Creating 50 Million Jobs

The US economy lost 2.4 million jobs in the last four months of 2008. At the current rate of layoffs, another one million will be lost this month. The unemployment rate may be 8.5% by the end of the first quarter. Almost no one would have forecast this.

The part of the iceberg that is not as easily seen is that 50 million jobs are at risk worldwide.

According to the FT, the International Labour Organization said the global recession would lead to a “dramatic increase” in unemployment this year, which would certainly lead to 18m-30m additional unemployed and more than 50m “if the situation continues to deteriorate”.

The fact that most of these people live outside the US means that the solution to the problem is largely beyond America’s control. The financial and trade barriers among the major nations are now tissue thin. A deep recession could change that over time if protectionism becomes part of the way that nations try to shield their economies from imports. Until that day comes, the global economy is essentially borderless.

The worldwide nature of unemployment exacerbates the issue of how to stimulate growth across dozens of large countries and scores of smaller ones. The most expedient remedy to rising global unemployment is to have central banks supply capital to support business expansion around the world. This borrowing will cause national surpluses to shrink or debts to rise, depending on the condition of each country’s treasury. There is an increasing need for the United States and other large nations to borrow trillions of dollars every year.

The demand for capital in order to drive up employment puts policy makers in nations, including the UK,  the EU, the US, Japan, and China between Scylla and Charybdis  (the original rock and hard place from "The Odyssey"). Fiscal conservatives would push for the recession to play itself out. Borrowing tremendous amounts of money, they would argue, creates unsustainable amounts of debt, even if the numbers of people out of work rises to unimaginable levels. This is a hard philosophy based on the premise that all fires, no matter how large, burn themselves out if left alone.

The leaders who believe that spending is the answer to this problem rely on an optimism that may be difficult to understand and this optimism will be impossible to sustain. If the US Treasury borrows money at the rate of $1 trillion a year, the large nations of Europe run up national debt into the hundreds of billions of dollars a year, and China releases a portion of its surplus to repair its economy, the sources of funds will disappear. China is one of the largest buyers of US Treasuries, but even the world’s most populous country does not have unlimited financial resources. As sovereign nations compete for funding, interest rates will rise and the cost of creating jobs will increase, probably at a rapid pace.

While it may be unimaginable to talk about the US defaulting on its debt or deferring interest payments, the chances of that rise as the economy gets worse and global unemployment accelerates .

For decades we have operated on the assumption that financial resources were essentially limitless.  We are now learning the hard truth that the world may not have enough capital to put 50 million people back to work.

Douglas A. McIntyre