Elliott's Singer On America's "Insidious And Life-Draining" Dependency Culture
Given our previous discussion of the "born-again" jobs scam, the growing use of robots, and shift in technology, and the increasing disincentivization (via benefits) of the US labor force, Paul Singer's detailed discussion below of the"serious dysfunction" in the US employment markets is crucial to comprehending why the Fed is just making things worse.
Via Elliott Management's Paul Singer,
The employment situation in America is in a state of serious dysfunction. The problems existed before the 2008 crisis, to be sure, but they are getting worse, and the current Administration’s job-related policies are seriously deficient. Most parts of the developed world are facing similar challenges, but our focus in this section will be on the U.S., where the labor participation rate has reached a 40-year low. This is a nasty statistic, one that reveals the published unemployment figures to be a deception. In reality, five years after the crash, unemployment remains at recession levels. The fall in the labor participation rate reflects the perils of long-term unemployment, which turns millions of workers into unemployables as their skill sets rust with disuse and their attractiveness to employers diminishes.
One element in the long-term jobs picture is the march of technology. The technologies that are chewing up jobs are actually accelerating in their efficiency and their ability to perform tasks previously done by people. The fear that technology will make workers obsolete predates the industrial revolution, but the future will likely prove that this is only partially true. Technological advances may not be the death of employment, but they will require seriously creative policies to counteract their negative effects on jobs without impeding overall growth. We believe that this can and must be achieved.
These advances, of course, include the Internet, robotics, 3D printing, GPS, cheap shipping and nanotechnology, among others. Entire industries are being revolutionized and their profitability models altered or destroyed. There is no “solution” to this problem from the standpoint of workers who are displaced or displaceable. There is only adaption, education, retraining and moving workers in both developed and developing countries to jobs that are created by such technological advances. Where some manufacturing and service jobs are destroyed by technology, others are created. The job of government leaders (which is currently being done incredibly poorly) is to make sure their educational systems are as high-quality as possible, including a good amount of vocational training, and that their employment policies are as flexible as possible in order to avoid employer flight. Sovereigns must become platforms for, and remove impediments to, entrepreneurship, innovation and start-ups. It is not a solution to the employment challenge for policymakers to behave like Luddites or protectionists.
A related problem in America is benefits policies that encourage dependency. This is insidious and life-draining, because a balance must be struck between helping those truly in need and providing harmful incentives for able-bodied people not to work. If the government makes it less economically attractive to work than to receive a check, the predictable result will be an increase in handouts and a drain on the productive sectors of the economy. This is a self-reinforcing trend if it is practiced by politicians buying votes by promising benefits. Benefits can come only from other citizens, and this form of corruption is terrible policy with dreadful results: a cycle of dependency, class warfare, declining productivity, slower growth, fewer opportunities and unmet hopes and dreams.
A third employment-related problem in America and other countries in the developed world is competition from emerging markets, where goods and services are increasingly being produced with comparable or better efficiency, quality, range and sophistication. It is a great and wonderful human development that the opportunity for prosperity is spreading throughout the world. We should all be in favor of policies aimed at helping people and countries all over the world develop tools and methods for educating their people and providing new foundations for entrepreneurship, higher education, creativity, innovation and work at the highest possible level.
The difficulty that developed countries face from this surge in developing-world capability stems from the developed countries’ tendency to coast on past glories and to have uncompetitive wage and cost structures, in addition to an aversion to working harder/smarter/better to stay in the game. The best and only sustainable growth is that which emanates from the human mind – from smarter and more creative efforts and better organizations. “Growth” from policies that depend on beggaring thy neighbor by depreciating one’s currency, erecting trade barriers or cutting wage rates is often chimerical, and such policies are ultimately likely to backfire.
None of the aforementioned headwinds to full employment is disputable. One could assert that the developed countries are doing all they can with the best possible policies, or that nothing can be done about education, labor policy, training, free trade and other important levers for generating good jobs in a tough environment because of internal or external politics. These assertions would be false. While admittedly the cures may be politically difficult, they are there for the taking for leaders and people of courage and vision. Increasing the rigidity of labor policies, combined with protectionism, is not the answer.
In the absence of serious reforms and more effective leadership in the developed countries, their workforces and their economies are probably headed for a spiral of dependency, strife, poverty, inflation and political unrest. Although the long-term budget curves provide some clues about the outer boundaries of timing, the exact moment when we will reach a tipping point is uncertain. However, if that point is reached, which could happen sooner rather than later, it won’t be pretty.
Of course, for any given set of technological changes, policies and conditions related to jobs and the labor force, a stronger rate of economic growth makes things easier and better. Unfortunately, current government policies in the developed countries are no more conducive to providing the conditions for and removing the impediments to stronger economic growth than they are at intelligently helping the work forces in these countries manage the challenges of technological change.
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