The Government Will Have to Act on Jobs

 | Jul 23, 2013 | 4:00 PM EDT
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Recently, I've written about the growing concerns over whether unemployment is structural and about the increasing potential for the executive branch, with the support of both parties in Congress, to pursue another jobs initiative.

I want to revisit this issue here. Since the recent increase in long-end U.S. Treasury yields, analysts all over the map have been making prognostications about what this portends for the immediate future. The principal economic trajectories are deflation, stagflation or inflation.

The reality is that we may experience all of them, not simultaneously but sequentially.

More important, broadly and fundamentally, is that regardless of what the aggregate economic reports indicate about the economy overall, jobs are not being created, and the unemployment rate is declining only because of people leaving the workforce, and this is going to force the federal government to intervene.

The only reason the government has not yet embarked on a jobs program, probably infrastructure focused, is that the two political parties are fighting about the size of the federal debt.

Now that federal spending has seen slowing growth and has even contracted for a few quarters, as spending in Afghanistan and Iraq has dropped precipitously, the argument for not expanding domestic federal spending has been diminished.

The ideological argument for not expanding the federal debt further as a percentage of tax receipts and GDP is admirable, but it's not pragmatic.

Within the last 20 years, the U.S. corporate sector has abrogated its responsibility to the social contract. In short, human beings and labor capital have become commoditized, disposable overhead costs, and corporations are concentrating on how to alleviate that expense.

This pursuit, by executives and boards who claim responsibility to shareholders, to the exclusion of employees or even to the economy overall, is not only stunningly short-sighted, it actually promotes long-term failure.

However, in the immediate term, this attitude and its results are going to require that the federal government step in as the employer of last resort, at the very least.

The loss of jobs to cheaper, foreign labor that is blue collar and not politically connected has now metastasized into a reduction in need for higher-level human labor and capital and its replacement with technology. This is productivity enhancement.

It also indicates that the private corporate sector has shifted the burden of responsibility for creating employment to the public sector.

China has been doing this in especially dramatic fashion since the 2008 financial crisis, and before that, Japan began the process in the 1990s. Neither action has resulted in long-term economic growth or a fiscal multiplier, but that did not mean that they were inappropriate actions. They were just poorly deployed.

You can't plan for the future if you don't take care of today. This applies to governments as well as individuals.    

As such, I am expecting that the federal government, along with the Congress, will have no choice other than to pursue a long-term job-creation program soon and that this will be a benefit first to the largest government contractors, and more importantly to those who build things rather than destroy them.

The three largest stocks that should benefit from such a program would be Caterpillar (CAT), 3M (MMM) and General Electric (GE).

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