How to Get America Back to Work

With 15 million unemployed, the jobs picture is still bleak—and Washington isn’t doing enough to help. Former Labor Secretary Elaine Chao on what the White House can do to create more jobs.

There was little to cheer in Friday’s unemployment report, other than the fact that there have been worse in the past year. But the unemployment figures are not going to get much better unless and until policymakers in Washington acknowledge that jobs lost do not automatically bounce back—especially not in the face of a still-tight credit market and actions in Washington that, however well-intentioned, would dissuade the hiring of new workers.

No one feels that more keenly right now than America’s 15 million unemployed workers, who have been without a job, on average, for 29 weeks—the longest since that data began being collected in 1948. In normal times, laid-off workers are unemployed an average of eight weeks. Today the future looks so bleak to so many unemployed workers that in December alone, 661,000 lost hope and gave up looking for a job. The labor force participation rate dropped to 64.6 percent from 65.2 percent from the previous month. Nearly 2 million workers have given up looking for jobs since May. Because they have effectively dropped out of the work force as measured by the Bureau of Labor Statistics, they are not reflected in the official unemployment rate, currently listed as 10 percent.

Washington policymakers have to understand the adverse implications of their actions on job creation, and they must reorder some of their priorities.

A year ago, the chairman of the Council of Economic Advisers promised that passing the trillion-dollar stimulus package would keep the unemployment rate from rising above 8 percent—through the next five years. Obviously, that prediction has not panned out. While job losses per month may be lessening, there is a stunning dearth of new job creation. The unemployment rate soared in the first quarter of 2009 compared to the last quarter of 2008, even though 53,000 fewer jobs were lost. Unemployment skyrocketed in the first three months of 2009 because job creation tanked—nearly 1 million fewer jobs were created than in the last quarter of 2008. This lack of job creation is a phenomenon that distinguishes this period from other economic downturns.

In the best of years, millions of jobs are lost. Even when America’s economy has been by all measures healthy and the unemployment rate low, some businesses suffer or fail and lay off workers. But nearly always a simultaneous and even greater burst of new jobs has been created to offset the jobs lost—millions of new jobs every year. Enough to provide jobs for those who have been laid off, as well as for new entrants like high-school and college graduates into our work force.

Just to keep up with population growth, the economy needs to create about 125,000 new jobs a month. Shortly after Friday’s disappointing report that 85,000 more workers lost their jobs in December, the White House announced that 17,000 “green” jobs would “likely” result from $2.3 billion in tax credits for the manufacture of wind and solar power equipment and batteries. That’s positive news, but it illustrates what a relatively tiny impact even billions of dollars of government spending to favored sectors makes in terms of job creation. Furthermore, Spain is considered the leader in trying to stimulate the creation of green jobs. Its unemployment rate ranks among the highest in the world, at 19.3 percent.

Meanwhile, all that private-sector employers see on the horizon are higher taxes, higher employment costs, more federal mandates, more punitive bureaucracies, and gigantic federal deficits that crowd out private-sector capital. Employers are not hiring because they fear that all these conditions will diminish their ability to maintain sufficient financial resources with which to hire more workers. In fact, just the specter of these increased costs has deterred increased hiring in the private sector.

This is not a road map for robust economic recovery.

America’s unemployed need a timeout on government actions that increase the burdens on the private sector and impede hiring. The economic shock of higher taxes needs to be avoided by not letting the 2001 and 2003 tax cuts expire this year. Unspent stimulus funds should be redirected to advance the broad-based tax incentives that promote expanding and launching private-sector enterprises. And we need to push for trade agreements that open new markets for American exports.

Much can still be done to promote across-the-board job creation. But Washington policymakers have to understand the adverse implications of their actions on job creation, a goal they profess to desire, and they must reorder some of their priorities.

The Recession Generation

Those entering the workforce now will likely make less and save more—not just in the short term but for the rest of their lives.

INTERACTIVE

Their Depression Years

Noted figures recall, sometimes fondly, growing up in the 1930s.

