Is America's Economy Really Failing?
By Robert J. Samuelson, Jonathan Marshall, Irwin M. Stelzer, John Cassidy, Herbert Stein
This spring, the New York Times published a major collection of articles decrying "The Downsizing of America." Weighing in at more than 40,000 words, the seven-part series took two dozen writers and researchers seven months to produce. It was the longest piece of journalism printed by the Times since the Pentagon Papers in 1971, and was recently published by the company as a 356-page paperback.
And what was the message of this opus, and the follow-up articles that have appeared in the Times since? That American families and communities are being ripped by economic traumas. According to the Times, job security is a thing of the past, wages and income are falling, middle-class Americans are suffering, and employers don’t care.
Upon release, the series triggered the introduction of new bills in Congress, corporate contortions, the organization of White House task forces, and a blizzard of copycat stories on television, newspapers, and magazines.
But it also inspired, almost as quickly, a backlash of biting criticism and rebuttal. Leading economists and major economic writers attacked its maudlin, potboiling tone, its selective exaggerations, and its many factual distortions.
Whether the public sentiments sparked by the series and its televised echoes will turn out to be consequential remains to be seen. As an intellectual matter, however, the project has turned into an embarassment to the nation’s self-styled "paper of record"—as the following collection of commentary by some of the nation’s best economic writers indicates.
From "News Cut to Fashion," by Robert J. Samuelson, Washington Post, March 13, 1996.
The job of journalism is to report, explain and clarify. We in the "serious" press—papers like the New York Times and Washington Post—imagine ourselves as upholding the standards of a craft besieged by talk radio and trash TV. The reality is that the "serious" press is often equally guilty of wild distortions, because editors and reporters are prisoners of prevailing intellectual or political fashion. A good example was last week’s seven-part series on "The Downsizing of America" in the Times.
It has all the hallmarks of a project aimed for a Pulitzer. The Times anointed "downsizing" as a radical departure for the U.S. economy—a major social problem about which the government, perhaps, should do something. In truth, "downsizing" is simply a new label for an old feature of a competitive economy: job loss. This is not dramatically greater than in the past, though it has affected some workers (generally older and with higher incomes) and companies (the ibms and at&ts) that once seemed immune.
…The Times resorts to a pat formula: It introduces the new (and grave) social trend with a compelling anecdote and a weighty statistic. The first personalizes the trend, the second proves that it is widespread. Thus the series opens with Steven Holyhausen, 51, who has been downsized from a $52,000-a-year job as a banker to a $12,000 job as a tourist information officer. Then we’re told that the "grimness" of his story is "no longer at all extraordinary" because "more than 43 million jobs have been erased in the United States since 1979." Gulp.
Actually, this carefully crafted impression is highly misleading. Averaged over 16 years, the 43 million lost jobs is 2.7 million jobs a year…a tiny fraction of total jobs. The worst year was 1983, when 3 million workers lost their jobs out of employment of 101 million—about 3 percent. In 1995, the number of displaced workers was 3.3 million out of 125 million—2.6 percent.
…Not only do most well-paid, middle-aged workers not lose their jobs, but those who do typically don’t suffer a 75 percent pay drop. Among rehired workers, the Labor Department reports as follows: 27 percent got wages at least 20 percent higher than at their previous jobs; 26 percent got wages up to 20 percent higher; 16 percent suffered a pay loss no greater than 20 percent; and 31 percent suffered pay losses more than 20 percent.
