Different approaches to alleviate the Great Recession’s intransigence have been suggested. Repeatedly, policy approaches have been examined, only to be jettisoned, based on whether they concur with their own political ideologies. To combat this, we examine a few academic studies that offer views tested by more than mere opinion.
One study suggests that industrial policy could offer a possible remedy, policy that fosters sustainable industrial practices. Through a system of rewards and tax subsidies, academic scholars from four different universities including Harvard and UCLA argue that this approach could stimulate long-term growth. They argue that these tax policies could foster “sustainable growth or maximize intertemporal welfare [and]…in the case where the inputs [i.e. resources used in production] are…sustainable, long-run growth can be achieved with temporary taxation of dirty innovation and production.” In other words, tax policy can encourage manufacturers to use sustainable resources along with clean innovation and production. This would stimulate the economy while simultaneously encouraging practices that are sustainable using resources that are neither exploited nor exhausted.
Of course, there are those who reject the use of industrial policy as too much government interference. Yet the fact is that unemployment is still a trenchant problem that has long-lasting effects. And unemployment is the direct result of a lack of economic growth. Until those issues are addressed, unemployment will remain a problem. Another study investigates the long-term effects of extended unemployment. The authors found that those who lose their jobs in a weak economy experience a 20% lifetime wage loss over those who lose their jobs during a strong economy. They also examine the efficacy of extending unemployment benefits during weak economies. Extending UI (unemployment insurance) is considered beneficial under a specific set of circumstances, towards the goal of reducing the grinding poverty many of the long-term unemployed are experiencing, as well as increasing consumption and resultant demand. Here in the U.S., President Obama has taken note and proposes to extend emergency unemployment benefits.
These issues are all important for those in the architecture industry to understand since its unemployment rate is still hovering at, with modest estimates, almost twice what the overall unemployment rate is. Of course, this statistic does not count those who are not licensed architects, those who are underemployed, nor those who have been unemployed for longer than two years and are no longer officially recognized sby the Bureau of Labor Statistics. Some estimates put the unemployment rate for those in architecture profession to be as high as 40%.
So what can those in the architecture profession do? First, they must stop simply immersing themselves in a narrow vision of the profession as merely one of buildings, spaces, and aesthetics. They must understand the larger context of both their national and the global economy and how the architecture industry is shaped by those forces. And they must be involved politically. In the famous words of Frederick Douglass, “Agitate, agitate.” A collective voice of both the unemployed and employed in architecture would prove powerful indeed.
Sherin Wing is an independent scholar. She received her Ph.D. in the Humanities from UCLA. She has published articles on issues and subjects ranging from the economy and architecture to social and cultural history. She is also a frequent contributor to Metropolis, Architect Magazine and other publications. Follow Sherin on Twitter at @xiaying.
Sherin Wing, Ph.D., is a social historian who writes on architecture, urbanism, racism, the economy, and epistemology (how we know what we know by researching and examining the agendas inherent in our sources of information) to name a few issues and topics. She is dedicated to exploring issues in ...
3 Comments
Sherin,
Thanks for taking the time to initiate a look at the large scale forces that are, without question, shaping our profession. Taking a macro view has certainly been a small obsession of mine after getting caught flat-footed in 2008. It’s sad, but there’s actually a fairly clear picture emerging - among many economists of all political stripes - about what kinds of challenges the economies of the U.S. and western Europe are going to face in the coming years. And while proposed solutions can be manipulated to suit any particular ideological end, there seems to be (finally!) some general consensus developing among the adults in the room about what ails us and what remedies would work. (now, if they can sell these conclusions to the political class is another matter).
