10 Truths About Trade

Hard facts about offshoring, imports, and jobs.

Brink Lindsey from the July 2004 issue

(Page 4 of 4)

10. Fears That the U.S. Economy Is Running Out of Jobs Are Nothing New

Because of the recent recession, the U.S. economy has suffered from a shortage of jobs, as evidenced by the rise in the unemployment rate. There is a natural temptation under these conditions to fear that this temporary setback is the beginning of some permanent reversal of fortune, that the shortage of jobs is here to stay and will only grow worse.

To calm such fears, it is useful to recall that similar anxieties have surfaced before. Again and again, over many decades, cyclical downturns in the economy have prompted predictions of permanent job shortages. And each time, those predictions were belied by the ensuing economic expansion.

Back in the 1930s, the brutal and persistent unemployment caused by the Great Depression gave rise to theories of "secular stagnation." A number of leading economists -- including, most prominently, Harvard's Alvin Hansen -- argued that declining population growth and the increasing "maturity" of the industrial economy meant that we could no longer rely on private-sector job creation to provide full employment. The stagnationist thesis eventually fell out of fashion once the postwar economic boom gathered steam.

The return of higher unemployment in the late 1950s and early '60s led to a revival of the stagnationist fallacy, this time in the guise of an "automation crisis." The ongoing progress of factory automation, combined with the growing visibility of electronic computers, led many Americans to believe, once again, that the economy was running out of jobs. During the 1960 presidential campaign, John F. Kennedy, who ran on a pledge to "get the country moving again," warned that automation "carries the dark menace of industrial dislocation, increasing unemployment, and deepening poverty." The American Foundation on Automation and Unemployment, a joint industry-labor group created in 1962, claimed breathlessly that automation was "second only to the possibility of the hydrogen bomb" in its challenge to America's economic future. For the record, U.S. employment in 1962 stood at 66.7 million jobs -- roughly half the current total.

In the early 1980s, the coincidence of a severe recession and a string of competitive successes by Japanese producers at the expense of high-profile American industries sparked predictions of the imminent "deindustrialization" of the American economy. As financier Felix Rohatyn complained, in a fashion typical of the time, "We cannot become a nation of short-order cooks and saleswomen, Xerox-machine operators and messenger boys....These jobs are a weak basis for the economy." Along similar lines, Sen. Lloyd Bentsen (D-Texas) fretted that "American workers will end up like the people in the biblical village who were condemned to be hewers of wood and drawers of waters." It should be noted that U.S. manufacturing output has roughly doubled since 1982.

In the early 1990s, another recession resulted in yet another job shortage scare. Ross Perot won 19 percent of the presidential vote in 1992 with a campaign that, among other things, railed against the "giant sucking sound" of jobs lost to Mexico and other foreign countries. That same year, Pulitzer Prize-winning journalists Donald L. Barlett and James B. Steele published a widely discussed jeremiad, America: What Went Wrong?, about the decline and fall of the country's middle class. That hand wringing was followed in short order by one of the most remarkable expansions in American economic history.

Again and again, serious and influential voices have raised the cry that the sky is falling. It never does. The root of their error is always the same: confusing a temporary, cyclical downturn with a permanent reduction in the economy's job-creating capacity.

In recent years, many Americans have lost their jobs and suffered hardship as a result. Many more have worried that their jobs would be next. There is no point in denying these hard realities, but just as surely there is no point in blowing them out of proportion. The U.S. economy is not running out of good jobs; it is merely coming out of a recession. And regardless of whether economic times are good or bad, some amount of job turnover is an inescapable fact of life in a dynamic market economy.

This fact cannot be wished away by blaming foreigners, and it cannot be undone by trade restrictions. The innovation and productivity increases that render some jobs obsolete are also the source of new wealth and rising living standards. Embracing change and its unavoidable disruptions is the only way to secure the continuing gains of economic advancement.