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Dec 24, 2013 | econbrowser.com
A friend sent me the following email.
The inability to see that the current monetary policy does not work in any mechanically rational way is embedded in the culture of the professional and academic community. There is an orthodoxy of thought in all the elite institutions of learning and then in all the government and private applications of that learning. This group think will not change, as Schumpeter explained, until all the old heads of academic economic departments die and a new generation can impose a new orthodoxy. Professors and Central Bankers, who have spent their whole lives writing papers and books from an Aggregate Demand, Quantity Theory of Money point of view, are not capable of mentally confronting the possibility that everything they learned and taught for their whole lives might be wrong.
All the cherished beliefs of a generation that low interest rates stimulate economic activity, that increasing the quantity of money will increase bank loans and inflation, or that the economy's growth can be judged by the level of government spending and consumption, are exposed as intellectually bankrupt myths, are not effective in structuring policy, but the current orthodoxy makes it culturally and professionally impossible to admit that.
Ricardo, brilliant. Thank you and thank your friend for his/her clarity in succinctly stating the obvious that obviously cannot be admitted by establishment economists.
The focus on public debt by many academics creates a political debate that obscures the structural drag effects of demographics, "globalization"/"trade" (neo-imperial "trade" regime), PRIVATE debt to wages and GDP, and the resulting end of the reflationary effects on the growth of economic activity when the cumulative imputed compounding interest claims of private debt on wages and GDP are so large as to no longer permit growth of private economic activity.
Neither supply-side nor Keynesian policies can resolve the secular Long Wave debt cycle we currently face after 32 years of falling nominal interest rates and the reflationary effects from increasing debt to wages and GDP. More private debt (debt-money lending/deposits) to wages and GDP to increase supply does not work when there is too much private debt to service.
(Total rentier income [interest, dividends, and capital gains)] received disproportionately by the top 0.1-1%, and total gov't receipts combine for an equivalent of 51% of GDP, 120% of public and private wages, and 145% of private wages. The hyper-financialized economy and local, state, and federal gov't spending at 35% of GDP is resulting in a private sector so burdened by debt service, i.e., "rentier taxes", and gov't taxation that it cannot grow.)
Nor is more public debt to wages and GDP successful in increasing gov't spending to encourage private sector growth when the private sector is burdened with unprecedented debt.
By definition, secular highs in debt to GDP coincide with bubbly asset values to GDP, which in turn is reflected by extreme wealth and income concentration, as the top 1-10% receive 20-50% of income and hold 40-85% of all financial wealth.
The secular debt constraint to real GDP per capita precludes further supply-side expansion of debt, whereas extreme wealth and income concentration and runaway central bank reserve expansion causes asset bubbles, further hoarding at no velocity by the top 1-10%, and plunging money multiplier and velocity.
Historically, high debt/GDP, asset bubbles, and extreme wealth and income concentration are unambiguous indications of sub-optimal incentives, gross price distortions, misallocation of flows, and precursor conditions to decelerating real GDP per capita, financial panics, currency crises, structurally high labor underutilization, social instability, political reaction, and war.
Then add the structural ("permanent"?) drag effects from peak Boomer demographics AND Peak Oil (and net energy per capita), and the effects of debt and inequality are exacerbated (reinforced).
The median household income per capita for the bottom 80-90% of US households is equivalent today to the country GDP per capita in eastern Europe and the wealthier areas of Central and South America. The bottom 50-60% now have household income per capita of Mexico, poorer South and Central Americans, and South Africa.
The typical American male under age 35 receives an income of 60% of that of his generational predecessor in 1970-73 after taxes, inflation, and the effects of higher costs to income for energy, housing, education, and medical services.
The typical college grad today (the 50% who are employed or not underemployed or unemployable) receives a salary similarly adjusted at the equivalent purchasing power of the minimum wage in 1970.
We should thus not be surprised why Millennials are staying home, or moving back in, with Mom and Dad (or Mom or Dad); why household formation is collapsing; why Millennials' headship rate is at a record low; why Millennials are not marrying; and why the birth rate for Caucasian females is converging with that of Europeans, Japanese, Singaporeans, and Taiwanese.
In spite of all of this, or because of it, the stock market is melting up and the top 0.1-1% have virtually disengaged from what remains of the productive sectors of the economy on which the rest of us depend for paid employment and purchasing power.
Now the owners of most of the financial wealth and the means of production of goods and services and the managerial caste that facilitates economic activity intend to accelerate automation of paid employment, expand "trade" via an Asian NAFTA, increase immigration to the US, further increase surveillance-state capabilities, and impose "austerity" on the 50% "takers".
In the context of such conditions, it's no wonder economists spend most of their time focused on attempting to determine how many angels can dance on the head of the proverbial pin. No one gets paid nor receives tenure, a department endowment fund, and a pension by looking out of the window of the ivy-covered tower at the real world and telling his peers to do the same and write about it.
October 10, 2013 | prospect.org
TaskRabbit.com markets itself as a Web service that matches clients seeking someone to do odd jobs with "college students, recent retirees, stay-at-home moms, [and] young professionals" looking for extra income. The company website calls it "a marketplace dedicated to empowering people to do what they love." The name Task Rabbit doesn't exactly suggest the dignity of work, and the love often takes humble forms. Customers hire Task Rabbits to clean garages, haul clothes to the laundry, paint apartments, assemble Ikea products, buy groceries, or do almost anything else that's legal.
The San Francisco–based company, which has raised $38 million in venture capital since it was founded in 2008, makes its money by tacking on a 20 percent surcharge to the fees paid by clients. The firm performs criminal background checks on aspiring Rabbits, who then get access to chore requests posted by customers. Using the familiar metrics of the Internet, the more than 10,000 approved Rabbits are rated by past users. Early this year, Patricia Marx wrote a witty New Yorker piece titled "Outsource Yourself" on her experience hiring a Task Rabbit to purchase and deliver hors d'oeuvres for her book group. When Marx fell behind in her reading, she hired a second Rabbit to summarize the book for her (Proust's Remembrance of Things Past, no less) and to ghostwrite some clever comments. She then retained a third Rabbit to bake madeleines.
Marx's adventure reads like a cross between Woody Allen's famous short story, "The Whore of Mensa" (in which a character hires a young Brandeis graduate to talk pseudo-intellectual to him), and a labor-market fantasy by Friedrich Hayek. But Task Rabbit is more than a hip, Web-based temp agency. It's the reserve army of the unemployed made flesh. What's diabolically brilliant and emblematic about the company is that prospective errand-runners bid against one another for jobs. To get an assignment, an aspiring Rabbit offers to do the chore for less money than he or she thinks other prospective Rabbits are bidding. That's what makes it a metaphor for the new economy, a dystopia where regular careers are vanishing, every worker is a freelancer, every labor transaction is a one-night stand, and we collude with one another to cut our wages.
At the rate things are going, tens of millions of us could end up in the role of Task Rabbits. Not actual Task Rabbits, mind you. But temps, contract employees, casual day laborers, baristas, warehouse pickers at Amazon, fast-food workers, call-center operators, nurse's aides, underemployed "consultants," and adjunct professors all have one core trait in common with freelance errand-runners: They have lost bargaining power. Even people with regular paychecks are less likely than their parents to have decent pay, benefits, and job security. In its technology, the Task Rabbit economy is very 21st-century, but it brings back the 19th, an era when most people who didn't farm or own property were casual labor.
The precarious labor market raises a host of questions. Is this trend economically efficient? Is it technologically inevitable? Must workers lacking advanced skills necessarily be relegated to a virtual hiring hall of low-paid day labor?
Further, in a relentlessly competitive global economy of intensified creative destruction, is job security no longer possible for employers to provide? Is a stable career a foolish aspiration? We hear that with lifetime employment defunct, workers should not only adjust to the need to pursue multiple jobs, skills, and careers but welcome the challenge. Do Task Rabbits love the freelance life, or are they quietly desperate people internalizing the new norms of job insecurity?
Finally comes the political question. To the extent that at least some of this erosion of decent work is optional, what will it take to restore an economy of living-wage jobs?
As we try to figure out why the United States is becoming an economy of ever more casual employment and how to reverse this trend, we had better get the answers to these questions right.
Somehow, despite the claims for efficiency, a hyper-competitive labor market has not yielded superior overall economic performance. On the contrary, the era of more-stable employment in the quarter-century after World War II had almost double the recent rate of economic growth. Even the postwar era had its Task Rabbits, of course. My mother, widowed with a small child, took a temp job selling classified ads from home. Young people baby-sat, delivered newspapers, and fetched groceries for old folks at subprime wages. Minorities were relegated to insecure domestic, janitorial, and farm labor. But the norm for prime-age (white, male) breadwinners was regular payroll employment.
Katherine Stone, a professor of labor law at the University of California, Los Angeles, studies the erosion of what she terms the "standard contract of employment." She doesn't mean a literal contract, though some workers had one, but a set of norms and assumptions. That contract included a regularized workweek and paycheck and the expectation of continued employment assuming satisfactory job performance. The social protections that were added throughout the 20th century-wage and hour laws, unemployment insurance, workers' comp for injuries, apprenticeship programs, regulated fringe benefits, anti-discrimination rules, Social Security, the right to bargain collectively, health and safety standards-were predicated on the assumption of a standard workweek. To use Stone's term, they were "layered" on top of the normal employment contract.
As Stone notes, regular employment promoted solidarity: "By giving workers the actual or potential experience of working together over extended periods of time, the standard employment contract taught them how to organize for industrial and political action." None of this happened spontaneously or was an artifact of a particular stage of capitalism. It took political struggle and victories in Congress and on the shop floor.
As the standard contract of employment has eroded, the added protections of labor regulation have eroded along with it. What economists call "contingent" workers-casual labor-generally don't get unemployment insurance, workers' comp, or fringe benefits; they pay their own Social Security and can't organize unions. The move to insecure, irregular jobs represents the most profound economic change of the past four decades. The $64 trillion question is whether this collapse in what used to be standard reflects a shift in fundamentals-or merely a shift in political power from labor to capital.
May 12, 2013
How Austerity Kills
By DAVID STUCKLER and SANJAY BASU
EARLY last month, a triple suicide was reported in the seaside town of Civitanova Marche, Italy. A married couple, Anna Maria Sopranzi, 68, and Romeo Dionisi, 62, had been struggling to live on her monthly pension of around 500 euros (about $650), and had fallen behind on rent.
Because the Italian government's austerity budget had raised the retirement age, Mr. Dionisi, a former construction worker, became one of Italy's esodati (exiled ones) - older workers plunged into poverty without a safety net. On April 5, he and his wife left a note on a neighbor's car asking for forgiveness, then hanged themselves in a storage closet at home. When Ms. Sopranzi's brother, Giuseppe Sopranzi, 73, heard the news, he drowned himself in the Adriatic.
The correlation between unemployment and suicide has been observed since the 19th century. People looking for work are about twice as likely to end their lives as those who have jobs.
In the United States, the suicide rate, which had slowly risen since 2000, jumped during and after the 2007-9 recession. In a new book, we estimate that 4,750 "excess" suicides - that is, deaths above what pre-existing trends would predict - occurred from 2007 to 2010. Rates of such suicides were significantly greater in the states that experienced the greatest job losses. Deaths from suicide overtook deaths from car crashes in 2009.
If suicides were an unavoidable consequence of economic downturns, this would just be another story about the human toll of the Great Recession. But it isn't so. Countries that slashed health and social protection budgets, like Greece, Italy and Spain, have seen starkly worse health outcomes than nations like Germany, Iceland and Sweden, which maintained their social safety nets and opted for stimulus over austerity. (Germany preaches the virtues of austerity - for others.) ...
It's hard to understand why policymakers haven't done more to try to alleviate the unemployment crisis.
[God! Are you dense or something? Here's a theory for ya. (Its just a theory)
Policymakers policymakers haven't done more to try to alleviate the unemployment crisis because they DON'T GIVE A RATS ASS!!!
Probably because they think unemployment (as a buffer stock) is the way to control inflation, and that giving preferential treatment to the rich in honour of the non-existent 'trickle down' effect is a better idea. Sounds like a trade in human misery to me.
Ignacio said in reply to The BIorch...
There is another way to say it. Policymakers care/interest on unemployment is very limited and well behind other "state reasons". Unemployment is probably seen as collateral damage of those. The point of the studies mentioned above is that they show how policymakers have completely lost their awareness.
The BIorch said in reply to Ignacio...
[I quite agree. The Government is too busy hunting terrorists with their drones to be bothered with serially unemployed.]
bakho said in reply to The BIorch...
They are elitist jerks.
They are so High School.
They burnish their credentials as "elites" by bullying the poor.
They are not nice people.
save_the_rustbelt said in reply to The BIorch...
Both parties regularly have fund raisers on Wall Street.
Depressed wages keep workers in check.
mrrunangun said in reply to save_the_rustbelt...
Agree with you as usual. Geithner, Summers, Lew are all Rubinites as are the leading Democratic policy makers in the current administration. The Fed is bank centric by its nature. So policy is made on Wall Street because that is where the campaign dough comes from and where the cushy jobs come from for the Rubinites when they can take a few years off of serving the public to make millions per year.
When the unemployed make big contributions to the DNC or hire the Orszags, Emanuels, and Geithners of the world to put political fixes in for them, then the unemployed will get some attention. Until then, Bob Rubin and his friends will continue to run the Party. Hubert Humphrey and his friends are long gone.
Over the next 30 years, 1975-2005, the standard of living still seemed to rise, but if we look behind the numbers and between the lines, we see that much of the wealth increase over that period is illusional, because it was increasingly based on credit, i.e. it was borrowed from the future, while at the same time, the costs of "really big ticket" items such as education and health care were moved away from governments and towards citizens, where they began an unstoppable ascent (and we paid for them with credit).
There are umpteen different ways to define standard of living, but it seems quite reasonable to say that, as societies, we hit the top of our wealth in the mid to late 1970′s, although valid arguments can be made for an even earlier date.
And then from about 2005 onwards, we have entered payback time. A fast increasing part of our budgets started to go towards continually rising costs for education, health care etc., AND interest payments on what we borrowed in the previous three decades AND interest payments on what we borrowed to both make those payments and keep the illusion of (increasing) wealth alive. In a glaring example, housing prices went up not because people got richer, but because they could borrow more.
In another example, across the western world, coming out of WWII, many if not most countries were dedicated to providing equal (and therefore necessarily free) access for everyone to the best health care and education available. And look at us now …
Today, in 2013, debt numbers all over are at levels that nobody would have believed possible only 30 years ago. Household debt, national debt and corporate debt hang around our necks like so many nooses, and all we can do to prevent ourselves from suffocating is to borrow more. And so, inevitably, debt levels rise further. And just as inevitably, more and more people fall by the wayside; they can't keep up anymore. They are either too much in debt already, or they can't find a job that pays enough – provided they find a job at all – or both. In the process, we have become, the vast majority of us, entire societies of debt slaves, living in constant fear of losing a job and/or a home, and/or contracting a disease.
And it's not just paying back their own debt which people find ever harder: much of the debt from the financial – and overall corporate – sector has been transferred to the public sector, first becoming national debt and then trickling down into household debt through taxes and cuts to services.
This is a choice we make as – members of our – societies. It may be advertised to us as some kind of law of nature, but there's no such law, it's simply a choice. The only possible way to improve our societies, so we are told, is through economic growth. In the same vein, we are told that we actually do have economic growth again today, just not enough. That's not really credible either, although some growth faithful might claim that it all depends on which data you use. The S&P hit another record, so all must be well.
It is a choice, and it is an ongoing trend that is far from being finished. Those who do have wealth today are not going to voluntarily take a step back and say I have enough. A few individuals may, but the vast majority will continue to look for more. In the absence of actual growth, and in the presence of increasing debt, they can and will only achieve that by pushing the poor deeper into poverty. That is the real choice, even as faith in eternal growth makes it easy, if not necessary, to deny that such a choice exists.
Or to put it in different words: we continue to live with the idea of recovery, which in our minds equals a return to what we had, plus added growth. For some of us that may come true, but for a very rapidly increasing number amongst us, it will not. Because, and it's high time we acknowledge this, at this point in time, the only way the upper echelons of our societies can achieve some level of growth is to take it away from everyone else. And those upper echelons, mind you, demand exponential growth, which means, in a society that cannot grow, that the numbers of poor people will rise exponentially as well.
The incessant repetition of the "recovery is just around the corner" mantra has a hugely distorting effect on people's behavior in that even those who would be inclined to listen to appeals for redistribution of wealth and income will tend to turn a deaf ear if they are convinced no such redistribution is needed because those who are poor today will soon, any moment now, be made rich(er) by the recovery. This also makes it much easier to label redistribution of wealth as, just to name a term, communist.
And that's a very twisted picture that can exist only because we have such poor memories, especially when it suits us. Because in reality, we are of course already seeing a huge redistribution of wealth today, only this one increases inequality instead of decreasing it. Which means all those dreams about equal access for everyone to the best health care and education available are long gone. If we would only redistribute wealth in such a way that it would see us return to the level of inequality that existed when those dreams were relevant, 60-odd years ago, much of our poverty conundrum would be solved. It is really as simple as that.
It's ironic that one of the undoubtedly most capitalist countries on the planet, Switzerland, appears to take wealth redistribution more serious than any other, with a slew of referendums (yes, they have actual democracy) aimed at decreasing income inequality. In March, one such referendum forced public companies to give shareholders a binding vote on executive compensation. In November, there's a vote on the 1:12 initiative, which stipulates that executives can't make more than 12 times the salary of the lowest-paid employee. Which somewhat perversely means executives have a very good reason to raise that lowest salary: they themselves can get 12 dollars for every single dollar they give the employee, so an extra $1000 per month for the latter translates into $144,000 extra per year for the bosses.
Another referendum, to be held at an as yet unspecified date, calls for everyone in Switzerland to receive an unconditional income of 2,500 Swiss francs ($2,800) per month from the state. That initiative, though it may have many great – liberating – consequences, will probably not make it, because it makes people think that it induces laziness.
The Swiss are not the only people considering a basic income rather than a minimum wage (Beppe Grillo wants it in Italy), and it's a bit of a shame that no-one actually tries it for their country, just so we can see what happens. For one thing, those who want to see a smaller government apparatus should jump on the basic income idea; much of what governments do these days is linked to all sorts of benefit programs, and these could disappear almost entirely. Isn't it just absolutely hilarious in that light to realize that those most opposed to big government are also most opposed to a basic income? Talk about having your cake and eating it too…..
Meanwhile, the growth mantra is so deeply imbedded in our minds that no-one deems it necessary to answer a question I've long been asking: What Do We Want To Grow Into? . The need for eternal growth is simply accepted as a given. That is as much a pity as it is definitely not smart.
Still, if nobody wants to answer that particular question, maybe we should turn it around a little, and ask slightly different questions, like:
1) Given the numbers on poverty and unemployment cited below in this article, how likely do you think it is that your economy – as a whole – is actually growing (i.e. expanding)?
2) Do you feel it's desirable to live in a society where, even if there would be growth, it can apparently only be achieved by throwing ever more of your fellow citizens off and under the bus?
not to mention:
3) How long do you think such a society can last?
Questions like these will easily be thrown upon the commie heap, and even be labeled unpatriotic, but they're really just a bunch of simple questions, which seamlessly lead to yet another question: what kind of society is unable and unwilling to answer such questions about itself?
Why don't I inundate you with some random data, and when you feel it gets a bit much please realize that this is only a small sample, and on any given day I could make it 10 times more:
Poverty stuck at 15% – record 46.5 million Americans
The nation's poverty rate remained stuck at 15% last year despite America's slowly reviving economy …
More than 1 in 7 Americans were living in poverty, [up from the] 46.2 million of 2011 …
[..] For the past year, the official poverty line was an annual income of $23,492 for a family of four.
