Great Recession or Great Retooling?

January 3rd, 2011 at 8:04 am David Frum | 14 Comments |

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The Wall Street Journal reports on China’s oil shock: cooking oil.

These days, Liu Chuansheng nervously scouts five locations before he buys cooking oil, illustrating how a sudden spike in the price of the Chinese kitchen’s most vital ingredient has become close to a national crisis.

On a recent Friday, the balding 33-year-old, who runs a breakfast stand with his wife, wheeled a shopping cart into the aisle of a C.P. Lotus Corp. superstore in northern Shanghai, eying only prices. In seconds, his wife emptied the shelves of its 11 remaining bottles of Cofco Ltd. “Five Lakes” soybean oil, the discount choice at 47.90 yuan, or about $7.20, for five liters.

Cooking oil prices have jumped 27% in China in the past year. That’s the stuff that makes revolutions. It’s the latest indicator of the pressures that must sooner or later lead China to upvalue its currency. Revaluation of the renminbi will enhance Chinese purchasing power on world markets while raising the export prices of Chinese products. Expect to see more Chinese tourism, more Chinese investment in the rest of the world – and more Chinese imports, including from the US.

That’s one change that will be left behind by the Great Recession. Here’s another, as indicated by a story in the New York Times.

Across the nation, a rising irritation with public employee unions is palpable, as a wounded economy has blown gaping holes in state, city and town budgets, and revealed that some public pension funds dangle perilously close to bankruptcy. In California, New York, Michigan and New Jersey, states where public unions wield much power and the culture historically tends to be pro-labor, even longtime liberal political leaders have demanded concessions — wage freezes, benefit cuts and tougher work rules.

Already, state and local governments have shrunk their workforces by a total of over 200,000 persons since 2008. More pay cuts, pension changes, and job attrition seems likely to follow. The federal workforce has been growing since 2000, adding about 140,000 civilian workers, after shrinking by almost 400,000 between 1990 and 2000. (We’re looking at you, TSA and Homeland Security.) The post-2008 state and local cuts have more than compensated for that federal growth. If federal employment now goes into reverse, we could be looking at a permanently leaner public sector as another enduring consequence of the Great Recession. Maybe history will look back on this period and instead call it the Great Retooling: when the USA ended the generation-long expansion of state and local government and shifted from a housing-led consumption cycle to an export-led production cycle.

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14 Comments so far ↓

  • tommybones

    Leaner state and local government = massive unemployment. Wake up, Frum. The worst thing to happen to this country was Ayn Rand sitting at a typewriter.

  • jerseychix

    It is pretty much local taxes that are killing us here in NJ. The local power structure is so screwed up and so weighted towards those already in power, I don’t really see it changing any time soon. Until the local firemen, police, and county executives (including school superintendents) see that they are choking the life out of the state, nothing is going to change.

    And, as far as an export driven economy, as long as our major economic indicators are consumption of various goods, we are never going to be an export economy. We just don’t measure it enough, or put enough weight on it. An export driven economy requires much more long range thinking than most companies do.

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  • cheves222

    From your lips to God’s ears, David!!

  • armstp

    I find it ironic that the right and the public complain about things like the recent snow falls in the NY area and the snow removal or the BP oil spill and the “slow” government response and then at the same time will not raise taxes and only want cuts in government spending.

    You cannot expect the government to provide the services, if you do not want to pay for them.

    Blaming the unions for the holes in their pension liabilities is fairly BS. The reality is that the reason there are holes in many of the pension obligations is because those funds were poorly invested by Wall Street or because of the collapse in financial markets, which was entirely caused by the private sector. However, I would not exaggerate the long-term unfunded pension liabilities too much that some public sector government workers face, as many of those liabilities will correct themselves over time as the financial markets continue to come back.

    It was Wall Street that convinced many of the pensions, whether they are in the public or private sector, to invest in mortgage backed securities or real estate or private equity.

  • TerryF98

    The only “tools” are people who believe we actually have a vibrant manufacturing base to make things to export.

    The Right wing has successfully exported those jobs and facilities long ago. The money went to the top 1% who now own more than the bottom 90% combined.

    Well done Romney and friends.

  • tommybones

    It’s amazing how “trickle down” theory hasn’t been publicly accepted as an unmitigated sham by now. Record-breaking corporate profits haven’t trickled down one iota to the rest of the unwashed. When does the concept die? Oh yeah, in the village, “trickle-dwon” is simply a “truth,” carrying no further need of analysis.

