Softpanorama
May the source be with you, but remember the KISS principle ;-)

Contents Bulletin Scripting in shell and Perl Network troubleshooting History Humor

Unemployment Bulletin, 2010

Softpanorama > Insufficient Retirement Funds Problem > Structural Unemployment in the USA >

Contents 2017 2016 2015 2014 2013 2012 2011 2010 2009

Prev | Contents | Next

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work, but have given up looking -- held at 17%.

The number of people unemployed for 27 weeks or more increased as a percentage of all jobless, to 41.9%, the highest since August.

Professor Thoma:

If the growth that occurs post-recession simply picks up where pre-recession growth left off, i.e. with income gains flowing mainly to the upper classes, and with even more income inequality than we have now, the frustrations and tensions will continue to build and our troubles will not have ended.

 "The idea is that the labor that is freed up from the increased productivity will be used to produce new goods and services thereby increasing the quantity and variety of the nation's output. ... Even though there's a delay before the new jobs appear ... the new jobs are supposed to be even better than the old ones."

This story never made sense to me. If there is demand for new products and services then they will be produced whether or not there is a "freed up" labor supply from productivity gains. If there is no "freed up" labor supply available the necessary labor force will be attracted by employers offering higher wages and stealing workers away from less profitable enterprises that can't afford to raise wages. This will drive the least profitable enterprises out of business, and since the less profitable businesses are probably the least productive, it will raise productivity. Innovation in products and services combined with rising productivity can happen with continuous full employment, and I see no reason to believe bursts of high unemployment associated with productivity gains are necessary or even sufficient.

In fact, I can see an argument that high unemployment associated with productivity gains would actually hinder the creation of better jobs making new products.

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold. ...

Measured in 2009 dollars, total wages fell to just above $5.9 trillion, down $215 billion from the previous year. Compared with 2007, when the economy peaked, total wages were down $313 billion or 5% in real terms.

The number of Americans with any wages in 2009 fell by more than 4.5 million compared with the previous year. Because the population grew by about 1%, the number of idle hands and minds grew by 6 million.

These figures show, far more powerfully than the official unemployment measure known as U3, how both widespread and deep the loss of jobs was in 2009. ... Only 150.9 million Americans reported any wage income in 2009. That put us below 2005, when 151.6 million Americans reported wages, and only slightly ahead of 2004, when 149.4 million Americans held at least one paying job.

For those who did find work in 2009, the average wage slipped to $39,269, down $243 or 0.6%, compared with the previous year in 2009 dollars.

The median wage declined by the same ratio, down $159 to $26,261, meaning half of all workers made $505 a week or less. Significantly, the 2009 median wage was $37 less than in 2000.

To give this some perspective, from 1992 to 2000 the number of people earning any wages grew by 21 million, but nine years later 2.8 million more people had any work.


Top updates

Shop Amazon Cyber Monday Deals Week
Google Search


NEWS CONTENTS

Old News ;-)

December

[Dec 30, 2010] Yves on stimulus and tax cuts by Dan Crawford (Rdan)

This is a very good interview where the issue of labor losing bargaining power. As usual Yves is well articulated and clear.

Yves Smith nailed it on the money.

We need to level the playing field, instead of selective tax deal.  Mutual fund managers, private equity (Essentially all the major players, the real fat cats) should pay their fair share of taxes.   No more deferment of taxes, especially for multinational corporation such as Google (they paid effective tax rate of 2.5%).  Why should the productive rich (especially successful small businesses) pay 35% while wall street gets to pay at 15-20% long term capital gains tax rate?  Make all the "Rich" pay the same tax rate!  No more favoritism in Congress, I just don't believe honest, innovative people can't win in this country.  The rest can invest, live somewhere else.  In a capitalistic society, if you leave a business, someone will take it!

Responsibility in government.  Need to stop the unfair abuse of taxpayer funded pension system.  No more double dipping.  If you work for the government, the pension will accumulate consecutively instead of concurrently.  Actuary reduction for those retire before 65 of age, just like a real private insurance will pay you.  No more sweetheart deals for chiefs of fire department, chief of police etc...  It just hurts the younger generation of line fireman, police officers.  It just take couple of "Star" "VIP" government officials bankrupt the pension system.

Unfortunately I think we have finally reach a point that something needs to be done.  People like Bush, Charle Rangel, Barney Frank all had their day and allow this to happen. It's time to reform.

MG:

That was a pretty good interview with Yves Smith.

The bottom line is U.S. trade policy.  Anything short of a thorough analysis of the pros and cons of pre-1994 and current trade policy and related outcomes misses the mark.  That effort needs to include a refresher on the trade deficit commission conclusions.

Instead of focusing primary attention on U.S. trade policy, we have the usual howlers screaming about the lack of jobs created during the last decade.  Well, what did the howlers expect to occur with the changes in U.S. trade policy that were implemented during the mid '90s and thereafter?  They play the standard political blame cards instead of discussing changes in trade policy and resultant outcomes.

The U.S. trade model is broken from a U.S. employment perspective. 
This isn't difficult to grasp. 

CoRev:

MG, additionally, we have the same howlers complaining about the lack of real wage increases over the same period when our trade goals were to raise the standard of living/wage level of the of the world so that they were closer to ours.  Create better more prosperous trading partners.

As far as trade goes, we have this deficit component that everyone conveniently overlooks: "The point is this: out of a $44 billion dollar monthly trade deficit, $27 billion of that was for one commodity alone. Unfortunately for the U.S., it happens to be the most strategic commodity of all: OIL. Put another way, imported oil made up 62% of the U.S. monthly trade deficit. This is not an aberration - it goes on month after month, year after year. And as the price of oil goes up, so too does this problem. It is quite simply draining away the wealth of America. We are burning it up in our cars and trucks."  From here: http://seekingalpha.com/article/238920-foreign-oil-dependency-the-root-cause-of-america-s-economic-pain?source=feed

Trade policy impacts are closely linked to other policies, environmental and energy (maybe the same policy in today's world), which have significant negative impacts on our exports as well as being the major compnent of our trade deficit.

Rdan:

"again, i dont think it is the environmentalists - they have neither the money or the power. big oil has both. all one needs to do is read robert hefner's excellent book "the grand energy transition" to get a better feel for who the opponents of natural gas transportation are: big oil, coal, the utilities, and the railroads that transport coal. and i would add one more: the U.S. military who needs a good oil war now and again to get promotions, rationalize more troops...etc. etc. as well as the defense contractors that feed it. "

From the author in comments.

CoRev:

Dan, that's the constant counter argument used by the environmentalists: "Its all the fault of Big Oil/Energy!"  But, whenever the covers are actually pulled off that argument it almost always proved untrue. Environmentalists have the MSM and several governments and their agencies as their premier allies.  To think they have less power is extraordinarily naive.  The preponderance of money spent is on environment/green side of the equation versus the "Big Energy".

As far as the "Foreign Oil" issue as part of our trade deficit problem, are you ignoring that fact?  Are you actually saying that environmentalists are not effecting those policies?  Gas, shale/sand oil, and coal policies are not environmentally driven, with little discussion/consideration of their economic consequences?  Are you saying that they are not linked?

When one policy, environmentalism, is over weighted when compared to other(s), (economics; trade; research; energy, drilling; etc) then that ole rule of unintended consequences is not only supreme it may very well be the "anticipated" consequences.

coberly:

MG

i am inclined to agree with you, but you should flesh out your point with some actual argument.

coberly:

CoRev

and i am inclined to agree with you too.  but as i remember you think the answer is to drill for oil in my daughter's bedroom.   the idea of driving smaller cars on fewer shorter trips does not appeal to you. talk about willing ignorance/denial.

Cedric Regula

One thing we actually got in the latest Bush-Obama-Pork tax cut extensions was the tax break for using oil to burn our food supply (corn ethanol production tax break extensions).

Next, some time in March we will be due to vote up the Federal debt limit cap of $14 Trillion. Otherwise they will have to shut down the government. I'm positive they will vote up the debt limit so we don't close the United States of America, but I am also positive they will hold their votes hostage for more tax breaks!

Let me know when they get serious about something. (cutting Warren Buffet's SS benefit doesn't count)

sammy:

CoRev,

 imported oil made up 62% of the U.S. monthly trade deficit.

That's a shocking stat.  Libs complain about the economy, yet they restrict  the most basic fundamental building block of the economy - ENERGY.  They want no drilling in ANWR, no drilling in the Gulf, no drilling off Florida, no clean coal in Utah, no oil shale development, no nuclear.......

Is it because they instinctively hate the freedom that the automobile, and a rollicking economy, provide.? They want to put everyone on buses, trains or small slow electric cars?  Is that why they fell so hard for the Global Warming Hoax?

coberly

sammy

find it hard to guess why it's "shocking".  is there something magic about 62% that makes it mean something other than we use a lot of oil.  and i would guess that's not 62% of foreign trade, but a number being compared to another number... "trade deficit"...  in the kind of illegitimate comparison that drives the constant right wing hysteria.

yes,  i hate your freedom.   that's why i made it against the law for you to drive on sidewalks.

and every time you have to stop for a red light...  or obey a speed sign...  think of me laughing behind your back.

but keep in the back of your mind that i li-temps.html"> US Follows Japan: The Rise of Freeters, aka Temps

[Dec 05, 2010] How Are the Kids? Unemployed, Underwater, and Sinking

The Baseline Scenario

with 273 comments

This guest post is contributed by Mark Paul and Anastasia Wilson. Both are members of the class of 2011 at the University of Massachusetts-Amherst.

In some cultures asking how the kids are doing is a colloquial way of asking how the individual is faring, acknowledging that the vitality of the younger generation is a good metric for the well-being of society as a whole. In the United States, the state of the kids should be an important indicator. Young workers bear the significant burden of funding intergenerational transfer programs and maintaining the structure of payments that flow in the economy. Today, the kids’ outlook is almost as bleak as the housing market; they are unemployed, underwater on student debt, and out of luck from a reluctant political system.

Currently, even after a slight boost in jobs growth, unemployment for 18-24 year olds stands at 24.7%. For 20-24 year olds, it hovers at 15.2%. These conservative estimates, using the Bureau of Labor Statistics U3 measure, do not reflect the number of marginally attached or discouraged young workers feeling the lag from a nearly moribund job market.

The U3 measure also does not count underemployment, yet with only 50% of B.A. holders able to find jobs requiring such a degree, underemployment rates are a telling index of the squeezing of the 18-30 year old Millennial generation. While it appears everyone is hurting since the financial collapse, young adults bear a disproportionate burden, constituting just 13.5% of the workforce while accounting for 26.4% of those unemployed. Even with good credentials, it is difficult for young people to find work and keep themselves afloat.

[Dec 04, 2010] U.S. Economy Struggles for Full-Fledged Recovery as Jobs Lag by Rich Miller and Timothy R. Homan

Dec 04, 2010 | Bloomberg

The U.S. economy is struggling to achieve a broad-based expansion as companies remain reluctant to ramp up hiring 18 months after the end of the recession.

The unemployment rate rose to seven-month high of 9.8% in November as payroll growth slowed to 39,000 from 172,000, a Labor Department report showed yesterday. Hours worked and earnings stalled, while a record 6.4 million women in the labor force were without work last month.

The worse-than-projected job numbers followed a recent series of statistics indicating the economy was picking up steam. Sales at retailers rose by the most in eight months in November while manufacturing kept expanding, data this week showed.

“We haven’t hit escape velocity,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “We’re approaching it, but the coast is not clear.” He defined “escape velocity” as consistent economic growth of 3% or more and monthly increases in payrolls of at least 175,000.

Economists surveyed by Bloomberg News projected a 150,000 increase in November employment, according to the median of 87 economists. The jobless rate, which rose from 9.6%, was forecast to hold steady.

The hesitant recovery means Federal Reserve Chairman Ben S. Bernanke and his central bank colleagues may press ahead with their plans to buy $600 billion of longer-term Treasury securities by the middle of next year.

‘Validates the Fed’

The jobs report “validates the Fed doing what they are doing,” Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, said yesterday.

It also puts pressure on lawmakers to extend tax cuts, put in place by former President George W. Bush, beyond their expiration at the end of this year and to renew aid to the long- term jobless.

“It’s critically important that we extend tax cuts to the middle class, the Bush tax cuts and the Obama tax cuts, and that we not pull the rug out from under the unemployed that are searching for work, and we extend the unemployment benefits,” Austan Goolsbee, chairman of President Barack Obama’s Council of Economic Advisers, said in an interview with Bloomberg Television.

The two-year Treasury note rose yesterday, pushing the yield down to 0.47% from 0.54% late on Dec. 2. Stocks ended higher, extending the biggest weekly gain in a month, propelled by a rally in shares of energy and metal producers as commodity prices rose. The Standard & Poor’s 500 Index advanced 0.3% to 1,224.71 at the 4 p.m. close in New York.

Not as Weak

The jobs market is not as weak as the November numbers suggest, said Nariman Behravesh, chief economist at IHS in Lexington, Massachusetts.

“I’m willing to bet a fair amount of money that this number is going to be revised up,” he said, pointing to recent declines in claims for unemployment benefits. He put underlying job growth at about 100,000, roughly the pace of the last two months.

The Institute for Supply Management also said yesterday that its non-manufacturing index, which covers about 90% of the economy, rose to a six-month high of 55 in November from 54.3. A reading higher than 50 signals growth.

Private payrolls that exclude government agencies rose 50,000 in November after increasing 160,000 in October, the Labor Department’s report showed. Employment at service- providers, which includes governments, increased 54,000.

Factory Payrolls

State and local governments reduced employment by 13,000, as did manufacturers. The decline at factories was the biggest in three months.

New York City, facing a $3.3 billion deficit in next year’s budget, will cut its workforce by more than 10,000 over the next year-and-a-half, Mayor Michael Bloomberg’s budget office said Nov. 18. More than 6,200 workers will be fired, and the remainder of the cuts will be made through attrition, his office said.

The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

The number of temporary workers rose 39,500 in December, indicating companies are holding off hiring full-time employees.

“Our clients still are looking for flexibility because there’s enough uncertainty in the pace of the recovery,” Tig Gilliam, chief executive officer of Adecco North America, said yesterday in an interview. The Melville, New York, firm is a division of Glattbrugg, Switzerland-based Adecco SA, the world’s largest supplier of temporary workers.

Underemployment Rate

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- held at 17%.

“The labor market is capping off a very poor recovery this year,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “I don’t think we’ll slide back into job losses, but being stuck in neutral isn’t good. While consumer spending has normalized, employers are uncertain about demand going into 2011.”

The report also showed the number of people unemployed for 27 weeks or more increased as a percentage of all jobless, to 41.9%, the highest since August.

“It is really ugly right now,” said Anthony Johnson, 27, of Atlanta, who has been looking for a job since leaving the Marine Corps, where he was a warehouse clerk, 14 months ago. “It is so competitive. For every few jobs that come out, so many people are fighting for that one position.”

100 Applications

Johnson, who has a business degree, says he has put in more than 100 applications this year and had one interview for a job that was later filled internally. Some employers say he’s overqualified, he said.

In an effort to reach out to some of the nation’s largest employers, Obama met with Wal-Mart Stores Inc. Chief Executive Officer Mike Duke at the White House on Nov. 29. The meeting is one of a series of sessions aimed at soliciting the views of companies, with the goal of spurring the recovery and adding jobs.

The U.S. Senate is scheduled to vote today on Democratic proposals to extend a portion of the Bush-era tax cuts before they expire at the end of the month, Senate Majority Leader Harry Reid said.

Republicans have vowed to block any measure that doesn’t extend all of the Bush-era tax policies, saying that expiration of the lower rates for upper-income taxpayers would hurt job creation.

“Raising taxes during times of economic uncertainty and instability is the wrong thing to do,” Senator Orrin Hatch, a Republican from Utah, said in a statement.

--With assistance from Carlos Torres, Bob Willis, Shobhana Chandra and Courtney Schlisserman in Washington and Steve Matthews in Atlanta. Editors: Vince Golle, Christopher Wellisz

November

[Nov 28, 2010] Toles -- There is No 'Rest of the Trick'

"But as workers look forward, the fear is that that won't be the case. Workers who have lost jobs face an uncertain future where, if they can get new jobs at all, they are unlikely to pay as well or have the same level of benefits as the jobs they lost. New workers do not appear to have the same opportunities that their parents had, particularly workers without a college degree."
Economist's View

Tom Toles (WashPost)::

See also: Rising worker productivity, innovation boosts profits but may lessen hiring need, by Anthony Feld and Craig Torres (I think there's more to the delayed recovery of labor markets than just changes in productivity, but that's part of the story).

On the title, there is supposed to be a "rest of the trick," but it doesn't come until later. The idea is that the labor that is freed up from the increased productivity will be used to produce new goods and services thereby increasing the quantity and variety of the nation's output. In a dynamic, growing economy, even though there's a delay before the new jobs appear (and hence a need to help workers through the transition), the new jobs are supposed to be even better than the old ones. But as workers look forward, the fear is that that won't be the case. Workers who have lost jobs face an uncertain future where, if they can get new jobs at all, they are unlikely to pay as well or have the same level of benefits as the jobs they lost. New workers do not appear to have the same opportunities that their parents had, particularly workers without a college degree.

Publius 10:

Professor Thoma:

If the growth that occurs post-recession simply picks up where pre-recession growth left off, i.e. with income gains flowing mainly to the upper classes, and with even more income inequality than we have now, the frustrations and tensions will continue to build and our troubles will not have ended.

-------

Bravo Professor Thoma.

Beginning to asking that question, and questioning the premises on which the neoliberals and neoconservatives have pushed for free trade, deregulation, gutting consumer protection in bankruptcy, bailouts financed with deficits (or taxes or fees imposed on households), and so on is tremendously important.

Goldilocksisableachblonde said in reply to Reality Bites

... Why would Mark attempt to explain things that you believe , but have no basis in fact ?

like this:

"however for the world as a whole, labor wages have vastly grown"

Labor shares of income have decreased globally over the last two decades , just as they have in the U.S.

http://hdr.undp.org/en/reports/global/hdr2010/papers/HDRP_2010_36.pdf

"This paper has examined trends in the labor share in the economy as a whole and in the manufacturing sector using two large cross national datasets with extensive coverage. In doing so, it has documented a very persistent decline in the labor share across countries in both datasets. This decline appears to be a secular phenomenon. An examination of the trend in labor share by region, income levels, and HDI levels suggest that the decline in the labor share has been observed across the board."

or this :

"The reason we haven't seen the usual benefits is due to globalization..."

"Wages will have to equalize across nations as we liberalize trade and trade grows as per economic theory."

Nations decide how income shares are distributed by their policy choices. Denmark has a minimum wage that's about equal to our average wage among non-supervisory workers , ~ $18/hr , yet their labor policies are held up as among the most effective in the advanced world.

The flow of income to the top in this country is not dictated by "economic theory" , but rather by a few hundred bums in Washington D.C. The Nordics , Germany , and France , to name a few , are advanced economies that show drastically different income distributions from that of the U.S. , with comparable growth , while operating in the same globalized economy and under the same 'laws' of economics as us.

Emerging economies tend to grow faster than advanced economies , as they benefit from 'catch-up' advantages , so their workers should also show faster gains relative to their advanced-country counterparts , assuming they get their fair share , that is. However , even the most advanced economies achieve productivity increases resulting in real gdp growth which - again , if it's fairly distributed - will translate into higher real wages for workers. There's no law of economics that prevents global workers' wages from converging over time to higher levels for all workers.

Since you revel in our banana republic-style setup , the charts at this link should warm your heart :

http://www.businessinsider.com/facts-about-inequality-in-america-2011-11# 

reason:

If there was a citizen's income (or better citizen's dividend) - see recent discussion on Worthwhile Canadian Initiative - then this wouldn't matter. Regardless of whether productivity gains trickle down automatically or not, living standards could be supported by increased redistribution.

Insistance on the purity of the "free market system" is insistance on an eventual return to the Malthus economy. And the economy will become less stable the more income is concentrated (because money needs to circulate and the rich have a lower propensity to consume). This is not complicated, it just needs flexible thinking.

AndyfromTucson:

 "The idea is that the labor that is freed up from the increased productivity will be used to produce new goods and services thereby increasing the quantity and variety of the nation's output. ... Even though there's a delay before the new jobs appear ... the new jobs are supposed to be even better than the old ones."

This story never made sense to me. If there is demand for new products and services then they will be produced whether or not there is a "freed up" labor supply from productivity gains. If there is no "freed up" labor supply available the necessary labor force will be attracted by employers offering higher wages and stealing workers away from less profitable enterprises that can't afford to raise wages. This will drive the least profitable enterprises out of business, and since the less profitable businesses are probably the least productive, it will raise productivity. Innovation in products and services combined with rising productivity can happen with continuous full employment, and I see no reason to believe bursts of high unemployment associated with productivity gains are necessary or even sufficient.

In fact, I can see an argument that high unemployment associated with productivity gains would actually hinder the creation of better jobs making new products.

Noni Mausa:

 "...And the economy will become less stable the more income is concentrated ..."

Which is a positive-feedback situation. Any system in unimpeded positive feedback is headed for profound restructuring, often destructive.

Till 2000 or so, the fraction of worker's compensation which was deferred rather than immediate (health care, pensions, etc) was still accepted as a sound possession, at least by the employees themselves. Only fools still trust those long-term promises anymore. Those promises have been deflated and their leverage much reduced.

So, if there is ever a recovery at the grassroots level, if jobs decide they need workers, I think workers will bargain differently, requiring either higher immediate compensation, or solid locked-in pensions and benefits, or much higher levels of benefits to compensate for increased risk of default on the employers part. In short, the placid promises of the past will be replaced by much more expensive real-time compensation.

Of course, this kicks up the intensity of the positive feedback, boosting incentive for jobs to steer clear of people.

The underlying falsity is that, as with an electric circuit, there must be flow into as well as out of every junction. A capacitor charges quickly but once charged acts as a barrier to further flow.

This is where we sit now -- businesses and banks are sitting on huge stocks of currency, but it's going nowhere, all potential with no current. In a radio or toaster this inaction is no problem, it just sits there. People are not so patient -- some sort of "profound restructuring" MUST occur, the only choice is what sort we would prefer.

Ironically, most of the natural routes, the ones we get if we do nothing, also sharply reduce the size, complexity and efficiency of the total economy.

It seems to me that the only way out of this positive feedback loop which doesn't involve revolution, genocide, armed forces or other "kill the spares" events, i.e. the only route which doesn't further destroy democracy, is some sort of citizen's dividend or guaranteed annual income.

Noni

[Nov 05, 2010] James Galbraith's Radical Plan to Create Jobs: LOWER the Retirement Age

Nov 04, 2010 | finance.yahoo.com

Initial jobless claims rose 20,000 to a seasonally adjusted 457,000 last week. That's worse than economists were expecting and doesn't bode well for Friday's all-important unemployment data.

Economists estimate the economy gained 60,000 jobs in October.  Unfortunately, that's not enough to move the unemployment rate below 9.5%, which is "a calamity," according to University of Texas Professor James Galbraith.

The pace of job creation remains stubbornly slow and unlikely to accelerate anytime soon,  Galbraith says. “We are not going to see the jobless rate being reduced toward 8% or 7% in the course of the next year."  

What's worse, he notes, is the utter lack of viable solutions coming from Washington.  He lists several industries in which the country can use workers, including elder care and alternative energy. Without government support and added stimulus, however, those desperately needed jobs won't be created.

Galbraith's radical solution to joblessness: lower the retirement age.

“We have a large cohort of people who have been displaced by a major economic crisis,” he says. “It's utterly ridiculous to make them subsist on unemployment insurance, when in fact, there aren’t going to be jobs.  This is not a temporary condition for a great many people.”

Galbraith claims lowering the retirement age would solve that problem. It's a win-win, he says, allowing those nearing retirement age to gain Social Security benefits to help pay the bills; and more importantly, it opens up the labor market to younger workers currently crowded out by the large number of 50 and 60 year old workers vying for the same jobs.

What do you think: Is lowering the retirement age a good idea?

Selected Comments

A Yahoo! User

The problem with this argument is that it assumes there is a constant number of jobs so that there is a 'zero sum' in gains and losses (i.e., one older person retires to create a job for one younger person). Instead, we need to increase the number of jobs, period. To do that, we will need to constrain income, especially at the very high end.

Most other developed countries have much older age distributions yet have much lower unemployment rates than the U.S. (Germany, U.K., Netherlands, Denmark, Sweden, etc). They do this by, first, creating more public sector jobs and, second, by truly progressive taxation. They also have lower crime rates, longer life expectancies, and greater social cohesion. And, yes, they are increasingly multicultural and ethnically diverse, too. Adjustments do have to be made periodically, but that's always going to be true. Unfortunately, we in the U.S. have too many people who don't believe in progressive taxation or in expanding the public sector. They take the position of 'I'm fine. Why should I support anyone else?". Well, live with the consequences - high unemployment, high crime levels, lower life expectancy, and less (even hostile) social cohesion. Unemployment is not inevitable. It's the result of a set of social/political choices.

October

[Oct 26, 2010] Scary New Wage Data

October 25, 2010 |  Economist's View

David Cay Johnston:

Scary New Wage Data:  Now for some really scary breaking news, from the latest payroll tax data.

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold. ...

Measured in 2009 dollars, total wages fell to just above $5.9 trillion, down $215 billion from the previous year. Compared with 2007, when the economy peaked, total wages were down $313 billion or 5% in real terms.

The number of Americans with any wages in 2009 fell by more than 4.5 million compared with the previous year. Because the population grew by about 1%, the number of idle hands and minds grew by 6 million.