Poverty remained largely unchanged across race and ethnic groups. Blacks had the highest rate at 27.2%, compared to 25.6% for Hispanics and 11.7% for Asian-Americans. Whites had a rate of 9.7%.
Child poverty stood at 21.8%.
Census on Obama's 1st Term: Real Median Income Down $2,627; People in Poverty Up 6,667,000; Record 46,496,000 Now Poor
In 2008, according to the Census Bureau, there were approximately 39,829,000 people living in poverty in this country. In 2012, there were 46,496,000. That is an increase of approximately 6,667,000-of 16.73% – from 2008 to 2012.
In 2008, the year Obama was elected, people in poverty represented 13.2% of the national population. In 2012, they represented 15.0% of the population.
Economic Collapse Blog:
They Denied That We Were In A Depression In 1933 And They Are Doing It Again
90.5 million working age Americans are considered to be "not in the labor force".
The labor force participation rate is the lowest it has been in 35 years.
516,000 Americans "left the labor force" . That was a brand new all-time record high.
The number of private sector jobs dropped by 278,000 [in august 2013].
77% of the jobs that have been "created" so far this year have been part-time jobs.
Approximately one out of every four part-time workers in America is living below the poverty line.
The Real Unemployment Rate
The nominal unemployment rate is still high, but the real jaw-dropping fact is the number of working-age Americans who are not working. Today that is 100,000,000 Americans out of a total population of about 310,000,000. Demographically, about 80,000,000 Americans are minors and about 40,000,000 are age 65 or older. That leaves approximately 190,000,000 Americans who are adults of working age. About half of those do not have a full-time job.
When those "Not in the labor force" are added to those "Unemployed," then those who are not working is growing: 99.5 million in April 2011, 100.3 million in February 2012, 100.5 million in March 2012, and 100.9 million in April 2012. When counting both those "Not in the labor force" (though in the age in which most Americans work) and "Unemployed" as a single group, then those who are not working, but are in the age group in which Americans normally work, has remained steady and high: 41.6% in April 2011, 41.5% in February 2012, 41.5% in March 2012, and 41.6% in April 2012.
While the Establishment survey data was ugly due to both the miss and the prior downward revisions in the NFP print, the real action was in the Household survey, where we find that the number of people not in the labor force rose by a whopping 516,000 in one month, which in turn increased the total number of people outside the labor force to a record 90.5 million Americans.
In America today, only 47% of adults have a full-time job.
According to one recent survey, 76% of all Americans are living paycheck to paycheck.
At this point, one out of every four American workers has a job that pays $10 an hour or less.
The U.S. economy continues to trade good paying jobs for low paying jobs. 60% of the jobs lost during the last recession were mid-wage jobs, but 58% of the jobs created since then have been low wage jobs.
Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.
At this point, an astounding 53% of all American workers make less than $30,000 a year.
According to a study that was released by the Center for Economic and Policy Research, only 24.6% of all jobs in the United States qualify as "good jobs" at this point. [..]
… the three criteria used to define what a "good job" is are:
1 The job must pay at least $18.50 an hour. According to the authors, that is the equivalent of the median hourly pay for American workers back in 1979 after you adjust for inflation.
2 The job must provide access to employer-sponsored health insurance [..]
3 The job must provide access to an employer-sponsored retirement plan. [..]
The St. Louis Fed:
A record 28 million Americans have part-time jobs …
Low fast-food wages come at high public cost
[US] taxpayers are spending nearly $7 billion a year to supplement the wages of fast-food workers, even as the leading fast-food companies earn billions of dollars in annual profits, according to a pair of reports released Tuesday.
More than half of the nation's 1.8 million "core" fast-food workers rely on the federal safety net to make ends meet, the reports said. Together, they collect nearly $1.9 billion through the earned income tax credit, $1 billion in food stamps and $3.9 billion through Medicaid and the Children's Health Insurance Program … [..]
Even among the 28% of fast-food workers who were on the job 40 hours a week, the report said, more than half relied on the federal safety net to get by.
Those workers are left to rely on the public safety net even though the nations seven largest publicly traded fast-food companies netted a combined $7.4 billion in profits last year, while paying out $53 million in salaries to their top executives and distributing $7.7 billion to shareholders …
Most Americans expect to work during 'retirement'
More than 4 in 5 older Americans expect to keep working during their latter years, a sign that traditional retirement is out of reach for vast swaths of society, according to a new survey.
Among Americans ages 50 and older who currently have jobs, 82% expect to work in some form during retirement, according to the poll by the Associated Press-NORC Center for Public Affairs Research. In other words, "retirement" is increasingly becoming a misnomer. The still-sluggish economy, battered 401(k) retirement plans and inadequate savings are upending traditional notions of retirement.
Add in an expected increase in lifespans and the result is a generation of workers facing dim financial prospects for what used to be known as the golden years. Excluding pensions and homes, 39% of survey respondents said they have $100,000 or less saved for retirement. Nearly one-quarter have less than $10,000.
And despite conventional wisdom, people can't count on simply working until they drop. One-third of retirees say they didn't have a choice in the decision to leave the workforce, the survey found. In other words, many were pushed out by ill health or layoffs. Among retirees younger than 65, the figure is 54%.
Pittsburgh Post Gazette:
Extreme poverty on the rise for older women
An alarming number of women over the age of 65 joined the ranks of the extreme poor last year, according to a new report by the National Women's Law Center titled "Insecure & Unequal," which analyzed recently released data from the Census Bureau.
The retirement picture for nearly 1 million older women in America whose income fell below extreme poverty levels last year - $5,500 or less in annual income - is anything but golden. They never have enough to cover the cost of food, medicine and housing, and are forced to make tough choices each day on what sacrifices they must make to survive. [..]
The number of aging women struggling to make ends meet on $500 or less each month increased by 18% last year, according to the law center's analysis of U.S. Census data, which means an additional 135,000 elderly people slid into extreme poverty in 2012. The total number of women 65 and older in this country living on $5,500 a year or less now totals 733,000.
Other key findings in the report were that the poverty rate - $11,720 or less in annual income for single adults - among adult women was 14.5% in 2012, compared to 11% for adult men. The poverty rate for single-mother families with children was 40.9% compared to 22.6% for single fathers with children and 8.9% for families with children headed by a married couple.
The Expendables: How the Temps Who Power Corporate Giants Are Getting Crushed
In cities all across the country, workers stand on street corners, line up in alleys or wait in a neon-lit beauty salon for rickety vans to whisk them off to warehouses miles away. Some vans are so packed that to get to work, people must squat on milk crates, sit on the laps of passengers they do not know or sometimes lie on the floor, the other workers' feet on top of them. This is not Mexico. It is not Guatemala or Honduras. This is Chicago, New Jersey, Boston.
The people here are not day laborers looking for an odd job from a passing contractor. They are regular employees of temp agencies working in the supply chain of many of America's largest companies – Walmart, Macy's, Nike, Frito-Lay. They make our frozen pizzas, sort the recycling from our trash, cut our vegetables and clean our imported fish. They unload clothing and toys made overseas and pack them to fill our store shelves. They are as important to the global economy as shipping containers and Asian garment workers.
Many get by on minimum wage, renting rooms in rundown houses, eating dinners of beans and potatoes, and surviving on food banks and taxpayer-funded health care. They almost never get benefits and have little opportunity for advancement.
Across America, temporary work has become a mainstay of the economy, leading to the proliferation of what researchers have begun to call "temp towns." They are often dense Latino neighborhoods teeming with temp agencies. Or they are cities where it has become nearly impossible even for whites and African-Americans with vocational training to find factory and warehouse work without first being directed to a temp firm.
In June, the Labor Department reported that the nation had more temp workers than ever before: 2.7 million. Overall, almost one-fifth of the total job growth since the recession ended in mid-2009 has been in the temp sector, federal data shows. But according to the American Staffing Association, the temp industry's trade group, the pool is even larger: Every year, a tenth of all U.S. workers finds a job at a staffing agency.
[..] The temp system insulates the host companies from workers' compensation claims, unemployment taxes, union drives and the duty to ensure that their workers are citizens or legal immigrants. In turn, the temps suffer high injury rates, according to federal officials and academic studies, and many of them endure hours of unpaid waiting and face fees that depress their pay below minimum wage.
The rise of the blue-collar permatemp helps explain one of the most troubling aspects of the phlegmatic recovery. [..] … many workers are returning to temporary or part-time jobs. This trend is intensifying America's decades-long rise in income inequality …
[..] The day after Thanksgiving 1960, Edward R. Murrow broadcast a report called "Harvest of Shame," documenting the plight of migrant farmworkers. Temp workers today face many similar conditions in how they get hired, how they get to work, how they live and what they can afford to eat. Adjusted for inflation, those farmworkers earned roughly the same 50 years ago as many of today's temp workers, including Rosa. In fact, some of the same farm towns featured in Murrow's report have now been built up with warehouses filled with temps.
[..] The temp industry boomed in the 1990s, as the rise of just-in-time manufacturing drove just-in-time labor. But it also gained by promoting itself as the antidote to bad publicity over layoffs. If a company laid off a large portion of its workforce, it could make big news and leave customers feeling sour. But if a company simply cut its temps, it was easy to write it off as seasonal - and the host company could often avoid the federal requirement that it notify workers of mass layoffs in advance.
More recently, temp firms have successfully lobbied to change laws or regulatory interpretations in 31 states, so that workers who lose their assignments and are out of work cannot get unemployment benefits unless they check back in with the temp firm for another assignment.
Christian Science Monitor:
Suburban poverty across the country grew 53% between 2000 and 2010, more than twice the rate of urban poverty, according to a recent report by the Brookings Institution. For the first time, more poor people live in the suburbs than in cities. "I think suburban poverty is here to stay," says Alan Berube, one of the authors. "It's not going to revert back to the cities."
… the 400 wealthiest Americans now have more money [over $2 trillion] than the poorest 50% of all Americans combined.
A Different Type of Poverty
Even though we don't have starvation, we do have an amount of poverty that leads to malnutrition, that leads to a series of diseases that we don't tend to associate with First World countries, that leads to massively truncated life expectancy, and all but guarantees that from one generation to the next, poverty is going to be transmitted.
There are a lot of people with an awful lot of money, but there are an awful lot of people with absolutely nothing. And then there's a lot of people in the middle who, as the economic recession deepened in 2008-10, experienced downward mobility. Maybe that's one of the differences. In the 1960s, the country was clearly on an upward trajectory.
The bottom 20% of the workforce has seen a real income decline by double-digit amounts since the Nixon years. The 1% at the top, or the 0.1% – or if you go even higher, the 0.01%, the billionaires – have seen their income increase by not just 1, 2 or 3%, but by thousands of%[s]. What it means is political access is concentrated at the top, and as soon as that happens you end up with a political class that doesn't respond to the needs of ordinary people.
Everybody who is poor is overlooked because everybody who is poor in America is reduced to a set of stereotypes.
America is the wealthiest nation in the world, yet it has higher levels of poverty than any other western democracy. Its poverty rates compare more with a country like Romania than with countries like Canada, France or Germany.
New York Times:
House Republicans Pass Deep Cuts in Food Stamps
House Republicans narrowly pushed through a bill on Thursday [Sep 19] that slashes billions of dollars from the food stamp program, over the objections of Democrats and a veto threat from President Obama.
[..] Republican leaders, under pressure from Tea Party-backed conservatives, said the bill was needed because the food stamp program, which costs nearly $80 billion a year, had grown out of control. They said the program had expanded even as jobless rates had declined with the easing recession.
[..] even with the cuts, the food stamp program would cost more than $700 billion over the next 10 years.
[..]The bill, written under the direction of the House majority leader, Eric Cantor, Republican of Virginia, would cut $40 billion from the food stamp program over the next 10 years. It would also require adults between 18 and 50 without minor children to find a job or to enroll in a work-training program in order to receive benefits.
[..] According to the Congressional Budget Office, nearly four million people would be removed from the food stamp program under the House bill starting next year. The budget office said after that, about three million a year would be cut off from the program.
The budget office said that, left unchanged, the number of food stamp recipients would decline by about 14 million people - or 30% - over the next 10 years as the economy improves. A Census Bureau report released on Tuesday found that the program had kept about four million people above the poverty level and had prevented millions more from sinking further into poverty. The census data also showed nearly 47 million people living in poverty - close to the highest level in two decades.
One in four kids in poverty, despite U.S. gains
The White House may be touting a message of an improved economy - and claiming on its website that President Obama is all about helping those of lesser financial means - but meanwhile, nearly one-quarter of America's youth are struggling in poverty, a new report reveals.
Nearly one in four children lived in poverty in 2012 [..]
New Hampshire's childhood poverty numbers rose significantly in just a year's time - and what's worse, the state bragged on the lowest child poverty rate in the entire nation for a full decade. In 2011, the rate of poverty for that age group was 12%. A year later, it rose to 15.6%. And in all the years from 2007 to 2012, that figure jumped more than 75% …
Meanwhile, around the nation, 16.4 million children were reported to be living in poverty in 2012. Of that, six million are aged 6 and younger. That comes in comparison to 2007 numbers, when the national poverty rate for youth stood at 18%, or 13.1 million children, UPI reported.
The researchers used the federal definition of poverty - a family of four with less than $23,283 a year.
On the White House website, Mr. Obama is described as a "lifelong advocate for the poor" …
And it's not as if America is the only place where the inequality process plays out. Even if we leave southern Europe alone for the moment, a country like Britain is pretty bad, for example, with a government that invites rich foreigners to buy up the nation's assets while it leaves its own citizens in the cold, often literally, as the Guardian reported yesterday:
British Gas raises energy prices by 9.2%
British Gas will raise energy prices by an average of 9.2% next month, piling further financial pressure on 7.8 million households and reigniting the political row over soaring gas and electricity prices. Parent company Centrica became the second of the big six energy firms to announce a price rise after SSE raised prices last week. The average annual dual-fuel bill with British Gas will increase by £107 to £1,297 ($2,100).
Centrica blamed the above-inflation hike on higher costs for wholesale energy and delivering gas and electricity to homes, and government's "social and environmental programmes" which are paid for through customers' bills.
Also from The Guardian this week:
Food poverty is an attack on society
[UK] food banks are now helping three times as many people as they were a year ago. Oxfam and the Red Cross are both supporting food programmes. Another British charity, Save the Children, has launched a UK campaign expressly to raise awareness of the issues behind the steep rise in numbers of young people caught up in poverty. This cannot be what David Cameron's "big society" was supposed to look like.
The government is in denial. Ministers talk of chaotic families, of individuals making bad choices. They suggest the underlying reason for the trebling of the numbers receiving food parcels from the Trussell Trust in the six months to September – to an astonishing 355,000 people – was a spread in the number of food banks. Of course, each of these is a factor. But even taken together, they don't begin to account for the surge of desperation represented by the figures.
People on the ground tell a different story. Roughly a third of their clients are driven to desperation by delays in benefit – no change in proportion, only in the numbers. The new factor is the impact of changes in benefit, as the bedroom tax and sanctions bite, and councils get to grips with ever tighter budgets and smaller crisis funds. That now accounts for a fifth of those entitled to food parcels (which are only available to those with a formal referral).
Politicians cannot simply dismiss the evidence of spreading poverty, or treat it as some kind of macho proof of the success of their policies. Nor can they, in all conscience, go on talking about cutting back on benefits without understanding what it actually means. They need to know that this is what George Osborne's tough love looks like on the ground.
There was a time when to see a rough sleeper was unusual. Now it is impossible to ignore the number of people who have no other option but to huddle in a doorway. There are a lot of explanations for that, not all of them instantly fixable – family breakdown, mental illness – but that is no excuse for the normalisation of homelessness as part of the pattern of urban life. How much worse if the kind of extreme poverty that means relying on food handouts were also to become normal.
… it's wider than the individual or the family. Every hungry person is an attack on society.
opening to our office didn't get an inch wider or narrower last month.
Hospitals, Chairs, Buses, Toilets Redesigned for Obese - ABC News
"Studies estimate the total cost of obesity to U.S. employers at $73 billion a year."
Jobs are for little people. Like elves and hobbits. Careers are for big people. Who cares about elves and hobbits? I don't.
The question that bothers me is, what do we do with the lumpen proletariat now that we don't need much in the way of sweat labor? What are the HS grads and dropouts supposed to do?
Die, somewhere it won't bother "Real People".
What are the HS grads and dropouts supposed to do?
Strip mining. Mine for gold and be strippers.
The question that bothers me is, what do we do with the lumpen proletariat now that we don't need much in the way of sweat labor? What are the HS grads and dropouts supposed to do?
Load them down with debt, turn them into dependent, sick and unhealthy consumers with a variety of psychological and physical problems, then process them through fully monetized extraction apparatus run by private-public partnerships. They'll even thank us.
some investor guy
What are the HS grads and dropouts supposed to do?
One of the things which strikes me as odd is how a number of jobs moved from requiring no particular education to people having degrees. Much of computers are this way. Many universities took a long time to have clearly related degrees. Another example I see is nanny. People have degrees in early childhood development and the like. This might be in part because some of them wanted to be teachers, and there was a job squeeze from 2009 to now.
some investor guy
What are the HS grads and dropouts supposed to do?
The rich neighborhoods are covered with them during daytime. They clean houses and pools, do gardening, plumbing, construction. You also see them as cashiers at fast food restaurants. They change the tires on your cars.
They deliver your packages and mail. Sell things to you at retail. If you go to the doctor, they are probably there as some sort of nursing assistant. And, in an indication of how job status can change over many decades, bank tellers.
What are the HS grads and dropouts supposed to do?
Take out a student loan and acquire another unmarketable skill?
some investor guy
A nanny should be pretty.
So you have been on the nanny search sites? It's better than match.com. Well, if you happen to be a single father who can afford a nanny. If you are married and your selection is primarily attractive would be nannies, I'm trying to think of the term here. I'm sure someone can help.
Take out a student loan and acquire another unmarketable skill?
pro-tip: "they" don't care about the unmarketable skill, just the student loan debt. Or any other debt.
some investor guy wrote:
If you are married and your selection is primarily attractive would be nannies, I'm trying to think of the term here. I'm sure someone can help.
A return to a single income family.
some investor guy wrote:
If you are married
speaking of marriage, Saw Starbuck last night. A very funny movie. Recommend it if you get the chance.
Lots of witty and/or thoughtful answers. The red team answer seems to be let them eat cake, the blue team's answer is let them eat welfare cheese.
The lumpen still seem to be willing to take the blame for their failure to 'compete.' Still, they continue to multiply and automation makes them less and less needed. The question in my mind is how big the tent cities will have to get before the shit hits the fan?
Are we headed for a situation where the Morlocks are either all in prison or prison guards?
some investor guy wrote:
If you are married and your selection is primarily attractive would be nannies, I'm trying to think of the term here.
Future divorce attorney client ?
The question in my mind is how big the tent cities will have to get before the shit hits the fan? Are we headed for a situation where the Morlocks are either all in prison or prison guards?
I wasn't kidding. We are way overdue for a pandemic. And even absent that the increase in drug resistance is going to have a substantial effect.
Bloomberg urges action on pension and healthcare costs in the wake of Detroit bankruptcy | SILive.com
In the wake of Detroit's filing for bankruptcy, Mayor Michael Bloomberg called on the city -- and its next to mayor -- to tackle the rising burdens of pensions and healthcare to keep New York City from traveling down the same path.
In particular, labor costs, Bloomberg said, were one reason Detroit couldn't "stop its downward spiral."
And the risk of the "explosion in pension and health care costs" derailing New York City is real, he said. In 2002, pension costs in New York City were $1.4 billion. By 2009, they were $6.3 billion - and today, they are $8 billion a year.