We all know the type of person who came of age in the Great Depression. They are the grandmothers and grandfathers who can't use a tea bag too many times, yet are enjoying comfortable retirements in warm climates. And we know what the children of the 1950s are all about. They are the optimistic boomers who embodied an age of continual upward mobility and possibility. They have often spent more than they earned, because for them it has been a truism that times can only get better. It's no accident that the psychology of entire generations is shaped by the milieu in which they grew up; economic research tells us that our lifelong behaviors are determined in large part by the seismic events—good or bad—of our youth. So, given that we have just experienced the worst economic period in 70 years, it's no surprise that people have begun to wonder what sort of consumers, investors, and citizens will be bred by the Great Recession. Will there be, in effect, a "Generation Recession" of young people whose behaviors will be permanently shaped by the downturn?

Some optimists—pointing to a recent spate of positive economic data, including increases in car sales, upticks in factory production, and a robust stock market, say no: the downturn simply hasn't been bad enough, for long enough, to create the next Depression generation. Yet there is powerful evidence that belies this argument; a National Bureau of Economic Research (NBER) paper released this past September looking at data from 1972 to 2006 shows that even one really tough year experienced in early adulthood is enough to fundamentally change people's core values and behaviors. Meanwhile, there's an entire body of research to show that recession babies not only invest more conservatively, they tend to make less money, choose safer jobs, and believe in wealth redistribution and more government intervention. Yet paradoxically, they are also more cynical about public institutions and, arguably, about life, embracing the European notion that success is more about luck than effort. To the extent that they grapple with unemployment, they are more likely to be more depressed and disconnected from their communities. Politically, they can skew either left or right, depending on the cultural zeitgeist and the leaders who seize the moment. Economic downturns, after all, not only created the New Deal, but also the Third Reich.

We have now technically emerged from recession. But there's a broad feeling that Americans' psyches and behaviors will be somehow permanently altered by the crisis. There's now a booming cottage industry among consultants and investment managers to describe and capitalize on "the New Normal," which will likely be the opposite of the hypercapitalist market culture of the past 25 years. That moment was perhaps most eloquently captured by former Clinton labor secretary Robert Reich in his 2007 book, Supercapitalism, and it's fitting that he is now working on a book titled Aftershock. "Every time we've had a major downturn, there have been predictions that Americans will permanently change their ways and embrace frugality," says Reich, now a professor at the University of California, Berkeley. "Since World War II, it hasn't happened." Yet Reich and many other respected academics, economists, and investors—from George Soros to Pimco's Bill Gross to Goldman Sachs's chief economist Jim O'Neill—say that it will happen this time, not only because of the megashock of the financial crisis, but also because the global landscape has simply shifted in such a way that the American consumer will no longer be the single dominant force in the world, even if the U.S. economy continues to recover. Rather, the key emerging markets (read: China, India, Brazil, and others) will continue to emerge and become more powerful; the dollar will continue to weaken; American labor will continue to face more and more competition from abroad; and, thanks to a new era of big government, reregulation, and (possibly) protectionism, money flows will stay tight. Throw in the probable rise in inflation and you've got an inevitably slower-growth future in which Americans will also have to come to grips with average unemployment levels that will likely stay much higher than they've been in decades.

Unemployment and the specter of instability it creates will really shape the behavior of Generation Recession. A weaker dollar will make all Americans feel poorer by raising the cost of goods, but the young generation graduating and going to work now may actually end up poorer in real terms. Unemployment among 20- to 24-year-olds in the U.S. is more than 15 percent, compared with the nationwide average of 10 percent, and statistics show that for every percentage point in higher unemployment, new graduates take a 6 percent pay cut—an effect that lasts for decades. Skills loss could be a huge issue, too, especially because the average duration of unemployment has increased. Although wages in the U.S. have been relatively flat since the 1970s, Generation Recession may be the first in 30 years to see theirs actually fall.