It’s hard to see how a competitive economy could operate without job insecurity. New technologies and products create some jobs, eliminate others. The spread of atms threatens bank tellers. Low-cost airlines menace high-cost airlines. Clearly corporate managers are quicker to fire now than in the past; some "downsizing" has been callous and ineffective. There is personal trauma and sometimes tragedy. Still, in some ways, the labor market is operating better now than 10 or 15 years ago. Between 1990 and 1995, unemployment averaged 6.4 percent, down from the 8.1 percent between 1980 and 1985. Most displaced workers are rehired and get new jobs faster.…
Good reporting is fact-finding without prejudice. You go where the evidence leads. But the Times’ "reporting" was of an inferior type. It involved the selective collection of information to buttress what editors and reporters had already concluded.…
Papers such as the Times and Post play a pivotal role in society. By their prestige, they help set the ideas and facts that other opinion-makers and journalists accept. But the parroting of political or intellectual fads does not discharge this responsibility. Echoing the conventional wisdom is at best mediocre journalism. At its worst—as in these series—it gives undeserved respectability to flawed ideas. It is not that the problems, anxieties and frustrations… are fictitious. But they were so exaggerated, and presented so selectively, that they painted a false picture.…
What spawned these series is a contemporary consciousness, shared by many journalists, that assumes that people are entitled to life without worries, setbacks or conflicts—and that anything less is a "crisis" and a "big story." Every personal angst or societal defect merits public sympathy and maybe a governmental solution. This utopian vision defies common sense and sound judgment: qualities the "serious" press ought to possess.…
From "Don’t Believe All the Bad News," by Jonathan Marshall, San Francisco Chronicle, March 11, 1996.
On one issue, Pat Buchanan, Jesse Jackson, and the New York Times actually agree: The U.S. economy is going to hell.
In a seven-part series last week, the Times claimed that mass job losses and falling wages have created "the most acute job insecurity since the Depression." This insecurity, it said, "has produced an unrelenting angst that is shattering people’s notions of work and self and the very promise of tomorrow."
…For all the rhetoric, however, the evidence tells a much less sensational story.… Big companies such as at&t are still cutting jobs, and the pain of their former employees is very real. But medium and smaller firms are creating many more jobs to replace them. The communications industry, for example, had 20,000 more jobs in February than a year earlier.… The number of announced job cuts last year, 440,000, was the lowest since 1990 and a third below the peak in 1993, according to Challenger, Gray, & Christmas, the outplacement firm.
Recent government data do show important shifts among job losers. Compared to the early 1980s, those who lost jobs in the early 1990s recession were more likely to live on the two coasts, to have some college education, to be older, and to come from managerial or professional occupations. "It really seems to be a dffferent group that’s at risk," said Katharine Abraham, commissioner of the Bureau of Labor Statistics.
But whether it’s worse for white-collar workers on the two coasts to lose their jobs than steel and auto workers in the Midwest depends on who you are and who you know. And as Henry Farber, a Princeton University economist, notes, "People higher up the food chain have more assets to fall back on so their actual suffering might be lower." …Farber has also found that the percentage of workers who have held their job 10 years or more hardly budged between 1973 and 1993, indicating no serious loss of long-term jobs.
The data also clearly show, however, that the idea of a golden age when everyone had a lifetime job is more nostalgic myth than historical reality. Even in the best of times, the job market has always churned, creating victims in its wake. "The sense in the New York Times that there’s been a tremendous increase in job instability isn’t accurate," [economist Steven] Davis says. "The idea that the world we are living in now is radically different from the world 25 years ago is mistaken."
Recent trends in worker pay aren’t so terrible, either. Adjusted for changes in the cost of living, median wages grew 5 percent for men and 3 percent for women over the past three years.… These estimates account for the view of many economists that the Consumer Price Index, usually used to adjust wages for inflation, overstates the cost of living.
But if all this evidence is right, why are so many Americans feeling gloomy? Maybe they aren’t. The Times’ own poll results show that only nine percent of people it surveyed feel economically "very insecure." Consumer confidence surveys by the Conference Board, a New York business research organization, show reasonably strong readings. "Consumer confidence numbers are above long-run averages," said Michael Niemira, chief economist at Mitsubishi Bank in New York. "I don’t buy into the idea there’s more uncertainty out there. These stories have flourished without the support of data."
Ken Goldstein, an economist at the Conference Board, said consumers are less confident about the future than about their current situation—partly because of all the stories they read about layoffs. But he said the mood around the country is far from grim. "If you look at the New York Times, you’d wonder why every American isn’t laying down on someone’s couch," he said.
So what explains the continued media preoccupation with economic despair? One reason might be that many of the job losses are at big companies which everyone has heard of, while the job gains are at smaller firms that command less attention. Another reason might be that more of the victims of job loss these days are white-
collar professionals on the two coasts—the sort of people journalists in major media centers know and relate to. A third might be that some journalists are looking for quick and easy explanations for the Buchanan phenomenon.…
But all this is only speculation—and there’s been far too much speculation in the media about the economy and public attitudes already.