These figures show, far more powerfully than the official unemployment measure known as U3, how both widespread and deep the loss of jobs was in 2009. ... Only 150.9 million Americans reported any wage income in 2009. That put us below 2005, when 151.6 million Americans reported wages, and only slightly ahead of 2004, when 149.4 million Americans held at least one paying job.

For those who did find work in 2009, the average wage slipped to $39,269, down $243 or 0.6%, compared with the previous year in 2009 dollars.

The median wage declined by the same ratio, down $159 to $26,261, meaning half of all workers made $505 a week or less. Significantly, the 2009 median wage was $37 less than in 2000.

To give this some perspective, from 1992 to 2000 the number of people earning any wages grew by 21 million, but nine years later just 2.8 million more people had any work.

These wage data, based on the Medicare flat tax on all compensation, tell us only about the number of people who earned wages and how much. They tell us nothing about whether these individuals were underemployed, had to work more than one job, earned fringe benefits, or were employed at a level commensurate with their abilities.

But they do give us a stunning picture of what’s happening at the very top of the compensation ladder in America. The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story.

The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That’s nearly $10 million in weekly pay!

You read that right. In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43%, this group’s total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6% of all pay. These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers. ...

Back in 1994, when the top category the government reported on was $20 million or more of compensation, only 25 people were in that rarefied atmosphere, and their average earnings came to just under $45 million in 2009 dollars.

What does this all mean? It is the latest, and in this case quite dramatic, evidence that our economic policies in Washington are undermining the nation as a whole. ...[continue]...

Posted by Mark Thoma on Monday,  at 09:58 AM in Economics, Income Distribution | Stumble, Digg, del.icio.us, Reddit, Tweet, Share, Like | Permalink Comments (44)

Francois:

From a pure (ahem!) "free market perpective", we should then conclude that the contribution of an immense majority of workers is less valuable now than in 2007, while the contribution of those at the top is 5 TIMES more valuable that in 2007.

Is there any way this proposition can pass the smell test?

RobertInAz
Those at the top are taking advantage of cheap borrowing costs to inflate earnings and captive boards to increase wages.

Overall, focusing on this group is a red herring. Look at the $500K plus crowd.

Francois:

Sooner than later, we shall have to talk seriously about the roots of income inequality in this country.

I challenge anyone, anytime, anyplace to provide a cogent and common sense rationale to such a skewed distribution of income.

Let's be honest here: this is the result of a deliberate set of policy choices. Misguided policy choices that will cost us nothing less than our economic supremacy and well being.

Observer:

The PGA Tour has many significant spots on the money list. For the sake of this column, we'll include the leader, the last person to qualify for the Tour Championship (#30), and the last person to keep his PGA Tour card (#125). Let's have a look at how these numbers stack up from 1986 to last year, a span of 21 years.

The average earnings of these three positions from 1986-1996 are $1.3 M, $455,298, and $113,311. The average earnings of these three positions from 1997-2006 are $7.2 M, $1.6 M, and $447,613."

There is quite a bit of analysis in the article. One that jumps out is how much flatter the earnings of the #125 place are than the #1 or #30. And how much overall earnings increased (of course not for for the guy who is #1000 in golf in the country and tries unsuccessfully for years to break into the Tour).

http://thesandtrap.com/the_numbers_game/money_list_trends 

It seems hard to credit the uneven distribution of golf prize earnings to some conspiracy of the rich. Small increments of performance (real or perceived) in a global market can be worth a lot.

There may be "a deliberate set of policy choices" at work, but I think you have to control first for other factors before invoking that as an explanation.

Goldilocksisableachblonde

" Small increments of performance (real or perceived) in a global market can be worth a lot."

'Global market'. Precisely.

All of the other advanced economies of the world occupy the same globe we do, last time I checked.

Given the much reduced levels of inequality in most other advanced economies, that means the burden is on you to explain why "a deliberate set of policy choices" is not the only rational explanation for those inequality differences.

OhNoNotAgain:
Yeah, that's right, when the subject is wages of US workers, let's change the subject and start talking about the earnings of pro golfers.

Confuse and obfuscate...wouldn't want people actually realizing who's screwing them...

PJR:

If you want a cogent and common sense rationale for the outcome, perhaps the first place to look: the past 30 years of policy advice from economists to democratically elected officials, from Reagan to Bush II. I'm sure it's there. After all, the electorate bought it, too.

Helen Wheels:

"Narrowing the base while adding weight to the apex does not make a stable structure."

Here it is in a nutshell

sam:

As I said before, the kind of income inequality with which this country finds itself mired in is similar to the income inequality that other nations in the past experienced just before a revolution. We're slowly getting there, but getting there all the same.

don:

"The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That’s nearly $10 million in weekly pay!"

I find it difficult to believe that the income he is taking about is "wages" paid by an employer to an employee. Where do these people work? Is this financial sector compensation?

jeffrey:

The local gun store has a help wanted sign in the window. They can't keep up with the increased sales.
kthomas
Not funny, but the point is well taken.
hapa
when the tea party declared open season on your own feet, people got fired up
cm
It may or may not be a matter of keeping up with sales, but I don't know your store of course. Hereabouts one also sees help wanted signs in all kinds of businesses none of which have anything to do with guns, or look like they cannot keep up with sales.
Maybe they don't have enough sales, or their help has moved on to better opportunities, moved out of town, etc.

abprosper:

The wage data is a symptom of the new job reality

As a society we are going to have to deal with the fact that there is less work to do and do it in some productive manner or risk some bad stuff. Heck even Time fricken magazine is asking "will there be a civil war?"" now

http://curiouscapitalist.blogs.time.com/2010/10/19/will-the-federal-reserves-next-meeting-lead-to-civil-war/ 

Even if we could reverse outsourcing and off-shoring automation is really putting the hurt on peoples ability to earn a wage.

Things like streaming media, Craigslist and automation are job killers on an amazing scale. Without the FIRE bubble we are quickly hitting the real U6 unemployment rate which is around 20-30% mostly lower and middle class men. If anyone (not people here obviously) can't see the possible social disaster, I'll lay it out for them ...

Its their friends and family that run the military and police ..

Things get bad enough and its back to tribal loyalty and this experiment ends in a fire,

Given that we have many "griefers" who are still sore about the civil war , any kind of functioning civil society as we know it is not a forgone conclusion ..

Heck the absolute best case scenario is Japan style sub-replacement fertility and continuous permanent population and economic decline

The preventive solutions to this mess are not all that pleasant to free trade and market ideologues but they include heavy education subsidy , trade controls, a shorter work week reinforced by said trade policy and direct income support, maybe via a citizens wage (like the Alaska State fund) and national health care. This means more taxes and a much smaller military as well ..

I personally doubt we'll choose wisely as American society tends lurch from crisis to crisis instead of planning. Eventually the US will simply reach a point where our accumulated mistakes will take us out and we'll wake up either as 5 separate nations, a 2nd/3rd world backwater (Hello Prayer of the Rollerboys minus Japan) or with the revolutionary brigades or 1187th lift infantry or waking the President "calling new elections"

carping demon
"As a society we are going to have to deal with the fact that there is less work to do"

Very few people seem to recognize that.

cm
How much work there is to do is in good part a matter of social policy. A lot of useful things are not done, look at crumbling or outdated infrastructure. Then employers are allowed to underhire and overwork their staff.

More "primary" jobs will lead to other, multiplier, jobs in service and manufacturing industries, as long as all new jobs are not offshored. Automation is part of the story but it's not nearly the sole culprit.

Chuck Roast:

Johnson fails to discuss the resultant plight of American children. Fully one in five children are members of families that are recipients of food stamps. In all probability, most of these children are protein deficient.

Implicit in what Johnson is saying is that the rich are slowly cannabalizing working and middle classes. There is a simple solution to this twin problem - require the wealthy to physically participate in the Food Stamp program.

The wealthy eat quite well and are a tremendous source of untapped protein. By eating the rich, we could have a simultaneous diminution in the Plutocrat class and an improvement in the health and well being of a large segment of American children. Moreover, the general predation of the rich would quickly decline and the lives of 95% of the population would improve.

OhNoNotAgain
Beautiful, and worthy of The Onion, which is saying something. :-)

anne:

Oh No:

Yeah, that's right, when the subject is wages of US workers, let's change the subject and start talking about the earnings of pro golfers.

Confuse and obfuscate...wouldn't want people actually realizing who's screwing them...

[I like this.]

alchemy:

"The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009."

Am I the only one whose gut says that's driven by capital gains of various sorts -- e.g. hedge fund managers? The stock market did go up by, what, 40% in 2009? That's a once-in-a-generation event and if it is what is driving the result it is not a sign of doom to come. I'd guess the number for 2010 will be much more modest.

Of course, it indicates that hedge fund investors are being really, really dumb in tying the compensation of the people managing their funds so strongly to the market. But that's hardly a failure of public policy. The only other factor needed to produce these results is the rise in the stock market...again, no disaster.

RobertInAz:

Medicare is not taxed on capital gains.

mrrunangun:

The hedge fund kings do not earn capital gains except on their own capital. They earn a bonus based on the capital gains of their investors. They are, however, taxed on their bonus as if their bonus was a capital gain due to a sweetheart tax deal they bought with campaign $$$. According to one of the president's speeches, the top 25 hedge fund kings earned an average of $1billion apiece, so agroup of 74 people averaging $500million probably includes a lot of hedge fund kings and some banksters whose stock options or stock bonuses vested in 2009. Very few people, if any, outside finance have the opportunity to earn on that scale. Is this a great country or what?

Lyle
NOte that the sweetheart deal was set up in the 1950s according to more money than god. So we have a lot of politicians to blame for it, starting with Ike and going forward.

anne:

"The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009."

Am I the only one whose gut says that's driven by capital gains of various sorts- e.g. hedge fund managers? The stock market did go up by, what, 40% in 2009?

[Say what, when, where, and how? The stock market did what in 2008? Really?]

alchemy:

Admittedly I'm off by a bit, but the 40% comment is in reference to 2009, not to 2008.

anne:

"The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009."

Am I the only one whose gut says that's driven by capital gains of various sorts- e.g. hedge fund managers? The stock market did go up by, what, 40% in 2009?

https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#hist::tab=1

Vanguard 500 Stock Index Fund

Average annual returns as of 9/30/2010

Davis X. Machina:

Unfortunately what little tumbrel-manufacturing capacity the US ever had was largely off-shored in the '90's.

djsandbox:

I'm sure the increase in wages over $50 million is due to people at the lower end falling out of the category leaving a smaller number of higher earners. Not because of wage / income growth of that magnitude.

Too many textbook theorists....:

You don't need to be a noble prize winning Economist to look around your house and see how National labor has been substituted for foreign labor.

Fact is we really only need so much consumer junk.

So its obvious that sooner or later its just going to cause mass unemployment. All the offshoring thats been going on for the last 15 years has just been masked with an asset appreciation bubble and thus consumption via debt.

Fiscal or monetary policy is NOT going to fix the root problem, America either makes more of the product US consumers need or it forces the likes of China to accept more US exports. It really is that simple.

anne:

Am I the only one whose gut says that's driven by capital gains of various sorts- e.g. hedge fund managers? The stock market did go up by, what, 40% in 2009?

[The stock market was down 37.0% in 2008 and up 26.5% in 2009. The point is that the wealthiest in terms of income were remarkably shielded in 2008 and gained remarkably in 2009. Income difference increased and markedly and in a time of severe recession and tepid recovery the increasing income differences on top of prior important difference is simply not to be dismissed.]

anne:

"Unfortunately what little tumbrel-manufacturing capacity the US ever had was largely off-shored in the '90's."

This is false. Manufacturing capacity and employment increased significantly through the Clinton years and relatively slowly even through the Bush years.

http://www.economagic.com/em-cgi/data.exe/frbg17/GMF_capsa

July 5, 2010

Industrial Capacity in Manufacturing, 1992-2010

1992 ( 72.6) 1993 ( 74.6) Clinton 1994 ( 76.8)

1995 ( 80.6) 1996 ( 85.8) 1997 ( 92.2) 1998 ( 100.3) 1999 ( 107.1)

2000 ( 113.1) 2001 ( 117.9) Bush 2002 ( 119.9) 2003 ( 119.9) 2004 ( 119.5)

2005 ( 120.7) 2006 ( 122.8) 2007 ( 125.7) 2008 ( 127.8) 2009 ( 127.1) Obama

September

2010 ( 126.2)

anne:

Correcting:

Manufacturing capacity and employment increased significantly through the Clinton years and manufacturing capacity increased relatively slowly even through the Bush years though manufacturing employment decreased through the Bush years.

Manufacturing jobs were however added through the Clinton years.

Wisdom Seeker:

Corroborating the wage data is the chart on Page 21 of the National Economic Trends report put out monthly by the St. Louis Fed (a small PDF: http://research.stlouisfed.org/publications/net/page21.pdf  )

Proprietors' Income and employee "Compensation", as a share of GDP, have been in decline. Only corporate profits have increased as a share of GDP. The latter have returned to pre-crash historically high "bubble" levels. Compensation is approaching series lows last set in 2006. Proprietors' Income is declining from a peak in 2004-2005, which may reflect the heyday of many small housing bubble businesses. But it is still above historical norms.

I share David Kay Johnson's (that is, the original author's) concern that this information received minimal media coverage. But I suppose that one cannot expect corporate media, funded by corporate advertisers, to publish news which would suggest that actions should be taken to rebuild wages and proprietor's income at the expense of corporate profits?

It would also appear that the Obama administration has been a great friend to business, given that corporate profits as a share of GDP have increased nearly 4% since he took office. Though perhaps the corporate officers are aware that much of this "profit" is fraudulent, and they're blaming Obama for "making them" cook their books??

Mean reversion of corporate profits/GDP to historical norms is to be expected, and implies a 30-50% reduction in the ratio (with magnified impact on equity prices since P/E ratios will contract as well) ... but by what mechanism?

ttv:

That look so weird huh!

anne:

"Admittedly I'm off by a bit, but the 40% comment is in reference to 2009, not to 2008."

I know, I know, but the point is when a financial manager has done terribly for several years, fixing rewards so that they win even in very bad years and win bigger than ever in good years is a serious, serious problem.

anne:

Alchemy:

"Admittedly I'm off by a bit, but the 40% comment is in reference to 2009, not to 2008."

Right, but hedge fund managers in general won in 2008 and 2009 no matter the losses in 2008 which were in no way made whole in 2009. That is the actual trick with hedge fund managing that was pointed to by Princeton's Malkiel years ago.

[Oct 25, 2010] It Takes a Pillage An Epic Tale of Power, Deceit, and Untold Trillions

With just one word, "Really," she emphasizes how economists now know enough to use high unemployment (ten per cent or more) as a deflationary brake upon the hyperinflationary bailout of mega-banks. This high unemployment, extending far into the future, will be our cost for rescuing their banking buddies.
 Amazon.com

Steven Wexler: Bitch-slapped Back to Reality, October 12, 2009

Abe Lincoln used to ask, "If you call the tail of a dog a leg, how many legs does that dog have?" Whenever somebody answered "Five," he would say, "No. Calling a tail a leg doesn't make it a leg." He was referring to slavery, and the habit of euphemizing it as "our peculiar institution." Few bothered to challenge this. Harriet Beecher Stowe was one; she presented slavery as it really was: brutal, inexorable, shameful and turning our entire nation into what many northerners called a shamocracy, rather than a democracy. In Nomi Prins' recent book, IT TAKES A PILLAGE, she hoists politician after politician and banker after mega-banker upon their own petards, as they pop off their flatulent laissez-faire euphemisms. Like Ellen Brown in CounterPunch (October 2, 2009), Matt Taibbi in Rolling Stone (October 15) and Morgan Ibarra in The Humanist (September/October), she fleshes out the rape and pillage of the economy by the kleptocrats of our scamocracy. Together these writers put together a complete scenario of sociopathy--our recent reaming which has been veiled by what Thomas Frank of the Wall Street Journal compared to the mumbo-jumbo of witch doctors, who "repeat their incantations and retreat deeper into dogma." IT TAKES A PILLAGE is a must-read because it is an inside story. Its tone is urgent and sardonic. She whips off bon mots reminiscent of Galbraith's famous phrase about the 1929 bubble: "a mass escape into make-believe."

With just one word, "Really," she emphasizes how economists now know enough to use high unemployment (ten per cent or more) as a deflationary brake upon the hyperinflationary bailout of mega-banks. This high unemployment, extending far into the future, will be our cost for rescuing their banking buddies. This secret bailout, committed by the Fed (a government-chartered private bank, charging us interest), was hidden behind the TARP smokescreen.

The lemon-socialist subsidy for the once very bankrupt rich so far totals around 13 trillion dollars, according to Prins. Divide that by our population: 300 million. You get $43,000.

[Oct 23, 2010] Permanently high DISemployment screws The Big O's youthful base the worst

In a way Obama’s greatest service to the American people might be undermining two-party system illusion.
Corrente

Why am I not surprised that the people who trusted Obama the most are those who are screwed the worst? ND 2.0 runs the numbers on the DISemployment demo:

What jumps out for me? College educated 20-24 year olds have the highest percentage increase in unemployment. This should go against a structural unemployment story, as college educated people have the ‘freshest’ skills and incredibly high mobility. It’s worth pointing them out in particular because if their careers hit a rough spot, hysteresis sets in and they’ll have serious wage losses years down the road (see this classic White House blog post on the subject by Peter Orszag). Their situation is also important because the crisis is often seen as a small deal for college educated workers.

And career "progressives" wonder why it's hard to recapture the warm fuzzy ponies of 2008....

[Oct 22, 2010] Criminals Trick Desperate Job Hunters -

As one reader commented: "Its a simple rule. You ask how much the job pays, if they say "we wait until the interview" or "commission" then its a SCAM. DON'T WASTE YOUR TIME!"
WSJ.com

Out of work for six months, Mary Long spent hours each day surfing the Web. She found a job listing this fall for a logistics manager that paid $65,000 a year and fired off her resume.

But the company, Advanta Transportation Network LLC, appears to be part of an increasingly common scam that has snared Ms. Long and many others, according to cybercrime experts.

As U.S. job seekers grow more desperate, criminals are using the Internet to con participants into so-called mule operations.

These operations generally follow a formula, say security experts: Cybercriminals post an ad on a job board. Successful job applicants are "hired" or asked to complete a trial project. Scam operators wire stolen money to the applicant's credit card and applicants are asked to purchase such goods as expensive electronics. The applicant ships the goods, often to Eastern Europe, where scam operators sell them. Applicants end up with neither a job nor a paycheck.

Advanta used this approach, according to cyber experts who have reviewed the company's activities. Several attempts to reach Advanta for comment were unsuccessful.

"In the last couple of years, [the growth in mule schemes] has been tremendous," said Uri Rivner, chief of cybercrime technologies at RSA, the security division of EMC Corp., an information-technology company. "The bad economy has a lot to do with pushing this type of thing."

There are few statistics on this underground economy. But federal law enforcement has started to track such scams in the past couple of years and they now number in the hundreds, one federal law-enforcement official said.

... ... ...

Ms. Long went to purchase the MacBooks at her local Apple Store and discovered that her credit-card company blocked the $5,000 Advanta transfer. Ms. Long's boyfriend, Graham Shevlin, paid for it with his credit card instead, she said.

"Even when we were buying the laptops, I was still thinking this is fine," Ms. Long said. "Bells were not going off."

Ms. Long planned to mail the laptops the next day. But when she and Mr. Shevlin looked at the shipping labels closely that day, the mailing address in Ukraine raised their suspicions.

Mr. Shevlin did some research online that evening and alerted her the next morning that Advanta had recently been listed on bobbear.co.uk as a fraudulent shipping operation for cybercriminals. She didn't ship the computers, she said, and returned them to the store.

Ms. Long alerted the FBI, but hasn't heard back. An FBI spokeswoman said she couldn't speak about specific complaints.

In a phone conversation with a fraud officer at her credit-card company, Capital One Financial Corp., Ms. Long said she was told that the money transfer to her Capital One card had been flagged as fraudulent. The transfer was being made with a stolen Bank of America credit card.

A Capital One spokeswoman, Pam Girardo, confirmed Ms. Long's account. "Anybody who says they want to pay you by putting a transfer on your credit card, that's a big flag," Ms. Girardo said.

Jim Martling

The money transferred will be removed in days, usually fake money orders/checks/ etc. the scammers never actually put through their own money. I am surprised this lady went as far as she did, I would be embarrassed to come out and say how ignorant I am. Wire-transfers, buying for others for a commission, spending to make, all obvious schemes online and off, she and others need to grow up. James Drouin, anything is debatable- I agree with some of what you wrote, however, the fact that you place zero blame on the former president after 8 years of spend spend spend and tax cuts denotes a wall of illusion.

Don Hansen:

No offense intended to Mary Long (she may well be a wonderful person -- I sincerely mean that) but I have to admit that this scam had more than red flags on it -- there were flashing red lights all over the place. And she was an Executive Training Coordinator for AT&T? It's frustrating to see people who are so high up the employment food chain, but are so lacking in . . . common sense about Business 101 and Human Nature 101. And yet, the bar is set so high for new hires, it seems like nothing less than Superman is good enough for an entry-level position.

Anyway, with all of the emphasis on flushing out bad employees, there likewise needs to be tests, exams, interviews, background checks, etc., on prospective employers.

robert bachalo:

Connect amen...and these people are doing the hiring?

chet brewer:

its a pity these scams work so well. Its a good thing that she caught on before really getting burned.I was unemployed for 5 months after the tech bust in 2002, it was pretty tough then and I understand even worse now as even more professional work has been outsourced overseas

PATRICK REYNOLDS:

I feel sorry for those people who are out of work and subject to such heartless scams. I'm old enough to know that we have to be on the lookout for such chicanery, but really can't these scoundrels leave the unemployed alone?

[Oct 21, 2010] "BC Law Student Asks for Money Back,"

bostonherald.com

A third-year Boston College Law School student facing dismal job prospects and a mountain of student loan debt has offered the prestigious Hub institution a unique deal: Keep the degree ... and give me back my tuition!

In an open letter to BC Law’s Interim Dean George Brown posted on EagleiOnline— an online student-run newspaper at BC’s law school — the anonymous dissatisfied customer said soon-to-be grads are about to enter “one of the worst job markets in the history of our profession” and an “overwhelming majority” of them can’t find jobs.

“We are discouraged, scared, and in many cases, feeling rather hopeless about our chances of ever getting to practice law,” the student wrote.

The law school student’s missive then proposed a “solution to this problem.”

The student offered to leave law school without a degree at the end of the semester in exchange for a full tuition refund — a move the erstwhile aspiring attorney says would help BC’s US News ranking because it wouldn’t have to report another graduate’s state of unemployment.

BC Law is not warm to the idea.

[Oct 16, 2010] Blame Employers for the Jobs Crisis

While the NBER claims this is a recovery cycle, most notice the job market hasn't quite got the message. Computerization and outsourcing eat people jobs and employers try to squeeze as much as possible from the situation.
Oct 13, 2010 | The Economic Populist

Did you know 72% of all employers claim they cannot find qualified candidates to fill positions? I kid you not! Below is a clip from the usually sane Dylan Ratigan show that had me throwing shoes at the screen. Bill Clinton, no less, is making this claim. It's ridiculous.

Do these statements have any validity? The claim that there is a skills shortage in America? No.

Firstly we have never ending horror stories on employers and their discrimination tricks:

A surprising number of Craigslist job ads are automatically disqualifying the long-term jobless by including the stipulations, "Must be currently employed," "No unemployed candidates will be considered," or "must have been employed within the last 6 months." Other job postings specify that if an applicant is recently unemployed, he or she should include a "good reason" for his or her layoff along with a resumé.

Right there, employers are out of the box rejecting people needing a job, because....they need a job.

The reality is job losses are across the board. Below is an animation of the percentages different industries make up of the total job market. Across 12 sectors, the animation moves from September 2006 to September 2010.

Notice while construction has shrunk (blue), originally it wasn't that large of the labor market in the first place. Manufacturing on the other hand, (bright red), has shrunk significantly. Notice that the skills of the future, information (pink), has shrunk this recession. Most industries associated with trade have shrunk. The point of this animation is to show, in terms of percentages, there really is not any major structural change to the labor market and types of jobs. There just ain't any jobs.

Boston Federal Reserve President, Eric Rosengren, gave a speech speaking directly to the state of the job market today. He says the problem is a demand one.

In rather stark contrast, the most recent recession is far less a reflection of dislocation in a few industries but rather reflects a general decline in almost all industries. As the chart [reproduced below] shows, in this recession there has been a peak to trough loss of employment of 5 percent or greater in construction, manufacturing, retail trade, wholesale trade, transportation, information technology, financial activities, and professional and business services. To me, this does not suggest that the driver is structural change in the economy increasing job mismatches – although no doubt some of that exists – but instead I see here a widespread decline in demand across most industries.

... ... ...

EPI estimates half a million jobs will be lost to China in this year alone.

Offshore outsourcing companies are seeing double digit growth:

India's big three software outsourcing firms are set to regain double-digit growth rates during the second quarter, as customers in the US and Europe revive technology spending for addressing new markets and start offshoring their IT and back office projects to halve their costs.

Tata Consultancy Services, Infosys Technologies and Wipro, which count Citibank, Dow Chemicals, JP Morgan and BP Plc among their top customers, are expected to grow their quarter to September revenues by around 20% compared to the same period last year, at least five analysts tracking the sector told ET.

