Job Outlook: Not So Gloomy - The ''recession generation'' is better off than you think.

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 by John Tamny,  Toreador Research and Trading (Guest Contributor) 

Not surprisingly, the latest unemployment report has elicited all sorts of hand-wringing over the future jobs' picture for today's workers. Former Labor secretary Robert Reich told USA Today that "We're going to have high unemployment for the next few years," and that "even when the jobs come back, they're not going to be very good jobs."

Newsweek's Rana Foroohar recently dubbed those presently entering the workforce as "The Recession Generation," noting that today's workers will indefinitely earn less while saving more. The Jan. 8 unemployment numbers--which reported the loss of 85,000 jobs--created hysterical headlines, including one in The Wall Street Journal suggesting that the disappearance of this many jobs "Raises Pressure on Obama to Focus on Jobs."

As is often the case during periods of economic pain, the conventional wisdom is divorced from reality. Indeed, for those (including this writer) who entered the labor force back in the somewhat recessionary early '90s, much of the commentary at the time centered on how "Generation X" wouldn't achieve its parents' lifestyles; it didn't take too long before a technology and finance boom made a disaffected Generation X the richest of them all.

Just as periods of economic uncertainty almost invariably lead to calls for the very trade barriers that reduce economic opportunity, so do downturns always coincide with overdone worry concerning the ability of new labor force entrants to achieve economically in ways that previous entrants once did. History, along with basic economic logic tell us that emotion, rather than rational thought, is driving this latest bout of low economic self-esteem.

The "loss" of 85,000 jobs is, at first glance, cause for much concern. But in any vibrant economy, jobs are being destroyed all the time. In that sense the greater concern would be a stationary economy in which the mix of jobs was unchanging. Thankfully the U.S. economy has never been stationary in that way. If it had, the pay commanded by our labor force would almost certainly be quite small.

Indeed, leaving the destruction of jobs alone is what will bring the recovery. An economic downturn forces companies to figure out how to do more with less. The productivity gains wrought by the downturn will without a doubt make U.S. businesses more efficient, and their efficiency is what will in time attract future job-creating investment. Moreover, the disappearance of jobs will drive creativity within the U.S. labor force itself. Faced with a bleak jobs picture in their chosen profession, many workers will re-invent themselves in order to enter existing and new professions.

Those who doubt this need only consider their own work history. They'll likely realize that they've re-invented themselves more than once on the way to their chosen profession.

Considering Foroohar's suggestion that a difficult salary outlook will drive a great deal of savings, the act of saving itself will, far from driving down long-term wages, eventually increase them. Money saved hardly disappears; delayed consumption leads to an expanded base of funds from which businesses of all stripes borrow in order to expand. The wages that every worker presently enjoys are the result of past savings, so delaying instant gratification will increase our wages as businesses access what we don't consume.

More broadly, the only way to increase wages is to increase investment per worker. And given the correlation between rising investment and rising wages, rather than buy into a bleak future as though today's struggles are a crystal ball into the future, we must ask what drives the investment that would enhance our wages.

On the taxation front, there is talk that the capital gains rate on investment returns will increase in 2011 from 15% to 20%. This will be bad for future wages; capital gains taxes are nothing more than a price put on investment success. When governments tax capital gains returns, they're raising the cost among investors willing to commit capital to growth initiatives. In that sense, if future pay is a concern, one simple solution would be for Congress to either vote to keep the capital gains rate at 15%--or better yet reduce the price of investment success to zero.

Most important, however, is the value of the dollar. Both the Bush and Obama administrations have sought a weaker dollar this decade, and initially this was good for job creation. The reason why is pretty basic: When we devalue we're actually lowering real wage rates, thus reducing the cost of hiring.

Longer-term, however, devaluation strangles job creation because inflation slows any returns on investment. Money debasement is inflation, and so long as the Obama administration continues to mimic devaluationist mistakes made during the Bush years investors will have to go on strike to avoid seeing their capital commitments eviscerated by inflation.

Returning to the gloomy job and wage predictions, when those who expect the worst talk about jobs and pay, what they're really talking about is investment. Their funereal views of our economic future are rooted in the notion that stateside investment will dry up such that wages and job opportunities will become less bountiful.

If so, what looks unfortunate is easy to fix. There are no jobs without investment, so the easy answer is to reduce the cost of same through reduced capital gains taxes, and most important, the issuance of a stable dollar the value of which will be a magnet for capital around the world. Jobs are the easy part--if only the Obama administration actually focuses on what's presently driving down investment.

About John Tamny:
Mr. Tamny is a senior economic advisor to Toreador Research & Trading, columnist for Forbes and editor of RealClearMarkets.com. Mr. Tamny frequently writes about the securities markets, along with tax, trade and monetary policy issues that impact those markets for a variety of publications including the Wall Street Journal, National Review and the Washington Times. He’s also a frequent guest on CNBC’s Kudlow & Co. along with the Fox Business Channel.