From "The Nervous Americans," by Irwin Stelzer, New York Post, April 25, 1996.
The New York Times runs a seven-part series featuring interviews with insecure workers from Manhattan to Dayton. Corporate "downsizing" becomes a media byword. You would think that moaning and nail-biting are now national pastimes.
Not so. Recent polling data just don’t support the notion that America is on the verge of a nervous breakdown.…
And with unemployment at about 5.5 percent (3.3 percent for men with a spouse present), we are more in danger of running into shortages of workers than into shortages of jobs. And the new jobs are good ones: a new study by the President’s Council of Economic Advisers shows that the majority of the 8 to 9 million new jobs that have been created in the past few years pay wages 14 to 17 percent above the national average.
Furthermore, these jobs are not temporary, fly-by-night affairs. Data published by the Department of Labor show that…the average time a worker spends in the same job hasn’t changed much in over 20 years.
From "All Worked Up," by John Cassidy, The New Yorker, April 22, 1996.
While the media have made much of the supposed decline in lifetime-employment relationships, a number of academic studies suggest that the fraction of workers who have been in the same job for a decade or more has remained fairly constant.… "The idea that our economy is not producing long-term jobs anymore strikes me as totally unsupported by the evidence," [Princeton economist Henry Farber] told me.…
It would be hard to guess from reading recent press accounts that the probability of finding a new job after being laid off has increased over the last decade, but that is exactly what the evidence suggests.… The median displaced worker remains unemployed for about eight weeks before he finds a new job. This has remained pretty constant since the late 1980s, but the chances of a displaced worker staying out of work for more than six months have fallen sharply.… In 1982-83 about 30 percent of recently laid-off males were still without employment six months later, in 1994-95 the proportion dropped to 18 percent.…
The central fact that has been underplayed in news reports—the Times articles did mention it several times in passing—is that companies are doing a lot of hiring as well as firing.… Overall, more than 60 million new jobs have been created since 1979, a truly astounding number.… What is more, a remarkable 60 percent of all net employment growth in the past three years has come in managerial and professional positions, a sector of the economy which makes up only 28 percent of the labor force and is widely said to have been the most damaged by corporate downsizing.
From "Jobs: The (Woe Is) Me Generation," by James K. Glassman, Washington Post, March 19, 1996.
Why, suddenly, is there such an uproar over job security? Unemployment has dropped from 7.7 percent to 5.5 percent since 1992, workers keeps their jobs as long as they ever did, and many companies (including at&t) are surprisingly generous with the employees they lay off.
Yes, some workers are cruelly treated…and some companies are greedy and stupid. That’s hardly news, yet politicians and journalists are in a lather. Why? I’ve been puzzling over this mystery for weeks, and I may have the answer: The baby-boom generation is turning 50. That’s the age at which an individual’s earnings generally start heading down. The New York Times, Newsweek, Bill Clinton and Pat Buchanan, Dick Gephardt and all the rest are worried about shaky jobs because aging Baby Boomers are worried.…
We Baby Boomers have acted as though we were the first people ever to suffer pangs of moral conscience, to fall in love, to buy houses, to have children, to work long hours. Now Boomers are worried about being replaced by folks who are younger, quicker and smarter.… The problem is compounded because self-centered Baby Boomers occupy lofty positions in the press and government. The Me Generation has become the Woe Is Me Generation, eager to tell its solipsistic story. Never mind the facts or the context.
…While many Baby Boomers do indeed face losing their jobs, so did their parents. In the aggregate, middle-aged workers today are staying at their jobs as long as those of generations past—by some accounts, longer. A recent study found that in 1991 (the most recent statistics), men aged 45 to 54 had been in their current jobs an average of 12.2 years. That’s up from 11.0 years in 1978 and 8.8 years in 1966. Tenure for women in this age group has increased as well. It was 7.3 years in 1991, compared with 5.9 years in 1978 and 5.7 years in 1966….
[During] the late 1950s to the early 1960s, the layoff rate in manufacturing was never lower than 2 percent a month, reports the Bureau of Labor Statistics. Maybe we didn’t know it, but our dads had a rough time keeping their jobs when they were our age.