There really is a fundamental difference between this recession and the previous ones in that the drop which started in early 2008 capped a 25 year run of debt fueled “growth”. It’s not just federal and local governments – consumer and institutional debt has skyrocketed as well (for a variety of reasons). If ever there was an age of cheap credit, we’ve just lived through it. Since most of this debt was funded by a steadfast belief in the (seemingly) never ending rise in housing prices, even previous recessions (91 and 00) were able to rebound by turning to the housing market for support. That backstop is gone and could take until the end of this decade to work itself out. However, the broader effect, as you note, is devastating to both the construction industry (in terms of job loss, we still have yet to see any real recovery since 2009, when the bottom was reached.) but equally stifling on the overall overall job recovery. Really, it’s not too difficult to understand – “Construction” normally accounts for 11.5% of our overall GDP. When 30-40% of that market evaporates, you’ve lost 4-5 points off the GDP automatically (never mind any other drops in any other industries). To get back to a ‘normal’ growth rate of 3% a year, it’ll take 8% of growth somewhere else. Just to make up for the drop in construction spending. And, quite simply, the US doesn’t have enough in all other industries combined to make up for that deficit, even if they were firing on all cylinders. (Transportation and Manufacturing have, actually, made a decent comeback in the last 2 years). The key to our recovery is to fix the construction industry.
So, what will help us get the construction industry back on track? Sadly, the private sector’s spoken loudly over the past 3 years: banks are simply not going to make bad loans and/or when they don’t see the demand. There's a huge surplus of vacant office space, very few companies expanding or starting up to fill in those vacancies and the words 'build to suit' with a strong balance sheet are the only keys unlocking the vault right now. Compounding the problem in many states (such as my adopted state of Georgia): there are still a number of commercial foreclosures and fire sale pricing which makes purchasing existing properties a far cheaper alternative to building new stock.
Overall, the companies that are seeing record profits are simply putting the money in the bank, making other types of capital upgrades (and firing even more people) or buying back their own shares to inflate their stock price. Even banks that were given money to loan out to small businesses are using those funds to pay back their TARP bailouts, depriving the actual economy (but not their shareholders) of the intended effect. And, the fact that steadily increasing amounts of money reside in smaller numbers of hands magnifies the economic impact of their decisions or indecisions about investing in the broader market.
It’s easy to suggest, as architects, that we should back a study like the one released today by Nouriel Rabini, Daniel Alpert and Robert Hockett, which calls for 1.2 trillion to be spent over the next 5-7 years on a ‘sustained infrastructure program’. And, of course, there’s still a drumbeat for indirect stimulus – mainly through lowering taxes yet again. Yet, I’m concurring with the following sentiment: our problems are too large for indirect solutions to have any real effect. We’re at a point where interest rates, labor and equipment will be as low as we’ve seen in 20 years. And, with the current T-bill rates hovering at a shade under 2%, the bond market is begging us to spend money (and it’s not hovering at that level because those buyers think we’re going to actually default on our debt anytime soon). We need a WPA style program because our infrastructure, which makes Rick Perry’s report card look good, is aging to the degree that we will see many countries surpass us (qualitatively) in the near future, making them increasingly more attractive as destinations of sustained, private capital investment. Really, quite frankly, it’s an embarrassment to the legacy our forefathers gave to us to simply let the country rot away from indifference. Finally, construction is one of the very few things that can’t be fully outsourced and actually spends the money (vs. savings or paying down current debts, which is what most tax credits have been shown to do recently). You still have to make things by hand (most of the time).
There’s no silver bullet (or even 999) and there's going to be no easy way out of the quagmire we’re in. Focusing our energies on calling attention to the problems, however noble, need to be balanced by a collective demand for action that will help us rediscover a more sustainable, long term view of growth that truly benefits the many…
<iframe src="http://player.vimeo.com/video/29630006?title=0&byline=0&portrait=0" width="400" height="300" frameborder="0" webkitAllowFullScreen allowFullScreen></iframe><p><a href="http://vimeo.com/29630006">Prof. Joseph E. Stiglitz: The State of the Global Economy</a> from <a href="http://vimeo.com/worldbankvideo">World Bank</a> on <a href="http://vimeo.com">Vimeo</a>.</p>
ooops....
http://vimeo.com/29630006
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