The behavioral shifts resulting from the New Normal have, of course, already begun. The personal savings rate has more than quadrupled from its 2008 low to the current rate of 4.5 percent. Research done by AlixPartners found that Americans don't want to stop there, but hope to save 15 percent of their income going forward (they won't be able to, but the desire itself speaks volumes about their sense of insecurity about the future—particularly since the number has continued to rise even as the economy has improved). Half of those surveyed by AlixPartners have stopped investing in the markets altogether, and the majority say they won't put money into stocks for another three years; 43 percent don't expect the economy to ever recover to pre-recession levels.

The disconnect between these sorts of poll results and the recently improving economic data underscores another megatrend that Generation Recession will have to deal with: the growing divide between the fortunes of big American firms and the average American worker. Markets may be up, yet unemployment, while slightly down, is still at its highest level in decades, and even the most bullish economists believe it will stay higher than average for years to come. Large U.S. firms are well into the black, in part because of the labor-cost savings they've enjoyed from IT improvements and offshoring to cut expensive U.S. jobs, yet the small- and medium-size firms that generate the majority of new jobs at home have been hurt most by the financial crisis as their lines of credit have dried up. "We are in a very unique period, in which we're seeing the biggest disconnection between financial capitalism and the real economy since modern economies began in the 19th century," says Nobel laureate and Columbia economics professor Edmund Phelps, who runs the university's Center on Capitalism and Society. "That's not to say that banks don't fund some useful projects like wind farms or whatever, but increasingly they're existing in a virtual sphere in which they are more interested in funding each other, and developing complex securities, than in funding real businesses."

This division between capital and labor and the permanently high unemployment that it seems to encourage not only depresses wages, it depresses people; a large body of research shows they tend to withdraw from their communities and societies after being laid off (their spooked neighbors, encouraged to work ever harder, do too). Parental unemployment has huge negative consequences for children, making them more likely to fall behind in school, repeat grades, and exhibit anxiety disorders. During the Great Depression, such negative social consequences were partly buffered by a stronger civil society—attendance at churches, clubs, and community centers was greater than now. The worry today, say Reich, Soros, and political scientists such as Harvard's Robert Putnam, is that fearful, vulnerable people will become more easy prey for ugly class politics, being drawn, as Reich puts it, to "populist demagogues on either side of the political spectrum." Certainly during this recession there has been sniping at the usual targets of free trade and immigration. Many experts worry about the current trade and currency squabbles between the U.S. and China, which could easily spiral into the sort of protectionism that exacerbated the Great Depression. There could also be future political wars along demographic lines, as boomers worried about health care and Social Security fight for a shrinking slice of the public pie with younger people demanding more money for education and job training.

The situation could get even uglier if, as many predict, a depressed post-crisis landscape forces Americans to let go of the mythology of upward mobility. As Brookings fellows Isabel Sawhill and Ron Haskins point out in their new book, Creating an Opportunity Society, this myth hasn't been true for some time: by international standards, intergenerational social mobility in the U.S. has been falling since the 1970s, and is lower than in countries such as Britain, Sweden, and Denmark. As everyone from de Tocqueville to the producers of MTV Cribs has observed, Americans generally have a high tolerance for inequality. Yet that tolerance may wane as we enter a new age in which young graduates can't expect to do better than their parents—and one in which Wall Street is perceived as being able to continue business as usual while Main Street struggles. "Americans are OK with inequality," says Reich, who believes we are at a tipping point, "as long as they feel the system isn't rigged."

Unfortunately that feeling seems to be associated not only with this past year's massive bailouts and halfhearted efforts to regulate finance, but with recession itself. The NBER study examining the attitudes of people ages 18 to 25 who began their adulthood in economic downturns from 1972 onward found that they all tend to believe that success in life depends more on luck than on effort, and they have less trust in public institutions. This is an unfortunate attitude to breed in a generation that will undoubtedly have to live in an age of bigger governments working with more powerful international public institutions to forestall future financial and environmental disasters. It also has real-world economic implications. As Paola Giuliano, a professor at UCLA's Anderson School of Management and one of the authors of the study, notes, "People who buy into the idea of luck over effort tend to work less hard, and that lowers productivity, which of course can lower economic growth." Indeed, this may go some way toward explaining the often mysterious growth edge that "can-do" Americans have long enjoyed over "yes, but" Europeans, who tend to mock such Type A behavior. Whether Americans will eventually follow them is an interesting question: the Conference Board recently released numbers showing that U.S. job satisfaction is at its lowest level in two decades.