Which brings us to at&t, the new symbol of corporate ruthlessness after it announced January 2 that it would lay off 40,000 workers. Actually, at&t seems to be treating its departing employees well—better…than the federal government, which is in the process of shedding 272,000 workers by 1999. (In one breath, Clinton brags about government downsizing; in the next, he complains about the corporate downsizing. But that’s another story.)
White-collar at&t managers get a lump sum of five to 35 weeks’ salary (depending on age and tenure with the company). at&t adds another 20 percent to that lump sum, plus $10,000, which can be used to relocate, get retrained, or buy computer equipment to start a new business. at&t continues to pay health benefits for a full year for departing employees who have been with the company for more than five years.
A typical manager (42 years old, 16 years of service, making $55,000 a year) gets a package worth $30,000 (plus regular pension).… Blue-collar workers do even better. A clerical employee (44 years old, 18 years of service, making $644 a week) gets a package worth $64,000.
So, stop whining, Baby Boomers. You’re getting older, but…you still have the opportunity to get better.
From "Good Times, Bad Vibes," by Herbert Stein, Wall Street Journal, March 14, 1996.
In 1995, 4.8 percent of men age 20 and older were unemployed. In the previous 20 years the average had been lower than that only three times, and then not by much. The proportion of the civilian population over the age of 16 holding jobs in 1995 was higher than in any year but one in history. The highly publicized layoffs by large corporations were a tiny fraction of the labor force and a small fraction of the number of people who enter or leave employment each year.
And yet we are swamped with reports that American workers feel terribly insecure, especially about their jobs.… I don’t doubt that the feeling of insecurity exists. What is less clear is that the feeling is very serious.
Concern with insecurity ought to be evident in real behavior. When people became seriously concerned about their health they reduced their smoking and drinking. When people became seriously concerned about crime, they locked their doors, installed security systems and watched where they walked. If people were seriously concerned about their economic condition one might expect them to save more, but they don’t. One would expect men to continue working into their older years to accumulate more financial reserves, but instead they retire at earlier ages. If families were seriously concerned about the economic future of their children, they would turn off the television and make the children study, but they don’t. So, I am unsure about how deep or pervasive the feeling of insecurity is.…
One explanation commonly offered for the feeling of insecurity is that the risk of becoming unemployed has now spread to people who did not expect to have that risk, meaning mainly white-
collar and professional workers. But the available statistical evidence does not support that belief.… The unemployment rates of white-collar workers rose during the recession of the early 1990s, but they remain less than half as high as for blue-collar workers. Anyway, it is not clear why there should be more national concern over the unemployment of white-collar workers than over that of blue-collar workers.…
The public discussion of job insecurity suffers from failure to understand the nature of the employment relationship. The relationship between an employer and an employee entails a number of risks. There is a risk that the employee may not like his work or that he may see better opportunities elsewhere. There is a risk that the employer may not like the employee or that having invested in training and equipping the worker there may be changes in demand or in technology that will make the value of the worker’s product less than was initially expected. The risks will be divided between the employer and the employee, and the way they are divided will affect the rate of pay.
…The employer may agree to guarantee employment for a stipulated period, but he will not be willing to pay the employee as much as he would if he were free to discharge him when employing him became unprofitable. Some unions, for example, bargain for job security in their contracts. Job security is a condition of the contract that has to be traded off against other conditions, and workers have decided that they wanted that more than higher pay.… Perhaps both workers and employers would find it beneficial in some cases to enter into longer-term employment contracts than are now the rule in the U.S.… But it is by no means clear that workers in general would gain, in their lifetime incomes, by arrangements that reduced their risks of unemployment.
This may seem too hardhearted and "economistic" a way to look at the situation. Because they are dealing with human beings, not machines, most employers do not discharge a worker the moment that would maximize profits. Some people would say that employers have a social responsibility to commit themselves to providing more assured employment. But would this social responsibility extend to paying workers as much as they would get without that commitment?… And would consumers have a social responsibility to buy as much product if the commitment entailed higher prices? And who would have a social responsibility to the people who did not get employed in the first place because employing them would have entailed too large a commitment?
