January 27, 2010
TrendCzar Blog by Jonathan D. Miller
My recent “Government Retrenchment” post produced record feedback on and off line, both positive and negative and very representative of the highly partisan and charged political environment. Folks against government stimulus say enable the private sector to create jobs by cutting taxes and spending. They reject that stimulus has stanched even greater unemployment and financial market crisis and they would like to see reduced government programs leading to lower taxes and smaller deficits.
This supply-side Kool Aid still sounds awfully good—who doesn’t want to pay less taxes? But this elixir has failed miserably—the private sector hasn’t created enough new jobs despite the last decade of federal tax cuts, low interest rates, and increased spending. In fact, we’ve suffered a jobs creation deficit over the past decade. And wages and benefits have stagnated for most Americans who still have jobs.
The problem facing America and ultimately the health of real estate markets doesn’t have to do with the convenient red herrings of high taxes and government spending—albeit government deficits loom as an increasing threat. The intractable problem that no politician wants to talk about or face up to is America is the world’s highest cost labor market in an increasingly competitive global marketplace—people in other parts of the world produce what we do for less because they get paid a lot less than American workers. Bleeding of jobs overseas started decades ago in manufacturing, but now extends to various white collar service and technical jobs across virtually all industries. And the firms moving these jobs overseas are our largest employers—big multinational U.S. companies who can increase profits and raise their stock prices as a result of worker shifts to lower cost overseas labor markets. These employers include not only manufacturers, but also major financial institutions, accounting firms, and technology companies.
As just one example, a colleague at a major worldwide consulting firm mentioned to me last week that his company is shifting $2 billion in billable hours to new offices in South America, staffed by locals who get paid a lot less than comparable U.S. staff. “That’s a lot of hours,” he said. And you wonder why your son or daughter just out of college can’t find work today.
A host of other countries—not just the familiar names India and China—now educate millions of highly skilled employees who thanks to the internet and telecom take away jobs from U.S. workers.
This ominous global jobs transfer out of the U.S. threatens to weaken American living standards over the next generation, compromising the government’s ability to generate revenues to pay for all the things we have come to expect. And we still expect a lot--note President Obama keeps Social Security, Medicare, and defense off the spending freeze table with not much left to cut in the federal budget after that. Democrats and most Americans don’t want to touch the entitlements and Republicans and most Americans don’t want to touch defense. Despite the rhetoric, politicians know they cut spending at their own peril. At the same time the country is aging, putting greater strains on funding health care and retirements.
And in the mean time, demand for office, retail, and other commercial space will be painfully sluggish.
It’s just not a pretty picture that gets fixed simply by cutting government spending and lowering taxes. In fact, there’s no simple fix at all.
Jonathan Miller is a partner and co-owner of Miller Ryan LLC, a strategic marketing communications consulting firm to the financial services and real estate industries. Miller has more than 25 years of communications and marketing experience in the real estate industry, counseling many leading executives. For the past 15 years he has also authored Emerging Trends in Real Estate, the Urban Land Institute’s (ULI) premier annual industry forecast and speaks extensively on suburban and urban issues. He is also author of ULI's Infrastructure 2008: A Global Perspectives, a major analysis on the looming changes facing the U.S.