"It was the result of a benefit structure that promises retirees too much too soon, and requires them to contribute too little to pay for it," he said.
aleister perdurabo wrote:
And the risk of the "explosion in pension and health care costs" derailing New York City is real, he said. In 2002, pension costs in New York City were $1.4 billion. By 2009, they were $6.3 billion - and today, they are $8 billion a year.
"It was the result of a benefit structure that promises retirees too much too soon, and requires them to contribute too little to pay for it," he said.
He's not of course, talking about the burden the entire US population has borne of ensuring that the TBTF bankster CEOs, AIG & other upper management continue to receive their bloated compensation packages (including retirement) for the past 5 years of course.
Every problem is just another reason to cut the wages & benefits of workers.
Tommy VuComrade Kristina
Labor force participation rate is no longer attributed to the retiring baby boomers per the Fed Reserve economists.
Now seen as a false positive affecting official UE rate. More money needs to be printed Shrunken workforce gives Fed added policy headroomIBM Furloughs U.S. Hardware Employees to Reduce Costs - Bloomberg
In the second quarter, Armonk, New York-based IBM spent $1 billion to restructure its workforce, cutting more than 3,300 employees in the U.S. and Canada, according to Alliance@IBM, an employee group. IBM doesn't disclose the number of employees by country or by division. The company's total workforce was 434,246 as of Dec. 31. Hardware accounted for 16 percent of IBM's $104.5 billion in 2012 revenue.
"IBM continues to punish workers with job cuts, furloughs and pay cuts while the company spends billions to buy back stock and inflate the price," said Lee Conrad, coordinator of Alliance@IBM. "There appears to be no sacrifice at the top."
IBM spent $3.6 billion on share repurchases last quarter. Its shares are up 2.1 percent this year, closing yesterday little changed at $195.50. The company raised its forecast last month for 2013 profits to at least $16.90 a share, up from $16.70, excluding the $1 billion restructuring charge.
That's because there isn't. Thanks for playing.
Some will. I'd expect the gangs to become much more powerful.
We'll be seeing more and more cartel presence too... but hopefully our 'legal' cartels can help protect us from their 'illegal' ones for a while.
Comrade Kristina wrote:
That's because there isn't. Thanks for playing.
I, Cringely The New IBM -- vampires in our midst - I, Cringely
Because "51% of Americans think that bad weather affects cloud computing." Next poll: 64% of Americans think the Cloud cuts their cable service.
I, Cringely The New IBM -- vampires in our midst - I, Cringely
I say it is Wall Street happily accepting the idea that IBM is eating itself and has decided to eventually die.
Funny, we didn't used to reward decisions like that.
"The legal action against Chevron on Friday, followed by direct action over the weekend, marked the first anniversary of the fire and explosion that created a towering plume of toxic smoke on August 6, 2012. Refinery workers who responded to this emergency narrowly escaped death in the now much-investigated accident. More than 15,000 people in the Richmond area sought emergency room care after being showered with fall-out from the blast. The U.S. Chemical Safety Board uncovered evidence that, more than a decade ago, Chevron's own engineers recommended repair work on the corroded pipe at fault. Cal/OSHA cited Chevron for eleven "willful" safety violations. Then the agency imposed the largest fine in its history, a one million dollar penalty that the company is now contesting.
"Retired Richmond teacher and RPA activist Eduardo Martinez spoke about the price paid by those down-wind from Chevron. At the school where he once taught, students with breathing problems formed an after-school group known as "the asthma club" because they couldn't participate in regular sports activity. When Martinez got fed up and ran for a city council seat last year, Chevron spent nearly $200,000 to smear and defeat him. ("I never knew I was worth that much," he told the rally.) For the health of the city and its children, "Chevron must stop polluting the democratic process," he declared."
Comrade Kristina wrote:
Mhm, or political titles.
You shut that mouth! I'm the sheriff in this town! And did I mention the judge is my step-brother? And two of the councilmen are married to my cousins.
Jul 17, 2013 | Asia Times
Japan this year joined other leading economies in adopting the desperate measure of quantitative easing (QE) to stimulate its economy. Yet unless QE money is targeted directly on creating new employment to restore consumer demand, it is merely a monetarist maneuver. - Henry C K Liu
Obama: "...the economy is far stronger now than it was four and a half years ago."
...as long as one ignores the reality of the following chart...
We've seen macro "Hope"and micro "Reality", but for the man in the street, it would appear from the chart above that the trajectory for 'recovery' green shoots is decidedly down and getting worse... even as the President tells the American public they are so much better off...
Obama ~ "I've often thought about playing with your golf club"..
I sometimes wonder if POTUS actually believes some of the swill he is spewing. Or does he ever turn to his handlers and say, "Now come on Valerie. Seriously? Have you actually read these talking points Ben and Lew gave me? Holy shit!"
Or does he say, " Just give me the damn script and let's get this over with. I've got a tee time at 2. And make sure there are enough Titleists in my bag this time. Last week that dumbass Biden was busting my nuts when I ran out of balls on 15."
Imagine the irony here... Americans now turning to Russia for the truth of what's going on in America:
Not to say Russia is a bastion of veritas...Putin is a cold, calculating, Machiaveliian player himself. We'll see what he does with Snowden...
A fun couple of charts plotting the history of robotics innovation from a new report by the Atlantic Council, with our thoughts below (click to enlarge).
... ... ...The report is a concise overview of both optimistic and pessimistic views of what the robotics technology will mean for the economy, and also of the societal issues that we discussed in last week's podcast with Illah Nourbakhsh.
Robert Shapiro, citing the report, writes in a piece for the Daily Beast about some of the jobs that could soon be under threat from expected advances in robotics technology, and of course don't forget about Izzy's extensive coverage of same.
But trying to cover these trends from a macro perspective can be frustrating.
The anecdotal evidence that robotics will soon have a persistent, deleterious impact on even skilled middle-class jobs is both powerfully suggestive and plausible, perhaps best presented in the much-discussed Race Against the Machine. But it's tough to address, in real time, questions about the importance of, say, robotics (and other) technology, versus a straightforward shortfall in demand vs sectoral shifts generally vs trade rebalancing issues vs Other Miscellaneous Stuff.
We can look at a graph of the diverging capital vs labour share of income, but we're still left to wonder at the relative effects of cyclical vs secular forces, and even at the distinction between the two, which isn't always meaningful. And then there are second-order effects.
If the robots do displace middle class jobs, then presumably the capitalist robot owners will have a lot of extra change lying around. The immediate impact is yet another surge in inequality. But presumably they'll be looking around to spend their surplus on something, and that something might be the goods and services of an industry that will hire the newly jobless to produce them. This is traditionally how technological displacement goes. Reasons for pessimism notwithstanding, it can't be entirely discounted that things will turn out this way again.
We've also encountered similar problems trying to cover the earlier-hyped rebound in manufacturing jobs and the potential "reshoring" of jobs as productivity-adjusted wage differentials between the US and China become narrower. Consider that even classically cyclical sectors such as housing, in which productivity accelerations are historically rare, can be easy to misunderstand. Predictions about the future, etc…
Anyways, just because we'll have to wait a while to know anything for sure is no reason to ignore the anecdotal evidence, or for that matter to refrain from speculating about the potential consequences of a big economic transformation. Best to be prepared and so forth.
actually no, the newly rich will pile their money into private schools and trophy property in atherton, park ave, etc. Things that are zero-sum and extremely scarce, driving their value into the stratrosphere, see bay area real estate.
But presumably they'll be looking around to spend their surplus on something, and that something might be the goods and services of an industry that will hire the newly jobless to produce them.
Newly created jobs could include 1) punkhawallah 2) prostitute 3) Latrine cleaner 4) Dog pooper scooper 5) Pedicurist
Not bad for unpaywalled work, CG, but it could use a cautionary note or two acknowledging the government menace feeding parasitically on the software eating the world, and remotely extracting freedom for the privilege. Horowitz doesn't seem to have realized we might already be hitting the major adoption wave of another big technology cycle: that of ubiquitous government surveillance. Here's some black cloud computing on the horizon: http://www.nationa...anch-nsa-john-fund
As it's tangential to CG's piece, I'll resist excerpting that link and won't go on much further, but ubiquitous software, particularly when consolidated, ENABLES EASILY-INTERMEDIATED TYRANNY. Some – importantly including a renewed right-left alliance in the (continuing) wake of Snowden -- would say an associated collapse down to a generic low standard of technological behavior integrity by governments with recently higher standards is quite advanced.
It's time to tighten down Warzel's "broad, loose conception of "freedom"" and defend its irreducible core as to online behavior.
It troubles me that we still think of software as something special, as if it belongs in it's own special domain. Most of the so-called "software" companies that you talk about are not "software" companies at all - they are just companies that happen to use software.
Compilers and interpreters are the type-writers of the modern age. The only difference is that business procedures and plans are written in Python and stored in servers rather than written in English and stored in ring-binders.
Writing software is not (just) about automation - although of course the cost savings that result from automation provide the main motivation for the activity. It is also about defining and understanding the detail of the operation of the business.
It is a simple truism that you do not really understand a problem until you have written a piece of software that solves it. In the same way, the people who really understand the details of a business are the developers who design the business' systems and "business logic".
Software is all about details:- knowing the details and understanding their implications. By the same token: writing software is all about making decisions; decisions which are individually small, but collectively consequential.
However, just because you use software does not mean that you will automatically have a good business. The same logic, the same skills, and the same instincts that supported the successful businesses of the past will still be required by the successful businesses of the future: but the lingua franca that the people managing the businesses of the future will need to speak is going to be precise, algorithmic and executable... and not English.
You're confusing data, software, communication protocols, and Paul Krugman-like 'The Robots are coming! The Robots are coming!!' hysteria.
If you can drop it on your foot and it hurts its hardware; otherwise its software.
July 22. 2013 | FT Alphaville
Charlie Warzel writes at Buzzfeed...
That era - let's call it the internet's free trial period - is coming to an end. In the 12 years since courts shut down Napster, the internet has taken its hatchet to every other branch of the media industry, deftly pruning ad dollars, jobs, and shaving away bottom lines. Now the reaction, opposite but never quite equal, and always late, is starting to take effect. The untamed and lawless expanses of web content are quickly being replaced by paywalls and monthly fees. And, surprisingly, we don't really seem to mind all that much. Most of us don't even seem to notice.
The rest of the article supports the thesis, including a summary of recent surveys showing both that newspapers are increasingly moving towards digital pay plans and that readers are increasingly tolerant of paywalls.
We recommend the whole piece.It reminded us of something Ben Horowitz explained in a debate sponsored by The Economist two years ago - that the widespread monetisation of the internet on a much bigger scale, if not quite inevitable, at least would be consistent with previous computing cycles. Just as the earlier "Internet is free" era, when the technology was promising but had yet to realise its ability to make money for its owners, was consistent with those earlier cycles.
The debate was about whether technology companies were in a new bubble, with Horowitz making the case against. An excerpt of what he wrote:
History shows that major technology cycles tend to be around 25 years long with the bulk of the purchases occurring in the last five-to-ten years. This has to do with adoption rates; this period seems about right for the oldest cohorts (less likely to adopt new technologies) to die off and for younger cohorts (quickest to use new technologies) to enter the market.
Let us look at examples of the last two major computing cycles (prior to the Internet).
... ... ...
Thirdly, the market is far bigger. In 1998, I was working at Netscape, which owned well over half of the browser market. We had about 50 million users, more than half of them on dialup connections which could not run many interesting applications. Today, there are over 2.1 billion people on the internet, most of them using broadband connections. The true market for internet businesses is about 50 times larger than during the actual technology bubble.
With costs 100 times lower, programmer productivity ten times higher, and the market 50 times larger, it stands to reason that many more internet businesses will work today than did the last time around. …
Software is eating the world
Back in 1994, very few people would have predicted that the largest bookseller in the world would be a software company. Today, not only is it a software company, but all of Amazon's most important competitors are also software companies.
Books were just the first of many industries to be eaten by software. Some other examples:
- Magazines and newspapers-really requires no explanation.
- Music distribution - the largest music distributor in the world is a technology company, Apple; its largest potential threat, Spotify, is a software company.
- Radio - the most valuable radio company in the world is Pandora, a software company.
- Animated film - in order for Disney to remain relevant in the animated film industry, they had to buy Pixar, a software company.
- Direct marketing - the largest direct marketing company in the world is a software company, Google.
What is next?
- Oil and gas-new finds are increasingly software driven.
- Financial services-many of which would be far better served by an integrated software platform.
- Local business - increasingly present in the online world via offerings from new companies like Groupon, Foursquare and Square.
As software eats one industry after another, the market for technology business expands, rendering previous market size estimates obsolete. That is not to say that no price is too high for a technology company, but there is a fine case that the old prices are too low.
Obviously we're familiar with what's been happening in the journalistic realm, which has moved towards silos and paywalls much more quickly than we had expected just a few years ago. It's lamentable for those of us who ply our trade as bloggers, and who thus have benefitted acutely from an open web. But it's not all bad, and at any rate it's happening and unlikely to reverse any time soon.
As for another industry mentioned by Horowitz, see also this piece with the latest updates on banking in the cloud.
Appeals to history when the sample size is so small should always be accepted with appropriate caution. But thus far it seems as if the basic contours of Horowitz's argument were right.WazooIt may be helpful to nail down what software really is...
It is embodied knowledge that is based on expertise, then placed into software source code so as to automate and make faster the work that formerly an expert would do either with manual calculations or using huntches or rules of thumb.
Lots of software simulators are based on not just calculations, but often, the basis for their output are heuristics because they don't (or can't explain) why the values work.
Oh... the article is greatly underestimating the importance of software if it is measured in terms of dollars invested.
I did some recent work that concluded that software is now typically over 50% the value of most major programs, and in some cases, it exceeded 100% the value of the program if the software is fully priced.
July 24, 2013 | Zero Hedge
The corrupt edifice that has propped up the US big banks and financial system is beginning to crumble before our very eyes.
First and foremost, the former head of the Bureau of Labor Statistics (the group in charge of calculating the "official" unemployment numbers and inflation measures) has stepped forward and stated, point blank, that the unemployment numbers in the US are a joke.
Keith Hall believes the US economy is a lot sicker than the 7.6 percent unemployment rate would lead you to believe.
And he should know.
Hall was, from 2008 until last year, the guy in charge of Washington's Bureau of Labor Statistics, the agency that compiles that rate.
"Right now [it's] misleadingly low," says Hall, who believes a truer reading of those now wanting a job but without one to be more than 10 percent.
Source: NY Post
The Government claims we're in recovery because the unemployment rate is falling. But we have the former head of the BLS stating that real unemployment is greater than 10%.
So what - this is precisely what U-6 unemployment is for: http://www.bls.gov/news.release/empsit.t15.htm
By the way, U-6 is near 15% ... and the percentage of ppl on foodstamps in the US is also 15%.
Correct me if I'm wrong, but the engine of economic recovery is usually lower energy prices, at least in the last 5 or 6 economic cycles.
I've written frequently about the participation rate (the percent of the civilian noninstitutional population in the labor force). A few posts: Understanding the Decline in the Participation Rate, Update: Further Discussion on Labor Force Participation Rate, Merrill Lynch on Labor Force Participation Rate, Labor Force Participation Rate Research
The participation rate was expected to decline for structural reasons even before the great recession started (baby boomers retiring, younger Americans staying in school longer, etc.). A key question is how much of the recent decline in the participation rate was due to long term trends, and how much was cyclical (economic weakness)?
Here is some research from Macroeconomic Advisers: Where's Labor Force Participation Heading?
- Fifty-five percent of the recent decline in the participation rate is due to structural factors that, on balance, will continue to exert downward pressure on participation through 2015.
- The other forty-five percent is cyclical and will gradually abate. However, the cyclical decline in participation has been larger and more persistent than in past cycles due to the unusually large increase in the average duration of unemployment during this cyclical episode.
- Going forward, the cyclical rebound in participation will roughly offset the continuing downward push of structural forces. Consequently, we project that in 2015, when the FOMC will be contemplating the first increase in the federal funds rate, the participation rate will be 63.4%, the same as in the second quarter of this year.
- That projection for the participation rate implies that monthly changes in household employment averaging about 114,000 will be sufficient to stabilize the unemployment rate through 2015. Anything faster will push the unemployment rate down. To reach the FOMC's threshold unemployment rate of 6.5% in the second quarter of 2015, as shown in our forecast, requires monthly changes in household employment averaging roughly 170,000 over the next 24 months, consistent with our forecast that monthly changes in establishment employment will average roughly 190,000 over that same period. CR Note: A significant portion of the decline in the unemployment rate from 10.0% in October 2009 to 7.6% in June 2013 was related to a decline in the participation rate from 65.0% in Oct 2009 to 63.5% in June 2013. If the participation rate had held steady, the unemployment rate would be 9.7% (assuming an increase in the participation rate with the same employment level).
Comrade Troyski wrote on Thu, 7/18/2013 - 5:00 pmComrade Troyski
Graph: Households and Nonprofit Organizations; Credit Market Instruments; Liability (CMDEBT)/Compensation of Employees: Wages & Salary Accruals (WASCUR) - FRED - St. Louis Fed
I've got your cycle right hereCivilian Noninstitutional Population - 55 years and over (LNU00024230) - FRED - St. Louis Fed
"catch the wave"
1 currency now -yogisum luk
Aggregate, circular macroeconomic garbage is still garbage.merchants of fear
from: Labor Force Participation Is Not Coming Back - NYTimes.com
... the model suggests that the Fed is right to focus on the unemployment rate as it decides how long to pursue its various stimulus campaigns.
If the model is right, further declines in unemployment will reflect job growth, not declines in participation. It will mean that things are actually getting better.Elmo! labor force participation... participating in labor... interesting conceptual description
Four words: Not in labor force.
Except the number of people COVERED by unemployment is steadily marching upward.
2011 – Q1 - 125,560,066
2011 – Q2 – 125,572,661
2011 – Q3 -- 125,807,389
2011 – Q4 -- 126,188,733
2012 – Q1 - 126,579,970
2012 – Q2 - 127,048,587
2012 – Q3 - 127,495,952
2012 – Q4 - 128,066,082
2013 – Q1 - 128,613,913 -- +547,831
2013 – Q2 - 129,204,324 -- +590,411
2013 - Q3 - 129,827,178 -- +622,854
"The final release of Mass Layoffs Statistics data will occur on June 21st, with |publication of the May 2013 data."
Mass Layoffs (Monthly) News Release(April) Released 22 May, 2013
this article indicates that Chase Manhattan is leveraged about 15:1.
Bank of America Estimates Leverage Ratio Was 4.9% to 5% - Bloomberg
Licks finger, sticks it in the air. Hmmn. Yeah 4.9% sounds about right. CFO trundles back to office to logout and hop in his towncar to head for the Hamptons.
- You must meet specific requirements for wages earned or time worked during an established period of time referred to as a base period, including having wages in at least two quarters of the base period.
- To qualify for benefits, you must have worked for an employer who paid unemployment tax and you must have earned (the following criteria applies to new UI claims that were made effective August 5, 2012 or later):
- At least 390 times the Arizona minimum wage in your highest earning quarter and the total of the other three quarters must equal at least one half of the amount in your high quarter. (For example, if you made $5000 in your highest quarter you need to have earned a total of $2500 within the remaining three quarters combined,) or
- At least $7000 in total wages in at least two quarters of the base period, with wages in one quarter equal to $5987.50 or more.
- The following criteria applies to new UI claims that were made effective prior to August 5, 2012:
- At least $1,500 in one of the four quarters of the base period and your total base period wages must be at least 1-1/2 times your high quarter, or
- At least $7,000 in total wages in at least two quarters of the base period, with wages in one quarter equal to $5,987.50 or more.