"We are getting 'large deals' , but maybe not as large as we would like. We are getting discretionary and transformation deals. In some sense, it's business as usual in the short term but we have to wait and watch over medium to long term," said S 'Kris' Gopalakrishnan , chief executive of Infosys.

He added that Infosys has started adding customers in US and Europe. "We traditionally define large deals as $100 million-plus for outsourcing deals and $50 million-plus for transformational deals—it's lower than that at this point," said Mr Gopalakrishnan.

Public citizen gives us a new layoff tracker, showing job losses directly related to trade and offshore outsourcing.

The AFL-CIO has put together a new website and database, which allows you to see who is exporting jobs by zip code.

Those of us in STEM know what skills shortage really means. It means enabling more outsourcing, more foreign guest workers and more immigration. The evidence is overwhelming these techniques labor arbitrage Americans and give a strong disincentive to even bother with difficult subject areas such as engineering. Why bother to bust your butt on difficult topics when your career won't even start or be gone due to labor arbitrage and discrimination in 10 years?

There is no skills shortage, there never was a skill shortage. There is a shortage of good employers who do not discriminate, age discriminate, ship jobs to India, China, Brazil and treat their workers like cannon fodder. There also is a shortage of jobs, pure and simple. Put U.S. workers first. Demand these employers quit their inane, harsh, wage repressing, discriminatory labor practices. Put a few of of these traitorous employers in jail and sue 'em. Deal with trade and offshore outsourcing, invest in America and Americans. Then and only then will we might actually get somewhere to putting people back to work.

Stop the bubble mentality and get America back to producing things again. Real goods, real services, not Dutch Tulip bulbs, financial fiction or quarterly cost reductions.

During WWII and throughout the history of the United States, employers trained their own workers. At the height of the depression, employers trained their workers. They even sent them to college. Nowadays large corporations want prefab workers for $10/hr that they can dispose of like a fast food wrapper. This mentality must change and it could by passing legislation as well as enforcing current labor law.

Government must force employers, particularly large, multinational corporations, to hire America. It is their patriotic duty as well as vital to our economic future for employers to provide jobs to all Americans.

Robert Oak :

It seems reddit and then other blogs and sites in comments helps.

I agree, there must be some sort of labor arbitrage something push out there, probably planned for the lame duck session to see this.

I went hunting for this 72% figure, even in corporate lobbyist propaganda papers and I could not find any metric like that whatsoever. But the "skills shortage" usually comes from the NASSCOM, ITAA, "Compete America" and U.S. Chamber of Commerce lobbyists because they want to ship more jobs overseas and want to bring in more foreign guest workers to displace Americans.

That's my guess. I like Ratigan, big fan, but sometimes I really think he listens to some corporate agenda and doesn't realize where it is originating from. I think this is one of those times for this story. On the surface, who can argue with good education? I sure can't, but this is one of those trojan horse issues.

This just burns my ass because over and over again we see the American worker poo pooed. Give me a break, the U.S. worker works harder, we have less vacation days, we simply bust ass. Then, this idea that one cannot learn on the job.

Then, employers are just absurd. They won't hire older people, they will not hire disabled people. Depending on the occupational sector, they don't like black people, or in STEM, the force out rate for women is 53% in just a 10 year time window! What's wrong with this picture! Then they all hate older people. It's ridiculous, we need all of the older people and this country needs to change it's attitude fast because a. they need the money and b. they have years of experience and it really makes a difference.

Part of the age discrimination is perceived health care costs, which should be brought down, the rest is just ...well, attitude.

How about young people? It used to be there were college programs, PAID, co-ops, PAID internships which pretty much could take care of your living expenses plus tuition for the rest of the year. This was standard practice to take newbies under the older workers wing and help them get their sea legs.

All of this worker culture has been decimated.

As a techie, I can tell you a main STEM skill is the never ending ability to learn and self-teach. You'd be dead in the water without that ability for technology changes every 6 months. That said, acting like people cannot learn new skills on the job, when the entire United States learned skills on the job to become the biggest military machine in history and win the war...

just infuriates me. I mean come on, the entire planet is currently addicted to iphones and facebook. All of that requires learning new skills...i.e. the younger crowd is all thumbs, literally. Think they cannot learn some skilled manufacturing trade if they can figure out how to text at 80wpm with just their thumbs? What is wrong with these corporations and politicians?

Spread it around just for the animated gif! I'm working on adding more graphics and displays to illustrate ideas/data/concepts better, but I had to learn how to make one, which took forever, esp. trying to represent the "job pie" in one shot.

Anonymous Drive-by (not verified)

Sigh ... same old whining from employers that want to reap the rewards of a well trained work force without having to INVEST in employee training.

Why is it that if an employer buys some new machine that they assume there exists a large pool of well trained individuals capable of operating that machine?

Another example of the GREAT RISK TRANSFER from corporations onto individuals. You're shifting the cost of training from the corporation to the individual. Individuals take on the time and money risks of acquiring new skills - hoping such skills will remain relevant and in demand.

So you invested 5 years and $80,000 in an Electrical Engineering degree and can't find a job? Too bad but during those 5 years business found out it was much cheaper to outsource.

So you have 15 years on-the-job experience as a Computer Engineer and find you've been laid off at the same time your employer is screaming to Congress that there is a "skills shortage"? Too bad, your skills are old and crusty. Although you have years of experience with technology X, technology Y is now hot. And it doesn't matter that you tell your employer that you'd love to learn technology Y ... that you'd put in extra time of your own to learn it. They'd rather scream "skills shortage" to Congress.

[Oct 13, 2010] Big Hole

From comments: "So, less than half of the US population is working, with many workers and the vast majority of non-workers collecting a social check, directly or indirectly, and most of those working are employed in make-work service jobs, all relying upon the Fed and the Navy to steal the necessary funds, by the soft power of a reserve currency or the hard power of a nuclear warhead, within an imperial nation/state system designed to physically imprison the global majority, for exploitation by the financially mobile minority, relying upon a global information system that systematically collects every conceivable piece of information about individuals, so they may be herded into computer databases for the law, which employs one atrocious outlier behavior, on the far end of the spectrum, to justify increasing limitations on individual liberty, at the direction of Congress, which is fed by the old families controlling the multinationals..."
October 11, 2010 | Financial Armageddon

People have been throwing around numbers in the millions and billions and trillions since the crisis started. Over time, the data deluge has turned into a flood, and, occasionally, it is even hard for someone like me -- who has been tracking and analyzing this stuff for a while -- to get a grip on what it all means.

Maybe that's the strategy: overwhelm the masses with endless zeroes and hope they either zone out or lose sight of the fact that those numbers represent decades of poor decisions, misguided policies, and illegal acts.

That said, sometimes all it takes to get to the bottom of some of those numbers is to recast the data in graphical form -- because, like they say, "a picture is worth a thousand words." In "The Jobs Gap," the Washington Independent highlights research from one think tank that does just that, and what it says about the state of the employment market is pretty striking:

In light of last week’s dismal September jobs report, Heidi Shierholz, of the Economic Policy Institute, updates her estimates of how many jobs the United States needs to create to get back to where it was, employment-wise, when the recession started.

The labor market remains an estimated 8.1 million payroll jobs below where it was at the start of the recession in December 2007. This number includes both the 7.8 million jobs lost in the payroll data as currently published plus the announced preliminary benchmark revision of -366,000 jobs to last March’s employment level. And even this number understates the size of the gap in the labor market by failing to take into account the fact that simply to keep up with the growth in the working-age population, the labor market should have added around 3.4 million jobs since December 2007. This means the labor market is now roughly 11.5 million jobs below the level needed to restore the pre-recession unemployment rate (5.0 percent in December 2007).

In graphic terms:

That begs the question: How will the economy get there? And leads to the worrying answer: It won’t, at least not anytime soon. Government spending — the kind that might, say, hire hundreds of thousands of construction workers — is out of the question. And that means private businesses will chip away at unemployment when the economy picks up a bit more, adding workers slowly, very slowly.

Posted by Michael Panzner on October 11, 2010 at 06:31 PM in Economics | Permalink

Digg This TrackBack TrackBack URL for this entry: http://www.typepad.com/services/trackback/6a00d83451591e69e20134881d5b81970c 

Listed below are links to weblogs that reference Big Hole: Comments A high ranking bank employee who spilled the beans in early OCT, scary stuff => http://www.forecastfortomorrow.com/files/bank_insider_US-Collapse.pdf 

emma:

Is the glass half full, or, half empty. Are we short of 11 million jobs, or, do we have a surplus of 11 million people. Now

If I was Hegel, I'd say: the truth is the whole, and the intelligent design is doing it's thing, Amen.

Hey Roger:

As a businessman, I'd like to have the 11 million additional potential customers to help fill my glass.

Greg F:

"At the Root of the Crisis We Find the Largest Financial Swindle in World History", Where "Counterfeit" Mortgages Were "Laundered" by the Banks

Indeed, Galbraith just gave a must-watch half hour speech where he points out:

http://tinyurl.com/2769prt 

There's a BIG GAP in someone's balance sheet:

The Fed's Zero Rate Policy is Destroying America October 12, 2010

Last week The IRA traveled to Washington D.C. to participate in the latest event sponsored by our friend Alex Pollock at American Enterprise Institute, "Living in the Post-Bubble World: What's Next?" We received a great deal of media buzz before and after the event, but the most poignant comment came in this unexpected and very disturbing letter from Dianna in Rockford, IL:

"I have no way of knowing if this message will ever actually reach you. Nevertheless, I want to extend a most sincere message of appreciation for one of the comments you made during recent participation in an American Enterprise Institute symposium. You are the only financial guru /analyst whom I have heard make any reference to the devastating impact of extraordinary quantitative easing on "grandma" and her carefully laid financial plans. Many middle class retirees have no generous government or corporate pension. We have had to plan and save prudently for retirement. Now, as we watch returns on CD's plunge from an average 5% to an anemic 1.5%, we also experience a plunge from a comfortable retirement into a state of severe "penny-pinching".

You were correct...not only do we have to cut back on gifts for the grandchildren, we are also drastically curtailing many discretionary purchases, travel to spend time with family and so forth. I have heard NO other analyst speak to this impact on responsible retirees who thought they had done all the right things to prepare for the "golden years".

It just felt good to realize that there is at least one individual who has given any consideration to this fallout from "Fed" policies."

http://us1.institutionalriskanalytics.c ... RAMain.asp

What about the income gap caused by fed:

The tinyurl takes one to Zero Hedge, which reprinted the essay from Washington's Blog.

In any case, we know it's one big fraud but our government continues to lie about it. Sorry, but a happy face in the media can't cover up what we see once we walk out the door. I'm still waiting for the Justice Dept to get these guys or for the revolution to begin.

sharonsj:

Ratios are the most useful thing I find to make sense of all those zeros. Knowing that employment as a fraction of the overall population has shrunk from its in peak in 2007 of X to its current low value of Y seems a lot more informative than know that we need 11.5 million jobs.

MontHigh:

@ Greg F. ha ha... in between two extremes, many shades of gray will fit.

roger:

On Big Hole Theses

My “thesis” is: the US Navy does not have the best talent.

So, less than half of the US population is working, with many workers and the vast majority of non-workers collecting a social check, directly or indirectly, and most of those working are employed in make-work service jobs, all relying upon the Fed and the Navy to steal the necessary funds, by the soft power of a reserve currency or the hard power of a nuclear warhead, within an imperial nation/state system designed to physically imprison the global majority, for exploitation by the financially mobile minority, relying upon a global information system that systematically collects every conceivable piece of information about individuals, so they may be herded into computer databases for the law, which employs one atrocious outlier behavior, on the far end of the spectrum, to justify increasing limitations on individual liberty, at the direction of Congress, which is fed by the old families controlling the multinationals, that are rapidly liquidating their vested investment, goodwill, to maintain control over out-of-control replication, created by their control systems.

Empires are built by the best navy, which is primarily an incubator for more effective families, at the tip of the spear, which creates a growing, self-reinforcing ripple, which expands in cycles, at the cost of density. Talent is diluted with increasing population until success is measured with demographic acceleration ponzi economies under control, all the navigators are crowded out by talking paper-pushers, and corporate sclerosis takes hold, during which time the next navy is incubating.

The microeconomic symptoms are like a circular conveyor belt, with 9 sets of rollers and 9 operators. First, one operator takes a screw driver to the rollers, knocking the belt off track, and gets the other 8 to pay for the repair, effectively installing a gate. One person on each side watches and then replicates the behavior, until 8 people with gates can’t agree to keep the economic conveyor running for more than 5 minutes a day, and the product coming off the belt resembles the process. Meanwhile, the ninth person went out and started building a new conveyor system, as soon as the first gate went up, leaving the other 8 to go bankrupt, competing for control over last generation production.

We can expect top-level bureaucrats, who get paid to swim in sewage, to employ sex and coke parties as the filter to employment, but when that behavior reaches the operational captain level, it’s time to make wholesale changes. All the pressure is building against the operational officers that implemented the Global Imperative, under the direction of the university consultants, paid through the multinationals, to replicate liquidation globally.

Top flight individuals are not going to work for an organization that systematically destroys the next generation to feed the current generation with non-productive assets, to the end of nothing but its own growth. That trillion dollar budget measures stupidity, on the tail end of the distribution, efficiency, not effectiveness, at the peak. Of course the attenuated dc bus producing high frequency, low amplitude control systems fails to see the low frequency, high amplitude, resonant wave, right up until the funnel forms, on big wave day, when it is far too late for an organization to learn how to surf, with the universe as the adjudicator.

We have just begun the second stage of funnel formation. Expect the third ghost…

kevinearick:

Tuesday, October 12, 2010 Who Owns My Mortgage Note...Demand To KNow

http://www.goldmansachs666.com/2010/10/who-owns-my-mortgage-notedemand-to-know.html 

Building for the Future?

financialarmageddon.com

If the young are our future, a cynic might say the following post at Mandel on Innovation and Growth, "Where Young College Grads Are Finding Jobs: Government," doesn't offer much hope about the road ahead:

Government has been the main hirer of young college grads over the past year . And why not? Government jobs are safer, they pay well, and have better benefits than the private sector. The next biggest hirer of young college grads is the broad category entitled professional and technical services, which includes such industries as law, accounting, computer systems design, and management consulting. These industries as a whole have not been expanding, or expanding only slow–but they have been shifting towards better-educated workers.

Then comes the distressing category: Hotel and restaurants. We hear anecdotes about young college grads being forced to work as waitstaff in restaurants, and here’s one indication that might be more common than we would like–the number of young college grads working in hotels and restaurants is up 33K over the past year.

Collegegrads

Posted by Michael Panzner on October 05, 2010 at 09:48 PM in Economics | Permalink | Comments (8) | TrackBack (0)

[Oct 06, 2010] Retraining workers won't work  by Rebecca Wilder

The problem is the lack of jobs.
10/04/2010 | angrybearblog.com

49 comments

Update: one of our readers caught a mistake in the chart. I indexed the data to December 2008, or one year after the recession actually started in December 2007. The statistics that changed are formatted in bold, and the chart in the article has been updated. The analysis doesn't change at all, but the number of jobs lost during the recession is higher than those indicated in the original article.

From the NY Times, White House Plans Job Training Partnership (bold by me):

As part of efforts to address record-high levels of long-term unemployment, President Obama plans to announce a new national public-private partnership on Monday to help retrain workers for jobs that are in demand.

The national program is a response to frustrations from both workers and employers who complain that public retraining programs frequently do not provide students with employable skills. This new initiative is intended to help better align community college curriculums with the demands of local companies.

“The goal is to encourage community colleges and other training providers to work in close partnership with employers, to design a curriculum where they want to hire the people coming out of these programs right away,” said Austan Goolsbee, chairman of the President’s Council of Economic Advisers.

 

The White House has coined this program Skills for America's Future. The complication is, that lack of skills is not the problem for the 66% of the labor force aged 25 years and over without a bachelor's degree. The problem is the lack of jobs.

[Oct 03, 2010] "The Survival of the Safest"

October 02, 2010 | Economist's View

Robert Shiller:

The Survival of the Safest, by Robert J. Shiller, Commentary, NY Times: Corporate managers struggling to preserve their companies and protect their core employees have inadvertently contributed to a vicious cycle of rising unemployment and plummeting national morale. If we are to break out of this downward spiral, we first need to understand the problem, then deal with it on a huge scale. ...
Why doesn’t the labor market “clear”? If demand falls in markets for other productive factors — say, wheat...— the price usually drops until the excess supply is mostly gone. What is unusual about ... labor is that excess supply, which shows up as unemployment, can be prominent and persistent.
Why? In short, the difference is morale. Factors of production like wheat or trucks or pumps don’t have morale issues. Human beings do. ... Keeping all employees relatively idle while reducing their pay or cutting their working hours will hurt everyone. Managers say they usually consider it better to protect the crucial workers — and ... to clear out the less essential people ... quickly so their complaining doesn’t spoil the atmosphere. ...
Those relegated to unemployment can’t directly “poison the atmosphere” in their former workplaces. But they remain friends and neighbors of the employed, and their anger and distress, repeated in thousands of communities, contribute to a poisoning of the atmosphere of the entire nation.
Moreover,... employees who hold onto jobs often suffer “survivors’ guilt.” They are genuinely pained, experiencing empathy with the less fortunate. In this troubled state, they don’t think about taking extravagant vacations, or buying new houses or fancy new cars. And this frugality detracts from demand that might produce jobs for others.
Similar thinking underlies the relatively low level of business expenditures today on buildings, equipment and software. Lower-level managers won’t ask ... for such things, because those items look like luxuries to fellow employees, who worry that there won’t be enough in the company budget for them to keep their jobs. ...
Of course, while that reticence may preserve jobs in one’s own company, it works against job growth elsewhere. A result is a loss of vigor in the aggregate economy, and the sapping of the very kind of creativity that might spur a recovery. ...
Sometimes the private sector needs help from the government, and this is one of those times. We need to break the cycle of protracted unemployment and sagging morale through big government programs to create millions of jobs.
Selected Comments

tjfxh:

Another fallacy of composition, in fact, a variation of the paradox of thrift. When a few do it, it is good, when everyone does it, it becomes bad.

When the marginal propensity to save increases, then consumption falls and unless either the current account balance offset this or government steps in with offsetting deficits, then the resulting output gap reduces GDP and increases unemployment. What's so hard to get about sectoral balances?

The US is not going to export its way of this, so what is Congress waiting for? Oh right, they are scared by the deficit hawks who are argue that the way to prosperity is through austerity.

jerseycityjoan:

I would urge everyone to go read the full article, which describes the work of a Professor Brewley who's been interviewing HR people about this kind of thing years.

He says company people feel that:

"it [is] better to protect the crucial workers — and to engage in sudden mass layoffs of others. The idea is to clear out the less essential people at once, ushering them out the door quickly so their complaining doesn’t spoil the atmosphere. Then managers can make sure that remaining employees receive their full wages and can pay their household bills. ... they steel themselves against sentimentality, believing that layoffs are needed to keep the business going with their most loyal and effective people."

But of course this makes everybody miserable anyway: the people let go and those who stay, who are working harder and constantly worrying they'll eventually lose their job too.

Do these companies really not realize that loyalty has to be two way street?

Some of the professor's work is from the 1990s, when many more people had a pension at work. Having 15, 20 or 30 years in a traditional pension will make many people tolerate anything to avoid starting over with a new company.

Now the 401(k)s, you'll be largely or completely vested after 5 years. That's one reason I expect that when things go back to normal, lots and lots of "survivors" will be looking for a new place to work because they've learned to hate where they work and company that employs them. They felt trapped by circumstances and will cut out as soon as they can. Today's companies give them many reasons to go but few to stay.

Richard H. Serlin:

"Why doesn’t the labor market “clear”? If demand falls in markets for other productive factors — say, wheat...— the price usually drops until the excess supply is mostly gone. What is unusual about ... labor is that excess supply, which shows up as unemployment, can be prominent and persistent.

Why? In short, the difference is morale. Factors of production like wheat or trucks or pumps don’t have morale issues. Human beings do. ..."

I say this all the time. It's very important.

But there's something new I'd like to add that I've been thinking about.

Why is unemployment among older workers, especially, difficult and long lasting?

I think an important reason is that due to human factors, their wages are especially sticky.

Highly educated and specialized workers can peak in productivity in their 50s or 60s, or even later. One of the greatest mathematicians in history, Euler, did his best work in his 70s right up until he died at 76. The gains in knowledge and understanding over time can outweigh the loss in energy and endurance up to quite old ages.

But most workers aren't so educated and knowledgeable, and as they get into their 50s, except for people that take really good care of themselves (and have some luck), their health, energy, endurance can be much worse than that of a worker in his 20s or 30s. They can have far less time and energy to put into a job. Plus, a lot of their skills can become antiquated and a lot of older workers are reluctant to learn new technologies and skills, in part due to the fact that after all of the effort they won't be milking those skills for nearly as long as younger workers will.

And on top of this, the business's health insurance cost for a 58 year old is way way higher than it is for a 28 year old (can we please have single payer type insurance like every other advanced country, or at least cut the Medicare age to 50).

Thus, for these reasons, and others, many workers, if not most, are less valuable in their 50s and 60s than similar workers in their 20s – 40s. They create less net wealth, or a lot less.

Now, using Shiller's analogy, if this were wheat, then the price of 50-60 wheat would just drop a lot lower than 20-40 wheat, and the market would clear. There'd be no unemployment of wheat. It would all be utilized. The price would just keep dropping until it was.

But try dropping the wage of a 58 year old by 30%. See what happens. See what morale is like. Ever hear of agency problems? There are tons of ways employees can underperform and screw you that are hard or impossible to detect, or pin on them.

Try getting a 55 year old manager, highly specialized in a division of a company that was closed down, that was paying $120,000, to take a new job starting over in a new company, in a new division, with the 20-somethings, making $45,000. It would be very hard to get him to agree to take that job, and the new company would be unlikely to offer it to him knowing that after years of expensive training and seasoning, he would just retire not long after. Plus, he would constantly be looking for a job like the one he used to have, and his attitude and enthusiasm for a job much less prestigious and lower paying than what he had long grown accustomed to would be much worse than it would be if they just hired a young person who'd be very happy and excited to have the job.

People think they should always be advancing and getting higher paid as they get older. It's going to really hurt their morale and attitude to go way in the opposite direction, way backward, taking orders from people close to half their age. And employers know this, and so will have a reluctance to hire them.

But due to age, and antiquation of skills, the actual amount of value that they can create in the market may really actually have dropped from $120K to 45K.

Again, if they were wheat, their price would just drop from 120 to 45, and they would be utilized; the market would clear. But because they're humans, that price will be very reluctant – sticky – to drop, and it may not drop at all, leaving the person unemployed at age 55 for the rest of his life, even though he could have still produced a great deal of value for many more years.

So, bottom line, a big cause of protracted unemployment for older workers may be that in many cases their value creation drops a lot with age, but they think, and our society, culture, and human nature, encourages this, that they should keep making the same or more as they get older, and getting the same or more prestige and responsibility, not a lot less.

Of course, so many freshwater economists just assume this away, as well as anything that says humans aren't robots with super simple utility functions that only consider their own and current consumption.
 

Jay Z :

Richard H. Serlin... The number of people whose work is of a highly difficult technical nature, like Euler or a professional athlete, is very few. This is true for even many highly paid people, including doctors and lawyers. Even for those, once you have established your base of training, or your connections and social skills, much is routine.

You have two lines. Suppose one represents the ability of the employee. Suppose that this is always increasing. Quickly at first, as the employee establishes honesty and reliability and learns the basic tricks of the particular job. Then more slowly, as wisdom is accrued, but still rising.

The other line is the employees' future. This line is always declining. Always fewer days of valuable employee output in the future, rising health care costs, rising vacation, pension costs, etc.

From a pure economic standpoint, all the company cares about is the spread between line A and line B. If Employee A is considerably younger than Employee B, Employee A might be the one worth keeping even if they're CURRENTLY much less productive, particularly if they've passed the honesty/reliability hurdles.

Right now we have a "mixed" treatment of worker aging. Some make it through to retirement relatively unscathed through ability or luck, while others get laid off early and have income reduced or eliminated entirely. There is sort of a "decapitalization" of the labor/management trust as the owner/capitalist side is harvesting the more loyal relationship of years past.

If we do reach the point where most workers routinely expect their income to sharply decline as they age, the economy will contract considerably. Workers in the USA will behave similarly to workers in Mexico, China, or other countries with limited or no safety nets. Even jobs with modest incomes will see high savings rates, as workers sock away everything possible to ensure their future as best they can. This makes economies much slower, as too much money goes out of circulation.

cm:

Richard H. Serlin... Such are the rationalizations that age discrimination is made of. In the real world, there is a number of bottom feeders who will take on the guy for 45K once (and if) he has gotten over his pride, unless they can get somebody younger. In which case it's most likely an issue of more worker supply than demand.

If you look at your argumentation again, you will perhaps notice that much of the failure to clear is on the employer side too.

bakho:

Even if 55 year olds wanted to take min wage jobs, there are not enough of them. That is why teen unemployment is so high. Businesses do not hire workers they do not need. They never have and never will.

Shiller has it correct about government creating jobs. The crazy thing is that governments, especially at the State level have been cutting back on jobs and projects. It would not be hard to infuse states with cash to reverse the trend. We lack the political will to do so.

Michael Turner:

When the French responded to a slump by cutting the legal workweek back to 35 hours, to preserve employment, I thought, "This will only backfire."

I was wrong. It didn't backfire. Spreading the work out a little more, instead of having layoffs, preserves consumption and consumer confidence.

Shiller's invocation of Bewley's research draws a rather neat (but, strangely, not explicit) analogy to industries "externalizing" certain costs by polluting. In this case, though, the pollution is emotional.

