Don’t Panic

The Economist notes that the paranoia about jobs is unfounded – in fact, we’ve never had it so good. In many ways, the problem with our economy is more one of perception than of performance.

For example, all the talk about outsourcing ignores the fact that it represents a very small effect on our economy:

As for outsourcing, it is implausible now, as Lawrence Katz at Harvard University argues, to think that outsourcing has profoundly changed the structure of the American economy over just the past three or four years. After all, outsourcing was in full swing—both in manufacturing and in services—throughout the job-creating 1990s. Government statisticians reckon that outsourced jobs are responsible for well under 1% of those signed up as unemployed. And the jobs lost to outsourcing pale in comparison with the number of jobs lost and created each month at home. Even here, the rate of job “churn” has, for unclear reasons, been falling since mid-2001.

For all the talk about the weakness of the American economy, college enrollments are up, consumer spending continues to grow, and big ticket item sales are still remarkably stable. If you don’t have a job, you’re not going to be running to Sears for a new washer and dryer.

The real reason is that our economy is in a state of transition between the old economy and the new. The decline of manufacturing has been going on for decades – robots now replace the dangerous and difficult job of spot welding the frames of automobiles. Manufactured goods now last for decades rather than just a few years. If I were to buy a dryer today, I could be reasonably certain it would last for years. The car I drive is nearly a decade old and could run for years so long as I continue to take care of it. All of this means that demand will go down for manufacturing and we don’t need thousands of people employed to replace dryers and cars.

Even the service sector is being effected by automation. How many ticket-takers at airports have been squeezed out by e-ticket machines? At the same time, how many groups are out there protesting curb-side check in?

These changes are always difficult, but ultimately necessary. We benefit from techological change, and the next technological revolution and subsequent job boom is waiting right around the corner. Hydrogen power, nanotechnology, advanced biotechnology, and technologies we can’t even predict yet could drastically change our economy.

In the last recession, 12 years ago, the term “Internet” was virtually unknown. The median cost of a PC was around $2000 for a model that was less powerful than a PalmPilot. Yet the Internet revolution transformed our economy dramatically, despite widespread outsourcing and the continued decline of manufacturing.

In other words, to quote a masterpiece of Western literature: don’t panic.

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