- You must be determined to be unemployed through no fault of your own (determined under state law), and meet other eligibility requirements of state law.
- If you have Arizona wages and also worked in another state, or currently reside in Arizona and have earnings from employers in two or more other states (within the base period), you may choose to combine these wages to establish monetary eligibility. If you were employed in more than one state at any time during the current base period, you may have the option of:
- Filing a claim against any state in which you were employed using only the wages from that state, or
- Filing a claim against any state in which you were employed, using the wages from all states in which you earned wages.
State unemployment laws, weekly benefit amounts and eligibility requirements vary between states. Which option is best for you will depend upon the laws in each state that you worked. Information regarding eligibility and award calculations in other states is found on the Web sites of most states.
- If all of your employment during the base period has been in a state other than Arizona, you must file a claim for benefits against that state. Visit America's Service Locator Web site for contact information for other states.
- If you have recently separated from the military and have not yet filed an unemployment insurance claim, you must be residing in Arizona for assignment of the wages to an Arizona claim. If you are not residing in Arizona, your claim must be filed against the state in which you are residing. Visit America's Service Locator Web site for contact information for other states.
In some cases, wages earned by aliens, employees of educational institutions or private school bus contractors and employees of transient lodging establishments may not be used to establish monetary eligibility. Learn more.
If you are determined monetarily ineligible for benefits and all of the wages on your Wage Statement (UB-107) are correct, you may file again when the quarter changes.
If the wages on your Wage Statement (UB-107) are incorrect or missing, you may file a Wage Protest. You must continue to file your weekly claims while a wage investigation is in progress.
Table A. Six-digit NAICS industries with the largest number of mass layoff initial claims in April 2013, private nonfarm, not seasonally adjustedIndustry April peak Initial claims Year Initial claims School and employee bus transportation .... 10,210 2011 23,573 Temporary help services (1) ............... 8,778 2001 17,507 Motion picture and video production ....... 7,632 1997 15,908 Tax preparation services .................. 3,997 2010 6,514 Food service contractors .................. 3,723 2011 10,948 Hotels and motels, except casino hotels ... 2,580 2010 4,130 Discount department stores ................ 2,253 2009 4,462 Skiing facilities ......................... 2,077 2010 2,640 Payroll services .......................... 1,980 2000 5,165 Warehouse clubs and supercenters .......... 1,885 2010 2,466
July 05, 2013 | Economist's View
Tim Duy: The June employment report came in ahead of expectations with generally solid numbers, but was hardly a blow-out report. Still, bond market participants were apparently positioned for a much weaker number. Bonds tumbled on the news, spiking the yield on 10-year Treasuries by almost 20bp as everyone forgot - or simply didn't believe - the Fed's promise to hold to the zero lower bound into 2015. Expect dovish talk as policymakers try to rein in expectations, but I suspect the damage is done, the genie is out of the bottle. If the Fed wants to regain credibility, they will need to stop talking and start doing by making clear the taper is not going to happen this year. That however, is not going to happen. At this point, it is pretty unlikely the data will come in sufficiently weak to postpone a September cut in the pace of asset purchases.
Nonfarm payrolls gained 195k compared to expectations of 161k rise. The previous two months were revised up, tacking on another 70k jobs. The 12-month moving average is now just below 200k jobs/month:
... ... ...
Wage growth is holding near 2% year-over-year. Nothing inflationary about that, and consistent with substantial slack in labor markets. Aggregate weekly hours continues to track its upward trend, while labor force participation and employment to population ratio both ticked up 0.1%. Underemployment indicators also still reveal substantial slack in labor markets:
July 5, 2013
Upbeat June Jobs Report Still Leaves U.S. Economy in a Deep Hole By Dean Baker - Guardian
The 195,000 new jobs reported for June was somewhat better than most economists had expected. The job gains, together with upward revisions to the prior two months' data, raised average growth for the last three months to 196,000. While this may lead some to be dancing in the streets, those who actually care about the economy may want to hold off.
First, it is important to remember the size of the hole the economy is in. We are down roughly 8.5 million jobs from our trend growth path. We also need close to 100,000 jobs a month to keep pace with the underlying growth rate of the labor market. This means that even with the relatively good growth of the last few months, we were only closing the gap at the rate of 96,000 a month. At this pace, it will take up more than seven years to fill the jobs gap.
It is easy to miss the size of the jobs gap since the current 7.6% unemployment rate doesn't seem that high. However, the main reason that the unemployment rate has fallen from its peak of 10% in the fall of 2009 is that millions of people have dropped out of the labor force and stopped looking for jobs. These people are no longer counted as being unemployed.
If we look at the employment to population ratio – the percentage of people who have jobs – this has risen just 0.5 percentage points from the low-point of the downturn. It is still down by more than 4.0 percentage points from its pre-recession level, and by 6.0 full percentage points from the peak hit in the boom of 2000.
After severe downturns in the 1970s and 1980s, we had months in which the economy created over 400,000 jobs. And this was in a labor market that was more than one-third smaller. That is the sort of job growth that we should be seeing after a recession like the one we saw in 2008-2009. Unfortunately, such growth is nowhere in sight.
Of course, the weakness of the job market is not a surprise. The economy has been growing at less than a 2% annual rate for the last three years. In this context, it is surprising that we are seeing job growth of even 100,000 a month. Most analysts put the economy's trend rate of growth in the range of 2.2-2.5%. This means that the economy has to grow at this pace just to keep the unemployment rate from rising.
The reason that we have been able to able to achieve above-trend growth in employment in an economy growing much slower than its trend path is that the rate of productivity growth has fallen through the floor. Productivity growth has averaged less than 1% in the last three years, as opposed to 2.5% in the decade preceding the downturn.
This gets to the type of jobs that have been created in the upturn. Over the last three months, three sectors – restaurants, retail trade, and temporary help – have accounted for more than half of the jobs created. These sectors offer the lowest-paying jobs, with few benefits and little job security.
The fact that these sectors are growing rapidly speaks to the state of the job market. These sectors always generate lots of jobs, but in a good economy, no one will take them. Workers take these jobs when there are no better alternatives available.
The poor quality of jobs shows up in the wage data. The most recent data did show an uptick in the average hourly wage, which has been rising at a nominal rate of 2.1% over the last three months. This is somewhat better than the rate of inflation, which is around 1.5%. But a closer inspection of the data shows that the uptick was all among supervisory workers, who saw nominal age growth at a 3.0% annual rate over the last three months, compared to just 1.7% for production and non-supervisory workers.
In short, the June jobs data falls into the "it could have been worse" category – which is fast becoming the official slogan of the recovery. We are seeing an economy that is likely to be well below its potential level of output for more than a decade. This means that tens of millions of people will needlessly be unemployed or underemployed.
Furthermore, high levels of unemployment will put downward pressure on the wages of most of the workforce. This means that businesses and higher-end workers will continue to see the bulk of the gains of economic growth.
This would be a bad situation in any case, but it is made worse by the fact that it is 100% preventable. We know how to make the economy grow more rapidly and generate jobs. But politicians are using old superstitions and deliberate lies to scare people aware from the sort of fiscal stimulus that would get the economy back on track.
They will try to pass off the June numbers as good news. They deserve our contempt.
anneIn reply to anne...
Multifactor productivity growth for the private nonfarm business sector, 1948-2011
Average annual percent change
1948-2011 ( 1.2)
1948-1973 ( 1.9) 1973-1990 ( 0.3)
1990-1995 ( 0.5) 1995-2000 ( 1.3)
2000-2007 ( 1.4) 2007-2011 ( 0.4)
anneIn reply to anne...
Dean Baker points to the important slowing of productivity growth since 2007, which while adding to demand for workers as the economy gradually recovers represents an important problem in limiting growth.
The BlorchIn reply to anne...
You know there is such a thing as thermodynamics which disallow the perpetual motion machine. In other words, you can only wring so much efficiency out of the system before retentive forces push back with equal velocity.
anneIn reply to The Blorch...
I would argue that economists often misjudged the extent to which information technology advances could increase productivity for the economy as a whole, at least whether this would be possible for years and years without significant investment in soft and hard infrastructure development.
A failure to build sufficient infrastructure I would argue is limiting productivity growth for the economy as a whole.
DIn reply to anne...
Thanks to Dean Baker for mentioning the monthly growth rate in population. Once that is factored in, none of the 8.5 Million jobs lost in the Great Recession have been recovered since its official end exactly four years ago.
Another interesting commentary along these lines was in The Atlantic ...
The Jobs Gap impact calculator from the Hamilton Project at Brookings (n.b., not Cato, not Heritage), cited in the Atlantic piece, is pretty interesting.
anneIn reply to D...
July 5, 2013
Employment Loss & Growth Summary
December 2007 - June 2013
Total Nonfarm Private Employment Loss = (- 1,615,000) Total Nonfarm Government Employment Loss = (- 525,000)
Total Employment Loss = (- 2,140,000)
Where we should have created 8.97 million jobs these last 66 months simply to keep up with population growth, we lost 2.14 million jobs. This leaves us short an astonishing 11.11 million jobs.
July 5, 2013
The Bush-Obama experience in monthly job created has been,
22,147 x 150 months = 3.32 million jobs created in all;
enough job creation to keep up with civilian work force growth would have meant,
135,940 x 150 = 20.39 million jobs created in 150 months;
the Clinton experience was,
241,040 x 96 = 23.14 million jobs created in 96 months.
July 5, 2013
The Bush-Obama experience in monthly private job creation has been,
15,170 x 150 months = 2.28 million jobs created in all;
the Clinton experience was,
220,980 x 96 = 21.21 million private jobs created in 96 months.
The Bush-Obama experience in monthly government job creation has been,
6,980 x 150 months = 1.05 million jobs created in all;
the Clinton experience was,
20,060 x 96 = 1.93 million government jobs created in 96 months.
July 5, 2013
Employment Loss & Growth Summary
December 2007 - June 2013
Total Nonfarm Private Employment Loss = (- 1,615,000) Total Nonfarm Government Employment Loss = (- 525,000)
Total Employment Loss = (- 2,140,000)
Where the severe Reagan recession of 1981-1982 had given way to complete employment recovery in 28 months from the beginning of the recession, we are 66 months from the beginning of the recession in December 2007 and there are 2.14 million fewer jobs now than there were at that time.
Where we should have created 20.39 million jobs these last 150 months simply to keep up with population growth, we created 3.32 million jobs. This leaves us short an astonishing 17.07 million jobs.
January 4, 2013
Employment-Population Ratio, 1992-2013
1992 ( 63.0) * 1993 ( 63.3) Clinton 1994 ( 64.0)
1995 ( 64.4) 1996 ( 64.7) 1997 ( 65.5) 1998 ( 65.6) 1999 ( 65.9)
2000 ( 66.0) (High) 2001 ( 65.4) Bush 2002 ( 64.6) 2003 ( 64.3) 2004 ( 64.4)
2005 ( 64.7) 2006 ( 65.2) 2007 ( 65.2) 2008 ( 64.5) 2009 ( 61.7) Obama
2010 ( 61.0) 2011 ( 60.8) 2012 ( 61.0)
2013 ( 61.0)
* Employment age 20 and over
January 4, 2013
Employment-Population Ratio, 1992-2013
1992 ( 62.4) * 1993 ( 62.6) Clinton 1994 ( 63.4)
1995 ( 63.8) 1996 ( 64.2) 1997 ( 64.9) 1998 ( 65.0) 1999 ( 65.3) (High)
2000 ( 65.3) 2001 ( 64.8) Bush 2002 ( 64.1) 2003 ( 63.9) 2004 ( 64.0)
2005 ( 64.4) 2006 ( 64.8) 2007 ( 64.9) 2008 ( 64.3) 2009 ( 61.7) Obama
2010 ( 61.0) 2011 ( 60.8) 2012 ( 60.9)
2013 ( 60.9)
* Employment age 25 and over
January 4, 2013
Employment-Population Ratio, Bachelor's Degree and Higher, 2000-2013
2000 ( 78.1) * (High) 2001 ( 77.1) Bush 2002 ( 76.3) 2003 ( 75.8) 2004 ( 75.8)
2005 ( 76.1) 2006 ( 76.3) 2007 ( 76.3) 2008 ( 75.8) 2009 ( 73.9) Obama
2010 ( 73.1) 2011 ( 73.1) 2012 ( 72.9)
2013 ( 72.7)
* Employment age 25 and over
The fact is, the US economy probably has been pumping out jobs at 225,000-250,000 rate since last July aka the Feds target.
The market realized this today (and the coming yearly revisions which will cement this in). Hence, Boomers selling bonds and pushing the reinflation effect.
The UE rate is also bothered by the number of "temp" employees being used who really are fulltime employees. Yet, the BLS does not count them in the U-3 or U-6 stats. This is a major major problem. Besides being a lagging indicator, it is also imo, one "key" behind the so called "tepid" recoveries in the 90's and 00's. In otherwords, they weren't so tepid. I think the BLS should go and count them full time employees(of the agency). Go back to 1948 then and fix this. It explains jobless claims in a nutshell. What unemployment crisis? bah. It is a employment crisis.
cmIn reply to John Cummings...
I'm not sure I'm getting your point. When the temps work full time (or more to the point, are paid for full time), then they are not involuntary part-timers who seek additional work - or how else would U-6 come into the picture here? (Maybe you mean they are full-timers on a monthly basis, but part-timers on an annual basis?)
Mark A. SadowskiIn reply to cm...
"The UE rate is also bothered by the number of "temp" employees being used who really are fulltime employees. Yet, the BLS does not count them in the U-3 or U-6 stats."
I agree, what John Cummings says with respect to U-6 is nonsensical. And what he says about U-3 doesn't make any sense either.
The BLS classifies persons as unemployed (U-3) if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Thus if you are a full-time temp you are counted as employed. If your temp assignment ends, and you satisfy the BLS conditions listed above, you are classified as unemployed.
"It explains jobless claims in a nutshell."
This also doesn't make any sense.
Whether or not you are collecting Unemployment Insurance is largely independent of whether you are counted as employed or unemployed by the BLS.
There are in fact people who work full time and yet collect Unemployment Insurance because the pay from their current employment is so much less than their previous employment. Likewise there are unemployed people who have exhausted their Unemployment Insurance who are classified as unemployed as long as they satisfy the BLS definition. And this is largely independent of whether you are, or were, a temp.
The employment and unemployment, numbers and rates, are produced by the BLS. Data on Unemployment Insurance claims ("initial claims" and "continued claims") are produced by the Employment and Training Administration (ETA) which is a totally different agency.
cmIn reply to Mark A. Sadowski...
Good and crisp summary, but I was surprised about this:
"There are in fact people who work full time and yet collect Unemployment Insurance because the pay from their current employment is so much less than their previous employment."
Is this how it works? When you get a new job, your benefits don't (generally) stop but some deduction formula is applied?
"Likewise there are unemployed people who have exhausted their Unemployment Insurance who are classified as unemployed as long as they satisfy the BLS definition."
This is correct, but they are not independent factors - when benefits run out yet job searches remain unsuccessful, at some point people will become discouraged and dial down futile but resource consuming and stressful job searches, i.e. go from U-3 to U-6.
Mark A. SadowskiIn reply to cm...
"Is this how it works? When you get a new job, your benefits don't (generally) stop but some deduction formula is applied?"
The rules vary by state of course. In my state (Delaware) you can earn up to 50% of your benefit level without any reduction in benefits at all, but anything earned beyond that reduces your benefits dollar for dollar. However there is no limit on how many hours you may work.
Some states have explicit limits on the number of hours you may work and there are wildly different formulas for how earnings reduce benefits.
The BlorchIn reply to John Cummings...
Actually, what I would like to see, is a move, at the societal level, away from jobs towards some other means of resource distribution. I strongly favor payment of reparations to the resource challenged but am open to any other suggest except if includes jobs. Jobs are a passe remnant of a bygone era firmly ensconced on the ash heap of history. This is what Marx would have wanted.
cmIn reply to The Blorch...
What is anachronistic is the concept of, paraphrasing, "s/he who cannot secure paid employment shall not eat". It was only ever time-appropriate in low-productivity societies where it took everybody's considerable effort to provide a basic living standard for all.
The concept of jobs is not outdated, and never will be. Most work will always require a bilateral commitment to do the particular work over some time, and to provide certain conditions under which the work is to be done. Some work can be either automated or structured as day/short term contract labor or farmed out to willing takers, but most of it cannot.
This is an admission that the FED alone cannot fix unemployment. Why should the FED keep long term rates low if Congress is going to piss away their opportunity to create jobs?
At some point, Congress must step up and do their part, but there is no pressure on them to do so. In fact, the gerrymandering has put pressure on Congress to pull the fiscal rug from under the job market and keep unemployment high. The Malefactors of Great Wealth desire High Unemployment =Cheap Labor. The Malefactors are getting the policy they purchased.
The BlorchIn reply to bakho...
That's what I've been saying all along. Tether easy money to fiscal policy. No dough, no show!
anne:at 02:42 PM
July 5, 2013
- The 3 month Treasury interest rate is at 0.04%, the 2 year Treasury rate is 0.39%, the 5 year rate is 1.60%, while the 10 year is 2.73%.
- The Vanguard A rated short-term investment grade bond fund, with a maturity of 3.2 years and a duration of 2.5 years, has a yield of 1.35%.
- The Vanguard A rated intermediate-term investment grade bond fund, with a maturity of 6.5 years and a duration of 5.5 years, is yielding 2.65%.
- The Vanguard A rated long-term investment grade bond fund, with a maturity of 24.0 years and a duration of 13.5 years, is yielding 4.61%. *
- The Vanguard Ba rated high yield corporate bond fund, with a maturity of 5.3 years and a duration of 4.6 years, is yielding 5.08%.
- The Vanguard convertible bond fund, with a maturity of 6.2 years and a duration of 5.4 years, is yielding 2.27%.
- The Vanguard A rated high yield tax exempt bond fund, with a maturity of 6.9 years and a duration of 6.4 years, is yielding 3.13%.
- The Vanguard A rated intermediate-term tax exempt bond fund, with a maturity of 5.4 years and a duration of 5.2 years, is yielding 2.11%.
- The Vanguard GNMA bond fund, with a maturity of 7.3 years and a duration of 5.0 years, is yielding 2.20%.
- The Vanguard inflation protected Treasury bond fund, with a maturity of 9.1 years and a duration of 8.5 years, is yielding - 0.37%.
* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.
anneIn reply to anne...at 02:47 PM
We are in a bear market in bonds, and if the Federal Reserve has acted too quickly in suggesting to investors that longer term interest rates will be rising in coming months as quantitative easing is limited the Fed will have made a mistake that cannot be easily undone. No reasonable investor is going to be buying relatively long term bonds for quite a while.
The BlorchIn reply to anne...at 03:51 PM
The trick is to make bonds look like the sportiest equine in the glue factory. So, equities valuations need to appear top heavy. Housing must appear ready for a bust. And something must be done about currency.
anneIn reply to The Blorch...at 04:13 PM
Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2013
(Standard and Poors Composite Stock Index)
July 5 PE Ratio ( 23.86) May PE Ratio ( 23.68)
Annual Mean ( 16.47) Annual Median ( 15.88)
-- Robert Shiller
anneIn reply to The Blorch...
Dividend Yield, 1881-2013
(Standard and Poors Composite Stock Index)
July 5 Dividend Yield ( 1.97) May Dividend Yield ( 1.97) *
Annual Mean ( 4.44) Annual Median ( 4.38)
* Vanguard yield after costs
-- Robert Shiller
anneIn reply to anne...