Something like cap-and-trade might be possible here. There are a number of indices of morale and consumer confidence already in routine use.

http://www.pollingreport.com/consumer.htm 

A firm earns credits by hiring workers (and keeping them for some amount of time, of course.) Firms planning to shed workers would be forced to buy credits first. Firms benefiting from a bubble would have to buy ever more insurance at ever-higher rates, as the need to buy credits, as the bubble became ever more perceptible to insurers.

With enough transparency in some "animal spirits emissions trading market" (no, please, let's not call it that; I'm only joking), it might even significantly dampen bubbles, keeping them from becoming quite so catastrophic in the first place. Of course, the government might need to increase the supply of credits during a downturn, to avoid overburdening particularly troubled sectors of the economy. But it could be an effective policy lever, if properly understood.

Goldilocksisableachblonde:

"Spreading the work out a little more, instead of having layoffs, preserves consumption and consumer confidence."

Precisely. The Germans , the Dutch , and the French - at a minimum - have all shown the value in reduced workweeks as a supplement to automatic stabilization policies , if not as a continuing long-term policy ( which may be the ultimate outcome ). How long before we catch a clue ?

Probably never. We've got terminal NIH disease.

jsmith:

It's October, a scary month. Here's just one example of the withdrawal of fiscal stimulus in an already very weak economy: The DJIA went down 47% from March 1937 to February 1938. Afraid yet?

Michael Turner:

jsmith... There's a difference between a sharp policy u-turn like 1937-38 and the *tapering off* of stimulus effects, which is what's happening now.

DJIA is a lot less interesting than employment numbers anyway -- after all, the markets are going up even though

(a) re-employment isn't keeping pace with workforce growth, and

(b) relative to historical growth trends, the market's out of whack anyway, overvalued by at least 20%.

 It hasn't been a reliable economic indicator since maybe 1995.

save_the_rustbelt:

Wow, an economist who actually has some understanding of business (although perhaps a little too simplistic about HR decisions).

Perhaps there is hope for economists yet.

[Oct 02, 2010] UN Agency Warns of Unemployment-Related Unrest through 2015

Oct 02, 2010 | naked capitalism

The specter of demonstrations in Europe are not only likely to become a regular news item, but other economies have high odds of similar social stresses, a UN agency forecasts. The International Labour Organisation has pushed back its estimate of when global employment will return to pre-crisis levels back to 2015. Given the widespread signs of discontent, pressures can only intensify. From the Guardian:

The United Nations work agency today warned of a long “labour market recession” and noted that social unrest related to the crisis had already been reported in at least 25 countries, including some recovering emerging economies.

Crisis-hit Spain faced its first general strike in eight years this week as unions protested against the government’s austerity measures and labour reforms. The strike on Wednesday coincided with protests in Greece, Portugal, Ireland, Slovenia and Lithuania, as well as demonstrations in Brussels by tens of thousands of workers from across Europe as part of a European day of action against public spending cuts.

“Fairness must be the compass guiding us out of the crisis,” said ILO director general Juan Somavia. “People can understand and accept difficult choices, if they perceive that all share in the burden of pain. Governments should not have to choose between the demands of financial markets and the needs of their citizens. Financial and social stability must come together. Otherwise, not only the global economy but also social cohesion will be at risk.”

Raymond Torres, lead author of the ILO’s annual World of Work report, published today, warned governments against withdrawing fiscal stimulus measures while the economic recovery was still weak.

Torres said there were two main reasons for the bleaker outlook facing many countries: “The first is that fiscal stimulus measures that were critical in averting a deeper crisis and helped jump-start the economy are now being withdrawn in countries where recovery, if any, is still too weak,” he said. “The second, and more fundamental factor is that the root causes of the crisis have not been properly tackled.”

Paul Repstock

Wow!I hope their crystal ball is better or at least more accurate than mine. 2015 for a return to normal employment levels seems wildly optimistic..Or perhaps they are predicating that scenario on a lot smaller population??

I loved this statement

”Governments should not have to choose between the demands of financial markets and the needs of their citizens.”

It should have been stated differently. {Governments -should not be allowed- to choose between the demands of the financial markets and the needs of their citizens}. If there is a difference between these objectives, then something is out of whack. And we know where most politicians will choose.

attempter
I agree, the 2015 date, as bad as it sounds, is just a carrot dangled before the dying workhorse to induce him to stagger on.

This “economy” will never restore livable jobs. Anyone who’s been paying attention knows that on the contrary destroying all real jobs has been the intentional policy of close to 40 years now. They’re not going to stop when final victory is in sight.

I hope we see effective general strikes in Europe and elsewhere. They still have the spirit and perhaps the labor infrastructure.

As for America, the spirit seems doubtful. And it seems that part of the genius of the atomization of the citizenry, along with ending the draft and greatly lowering taxes (replacing taxation with government debt), has been the dispersal of the labor force. Part of the goal of the destruction of manufacturing and replacing it with a “service economy” was to disperse physical labor concentration even as all economic power became ever more centralized.

In reading Tocqueville recently, I was struck by his observation that at the same historical moment that government and economic power was most centralized in Paris, all industrialization and its related capitalist infrastructure were also physically centralized there.

So when the bourgeoisie and the workers combined against the government, it was literally a stroll down the street, and the job was done. It was almost effortless, the moment they decided to do it.

But how can people combine for any kind of action in physically disintegrated America? In a bizarre way, it’s like asymmetrical warfare, but with the elites as the rapidly moving guerrillas whose power is in general dispersed and unassailable, but who are able to combine and strike with great force at any chosen point, while the lumbering, sprawled-out beast of the people has no idea where it is or how to move.

i on the ball patriot
Attempter says:

 “But how can people combine for any kind of action in physically disintegrated America? In a bizarre way, it’s like asymmetrical warfare, but with the elites as the rapidly moving guerrillas whose power is in general dispersed and unassailable, but who are able to combine and strike with great force at any chosen point, while the lumbering, sprawled-out beast of the people has no idea where it is or how to move.”

First, it IS asymmetrical warfare, and second, it is NOT limited to scamerica. The wealthy ruling elite exert financial control GLOBALLY through their hijacked central banks and through them control global governments, their militaries, and most importantly, Mr. Global Propaganda that has considerably dumbed down the “lumbering, sprawled-out beast of the people” (I repeat, globally, not just in scamerica) who are still stuck in their old paradigm, rah, rah, patriotic nation state box bullshit thinking.

If you want to combine the “lumbering, sprawled-out beast of the people” for any kind of action you must work to;

Reading comments yesterday about the attempted coup against the clintonesque Rafael Correa, trying to impose ‘austerity’ in Ecuador, was indicative of the nation state box thinking that exists today. Most all comments took sides with the false left or right factions that were set in conflict, one against the other — caused by the financial machinations — but few questioned those financial machinations and in fact they are accepted as easily as dysfunctional children accept beatings from scum bag parents.

Skip the Sarah Palin, Tea Bag, Mortgage War soaps, and organize globally to de-atomize.

Deception is the strongest political force on the planet.

Jojo
“The specter of demonstrations in Europe are not only likely to become a regular news item, but other economies have high odds of similar social stresses, a UN agency forecasts.” ———– Except for in the USA where the un/underemployed appear to be unusually placated.

Hell, even the crime rate has declined in USA in 2009. Apparently, the downtrodden can’t even get motivated enough to go out and mug someone or steal something.

See: http://www.disastercenter.com/crime/uscrime.htm  http://en.wikipedia.org/wiki/Crime_in_the_United_States 

As I’ve said previously, there must be something in the water. Maybe it is all that Prozac dumped down toilet bowls that has leeched it way back into the drinking water supplies?

George
“Anyone who’s been paying attention knows that on the contrary destroying all real jobs has been the intentional policy of close to 40 years now.”

What exactly do you mean by “real” jobs and to what benefit would destroying them be to anyone?

Yearning to Learn
There is an interesting conundrum at play.

On the one hand, people will be placated so long as they have access to bare necessities. The easiest and cheapest way to do that by far is to continue welfare and other poverty assistance. Despite deficit hawk squawking, it is rather cheap.

Without govt assistance we would have likely have mass riots quickly. Welfare is the glue that helps bind the haves and have-nots in our fragile society.

Ironically, the Elites (who I call the Welfare Empresses and Welfare Goddesses) seem to not understand this point and they get upset that anybody ELSE gets any pork from the government, no matter how little. So they try to undermine the very programs that are actually keeping them in power. In a twist of language they call those in poverty “welfare Queens”.

All Americans seem to really want is a place to live, some food (not matter how little nutrition is in there), some water, and some entertainment (TV, internet, and now smart phones). Lastly, they like at least a modicum of “fairness” even if that fairness doesn’t exist.

Give them that and no riots. all IMO.

[Oct 01, 2010] The Disposable Worker  By Michelle Conlin, Moira Herbst, and Peter Coy

"Employers are trying to get rid of all fixed costs," Cappelli says. "First they did it with employment benefits. Now they're doing it with the jobs themselves. Everything is variable." That means companies hold all the power, and "all the risks are pushed on to employees. Employers prize flexibility, of course. But if they aren't careful they can wind up with an alienated, dispirited workforce.

BusinessWeek reports on the dawn of the era of the "Disposable Worker." The disposable worker, or "perma-temp," receives no job benefits, no job security, and meager pay:

… some economists predict it will be years, not months, before employees regain any semblance of bargaining power. That's because this recession's unusual ferocity has accelerated trends—including offshoring, automation, the decline of labor unions' influence, new management techniques, and regulatory changes—that already had been eroding workers' economic standing.

The forecast for the next five to 10 years: more of the same, with paltry pay gains, worsening working conditions, and little job security. Right on up to the C-suite, more jobs will be freelance and temporary, and even seemingly permanent positions will be at greater risk. "When I hear people talk about temp vs. permanent jobs, I laugh," says Barry Asin, chief analyst at the Los Altos (Calif.) labor-analysis firm Staffing Industry Analysts. "The idea that any job is permanent has been well proven not to be true." As Kelly Services CEO Carl Camden puts it: "We're all temps now."

... ... ...

You know American workers are in bad shape when a low-paying, no-benefits job is considered a sweet deal. Their situation isn't likely to improve soon; some economists predict it will be years, not months, before employees regain any semblance of bargaining power. That's because this recession's unusual ferocity has accelerated trends—including offshoring, automation, the decline of labor unions' influence, new management techniques, and regulatory changes—that already had been eroding workers' economic standing.

The forecast for the next five to 10 years: more of the same, with paltry pay gains, worsening working conditions, and little job security. Right on up to the C-suite, more jobs will be freelance and temporary, and even seemingly permanent positions will be at greater risk. "When I hear people talk about temp vs. permanent jobs, I laugh," says Barry Asin, chief analyst at the Los Altos (Calif.) labor-analysis firm Staffing Industry Analysts. "The idea that any job is permanent has been well proven not to be true." As Kelly Services (KELYA) CEO Carl Camden puts it: "We're all temps now."

Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania's Wharton School, says the brutal recession has prompted more companies to create just-in-time labor forces that can be turned on and off like a spigot. "Employers are trying to get rid of all fixed costs," Cappelli says. "First they did it with employment benefits. Now they're doing it with the jobs themselves. Everything is variable." That means companies hold all the power, and "all the risks are pushed on to employees."

The era of the disposable worker has big implications both for employees and employers. For workers, research shows that chronic unemployment and underemployment cause lasting damage: Older people who lose jobs are often forced into premature retirement, while the careers of younger people are stunted by their early detachment from the working world. Even 15 years out of school, people who graduated from college in a recession earn 2.5% less than if they had graduated in more prosperous times, research has shown.

Diminishing job security is also widening the gap between the highest- and lowest-paid workers. At the top, people with sought-after skills can earn more by jumping from assignment to assignment than they can by sticking with one company. But for the least educated, who have no special skills to sell, the new deal for labor offers nothing but downside.

Employers prize flexibility, of course. But if they aren't careful they can wind up with an alienated, dispirited workforce. A Conference Board survey released on Jan. 5 found that only 45% of workers surveyed were satisfied with their jobs, the lowest in 22 years of polling. Poor morale can devastate performance. After making deep staff cuts following the subprime implosion, UBS (UBS), Credit Suisse (CS), and American Express (AXP) hired Harvard psychology lecturer Shawn Achor to train their remaining employees in positive thinking. Says Achor: "All the employees had just stopped working."

... ... ...

All that cutting has been good for corporate profits. Earnings rebounded smartly as companies kept payrolls down after the 2001 recession; by 2006 profits had hit a 40-year high as a share of national income, at 10.2%, according to Bureau of Economic Analysis data. The credit bust sent that figure plunging to 5.6% during the final quarter of 2008. But over the past year corporate profits' share has rebounded to 7.4% of national income, equaling the 40-year average.

The trend toward a perma-temp world has been developing for years. Bosses are no longer rewarded based on how many people they supervise, so they have less incentive to hang on to staff. Instead, the increasing use of bonuses tied to short-term profit performance gives managers an incentive to slash labor costs. The Iowa Policy Project, a nonpartisan think tank, estimates that 26% of the U.S. workforce had jobs in 2005 that were in one way or another "nonstandard." That includes independent contractors, temps, part-timers, and freelancers. Of those, 73% had no access to a retirement plan from their employer and 61% had no health insurance from their employer, the Iowa group said.

...IBM may strike many people as the quintessential American company, but 71% of its workforce was outside the U.S. at the end of 2008, a figure even higher than the non-U.S. share of its revenue (65%). In 2009 the company reduced its U.S. employment by about 10,000, or 8%. It also announced a program offering certain employees the opportunity to move their jobs to emerging markets; in turn, the company will foot some of the relocation costs.

...When employment in the U.S. eventually recovers, it's likely to be because American workers swallow hard and accept lower pay. That has been the pattern for decades now: Shockingly, pay for production and nonsupervisory workers—80% of the private workforce—is 9% lower than it was in 1973, adjusted for inflation.

September

[Sep 29, 2010] Employers Aren’t Trying Hard to Hire

Where there's a will, there's a way. -- Old English proverb
Economist's View

Mark Whitehouse at Real Time Economics notes that if the unemployment problem is mainly structural rather than cyclical, hiring intensity ought to be going up, not down::

Employers Aren’t Trying Hard to Hire, by Mark Whitehouse: Unemployed workers have a point when they complain that companies aren’t really trying to fill open jobs, a new study suggests.
In recent months, policy makers have puzzled over the inadequate rate at which job searchers and job vacancies are coming together. ...
Explanations have tended to focus on workers. Extended unemployment benefits could make people less willing to take jobs that pay poorly or don’t quite fit. Mortgage troubles and employed spouses could make it harder for people to move for work. People might not have the right qualifications for the jobs available.
A new paper, though, suggests employers themselves are at least part of the problem. The authors — Steven Davis of Chicago Booth School of Business, R. Jason Faberman of the Philadelphia Fed and John Haltiwanger of the University of Maryland — take a deep dive into Labor Department data and come up with an estimate of what they call “recruiting intensity,” a measure of employers’ vacancy-filling efforts including advertising, screening and wage offers.
Their finding: Employers haven’t been trying as hard as they usually do. Estimates provided by Mr. Davis suggest that over the three months ending July, recruiting intensity was about 12% below the average for the seven years leading up to the recession. Their lack of effort probably accounts for about a quarter of the shortfall in the hiring rate.
Depressing as it might seem, the finding is in some ways encouraging. It suggests that the trouble with hiring might be more a “cyclical” function of low business confidence than a chronic, “structural” ailment that will last for years to come.

In other news, some members of the Fed are finally waking up:

Fed's Kocherlakota revises down forecast, by CalculatedRisk: Minneapolis Federal Reserve President Narayana Kocherlakota spoke in London today. He has been one of more optimistic Fed presidents, and he revised down his forecast today ...

Kocherlakota ... still seems too optimistic, but he is moving in the right direction.

And on the coming QE2:

My own guess is that further uses of QE would have a more muted effect on Treasury term premia. Financial markets are functioning much better in late 2010 than they were in early 2009. As a result, the relevant spreads are lower, and I suspect that it will be somewhat more challenging for the Fed to impact them.

...It is interesting that certain Fed presidents are now revising down their overly optimistic forecasts - all but guaranteeing QE2 (even if he thinks it will have little impact).

If only they'd listen:

...presently the Fed does not feel the benefits [of further action]outweigh the costs, and it remains in “wait and see” mode.
My first question for the Fed would be this. To date, you have overestimated the strength of the recovery at every step. ... Given the forecasts to this point, all of which have been too rosy, I would place more weight on the downside, quite a bit more...
So, in my view, the Fed should drop its relatively rosy forecast for the recovery and take more account of the downside risks, the Fed should place more weight on the unemployment problem, and have less fear of inflation — the risk right now is in the other direction. Making these adjustments that would compel the Fed to action instead of “waiting and seeing,” a policy that, to date, has kept the Fed from getting out in front of the economy’s problem.
It’s time for the Fed to stop playing catch-up as it waits and sees that its forecasts were wrong, and and take the steps needed to boost the economy. ...

and:

People need jobs, or more social support until jobs appear, and both the Congress and the Fed are failing to do all that they can do to help. Apparently, imagined fears of deficits and inflation are more important than the real struggles of the unemployed.
Selected Comments

mercury:

Why hire when you can outsource? Or insource? Or pay for piecework under the table?

It's not like the government is going to do anything about it. Raise tariffs and crack down on employment verification? Nah. They're too busy stimulizing or whatever they're not doing enough of.

dave:

>> Lack of hiring intensity reflects lack of need to hire and doesn't suggest anything about the circumstances. <<

By definition, in a structural employment situation, employers are losing out on profits due to lack of suitable workers, and are incented find them.

If you assume that employers are incented by profits, structural unemployment and low hiring intensity are mutually exclusive.

Tao Jonesing:

Is there any reason to believe that more quantitative easing will lead to an increase in employment? Where's the evidence that QE has led to employment thus far? There should be some evidence, right? Where is it?

Dumping more money into the banks' reserves won't lead to more lending when the banks aren't interested in lending and businesses and individuals aren't interested in borrowing.

RichB:

You're wasting your breath -- economists don't deal with evidence; they deal with theory -- especially when following that theory will provide a substantial payoff to the banks to whom the economists are consulting on the side. Can an economist name one historical example where loose monetary policy was successfully able to deal with the after effects of an unsustainable boom in credit and asset prices created by loose monetary policy to start with? One example?

[Sep 29, 2010] Older Unemployed Struggle to Rejoin the Work Force

NYTimes.com
Patricia Reid is not in her 70s, an age when many Americans continue to work. She is not even in her 60s. She is just 57.

But four years after losing her job she cannot, in her darkest moments, escape a nagging thought: she may never work again.

College educated, with a degree in business administration, she is experienced, having worked for two decades as an internal auditor and analyst at Boeing before losing that job.

But that does not seem to matter, not for her and not for a growing number of people in their 50s and 60s who desperately want or need to work to pay for retirement and who are starting to worry that they may be discarded from the work force — forever.

Since the economic collapse, there are not enough jobs being created for the population as a whole, much less for those in the twilight of their careers.

Of the 14.9 million unemployed, more than 2.2 million are 55 or older. Nearly half of them have been unemployed six months or longer, according to the Labor Department. The unemployment rate in the group — 7.3 percent — is at a record, more than double what it was at the beginning of the latest recession.

After other recent downturns, older people who lost jobs fretted about how long it would take to return to the work force and worried that they might never recover their former incomes. But today, because it will take years to absorb the giant pool of unemployed at the economy’s recent pace, many of these older people may simply age out of the labor force before their luck changes.

For Ms. Reid, it has been four years of hunting — without a single job offer. She buzzes energetically as she describes the countless applications she has lobbed through the Internet, as well as the online courses she is taking to burnish her software skills.

Still, when she is pressed, her can-do spirit falters.

“There are these fears in the background, and they are suppressed,” said Ms. Reid, who is now selling some of her jewelry and clothes online and is late on some credit card payments. “I have had nightmares about becoming a bag lady,” she said. “It could happen to anyone. So many people are so close to it, and they don’t even realize it.”

Being unemployed at any age can be crushing. But older workers suspect their résumés often get shoved aside in favor of those from younger workers. Others discover that their job-seeking skills — as well as some technical skills sought by employers — are rusty after years of working for the same company.

[Sep 28, 2010] Meredith Whitney on state budget crisis

calculatedriskblog.com

yagij:

lawyerliz wrote:

The word about no jobs still hasn't got around, a youthful person who does some deliveries for me mentioned that a friend of his was going to law school, and when I said there were no jobs he was very startled.

If I thought that there would be enough jobs for everyone 5 years from now, then sure, go for it.

From our lawyer glut + raising tuition/debt costs = PAIN for the non-Top 3 or 4 of a given class.
 

dryfly:

yagij - have you seen this???

Lawyer to Domestic Career Switch

yagij

dryfly wrote:

Lawyer to Domestic Career Switch

I'm in Big Ed's fort for another 8-9 months. Just sayin'. But as to your article:

"I thought it was catchy, and people would think, 'This is someone like me. I'll give her a job,'" Lingo said.

So far, she hasn't had any takers, but plans to charge $70 to clean a standard one-bedroom.

I'm noticing a problem with her approach. Just sayin'.

dryfly:

wrote:

I'm noticing a problem with her approach. Just sayin'.

My sister [a recovering ex-lawyer] sent me the article to forward to my kids & in-laws. Just in case any of them get rash ideas about law as a career.

Juvenal Delinquent

What could you re-educate lawyers to do, where they could become useful members of society again?

lawyerliz:

I guess I'm useless, except for posting on CR.

yagij:

lawyerliz wrote:

I guess I'm useless, except for posting on CR.

Probably true, but having UE'd lawyers isn't a bad thing (not that you are UE). All of that brain matter and education can finally be let loose to make the world a better place and not focus on petty legal machinations and processes. 

Juvenal Delinquent :

What could you re-educate lawyers to do, where they could become useful members of society again?

Waste Mgmt truck drivers? Septic system cleaners? Municipal waste treatment filter cleaners? Porto-Potty cleaners? Nursing home bedpan emptiers and ass-cleaners? Cleaners after gunshot killings (sans hazmat suits)?

Lots of good jobs for lawyers and banksters, when they are needed.

Juvenal Delinquent

Don't be too hard on yourself, you're all you've got.

It's not that lawyers aren't useful, there's just way too many of you in comparison to actual work...

NOTaREALmerican

Juvenal Delinquent wrote:

you re-educate lawyers to do

Not sure, but lawyers tend to be motivated people and intelligent enough to pass the bar. The problem is the incentives. We created incentives for our young people to study law and create investment scams instead of things that benefit society. But, I have no idea how you can change this. In a society that worships combat and winner-take-all lawyers and bankers rule.

yagij

dryfly wrote:

My sister [a recovering ex-lawyer] sent me the article to forward to my kids & in-laws. Just in case any of them get rash ideas about law as a career.

Oh, I would only send the most vain, stubborn, and foolish to law school in this environment.

On the Curious Timing and Content of Volcker’s Mislabeled “Blistering” Speech

Yves Smith

 September 25, 2010

Today, quite a few commentators fell in with the take of the writeup by Real Time Economics on a speech by Paul Volcker given a conference on macroprudential regulation hosted by the Federal Reserve Bank of Chicago. Its lead-in:

Former Federal Reserve Chairman Paul Volcker scrapped a prepared speech he had planned to deliver at the Federal Reserve Bank of Chicago on Thursday, and instead delivered a blistering, off-the-cuff critique leveled at nearly every corner of the financial system.

Standing at a lectern with his hands in his pockets, Volcker moved unsparingly from banks to regulators to business schools to the Fed to money-market funds during his luncheon speech.

Now admittedly, it’s refreshing to see someone of Volcker’s stature make some candid comments about banks and financial regulation. And taken in isolation, some of his remarks were suitably critical. For instance, he characterized investment banks as

…trading machines instead of investment banks [leading to] encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system

His most critical remark was:

The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government

And he took a swipe at fancy finance:

We had all our best business schools in the United States pouring out financial engineers, every smart young mathematician and physicist said ‘I don’t want to be a civil engineer, a mechanical engineer. I’m a smart guy, I want to go to Wall Street.’ And then you know all the risks were going to be sliced and diced and [people thought] the market would be resilient and not face any crises. We took care of all that stuff, and I think that was the general philosophy that markets are efficient and self correcting and we don’t have to worry about them too much.

He also expressed healthy skepticism on whether financial regulatory reform would work. For instance, Volcker contended that leaving too much to regulator judgment put them in too weak a position relative to banks who would resort to political pressure to get their way. He also wondered whether resolution authority would work as advertised.

But did anyone who took up the line that this was tough talk actually watch the speech?

You can view it here.

Unfortunately, the reactions to Volcker’s speech say far more about politics and PR in the US than they do about what he actually said. Volcker’s comments were delivered in a moderate, occasionally perplexed tone. He was often candid and descriptive, far from “blistering.” And despite the Wall Street Journal headline, “Volcker Spares No One in Broad Critique,” in fact he left many targets untouched (bank pay, accounting chicanery, “free market” ideology, cognitive capture of regulators and the revolving door between regulatory positions and lucrative private sector roles, predatory behavior by financial firms). In fact, Volcker was a defender of traditional commercial banks, noting that they have special role via acting as depositaries and payment services, and complaining of how money market funds were encroaching on their turf and providing similar functions without having the same degree of oversight and capital requirements. He also spent a fair bit of his talk extolling the Fed as the logical party to serve as the lead financial regulator, while somehow missing that the central bank did a horrific job in the runup to the crisis and is chock full of monetary economists who have no interest in financial firms’ inner workings.

