Thursday, January 5, 2012

How is the Economy Healing?

The BBC News Web site just put up a report whose lead sentence is optimistic, at least on the surface:

The Institute for Supply Management (ISM) said its services index rose to 52.6 last month from 52 in November. A reading above 50 indicates expansion.

Needless to say, this (along with an increase of 325,000 new jobs in December according to the ADP National Employment Report) has been picked up by many, particularly in the financial sector, who are desperate for good news.  Here is the quote given by Wayne Kaufman, Chief Market Analyst at John Thomas Financial:

This is another data point that shows our economy is healing.

It fits in well with improvements we've seen in consumer sentiment, and obviously that's because there are more people getting paychecks, which is making everyone happier.

We should bear in mind, however, that this is an interpretation of the financial sector, by the financial sector, and for the financial sector.  How does it signify (if at all) for the rest of us?

As the BBC report puts it, the service sector “covers industries ranging from utilities and retailing, to healthcare and finance.”  In other words it has considerable breadth;  so, at the very least, any optimism should be withheld pending a more specific industry-by-industry account, which would give us some idea of what new jobs are going to whom.  (It is also grimly amusing to note that the photograph attached to this story on the BBC Web page shows an automobile assembly line, which has no direct connection to the service sector.)  At the very least one would assume some kind of bump in retail having more to do with the holiday season than with any overall trends in the economy.

Beyond that, however, is the question of the work itself.  We should not dismiss Kaufman’s assertion that “there are more people getting paychecks;”  but it begs two questions:
  1. What are they doing to earn them?
  2. How much are they actually earning?

For the majority of the unemployed, any paycheck is better than none at all.  However, it is probably the case that, more than any other sector of the economy, service work has become less skilled by virtue of “advances” (yes, those are scare quotes) in technology (as in the case that, much of what is now called “knowledge work” requires little, if any, knowledge).  Furthermore, again because of the impact of support technology, such work is no longer regarded as warranting a full-time salary.  Rather, compensation is provided on the basis of “piece work,” following the economic model of a sweatshop in the garment industry.

As a result both of the above questions give rise to hypothesis that need to be seriously considered: 
  1. A strong majority of the new jobs tallied by ADP involve people working at skill levels significantly below those for which they have been trained and/or educated.
  2. A strong majority of those jobs offer little, if any, security of extended employment and provide compensation that, while better than nothing, may not match the skills of the worker.  In other words this is compensation based on (to use the vocabulary from Karl Marx’ “Critique of the Gotha Program”) neither abilities nor needs.  As I have previously suggested, this is a world of work that is not particularly representative of what might be called a “real economy.”

Thus Kaufman may be celebrating a recent rise in gilded cages for the future workers of this country (if not the world).  Consequently, any claim that this amounts of a “healing” of economic conditions is, at best, questionable for those in the 99%.  Furthermore, the conditions resulting from such “healing” bear so little resemblance to any traditional model of a “real economy” that they are suspect at best of socially pernicious at worst.

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