Stocks are historically expensive, if the work of Robert Shiller is telling, however even if it was recently argued that stocks are not expensive because interest rates are low, well, interest rates have risen significantly now.
Similarly real home prices according to the work of Shiller are on the expensive side and mortgage costs have been rapidly increasing.
anneIn reply to anne...
As for saving accounts or certificates of deposit, selected bond funds or relatively constant duration bond funds are always but always a better investment. However many people never understand why, and analysts seldom explain why coherently.
Mark A. Sadowski:
Tax change multipliers used used by private forecasting firms and by government models such as the Federal Reserve's FRB/US suggest that about half of the ultimate level economic effect of the payroll and income tax increase will be felt by the second quarter. Similarly government purchase multipliers suggest that two thirds of the ultimate level economic effect will be felt during the first quarter of the sequestration. See Appendix A for example:
In November 2012 the CBO estimated that the maximum level employment effect would be a decrease of about 200,000 jobs, 640,000 jobs (80% of the combined payroll and Unemployment Insurance effect of 800,000 jobs lost) and 800,000 jobs for the high income tax increase, payroll tax increase, and sequestration respectively:
So employment, in the second quarter should be down by about 400,000 jobs just due to the tax increases alone. The sequestration went into effect on March 1 but let's assume that for various reasons any economic effect attributable to it was delayed by a month. Then employment should be down by about 500,000 jobs in the second quarter due to the sequestration. That's a total of 900,000 jobs less in the second quarter than would have existed otherwise.
The latest employment report shows that employment was up 1.244 million in 2013Q2 relative to 2012Q4. That's the largest increase this recovery in any two quarter period with the sole exception of 2011Q4/2012Q1. That's also up from the 954,000 jobs created between 2012Q2 and 2012Q4.
Assuming the major model type estimates are correct, then in the absence of the tax increase and the sequestration 2.144 million jobs would have been created which is over 60% more than in any other two quarter period this recovery and well over double what was created in the previous two quarters. It would also have been the most jobs created in any two quarter period since the 2.251 million created in 1984Q1/1984Q2.
So if one believes in the effectiveness of fiscal policy one is stuck with the inescapable conclusion that monetary policy just offsetted a major Federal fiscal contraction. (Either that or fiscal policy works with unusually long and variable lags.) This means that we are not in a liquidity trap, and in which case a key to a more robust economic recovery is in fact better monetary policy.
You could see this as being a half-full or half-empty glass. That is, the job growth in the first half of the year would have been much better if fiscal policy had not been contractionary, or job growth could have been even worse if the Fed had not stepped in with QE3 in September, and augmented it and added foreward guidance thresholds in December as the threat of the "fiscal cliff" approached. But in my opinion there are serious problems with either of these scenarios.
Given the House Republicans I seriously doubt that fiscal policy would have been less contractionary than it was. But had it been less contractionary I also have serious doubts that last year's FOMC would have pursued as expansionary a monetary policy as they did, especially given this year's FOMC's apparent and unjustified eagerness to taper QE (and this year's FOMC is actually one of the most dovish FOMCs in a very very long time).
Thus the biggest obstacle to a more robust recovery is not really the House Republicans at all but in fact the FOMC. And this is of importance right now because Ben Bernanke's term as Fed Chair is over at the end of January. The President needs to make a decision about the next Fed Chair soon. Moreover, if the President does in fact decide not to renominate Bernanke, as he has already indicated, there is the possibility that Bernanke may resign from the Board of Governors (his term as a Board Governor is not up until January 31, 2020) which means a seat on the Board of Governors may open up. And furthermore, Federal Reserve Governor Elizabeth Duke's term (she also was a nominee of President Bush's) expired at the end of January 2012, so there may actually be two nominations to the seven seat Board of Governors that the President will be able to make soon.
Of course there is always the problem of getting these nominations through or around the Senate. But at least that is much more likely than counting on the House Republicans to change the current course of U.S. fiscal policy, and which, evidently, will end up being offset by the FOMC anyway.
Mark A. SadowskiIn reply to The Blorch...
"The first, cogent argument for austerity I've heard. I can be reduced to:
Austerity = quantitative easing = asset prices go up and up and up."
That was obviously not my intention.
Moreover the correlation between expansionary monetary policy and equities has only been this strong since 2008, that is, since a shortfall of aggregate demand became a critical problem. In fact there may already be evidence that this relationship is beginning to break down as the economy gradually approaches a more normal condition (I can go into this at greater length if you are interested).
With the institution of interest on reserves in October 2008 the FOMC effectively adopted a system of monetary policy which had already been in use by most of the advanced world's central banks (e.g. ECB, BOJ, BOE and the central banks of Canada, Australia, New Zealand, Sweden and Norway). There is no evidence that the FOMC plans to undo this change and moreover one of the newest Fed Governors, Jeremy Stein, has written a paper on the impact of interest on reserves on financial stability. With an interest on reserves system the policy rate and the level of reserves are effectively independent. Thus, all of the talk about "exit plans" is absolute falderal because there is simply is no need to exit at all.
When asked about the exit strategy during his biannual testimony before Congress in February, Bernanke said the Fed may decide to hold the bonds on its balance sheet to maturity. In March, Janet Yellen, who is Vice Chair and the leading candidate to replace Bernanke, reiterated that the Fed would raise the interest on reserves first and sell assets later. Thus in my opinion it looks increasingly likely that the Fed will sell few if any assets.
Also, this is not the first time the U.S. monetary base has been this large. The following graph shows the monetary base (St. Louis Source Base) and reserves (not adjusted for changes in reserve requirements) as a percent of GDP/GNP from 1919 to present:
The monetary base was 17.7% of GDP as of 2013Q1. But it reached 22.8% of GNP in 1946Q1 and was greater than its current level during 1939-1941 and again from 1945-47. Reserves peaked at 10.7% of GDP in 2011Q3. But they reached 13.6% of GNP in 1940Q2 and 1940Q3. They were above 10.7% of GNP during much of 1939-41. And the return to the levels they had been before the Great Depression took many years. Reserves did not fall to the 2.2% of GDP/GNP level they had been in 1929Q3 until 1972Q3, and the monetary base did not fall to 6.5% of GDP until 1975Q4.
Moreover there was never any need to exit from the more than six-fold increase in the monetary base that took place in 1932-48. The most that the monetary base decreased was from $48.413 billion in December 1948 to $42.960 billion in April 1950, or by 11.3%. And even that decrease probably had only minimal negative consequences because of the expected decline in real output following World War II. And from January 1929 to January 1954 CPI inflation only averaged 1.8%.
So given the history of the last time the Federal Reserve greatly enlarged the monetary base, as well as the availability of newer monetary policy tools (e.g. interest on reserves), I seriously doubt that an exit from QE will be necessary, much less desirable.
Peter K.In reply to Mark A. Sadowski...
"So if one believes in the effectiveness of fiscal policy one is stuck with the inescapable conclusion that monetary policy just offsetted a major Federal fiscal contraction. (Either that or fiscal policy works with unusually long and variable lags.) This means that we are not in a liquidity trap, and in which case a key to a more robust economic recovery is in fact better monetary policy."
Yes looks like monetary policy offset fiscal austerity to some degree. A liquidity trap could simply mean that the Fed has to resort to unconventional policies which create political and communication problems.
Charlie BakerIn reply to Mark A. Sadowski...
Mark Sadowski, your comment here has much to offer, but I feel that you are sometimes more interested in promoting the effectiveness of monetary policy than noting its shortcomings. I have been saying for a while that it appears that the effect of the most recent round of QE was to offset fiscal austerity rather than a true move to full employment and target inflation.
Are you arguing that the current outcome is better because the idiots in the House forced the Fed to increase QE? I don't see a whole lot of better going on these days. Again, with the two most important indicators, I can't see that it made much of a difference.
Here's U3 since the onset of the recession: http://research.stlouisfed.org/fred2/graph/?g=jBv
And here's core CPI since the onset of the recession: http://research.stlouisfed.org/fred2/graph/?g=jBw
I don't see any change in trend, of either the snail-pace improvement of unemployment, or the more recent slide into disinflation. In fact, the continued slide of inflation seems more worrying now, as the "taper talk" seems to be increasing the prospect of low inflation going lower.
I'm not saying that monetary policy cannot be effective at all. I'm saying that the actually existing Fed will never back a true full recovery, but only just take off the rough edges. My glass-half-empty counter-argument is that taking the edge off of the bite of austerity is enabling bad behavior in Congress. They reason that they can cut social spending all they want, because the Fed will keep things from going south. To my mind, it would be better for people to see the impact of fiscal austerity, rather than have the Fed keep a sluggish recovery in low gear.
Mark A. SadowskiIn reply to Charlie Baker...
"Mark Sadowski, your comment here has much to offer, but I feel that you are sometimes more interested in promoting the effectiveness of monetary policy than noting its shortcomings."
Unfortunately there are still a great many people even five years into this recovery that question the effectiveness of monetary policy at the zero lower bound. So in my opinion it is still an important question to argue. Once we can agree that monetary policy is effective at the zero lower bound then maybe we can spend more time discussing how to improve it.
"I have been saying for a while that it appears that the effect of the most recent round of QE was to offset fiscal austerity rather than a true move to full employment and target inflation."
Although there were important changes in the conduct in policy, such as the addition of interest rate policy thresholds in December, I mostly agree, almost everything which was done in September and December was done with a view to maintaining or only very modestly enhancing the pre-existing pace of recovery.
I think you can see that most clearly when you look at the graphs from San Francisco FRB President John Williams' speech in May:
Specifically, prior to September, he considered the pace of job creation to be inadequate and the rate at which the FOMC projected unemployment to fall to be discouraging. In contrast he considers the current rate of job creation and the more recent FOMC projections on unemployment to be satisfactory. Recall that in April he mentioned the possibility of tapering QE as early as June.
Incidentally Williams is an important litmus of the median FOMC member's stance on monetary policy. Kathy Lien classifies him as a centrist with views similar to BOG members Bernanke, Duke and Powell. Last year he was a voting member of the FOMC and more or less in the middle. This year he is not and is somewhat right of center of this year's voting members of the FOMC, which is unusually dovish.
"Are you arguing that the current outcome is better because the idiots in the House forced the Fed to increase QE? I don't see a whole lot of better going on these days. Again, with the two most important indicators, I can't see that it made much of a difference."
I'm arguing that the current outcome is almost exactly what the median FOMC member thinks is appropriate. The six month rate of nonfarm payroll employment increased from 130,000 in September to 202,000 currently. In June 2012 the central tendency of the FOMC projection was for the unemployment rate to be 7.75% in 2013Q4 and instead it has already fallen to 7.6%. From their point of view the January tax increases and the March 1 sequestration have been successfully offset.
"I don't see any change in trend, of either the snail-pace improvement of unemployment, or the more recent slide into disinflation. In fact, the continued slide of inflation seems more worrying now, as the "taper talk" seems to be increasing the prospect of low inflation going lower."
Interestingly I'm not at all worried about inflation. I've always felt inflation is a distraction from the real issue which is aggregate demand (AD) which by definition is nominal GDP (NGDP). Inflation is subject to shifts in aggregate supply (AS) and consequently is less "nominal", and less directly affected by monetary policy than even NGDP. So in my opinion inflation is a distraction. On the other hand if you want to complain about the low rate of change in NGDP then I'm all ears.
"I'm not saying that monetary policy cannot be effective at all. I'm saying that the actually existing Fed will never back a true full recovery, but only just take off the rough edges."
Yes, but one of the points of my comment is that the Board of Governors of the Fed can be changed by the President. Through the President's ability to nominate BOG members he has an unparalleled ability to determine the course of the economy.
Ben Bernanke is a Republican and a centrist and despite perceptions is actually to the right of this year's FOMC. Replacing him as Chair with someone on the far left of the dove-hawk scale such as Janet Yellen could make an important difference. Furthermore if he resigns from the BOG entirely that opens up a seat on the BOG and given Republican and centrist Elizabeth Duke's term expired nearly a year and a half ago there may be two vacancies on the seven seat BOG opening up. And never forget that the BOG also has the power to approve the Presidents of the 12 regional Federal Reserve Banks who in rotation are the remaining voting members of the FOMC.
"My glass-half-empty counter-argument is that taking the edge off of the bite of austerity is enabling bad behavior in Congress. They reason that they can cut social spending all they want, because the Fed will keep things from going south."
The real motivation for spending cuts has been the trillion dollar deficits and the resulting growth in Federal debt. If you reduce the deficits by increasing the pace of the economic recovery and thus raising Federal revenue you remove the justification for the spending cuts. If you want to prevent Federal, state and local governments from being pared down to a slender nub that would make only the conservatives, libertarians and anarchists in Washington and the various Republican controlled statehouses happy then you should want the Federal Reserve to do more, not less.
"To my mind, it would be better for people to see the impact of fiscal austerity, rather than have the Fed keep a sluggish recovery in low gear."
In my mind that would be a disaster because it would increase the perception that the FOMC is not centrally responsible for the tepid pace of this recovery, and decrease the pressure on it to change its policies as well as on the President to take charge of the membership of the Board of Governors of the Federal Reserve as has always been his perogative.
Charlie BakerIn reply to Mark A. Sadowski...
As always, you make strong arguments in favor of active monetary policy, but I don't know about some of these points.
"if you want to complain about the low rate of change in NGDP then I'm all ears"
I'm not arguing for the Phillips Curve, but I cannot see a robust recovery at 1% core inflation. If anything, NGDP had been flat going into the end of 2012, and it's still only moving at a walking pace now.
"The real motivation for spending cuts has been the trillion dollar deficits and the resulting growth in Federal debt. ... you should want the Federal Reserve to do more, not less."
I must strongly disagree here. The GOP is "all-weather" budget cutters. In bad times, it's "cut out the food stamp deadbeats;" in good times, it's "give your tax dollars back." Flip sides of the same record, a number called Starve The Beast. It doesn't matter what is happening in the actual economy. They have their own patronage system: it's called the Military Industrial Complex. Even with the sequester it's a bloated welfare system for red states and MNCs.
"In my mind that would be a disaster because it would increase the perception that the FOMC is not centrally responsible for the tepid pace of this recovery, and decrease the pressure on it to change its policies as well as on the President to take charge of the membership of the Board of Governors of the Federal Reserve as has always been his perogative."
Increase whose perception? I'd say the masses blame Obama, Congress and the Fed equally for the non-recovery. The VSPs want Bernanke to scale down the purchases now; hence his infamous "taper talk" debacle. Obama is the most orthodox of all; he wants deficit reduction more than he wants a robust recovery. You don't need to convince me that a recovering economy is the best way to reduce the deficit, you need to convince Obama.
Who is the constituency for central bank activism? Is the austerity offset of the recent QE building support for central bank activism? It seems to me that the current Fed stance doesn't change the game for anyone.
I take it that you are looking to see Obama name Yellen as Bernanke's replacement, and perhaps another one or two doves to the FOMC. The reason I don't see any great prospect for this is because all of the institutional & DC players don't want it. They just want the Fed to buy up enough debt to keep our dysfunctional status quo going, no more.
Mark A. SadowskiIn reply to Charlie Baker...
"I'm not arguing for the Phillips Curve, but I cannot see a robust recovery at 1% core inflation. If anything, NGDP had been flat going into the end of 2012, and it's still only moving at a walking pace now."
From 2010Q2-2012Q4 year on year headline PCEPI has varied from a low of 1.5% to a high of 2.8% reflecting the waxing and waning of commodity prices. On the other hand year on year NGDP stayed in a relatively narrow band of 3.5% to 4.5%. But then it fell to 3.3% in 2013Q1 (and PCEPI inflation fell to 1.2%). This in my opinion is much more worrying.
"I must strongly disagree here. The GOP is "all-weather" budget cutters. In bad times, it's "cut out the food stamp deadbeats;" in good times, it's "give your tax dollars back." Flip sides of the same record, a number called Starve The Beast. It doesn't matter what is happening in the actual economy. They have their own patronage system: it's called the Military Industrial Complex. Even with the sequester it's a bloated welfare system for red states and MNCs."
Yes, I agree with all of this, but then what's the point of having people see the the economy negatively impacted by fiscal austerity? The Republicans will simply continue unflappably on with their fiscal policies unimpeded. It would be much better to have a snail's pace recovery than no recovery at all.
"Who is the constituency for central bank activism? Is the austerity offset of the recent QE building support for central bank activism? It seems to me that the current Fed stance doesn't change the game for anyone."
Perhaps it is wishful thinking on my part but a number of recent developments seem to have markedly transformed the econoblogoshere's general perception of the efficacy of monetary policy at the zero lower bound. Will this have an impact on actual policy? Based on events of the past year (e.g. last year's Jackson Hole) I would say that it is more likely than many realize.
Charlie BakerIn reply to Mark A. Sadowski...
Thanks for these responses. I think I have a clearer idea of what you are seeing. I'll offer a few more responses.
"what's the point of having people see the the economy negatively impacted by fiscal austerity? The Republicans will simply continue unflappably on with their fiscal policies unimpeded."
To me, the 2011 debt ceiling face-off hurt the GOP a lot, and helped kick off a round of popular discontent that forced them to push some of the more Tea-flavored elements off to the side. It showed that Boehner is not in control of his caucus, and demonstrated to moderates that the GOP was willing to risk the US credit rating for no good reason. Similarly, if the sequester cuts had been seen to impact the economy adversely, it might move more moderates away from the GOP. The Fed's offset makes austerity seem less painful, so there is not a mass of discontent around cuts; more like an anesthetic than a serum.
"Perhaps it is wishful thinking on my part but a number of recent developments seem to have markedly transformed the econoblogoshere's general perception of the efficacy of monetary policy at the zero lower bound. Will this have an impact on actual policy? Based on events of the past year (e.g. last year's Jackson Hole) I would say that it is more likely than many realize."
This is the key insight here on your perspective. At this point, I'm in the "might as well try monetary stimulus" camp, as there is no other game in town. But it seems to me that Bernanke's recent guidance did a lot of damage. 10-yr yields and mortgage rates shot up, undermining the efficacy of the QE round. Where Martin famously remarked that the Fed should "to take away the punch bowl just as the party gets going," Bernanke seems to want to put the punch bowl away before the party even starts. Is the economy at any risk of overheating anytime soon?
But I do see your point, I think. The 2012 Jackson Hole conference did change perspectives, leading the Fed to adopt a soft version of the Evans Rule, which seems to have had some tonic effect. But to me, all the signs now are that since the worst of the sequester impacts to GDP have passed, it's back to inflation fighting, and forget about that stupid old full employment mandate. Nonetheless, I hope you're right. Relying on monetary policy alone is not my first choice, but given the fact that gridlock is the best we can hope for from the Congress, it's the only chance for improvement likely in the near term.
Mark A. SadowskiIn reply to Charlie Baker...
"But it seems to me that Bernanke's recent guidance did a lot of damage. 10-yr yields and mortgage rates shot up, undermining the efficacy of the QE round."
That was actually one of the events I was thinking about. Here's why I think that was actually a good thing.
For about a whole week there was widespread acceptance that it was the Federal Reserve that was driving the markets. That isn't supposed to happen when an economy is in a liquidity trap.
As a result I think a lot of people who fervently believed the economy was in a liquidity trap are now seriously questioning those beliefs.
The level of underemployed workers looks bad on its face but even worse when it's not the government doing the counting.
When the Labor Department released its monthly nonfarm jobs report Friday, it was all sunshine and roses except for one glaring weakness: A big jump in the underemployment rate that includes those who have quit working as well as those who have had to take part-time jobs even though they'd rather work full-time.