  • aed

    David, on what planet do you live? Or, should I say, on what continent do you live? Our manufacturing takes place OUTSIDE THE US! So how’s that export-led production cycle a good thing for anyone but US and multi-national corporations? Or is that what you meant to say all along?

  • pnumi2

    Frum is describing the new prototype. We can call it the “Citizen’s United Paradigm.”

    It’s becoming the new normal: The needs, wants and profits of corporations are more important than the needs of the American citizen workers. We saw it in the election three months ago. And with 4th quarter revenues and profits being announced by our corporations soon, bargaining, depression and acceptance will soon set in for the rest of us.

    The great irony of the marriage between the Tea Party and Citizen’s United is the quick acceptance of the latter by the former. Remember the original Tea Party in Boston harbor: the anger and hatred by the colonists wasn’t just directed against King George and Parliament.

    The rage and fury of the colonists was also directed to the United Company of Merchants, commonly called the East India Trading Company, an early corporation in the history of capitalism, and the merchant of the must-buy tea.

    I guess the counter revolution is getting organized again.

  • RLHotchkiss

    So the new Frum’s plan is that we supply raw materials to countries that have manufacturing and or consumers who can buy things. I can just imagine the cheers of joys from carpenters putting down their tools and leaving their twenty dollar an hour jobs for less then minimum wage working on farms providing raw materials for China and Europe. I can see Romney’s campaign speech now. “We will supply raw materials for manufacturing in China, India and Germany.In my administration we will become Europe’s Mexico!”

  • tommybones

    Genius, RL… genius:

    I can see Romney’s campaign speech now. “We will supply raw materials for manufacturing in China, India and Germany.In my administration we will become Europe’s Mexico!”

  • think4yourself

    I’ll have to disagree with most of the comments above.

    First, it is interesting that Federal employees fell by 200,000 in 1990-2000 – mostly Clinton years and increased by 400,000 in the mostly Bush years. Isn’t it amazing that in the last 40 years, Bill Clinton was the most fiscally responsible President.

    Second, pension underfunding is due to many reasons; unions and politicians negotiated deals that everyone knew going in were funded at speculative assumptions (i.e. 12% or more annualized increases), but it meant solutions to negotiations without having to make hard choices. I also think that the gov’t unions as has happened in other industries took their mandate to get the most amount possible for their workers regardless of whether or not the public entity could afford it. You could certainly argue that short-sighted mentality killed the auto workers. Unfortunately those pension fund assumptions need to be resolved before the masses of baby-boomers start retiring (and it is a real problem – I just got a retirement notice from a firefighter friend of mine who has 22 years in – he is 47 years old – so he gets 75% of his pay of about $60K per year with cost of living increases. If he lives 30 more years, you can see the problem). Yes, Wall Street had a hand in it as did all of the other groups who lost fiscal sanity.

    Lastly, this could be the great retooling. Yes, many manufacturing jobs have been lost for a variety of reasons (outsourcing, and more importantly increased technology), but there are still significant manufacturing jobs in the US,;just they will often require different skill sets than those of 15-20 years ago. There is pent up demand from businesses who have refrained from either growing their businesses over the last two years or replacing needed equipment; as well growth from new businesses that have not started in the last two years that will start in the future. Lastly, the consumer has been paying down debt and increasing savings and soon they will begin to spend again (while 10% of the people are out of work, 90% of the people are just fine). Spending won’t be as robust as it was in 2002-2007 because that was fueled by excessive debt spending, however it will come back and probably be quite surprising in hindsight. We are already seeing it in corporate profits (manufacturing revenue has increased every month over the last 17 months), but it hasn’t spread to hiring yet. I think hiring will start to reverse slowly in 2011 and pick up speed in 2012 and 2013. If individuals and businesses have brought debt down to managable levels and IF the gov’t does the same, it could be the prelude to a nice, sustained economic recovery. But if we don’t do it, other countries will.

  • aed

    think4yourself: re “there are still significant manufacturing jobs in the US,;just they will often require different skill sets”:

    In what sectors are the “significant manufacturing jobs” you are referencing? What sectors are growing manufacturing jobs here in the US?

  • Rabiner


    I have to echo the situation you describe with public pensions. But unions only have 2 real goals in negotiating contracts: compensation and job security. It isn’t the unions who are at fault for this, it’s the bureaucrats who negotiated terms in a stupid manner. You call a company that maximizes profits capitalistic, whats wrong with unions acting in the same manner for their members?