Global Economy’s Achilles Heel: Unemployment

http://www.reuters.com/article/idUSTRE6504EU20100601

During the past couple of months, the world has been coming to grips with something that no world political or financial leaders want to admit – the global economy no longer works.  It’s collapsing under the weight of the one factor that economists never accounted for – unemployment. 

As reported in the above-linked article, the International Labor Organization (ILO), an agency of the U.N., is warning that measures being taken by governments around the world to reduce debt will likely lead to a recession, with rising unemployment potentially threatening social stability.  Yesterday, in an about-face from its recent lecturing of the U.S. to get its fiscal house in order, China also cautioned against moves to rein in debt.  (The Chinese are smart enought to know that every dollar or euro cut from government spending in the U.S. and Europe translates into lost exports for them.) 

But financial markets have become absolutely intolerant of high debt levels.  Ratings agencies like Moody’s and S&P, breathing a sigh of relief that they weren’t hammered harder with law suits and criminal prosecution for their role in the global financial collapse that began in 2008, are now ruthless in their slashing of credit ratings for anyone with the slightest potential of default. 

Without deficit spending, the global economy with its requisite trade imbalances doesn’t work.  Without trade imbalances, badly overpopulated nations like Germany, Japan and China face staggering unemployment.  With the trade imbalances, big importers like the U.S. face eventual default. 

The problem is that, with much of the world so densely populated that per capita consumption has been driven into decline, deficit spending is the only thing left in economists’ bag of tricks to prop up consumption and hold rising unemployment at bay.  Globalization is an unemployment sharing mechanism that spread unemployment away from overpopulated economies to the U.S., where gimmicks like the dot-com boom of the ’90s and the housing bubble of the ’00s could keep unemployment swept under a rug for a while.  But that ploy’s run its course.  Now, not all the king’s treasury secretaries or all the kings central bankers can put this Humpty Dumpty together again. 

It’ll probably take years for all of this to play out, but what we’ll see is an intensifying global battle for employment, World War III fought on an economic stage.  It’ll get worse as the world population soars by several billion more.  Whether the war can remain confined to the economic stage without spreading to the battlefield – only time will tell.

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7 Responses to Global Economy’s Achilles Heel: Unemployment

  1. Mark Hall says:

    First, you have to admit that you have a problem.

    So far, the austerity measures being implemented by the heavily debt burdened countries in Europe; the self protectionist measures still being practiced by the major exporting nations and the continuous exodus of migrant workers and immigrants from poor countries to “currently” less poor countries like the U.S. continue to be ignored by our government.

    For some reason (political contributions and favors) our government STILL thinks that we are immune to the causes and/or effects of these practices.

    Currently, the economic and social plan of our entire country is being predicated on the adoption and blind following of totally unobstructed and unrestricted “Free Trade” philosophy.

    If this was a game of “musical chairs” and the first round consisted of 14 chairs and ONLY 11 participants, we would still be knocked out in the 1st Round because we would allow China, Germany, Japan and Mexico to each grab and sit on 2 chairs.

    However, all is not lost. We might actually achieve a First Place victory as the undisputed World Champion for the country with the highest unemployment rate.

    • Pete Murphy says:

      At least the U.S. is far less overpopulated than many others, which gives us a distinct advantage (though one that we’re slowly frittering away with our immigration policy). Our unemployment problem is bad, but nothing compared to that faced by Japan and Germany and their ilk when and if trade balances are cut or eliminated.

      • Mark Hall says:

        If So….

        Better Them Than Us….

        Instead of Survival of the fittest, it is now Survival of the SMARTEST!!!!!

  2. MikeF says:

    Pete,

    One of your best articles at defining reality.

    More than a year ago I stated on talk radio that employment was the show stopper. I used all of the arguments that you have presented so well.

    While technological unemployment and outsourcing became the mantra that big business marched to; no one was considering the dire social consequences. What do we do with millions of permanently unemployed and unemployable citizens? Sit them out on Monday morning for the trash collector?

    Once again Pete, great article.

    • Mark Hall says:

      MikeF,

      For nearly 10 years our increasing slack in manufacturing employment was covered up by:

      Increases in consumer debt.

      Decreases in consumer savings.

      Artificial increases in home values.

      Increases in mortgage backed securities.

      Increases in consumer borrowing against rising home values.

      Increases in home construction.

      More artificial increases in home values.

      More increases in consumer borrowing against rising home values.

      Etc., Etc., Etc.

      THEN THE BUBBLE BURST & REALITY KICKED IN!

  3. david scott says:

    The United States started World War III by invading Afghanistan and Iraq. Now our global reputation is ruined and it will be years before this Holy War will be over. Take a look at this: http://freethegods.blogspot.com/2010/05/memorial-day-respect.html

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