That rate, which economists call the U-6, jumped from 13.8 percent in May to 14.3 percent in June-a 3.6 percent increase and indicative that the 195,000 new jobs created in the month weren't exactly of the highest caliber
But what often doesn't get as much attention is the monthly labor count that the experts at Gallup conduct. Play Video'Wake Up and Smell the Taper': Economist Michael Feroli, JPMorgan Bank, explains why he believes June's employment report will likely lead to the Fed slowing its asset-buying program in September.According to the pollster's results, the underemployment situation is even worse.
Gallup reports that 17.2 percent of the workforce is underemployed, a startling number compounded by its divergence from the government's count. While the rate is down from the 20.3 percent peak in March 2010, it has remained maddeningly high over the past three years even as economists tout the strength of the U.S. economic recovery.
From a broader perspective, the Gallup measure actually has increased from its 15.9 percent multi-year low in October 2012.
The potential significance of the recent trough is that it came a month before the Federal Reserve launched the third round of quantitative easing, the $85 billion a month bond-buying program that is supposed to help the central bank achieve its dual objectives of price stability-and full employment.
Amid questions of whether QE3 is about to come to end, and if it has been as effective as its predecessors, the underemployment rate will be one important metric to watch.
Aside from the Gallup numbers, the government's report was discouraging in its own right: A jump from 28.5 percent to 29.3 percent for the percentage of those working part-time for economic reasons in the labor force, and a year-over-year surge of 25.1 percent-1.027 million total-for those "discouraged workers" who have quit searching for jobs.
"It's a big deal. The labor market is far from healthy, so I don't want to minimize the fact" that underemployment is on the rise, said Joe LaVorgna, chief U.S. economist at Deutsche Bank.
... ... ...
"We expect labor market pressure from the spending sequester in Washington to spread from reduced hours to job cuts," Ethan Harris, global economist at Bank of America Merrill Lynch, said in a report for clients.
For now, though, LaVorgna said he is attributing the data point discrepancies to an unusual jobs climate that will out the kinks in the months ahead.
"The labor market is so far from normal that it wouldn't surprise me that all these metrics are not necessarily moving in the same direction," he said. "There's going to be some incongruity between these two series. When things normalize, you would expect these things to rectify themselves."
-By CNBC's Jeff Cox. Follow him @JeffCoxCNBCcom on Twitter.
Posted by Gail the Actuary on March 22, 2013 - 11:44am
Tags: employment, high oil prices, limits to growth, per capita wages, wages [list all tags]
In my view, wages are the backbone an economy. If workers have difficulty finding a job, or have difficulty earning sufficient wages, the lack of wages will be a problem, not just for the workers, but for governments and businesses. Governments will have a hard time collecting enough taxes, and businesses will have a hard time finding enough customers. There can be business-to-business transactions, but ultimately somewhere "downstream," businesses need wage-earning customers who can afford to pay for goods and services. Even if a business produces a resource that is in very high demand, such as oil, it still needs wage-earning customers either to buy the resource directly (for example, as gasoline), or to buy the resource indirectly (for example, as food which uses oil in production and transport).
It is not just any wages that are important. It is the wages paid by private companies (rather than governments) that are important, as the backbone to the economy. Governments tend to get their revenues from private citizens and from businesses, both of which are dependent on wages of private citizens. There are a few pieces outside of this loop, such as taxes on imports from foreign countries. With the advent of free international trade, this source is disappearing. Another piece outside the US wage-loop is taxes on resource extraction, if these resources are exported.
Instead of using the analogy of a backbone, perhaps I should say that wages are the base that ultimately determines the quantity of goods and services an economy can afford.
Figure 1. Author's view of structure of the economy. Non-governmental wages form the base of the entire economy.
Obviously there are other kinds of income, such as "rents," but these, too, ultimately come from wage earners. Furthermore, businesses cannot earn money to pay dividends unless some consumer, somewhere, can afford to buy the goods and services their business is selling.
I have written recently about how the proportion of Americans with jobs rose to a peak, and since has been declining.
Figure 2. US Number Employed / Population, where US Number Employed is Total Non_Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. 2012 is partial year estimate.
I decided in this post to look at the dollars these workers are earning. In particular, I decided to look at wages, other than government wages, adjusted to today's cost level using the "CPI- Urban," cost index of the Bureau of Labor Statistics. I discovered that these wages are doing very poorly. I also discovered a disturbing connection between high oil prices and flattening or declining wages. Putting all of these pieces together suggests a connection to "Limits to Growth." Per Capita Non-Government Wages
If we take inflation-adjusted non-government wages, and divide by the total US population (not just employed workers), we get a measure of the extent to which wages have been growing or shrinking. Some of this growth will be from a second wage-earner in a family joining the workforce. Some of this growth will be from families in recent years having fewer children, so that adults make up a larger portion of the population. If some jobs move overseas and are not replaced, this will act to reduce wages.
Figure 3. US per capita non-governmental wages, in 2012 dollars. Non-governmental wages and population from Bureau of Economic Analysis; Adjusted to 2012 cost level using CPI-Urban from Bureau of Labor Statistics.
Comparing Figure 2 and Figure 3, we can see that they follow generally the same shape. A major portion of the increase in wages in Figure 3 is thus driven by a higher proportion of the population having jobs, at least up until the year 2000.
Figure 3 emphasizes how poorly wages have performed since the year 2000. Average wages on a Figure 3 basis hit a high point of $$19,112 in 2000. They then dropped back to $18,145 in 2003. In 2007, they briefly surpassed the year 2000 high point, hitting $19,573. More recently they dipped again and (with government deficit spending) have recovered a bit, rising to $18,053 in 2012. This is very low by historical standards; it is between the level they were in 1998 and 1999.
Looking at Figure 3, the other time when wages were flat was the period between 1973 and 1983. The thing that is striking is that both the current period and the previous "flat" period took place during periods of high oil prices (Figure 4, below). The vast majority of the rise in non-government per capita wages that has taken place has happened when the inflation-adjusted price of oil was less than $30 barrel.
Figure 4. Per capita non-government wages, as in Figure 3, together with historical oil prices in 2012$, based on BP 2012 Statistical Review of World Energy data, updated with 2012 IEA Brent oil price data.
We have discussed previously why high oil prices can be expected to have an adverse impact on wages. There are multiple ways this can happen. For example, oil plays a very direct role in growing and transporting food and in making gasoline. Thus, the cost of food and of commuting increases. This causes people to cut back on discretionary expenditures, leading to layoffs in discretionary sectors. Lay-offs in discretionary sectors means fewer jobs.
Another thing that happens is a change in the competitive situation that indirectly leads to layoffs. Oil is used in transporting many types of goods, and is used in producing a wide variety of products, such as asphalt shingles and synthetic cloth. Wages don't rise at the same time as oil prices rise. The result is a mismatch between what citizens can afford, and the cost to manufacture and transport products. Some customers are "priced out" of the market. Businesses find that they must scale back the size of their operations to produce only the amount customers can afford. For example, a delivery service will operate fewer vehicles, if demand is lower, laying off workers.
Also playing a role in reduced employment is increased competition from China, India, and other low wage countries. These countries typically use a lot of coal in their energy mix, so are less affected by high oil prices. As a result, their prices become more competitive as oil prices rise.
Changes in trade agreements can also be expected to play a role in the competitive situation. China started growing rapidly immediately after it joined the World Trade Organization in December, 2001. The big drop-off in US employment coincides very closely in time to the time China started growing quickly.
Figure 5. China's energy consumption by source, based on BP's Statistical Review of World Energy data.
Another factor in reduced wages is increased automation, in an attempt to compete with low-wage countries. An employer may replace several workers with a single worker, using a new high-tech machine. The worker with the new machine may earn more, but the others are left to find jobs elsewhere.
Going forward, increased retirement of "baby boomers" is likely to add further challenges. Retirees will need to be fed and cared for, mostly from taxes on current workers. In theory, the retirement of baby boomers should leave more jobs for unemployed young people, but this will depend on whether such jobs are really available.
One important point is that the impact of high oil prices on wages doesn't "go away" to any significant extent over time. This is clear from Figure 4, and is a point I have made previously. Increased fuel efficiency helps a bit, as do adaptations like finding a job closer to where a person lives. But high oil prices continue to make goods that are made using oil less competitive on a world market. High oil prices also continue to make increased automation attractive, and continue to keep the cost of transport of high. Individuals find they need to permanently cut back on discretionary spending to balance their budgets.
Oil prices are likely to remain high, and in fact, rise in the future. When we started extracting oil, we began with the easy (and cheap) to extract oil first. Now, the inexpensive to extract oil is mostly gone; what is left is high-priced oil. Over time, the price becomes even higher, as diminishing returns set in. The recent publicity about the possibility of more tight oil in the United States doesn't change this dynamic. What the press releases don't say is that this oil will only be available if it is sufficiently high-priced. A recent survey by Barclays indicates that North American oil and gas companies are anticipating less than a one per cent increase in "exploration and production" expenses in 2013; current North American oil and gas prices are not high enough to justify much increase in investment.
Per Capita Real GDP
In recent years, the economy as a whole has tended to fare better than wage earners. This happens partly because deficit spending is being used to provide income to the many unemployed people, and partly because businesses are able to "bounce back" from an earnings point of view better than wage-earners, because they can cut back the size of their operations to keep profits high. Sometimes they can even substitute low overseas labor costs, or automation.
If we compare per capita real (that is, inflation-adjusted) GDP with oil prices (both in 2012$), this is what we see:
Figure 6. Per capita real GDP (based on US Bureau of Economic Analysis data) compared to oil prices in 2012$, based on BP's 2012 Statistical Review of World Energy data.
There is some stalling in the rise of real GDP per capita, with high oil prices, but it is not nearly as pronounced as the stalling of wage growth. Nevertheless, Economist James Hamilton found that 10 out of the last 11 US recessions were associated with oil price spikes.
On a per capita basis, real GDP per capita in 2012 is between the 2005 and the 2006 level. This is far better than the situation with non-government wages. In Figure 4, we saw that in 2012, non-government wages were only between the 1998 to 1999 level. Ouch!
Hitting "Limits to Growth?"
I wonder if the situation we are reaching now isn't "Limits to Growth," as described by the book by that name by Meadows et al. written in 1972. The way we seem to be reaching Limits to Growth is through high oil prices, and the impacts these high oil prices have both on wages and on competitiveness with other countries. I explained some of these issues earlier in this post. There are also impacts on governments:
- Low wages in total mean less tax revenue for governments;
- Fewer employed means more government outlays for unemployment benefits;
- Low wages lead to more problems with debt defaults, and more need for bank bailouts;
- Governments can't raise taxes fast enough or reduce benefits quickly enough, so they find themselves with rapidly rising deficits. If governments do raise taxes, workers are even worse off. If they reduce expenditures (less unemployment payments or allowing banks to fail), citizens are also unhappy.
Over the last several thousand years, many civilizations have grown up, reached limits of one sort or another, and eventually collapsed. Based on the work of Peter Turchin and Sergey Nefedov in the book Secular Cycles, there were financial issues not too different from the ones we are seeing now involved in these collapses. I showed in my post 2013: Beginning of Long-Term Recession? that there seem to be significant parallels to our current situation. These collapses often took 20 years or more, but the situation is still concerning.
While the situation we are looking at is unpleasant, if we understand the source of our problems, we can at least look at our situation a bit more rationally. We may not be able to find solutions, but we can at least eliminate some approaches as being unrealistic. We may be able to find partial solutions, such as making survival possible for a subset of humanity, if not everyone. If we don't understand our predicament, there is no way we can rationally address it.
This post originally appeared on Our Finite World.
Good article. The 'oil tax' is sucking wealth out of the economy, causing all sorts of reactions that you describe. It seems to me that while politicians are not clueless they are held by their constituents to maintain BAU in one form or another. The most drastic reaction being Cyprus and direct taxing(taking) of bank deposits.
I believe your comments are spot on in regards to hitting the limits of growth, the glass ceiling imposed by oil price. 'Seeing' is hard to do, even harder to discuss, because you, I ,we are battling psychological defense mechanisms.
Wiki -"mechanisms (or defense mechanisms) are psychological strategies brought into play by the unconscious mind to manipulate, deny, or distort reality (through processes including, but not limited to, repression, identification, or rationalization), and to maintain a socially acceptable self-image or self-schema."
"...to manipulate, deny, or distort reality...to maintain a socially acceptable self-image or self-schema."
Man, does this sound familiar; governments, individuals, leaders, etc.. The likely hood of overcoming these defense mechanisms I think is very very small. For the most part I believe we are collectively intelligent enough to understand or able to figure it out, but this is fundamentally an emotional issue, which we are not evolved enough to tackle. My 2 cents.
Gail the Actuary:
Part of the problem is that companies' profits are hit when oil prices go up. Their natural instinct is to fix those profits.
Wages tend to be the largest source of outgo for most corporations. Almost any way of fixing the reduction in profits will affect wages. This includes outsourcing manufacturing to a lower-wage country, automation, or "making a smaller batch" (closing unprofitable locations, or cutting back unprofitable flights, or downsizing in some other way, to match lower demand for a now higher-priced product.) I made the following illustration to show this situation. I don't think it is in any TOD post. It is in a newer post Our Energy Predicament in Charts.
These changes fix corporate profits, so GDP doesn't look too terrible, after a time. But wages/employment still tends to remain low, as long as oil prices remain high.
June 19, 2013 | NYTimes.com
jcb chengdu, china June 19, 2013
Globalization poses a threat to specifically *nationally focused* macroeconomic policy that only coincides with national political power, or to transnational economic policy that is divorced from national political power. The U.S. is discovering the former, the EEU the latter, both to their great chagrin.
The globalization of U.S. labor supply, corporations, and monetary flows means that long-ignored macroeconomic factors -- especially population, natural resources, and technology -- can no longer be minimized as "exogenous" to U.S. macroeconomic policy. They now play a greater role in economic policy considerations, but (like the EEU) are less and less within the control of U.S. policy makers who are obviously more concerned with the growth and welfare of the American people than with the welfare of Humanity.
The Keynes quotation is especially apt, but there's an even more apt one in the paragraph just before the one you quote:
"That happy age [pre-1914] lost sight of a view of the world which filled with deep-seated melancholy the founders of our Political Economy. Before the eighteenth century mankind entertained no false hopes. To lay the illusions which grew popular at that age's latter end, Malthus disclosed a Devil. For half a century all serious economical writings held that Devil in clear prospect. For the next half century he was chained up and out of sight. Now perhaps we have loosed him again.".....
In the pre-WW1 years, globalization mostly meant new products for developed countries from underdeveloped countries. Today, however, it means global competition for the same products, labor and capital flows. That Malthusian "Devil," which Keynes fully acknowledged when thinking globally in 1919, again fell by the wayside after he wrote the little book that invented national macroeconomic policy. The Devil was not the specter of OMG-we're-all-gonna-die because-of-excess-population-and-inadequate-resources, but an appreciation of the causes (and limits) of growth that exist outside the realm of human effort (or, at least, change slowly with maximum human effort or restraint).
Bud I, Bloomington, IL
By any standard, trade in manufactured goods has skyrocketed. That trade has affected some workers much more than others. Because 70% of workers in the U.S. do not have college degrees, those workers have been forced into the low end (services) of the wage continuum. Those workers have become a burden to the government as well as a drag on domestic demand.
As long as we accept as imports products which, according to American values, are produced under sub-standard conditions, we will have declining standards of living as well as deteriorating quality in our natural environment.
There's a reason that in sports all the teams play by the same rules. It insures fairness and equality. Competition in manufacturing works the same way. We're losing because we allow other players into our market who don't play by our rules. And our economy and, more importantly, our people are suffering for it.
Jim Hansen CA
"...does this change macroeconomics in a fundamental way?"
In one way globalization does affect macroeconomics. Foreign competition, especially cheap foreign labor, suppresses the inflation that can result from overstimulation of the economy.
So, globalization is a justification for more monetary and fiscal stimulus (due to less fear of excessive inflation), rather than a justification for austerity.
Grumpy old man United States
Deja vu. PK, in your link I see the real Lord Keynes in 1919: "... The only safeguard against Revolution in Central Europe is indeed the fact that, even to the minds of men who are desperate, Revolution offers no prospect of improvement whatever. There may, therefore, be ahead of us a long, silent process of semi-starvation, and of a gradual, steady lowering of the standards of life and comfort. The bankruptcy and decay of Europe, if we allow it to proceed, will affect every one in the long-run, but perhaps not in a way that is striking or immediate.
This has one fortunate side. We may still have time to reconsider our courses and to view the world with new eyes. For the immediate future events are taking charge, and the near destiny of Europe is no longer in the hands of any man. The events of the coming year will not be shaped by the deliberate acts of statesmen, but by the hidden currents, flowing continually beneath the surface of political history, of which no one can predict the outcome. In one way only can we influence these hidden currents,â€"by setting in motion those forces of instruction and imagination which change opinion. The assertion of truth, the unveiling of illusion, the dissipation of hate, the enlargement and instruction of men's hearts and minds, must be the means." http://www.gutenberg.org/files/15776/15776-h/15776-h.htm
And then came the Axis versus the Allies.
martin weiss mexico, mo
And, revealingly, WWII was precipitated by interests which rejected Keynes' view on modest punitive fines on Germany, seeing money to be made from forcing Germany to accept loans, with which it built it's military. Twenty million combatants and eleven million victims died to profit a few banking establishments. This is an irrational way to manage enduring life on earth. It is not our lowest motives, but our loftiest which can sustain us. How many times must we cycle the hamster wheel of greed and war before we get wise to the game?
jcb chengdu, china
Good quotation from Keynes. The Economic Consequences of the Peace finds Keynes deep in Malthusian despair (see my comments above).
I'm a great admirer of Keynes (and Malthus), but it is odd that after the slaughter of WW1 -- the greatest Malthusian "positive check" in population history up to that time -- Keynes was unhappy for Malthusian reasons. The awful Allies' reparations policy was reason enough....
WW2 was worse, and that, too, postponed a Malthusian crisis by killing so many people. But post-war economic policy in the West was a lot better than that in the East, so economic growth quickly resumed.
Sixty-five years or so of re-population later, we may now better understand both Keynes' and Malthus' concerns.
Cassandra Central Jersey
No discussion of "globalization" is complete without mentioning the deleterious effects of "tax havens", which are havens from taxes, regulation, and transparency.
The damage wrought by tax havens seems to be increasing. There would not have been a financial crisis in 2007-8 without tax havens. Dictators and thieves would not be able to loot countries in Africa without them. The drug cartels would not be able to operate without them. And the U.S. Treasury is deprived of about $200 Billion every year because of tax havens.
Try to imagine how the missing revenue might have taken the wind out of the sails of the deficit hawks.
For every dollar in aid going into Africa, ten dollars comes out, and ends up in tax havens.
We almost ended up with a President whose financial life was existentially dependent on tax havens.
Robert Baesemann Los Angeles CA
People have been looting countries for a very long time often without tax havens. Tax havens are difficult to define because they are the banking systems of small third party countries like Cypress. When the Bad Guys decide to use such a country's banks they are initially depositors. Then a line is crossed and they become tax havens. But almost any country's banking system can be labeled a tax haven by some other country. As far as the PRC is concerned Taiwan is a tax haven. As far as Cuba is concerned the US is a tax haven.
The most important remarks in this post concern the numbers. Please expand and document the $200 Billion and 10 to 1 numbers. Those point to things our government and others should pursue.
Cassandra Central Jersey
@Robert Baesemann: The United States is one of the biggest tax havens. The City of London is the other big player. The degree of "tax haven" of course depends on how this is measured.
My source is the book "Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens" by Nicholas Shaxson.
The main idea is this: the first destination of illicit money is typically one of the islands that you read a lot about, such as the Cayman Islands, the Bahamas, Bermuda, the Isle of Jersey, etc. Often, shell banks are involved. Then, the money is transferred to other nodes in the network, but it eventually reaches havens such as Switzerland, Wall Street, or the City of London.