All this said, there are some glimmers of hope in the New Normal. For starters, a weakening dollar and huge productivity gains made in the past year could end up being a salvation for U.S. manufacturing. McKinsey estimates the U.S. could create 1 million jobs if the dollar depreciated by just 10 percent. Indeed, Global Insight chief economist Nariman Behravesh believes that American exports will rise by 11 percent a year between 2010 and 2013, compared with just 7 percent in Germany. Smart investors like Warren Buffett have bought into the vision: his $26 billion bet on the Burlington Northern Santa Fe rail line is clearly a gamble that in the New Normal more American workers will be holding wrenches and loading cargo (from solar panels to bags of grain) onto trains, à la the post-Depression generation, rather than fiddling with BlackBerrys.

And, if the current trend lines continue, Generation Recession may mirror Generation Depression in more profound ways. For example, more talented graduates may choose public service over the private sector, not least because then, as now, that's where the jobs will be. Happiness research shows that fewer choices tend to be more satisfying than endless ones. Just as our tea-bag-saving grandparents seemed to do fine with less, so might the children of this downturn. A number of consultancies, like BCG, have released studies showing that post-crisis, consumers are putting a greater value on time spent with family and friends than on money (a good thing when there's little of the latter around). There's also a glimmer of possibility that hard times might make us nicer to each other. Kathleen Vohs, a consumer psychologist at the University of Minnesota, has shown that simply thinking about money made subjects less sensitive to pain, and less likely to help each other or want to connect with strangers. Perhaps rather than stepping over each other, 1980s style, on the climb to the top, we will stop to lend a hand. Certainly, we'll be more wary of falling down the ladder of life, and thus more empathetic, than our predecessors were. Generation Depression never stopped saving, and couldn't have conceived of buying into interest-only mortgages or flat-screen televisions on credit. It's likely that the generation coming of age today will also realize that things that seem too good to be true—from jobs that come with free lattes and signing bonuses to subprime derivatives—probably are.

Blago: I'm Blacker Than Obama

The former Illinois governor tells Esquire: "It's such a cynical business, and most of the people in the business are full of s--- and phonies, but I was real, man — and am real. This guy, he was catapulted in on hope and change, what we hope the guy is. What the f---? Everything he's saying's on the teleprompter. I'm blacker than Barack Obama. I shined shoes. I grew up in a five-room apartment. My father had a little laundromat in a black community not far from where we lived. I saw it all growing up."

-- jpt

Ford sweeps Detroit Auto Show awards

After finishing off an enviable year for a domestic automaker, Ford Motor Co. won both the North American Car and Truck of the Year Awards presented Monday at the start of Detroit's North American International Auto Show.

The Ford Fusion Hybrid sedan won Car of the Year and the Ford Transit Connect van won Truck of the Year.

"Winning both of these prestigious awards is confirmation that the ONE Ford plan is working, delivering industry-leading products for our customers," said Mark Fields, president of Ford's Americas division.

One Ford is CEO Alan Mulally's plan to have Ford sell largely the same vehicles in all major global markets rather than the previous method of designing and building entirely different cars for different markets.

Ford was the only automaker to gain market share last year, in large part because it was the only one not to be forced into bankruptcy.

But Ford is also gaining based on improved reliability and fuel economy. Consumer Report recently lauded Ford for acheving "world class" dependability in its cars. Here at the Detroit Auto Show, shortly after this announcement was made, Ford unveiled a new version of its Ford Focus compact car.

Any all-new or substantially redesigned passenger vehicle that entered the North American market in calendar year 2009 is eligible for the award. The vehicles are voted on by a jury of 49 prominent automotive journalists from the United States and Canada.

New from Ford: Drivable iPods

This is the second year in a row that Ford (F, Fortune 500) has won Truck of the Year. The F-150 pick-up was last year's recipient. The Hyundai Genesis won car of the year last year.

