Scared American Workers Can Thank Confused Economists

Goldman Sachs is known for many things, and one of them is its grueling interview process. With so many of the best and brightest from the top colleges, universities and companies vying to work at the financial giant, it must carefully and yes - ruthlessly - pick its employees.

Notable about the above is that it wasn't always so. Indeed, back in 2000 GS's actions signaled that it was running a bit scared vis-à-vis its employees. Despite having just gone public in a share offering that richly rewarded its workers from top to bottom, those same employees were departing this most desirable of companies at a rapid rate for Silicon Valley and its even greater stock option riches.

Evidence that GS was fearful of losing its most valuable asset in the form of human capital was there for all to see. Suddenly employees that had already been showered with IPO shares were given even more restricted stock as a lure to stay put. At the same time Goldman instituted a "coolness committee" to make the world's most attractive destination for the talented even more attractive. And then in an embarrassing example of worried overreach, Goldman announced that "casual Friday" would be casual every day.

Fast forward to 2013 and Robert Samuelson writes that "On this Labor Day, American workers face a buyers' market." Samuelson goes on to quote a lefty economist for the Economic Policy Institute, Lawrence Mishel, who laments a sense "that the economy just doesn't produce good jobs anymore." Before workers and those desirous of unemployment give up, they might keep in mind the source of the Labor Day gloom.

Indeed, it was Samuelson who oddly observed in 2011 that "A specter haunts America: downward mobility. Every generation, we believe, should live better than its predecessors," but "For young Americans, the future could be dimmer." What was funny about Samuelson's sky-is-falling whine in 2011 is that it repeated nearly word for word what was written about Generation X amid the early ‘90s recession and its aftermath. Generation X, like the "Millennials" of today was supposedly doomed to a life of shirt folding at the GAP while living with the parents whose accomplishments it would not live up to.

When Samuelson wrote what he did in 2011, he seemingly forgot that by the late ‘90s, Generation X had not only moved out of the house, but that it had moved into residences that were far superior to the ones it was reared in. It's funny how a booming economy can turn goatee-rubbing slackers into Wall Street and Silicon Valley ruling centimillionaires and billionaires in a matter of years.

The history of Generation X and how it eventually put Starbucks barista-hood and childhood bedrooms in its rear view mirror needs to be remembered in light of the downcast musings of Samuelson and Mishel in 2013. It's not that the U.S. economy "just doesn't produce good jobs anymore" as much bad policy from Washington has rendered good jobs a far more distant object. What's ironic is that the policies supported by Samuelson and other Keynesian-style thinkers help explain why the economy "just doesn't produce good jobs anymore."

Indeed, going back to President Obama's much-vaunted $787 billion government spending "stimulus" in 2009, Samuelson didn't even bother to question whether the extraction of $787 billion from a limping economy in order to redistribute it might be an unwise move. He didn't given his belief that reduced government spending is "precisely the wrong" step "in a severe slump." Samuelson's problem with the alleged "stimulus" back then was that it was mostly "a political exercise." Ok, by that funny logic, how is government spending whereby money is taken from one set of hands and placed in the hands of others ever not "a political exercise"?

Politics are naturally going to factor into how governments spend money, and this would be true in an economy-suffocating way no matter the political party in power. Once that which strangely confuses Samuelson is out of the way, a simple question reveals itself along the lines of who can allocate capital better: Barack Obama, John Boehner, Nancy Pelosi and Harry Reid, or Amazon's Jeff Bezos, FedEx's Fred Smith, Google's Sergey Brin, and Apple's Tim Cook? The question quickly answers itself, at which point the sentient among us may want to know why Samuelson allowed himself to be distracted by "a political exercise" to begin with. Back to reality, government spending always fails for it robbing those "in the arena" of growth capital that will by definition be wasted by the political class.

And while Samuelson revealed a bit more skepticism about the Fed's myriad "quantitative easing" (QE) programs, he strangely wrote last month that they were "an understandable gambit to reduce human suffering." Really? Money is tight at the moment for most Americans, QE is rooted in the devaluation of the money that Americans earn, yet in Samuelson's odd view of the world a devaluation of the paychecks earned by the "scared" American workers whose suffering pains him is somehow "an understandable gambit to reduce human suffering."

Back to simple economics, it doesn't take a PhD to understand that job creation is a function of investment. That's why when governments tax and borrow away dollars to spend they're as a rule consuming the very dollars that, if left in banks or brokerage accounts, would be lent to companies eager to grow. To government spend is to draw down private sector wages.  Also notable here is that when investors commit capital, they are tautologically buying future dollar income streams. But if Fed efforts to "reduce human suffering" take the form of QE, the very investors who create jobs logically have a reduced incentive to buy future dollar income streams.

In Samuelson's defense, he understands that "strong growth" is what would tilt the playing field back in favor of workers. Notable there, though perhaps not obvious to Samuelson is that growth was impressive alongside the power of workers vis-à-vis employers from 1995-2000 when government spending was relatively light, and the dollar strong.  Goldman Sachs surely wasn't sucking up to employees as much during the Bush/Obama years of nosebleed spending and dollar devaluing. What's apparently lost on Samuelson is just how inimical to "strong growth" is the government spending and QE that his columns indicate he supports.

Furthermore, it's decidedly not a good thing when "lifetime employment" is the norm, nor is it bad when "low performers" in companies are cut as Samuelson alludes. More realistically, lifetime employment likely signals workers not achieving their full potential in the way they would if profit-focused businesses forced the laggards out of work situations that don't match their skills. In a growing economy workers are constantly on the move, whether by choice, or by the choice of employers whose 'ruthless' cutting of mis-allocated labor is actually compassionate. 

What's bad is what we have right now. Workers don't struggle because "the economy just doesn't produce good jobs anymore," rather they struggle thanks to the policies of government spending and QE that are anti-investment, and that Samuelson approves of. In short, the problem isn't an economy that is confused about how to grow as much as economies always grow unless they're being restrained by policies promoted by confused economists with big megaphones.