October 22, 2003
Treasury Secretary John Snow probably did not know the
implications of the upward revisions in retail sales for July and August when he
declared that economic activity probably expanded more than 4 percent during the
summer. In fact, my estimates now
suggest that activity may have increased nearly 6 percent.
What is so remarkable about this performance is the absence
of working hours to produce that activity.
Indeed, preliminary estimates of hours worked show the same rate of
decline as during the spring.
This means that productivity may have soared by more than 9
percent during the quarter. With
wages actually declining in the latest month, profits are jumping by more than
20 percent from previous year levels and stock prices are justifiably surging.
But there is something wrong with this picture.
Consumers cannot continue their spending spree if they run
out of purchasing power. $400 child
tax credit checks and reduced tax withholding put enough money into people's
pockets to replace the absence raises, overtime, or, in some instances, even
When these tax reductions are spent, the growth of retail
sales will slow.
However, the other problem is in why productivity gains are
To be sure, some of the productivity gains reflect better
tools and better resource management. Those
improvements should persist.
But capital spending remains modest.
Our work force has not suddenly become more educated.
Few workers are churning out 9 percent more work at annual rates than
they did three months ago.
Instead, we are dumping American workers and replacing them
with services purchased from abroad. Computer
help lines are being staffed by workers in Ireland and India.
Computer programming is being written in Asia and delivered to U. S.
technology officers over the internet.
Those high priced American programmers are being dismissed
faster than they were being sought three years ago. More than 120,000 programming jobs have disappeared in the
past year. Even the previously
coveted system design computer jobs have fallen by more than 30,000 since this
Because the tax cuts are supporting spending, businesses
have been able to maintain sales or even grow them modestly.
At the same time they have been cutting hours worked and even the number
of paychecks they issue in the United States.
The result is an explosion in productivity, but also a limit upon the
spending capability of our economy.
Is there a solution to this problem?
Yes, but it will not be easy.
The strength of the American economy has almost always
included its ingenuity and flexibility. When
we were worrying about the hollowing of American enterprise in the 1980s (and we
worried as much then as now), we began creating new industries with new job
qualifications. We also beefed up
the effectiveness of our existing industrial materials industries and
The jobs that were lost then did not come back, but new
jobs sprang up. As recently as
2000, our unemployment rate was the envy of the industrial world.
From 1990 through 1999, our exports grew almost three times
as fast as our domestic economy. Those
countries that took our jobs in fibers and agricultural processing became
markets for our turbines, aircraft, and computer programs.
Japan appears to be learning the lessons we taught with our
performance in the past decade. In
the first seven months of this year, they have exported more goods and services
to China than they did in the previous entire year. By contrast, our exports to Asia have lagged.
Indeed, we are selling 5 percent fewer exports to the world today than we
did in 2000.
Caesar commanded his troops to seize the day. American enterprise must begin to seize the new opportunities.