about. You’re among the foremost Americans
who really on the cutting edge of this because you deal both
of the education problem and you are deeply connected
into the business community. I guess what I’m trying to say
if you were writing the 12 five-year plan for United States, how would it be
different from what is out there today? Well, what would be different
from what it is out there today is a couple of things. One,
we would make the fund investments that we need
to make in key areas of research. We would inset companies
to continue their focus in research,
development and innovation. We would think of ways for companies
to redo their own infrastructure, their plants and equipment move
to modern manufacturing techniques through the right
combination of tax policies as well as providing perhaps
shared infrastructure. And then so all of these things – and then we have to fundamentally
invest in human capital. If you can talk a good gain
and you can talk about innovation and entrepreneurship but the last time
I checked innovation comes from innovator and innovators are people. And so if you don’t have a focus
on the education of young people from the very beginning as well as
what happens in higher education and you can’t destroy the higher education
system as you go along because, you know, we’ve had –
we are the model that everybody’s emulate. So, when people do five-year plans
they’re not unaware of what has made in the US,
the world’s strongest economy. Margery,
you want to get in. Yeah,
we have a fundamental problem. I mean, you know, I think the contrast
with the Chinese five-year plan is a really interesting watching point. Obama has these ideas, the
White House whether you agree with them, you don’t agree with them,
we have a structure, a political structure
that is not working right now. And it’s causing a lot of the inability
to take even if there are bold ideas to work them through the process. We have a divided government. Unless we find a bipartisan way or
some political will to take that forward, we can’t execute even on the great ideas. And that fundamental causes the problem. And whatever the scenario,
two years down the road, two more years of 9-11 unemployment
America less cohesive or more cohesive politically? I’ll answer it one second because Martin
and I were talking about this last night. One of the other things that is different
now than before is that you know, in the past we’ve had television networks
that give people a common view of the world and now we have a very fabricated system
of communications in the United States. So everybody is watching things
that are mirror of themselves. So, it’s very hard to build
the kind of consensus you could build at one time before. And it’s an important point because
to answer your question about whether we have more partisanship or less
partisanship I think that it has to cut both the common concerns
that have to come from somewhere. I’m an optimist by nature. I don’t think we can go on like this. I hope the American public
will be angry enough to — What is the real least thing you’d say? The real least thing me says
that whenever we have a platonic shift in the congress,
then we tend to get more cooperation. So do you think a Republican congress
launching investigations against the White House would be
easier to cooperate with than — No, I don’t. You’re asking two years from now,
I mean will be — well two years — Two years from now we’ll
have a Republican Congress. Well, two years from now we also will be
up for re-election at the presidential level. So nothing will be
very cohesive at that point. I think that will be very divided. Do you have a quick point you want
to make quick before you? Well a conversation
is moving on so I’ll leave that. Okay, I don’t want
to miss the chance to go to the floor
in a totally unsystematic fashion. I’m just going to start at the left
and work my way across. And I’ve got to get people
out of here in seven minutes so — I’m not sure what’s being
in the left in China actually means. You’re get a better seen
on a way back to Beijing. I hope that’s right. Can you state who you are? I’m Tony Miller, I’m the…
Manager based in Hong Kong and Tokyo. At the risk of engaging
in potential controversy, I’d like to ask particularly
Mr. Ramo and Mr. Wolf, how did we get into this mess
and how much of a role do you think China’s pegged…
and policies that caused – that allowed America to borrow aggressively
for the better part of the decade. I had a role perhaps
even a responsibility in America. Martin is to blame for the American
Technology… in Beijing or I knew that question would count.
I was painted in the corner of this. I have no doubt in my mind that this is the single most important
global policy distortion. Right, I have no doubt about this.
I’ve written about this. However, as my Chinese friends respond
the fact that we’ve bought lots of treasuries didn’t obliged
you to go on waste it on building – wasted indirectly on building houses nobody
needed for people who didn’t want them. And in addition to allow the financial
system to become so fragile that the slide this little to win
would blow the whole thing down. So, my view is this is one of the
background conditions for the crisis. It is possible — I think probable
but certainly not certain that it would not have happened
in a more balanced global economy but I didn’t think the Chinese
can be playing for the sensational mess made up the western financial system. And quickly
because I want to get to other people. Let me ask you two questions. Is that a widespread view in the… community that China
is somehow to blame for this? The second one you mentioned
you’re based in Tokyo. China has been a major buyer
of Japanese debt over the last 12 months that is scenario see unfolding merit. Is that partly what is in your mind? I think the…
community does not view China as capable or and I think as described to
Mr. Wolf’s view almost completely. Having said that the American
political system probably does view China as being capable and I think that that will have
repercussions in the next few years. And what do you think about Japan? And I think, look Japan
is even further along to the – I don’t know if to the left or to the
right in terms of protecting employment. They’ve been through