The Fusion Hybrid is a hybrid gas/electric version of Ford's popular Fusion mid-sized sedan. It gets 41 miles per gallon in the city and 36 on the highway and has received kudos from auto critics for being enjoyable to drive as well as for its efficiency.

The Fusion Hybrid was awarded the Motor Trend Car of the Year in November.

The Transit Connect is a small commercial van that Ford has sold in Europe for some time that is only just entering the U.S. market.

The last time one automaker took home both awards was in 2007 when General Motors won with the Saturn Aura sedan and the Chevrolet Silverado pick-up.

GM could have swept the awards again this year. The Buick LaCrosse sedan and Chevrolet Equinox SUV were among the three finalists for each award.

The other finalists were the Volkswagen Golf for Car of the Year and the Subaru Outback, a wagon-like crossover SUV, for Truck of the Year.

Mel Gibson: 'I Feel Sorry for Tiger Woods'

Mel Gibson, who endured one of the bigger Hollywood scandals of recent years, says the Tiger Woods affair has been blown way out of proportion – but that it wouldn't do the golfer any good to whine about that now.

"I feel sorry for Tiger Woods," the actor-filmmaker, 54, tells Britain's Daily Mail. "Why are we talking about this when we're sending 30,000 more troops to Afghanistan? … He's being used as a diversion, and it just drives me crazy."

Having said that, Gibson, who stars in the upcoming film Edge of Darkness, believes Woods has little to gain from complaining about the coverage of his alleged affairs.

"Nobody is without sin," he says. "You have to try to make amends if you can. You have to shut up and move on and not whine about it. And you have to deal with it like a man … You've just got to accept your own culpability."

Gibson suffered a major PR crisis of his own in 2006, when he was pulled over on suspicion of DUI in California, and reportedly made anti-Semitic comments during his arrest. He later apologized, pleaded no contest and received three years' probation.

In the new interview, Gibson says he's been sober now for 3½ years. "It's cool," he says. "But I put some time together before that – one time it was eight years, one time it was five years. I have to be vigilant about these things or it will creep back in."

He also takes responsibility for the failure of his marriage. He and wife Robyn separated in 2006 and were officially divorced in 2009, after seven children and 28 years of marriage.

"When all's said and done, I did a pretty good hatchet job on my marriage," Gibson says. "I'm to blame, if you're inclined to judge."

Gibson is now in a relationship with musician Oksana Grigorieva, with whom he has a baby girl.

'Supernatural' exclusive: Sixth season or bust?

The apocalypse may have to wait. CW boss Dawn Ostroff saysSupernatural creator Eric Kripke is warming to the idea of a sixth season.

“I think he’s in that state of mind,” she says. “I had lunch with Eric the other day and he’s really excited about the show right now. I think he feels this season has been really satisfying for him. He’s certainly not running out of ideas by any stretch of the imagination.”

Ostroff, who says Kripke has been “hitting it out of the park” creatively this season, also points to Supernatural’s ratings success as proof the show has a lot of life left in it. “The ratings are up,” she says. “We have more young women coming to the show than ever before. There aren’t a lot of shows that you can say are doing better in their fifth year.”

'Caprica' the same, yet different than 'BSG'

There are no Cylons, butBattlestar Galactica fans will find plenty that’s familiar about Syfy’s forthcoming prequel, Caprica(premiering Jan. 22).

“Caprica, like Battlestar Galactica, doesn’t treat the [sci-fi] genre like a toy department,” exec producer David Eick told reporters at Winter Press Tour. “We take it seriously.”

Translation: The drama, starring Eric Stoltz, Esai Morales, Polly Walker, and Paula Malcomson, will be brimming with BSG’s trademark moral complexity. “There are no stark good guys and bad guys,” said fellow e.p. Jane Espenson. “Everyone has moral shadings and we can tell very complex stories as a result.”

On the flipside, Eick stressed that non-BSG loyalists will not be lost if they tune into Caprica. “New viewers will find that there’s virtually no tether to BSG from a storytelling standpoint,” he maintained. “Legitimately, the show stands on its own… It’s not called Battlestar Galactica: Caprica [for a reason].”