"What we need," President Barack Obama told a group in Galesburg, Illinois, today, "isn't a three-month plan, or even a three-year plan, but a long-term American strategy, based on steady, persistent effort, to reverse the forces that have conspired against the middle class for decades."

nequality, layoffs, economic insecurity -- it's a conspiracy! Sounds sinister . . . and yet, in a way, oddly comforting. A conspiracy is something you can do something about: find the villains and slay them. On the other hand, titanic and impersonal forces like globalization and technological progress are harder to vanquish.

Unfortunately, there's no easy villain to be conquered, no easy fix to bring the middle class back to the glory days of the 1950s and 1960s. Inequality and economic insecurity are rising everywhere in the developed world, not just in America. This is not a matter of policy tweaks or bad, greedy people. It's a matter of seismic shifts in the global economy.

Nonetheless, in his speech, Obama claimed that he could do something about the ills facing us -- that he had a plan to bring back the bourgeois boom. But the strategies themselves were less than promising.

"The first cornerstone of a strong and growing middle class has to be an economy that generates more good jobs in durable, growing industries," the president told his audience. "Over the past four years, for the first time since the 1990s, the number of American manufacturing jobs hasn't gone down; they've gone up. But we can do more."

"So I'll push new initiatives to help more manufacturers bring more jobs back to America. We'll continue to focus on strategies to create good jobs in wind, solar, and natural gas that are lowering energy costs and dangerous carbon pollution. And I'll push to open more manufacturing innovation institutes that turn regions left behind by global competition into global centers of cutting-edge jobs."

Obama has been promising green jobs for years, and failing to deliver them for just as long. There's little evidence that more environmentally friendly energy sources will be net job creators. The middle class may enjoy bluer skies if we convert more of our power generation capacity to wind and solar. But we've no reason to think that they'll enjoy more green in their wallets.

The manufacturing innovation institute, meanwhile, is just another iteration of an idea that's been around for longer than Barack Obama has. Go to any Rust Belt city and you'll find research campuses, innovation institutes and similar institutions named after hopeful politicians who promised that a new manufacturing base would coalesce around this exciting agglomeration of creative minds. Unfortunately, in most instances it has turned out that manufacturing bases would rather coalesce around cheap land, low taxes and acres of uncongested freeway.

Besides, the problem in America is not that we suddenly lost our manufacturing mojo. In fact, we're still very good at it; according to the Boston Consulting Group, the inflation-adjusted value of our manufacturing output has more than doubled since 1972. But our manufacturing employment is down by one-third, because production is highly automated in most industries. Even small metalworking operations now use computer-aided design and robots as much as they do grizzled machinists.

David Fuller's view Following on from the last sentence above, manufacturing bases also need competitive energy costs. I maintain that the USA would be struggling to avoid recession, had it not been for private industry's invention and utilisation of fracking technology. However, that was opposed by President Obama, at least until it became obvious that fracking was lowering the USA's energy costs, which were enticing manufacturing businesses back to America and creating more jobs in the process than any other programme.

The bigger long-term problem for employment is automation, due to this era of accelerating technological innovation. Wonderful technologies are making many of us more efficient, and corporations are the biggest beneficiaries. However, as technological innovation increases, it is replacing jobs more rapidly than they are being created elsewhere. This is a problem for all developed economies and increasingly, also for developing economies.

Since automation and unemployment can be frightening topics for families and governments, some people are in denial about the increasing pace of innovation. However, just consider how much innovation you have seen and utilised in the last ten years, relative to the previous decade. And compare that with each earlier decade going back to your childhood.

The accelerating rate of technological innovation has no obvious sequential end, although it could be ended by exceptionally adverse circumstances which I will leave to your imagination. Meanwhile, history over the last century shows that new jobs are frequently being created, but not necessarily at the pace required to keep unemployment levels low, especially in regions where populations are increasing.

Having seen successes for the US economy, including new GDP growth helped by lower fuel costs which private sector fracking created, Mr Obama is a lucky president because they occurred on his watch, despite the redistributive policies of his administration. He could encourage more growth and jobs by reducing corporate taxes and bureaucratic red tape which impedes the private sector.

See also comments following: On the US continuing to outperform, 11 June 2013


The Weekly View: Tax Deal Lowers Recession Risks, 8th January 2013


The Weekly View - Bernanke: Read My Lips, Wednesday 17th July 2013


IMF Reduced Global Growth Outlook as U.S. Expansion Weakens, Tuesday 9th July 2013


Martin Feldstein: The Fed Should Start to 'Taper' Now, Tuesday 2nd July 2013


Email of the day (1) - On a bearish article in the FT, Thursday 12th July 2012


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