Indeed, Volcker actually said (and I am not making this up), that the mess in the economy was NOT the result of the financial crisis. His formulation is rather astonishing. He depicts the financial crisis as the result of real economy imbalances, as opposed to the build up of speculative excesses in a grossly undercaptialized, tightly coupled financial system (starts at 9:30).

But in saying that I don’t mean to blame the crisis on the regulators or even on the market. I mean, this crisis got so serious, it’s so difficult to get out of this recession because of disequilibrium in the real economy. You know the story…when the bubble in housing burst, then the financial system came under great pressure, you don’t blame it for originating the crisis, in fact, under pressure, it broke.

Huh? The idea that the real economy distortions produced the crisis. as opposed to deregulation led to excessive leverage in financial firms and were the primary cause of distortions in the real economy, is barmy. Contrast Volcker’s take with that of Meryvn King, Governor of the Bank of England in a 2009 speech:

Two years ago Scotland was home to two of the largest and most respected international banks. Both are now largely state-owned. Sir Walter Scott would have been mortified by these events. Writing in 1826, under the pseudonym of Malachi Malagrowther, he observed that:

“Not only did the Banks dispersed throughout Scotland afford the means of bringing the country to an unexpected and almost marvellous degree of prosperity, but in no considerable instance, save one [the Ayr Bank], have their own over-speculating undertakings been the means of interrupting that prosperity”.

Banking has not been good for the wealth of the Scottish – and, it should be said, almost any other – nation recently. Over the past year, almost six million jobs have been lost in the United States, over 2 ½ million in the euro area, and over half a million in the United Kingdom. Our national debt is rising rapidly, not least as the consequence of support to the banking system. We shall all be paying for the impact of this crisis on the public finances for a generation.

To put none too fine a point on it, King is the top central banker an a country where financial services constitutes a bigger proportion of GDP than the US, yet he does not hesitate to place blame for the crisis where it belongs, on the banks (and he is willing to eat crow for regulatory lapses). Volcker, by contrast, offers a critique which is hardly controversial, yet gives the industry a pass.

The reason Volcker’s speech was greeted with overdone enthusiasm is that Americans are fed such a steady diet of propaganda by the officialdom that anything that bears some resemblance to observable reality is bracing by mere virtue of contrast. Think of Bernanke’s freakish calm (he looks medicated to me, although he apparently isn’t) and well honed ability to give testimony remarkably devoid of content, or Geithner’s bobbing and weaving when under the spotlight. But this circling of the wagons fools no one; indeed, Obama’s weak poll ratings and the success of the Tea Party show that polished story lines have not dispelled well warranted public anger against the banks and their enablers.

Note also the timing of this episode. This sort of talk, no matter how tame compared to what really ought and needs to be said, could have had a real impact while the financial regulatory reform negotiations were on. Volcker is virtually the only public figure with the stature to carry real weight in disputing the sort of palaver trotted out by the banksters in defense of their pet desires. But he was kept on a short leash by the Obama administration, apparently tasked only to defend the so-called Volcker rule, which was meant to get banks out of the proprietary trading business but was watered down to a considerable degree. But that simply confirms what we already know too well: that even Volcker’s modest reform ideas were more than what the bank-friendly Administration was prepared to support.

psychohistorian

5:16 am Barmy you called him with his characterization of the reason for our economic meltdown and its fits. This is another example of where the MSM defines the total playing field of discussion about economic matters some where out in right wing land and considers Volker’s comments as some hippie screed.

With apologies to Voltaire, Reality, like History is a lie commonly agreed upon.

attempter
5:35 am Yup, this is an example of the system setting the limits of acceptable discourse. Volcker’s lies and wimpy objections are to be taken as the most severe criticism within the limits of reason, while any stronger, more comprehensive (i.e. truthful) critique is to be dismissed as extremism, relegated to the “sphere of deviance”. (Volcker’s meant to help set the limit of the sphere of controversy. And since Warren sometimes skirts the line of deviance, bringing her into the system the way they have is meant to shut her up.)
DownSouth
6:21 am Yep, welcome to our new banana republic. US politicians have learned their lessons well from their tutors south of the border. All this “controversy” is perfectly scripted and perfectly choreographed. Think of it like professional wrestling, great entertainment but hardly a real contest.

In Mexico it was discovered that the putative political opposition to the PRI was being funded by the PRI. The PRI is the political party that stayed in power for over 80 years. Heck, even the protesters and union leaders who “protested” against the PRI were on the PRI’s payroll.

In the US we now have the Tea Party and the Republican party. But do they offer any substantive options for the American voter. I think not.

Bates
6:00 am Volker is getting up in years. He has fought the good fight more than any other economist in DC. At least he had the gumption to say SOME things that need to be said. He could have chosen to retire and say nothing.
Yves Smith
6:33 am With all due respect, no. Stiglitz gets higher marks on that score.
The Derivative Project
4:52 pm Yves, I agree. Stiglitz has been outstanding. Thank you for the great work you do and the critical analysis of the Volcker talk last week Your comments need a more mainstream media airing. I am off to Amazon. Your book is a “must read” along with this post.

Susan and The Derivative Project

http://blog.thederivativeproject.com/ 

Neil D
6:05 am We have to start being nice to the bankers. Their feelings have been hurt by the scorn heaped upon them and the possibility we might raise their taxes. And they might move to China and take their money with them. Then we’ll have no economy at all!
DownSouth
6:45 am “Money” is a fiction, a political construction as much as anything else.

The idea that money and the economy exist independent of politics is one of the greatest mythologies ever foisted upon humankind.

If the bankers leave, they will leave with whatever the political regime of the time allows them to leave with.

Neil D
11:18 am Wow – really? What does all that actually mean?

Money may be a fiction, but I still use it to feed, clothe, and shelter myself. People give it to me in exchange for my services and give it to others in exchange for theirs. So call it whatever you want, I don’t really care.

The beauty of this “fiction” is that everyone believes it. Well, almost everyone. It’s very important that everyone believe it so please stop spreading rumors! :)

DownSouth
9:49 pm Well let me see if I can explain it.

In this article http://www.whatsonxiamen.com/news8079.html  is a photo of $205 million dollars, mostly in US currency. It was found in the home of a drug dealer in Mexico City.

The same “money” could also be a mere entry—-”$205,000,000″—if it appears on an appropriate ledger of a bank. In other words, we could just dispense with that huge pile of little pieces of green paper with pictures of dead presidents on them and just have nine digits appearing on a ledger. They’re both the same.

Now you claim that the bankers “might move to China and take their money with them.” You also claim that you use money to “feed, clothe and shelter” yourself. But both of those statements are true only insofar as the government allows you, or the bankers, to do those things.

Take Ye Gon, for instance. He had the $205 million in paper currency in his possession. But he could not go to his home country of China and “take the money with him.” The Mexican government wouldn’t let him. Now granted, it’s true that he could use the money to “feed, clothe and shelter” himself, plus make those $150,000 a hand wagers on the bacarrat table he was so fond of. But once the government decided he couldn’t do those things with the “money” any more, well he couldn’t. It’s just that simple. Money is what the government says it is. And money can be used only for what the government says it can be used for. And your claim that the bankers could “take their money with them” is true only as long as the bankers control the US government, which of course they currently do. But that could change. If the political winds in the US were to shift, the bankers’ money would disappear just as rapidly as Ye Gon’s did.

Odysseus
11:44 am And so what that it’s a fiction. Does that mean it’s less valuable than “reality,” which is, in this case, somehow real coconuts exchanged for real yams? Don’t be silly. Humanity runs on fictions, and, above all, on the power of fictioning.
readerOfTeaLeaves
1:04 pm Humanity runs on fictions, and, above all, on the power of fictioning.

Precisely.

Anonymous Jones
3:18 pm Well, yeah, but analysis is a lot more f*cking precise when you acknowledge which is a fiction and which is a reality because prescriptions for fixing problems probably depend upon which kind you’re dealing with.
charley
8:17 am Yves,

At bottom, Volker appears to be agreeing with Minsky that financial speculation results from the creation of unproductive assets. Given this, the question becomes why capital is being diverted from productive to unproductive asset creation.

This clearly points toward the real economy. Without defending Volker, I would argue that not enough effort has gone into examining why capital cannot be put to productive use in the economy and migrates toward purely speculative activity.

Far from letting the ponzi masters off the hook, such an examination could lead to discovery of the sources of the capital that feed their activities.

Remember flows. Capital comes from somewhere and goes somewhere. The money only represents the currency of the flows; it is not the actual resources being diverted to unproductive uses. Thus, real resources are being diverted from productive to unproductive ends.

This first of these resources is labor and the unproductive employment of labor. Unless working time is reduced, no amount of regulation will stem the ponzi.

Although it is not PC, I would ask you to consider why Marx asserted that capitalism increasingly makes superfluous labor the condition for necessary labor — that it becomes a matter of life or death for capital. This alone is the source of the ponzi, and it cannot be managed by regulation.

F. Beard
8:18 am How does one regulate an inherently dishonest business, fractional reserve lending? We’ve only been trying for +300 years without success. Furthermore even lending at interest to one’s countrymen is forbidden by Deuteronomy 23:19-20

We need tax-free private monies, including common stock, and government fiat that is legal tender for government debts only.

We had best figure out a way to do money ethically; there are gold-bugs, socialists and worse waiting in the wings.

arby
11:26 am We keep looking for a leadersship that does not exist. We can hope for the future to keep us going but the kind of leadership we need died a long time ago. I think that is why people get excited about a occasions when someone of stature speaks with voice of clarity and truth about the high priests of finance.
don
11:32 am For a look at the crisis in the real economy and how it relates to the financial crisis, see:

http://www.newamerica.net/publications/policy/the_long_downturn 

The financial crisis is an outcome of, rather than the root of a much deeper and structural crisis, and therefore it cannot be said that the problem is simply with deregulation and the solution re-regulation. The crisis is much more complex than a matter of mere regulation, and has much deeper roots as shown by author Paul Sweezy in ‘The Triumph of Finance Capital’, written in 1994.

http://www.monthlyreview.org/940600sweezy.php 

anon
5:43 pm Thanks for the links, don. Brenner’s article discusses many of the problems that I thought Volcker was alluding to when said that the crisis got so serious because of the basic disequlibrium in the real economy. It’s difficult to tell what Volcker meant since he didn’t discuss the problems in the real economy.

Regardless of whether one takes the view that the economic problems led to blowing bubbles (that ultimately exacerbated the underlying economic problems) in order to paper over and distract the general public from the underlying economic problems (which I lean toward) or whether deregulation led to excessive leveraging which caused the economic problems seems less relevant to me than the common points between the two views: there are real economic problems and, at best, the financial markets have exacerbated those problems instead of ameliorating them. To me, it is important that we recognize the need for fundamental reform and continue to push for that.

Doug Terpstra
11:34 am Thank you, Yves, for helping us to perceive the web they weave. I suppose we can’t really fault Volcker, going on 85, for not grasping the magnitude of gambling leverage involved as the primary cause (?). (What is a quadrillion, anyway?) But we can blame the banksters and their media economists for using his mild scolding as diversion for their own crimes, and we can certainly fault Bernanke who is now indisputably part of this wicked confidence game.

In “The Bastard Child of the Mother of All Bubbles”, Jim Quin, of The Burning Platform, quotes Bernanke on the Greenspan housing bubble:

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – 7/1/2005

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – 2/15/2006

http://theburningplatform.com/blog/2010/09/23/the-bastard-child-of-the-mother-of-all-bubbles/comment-page-1/#comment-17322

Quin’s “bastard child” here is the T-bond bubble, which he is convinced will convert modest deflation into hyperinflation that makes the Mexican Peso look rock-solid.

It’s simply astonishing that these very same economic gravediggers are still firmly entrenched in the pit and are paid handsomely to keep digging. So much for what Palin aptly calls “the hopey-changey thing”.

readerOfTeaLeaves
1:17 pm (Blushing….) As someone who popped on the Internet to check the state of the world at some point yesterday, and saw Volker’s speech labeled as a great feat of candor, I really appreciate this corrective analysis. (…still blushing….)
Avg John
3:56 pm In a way he is right. Our general economy has been structurally deficient for well over 15 years. We created huge bubbles as a matter of policy to keep it on its feet. Of course, no one complained about the housing bubble when the hundreds of billions of dollars was flowing into Wall Street coffers, unemployment was lower, 401k’s were skyrocketing, and it was only the neighbor down the street who lost his job to off shoring.

I’m not saying that Wall Street was without guilt, surely they are responsible for the lion’s share, but Main Street and the average American aren’t blameless. We have enabled it with our wink and nod attitude about the ethical challenges that confront us directly each day, and our “I don’t care I got mine” attitudes.

mock turtle
11:38 pm you want to blame carter do you

how nice….so lets see,

carter presidency was sandwiched between 8 years of nixon ford, before …and 8 years of reagan followed by 4 years of bush following

so carter …must…have…been…one…awesome…heavy duty…overpowering…Juggernaut of a president

that his piddlely 4 years had such an overwhelming and profound effect lasting to this day

those democrats…they are just supermen

mock turtle
11:41 pm my carter comments were intended as a response to hugh, below
Hugh
5:02 pm Volcker has not had a new idea in 30 years. He still sees the economy and finance in terms of when he was Fed chair more than 30 years ago. Carter’s economic policies and Volcker’s harsh monetary ones set the stage for the construction of the paper economy. To this day, I don’t think Volcker really understands it or his role in creating it. He grouses about some of the excesses but doesn’t grasp that this isn’t a bug but a feature.
Jessica
5:28 pm Yves, you are correct that Volcker’s formulation of the broader economy being the source of the crisis is bizarrely incorrect. So much so as to highlight his function as a homeopathic treatment: give the system a tiny dose of criticism to protect it against real criticism. On a broader level, I agree with those that the very fact that the financial sector became big enough and unregulated enough to cause so much damage comes from deep structural issues in the wider economy. One simple way to frame this is that for decades now the real money has been made with knowledge, not material production. Monetizing knowledge (capturing profits) is difficult and precarious in many new ways. Finance is the lowest common denominator for monetizing knowledge in a society that has barely started the transition to a knowledge-centered economy.
Deus-DJ
6:27 pm Can’t type any more than this for now, but thanks Yves for calling it “cognitive capture” rather than “regulatory capture”. It appears you read my criticism of that claim in your book in another thread.
Psychoanalystus
6:36 pm I am not very impressed. He’s part of the conspiracy, and this is just another twist in this well-coordinated saga of shameless deceit and ruthless looting of the American people.

Psychoanalystus (the artist formerly known as Vinny)

Benedict@Large
7:01 pm So does this mean that Volcker is running for Summers’ soon-to-be vacated job? Add a smidge of pseudo-tough guy to pacify the base to a Reagan alumnus to pacify the opposition, and you’ve got simply the ideal resume to extend and pretend triangulation into ad nauseum.

No matter, the circus is in town! It’s cotton candy, all the way down.

jest
11:00 pm I think everyone’s right on this one.

1. Yes, Yves is right that the speech’s tone was overblown. So? Is that really a problem? It’s not that inconsistent from what he’s been saying for the last couple years (e.g., the only real innovation in the last 20 yrs was the ATM) and someone in the media finally gets the discussion going in a manner without buzzwords and spin. I’ll take this form of truthiness over Kudlow’s any day.

2. I agree with Volcker’s comments that the economic malaise isn’t totally to blame on the financial sector. There are real, deep seated problems with our economy (i.e. lopsided “fair trade” agreements, Fed demonization of increases in worker pay as “unanchored inflation expectations,” dismantling of labor, a destitute education system, rising health care costs destroying the capacity of the US to compete- with GM being the poster child, etc.) that have compounding effects with the financial crisis. Combining those problems with financial parasites gives you a perfect storm in terms of employment.

I could be wrong, but I thought he was talking about the overall employment problem having more to do than just finance; I don’t think he meant that the financial crisis wasn’t caused by the banks. That’s contrary to what he’s been saying for awhile…

Yves Smith
11:20 pm jest,

I know you mean well, but you are falling for the story that allows the people who set the train wreck in motion to escape blame. You act as if the employment and trade story sit in isolation from what happened on the finance front. They aren’t. They are all a part of a rampant “markets uber alles” ideology run amok.

And you do need to listen to the speech. Volcker was NOT talking re unemployment. Worse, Volcker was one of the prime architects of the use of uemployment to constrain worker bargaining power to keep inflation low.

[Sep 20, 2010] U3 and U6 Unemployment during the Great Depression

The Economic Populist

Based on that research, he was able to generate a mathematical formula to calculate U3 and U6 unemployment for the entire period since 1900. He found that at the peak of the Great Depression, U3 was 25.2%. U6 was 37.6%.

If Nelson is correct, the notion in the blogosphere that current U6 unemployment levels are close to those of the Great Depression appears to be false, and indeed, far off the mark. Using Nelson's methodology, our currrent U3 and U6 unemployment are both very close to the figures in 1930, which is bad enough. But they are less than half of the unemployment that existed at the peak of the Great Depression.

Anonymous Drive-by:

any statistics are apple/orange comparisons, as you are trying to contrast stats that are not comparable in any way..

you are contrasting a period in which the overwhelming majority of goods sold in the usa were manufactured and produced in the usa by americans, and also a era in which it was quite commonplace for a significant pct. of the population to 'work' off-the-books for cash, and usually for irregularly/seasonal periods.. any 'stats' from this period are virulently questionable and certainly INCOMPLETE, if not outright inaccurate, as by our standards today, a large part of the work force working a procession of travelling labor jobs for cash would not be 'seen' as employed at all.

in the current era, we have been on a multi-decade crusade to denude our nation of its primary economic base, and employment base, Our 'leaders' reclassify hamburger-making as a ''manufacturing'' job during Bush Admin desperation to paint a false face on the consequences of their economic offshoring, and none of the above has any precendent or counterpart in the earlier Depression.

We are now also a entirely fiat currency underwritten state, whereas even the poorest WPA laborer had a dollar in his pocket come payday that consisted on what in that era was a dollars-worth of silver, so there was inherent valuation still present in that time, as opposed to govt assurances from a president that rules a debtor state with no hard asset beedrock supporting the markets accepted currency valuations of a pack of scurrilous, mercenary traders..

Anonymous Statistician

One thing that immediately pops out at me regarding Andrews' data (graphs) is that the U3 and U6 plots are identical throughout the entire time period being measured (with U6 only being an expanded version of U3, as if one merely turned up the volume of U3 on an oscilloscope). Look closely, even the smallest of details is mimicked in the U6 data.

Are we to believe that the two can be tied so consistently for over so long a time, with never a hint of one lagging or leading the other? I for one would be most interested in the methodology in how these data were actually calculated and finalized, as it appears that only superficial estimates were used to expand and/or fabricate existing numbers; in other words, no new data or data assessment appears to be present.

Anonymous Drive-by:

There are three other factors that are being omitted here: percentage of women in the workplace compared from 2009 to 1929-1933, average wage comparison between 2009 and 1929-1933, and cost of living expenses.

Until all of these three factors are successfully enveloped into the equation, it's incredibly difficult to determine just how bad our current economic status is in comparison to the Depression.

Anonymous Drive-by: things to keep in mind

Andrews seems to make the case that since the difference between the Unemployed Non-Farm employees and Unemployed Civilian Workforce measures of unemployment are related by a factor similar to that of modern U3 and U6 then they must be decent analogs.

The difference factor between the U4 and U6 data from 1994 to 2010 is 1.68. Why does Andrews not assume that the two historical values are analogs for these modern values?

In addition, U6 is not a measure of unemployment. It includes individuals who settle for part time work due to economic reasons. A true measure based on data provided by the Bureau of Labor and Statistics is not possible due to the fact that data about workers who have been discouraged for over a year are not recorded. The BLS data can however be used to compute what is essentially a U5.5. This includes all individuals who are available for and want to work but do not currently have a job. This value showed december unemployment and 13%.

Anonymous Drive-by: U-6

I find some of this interesting but there is no way U-6 was 37.6%, ever. Historical records do not support this. Unemployment stats included 14 year olds in the 1930's, male and female. Did this new deal author adjust for that? What is the reality of todays job market is this. Career jobs are vanishing and if a new job is created it is not a career job(min wage). This will have long term effects on the American economy that most people are just now realizing. I find it ironic that millions of college students are trying to become more marketable for a min wage job. They must try, of course, to better there economic situation, but the reality is not a lack of an educated workforce its a gap in opportunities available. I have a couple degrees, so I'm trying not to make any spelling or grammitical errors here, but I am no more marketable than say my spouse who has little formal education but has some skills.

Last summer I applied for several teaching jobs one being for a Florida charter school. I am certified to teach in several arears (Science and all Social Studies) so I thought I might stand a reasonable chance. After applying, I contacted the principal who, in turn replied, "you are one of 540 applicants". This was for 3 teaching positions. Sounds like 1930's to me. Hell, The school only had 200 students. The school staff, (2) people, were unable to handle the flood of phone calls and paperwork (7 page application X 540)so they hired a selection team to accomplish the task at hand. All this competition for 3 $35K jobs. Maybe I should have applied for the impending "selection team".

Companies are now learning to do more with less, even if business picks up they can hire "temp" very low paid workers to fill any additional increase in workload, then just lay them off during slowdowns. This is the new way of managing a workforce and it will stay this way for many years to come(10-20 years or more). This is very creepy to dwell on, but this is the new American economy for this generation.

In a couple more years back yard BBQ's conversations everywhere will go like this, "Hey Bob what have you been up to?" Bob excited, said, "Well, Jim I had a good week. First I mowed Jane's yard on Monday, then I sub taught on Tuesday and Thursday, on Friday I traded some can goods for 2 gallons of gas and a fan belt and put in 42 job apps, and finally on saturday I did some census work. A $318 week! I wish every week was like this!"

Robert Oak: En Inglés

Back in the Great Depression, there was no great underground economy. There was institutionalized discrimination against Blacks, Hispanics and women, and probably noninstitutionalized discrimination against Jews, Catholics and so on. But from the 1920's, immigration laws were enforced, so a large pool of illegal workers wasn't there. I'm not sure when the IRS started collecting taxes via W-2, but Social security (FICA) taxes were not collected until 1939, and it wasn't even passed until 1935. So, how many U.S. laborers were off the books or being paid in sandwiches in the 1930's? Good question. I cannot find out how well laws were enforced, but assuredly the FDR administration did a massive clean up on labor laws and procedures...Francis Perkins really turned the DOL into something for the U.S. worker, starting in 1934.

It's true illegal workers are about 5%-9% of the total workforce and the underground economy is about 8% -14% (estimates vary widely) of GDP in 2009.

To estimate illegal labor as a percentage. Take non-institutional civilian population, 237,690,000 and then divide by the estimated # of illegals in the U.S. 22 million gives a ratio of 9.3%. Now, of those illegals, there are people who are not members of the noninstitutional population. That's kids, those in prison, and the aged. Then of the noninstitutional population, assuredly there are some who are not working for a variety of reasons, hence would not be in the labor force.

Since illegals come to the U.S. to work illegally, there probably is a larger percentage that are workers instead of kids, aged, retired than the U.S. overall population.

So, I would take the 22 million, divide it by half to give a rough estimate of 4.6% to 5.0% of the U.S. workforce.

These are very, very rough calculations, just going off of recent numbers. I couldn't find a more accurate number crunch but I am sure claiming illegals are 25% of the U.S. worker pool is way, way off.

[Sep 20, 2010]   Households, Treasuries, Small Biz, Inflation

The Big Picture

The NFIB put out its Small Business Economic Trends report last week, and although the Optimism Index eked out a modest gain (though still mired in recessionary terrain), much of the commentary was downright depressing:

The first two comments are fairly obvious to anyone with a pulse living in the United States.  The third comment — supported by two inflation-related releases last week — argues that a deflationary scenario is not out of the question.  The fourth comment is very troubling, in my opinion.  It is disheartening to see that those businesses seeking credit are doing so to support their cash flow needs. 

Over time, without a more sustained recovery, that will not end well.  While it is encouraging to see that 91% of small businesses either do not want to borrow or are having their borrowing needs met, it does call into question the talking point that “banks aren’t lending” or “credit is not available.” 

Finally, I would note that Poor Sales continue to be the Number One problem cited by small business — above Taxes, Gov’t Regulation/Red Tape, or any other issue:  “What businesses need are customers, giving them a reason to hire and make capital expenditures and borrow to support those activities.”  So for all the rhetoric about “uncertainty,” the simple fact of the matter is a lack of demand.

[Sep 20, 2010] The Stagnating Labor Market – What Can the Employed Tell Us About the Unemployed by Mike Konczal

naked capitalism

attempter

If the issues of long term unemployment and the large number of people dropping out of the labor force are not addressed soon then what is an aggregate demand problem can become a structural problem through hysteresis effects. Officials need to act in a bold and imaginative manner to repair the labor markets dysfunctions-much as Roosevelt did-or risk entrenching the social misery that engulfs many Americans today.

This kind of anodyne talk is bound to be as far as anyone gets so long as we continue with this kind of mindset:

Why is unemployment so bad in this recession? There are two theories at work. The first is a story of aggregate demand. The second theory is one of a mismatch in skills.

Actually there is another theory, the correct one, which states that whatever the textbook “explanation” (since it’s in a textbook, it’s meant to obscure rather than enlighten), the real cause is intentional criminal elite policy.

For example, we know that all “mismatches” in skills are the intentional result of planned obsolescence. In this case, globalization and technology are the two top-down drivers intended to relegate everyone outside the elite to the level of an unskilled and/or minimum-wage worker.

