Clicking on banner ads enables JWR to constantly improve
Jewish World Review Dec. 20, 2001 / 5 Teves, 5762

Amity Shlaes

Amity Shlaes
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

Why America's economy always bounces back -- AMERICAN unemployment has been rising rapidly lately. In October and November alone, the US jobless figure increased by 0.8 of a percentage point, a more pronounced jump than any since 1980.

But while the rise is unusual for US standards, it is in the international context that it truly stands out. Since the late 1960s, neither Japan nor Germany has experienced so sudden a spike - apart from the period following German reunification. Such a jolt is painful. But America's pink slips are also America's strength. They remind us that the real work of recoveries does not happen in political capitals. It happens in factories and offices. And an economy has to be free to do that work. Only then can it make it through the darkness of winter to a spring of growth and job creation.

"Everybody in Germany is talking about synchronous recession," says Wilfried Prewo, of Hanover's chamber of commerce. "But the real question is: what about synchronous recovery? That won't necessarily happen because we can't come back so strongly." The German economy is not free enough for such a rebound.

But let us return, for the moment, to the US winter. American companies have been making workers redundant non-stop for months and in some cases dissolving themselves. There have been cuts everywhere, from old economy mainstays such as Boeing and Ford to new economy enterprises such as Excite@Home, the broadband cable group.

The result of this labour flexibility is that the US has been able to sustain productivity growth at the outset of recession, something of which virtually no other developed economy is capable. Because US laws make it relatively easy to dismiss workers, companies do not have to waste negotiating time or cash on buying workers out of contracts.

When recovery does come, they will have more cash to invest. Because Ford can lose workers, it can also afford to bid for market share by selling cars interest-free. What is more, there will also be cash in the till with which to rehire workers. Economists who forecast a strong US rebound next year - and there are many - say the advantages of such flexibility outweigh the blow of September 11.

For their part, workers in America have internalised this more hopeful side of business life. They are distressed about their pink slips. But they are also confident that, in time, they will find other jobs.

This confidence comes from experience. Since the war Americans have always been able to find a new job, sooner or later. US unions are still powerful in some industries. At this moment, AFL-CIO steelworkers have erected a Town of Tents outside Washington to evoke the Hoovervilles of Depression days. But the union's theatre is not resonating because most Americans cannot recall a trough like the Great Depression.

No such virtuous employment cycle exists in Japan, where unemployment has never, at least on paper, peaked in the way it is doing in America. For a long time, companies wasted precious capital by retaining inefficient workforces. Now those same companies are sacking workers but the structural problem has grown so much that these actions are insufficient.

Japanese monetary policy is still getting most of the blame for Japan's decade of winter. Other countries press the Bank of Japan to inject yet more liquidity into the system. But the complement of a freer jobs policy would do much to increase economic potential.

Germany's situation is also troubling. The governments of Helmut Kohl and Gerhard Schroder have taken steps to sustain their workforce - ranging from multi-billion D-Mark retraining schemes to support for intricate job-sharing programmes. In the 1990s, Volkswagen seemed to spend as much time engineering work programmes as it did engineering cars.

But when it comes to firing, Germany is not much farther ahead than it was eight years ago, when observers began remarking on its structural problems. Indeed, as Mickey Levy of Bank of America notes, many of Europe's re-employment projects have exacerbated labour market inflexibility. Further training for a specific trade only worsens the plight of a dismissed worker whose industry has moved its production to cheaper climes.

"Everybody looks to central banks to solve all problems through monetary policy but they are not capable of doing so. Ditto fiscal policy," says Mr Levy. The real job of government in a time of recession is to get out of the way.

There are lessons in this picture for all three countries. For the US, the message is: do not do anything to disturb the dynamism of the labour force. This means that the well intentioned plan to expand benefits for the unemployed in "economic growth and security" legislation is wrong-headed. For while nationally subsidised unemployment schemes may not target specific companies, they do throw sand into the gears of dynamic economies.

And while the income tax cuts in the proposed legislation are valuable, its short-term stimulus measures, such as tax holidays on social security pension payments, are less important. The White House's economic team openly acknowledges this. But it is holding its collective nose and proceeding. Even Bush administration free-marketeers are not immune to "Europe think".

For Germany, or Japan, the message is: freer labour policies are crucial to future growth. Alan Greenspan allowed as much in his recent remarks on the struggling euro. It is an old truth but worth remembering: "hire and fire" also means "fire to hire". The best insurance for growth is creating a culture where workers believe that spring will come and, with it, a new job.

JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.


