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The truth about unemployment

In today's Washington Post, Steven Pearlstein - an astute business journalist - asks us to move away from the facile and noisy debate about tax cuts, stimulus or government takeover of the economy, and instead to focus on structural economic issues.

Pearlstein gets right to the point: "The loss of eight million jobs reflects problems that are largely structural, not cyclical, which means they won't be brought back by fiddling with a magic dial in Washington that now controls how much the government spends." Neither the Republicans, who are "peddling the nonsense that excessive government spending is to blame for high unemployment", nor the Democrats, who "cling to the false hope that another helping of fiscal stimulus is all that is needed to get millions of Americans permanently back to work", get this reality. The problem is that the jobs that disappeared are unlikely to come back soon:

Since 2007, the manufacturing and construction sectors have each lost two million jobs, with finance, hospitality and retailing accounting for two million more. Those categories alone account for three-quarters of the nation's job losses, and while a fraction of those jobs might return as the economy recovers, it will be a long time before automakers or home builders or investment banks or retailers see the sales numbers they had at the height of the biggest credit bubble the world has ever seen.

Pearlstein identifies the underlying issue that isn't being addressed:

For the past two decades we have allowed our industrial and technological base to deteriorate as talent and capital were grossly misallocated toward other sectors of the economy.... Now that the debt-fueled consumption binge is over, we find that we don't have the companies, the workers or the competitive products to replace the stuff that we now import or expand our shares of export markets.

Pearlstein concludes that "the politicians who are really serious about creating jobs and bringing down unemployment" will be "talking about how to make the American economy competitive again". True.

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