a 10-year — maybe 15-year downturn and never had unemployment
go over 5 percent. That’s almost a perfect reaction and something that maybe
America could learn something. Right it’s very interesting. Let’s work over across the guy
in the red tie in the front row? I think it’s the ones in the back. Oh yeah. I’m Mark Kennedy with Chartwell USA. One of the things you have talked about
a lot in the business community we haven’t talked about much
and as uncertainty and risk and when it’s uncertainty and risk
what’s required to invest those way up and that’s why businesses
are not investing. Some in business would suggest
that Obama has increased uncertainty as much as Reagan cut those taxes
from 70 percent down to 28. With the uncertainty,
what does healthcare going to do which is still out there because
the regulations are passed? Which is going to do to businesses? What is the cap on carbon going
to do in terms of further restrictions? What is the banking building going
to do in terms of reducing our ability? We only have a short time.
It’s a very good question. Are you saying there’s uncertainty
impacting decisions being made in the corporate Swiss? Well both as a board member
and as a former regulator, I do think regulatory is certainty
is important because it does lay the groundwork
for investment in other decision. So I don’t disagree but it’s not just
something that I think the administration owns,
I think the whole political system owns. Margery? -Right. We see that
with a lot of our clients. I mean there’s a vast amount of money
that’s being set on by companies especially in the uncertainty. And that’s a legitimate regulatory
uncertainty in response to policies have been made
or is there uncertainty because they don’t understand
what’s going on in the environment and they’re blaming
it on the administration? No, I think there’s
a lot of uncertainty. I think that when you get down
the specifics about how much is health insurance
is going to cost for the next five years, there’s so many regulations
coming out on the new laws, it’s going to take
a long time to sort through it. When you talk about what is
tax policy going to be in long term — I know you’ve already made your point
and it’s a very good one. Okay. There’s somebody at the back
who has got a question been now raising his head very aggressively
and has a familiar face. Martin I wanted to bring your point
and Shirley’s point together if I could pretty sympathy
for her argument. World War II provided
a huge stimulus for demand. They also provided a huge events
and innovation and it was an advancing innovation whether
its radios, transport, aircraft that we then played off after World War II
to quickly pay off all that debt. What worries me about the argument
that just says there’s increased demand, demand, demand now is,
you know, road building, what is the assurance
that you can stimulate the kind of innovation that Shirley
is talking about so we can actually pay it back at any reasonable
time without blowing up the currency? I think the view I’ve had,
first of all I think this is one of the best demonstrations
of the fundamental truth about the Americans belief that our
economy was built by a private enterprise. Government has played an enormous
role all the way back from its own, the Hamilton who is somehow
disappeared from discussion. My assumption is tended to be
and this might be wrong, I hope that you are writing closely that
America remains whatever the huge problem
to financial sector fundamentally the forefront innovation in the world. And it seems to me
obvious that’s the case. It remains the case provided
and destroyed our high education system. So, I will assume that if the
basic economy works, you’ve…
for financial system to go crazy, you managed the government
in a more sensible way, that’s the price side
in the US will work. Whether that is wrong, all I can say is you really
have a big problem. And at times where I used to get something
which I know you have written about which is the nature of productive
government policy on things like innovation policy
or industrial policy, do you think it’s possible
for the political system in the US to develop something that can — The current circumstance is I would
love to know with anyone disagree. On the current circumstances
the answer is surely is no. And Tom just to pull you quickly
the American financial system, American political system
will sustain 9 to 11 percent unemployment more cohesive
or more divisive? I would say more divisive. I think to go to —
and I don’t remember your name but I think you’ve made
a wonderful point. I think Barack Obama was elected
to change the polls and not read the polls and it turns out that he wanted to read
the polls and not change the polls. On that I’m getting body language signs
from the very nice people at the west. Thank you all for coming. Let’s hope this is What If
that does not come true. Thank you to the panel for an engage
and invigorating discussion and have a good rest of the day.

4 comments on “Tianjin 2010 – WHAT IF: the United States remains in a jobless recovery in 2011?”

  1. howardb42006 says:

    9-10 % pffft…still stuck on that number eh?

  2. Viken Z Kokozian says:

    Ben Bernanke »
    Bernanke Tells Executives He's Concerned About Jobless
    Nov-30-2010–Federal Reserve Chairman Ben S. Bernanke said the economy isn't growing fast enough to “materially” reduce unemployment and expressed concern about workers who have been without a job for a long time.
    Bernanke Worries Slow Economy Limiting Job Growth Fed's Bernanke:
    Growth Not Fast Enough To Cut Unemployment Materially
    GOVERNMENT MORTGAGE RELIEF
    1-858-366-4777
    1-800-270-2928

  3. clarkewi says:

    Send all these prisoners to Afghanastan. They cost too much.

  4. Kin says:

    Thank you for sharing such a fascinating discussion that is pertinent to everyone, everywhere. This discussion is not just for economists– it's a beneficial perspective for students, parents, employees, employers and those who are politically minded from all parts of society. I found this quite thought provoking!

    @WEF– the speakers listed in your description for this video are wholly incorrect.

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