Our government has tried many times to address this, but there are so many politicians fighting for "tax jurisdiction competition" that it has never made any real progress.
Look up Daniel Mitchell and "The Center for Freedom and Prosperity". (I would rename it "The Center to Make the Rich Richer".)
eco-accountant eugene, or.
And to the billions our un-patriotic, "Randian" plutocrats stash away in tax havens, we need to add the billions of tax dollars lost because we've let WTO-style globalization facilitate the off-shoring of more than 50,000 tax paying factories, along with the tax revenues from family-wage jobs that migrated to China, Vietnam, and Bangladesh where compensation immediately shrunk to a small fraction of its former self.
Without those tax dollars our schools and public universities have shriveled, our public services have withered away, gangs of unemployed youth roam the streets, and those 'green shoots" show no signs of sprouting any time soon. But damn, we are getting smaller government, profits and stocks are up (thanks to the Princeton gush), and the rich and their corporations are paying less tax. Worst of times/best of times, but not in equal proportions.
Garlic Toast Kansas
One possible effect of globalized trade is in how recovery from a recession occurs. Instead of somehow stimulating a national economy back to normal, recovery now probably involves restoring normal business and employment among one's trading partners too, which seems like a larger and slower process.
Statistics Rule Savannah
I think you are largely correct, Mr. Garlic Toast.
It's not that one of our larger trading partners--Europe--is in Depression, however. I think, economically speaking (thus ignoring those sandbox kids in our coin-operated congress), the greatest barrier to our recovery is wage suppression in the US. Simply put, labor is highly undervalued whereas capital is perversely overvalued.
In other words, the Powers that Be have forgotten that it makes absolutely no sense to attempt to sell products/services few people can afford to buy ... without resort to debt. Let's face it: Americans learned a hard lesson the day so many woke up to find their homes were *underwater* thanks to using second mortgages to fuel personal consumption. Notably, nine million homes still remain underwater today.
As pointed out by PK, Americans need to look to the recent past to find solutions to our current problems. We need to bring back Eisenhower's Tax Code, with fewer loopholes, immediately. Given that Germany's largely unionized economy remained robust even after the Crash, we Americans need to remember that Unions give power to us "little people:" collective bargaining gives us the power to force corporations to revalue labor and pay us decent, living wages. We also need to look for the Union Label as that puts our neighbors back to work.
It's really simple, people: your neighbors spending is your income.
Charley James Minneapolis MN
There is one significant difference between international trade in the past and what it involves now.
Far too often over the past 20 or 30 years, corporate globalization has meant chasing cheap labor. Along with government-sanctioned union busting, this policy has crippled - if not destroyed - the middle class in America and Europe. While corporate profits skyrocketed, less and less "trickled down" to the people still lucky enough to have jobs. Voila! A massive explosion of wealth inequality.
Few people I know set out after school or university to become wealthy, but they all wanted to live a comfortable life, raise their children and have them get a good education, plan for a retirement and be able to see a doctor if they became ill.
Instead, my generation and those behind us have trouble living a survivable life - "comfortable" simply means having a extra few dollars at the end of the month - with no job security, a cash-starved public school system (unless one lives in a wealthy area, as the Times demonstrated yesterday), no pension plans and our own retirement savings stolen from under us, and it's still so expensive to get medical help that many forego it.
Neither politicians nor policy makers nor enough academics bothered to "read the old books." Rather, they allowed charlatans such as R-R and A-A to use junk economics to push an ideological agenda that favors too few at the expense of the very many. They should have to live the life they condemned us all to living.
Jun 19, 2013 | CNNMoney.com
Men have been steadily disappearing from the workforce for more than half a century.
In the 1950s, nearly every man in his prime working years was in the labor force, a category that includes both those who are employed and those actively applying for jobs. The "participation rate" for men ages 25 to 54 stood at 97.7% in early 1956, but drifted downward to a post-war record low of 88.4% at the end of 2012. (It ticked up very slightly at the start of this year to 88.6%.)
So where have all the men workers gone?
Some went into prison. Others are on disability. And still others can't find jobs and have simply given up looking.
The trend is particularly pronounced among the less educated. As the job market shifted away from blue-collar positions that required only a high-school degree to more skilled labor, many men were left behind, labor analysts say. It's harder these days to find well-paying jobs in manufacturing, production and other fields traditionally dominated by men without college diplomas.
But college men are leaving, too. The participation rate of those older than 25 and holding at least bachelor's degree fell to 80.2% in May, down from 87.2% in May 1992.
"The proportion of guys doing nothing has risen," said Gary Burtless, a senior fellow at the Brookings Institution.
The cycles of national economic prosperity since World War II have done little to stem this downward slide. In fact, even when the unemployment rate hit a 30-year low in the early 2000s, the share of men in the workforce continued its steady decline.
The Great Recession accelerated the trend, pushing the participation rate for men in their prime working years below 90% for the first time. It has yet to recover, even as the general economy improves.
Here's a closer look at the reasons why men are dropping out of the labor force.
- Incarceration: A growing number of men have spent time in prison, which makes it much harder to find a job once they complete their sentences.
Looking at those born just after World War II, some 1.2% of white men and 9% of black men had been to prison by 2004, according to Bruce Western, a Harvard sociology professor. But looking at those born 30 years later, some 3.3% of white men and 20.7% of black men had been to prison.
- Disability: More men have been pouring into the federal disability system, especially in recent years, when the Great Recession and its aftermath pushed up the national unemployment rate. Men who might have found a job in a better labor market were instead turning to this safety net system, according to David Autor, a Massachusetts Institute of Technology economics professor and co-author of Wayward Sons, which looks at the growing gender gap in education and the workforce.
In 1982, around 1.9% of working-age men were receiving disability benefits. By 2012, that number had climbed to 3.1%, according to data crunched by the National Academy of Social Insurance.
Once on the disability rolls, few people get off. Only 2.2% left the program in the first quarter of 2013.
- Lack of education: A few decades ago, men could graduate high school and make a decent living on a factory floor or at a construction job. As the labor market becomes more skilled, those guys are being left behind.
In the 1960s, more men than women were enrolling in and completing college. "That's completely reversed itself," Burtless said. "Women's persistence and enrollment rates have given them a real edge over men."
Women born in 1975 were roughly 17% more likely than their male counterparts to attend college and nearly 23% more likely to complete a four-year degree, according to data in Wayward Sons.
"A lot of non-college men have chosen not to work rather than participate in jobs that don't pay that well and are not very satisfying," Autor said.
The decline of men in the labor force has broad implications for families, taxpayers and the economy. Fewer employed men means more people on the dole and fewer taxpayers to contribute to the nation's economic growth.
Also, fewer of these men are in stable family relationships, contributing to growth of single-parent households. That fuels the widening income inequality gap and stunts the upward economic mobility of the next generation.
When Steve Jobs died, Occupy Wall Street was in full effect. Yet those who were fighting for wealth equality and the end of the banking oligarchy held a moment of silence in honor of the Apple co-founder, who had a net worth of $7 billion.
Jobs "didn't believe in charity," writes Joel Kotkin in The Daily Beast. Apple (AAPL) was a company that "had more cash in hand than the U.S. Treasury while doing everything in its power to avoid paying taxes...Jobs was being celebrated by those who should have been fighting against him."
Kotkin believes that tech gurus are America's newest set of oligarchs. They hurt competition and hold great influence with government officials. They don't create many U.S. jobs, they don't pay much in taxes, and yet 72% of Americans express positive feelings for their industry.
Auto executives flying in private jets set the American public into a rage in 2008 and yet no one complains about Google's (GOOG) fleet of private jets in San Jose or the tech giant's proposal to build a private $85 million flight center, Kotkin argues. Tech oligarchs are also taking jobs away from Americans, he says.
"Perversely, the small number of jobs -- mostly clustered in Silicon Valley and created by tech companies -- has helped its moguls avoid public scrutiny," Kotkin points out in the accompanying clip.
Kotkin compares the domestic workforce of major Silicon Valley companies to other Fortune 500 U.S. corporations: 50,000 Google employees versus 200,000 U.S. workers at General Motors (GM). Facebook's (FB) 4,600 workers to Ford's (F) 164,000. Exxon's (XOM) 100,000+ staff to Twitter's 1,000.
Google, with a market cap of $215 billion, is about five times larger than GM yet has just one fourth as many workers.
"This is an equation that defines inequality: more and more wealth concentrated in fewer hands and benefiting fewer workers," Kotkin says. "If you look at the wealthiest people in the country, particularly the wealthiest people under the age of 40, they're heavily tilted towards the Silicon Valley."
The youngest billionaire in the U.S. is Mark Zuckerberg of Facebook whose net worth totals $12.4 billion. He's followed by Sergey Brin of Google, the 21st richest person in America, with $25.5 billion.
"Ten of the world's 29 billionaires under 40 come from the tech sector, with four from Facebook and two from Google. The rest of the list is mostly inheritors and Russian oligarchs," writes Kotkin.
Facebook paid no taxes last year, despite making a profit of more than $1 billion. Apple's Tim Cook testified in front of Congress this week about how his company manages to pay so little in taxes.
These companies are also trying to use their influence to sway politics. Facebook's lobbying budget grew from $351,000 in 2010 to $2.45 million in the first quarter of 2013. Google spent $18 million on lobbying in 2012.
So why do these companies get a free pass when it comes to public opinion?
"In our era we have grown up to love our toys," Kotkin tells The Daily Ticker. "I think it has a kind of halo effect. People don't realize that this is not as clean and carefree as we tend to think."
"These are industrialists, these are capitalists and we should celebrate their successes but we should be very careful," he adds.
Eleven percent of student loans were seriously delinquent -- at least 90 days past due -- in the third quarter of 2012, compared with 6 percent in the first quarter of 2003, according to the report by the U.S. Education Department. Almost 30 percent of 20- to 24-year-olds aren't employed or in school, the study found.
The research is being released amid concern in Congress and President Barack Obama's administration about rising college costs and $1 trillion in outstanding student loans, the largest category of consumer debt besides mortgages. Borrowers say the burden is affecting their choice of jobs and their ability to buy homes and get married.
"Today's economy puts young graduates in a difficult position," Jack Buckley, commissioner of the National Center for Education Statistics, which published the report, said in a statement. "A college diploma no longer guarantees a direct pathway to the middle class, making it harder to justify the expense of a degree."
Still, college graduates have an edge in the job market, showing the need for higher education, Buckley said. The employment rate for young adults who are college graduates is 87 percent, compared with 64 percent for those with only a high-school diploma, the report found.
Economic Policy Institute
The large increase since 2007 in the unemployment and underemployment rate of young college grads, along with the large increase in the share of employed young college graduates working in jobs that do not require a college degree, underscores that today's unemployment crisis did not arise because workers lack the right education or skills. Rather, it stems from weak demand for goods and services, which makes it unnecessary for employers to significantly ramp up hiring.
The figure below, from this report on the labor market prospects of the Class of 2013, gives unemployment and underemployment rates for college graduates under age 25 who are not enrolled in further schooling. The unemployment rate of this group over the last year averaged 8.8 percent, but the underemployment rate was more than twice that, at 18.3 percent. In other words, in addition to the substantial share who are officially unemployed, a large swath of these young, highly educated workers either have a job but cannot attain the hours they need, or want a job but have given up looking for work.
Digital technology has brought society many benefits: faster, more efficient ways to share ideas, do business, communicate with government and much, more more. But along with those gains come the losses in jobs where less labor is needed now as more activities get automated.
"The Internet is killing more jobs than it creates," writes computer scientist Jaron Lanier, in his new book, Who Owns the Future?
Digital technology is shrinking our overall economy rather than expanding it, unlike past technological breakthroughs, says Lanier.
At the root of the problem, Lanier tells The Daily Ticker, is the idea that "information has to be free." For example, he says companies don't pay individuals for the data they collect in order to sell products to those individuals and others, and online translation systems don't pay the translators whose individual translations actually contributed to the final product.
Related: Jim Chanos: Stay Away From U.S. Tech Firms
"We are not paying ourselves when we're actually contributing the work that makes the machines work," says Lanier, adding that more and more things will be done automatically. "If we don't find a way to pay for people who are contributing the information that actually makes the whole thing work, then the jobs start going way and we're already seeing that."
He suggests something "radically new" be done, namely paying people for the use of their data or labor via a "a universal royalty system." Translators would get paid every time their works is used; so would people whose pictures are taken by street cameras as part of a government safety measures.
If no such payments are made, the middle class will be destroyed in the long run, says Lanier, and then businesses will suffer as well because they'll have less customers using and buying their technologies and other products.
Related: Former AMD CEO Forecasts 'Intelligence Revolution'
Lanier admits his idea is unusual, but says it's possible.
"When the Internet was starting up it seemed crazy that it could ever work and then it worked," he says.
He likens his proposal to the settling of a new frontier, like the American West, more than a hundred years ago.
"At first the land was free…but then eventually a real estate system took hold and people could buy and sell land. Something like that's going to have to happen with the information economy. It's free at first…but you can't sustain a civilization on that."
The Daily Ticker Presents: Generation I.O.U.
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Are you burdened by student loan debt? Have you moved back home? Are you having trouble finding a job?
Tell us your story in 90 seconds or less and ask our experts a question. Upload your video to Flickr here. Or, send us an email at: firstname.lastname@example.org.
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05/06/2013 | Zero Hedge
The second half of 2012 saw a significant shift in US monetary policy from calendar-based guidance to outcome-based guidance and the adoption of a 6.5% unemployment rate as a threshold for 'tapering'.
With Friday's better-than-expected payrolls data and another tick lower in the critical-to-liquidity unemployment rate, it seems Goldman Sachs (and others) are waking up to the facts that we have been vociferous about: the shift of jobless individuals from unemployment into inactivity (the participation rate dilemma) is making the unemployment rate a less appropriate measure of broad labor market conditions. This has important implications for Fed policy because it implies that the committee might still be quite far from reaching the jobs side of its mandate even once the unemployment rate is back at 6%.
After all, the Federal Reserve Act calls for 'maximum employment', not 'minimum unemployment'. This distinction did not matter much in the past, but it is becoming increasingly important. The 'participation gap' remains as big a drag on growth as 'unemployment' and we, like Goldman, would expect the Fed to 'change' its target for their outcome-based guidance (to enable moar printing).
Via Goldman Sachs,
The second half of 2012 saw a decisive shift in US monetary policy. One aspect was the move to open-ended asset purchases of $85 billion per month.
The other aspect - and our focus today - was the adoption of a 6.5% unemployment rate as a threshold for the first hike in the federal funds rate. The motivation for the move from calendar-based guidance to outcome-based guidance is simple and compelling. It is much more sensible for a central bank to guide expectations about future policy actions in terms of an economic criterion than in terms of a particular date.
But the 6.5% threshold for the unemployment rate is not an ideal outcome-based target.
The reason is that the unemployment rate is increasingly distorted by the decline in labor force participation.
Labor force participation has fallen by 2.7 percentage points since the start of the 2007-2009 recession.
Some of this decline is clearly related to the aging of the US population. Population aging shifts the composition of the over-16 population - which forms the denominator of the participation rate. The chart below shows that changes in the composition of the population account for 1.2 percentage points of the decline in labor force participation.
Gavyn Davies argues the Fed is targeting the wrong thing (unemployment instead of employment):...the Fed has a headache. Its forward guidance on unemployment is in danger of giving misleading signals about the need for tightening, and it probably needs to be changed. ...The difficulty is that unemployment is declining towards the announced threshold in part because large numbers of people have left the labour force altogether as the recession has dragged on, and this probably means that the official unemployment rate is no longer acting as a consistent measuring rod for the amount of slack in the labour market.The upshot is that the Fed will probably want to keep short rates at zero until unemployment has dropped a long way below 6.5 per cent...[I]t is a distortion which the Fed cannot afford to ignore. Its mandate requires that it should aim for "maximum employment", not "minimum unemployment on the official statistics", which is what it risks doing under its current forward guidance. ...
If the Fed is going to make a mistake -- ease too long or tighten too soon -- you can probably guess which mistake I think is worse.
This tweet from Andy Harless caught my eye:
HIres-to-openings ratio looking uglier & uglier bls.gov/news.release/j… Looks like rising structural unemployment- Andy Harless (@AndyHarless) May 7, 2013
May 06, 2013 | Counterpunch
Dave Kranzler of Golden Returns Capital declares the April payroll jobs report that was released on May 3 by the Bureau of Labor Statistics to be "fictitious."
Statistician John Williams, of shadowstats.com, says both the jobs report and unemployment rate are "nonsense."
I agree with both. But don't expect the financial press to report the facts.
Let's take a walk through the BLS report and you can arrive at your own conclusion.
The BLS report says that the private sector created 185,000 service jobs in April. Even if this report were true, it would have negligible effect on the unemployment rate as about 127,000 new jobs are needed each month just to stay even with population growth and current unemployment rate.
But is the BLS report true?
We can answer that question by examining the areas where the jobs reportedly materialized: 29,300 in retail trade with general merchandise stores accounting for about half of that number, 73,000 in professional and business services with temporary help services accounting for 42 percent of that number, 26,100 in health care and social assistance with ambulatory health care services accounting for 52 percent of that number, 45,100 in accommodation and food services with waitresses and bartenders accounting for 84 percent of the jobs, and 8,600 jobs created for bill collectors.
That's it. The federal government lost 8,000 jobs, the postal service lost 4,900 jobs, state government lost 1,000 jobs and local government lost 2,000 jobs.
There were zero jobs created in manufacturing.
Considering the credit-restrained and hard pressed consumer, the jobs figure for bill collectors is likely correct. But why would there be 29,000 new jobs in retail trade when real retail sales are falling? Why would there be new professional service jobs when large consulting companies such as IBM are reducing the hours of their contract employees? How can 38,000 waitress and bartenders be hired in one month when consumers have so little discretionary income?
Notice, too, that the BLS reports that 6,000 construction jobs were lost in April. Yet, the financial press is full of reports of "housing recovery."
You know those thousands and thousands of fracking jobs that the fracking industry has been hyping so that communities, desperate for jobs, ignore the destruction of their surface and ground waters? Well the BLS report shows that oil and gas extraction jobs, which includes normal oil and gas recovery, peaked in February. Only 900 jobs were created in April, a small reward for destroyed aquifers and surface streams. People who live in fracking areas have been warned to open their windows when showering to avoid being asphyxiated because of the methane in the water...
Andrew McAfee, co-author of the book Race Against the Machine, thinks that when it comes to the disruption of labor markets because of technology, "we ain't seen nothin' yet." At the MIT Sloan School of Management, McAfee studies the impact that information technologies have on industry, and I recently heard a presentation of his research at Singularity University's Graduate Studies Program. McAfee contends that we could now be entering a world where automation will cause wages to fall and jobs to dry up.
McAfee's argument isn't wholly new, and he explains how fears surrounding unemployment due to technology have been around for 200 years. Famed economist, John Maynard Keynes, voiced concerns regarding automation in the 1930's and coined the term "technological unemployment." In the early days of the industrial revolution, many worried that the automation of agriculture would leave everyone unemployed. Of course, Keynes' vision of a world with little work left for humans never transpired, and his argument has been widely regarded as a fallacy. McAfee, however, tells a convincing story as to why it may finally be time to worry.
To articulate the core of his argument, McAfee draws from the concept of exponential growth patterns. The numbers at the beginning of any exponential curve (1+2+4+8+16….etc) are easy to comprehend. It isn't until later in the progression that intuition breaks down and human imagination is outstripped by the explosive growth in the doubling pattern. With regards to the digitization of labor, McAfee argues that we may have just entered the "knee" of the curve; the portion of the growth pattern characterized by massive acceleration.