The social responsibility approach draws us into a thicket from which escape is not easy. And the problem is not made any easier by the suggestion now being floated around that tax benefits be given to corporations that act responsibly as defined by someone (perhaps the Secretary of Labor).
To search for ways to improve the conditions of employment is desirable. But before changes are made we should try to consider all their implications—not just the ones that first come to mind and to the headlines.
From "Far From Doomsday," by James K. Glassman, Washington Post, March 5, 1996.
Robert Reich, the secretary of labor, calls working Americans the "anxious class." But anxiety—a nagging, shapeless worry about the future—has always been part of the human condition, as Freud pointed out long ago.…
While anxiety is something we can live with, hysteria is something we can’t. And hysteria is rapidly becoming the order of the day in politics and journalism when the subject turns to the economy. The latest manifestation is a seven-part extravaganza on "The Downsizing of America," now running in the New York Times.…
Our gross domestic product has increased 3 percent annually since the shallow 1990-91 recession, while Japan is mired in stagnation. U.S. job growth in 1994 was the highest in a decade, and inflation is lower than in any other five-year period since the early 1960s. Still, in a recent speech, Sen. Edward Kennedy says we’re in a "quiet depression" and that "a storm is coming." Things are so bad that Pat Buchanan wants to wall the nation off against competitors.…
Big and clumsy, at&t shrinks, but the future may be elsewhere. Employment at mci Communications has grown from 12,000 in 1985 to 48,000 today; Sprint, from 27,000 to 52,000.… Consultants at wefa Group predict that the new telecommunications deregulation bill alone will add 3.4 million jobs to the U.S. economy in the next 10 years.
But the Times favors other figures. The authors write: "Roughly 50 percent more people, about 3 million, are affected by layoffs each year than the 2 million victims of violent crimes." Layoffs, in this subtle comparison, equal violence.
…A recent issue of The Economist notes that Baby Boomers, far from being worse off than their parents at the same age, have inflation-adjusted incomes that are 50 percent higher. As for inequality: Sure, it exists, but as Madison affirmed in Federalist 10, there’s nothing wrong with different people earning different amounts of money or having different degrees of wealth, as long there is a good chance for everyone else to rise. And, as study after study shows, there is.
…The problem with hysteria is that it could lead to damaging solutions. One popular theme, promoted by Reich and Kennedy, with encouragement from President Clinton, is to reward "good" corporations and punish "bad" ones. Kennedy would offer a lower corporate tax rate (30 percent, rather than 34 percent) to what he calls Most Favored Companies—those "avoiding layoffs designed simply to mazimize profits, paying adequate wages, sharing gains, training and upgrading skills, and providing health care and retirement benefits." Minority leader Richard Gephardt would not allow the government to buy anything from "bad" firms.
Just one question: Is at&t "bad" because it is laying off 40,000 employees, or "good" because it has sharply lowered the cost of making long-distance calls, contributed about $2 billion a year to the Treasury in taxes, invested billions more in buying equipment from U.S. suppliers, and made 2.3 million shareholders more economically secure in their old age?
This is not to say that the economy does not produce anxiety and pain. But relief won’t come from turning corporations into social service agencies and then regulating the hell out of them.
…Forget about eliminating anxiety. Let’s just concentrate on hysteria.
From "Downsizing for Growth," by Robert J. Samuelson, Newsweek, March 25, 1996.
The hysteria over downsizing—whipped up in part by Labor Secretary Robert Reich and a massive series in the New York Times—is just that.… In some respects, downsizing may improve the economy.
It seems counterintuitive. We are uneasy with the possibility that what’s bad for individual workers and firms—job insecurity, bankruptcy—may be good for society. But this may be, and the argument is not simply that downsizing enables some companies to survive. The notion is broader: it is that the anxieties and uncertainties that unsettle people may make them more prudent and productive in ways that strengthen and stabilize the economy.
Though little noted, the present economic expansion recently became the third longest since World War II. It has lasted almost five years and is exceeded only by the expansions of the 1960s (106 months, from February 1961 to December 1969) and of the 1980s (92 months, from November 1982 to July 1990). But in some ways, it is superior to these because it hasn’t yet spawned higher inflation. Since 1990, inflation has dropped from 6.1 to 2.5 percent. By contrast, it rose in the 1960s, from 1.4 percent in 1960 to 6.2 percent in 1969.