This piece says that the intentional destruction of skilled worker leverage isn’t the main factor in this incipient permanent mass unemployment, but rather declining demand for labor as such. That too is another stage of neoliberal policy. Peak Oil is going to contract the economy, as the elites know. So they’re withdrawing from what little productive investment they were still undertaking, and are simply out for one last plunder orgy.

That’s why there’s NOTHING, not a single peep, of actual job creation advocacy among the political class. They all agree that growth is dead, that this economy will never be “productive” in the old sense again, and that there’s nothing left to do but steal what little wealth they haven’t already stolen through increasingly brazen legalized theft like bailouts, “austerity”, and corporate welfare. None of these involve creating jobs; on the contrary the goal is to eventually destroy all non-minimum wage jobs.

So there’s the solution to this alleged mystery of why aggregate demand is down. Yet the textbook explanation would have us believe “lower aggregate demand” is a diagnosis rather than a symptom, a cause rather than an effect. The truth is the opposite.

That’s why to sincerely keep looking to these “officials” for anything “bold and imaginative” on behalf of the people is not only to look in vain, but to objectively abet the scam.

charles 2

Maybe the two theories are true : There is a lack of demand due to the fast withdrawal of credit in the economy, and the reason for this lack of credit is the fact that the activities for which people are skilled are not believed to be a sustainable business any more. Propping up demand only works in the long term if public, publicly sponsored, investments increase productivity. Bridges to nowhere don’t qualify. If the only viable investment require specific skills that are not available quickly in the market, one has to move down the chain and recognize that actually training the workforce to get the appropriate skill is the right first step to prop up demand. It is very difficult : you can’t turn directly a real estate agent into a rocket engineer, but rather use a chain of “skill upgrade” across different people (say the real estate agent becomes a welder, the welder becomes a specialized welder, the specialized welder becomes a production unit manager, the production unit manager becomes a production engineer, the production engineer becomes a rocket scientist…). When there is strong growth and a young and mobile workforce, it is relatively easy. In a deflationnary environment, it is hard. Note that this kind of skills upgrade is an often overlooked consequence of the population mobilization that occurred WW2, especially for the female workforce. It helped fuel the post WW2 growth. Now if we could find a way to reach the same level of commitment to societal change without killing each other…

Ina Deaver

Very enlightening. A simple look, with other variables held constant, at slack demand. But I agree that the policy goal here is not full employment – and hasn’t been for a long time. I feel incredibly hopeless that meaningful measures will be implemented to address this problem – hysteresis, here we come. A new era of grinding poverty creeping up the class ranks has come.

lambert strether
8:49 am

Mike:

Why do you believe that “entrenching social misery” is a bug, and not a feature?

jake chase
9:26 am

Let’s see: real estate is comatose and manufacturing has been offshored. Customer service is handled beautifully in Singapore, Manilla and God only knows where else. Small business has been Walmartized and Home Depoted, and for those who can imagine providing any new product or service credit has collapsed. Why do otherwise intelligent people write about this in way which makes my eyes glaze over?

We can begin busting up financial and big business monopolies or we can all slowly starve. Nothing more than misery can be expected to trickle down. Globalization has always been a scam and those who have swallowed it have nothing to offer

Foreign Policy In Focus The Political Consequences of Stagnation

By Walden Bello, September 1, 2010 My apologies to T. S. Eliot, but September, not April, is the cruelest month. Before 9/11/2001, there was 9/11/1973, when Gen. Pinochet toppled the Allende government in Chile and ushered in a 17-year reign of terror. More recently, on 9/15/2008, Lehman Brothers went bust and torpedoed the global economy, turning what had been a Wall Street crisis into a near-death experience for the global financial system.

Two years later, the global economy remains very fragile. The signs of recovery that desperate policymakers claimed to have detected late in 2009 and early this year have proven to be mirages. In Europe, four million people are unemployed and the austerity programs imposed on highly indebted countries such as Greece, Spain, Italy, and Ireland will add hundreds of thousands more to the dole. Germany is an exception to the dismal rule.

Although technically the United States isn't in recession, recovery is a distant prospect in the world’s biggest economy, which contracted by 2.9 percent in 2009. This is the message of the anemic second-quarter GDP growth rate of 1.6 percent and a real unemployment above the 9.6 percent official rate if one factors in those who have given up looking for work. Firms continue to refrain from investing, banks continue not to lend, and consumers continue to refuse to spend. And the absence of a new stimulus program, as the impact of the $787 billion Washington injected into the economy in 2009 peters out, virtually ensures that the much-feared double-dip recession will become a reality.

That the American consumer does not spend has implications not only for the U.S. economy, but for the global economy. The debt-fuelled spending of Americans was the motor of the pre-crisis globalized economy, and nobody else has stepped in to replace them since the crisis began. Consumer spending in China, fuelled by a government stimulus of $585 billion, has temporarily reversed contractionary trends in that country and East Asia. It has also had some impact in Africa and Latin America. But it has not been strong enough to pull the United States and Europe from stagnation. Moreover, in the absence of a new stimulus package in China, a relapse into low growth, stagnation, or recession is very real in East Asia.

To Cut or to Stimulate

Meanwhile, the debate in western policy circles has divided into two camps. One group sees the threat of government default as a bigger problem than stagnation and refuses to countenance any more stimulus spending. The other thinks stagnation is the greater threat and demands more stimulus to counter it. At the G20 meeting in Toronto in June, the two sides collided. Germany’s Angela Merkel advocated tightening, pointing to the threat of a default by Germany’s debt-laden satellite economies in southern Europe, particularly Greece. President Obama, on the other hand, facing an intractably high unemployment rate, wanted to continue expansionary policies, though he lacked the political clout to sustain them.

To the pro-spending people, the anti-deficit people don’t have much of an argument.  At a time when deflation is the big threat, fear of government spending stoking inflation is misplaced. The idea of burdening future generations with debt is odd since the best way to benefit tomorrow’s citizens is to ensure that they inherit healthy, growing economies. Deficit spending now is the means to achieve this growth. Moreover, government default is not a real threat for countries that borrow in currencies they control, like the United States, since, as a last option, they can repay their debts simply by having their central bank print more money.

Perhaps the most vocal pro-stimulus advocate is Paul Krugman, the Nobel laureate, who has become the bête noire of many on the right. For Krugman, the problem was that the original stimulus was not big enough. Yet how big is the extra stimulus needed, and what other anti-stagnation measures can the government take? On these questions Krugman betrays some unease, perhaps realizing that traditional Keynesianism has its limits: “Nobody can be sure how well these measures would work, but it’s better to try something that might not work than to make excuses while workers suffer.”  The stark alternative to more aggressive deficit spending is “permanent stagnation and high unemployment,” says Krugman.

Krugman may have reason on his side, but reason has taken a backseat to ideology, interests, and politics. Despite high rates of unemployment, the anti-big government, anti-deficit forces have the initiative in three key Western countries: in Britain, where the Conservatives won on a platform of reducing government; in Germany, where the image of spendthrift Greeks and Spaniards financed with loans from hardworking Germans became the powerful horse Merkel’s party rode to maintain power; and in the United States.

The Obama Debacle

The anti-deficit perspective has gained ascendancy in the United States despite high unemployment for a number of reasons for this. First of all, the anti-deficit stand appeals to the anti-big government sentiments of the American middle class. Second, Wall Street has opportunistically embraced anti-deficit policies to derail Washington’s efforts to regulate it. Big government is the problem, it screams, not the big banks. Third and not to be underestimated is the reemergence of the ideological influence of doctrinaire neoliberals, including those who, as Martin Wolf puts it, “believe a deep slump would purge past excesses, and so lead to healthier economies and societies.” Fourth, the anti-spending economics has a mass base, the tea party movement. In contrast, the stimulus position is advocated by progressive intellectuals without a base or whose potential base has become disillusioned with Obama.

Still, the triumph of the hawks was not foreordained. According to Anatole Kaletsky, the economic commentator of the Times of London and someone not exactly sympathetic to the progressive point of view, the ascendancy of the anti-deficit forces stems from a major tactical mistake on the part of Obama coupled with the progressives’ failure to offer a convincing narrative for the crisis. The blunder was Obama’s taking responsibility for the crisis in a gesture of bipartisanship, in contrast to Ronald Reagan and Margaret Thatcher, who “refused to take any blame for the economic hardships.” Reagan and Thatcher devoted “the early years of their government to convincing voters that economic disaster was entirely the responsibility of previous left-wing governments, militant unions, and liberal progressive elites.”

But even more problematic, says Kaletsky, was the Obama narrative, which was a contradictory one that put the blame on greedy bankers while maintaining that the banks were too big to fail. “With banks recovering from the crisis more profitably and quickly than voters had been led to expect,” he argues in his book Capitalism 4.0,  “politicians of all parties have been branded by public sentiment as stooges of the very bankers they tried to blame.” Indeed, the Democrats’ finance reform package that recently passed in Congress can only reinforce this public perception of their being coopted or intimidated by the very people they denounce. It lacks provisions with teeth : a Glass-Steagall type of provision preventing commercial banks from doubling as investment banks; the banning of trading in derivatives, which Warren Buffett called “weapons of mass destruction;” a global financial transactions tax or Tobin Tax; and a strong lid on executive pay, bonuses, and stock options.

For Kaletsky, Obama should have portrayed the economic crisis as one created “by the polarized and oversimplified philosophy of market fundamentalism, not by bankers’ and regulators’ personality flaws. By offering such a systemic account of the crisis, politicians could capture the public imagination with a post-crisis narrative than the lynching of greedy bankers — and ultimately more dramatic.” But with aides like Treasury Secretary Tim Geithner and National Economic Council Director Larry Summers, neither of whom had broken completely with neoliberalism, such a systemic account was simply not in the cards.

Toward a Progressive Strategy

The right wing has the momentum now and will probably win big in the U.S. elections in November. They will tie Obama and the Democrats so firmly to the crisis that people will forget it exploded during the reign of market fundamentalist George Bush. But with their primeval market economics, the fiscal hawks and tea partiers are unlikely to provide an alternative to what they have caricatured as Obama’s “socialism.” Allowing the economy to implode in order to be ideologically correct will invite an even greater repudiation from an economically insecure population.

But progressives should not take comfort from the dead end offered by tea party economics. They should try to understand what has led to the failure of Obama’s pallid Keynesianism. Beyond the tactical mistake of taking responsibility for the crisis and the failure to advance an aggressive anti-neoliberal narrative to explain it, the central problem that has plagued Obama and his team is their failure to offer an inspiring alternative to neoliberalism.

The technical elements of a progressive solution to the crisis have been thrashed out by Keynesian and other progressive economists: a much bigger stimulus, tighter regulation of the banks, loose monetary policies, higher taxes on the rich, rebuilding the national infrastructure, an industrial policy promoting green industries, controls on speculative capital flows, controls on outward bound foreign investment, a global currency, and a new global central bank.

The Obama administration has tried to enact some of these measures. But owing to its eagerness for bipartisanship, the ties of some of its prominent people to the economic elites, and the failure of key technocrats like Summers and Geithner to break with the neoliberal paradigm, it failed to present them as elements of a broader program of social reform aimed at democratizing control and management of the economy.

For progressives, the lesson to be derived from the stalling of Obamanomics is that technocratic management is not enough. Keynesian moves must be part of a broader vision and program. This strategy must have three key thrusts: democratic decision-making at all levels of the economy, from the enterprise to macroeconomic planning; second, greater equality in the distribution of wealth and income to make up for lower growth rates dictated by economic and environmental constraints; and third, a more cooperative, as opposed to competitive ethic, in production, distribution, and consumption.

Moreover, such a program cannot simply be dished out from above by a technocratic elite, as has been the fashion in this administration, one of whose greatest mistakes was to allow the mass movement that brought it to power to wither away. The people must be enlisted in the construction of the new economy, and here progressives have a lot to learn from the Tea Party movement that they must inevitably compete against in a life-and-death struggle for grassroots America.

Nature Abhors a Vacuum

Krugman predicts that the likely electoral results in November “will paralyze policy for years to come.” But nature abhors a vacuum, and the common failure of both market fundamentalists and technocratic Keynesians so far to address the fears of the unemployed, the about-to-be unemployed, and the vast numbers of economically insecure people will most likely produce social forces that would tackle their fears and problems head-on.

A failure of the left to innovatively fill this space will inevitably spawn a reinvigorated right with fewer apprehensions about state intervention, one that could combine technocratic Keynesian initiatives with a populist but reactionary social and cultural program.There is a term for such a regime: fascist. As Roger Bootle, author of The Trouble with Markets, reminds us, millions of Germans were disillusioned with the free market and capitalism during the Great Depression. But with the failure of the left to provide a viable alternative, they became vulnerable to the rhetoric of a party that, once it came to power, combined Keynesian pump-priming measures that brought unemployment down to 3 percent with a devastating counterrevolutionary social and cultural program.

Fascism in the United States? It’s not as far-fetched as you might think.

[Sep 19, 2010]   What's holding back employment growth

Econbrowser

Bob_in_MA

Russ Roberts' position seems a little silly. If taxes stood in the way of hiring, why did the period of their highest ranking correspond with the period of greatest hiring, the 1990s?

"I believe the correct answer is that the firms compared the benefits of hiring new workers against the costs, and decided it made sense to bring some 3.9 million new people on board each month, but no more."

Doesn't it seem likely that the vast majority of those hires were to replace separations? The question is, how many real job slots were created. And with 10% unemployment, net job creation is probably a good measure.

I think Krugman's right. Remember how all the unemployed (regular and extended) were getting that extra $25/week? The latest extension of extended benefits nixed that. That was $100 month X 9 million receiving benefits, $900m/month.

That one small part of one spending bill was the equivalent of a one-time loss of 300,000 jobs.

What tax/regulation could you rescind that would get you that much bang for the buck?

W.C. Varones

Bigger than all of these issues is the issue of technological change. There's not much that American labor can do that machines and foreign labor can't do cheaper.

We're coming off of a housing bubble that artificially stimulated demand for labor-intensive industries: construction, real estate, and mortgage banking. I don't envision vast new labor-intensive industries rising up to replace all those jobs.

Add to that the fact that the consumer is maxed out in debt and we have a recipe for a very long period of sluggish growth with persistently high unemployment.

[neo-]Keynesian prescriptions for indefinitely increasing deficit spending are not helping and will only push us faster toward a fiscal crisis a la Greece

Ironman

Picking up Russ' point - the costs of sustaining individuals on a firm's payroll, above and beyond their take-home pay, have been increasing over the last several years, and are expected to continue increasing.

The biggest question is how much, which is only now starting to be answered, especially with respect to health insurance costs where insurers are now soliciting state insurance boards for substantial rate increases. (This is also why the survey data shows such a spike for "government requirements" beginning around March 2010.)

I can confirm that the introduction of health care legislation with a high likelihood of passage in Congress last November directly affected employee retention decisions - the chart in that post was most recently updated here. \

AS

Have we ever had a period in our history in which a significant number of people used a non-productive asset like housing to finance a standard of living beyond what would normally be expected? It seems that a vast number of people repeatedly refinanced their homes and used the money to take vacations, buy consumer items and in general over stimulate demand for almost everything. Given this past excessive demand, we now seem to be in a state of "equilibrium" far below a few years ago. Is the US condemned to a lower standard of living due to increased world competition? Have we lived in a "fool's paradise" after WWII since we were the only economy standing at war's end? A few comments and questions from the "nickel seats" as one contributor said.

[Sep 19, 2010] FRBC Normal Recovery, Elevated Unemployment Levels

The Big Picture

constantnormal:

@Petey Wheatstraw

“I wonder what they’ll say when their faces hit the windshield”

They’ll say “whocoodaknowed?”, of course.

RW:

...If a recovery it truly is then might as well skip the 20th Century altogether — no point in fooling around when skipping economic periods that disagree with a thesis ...

It’s not my father’s recovery, granted, but it could be my grandfather’s.

[Sep 02, 2010] Having Hollowed Out IT in the US, Indian Outsourcers Complain Re Difficulty of Finding US Staff

Lordie, if this isn’t disingenuous, I don’t know what is. From the Financial Times:

US universities are producing too few engineers to meet industry demand, Indian outsourcing companies say, leaving such businesses little choice but to hire foreign skilled workers to fill jobs in America

And why are there so few students studying computer science? Because there are no (well, more accurately, hardly any) entry level jobs. I’ve been reading about this on Slashdot for YEARS, about the utter dearth of anything resembling a career path in IT. Yes, there are no doubt ways to brute force getting trained, but that cold reality is not the sort of situation that encourages college students, particularly ones that have student loans, to pursue a technically-oriented field of study.

And the proximate cause is that companies only want to hire people that they don’t need to train (the cliche is that they can “hit the ground running”), and that they can get away with it because a lot of junior level work is farmed out to outsourcers.

But you’d never glean this from the FT, which takes the outsourcers’ complaints at face value:

“If you look at the core of what we do, the technology work, the US simply doesn’t have the talent base today,” said Francisco d’Souza, Cognizant president and chief executive. “Although unemployment in the US today is high, IT unemployment is still very low.”

Yves here. Yes, IT unemployment might be very low now, but for how many years was it higher than in other industries? My sample (high end IT consultants, the sort that can build mission critical systems and do cutting edge Web and apps development) is admittedly biased, but lots of high end shops shuttered, and another I know went through a Chapter 11. Things have gotten much better for them lately, but most of the last decade was pretty grim. So if the guys who weren’t competing with outsourcers had it rough, how was it for the rest of the industry?

Indian outsourcing companies usually keep a small portion of their workforce in the US to work closely with clients, supported by the bulk of their staff in development centres in India.

But the protectionism move – a senator who sponsored the legislation described Indian outsourcing companies as “chop shops”, a reference to garages that dismantle and sell stolen cars – may have little impact.

About 70 per cent of US PhD students are foreign born and are often hired in the US, making their way into Silicon Valley or government agencies such as Nasa, said Partha Iyengar, of Gartner, the consultancy.

Yves here. I’d like some reader comment, but the idea of a PhD as the proxy for talent in this space sounds questionable. The one highly regarded systems architect I know who does have a PhD has it in physics, not computer science.

Mr. Iynengar does comment on the real problem now that the horse has left the barn and is in the next county:

“The bigger challenge for the US is, if they start to lose this talent at the lower end, the innovation engine that has been driving the economy starts to dry up,” Mr Iyengar said.

More on this topic (What's this?)

FT.com: Indian and American Call Center Wages Now Reaching Equilibrium (Fund my Mutual Fund, 8/18/10)

Selected Comments

skj:

 at 2:10 am

Yves

I follow your blog with a lot of interest and I think you bring an interesting point of view forward. But your last few posts and links about Indians almost make it seem like you have a ‘blind spot’ when it comes to India, particularly when it comes to those of us who work in high tech.

Ill take the liberty of putting forward a very simple question. I have about 18 years of formal education, two of them in the US, where I received a Masters Degree in Computer Science.

What course of action on my part would make you happy?
- If I work in India, you would complain about outsourcing..
- If I come to the US, you would complain about H1B Visas..

Perhaps work in Germany or Japan?..

PS: These sort of posts invariably attract a vicious stream of commentary. I hope you have the decency to maintain a clean comments section.

Yves Smith:

 at 2:22 am

I’m not keen about outsourcing. It generally is a false economy from the corporate client’s perspective. I’ve pointed that out from the early days of this blog. And longer term, it’s damaging for the US.

This isn’t about India, it’s about IT outsourcing, although since India is the biggest center for outsourced IT, the two are often treated as synonymous. And that isn’t helped by Indian outsourcers conducting a vocal PR campaign against measures to restrict labor mobility.

Countries are generally not keen about foreign nationals taking jobs from the locals. I can’t work in Australia for the same reasons you are complaining about. If you make career plans that depend on foreign demand, you are at risk of rule changes abroad that will have an adverse impact on your employment prospects.

Reply 
Patriot:

 at 2:34 am

Yves,
Outsourcing is also bad for Indian nationals in the United States. There are many people here on H1B visas who are treated very badly by the so-called “body shops” that employ them. Many of these contractors are employed by a hiring agency and then placed at another firm, and are treated very shabbily by the hiring agency. Workers on H1B are treated poorly because the employers know that it is difficult for the worker to find alternative employment. If fired, the H1B holder has very little time to find a new job or face deportation. It creates a climate of fear and exploitation in the workforce, among the H1B holders.

purple:

 at 4:31 am

It’s a modern day bracero program, in actuality.

Poco Ritard:

 at 2:25 pm

At one of the *other* large famous software companies in Seattle, HR used to walk around the desks in the room where I worked, handing out paychecks and collecting paperwork for INS (yes, I witnessed this on several occaisions). Most of the members (something like 25 out of 30, I counted at one point) of my group were from S. India, and I think they made on average half of what I did. They worked 7 days a week, shared tiny apartments, sent every dime they could home and were terrified of losing their job, since getting fired meant losing the H1B.

They were, as a group, no more or less skilled than anyone else I’ve worked with. I formed the impression that they were friendlier and more polite than most of the US citizens there.

Digital Braceros, sounds right to me.

Cedric Regula:

 at 5:00 am

Go with your instincts, Ives. They screwed us. Who cares about silicon valley, it’s corporate IT that was the big employer.

The FT article also failed to point out all of our IT consulting firms opened up shop in Bangalore. Something about staying competitive with the Indian IT firms. Perot didn’t even warn us about that one.

Also, our helpful government handed out half a million work visa and didn’t ramp that down to a quarter million visas until 2004, which I believe was after the last recession that didn’t end. So you could import your very own Indian programmer too.

Also, anyone with a CS degree of any kind was a mainframer in the ’90s. The hot jobs were Unix and client server Wintel. That opened the door for the rest of us technically inclined people.

Also, engineers are technical people too and I’m sure you heard what happened to manufacturing?

So they say no one wants to be a technical person in the USofA? I’m shocked. It’s such easy work too.

skj:

 at 4:54 pm

@@ Yves
>> It generally is a false economy from the corporate client’s perspective. I’ve pointed that out from the early days of this blog. And longer term, it’s damaging for the US.

I am not sure what you mean by ‘Its a false economy’. Do you mean to say that you dont think that the corporate client saves any money? What is false about this economic transaction?

>> This isn’t about India, it’s about IT outsourcing, although since India is the biggest center for outsourced IT, the two are often treated as synonymous. And that isn’t helped by Indian outsourcers conducting a vocal PR campaign against measures to restrict labor mobility.

What does labor mobility mean when the same task could be performed just as well in a different country? You start out by saying that its not about India and by the time you complete the paragraph, you put forward a couple of lame excuses to treat the two – India and outsourcing – as the same. Also, you do understand that its not just about ‘Indian outsourcers’.. IBM in all probability employs more people in India than in the US. All the companies that you would identify as American – Intel, Google, Qualcomm, Microsoft, IBM, Cisco, GE, netapp have fairly large Indian operations.

>> Countries are generally not keen about foreign nationals taking jobs from the locals.

When you drive a Prius thats made in Japan, aren’t you taking away a car manufacturing job from an American worker? Why limit the angst to IT?

>> I can’t work in Australia for the same reasons you are complaining about.

Actually, you can. Australia has a very comprehensive skilled worker immigration program. http://www.immi.gov.au/skilled/

>> If you make career plans that depend on foreign demand, you are at risk of rule changes abroad that will have an adverse impact on your employment prospects.

I actually work for an American company that is dependent on Asian markets to the tune of 50% of its business. So now I am really confused as to which ‘demand’ I have hitched my career plan to. Leaving my confusion aside, is your suggestion that I find a company that does a majority of its business only in India?

kievite:

I can explain to you why this is a false economy based on my experience with outsourcing, especially in the form of offshoring which is now prevalent. The problem is not India, the problem is distance, cultural differences, implicit “IT slave” mentality and race to the bottom. Distributed development is more tough. Cultural problems “on the other side of the phone line” such as nepotism are significant. Distributed system administration is more plausible area then software development, but in both the level of loyalty is low and attrition rate is usually significant. People don’t like to be discriminated and labour arbitrage is discrimination in velvet gloves so to speak.

1. When you outsource everything on a marginal cost basis, you create an inherently unstable operating regime. And regime change often imply growing dependence on outsource as knowledge flow in only one direction: toward actual programmers who work in the trenches. Problems usually arise in two or three years. In case of IT outsourcing those additional costs inherent in brain drain initially are not even acknowledged. They come later, and they tend to arrive all at once and by surprise.

2. Loss of flexibility, divided loyalty, demoralization of staff and the difficulties inherent is distributed development and managing distributed workforce requires more complex and more costly coordination that saps a lot of talent and energy of both programmers and, especially, managers on both ends of the phone line, so to speak. To be manager of the team split between here and the other half of the globe is far from fun job.

3. As this is a classic labor arbitrage high attrition rate and incompetence-related risks are very high. People who cost $15 an hour in India are often entry level. And when you pay $25 per hour that does not mean that you get who you want. Indian counter parties are keen on saving money too and can outsource to save money (I know couple of funny stories with Indian companies sending some work to Ukraine). The level of “incorrect information” in resume of the staff of a typical outsourcing company will makes a nice Onion story, but it can have dire consequences for the project manager. The quantity of really talented, highly skilled people in India like in any other country is very limited. Not all graduates of US colleges are better then average (especially graduates from private US colleges, those McDonalds of high education. They often are ridiculously bad. I personally encountered computer science graduates with GPS close to 4.0 who cannot write a simple sorting program in ANY language; and they were from “brick” campuses not those sham Internet “take money and run” online universities). So not all of them are worth more then $15 an hour. As for really talented people few of them are patriotic enough to stay in India longer than absolutely necessary (that does not mean that they will not get into ruthless hands of middlemen here in the USA, if they get H1B). In such an environment abuse of resources for training, double dealing, architectural missteps and additional leaks of intellectual property are inevitable. Too often, a piece of code and the institutional memory of what it does and how it does it walks out the door when a developer leaves a company. It is important to understand that with attrition rate 15% in the three year offshoring project there might be no key developers at the end who were present at the beginning of the project. Still the truth is that even low level developer that is working on a particular module of code often possesses a lot important knowledge some of them can be classified as intellectual property with legs, the property that the company may not even know he/she possesses.