The encroachment of digitized labor into the economic system is now accelerating, and the scope of the phenomenon is as of yet unknown. McAfee admits that much of today's economic pain is probably caused by the hangover left from the 2008 crisis in the U.S., and the current crisis in Europe. McAfee points out, however, that corporate profits in the U.S. have never been higher and that companies are back to spending; especially on things like IT. What companies are not doing is hiring new employees. McAfee shows BLS data showing that the 2000s were the first decade since World War II in which there were fewer people working at the end than at the beginning. Hiring hasn't returned, suggests McAfee, in part because technology is being injected into the economy at such a staggering rate that there is a decreasing need for human workers.
The Lost Decade for Job Growth
If the computer era for business purposes has been around since the 60's, then why is it now in 2012 that we should be concerned? McAfee argues that we are now in an age of unprecedented acceleration, where our experience of the past is no longer a good guide for the future. The comparative advantage of human labor over machines is washing away before our eyes and to illustrate this point, McAfee references the work of Narrative Science, a company out of Northwestern University, which uses algorithms to write stories around simple pieces of data. Forbes now uses this technology to generate the earnings announcements around a company's stock price, and can even tailor the story to cater to specific audiences. How many journalists could lose their jobs? McAfee thinks it could be more than just a few. McAfee also points to Google's self-driving car, and IBM's Watson as good examples of pivotal applications being developed today, that could digitize a sizeable chunk of human labor in the future.
So what are we to do, as more and more jobs are lost to this entirely new species of highly skilled machine? During Q&A some of the students at Singularity University argued that we should re-frame the issue into one of education rather than unemployment. They argued that not all of the jobs in the future are for the robots, but these jobs also haven't been created yet. We'll need to find ways to retrain those rendered obsolete. This is no easy task, and one that McAfee argues could cause serious heartache for the economy. For McAfee we are at the cusp of a transition period that will be far more profound than America's shift from agriculture to industry. Though the future of work is highly unknown, one thing is certain. If you are looking for a forecast of clear skies and sunny days ahead for the industrial labor market, then don't hire Andrew McAfee as your weatherman.
This story produced in cooperation with SU partner site Singularity Hub
... ... ...
As the cost of living increases around the globe fueled by the Central Banks money printing, wage protests and strikes have become commonplace:
South Africa - A total of 26 people were arrested overnight in connection with farmworkers' protests for higher wages, Western Cape police said on Wednesday.
At least 180 people had been arrested in connection with the protests since Wednesday last week…
Indonesia: Thousands of workers took to the city's main thoroughfares on Wednesday to protest delays in the increased minimum wage and hikes in electricity rates.
The workers from industrial areas in Bekasi, Bogor, Depok, Jakarta and Karawang belonging to the Indonesian Metal Workers Federation (FSPMI), the All-Indonesia Workers Union (KSPSI) and the Indonesian Workers Assembly (MPBI), demanded that Governor Joko "Jokowi" Widodo instruct companies to immediately comply with the 44 percent raise of the provincial minimum wage to Rp 2.2 million (US$228) for 2013.
China-Sanitation workers' salaries will be increased by 10 percent this year in
Guangzhou, the capital of South China's Guangdong province, following
recent protests demanding higher pay…
"The salary of sanitation workers will be increased by 10 percent this year and the government will also boost other subsidies, for example, housing allowances," Huang said…
Guangzhou has an estimated 38,840 sanitation workers, who earn an average of about 1,300 yuan ($209) a month, almost equal to the city's minimum wage.
Germany-Germany's major public services trade union Verdi had called for a daylong strike on Friday at Hamburg Airport, impeding security operations and delaying flights as passengers struggled to get to their gates.
The union is calling for an hourly wage of 14.50 euros for its members, who currently earn 11.80 euros per hour.
Only one of 20 security checkpoints had opened, with approximately 95 percent of the passenger security-check staff walking off the job.
These wage protests and the political instability they create have dramatically changed the investment landscape
Apr 07, 2013 | Calculated Risk
work without benefits is likely also a growth area for the economy.
the Brit way of doing it is called zero-hour contracts
Almost a quarter of Britain's major employers now recruit staff on zero-hours contracts that keep workers on standby and deny them regular hours....Labour MPs and unions have branded the contracts as a throwback to the Victorian era and say they are being used by employers trying to avoid agency-worker regulations, which entitle agency staff to the same basic terms and conditions as permanent employees after 12 weeks.
The 2011 Workplace Employment Relations Study found that the proportion of firms with some workers on zero-hours contracts rose from 11% in 2004 to 23% in 2011.
The contracts have long been popular with companies including McDonald's and Abercrombie & Fitch. Large charities and public sector organisations have also adopted the arrangements.
The good news didn't last very long. Question is, is this a temporary lull or a new trend.
Growth is oven, and, most of us need to make other plans, as if 2% is not achieved the ponzi collapses. If this happens now, or is merely plateauing for a while is the question.
When energy decent fully kicks in (we peaked in per capita energy in 1979), no one will be asking questions.
Hot weather, high unemployment, austerity, unfavorable exchange rates. Time to visit Southern Europe.
The FOMC projections imply no recession before 2016. Anyone want to put money on that idea?
Have to think on it more but maybe. Continued and enhanced ZIRP, LSAP's, further plunging participation rate and concentration of wealth to the top 1% thus skewering the wage growth minus transfer payments metric and our dear leaders may be able to assure another recession defined by the NBER never occurs.
"Austerity and welfare cuts represent a two-pronged offensive by the ruling elite to drive down wages and living standards and fundamentally restructure social relations in its class interests.
This statement gave me pause, too, although I for one have for many months ridiculed the Tory-LibDem coalition and reproduced UK "economic" and "financial" stats propaganda since BoE began QE. I for one no longer identify "austerity" with ex post facto industrial policy, designed by a "ruling elite."
"Austerity" is a yella press euphemism for Depression (which must not be evoked) market conditions which always result from market failure (e.g. Panic '08): No or less free cash flow. Austerity precedes so-called industrial policy prescriptions of the state. Thus, what regulation that "global trade" dependent regimes adopt in order to conserve and discriminate disbursements of reliable cash and credit, that is unequivocally identifiable, is necessarily remedial.
Unless your the sort of bureaucrat willing and able to restore fiduciary and commercial responsibility for disbursements to the very same actors (firms) whose officers (people) defrauded the world: one may be a Krugman acolyte in principle.
Merican press has spent a few years denying "austerity" directly related to the Panic of '08, persisting legislative maxims that permit capital market failure, and even the conceptualization of "austerity" that originated in the UK press, where "ruling elite" (castes of peerage inclusive) most certainly anticipated subsequent FIRE illiquidity and has executed a strategy to relieve Brits of what paltry "social safety net" that the City "global" ponzi somewhat financed.
UK's so-called welfare state has never been exemplary, one to emulate.
Tim Duy:A Solid Employment Report, by Tim Duy: The February employment report was solid - not a blockbuster report, but definitely solid. And three of the last four employment reports have been solid as well, with payroll growth about 200k per month.
This will undoubtedly raise some chatter that the Federal Reserve's large scale asset purchase program will be tapered back soon than later. I suspect such talk would be premature. While the labor market currently has some momentum, we have seen such momentum fade in the past. Moreover, we are still deep in the labor market hole, so to speak. The Fed has time to see this play out, and, even if labor markets continue to improve at this pace, will most likely take that time, delaying any reduction of the pace of asset purchases until late this year.
Lots of yahoos! out there about this report, so let me offer a few cautions from Phil Izzo at the WSJ:
... The number of people who say they are working increased by 170,000, solid increase from the prior month. Meanwhile, the number of people counted as unemployed tumbled by an even larger 300,000. That sparks some concern. It means that all of those unemployed didn't find jobs. Many of them are likely retirees or people who leave the labor force to go to school. But there also are large numbers of discouraged workers dropping out of the labor force. The number of discouraged workers jumped in February.
The issue can be seen in the smaller drop in the broader unemployment rate, known as the "U-6"... That includes everyone in the official rate plus [discouraged workers and part-time workers who would rather be working full-time.] ... In February,... the number of part-time workers who would like full-time jobs increased and the ranks of those marginally attached to the labor force climbed.
The disparity highlights the plight of the long-term unemployed, whose ranks increased in February even as those without a job for a shorter time had an easier time finding a new position. The longer someone is out of a job, the harder it is for them to find work.
We should also recognize that these numbers are often revised substantially, e.g. last month's number was revised downward from 157,000 to 119,000. With that said, again from the WSJ (Ben Casselman):
Jobs reports are often a mishmash of good news and bad, with no clear signal of the direction of the labor market. Not this month. Virtually all of the major indicators were pointing in the right direction: Payrolls were up, the unemployment rate was down and every major piece of the private sector posted job gains. The consumer sector appears to have shrugged off higher taxes and rising gas prices; retailers and restaurants added jobs. Perhaps the only significant negative was a downward revision to January's job growth, which could suggest the Fiscal Cliff had a bigger impact on employment than initially thought.
Update: See also Dean Baker:
Job Growth Picks Up Steam in February, by Dean Baker: The Labor Department reported that the economy added 236,000 jobs in February. With a small downward revision to job growth over the prior two months, this brings the average growth rate over the last three months to 191,000. The unemployment rate fell to 7.7 percent, but this drop was largely attributable to a decline in labor force participation. The employment-to-population ratio (EPOP) was unchanged at 58.6 percent, exactly the same as the rate in February of 2012 and just 0.4 percentage points above the low hit in the summer of 2011. This compares with an EPOP of 63.0 percent in 2007. The 54.8 percent employment-to-population ratio for women is just 0.2 percentage points above the low hit last month.
The decline in labor force participation in this cycle has been striking. While the unemployment rate has dropped more than 40 percent of the way back to its pre-recession level, the employment-to-population ratio is still far closer to its trough than its pre-recession peak. ...
By education attainment there is the striking anomaly: The EPOP for those with less than a high school degree is almost back to its pre-recession level. It rose by 1.9 percentage points in February to 41.9 percent. This compares with a 43.3 percent average for 2007. Insofar as the aging of the population is a factor depressing EPOPs, the decline should show up most clearly among those with less than a high school degree since these are disproportionately older workers. The fact that EPOPs have not fallen much for this group suggests that the aging of the population is not an important factor behind declining EPOPs. ...
There was some modest good news on the wage front with the average hourly wage increasing at a 2.85 percent rate in the last three months compared to the prior three. This would indicate some acceleration and actual real wage growth, but it is way too early to assume the pattern will continue.
The 236,000 new jobs reported for February are a good sign and better than generally expected, but there is the risk that this is being driven by unusually good winter weather. This could lead to a situation like we saw last year with very weak job growth in the spring as the result of hiring being pulled forward. This is basically a picture of an economy that is showing modest growth, but has not yet felt the impact of the end of the payroll tax cut and the sequester.
Jesse's Café AméricainThese charts courtesy of chartmaster Gary at NowAndFutures.com
Tyler Durden on 01/29/2013
The quest for cheap energy and cheap labor is a conquering human urge, one that has played out with notable ferocity starting with the Industrial Revolution. The introduction of coal into British manufacturing, and the more recent outsourcing of Western manufacturing to Asia, have marked key thresholds in this ongoing progression. But despite the harvesting of additional productivity gains from the more recent revolution in information technology, the suite of macro data suggests that the rate of advancement in physical production has slowed, notably, in the past thirty years. Seen in this light, the greatest gains to global industrial production were probably enjoyed from the late 18th century (when coal extraction and use began in earnest) into the mid-20th century (when oil reached broad distribution). In contrast, computers, the Internet, and the leveraging of developing world labor might eventually be seen as the finishing touches on this great industrial wave.
ForbesThe explanation is very simple. You say, "As I say, I'm afraid I just don't see it. And what worries me about that is that the people on the other side are vastly more intelligent than I am but I keep thinking that they're not seeing something that I am. Which is this obvious point: if everything's made by the machines then everything becomes revoltingly cheap." - The flaw is the word "everything". Not everything becomes cheap. Medical care, for example, actually gets more expensive every year - it looks like it's on an exponential growth curve. Housing isn't going down - it went down a bit after the housing bubble burst, but isn't on a long-term downward curve. Food looks like it's bottomed out and is slowly crawling back up in price. For food it looks like it's fairly impossible to get the price much lower, due to fundamental resource constraints (agricultural land, fertilizer, oil energy for harvesting, food transport & refrigeration, etc) - I suppose you could argue a revolution in robotic vertical hydroponic/aeroponic farming might get it to go lower. For housing, I suppose you could argue someday houses might be made by robotic 3D printing, but housing can already be built more cheaply but politics and zoning and building codes and concern over property values and all sorts of political stuff seems to prevent it. Medical care seems also prevented by going down in price by politics - lobbying on the part of financial/insurance firms, and so on, that prevent the current financial arrangement from changing. Robots might not be able to lower the prices of things where the price is actually controlled by politics and not free markets. So the catch is, if your income goes down exponentially but some of your expenses stay constant or go up, you become poor.
Another catch is that jobs tend to be all-or-nothing - either you have a job or you don't. If you lose your job at a car factory and don't get a new one, it doesn't matter if the price of cars goes down to $5000. You need an income higher than $0. And that's one thing robots might do: they create the possibility for people who lack the advanced educations, skills, intelligence and creativity to get the new jobs created in the roboticized economy to have incomes of $0.
Submitted by Tyler Durden on 02/01/2013 - 08:10
With today's jobs number due out shortly, it is worth pointing out some of the key trends that we have observed in the underlying data stripped of month-to-month seasonal variance, which expose the "quality" side of the US non-recovery, instead of the far more manageable "quantity" side. First and foremost, as we showed over two years ago, and as the mainstream is gradually picking up, the US labor force is increasingly transitioning to one of part-time, and temp workers, which has key implications for wages, worker leverage, and overall job prospects, all of which logically are negative. But perhaps an even more disturbing trends is the conversion of America into a gerontocratic worker society, where the bulk of jobs are handed out to those 55 and over, which puts all young workers, not to mention college graduates, at a major disadvantage relative to far more experienced older workers, who are willing to work for less as they scramble to compensate for retirement shortfalls, and which prevents the natural rotation of the US labor force from older to younger.
...Economist William Lazonick, director of the University of Massachusetts Center for Industrial Competitiveness, thinks that economists have gotten a lot of the labor-technology issue wrong. He reminds us that it was 19th-century economist David Ricardo, author of the theory of comparative advantage, who is largely responsible for the modern notion that technology depresses wages and displaces workers. He wrote a famous book in 1817, during the world's first very first industrial revolution, in which he argued that machinery would not hurt workers. Then, in a third edition, Ricardo famously changed his mind. That recantation had enormous impact.
Nineteenth-century thinkers were influenced by Ricardo, and also by Friedrich Engels, whose dad owned a textile factory in Germany which had some outlets in England. Engels was deeply disturbed by what he saw in these factories, and at the age of 24 he wrote a treatise called "Condition of the Working Class in 1844."
Engels saw textile workers treated badly and being replaced by machines as weaving was moving into factories. He was right about what he saw. A machine known as the "self-acting mule" which spun cotton was indeed taking over work done by humans. But Engels was also basing his theories on a moment in time that happened to be the worst economic downturn of the century. That would be like judging 20th-century factory conditions in the U.S. by visiting Chicago meat-packing plants in 1933. The problems faced by the workers Engels saw were not a permanent set of conditions, but partly the result of a cyclical downturn. Technology wasn't really the issue. Many weavers were forced to move from their homes, where they had traditionally labored, into factories, where conditions were difficult and where women, who had traditionally worked as weavers, were excluded. In the long run, factory owners saw that they needed the skills of workers to run the new machines. Britain became the workshop of the world, workers did pretty well, and the country enjoyed a long economic boom.
But Karl Marx looked at Engels' work and concluded that automation was decreasing the power of workers. Marx got many things right, but he may have gotten it very wrong on technology and labor.
It's undeniable that mechanization can sometimes leave workers behind, like makers of Swiss watches, or, to use a more recent example, compositors who have been replaced by digital printing. But displacement doesn't have to be inevitable or permanent. Countries can respond with national policies that help those valuable, highly trained workers acquire new training. They can use local, state, and federal taxes to help foot the bill. The kinds of policies used by companies makes a huge difference in how workers experience automation. Japan is the world leader in robots, but it's also a place where permanent employment is much more common than in the U.S. In 1990, Japan had many times more robots than factories. But it turns out that in order to make those robots work, companies needed people for programming, maintenance and repair. Because they didn't lay off employees, firms simply retrained them. Workers observed the robots and learned how to do new things to work alongside them.
In Lazonick's view, economists have not thought enough about how workers can gain from technological change. When companies automate, he argues, you can expect more jobs, not fewer. Just look at a company like Apple, which automates rigorously and yet provides new possibilities for jobs. It produces software that does things humans used to do, for example, but it employs engineers, designers, and people who package, market, and sell new products.
Automation increases profits for companies, but for Lazonick the real question is, how are those profits distributed? Are they being distributed to shareholders for short-term profits? Or are they being invested back into the company to do vital things like retraining workers, which helps the long-term economic outlook? The problem is not automation, but greedy CEOs who pay themselves gigantic, disproportionate sums and follow the dangerous and misguided principle of "maximizing shareholder value" to distribute profits to themselves, often caring little whether the company even survives 10 years down the road. What's it to them? They'll have their pay packages and can move on. The perverse misuse corporate profits is the real culprit, not Rosie the Robot.
Why should we expect companies to spend their money retraining workers? Aren't they around to make a buck? Certainly many of them are doing quite well in that department, making record-breaking profits. The truth is that companies are also supposed to have a social purpose. That's why we, as taxpayers, invest in all kinds of things that allow them to do business, from constructing roads and airports to basic research. (And why we confer on them the extraordinary privilege of limited liability and other legal advantages.) Apple would not be able to make its wondrous gadgets if the government had not invested heavily in the development of the Internet and things like touchscreen technology. So Apple owes something back to those who have footed the bill for its success. That includes not only sharing profits with workers, but investing in retraining them when new advances in technology change the workplace. It's not just altruism, it's about fairness. And smart economics.
Workers aren't vulnerable because of robots. Investment in automation is a good thing that can produce more, and better jobs. People are vulnerable because of misguided policies that depress economic growth, reward short-term profit-making, and leave workers with nothing left in their pockets to buy goods and services – not even robot vacuum cleaners, now endowed with human-like emotive responses so we won't be mad when they break down -- which they very frequently do. And guess what? They need a human to fix them.
Tyler Durden on 01/29/2013 - 10:45
It is impossible to understand job creation without understanding value creation and labor/overhead costs.
People hire other people when their labor creates more value than it costs to hire them. When labor costs are high, the value created must also be high; it makes no sense to hire someone if doing so generates a loss. When labor is cheap, the bar of value creation is lowered, and so the risk of hiring a worker is also lower: they don't have to add much value to be worth their wage. This is why you see many low-value jobs in developing-world countries.
If overhead costs - the cost-basis of doing business in the U.S. - keep rising faster than gross profits (out of which overhead is paid), then the owners have little choice: they can either close the business before they are personally bankrupted, cut everyone's pay or lay off some employees and somehow raise the productivity of the remaining workers to maintain enough value creation to survive. This is the U.S. economy in a nutshell.
Submitted by Tyler Durden on 01/27/2013 - 19:51
Employment is dead in the water because opportunities for organic expansion are few and the cost basis of doing business in the U.S. keep rising. That vise forces businesses large and small to reduce labor costs while boosting productivity. There is no other way to stay solvent in a post-bubble, over-capacity, over-indebted consumerist economy awash in too much of everything but energy, common sense and fiscal prudence.
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