The 1960s boom is often viewed nostalgically as a "golden age," when it actually set the stage for the most turbulent and least productive economic period since 1945. The severity of the two worst postwar recessions…stemmed directly from double-digit inflation (12.3 percent in 1974 and 13.3 percent in 1979). And the global competitiveness of many U.S. industries eroded; between 1971 and 1980, for instance, car imports rose from 15 to 27 percent of U.S. sales.
We are much better off today in most respects. What happened? The answer, I think, is that there has been a profound shift in economic ideas, which, though improving the economy, offends Reich and the Times. From the 1960s to the early 1980s, government officials and corporate managers consciously strove to…eliminate recessions and enhance job security.… "Responsible" companies promised, implicitly or explicitly, lifetime jobs.
The experiment failed. The concerted pursuit of…total job security and economic stability gave us higher unemployment as well as higher inflation. In the 1980s, economic ideas changed. The Federal Reserve moved ruthlessly against inflation.… Meanwhile, companies grew less concerned with saving jobs and focused more on raising market share and profits.
The result is that, since then, average unemployment has dropped, the one subsequent recession in 1990-91 was fairly mild (peak monthly unemployment—7.8 percent), and industrial competitiveness has advanced.… We finally recognized that the promises of economic stability and job security were self-defeating.…
None of this means that there won’t be future recessions (there will), that all downsizing is justified (it isn’t), or that some workers don’t suffer terribly (they do). But in a market economy, job loss is unavoidable, and the social harm may be muted if layoffs are spread out and not concentrated—as in the past—in slumps or periods of industry crisis. Fired workers can be rehired more quickly in a growing economy. The Times visits Dayton, Ohio, where "everything, seemingly, is in upheaval," in part because ncr (absorbed into at&t) is downsizing. Belatedly, we learn that the county unemployment rate is only 4.8 percent. Contrast that with Flint, Michigan, in the early 1980s, when auto layoffs sent the jobless rate to 20 percent.
What’s missing in this debate (and the Times’ series) is a sense of how jobs are created. Companies hire workers to make a profit; workers take jobs to make a living. If profitable hiring becomes too hard, firms won’t do it; if being unemployed becomes too easy, people won’t look for jobs. Europeans increasingly admire our flexibility, because their system—though outwardly more compassionate—stifles job creation. They have more generous jobless benefits, steeper payroll taxes (to pay for the benefits), more restrictions on firing, and higher unemployment. In Germany, the jobless rate is 10.3 percent and headed up.
What Europe teaches is that societies can’t outlaw job insec-urity, but they can inadvertently outlaw job creation. The Times ignores Europe’s experience, and our own recent experiment with economic security.…
From "Capitalism Under Siege," by Robert J. Samuelson, Newsweek, May 6, 1996.
It can be said of capitalism what Winston Churchill once said of democracy—it is the worst possible system, except for all the others. We might ponder this now, while commentators are denouncing American capitalism. Increasingly, they find it heartless.…
Ask this: What can we expect from our economy? Probably most Americans would answer (a) jobs, (b) rising incomes, and (c) security. By these measures, our system does fairly well. Consider. Between 1985 and 1995, it created 18 million jobs. Living standards? They’re slowly rising. Between 1979 and 1989, at least 75 percent of households had income gains, concludes a study by economist Richard Burkhauser of Syracuse University. (As Burkhauser argues, income comparisons need to match similar spots in the business cycle to avoid the distortions of uneven unemployment. Both 1979 and 1989 were business-cycle "peaks.")
Economic security—or rather the lack of it—is the latest criticism of capitalism.… American economic anxieties are now said to be exceptionally high. Not so. Polls do not "support the premise that the public is ‘scared as hell,’" write Frank Newport and Lydia Saad of the Gallup Organization. In March, 49 percent of Americans rated themselves better off financially than a year earlier; that rating is as high as any since 1976.
American capitalism is a structure of rewards and disciplines whose effects need to be judged in their totality. The same freedom that allows errors and excess also encourages new products and efficiencies. The virtues and vices cannot be entirely disentangled, though critics often suppose they can.