12/18/01: When it comes to taxes, Washington lawmakers can learn a thing or two from The Honeymooners
12/13/01: Bush opens a new era
12/12/01: A flamboyant reversal for the Democratic party
12/06/01: Threat of an oil embargo on the U.S. is a bluff
11/29/01: Which is more important--the war or diplomatic comity?
11/20/01: Unbalanced by a wealth of oil and diamonds
10/17/01: Afghanistan Needs a General MacArthur
09/27/01: The US has gained an understanding of the costs of war for which its European allies have hitherto wished in vain
09/13/01: War against terrorism will rise from the ashes
08/15/01: Geography is no excuse for the state's economic stagnation. Its policymakers should take a leaf from Ireland's book
08/07/01: Teamsters may pay a heavy price for winning its batle in Congress
07/25/01: Towards a patent-free nirvana?
07/17/01: History proves the lasting value of tax cuts
07/10/01: Stem cell research has awakened a bitter debate in Washington but voters care more about other electoral issues
07/03/01: America foots the bill for Europe's largesse
06/26/01: America the litigious, land of the lawyer's fee
06/20/01: Five reasons for gloom about global growth 06/18/01: Show pity for Alice in Tax Wonderland
06/13/01: America must take a French lesson in trade
06/11/01: Time to dream the impossible dream for Iraq
06/07/01: Whatever happened to simple?
06/04/01: When the relationship between companies becomes as close as a marriage, the eventual break-up is often very painful
06/01/01: Loving and hating the Bush tax bill
05/30/01: Will Grisham soon be unemployed? In America's courts these days, there's no room left over for legal fiction
05/22/01: Republicans sample the rhetoric of confidence
05/16/01: Boeing has been promised $60m to site its headquarters in Illinois. The deal looks a poor one for taxpayers
05/14/01: Adam Smith in love
05/09/01: Those rotten Russian capitalists
05/07/01: Why tax havens provide shelter for everyone
05/04/01: Middle classes pay for get-the-rich folly
05/01/01: Money can't buy happiness? Think again.
04/26/01: Calling America's rogues and entrepreneurs
04/19/01: High earners right to feel lonely at the top
04/11/01: The right must learn the comfort of strangers
04/04/01: When domestic law arrives by the back door
03/30/01: A Lexus tax cut suits the jalopy driver
03/27/01: The unchallenged dominance of King Dollar
03/20/01: Natural selection of an intellectual aristocracy
03/16/01: The hidden danger of a regulatory recession
03/14/01: Is the American condition that boring? Why so many Oscar nominated movies aren't set in America
03/07/01: Trampling on the theory of path dependence
03/05/01: Fighting the good fight
03/01/01: It is time for Fannie and Freddie to grow up
02/27/01: IT's important
02/22/01: The guilty conscience of America's millionaires
02/14/01: The benefits of helping the 'rich'
02/09/01: The Danger and Promise of the Bush Schools Plan
02/05/01: Crack and Compassion
01/31/01: Debt is good
01/29/01: Clueless
01/24/01: A gloomy end for a half-hearted undertaking
01/17/01: The challenge of an ally with its own mind
01/15/01: An unexpected American family portrait
01/10/01: A fitting legacy for America's beloved dictator
01/08/01: The trick of tax 'convenience'
01/03/01: Time to stop blaming Greenspan over taxes
12/11/00: So smart they're dumb
12/06/00: How economic bad news came good for Bush
12/04/00: The Boies factor
11/30/00: "The inevitable demands for recounts erupted like acne…"
11/28/00: Fair play and the rules of the electoral game
11/23/00: The shining prospect beyond a cloudy election
11/21/00: Try the Cleveland model
11/16/00: A surprising winner emerges in the US election
11/09/00: Those powerful expats
11/07/00: What's right for America versus what works
11/02/00: Time to turn off big government's autopilot
10/30/00: Canada beating America in financial sensibility
10/26/00: When progressiveness leads to backwardness
10/24/00: The most accurate poll
10/19/00: The Middle East tells us the hawks were right
10/17/00: The split personalities of America's super rich
10/10/00: 'Equity Rights' or Wake up and Smell the Starbucks
10/04/00: Trapped in the basement of global capitalism
09/21/00: The final act of a grand presidential tragedy
09/21/00: Europeans strike back at the fuel tax monster. Should Americans follow?
09/18/00: First steps to success
09/13/00: America rejects the human rights transplant
09/07/00: Minimum wage, maximum cost
09/05/00: Prudent Al Gore plans some serious spending
08/31/00: A revolution fails to bring power to the people
08/28/00: A reali$tic poll
08/21/00: "I Goofed"
08/16/00: Part of the union, but not part of the party
08/09/00: Silicon Alley Secrets
08/02/00: Radical Republicans warm up for Philadelphia
07/31/00: I'll Cry if I Want To
07/27/00: Cold warrior of the new world
07/25/00: The Estate Tax will drop dead
07/18/00: Shooting down the anti-missile defence myths
07/14/00: A convenient punchbag for America's leaders
07/07/00: How to destroy the pharmaceutical industry
07/05/00: Patriots and bleeding hearts
06/30/00: Candidates beware: New Washington consensus on robust growth stands the old wisdom on its head
06/28/00: White America's flight to educational quality
06/26/00: How Hillary inspired the feminist infobabes

© 2001, Financial Times