4. There is almost always middleman in IT outsourcing. Typically those are real parasites that drain blood from both side of the project. See other posts about details.

5. All those stories about $150K jobs are good stories but that does not mean that they happen frequently in the current economic circumstances. As a former manager I can tell you that in current environment those jobs, typically held by baby boomers, are ruthlessly pruned. My guesstimate that $50K-$60K now is more typical for medium level and $70-$90 for high level (talented, indispensable) IT staff. I saw quite a lot of advertisements for entry level IT jobs for $15 per hour. So labour arbitrage is almost over as $60K is less then $30 an hour.

Yves Smith:

skj,

1. Surveys of the major companies who outsources (for instance, once conducted by Deloitte Touche of very large corporate users, IIRC Fortune 100) find high rates of disappointment with outsourcing, often 70%. As I have explained repeatedly, the labor savings of low level workers distort the picture. These are offset by increases in costs at the managerial level, and those are much more expensive workers. And those offsets are considerable.

2. The contracts are typically negotiated in a naive fashion. They are so complex that the big corps rely on specialized consultants to structure and negotaite them. However, these consultants demonstrate their value by beating down the vendor to get the rock bottom price.

So what happens? Often a. Customer is unhappy with service and can’t do much about it (the outsourcer isn’t making much money and has incentives to cut corners in every way not prohibited by the contract and/or b. Something happens, the customer needs a variance from the contract, the outsourcer hits him for huge cost (not unlike change orders in construction projects.

3. You forget I lived in Australia for two years and am very familiar with theri visa regime, I have used visa highly regarded visa consultants and lawyers. You are simply wrong re my ability to get in under the skilled worker visa. My odds of being approved as someone over 50 are zero. The only way I might get in is with a corporate sponsor (which means if I leave their employ, I have to leave pretty pronto) or spousal (and they scrutinize spousal applications pretty heavily to see if the marriage is bona fide).

Larry:

 at 12:05 pm

How about Green cards instead of H1Bs? Ask these executives, trade organizations and lobbyists on why they’re so keen on increasing H1B numbers but not clearing out the Green Card backlog.

Reply 
lark:

 at 1:40 pm

H1B is only about destroying the job base for technical professionals in the USA.

Green card is another thing entirely.
Overall, more green cards for engineers would strengthen our innovation and job market, the latter by no longer undermining entry level jobs.

Nameless:

 at 2:20 am

“And why are there so few students studying computer science? Because there are no (well, more accurately, hardly any) entry level jobs. I’ve been reading about this on Slashdot for YEARS, about the utter dearth of anything resembling a career path in IT. ”

I’m sorry, but this is utter nonsense. Job & career prospects for people with bachelors’ degrees in computer science are better than in essentially any other area of study. Students with degrees in nursing will start with somewhat higher hourly rates (but with poorer career prospects), and some people will get professional degrees (MD, JD, MBA) which usually pay off quite well, but BSCS is still the best bang for the buck and has been for the last 15+ years. I can’t think of any other industry where people with a bachelor’s and 5 years of experience routinely make six digits.

If the industry had really been decimated and there hadn’t been “anything resembling a career path in IT”, I’m sure that I’d be able to afford a decent house with good neighborhood school within a 30 minute drive from Silicon Valley on less than a $200k/year household income.

Yves Smith:

What is your data source for this assertion? This is a very frequent topic of discussion on Slashdot, and the commentors agree on the very small number of entry level positions in IT (perhaps until this year, but I have been seeing long threads related to this from at least 2005 to 2009).

And these people do not have the income expectations you describe either. The figures you suggest ($200K a year) are well above what Apple pays for very senior engineers which suggests to me that your have a limited data set.

Also, Silicon Valley consists of a LOT more than software coding.

Nameless:

Well, 200k/year needed for a family of an engineer to buy a house in Palo Alto or Los Gatos is likely to be a double income. Ordinary engineers in non-managerial positions may make 120k, occasionally up to 150k. (Just check glassdoor.) The point is really that there are lots and lots of those 120-150k jobs out there; evidently, more than there are houses in the vicinity of Silicon Valley.

I’m not sure how to quantify the availability of entry-level jobs in particular, but, as of this moment, there are 6,700 job listings in Silicon Valley area on Dice, and there are “>1000 matching jobs” (it won’t tell me how many exactly) in that same area, in IT on Monster.

Patriot:

When was the last time you applied for an entry level engineering job?

Yves Smith:

Really? Senior engineers, and I mean the sort working on the top projects, namely iPad apps, make maybe $140K. They get stock options too, but you can’t pay for your house or the rest of your life out of deferred comp.

So tell me again what you know re the pay levels and number of entry level IT jobs? Your factoids are wide of the mark.

Nameless:

http://talk.collegeconfidential.com/graduate-school/651743-starting-pay-fresh-engineering-ph-d-holder.html

“If you’re going into industry and not Civil Engineering, I think starting is generally around $75-85k… I know ChemE’s, even with just a Bachelors, can make around 70-80K straight out… “

?:

As I said, a BSCS gets you nowhere. Thanks for agreeing.

Yves Smith:

I see. The person says “I think” and is talking about Chem Es and civil engineers.

The topic is IT and the whether there are decent numbers of entry level jobs. You’ve still failed to disprove what I’ve read repeatedly on Slashdot.

softwareveteran:

Hi Yves,

Ipad app writing is not a high end job, it is one of the low hanging fruit, low end job.

Yves Smith:

softwarevet,

Sorry the guys in question are top people at Apple, they are very deeply involved in all the new product development (as in state secret stuff). And I do have their pay right. It may be that the party who told me what they are doing re the iPad oversimplified (I presume related to development of the apps but not apps writing).

Timo:

Ives,
Apple isn’t necessarily that good a benchmark when it comes to IT salaries (and neither is a rather large, very well known web software company in Mountain View) – they’ve been highlighted as paying below average in the Silicon Valley area several times. Admittedly I’m not 100% sure if this is still the case in the Apple case.

That said, the $120k-$150k range sounds about right for what I would be asking for (and usually getting) as a senior software engineer with > 20 years experience.

michael:

Yves, please lets go back to the central statements Nameless made: “people with a bachelor’s and 5 years of experience routinely make six digits.”

I fully agree!
However, making it for 5 years in an IT job means not just you somehow made your BSCS, but you are able to work your way through all kinds of tangled messes, without drowning in the complexity.
About entry level jobs: I have only moved to the broader Silicon Valley area in end of 2007, and was surprised how long it took me to find a job as senior engineer in data management -actually 6 months- but since then I make 150k.
(But people buying a *decent* house in the Bay Ara on 200k income are still somewhat insane, in my opinion, as they violate the ‘you can afford a house for 3 times annual income max’ rule.)
Oh, and stock options comp is more something in start-ups, kind of “we cannot pay you more, but if everything works out perfectly, you might be able retire at 40″ lottery.

  
Poco Ritard:

 at 2:36 pm

I’m with you, Yves.

My kid’s 15 and I’m strenuously discouraging him from following me into Software Engineering. That train left the station a lot of years ago.

$140K? I wish. I’m a 30 year vet and not near that. OK, I’m in Seattle and not CA but I ain’t rich by local standards. For example, the median home price in King County is almost 4x my annual salary. Granted, I work in a non-profit but it *nix flavored medical research in Seattle and I am highly skilled (no boast). And most of my colleagues think I’m well paid.

My recommendation to him is to put together a network admin/support resume to use finding summer/part time jobs while getting a degree in something else.

  
Raging Debate:

 at 2:09 pm

American management that can work with Chindian’s make great wages.

American coders are getting slaughtered on wages. The six figure coders on the East coast back in 2000 will take half of that nowadays but the trick there working with them is the problem of moonlighting. Managing American software talent requires a ton of day to day tedious task oversight.

The Slashdot folks don’t like me much but a few of their people stepped way out of line suing legit companies using Can-Spam Act of 2004, legislation I directly helped craft.

Reply  
purple:

 at 4:00 am

The big problem with nursing is, similarly, you can’t get hired without experience. And there are waiting lists at most nursing schools because schools ‘can’t find’ teachers given that being a nurse pays better than being a prof. And because the US education system is a joke.

A plus about nursing is that it has the most dynamic union movement in the United States, with a leadership that is almost entirely female – and welcome change.

poopyjim:

 at 8:05 am

I have a CS degree and I work in patent law and I hate it, so I tried for months to get an IT job.

The job market was atrocious (this is in the D.C. metro area). I ended up getting one offer, for $50k a year (doesn’t get you far in D.C.), which would be a $25k pay cut for me. Also, the job involved no programming, no creativity, or anything intelligent whatsoever. The employer just wanted someone to update their website (with a CMS – no coding).

I also interviewed for a PHP/web developer job, the employer wanted 3+ years of experience and only wanted to pay around $25/hour with no benefits – absurd for D.C. And, I wasn’t “good enough” to get this job despite having a good amount of PHP programming experience (unpaid) – they said they really wanted an “expert”. All the other jobs I possibly could have gotten were temporary (e.g. 2-month) projects which of course paid by the hour with no benefits.

So yes, my experience with the IT field is that it is a desolate wasteland, though I’ll agree that there still exists a way into the field, and possibly a path to work your way up if you are determined.

mp:

 at 2:21 am

No one cares any more. I just can’t get worked up about it.

Empires eventually die. This one won’t be an exception.

purple:

Yes, but this one won’t die with a whisper. The American ruling class will take down the whole world with them.

Reply 
Tao Jonesing:

Yves,

In the last few months, I’ve met with two PhDs (one in Chemical Engineering out of MIT and another in Physics out of the University of California system) both asking for advice on how to break into the intellectual property field, which is my area of expertise.

Both are American citizens, but neither sees a future in the tech industry, so both are trying to figure out how to position themselves as either an expert to help out in financial transactions (e.g., M&A) or as a lawyer.

I found the discussions to be rather sad.

In the meantime, I have been working with some well-established and brilliant PhDs in the chip design space. The board of their company includes Bill Joy.

In terms of what is passing as the proxy for talent these days in the Silicon Valley (where I am located), I think the PhD is the true currency. The people that I know who get away with less than a PhD are those who have accumulated meaningful experience in the industry (myself included).

In spite of what I’ve said, I believe your intuition is correct. The popular narrative that is being pushed does not have to be the truth. Unfortunately, the policies that are in place seem designed to prove the popular narrative true.

Patriot:

I have seen similar trends, where mid-senior technical people who are very qualified are also trying to get out of tech, or at the very least, start their own business. They see the writing on the wall and fear outsourcing. These are people who are in their late 20s, early 30s with ten years of experience. Some of them have advanced degrees, others are the proverbial Silicon Valley prodigies who started writing code at the age of 16.

Patriot:

Should have been “started writing code for pay at 16.”

Nameless:

 at 2:48 am

People have been fearing outsourcing continuously for as long as I can remember (at least since 2000). In the mean time, programmer salaries in India have been growing at the rate of 10-15%/year, and potential profits for prospective outsourcers have been shrinking accordingly.

Patriot:

 at 3:40 am

Rising salaries in India have nothing to do with the fact that people have been fearing outsourcing “forever,” which you defined all the way back to 2000. Thank you for making my point, though, that people have been fearing outsourcing for quite a while. It IS a problem. That’s why people fear it.

Actually it’s been an ongoing problem. You may not remember this, but the United States used to manufacture hard drives in quantity domestically. Yes, I know that some firms still run prototype lines here, but that’s not the same as series production. Certain industry “leaders” chose to outsource critical parts to Japan. Patents aren’t the issue. Technical know-how is, and is not contained in the patent app. American industrial policy made this possible, and gutted manufacturing of small precision electric motors in the US. Now that US firms have started making hard drives in Shenzhen, I expect that within 10 years there will be PRC based hard drive companies doing design.

US based Engineers in non-software jobs have become project managers– industry will lay off the entire domestic team and leave one engineer to manage the overseas operation.

Chester Genghis:

Re: PRC based design. You are exactly right.

Manufacturing (be it widgets, cars, hardware, or software) is the foundation of a healthy economy. Anyone who thinks you can outsource manufacturing without eventually putting at risk the related functions of engineering, service, marketing, finance, etc. is willfully short-sighted or a dupe.

That’s what is so pathetic about our (lack of) industrial policy.

alex:

‘Certain industry “leaders” chose to outsource critical parts to Japan. Patents aren’t the issue. Technical know-how is, and is not contained in the patent app.’

Hear, hear! If only more people understood that know-how is more important than all the so-called intellectual property in the world, and that know-how can only be obtained by actually doing it.

As for shifting production to Japan, that’s particularly depressing. Japan is not a cheap labor country, so even that excuse doesn’t work.

MyLessThanPrimeBeef:

Isn’t ‘progress’ when they someday come out with a robot that can write programs?

Then, we don’t have to worry about outsourcing.

I can already see people praying against ‘progress.’

What if one day, some genius comes up with a contraption that will manufacture/provide all our GDP by itself cheaper than any person or corporation can do? He will then own the whole world. But there is one tiny problem – with everyone else not working, the genius has no customers…unless the overwhelming majority votes to take from the genius to support themselves.

That would make a good science fiction.

Also, the next time you read in some economics textbook about automation doesn’t reduce employment, try the above exercise in reducio ad absurdum.

bob:

The 70% number is probably true, but it speaks much more to the failed immigration policy of the US. Most of those students want to stay in the US, and a lot of them come from very wealthy foreign families who can afford to have a student in school for that long.

I worked with lots within a state university graduate program. He drove a Porsche. He got pulled over 3 times in one week for driving well in excess of the speed limit. I suggested that he should tone down the car(asking him to slow down seemed crazy), not too many here in blue collar land drive cars that are that expensive. His response, “It’s the cheapest one they make.”

jbmoore:

PhD level computer scientists can pretty much go where they please. They’ll be snapped up by top tier companies such as Google. IT consultants and other IT professionals have to compete for jobs where the educational requirement can range from a high school diploma to an Associates or Bachelors degree. An additional problem is that one not only has to be a systems administrator, but a database administrator and possibly another specialty as well these days just to get a foot in the door. I have a doctorate in Biology. I went into IT to make a living because the job market in academia had been ruined by a glut of PhDs and because my first postdoc went south. I earned more as a customer service representative fixing computers over the phone my first year than I ever did as a postdoc. The dot.com bust hurt a lot of IT professionals, and with virtualization one administrator may be taking care of hundreds or thousands of virtual systems running on 25-100 actual servers making the workloads even nastier than 10 years ago. Add in the learning curve of keeping current in a rapidly changing field while competing with cheap Indian and Chinese labor (H1B and outsource) and it feels like graduate school again. An additional complication is that Indians are now running the headhunter shops. Citibank uses Wipro, so one must go through Wipro to be hired by Citibank. Throw in language communication problems and the time difference and it makes phone screens and interviews more difficult.

Chester Genghis:

 at 10:32 am

Re: Indians running headhunter shops. Be thankful fluency in Hindi isn’t typically a job requirement (not yet anyway).

But it will increasingly be so.

Raging Debate:

You are joking right? The country speaks English as in everybody. I don’t see Hindi making a comeback, EVER.

michael:

> An additional complication is that Indians are now running the headhunter shops.

That was my impression also in the greater Silicon Valley or SF Bay area.

Nameless:

“I’d like some reader comment, but the idea of a PhD as the proxy for talent in this space sounds questionable. ”

There are two aspects here. One is that value of the PhD in natural sciences has been so badly degraded over the last quarter of a century, for a number of reasons (too long to discuss here, but I can provide links if anyone’s interested), that most people who do get into those programs, do that with an eye for a green card.

At the same time, the percentage of Americans who get into UNDERgraduate programs in CS and natural sciences is abhorrently low (as of last year, 1st-year undergrads in CS, physics, math, and statistics, taken together, accounted for a little more than 4% of total university freshmen), and that has more to do with the cultural stigma of being a scientist/programmer than with imaginary scarcity of job prospects.

Jon H:

 at 7:43 am

” and that has more to do with the cultural stigma of being a scientist/programmer than with imaginary scarcity of job prospects.”

I don’t believe that to be the case. Enrollment has dropped, largely due to the perceived lack of a future due to outsourcing.

alex:

“that has more to do with the cultural stigma of being a scientist/programmer than with imaginary scarcity of job prospects”

That “cultural stigma” must be a pretty recent development, because back in the 90’s undergrad CS programs were full up.

Apparently this “cultural stigma” has, by an astounding coincidence, coincided with the tech bust and the increase in outsourcing. Or maybe it’s not such a coincidence – maybe anyone foolish enough to go into CS in the last decade deserves to be stigmatized.

giulio:

“And why are there so few students studying (computer) science?”

Given the bad public high school system, the number of US high school leavers with a comparative advantage (be it ability or preference based or both) in sciences in general has fallen. The same is true for the UK.

alex:

Wow, the US and UK school systems must have gone downhill in a hurry, because 10 years ago CS programs were full.

Where is William of Occam when you need him? Why such torturous alternate explanations for the simple fact that students are loath to major in fields with poor job prospects?

mudfarmer:

Outside Silicon Valley and NYC’s Financial District, most routine I/T jobs just don’t pay enough to compensate for the the minimum education they require. The combination BS/MS that most require for even mundane jobs will set you back 5-6 years and leave you with $50-$75k in student loans (if you’re lucky). I don’t know about India, but do know that my peers in other countries frequently graduated with comparable degrees with minimal if any debt. It’s difficult to compete for the same jobs with the same skills when you have a $75k debt dragging you down.

Ten years out of college I was at the “top” of my career ladder at IBM and barely keeping my head above water financially.

And to those of you who will retort: well then, don’t borrow so much money. How, precisely, would you get a BS/MS in the US then and remain competitive with the worldwide workforce? Your companies keep increasing the minimal requirements to get in the door while cutting salaries to be “competitive” on a worldwide basis. The market has responded — it costs too much to get the skills you require, so students look for other opportunities. Why are you at all surprised?

As far as outsourcing goes: firing a thousand people in the US to replace them with staff offshore is one thing. Firing them and then importing a thousand people via H1Bs to replace them is what the Schumer legislation targets.

Patriot:

One of the major issues here is educational arbitrage. The Indian government heavily supports education such that middle class people can get a very affordable education. Then they can come to the US and accept jobs at lower salaries than their American counterparts. The Indian H1B contractors aren’t making payments on student loans.

    
Yves Smith:

Mathematics and physics, no question. Plus if you seek a graduate degree, you can do that without going into debt at all.

Micah:

Applied mathematics, maybe: http://www.payscale.com/best-colleges/degrees.asp

It’s interesting to read this, because it’s very different from my personal experience. I went to Harvey Mudd, graduated in 2007 with a degree in CS, and as far as I know, just about everyone from the CS department ended up with a job (or in grad school). Also, most of my close friends are either math or physics majors, and I started out with a better salary than any of them (and, having since moved on to Google, am now making significantly more).

But CS seems like one of those subjects where getting a degree from a top school might well be worth quite a bit more than anywhere else, in terms of how willing people are to look at you. When I got recruited at Google, it was because the recruiter saw Harvey Mudd on my LinkedIn profile.

alex:

It’s good that you’re doing well, but frankly you’ve only been in the workforce for 3 years. Give us a post in 20 years and let us know about the rampant age discrimination. There’s no reason what you do shouldn’t be a long term career (historically it was), but I wouldn’t count on it these days. I honestly hope you’re an exception, but it’s not the way to bet these days.

  
Lucio:

Because your system is f****d up. Not only EVERY activity that can be privately run has been brought private, but eventually must generate HUGE profits for the supplier. Corporations (and institutions like colleges) in US have a leverage that we Europeans do not even think to allow them. Wherever you go (UK excluded) to obtain a college degree here, you won’t incurr in such costs. You will have to pay top money only for Masters programs like MBAs, but there the reward is really high.

Chester Genghis:

Minimum requirements keep increasing, salaries are decreasing, AND the market & nature of work itself has changed drastically in the last 10 years. Job duties are narrower, more focused on a single set of skills (i.e. commoditized).

The market (at least for application software) changed as well. The perceived value of packaged solutions has gone down (along with the price point), the perceived value of point/custom solutions has gone up, etc. These developments are all related.

leroguetradeur:

 at 3:33 am

“And why are there so few students studying (computer) science?”

The answer for the UK, from my recent visits, where it has become a topic of political discussion, is generally said to be that computer science is no longer taught. I am told it is impossible to study computer science at high school level or beyond. And very difficult in further education outside the best universities.

Instead, the schools and almost all further education institutions are full of ‘computer literacy’ and ECDL courses. These are basically courses taught by computing illiterates in how to use Google, Office, Facebook, Photoshop and Twitter. And Windows Explorer of course, for truly advanced students.

The result is that any able, interested and computer literate students interested in programming or systems management drop out or don’t go near the courses. Because the people who plan and run this stuff are themselves computer illiterates, they don’t think that the problem is that there are no computer science courses any more. They think the problem is that people are not taking the courses on offer. They actually don’t know there is such a thing as programming or systems management.

This is par for the course in much of UK public education, where the few bright and informed students who are left in it sit there, bored out of their minds, while being taught superficial travesties of the most basic aspects of a subject by people who themselves do not understand it and do not want to.

jen:

Here’s a good article on the subject by Vivek Wadwa at TechCrunch: http://techcrunch.com/2010/08/28/silicon-valley’s-dark-secret-it’s-all-about-age/

This is a constant theme in the press, and I believe it’s lobbying. Older workers get left in the dust by the younger CS workers b/c in addition to higher salaries, older workers also cost more in benefits.

PhDs! Wadwa describes a company that successful used HS students, who quickly became as productive as college grads.

againsomeone:

I’m a former H1B employee now happily employed outside of US (~150k annual as systems architect) and while I don’t think outsourcing or restricting labor mobility on all levels is correct course of action, I absolutely agree that US must protect entry level jobs. Because if there are no entry level jobs available for US fresh graduates there won’t be any mid level folks few years down the road and we all will be worse off.

I think global labor mobility mobility for top 10-15% shouldn’t be a big deal. At senior level there shouldn’t be much harm from competition (given anecdotal data of my friends and colleagues around the globe it does look like earnings somewhat converge at the top). I think H1B visas should be reformed in a way with only small subset of visas allowed for entry level jobs with bulk of visas having high wage requirements floor around 90 percentile. Prevailing wage crap should be replaced by BLS wage data with some hard defined floor. I like SS wage cap that is subject to SS tax for instance, it gets indexed every year, so if company wants to bring some unique talent over it better pay above max wage that is subject to SS tax.

froggy:

Good point about protecting entry level jobs. Right on the money. My observation has been there aren’t many jobs that appear enrty level and every employer wants somebody to hit the ground running.

Dave:

As long as our laws permit companies to import overseas workers and pay them below market wages there will always be a shortage of homegrown of tech workers. It’s simple supply and demand: pay people more for tech work and you will have more tech workers.

purple:

It’s too expensive to get a good ‘official’ education in the US. Going to a good public school K-12 requires buying a house in an over priced neighborhood. College requires loans, Masters and Phd to some extent as well, or at least there will be accumulated debt due to pathetic stipends. The debt from undergrad also discourages people from continuing on.

It’s much better to marry a foreigner from a ‘developing’ country and send your kids to the Free high quality public universities in those ‘developing’ countries. Mexico has a few, even.

Debra:

I liked the article, and appreciated the discussion, interesting.
There is something that runs ALL THE WAY THROUGH article, and discussion, though : it’s that the ONLY MOTIVATION for people in getting a job and a degree is the AMOUNT OF PAY they will receive for it.

This is a simplistic assumption that will not help us address the problems involved here.
One problem : diplomitis,(the assumption that a piece of paper EQUALS competence, and is the only way of acquiring it) and the increasing divorce between our educational system at all levels, and the world of work.

But we have become rather toxicomaniac in our approach to EVERYTHING, and not just drugs… moving from one bubble to the next IN THE HOPES OF GETTING RICH AND MAKING LOTS OF MONEY (for many) does not induce people to DIVERSIFY their activities, or take the risk of moving into areas that are not well known (law, medecine).

We need professional and economic diversity at this point. Not a succession of bubbles, as people seek to MAKE MONEY at all costs.

Yves Smith:

No, Debra, you are going for black and white thinking.

Being concerned about supporting oneself and making plans is NOT about making money at all costs. It’s called being responsible.

I went to college when it was affordable, and on top of that, my folks paid for it And I majored in an elite liberal arts major (as in they refused 2/3 of the applicants to that major).

Despite having done very well academically and taken some decent math and econ courses, no one would hire me because I had not majored in economics (and I had decent extra curriculars, the required leadership BS). Yet I got into every graduate school (law and business) I applied to.

That was over 30 years ago, when the world was less mercenary than now.

The pressure to major in something career related comes from employes. Students are merely responding to reality.

GregL:

As a parent of 3, I urged my kids to get an undergraduate in whatever caught their fancy. I wanted them to get their bachelors degrees and the best way to do that (and get good grades) is to major in something that consumes you. I was pushing the virtuous circle of enjoyment -> success -> enjoyment. I was paying the full tab and they didn’t have to work at all.

All three felt that they needed to get jobs and work in school, take majors that would lead to jobs and sell themselves on the next step of their ‘careers’ (work or grad school). I tried to dissuade them from thinking like that but to no avail.

It must be something in the water…

skippy:

Hay Asshats down load this.

The American Dream

http://www.youtube.com/watch?v=acLW1vFO-2Q&NR=1

Skippy…imprinting like a young person having sex for the first time..eh.

Micah:

I’d agree that a PhD is a poor proxy for talent in CS. As a recent graduate in that subject, basically the only people from my class who went on to CS graduate programs were either interested in theory of some kind or wanted to teach (though some then get lured back out by the salaries, if they’re good). If you can get it, a job tends to give you much more practical programming experience than a further advanced degree. But I do know a number of people with PhDs in other subjects who have since drifted into programming, which is probably the kind of person you’re talking about.

jp:

Yves,

American born, IT pro of 25 years, consultant building enterprise applications for investment banks.

What the author means to say is that they can’t find the talent they need at the wages they want to pay. If they were paying 2001 money, they would be inundated with high quality, American born, applicants from the top tier U.S. technical schools. But because the H1b program has driven wages down, everyone who graduates from MIT these days wants to go to Wall St. or management consulting.

You are absolutely right– a PhD is a proxy for nothing in IT. Nobody in IT has an PhD, and none of the groups I’ve worked for would ever hire a PhD. Not because they are overqualified, but because they are wrongly qualified for day-to-day software engineering.

The Indian born Stanford PhD in computer science is the bugaboo that the H1B lobbyist always pull out. They point out that without these immigrants, Cisco and Qualcomm would be in deep trouble. And that’s probably true. What they ignore, of course, is that this deep sciency kind of engineering has nothing at all to do with IT. The vast majority of IT jobs are software development jobs that are done by bachelors or masters, and require no specialized education. Many of these jobs are carried out perfectly well by people who don’t even have engineering degrees.

I can promise you that most corporate IT jobs, whether executed here or in India or China, could be competently carried out by any bachelor, in a quantitative or near quantitative field, from a decent U.S. university.

And you are correct, there are now no entry level jobs for college grads. This state of affairs has arisen through a combination of government corruption (lobbying on the part of Indian body shops and large U.S. employers) and shortsighted decision making on the part of our youth. In the last 15-20 years, most engineering grads aspired to: wall St., management consulting, or law school. Hands on engineering was rightly considered a hard and dirty way to make a living. So 5 years ago, the only people you could find to take $90K jobs in the Jersey City back office of an investment bank were h1b.

And hiring managers are biased favorably towards h1bs for a couple of reasons (I know this very well first hand, having hired lots of h1bs myself).

Now, of course, I’m sure there are plenty of U.S. college grads who would like to have that $90K/yr back office IT job in Jersey City. But there are plenty of experienced IT people (mostly through the h1b program) who are sitting tight on them.

Dont’ you think it’s kind of funny that Obama is willing to spend $800B on a stimulus that created (reportedly) a couple hundred thousand jobs? How many h1bs (of all statuses) + L1 + other “guest” visas workers are in the U.S. now? I’m not certain, but I’ve heard that the number is north of 1 million. Isn’t that a 1 million person unemployment reduction that can be achieved without spending any public money? It simply requires the stroke of a pen.

Captain Teeb:

JP,

Thanks for a interesting comment. These are not so common.

You sound a lot like me: 25 years in IT, really US-born (no ancestors arriving after 1800), MSCS. I can tell that you’ve been there, was even enlightened by your remarks on how H1Bs enable bad project management (which is the rule, not the exception). It all makes sense.

I say it’s all of a piece with sending factories to China. Every company wants to lower its costs at the margin, but if manufacturing and skilled jobs are relentlessly squeezed, then what does the working population do? This is a high-level policy decision, let’s not kid ourselves.

Thought experiment: I imagine that Citibank or Lehman could have found much cheaper Indian or Chinese versions of Dimon and Fuld, but my guess is that they didn’t even look at foreigners. Why? Are those guys smarter than everyone in India? (I doubt it.) So the deciding class decides not to replace itself with cheaper foreign hires, big surprise.

But this sets the patttern for the US: the hollowing out of the middle class that Yves has talked about before (as polarization of wealth, high GINI, etc.). How far can the trend go before something gives?

I saw this coming in the 1990s and emigrated to Europe. I’ve worked in four countries now and can say that, in IT, Indians are rare (and transitory), while Chinese are non-existent. Salaries are not what the US was during the Y2K (remember that?) run-up, but everyone’s working. Very few of my colleagues even have CS degrees (1 out of maybe 20); the rest just got a book and a PC and taught themselves (though I don’t recommend this; I’m glad to have the theory). So the job market must be pretty good.

There’s a greater sense in Europe that you don’t squeeze people simply because you can. Also, I’m 56, and have colleagues who are even older, so the US-style Cult of Youth is less important. (Sadly, average project management is no better here, and possibly worse.)

My favorite English-language job board is jobserve.com. If you’re interested, go there and put in your favorite skills, plus a country. Some (typically lowballers) have the salary or daily rate posted as well.

Cooter:

I have thought of doing exactly what you describe, although I am not quite yet in the position to pick up and move. Any other links or resources on visas/processes/blogs/etc on the subject would be greatly appreciated. If not, thanks for the information provided.

Regards,

Cooter

00rush:

I agree with some of JP’s points above. Yes, most technical jobs can be done by anybody with a bachelor’s degree in a quantitative or numerical field. Most programmers now seem to use Google as an auxiliary coding tool anyway.

However, there is still a measurable difference in the quality of students coming out with a Comp Sci degree from a good US or UK university compared to those coming out with a degree from a middling Indian University. InfoSys, TCS and Wipro can hire thousands of graduates straight from college in India, train them up in whatever the ‘in demand’ skill or tool set is and get them doing grunt work on out sourced projects. I worked very closely with contractors based in India when I worked for a large US investment bank in London. I found their skill and motivation levels were poor, and anybody who showed aptitude / good communication skills was swiftly promoted and moved on-site. Quality suffers as a result.

There are jobs out here (well in the UK) for people with good degrees, and those who show an aptitude for the field.

sth:

jp is right on the money. That said, here is my “formula” for working in IT if you are a US native and are seeing the continuing rise of laughably low-cost competition and want to know how to survive:

1) Get a BS at a community college, cheap distance learning program, or simply skip the degree altogether.

2) Do not take on anything resembling large, ongoing expenses. This means you have to live in a city with good public transportation, be willing to live in a studio or tiny room, not own a car, never buy a house, don’t acquire any expensive habits (no gambling, drinking, drugs, smoking, etc.) and do NOT have any children or other dependents. Fortunately for me, I am very happy with those things; not everyone loves being a car-less, childfree, non drinking/smoking/drug taking/gambling, life-long urbanite living in a sardine can. If you have the option to telecommute or walk to work, do that as well.

3) Save plenty of money to deal with the lean/dry times. Following #2 you should not have a huge problem doing so.

4) Be willing to work for tiny companies, startups, sole proprietors, etc. If you can get past the hilariously stupid roadblocks put up by HR departments in many large companies, you could take a job in one of those, but do not count on it. America lost “lifetime employment” years ago; IT often doesn’t even have “5 year employment.” There have been times where I did work for 4-5 different clients a week. Your sleep may suffer sometimes, but there’s not a lot you can do about that one except try to make it up when things are quieter.

5) Be willing to work 80 hour weeks, be the go-to person for just about everything, be on call 24/7, and never take extended vacations. Start adapting your mind to stay-cations/3 day weekends to avoid burnout; forget about that 2 week trip to Europe forever.

6) Study and learn new things constantly. Even long after you start your career, you should still be reading up on the latest technologies posted on Slashdot, reading Q&A on stackoverflow, reading the ACM/Usenix/whatever email lists, reading 20 technology/development/admin blogs, and picking up any worthwhile O’reilly books. In today’s IT, your education /never ends/. The idea many people have
in other industries that you just “get a degree” and work without learning new things constantly is a pipe dream. You cannot do that in IT.

The above is not a joke. I’m a native New Yorker, and have lived here all my life. I’ve been in IT for 15 years and lived in Manhattan for nearly all of it (before that I lived in Brooklyn, my hometown). This kind of life is definitely not for everybody, but if you want to survive (and you aren’t the next Steve Jobs or Bill Joy) the above may help you.

I’m sure some will find the above sad (and perhaps it is in some ways), but this is the reality of IT in today’s America.

Whoops, left one out: be wiling to work for under 100k (sometimes half that), for well, maybe life. Again, #2 should help you there.

Dan:

JP’s thoughts on this matter resonate strongly with my own.
I have been a programmer in the New York area for 30 years where I have witnessed the slow death of a profession which was once attracted some of the best talent from the best schools in America. And outsourcing, and in-sourcing of H1b’s and L1’s is largely responsible. If you walk the IT floors at Bank of New York, Citibank, Bank of America, et. al. you will not see a non Indian programmer. As JP mentioned, the approved head hunting vendors are Indian companies. At these banks, you must contract through these Indian firms, and it would appear that they will only hire H1B/L1 candidates. If the quality of their work were superior I would certainly have no comment, since I think a company should hire the best talent available. Unfortunately, this is not the case. In most instances, they are really sloppy and untrained, but as was said before, they will work hard for fear of being replaced for lack of effort. Results be damned. As far as PHD’s are concerned, they represent such a small minority at the banks of which I speak, that they are hardly worth mentioning, except of course by politicians who invoke them to defend this program.

JW:

Alan Greenspan @ 3:50 of video below says;

“We pay highest skilled labor wages in the world…If we would open up our borders to skilled labor, far more than we do, ah we would attract very substantial quantity of skilled labor which would SUPPRESS THE WAGE LEVELS of the skilled…”

http://www.youtube.com/watch?v=oqx88MyUSck

Notice that Alan Greenspan does NOT mention anything about “best and brightest” or “shortages” in the video clip above. Also notice his hand gestures as he exclaims; “SUPPRESS THE WAGES”!

LastChanceUSA:

Outsourcing and off-shoring are about wage arbitrage, corporate profits, and nothing more. Unfortunately, career planning is very difficult for individuals, when they don’t know what occupation will be axed next.

I’m American born with have two MS degrees, one of which is in CS, and used to own a successful IT consulting firm. I had no problem competing with numerous foreign and US IT consultants on quality, quantity, and honesty. However, I was unwilling to compete solely on price ($11- $15 per hour in many cases). After three years of dealing with – “We can get IT people for about $15/hr. You need to rethink your hourly rates.” – I closed my business in 2003. I even got this line from a previous multi-billion dollar client after I single-handedly resurrected one of their projects from the grave, enabled them to meet their original deadline, and prevented millions in lawsuits for breach of contract. Another previous multi-billion dollar client let me go in 2000, after I told them that their muti-million dollar IT transformation project would fail, if they stayed on their current path. A couple of years later and millions spent on the transformation project, they lost over one billion dollars in revenue, because their new software simply didn’t work. They then called me back in to fix the project, as I was the only one who correctly predicated that the project would fail and why. I got the same line from this client, too.

I didn’t spend many years in college, thousands in tuition, and countless hours of self-studying after college to work for $15/hr or less with no possibility of a future. If I can make or save companies millions, I’m worth a lot more than $15/hr.

Most USA managers believe that one FTE (i.e. full-time equivalent) equals any other FTE. Unfortunately for those in the work force, it is much easier to offshore and outsource workers than it is for workers to retrain.

My advice to people today is to pick an occupation that you enjoy, are good at, and REQUIRES YOUR PHYSICAL PRESENCE. If you don’t, then you will eventually be faced with loss of livelihood or greatly reduced wages due to outsourcing and off-shoring.

alex:

“REQUIRES YOUR PHYSICAL PRESENCE”

With the H-1B and L-1 visa programs even that’s no guarantee.

constantnormal:

Not all of the hard times in IT employment can be blamed on outsourcing. The (entirely necessary) balls-to-the-wall push for Y2K remediation pulled a lot of employment demand forward, leaving a gaping vacuum following 2000, which accounts for a lot of the employment problems in the IT realm in the first decade of the new millennium.

And given the digging-in-the-dirt nature of much of the Y2K code remediation — that which did not involve complete rewrites or system upgrades, but mucking about in decades-old systems full of cruft and spaghetti-code — that sort of work was typically not considered suitable to be outsourced.

I’m not defending outsourcing, which I regard as a blight upon civilization, destroying the employee-employer relationship and reducing the career aspirations of domestic workers to piles of rubble and lifelong enslavement, but there are other factors that help to explain the employment situation in the realm of IT.

michael:

Not sure why you mention this nowadays, 10 years later – the pull forward from Y2k impacted about the following 18 months.

alex:

“Y2K code remediation — that which did not involve complete rewrites or system upgrades, but mucking about in decades-old systems full of cruft and spaghetti-code — that sort of work was typically not considered suitable to be outsourced.”

On the contrary – an enormous amount of the Y2K work was outsourced. So much so that some consider Y2K the take off point for outsourcing.

Jon H:

IMHO, CS PhD aren’t going to touch business IT with a ten foot pole. They have far better opportunities.

wunsacon:

The H1B program is a tax on studious Americans.

Let’s see what happens if we bring in H1-B’s to replace realtors, traders, salespeople, baristas, Congress critters, CEO’s, etc. (Even for barista positions, a company can always say it “can’t find qualified people for the salary it can pay”.) Then, we’ll see how much the rest of Americans like this program.

As it stands now, this program exists precisely because it hurts some people but not enough to piss *everyone* off.

wp:

Yves,
In 1990-91, when Manmohan Singh was the finance minister, India was in deep trouble on the forex front. US demanded opening up of the indian economy to US multinationals as a quid pro quo to ease their forex shortfalls. IT offshore industry in India is the single most beneficiary of Manmohan Singh’s decision to open up indian economy to US multinationals.

US multinationals have expanded their reach to indian consumers at the cost of US programmers. It is a two way street.

wp

MKV:

[q]About 70 per cent of US PhD students are foreign born and are often hired in the US, making their way into Silicon Valley or government agencies such as Nasa, said Partha Iyengar, of Gartner, the consultancy. [/q]

Something that I’ve found as someone recruiting for comp sci (not IT, mind you) in the elite schools here in the Northeast is that there is a massive injection of foreign students into post-graduates programs because their parents are willing to pay full tuition to put them into these schools, as opposed to many US students who are looking for scholarships in order to be able to attend these schools. These schools need to prop up their budgets so it’s very good business for them to market and recruit these kids. But it doesn’t correlate with good engineers.

babak:

 This article is ridicules! What they probably are not stating is that what they are willing to hire people for is not competitive to the markets comparebles. Also it may be that people do not want to live in the small towns in America when they can work in the main cities. With U-6 being at 17 I cannot accept that non one is qualified for working for them.

Also if they are not qualified maybe they should be training them. Also it could be an excuse for people to bring more people from India and give them Green Cards and hire them at a cheaper price.

Please also note that in the past 10 years we had a major wage deflation in IT for American employees. People who made 80k-120k are making 20k-40k less, because of outsourcing. We are slowly eliminating any good paying jobs in the US. We are going to be stuck with Dr. and Lawyers and nothing else… wake up america!

Ron:

Two points

1. US has ALWAYS benefitted from attracting the best minds. The US economy was NEVER built by local talent, but always by new immigrants.

2. US is not doing this as well as it did in the past. Think of the country as a company. Wouldnt you want to retain the top talent, rather than those that are “close to the decision makers” (usually from behind).

3. Some ideas
- Give stipends to top talent from other countries to study here for advanced degrees
- Give immediate working permits to foreign students graduating at the top of their class in US universities
- give immediate working permits to entrepreneurs in other countries that want to come here. Its a misconception that they take American jobs. Net-net, they create more jobs than they take

Chester Genghis:

Huh????

We’re at almost 10% unemployment (only the official rate, mind you), with many more underemployed and you think the real problem is brain drain???

alex:

“US has ALWAYS benefitted from attracting the best minds.”

Is it your contention that H-1B’s and L-1’s are generally the “best minds”? What’s are your criteria and data for arriving at that surprising conclusion.

“The US economy was NEVER built by local talent, but always by new immigrants.”

First, H-1B’s and L-1’s are guest workers, not immigrants. Don’t mix apples and oranges.

Second, I gotta love positive stereotypes, which are just the flip side of negative stereotypes. Is it your contention that Americans have always been inadequate to the task? In additions to the millions of very capable rank-and-file Americans, do names like Edison, Ford, Westinghouse, Wright, Curtiss, Armstrong, Shockley, Bardeen, Brattain, Noyce and Gould mean anything to you?

LAS:

Having worked with some Indian companies lately, it occurred to me at times that India doesn’t have the talent base either. I felt like it involved training them to get through the projects properly and they had a tendency to crumble before every new challenge. At some point, it just won’t be worth going to India anymore. Come on America, I’ve seen you do this work better than it’s being done over there now.

Pete:

Yves,

Great post and great comments. I agree with the other commenters that a CS PHD is not really suitable for most actual corporate jobs. I have a nice technical analyst position for a large insurance company and a BA in History, with about 12 years experience in IT. I have a very niche business expertise which has allowed me some level of comfort, but otherwise there would be no way I could compete with the H1B folks on pure talent+work ethic+cost basis.

Workers in many industries have to deal with outsourcing, but throwing the H1B issue on top of it is a real problem for a couple of reasons. First, it is unfair to native workers to make a specific exception for one industry, especially when you consider that most of the jobs we are talking about are in no way “strategic” for our economy as a whole. Second, as you state it closes the door for people to get into the field.

I have many Indian friends and consider myself to be pro-immigration, so I don’t want my opposition to H1B to be construed as nativist in any way, but I really oppose the program. As has been stated by other commenters, these guys get paid less and work crazy hours out of fear of losing their immigration status. I do not understand how this could fail to depress wages in the industry, making it less attractive for new people to enter.

Raging Debate:

They just do what the programmers of the 1990’s did and stretch out completion of the project for eons. If you get something that actual performs to spec it is a miracle.

Some of the folks I speak to in high places in the corporate world get it, the cost-benefit of I.T. outsourcing is shrinking fast or already gone.

bluffraise:

It’s tough to compete with someone who wants foreign work experience on his resume and will therfore work for a bus token and lunch money. Such was the case in 2001. Job prospects are a little better now.

Tom Hickey:

“The bigger challenge for the US is, if they start to lose this talent at the lower end, the innovation engine that has been driving the economy starts to dry up,” Mr Iyengar said.

Another torch being passed to Asia. After a while it wil be the US trying to reverse engineer Asia innovations and get around Asian patents.

Energy is the biggest and baddest gorilla in the room though.

Der Spiegel: Military Study Warns of a Potentially Drastic Oil Crisis

Cynthia:

It’s only a matter of time before the world’s largest companies that produce things other than food and bottled water are headquartered in Asia and all of their CEOs are Asian born and live there, forcing American CEOs to join the ranks of the unemployed.

This is patently obvious to anyone whose head isn’t in the sand.

Power always follows production, which is the heart of any economy. When American corporations decided to offshore production to Asia so they could teach their greedy American workers a lesson and vastly overpay their CEOs while vastly underpaying their Asian workers, they dug their own grave and engraved their own tombstone.

Chester Genghis:

I agree with you on the inevitable outcomes, but current CEOs are laughing all the way to the bank. It only takes 2-3 years for them to loot all they need –well before the other shoe drops.

duffolonious:

Very interesting.

Speaking of _right now_, I’ve been trying to hire a couple people at the small company I work at. One of the things we do is post jobs at the nearby Big Ten university – and we’ve gotten only a couple hits. Last time we hired (early ‘08) there were a ton of candidates (even _a_ woman [all the ones I knew when I was in college in the early 00's went to IBM]). If I had a referral from a friend I might even ignore a lack of schooling (I have a lot of college dropout friends – they all have great IT jobs – Intel, porn, et al).

And I’m not sure what I’m doing wrong. Except for one guy that we may hire once he’s done with school (in a year), all the rest have been pretty sad. One example is a candidate who does windows tech support at major US company – so no programming experience and our shop is entirely Linux. A problem with IT is all the sub-career paths – once you go down one, it’s a tough crawl back up to the others.

Our company is so niche that even the much better candidates we’ve hired in the past took a few months to get up to speed.

Another problem is that business is only OK. With the economic outlook I’m worried about making a mistake on hiring and it costing too much in time and resources. So it makes us more reluctant to expand in the first place.

There is a ton to write on the subject of IT companies and employment – it’s so specialized, and good candidates are a tough fight (how can we compete with Google).

froggy:

It seems like your situation is similar to entry level workers; your an entry level businesses and have a tough time working your way up. Maybe the way to become a market force, is to think juggernaut and go public? Or sell your sole to some big company in need of creative new ideas? Being small is rough, and in a global business environment, seems like the challenge is how to sell and compete globally.

AFL:

“Our company is so niche that even the much better candidates we’ve hired in the past took a few months to get up to speed.”

This is Yves point!

Most companies are unwilling to train. They always want people to be able to hit the ground running.

If you’re interested in the long term viability of your company, you have to invest in hiring and training entry level employees.

But if you invest in training, that’s money/time/effort not spent on your short term goals.

So as a business owner, do you race towards the bottom like everyone else, or do you take the high road which might lead to bankruptcy…

duffolonious:

“This is Yves point!

Most companies are unwilling to train. They always want people to be able to hit the ground running.”

Yep yep. And every company has to decide “how long will it take to train this person?” And “what is the maximum amount of training we want to give?” Those two questions set the stage. What is fair, for the employee and for the company?

In fact I like doing a decent amount of on-the-job-training, because the investment also seems to be rewarded with loyalty.

Nonetheless, I read the articles Yves bring up on the subject and think wanting people to hit the ground running (with little to no training) is more an excuse to not expand; than a reason to not hire.

Raging Debate:

Run ads in your local papers for a “Web Developer”. Shift through the couple of dozens resumes for those that have SQL and PHP experience (web design). Make sure they really have those data skills though. Setting up a database is tit, managing it for CRM functions, marketing etc. require some good hand-on experience by the employee. Best of luck.

Software Insider:

As someone who has worked in the software industry for about 15 years, I have a few observations:

1. A PhD in Computer Science is overkill for most positions. The majority of projects/products in the overall software space do not require complex algorithms; rather, they require facility with a particular platform, ability to map business rules to functional designs and functional designs to technical designs, and general problem-solving ability.

Most positions involve either a focus on one of these skills or a mixture of the skills. None of these skills comes directly from a CS program, but the foundational skills for programming with some level of competency are taught in most undergraduate CS programs. The rest is either innate or comes only with experience working on non-trivial real-world projects and really understanding trade-offs.

2. As in a lot of industries, the entry-level job seems to have died out in software. I think some of this is endemic short-termism: anyone managing a project or team simply wants to get the product or release out the door, not spend time training someone. So you start to see a focus on lists of skills and meaningless measures of experience (e.g. “must have 10 years of object-oriented low-latency transactional processing at a large company”). I have worked at several different firms where the “business” side of the shop had a robust internship/trainee program, but the “technical” side was expected to only hire people who would be (in theory) immediately productive at a high level.

3. The majority of the people working in software are not designing world-class search algorithms or mobile operating systems, nor are they designing snazzy Web 2.0 interfaces. They are, instead, creating or maintaining systems into which people enter data, store data, retrieve data, and process data (think insurance, banking, accounting, etc.) These people do fairly boring work and get decent but not fantastic pay. It’s a nice middle-class job with limited career options.

Regarding the alleged problem of a skills shortage, there may be a few things at work. My guess is that companies are trying to hire a high level of experience at a low level of compensation. This means there is no match with entry-level candidates (say recent grads), nor is there a match with experienced candidates who already have jobs that compensate them well.

There may well be skills shortages at the very high end in technology (chip design, high-performance systems, etc.), but I don’t see it in the general business software area that makes up most of the job market.

Dave:

Another industry veteran here (10 years). Agree completely except for this: “It’s a nice middle-class job with limited career options.”

Correction, WAS a middle-class job. Wages are totally stalled and developers are on their way to joining the lower middle class, and eventually working poor.

A data point…I started in IT out of school earning $65k in 2000 (fabulous pay, I agree). Laid off in 2001 and spent a year minimally employed. Got another development job in late 2002. In 2006, I was making $87k. Inflation adjusted, this is maybe 10-12% more than my very first job.
10 years on, I’ve increased my productivity and skill by many, many orders of magnitude and lead a team of 4. I make $105k, barely a third more than my starting wage.

All these jobs are in cities where a dumpy 1200sf condo costs $600k and the schools are terrible. My benefits have always been typical for the IT industry (i.e. terrible…15 days PTO, no sick days, low to no 401K match, expensive health benefits, 8 holidays a year).

Barring some miracle whereby I become an executive, I expect this is very near the peak of my lifetime earnings as an engineer. At 36 years old, I figure I have AT MOST 15 more years of employability. I am responsible for funding my own retirement yet do not make enough save adequately, despite no kids and an extremely frugal lifestyle.

Here in Los Angeles, if you use reasonable assumptions about career duration and the present value of retirement benefits, you’ll find that the typical union carpenter, prison guard, or municipal bus driver earns far more over a career than the typical software engineer.

lark:

Dave I hear you. The profession has been destroyed. The sick thing is that by the time it totally dries up we’ll be too old and broke to get something else that is decent.

And it’s amazing how they have broken the retirement systems in this country. Working in a business, as opposed to working for govt, has become such a rip off.

Formerly known as Nameless:

105/65 = 1.615. And since when is 105k a lower-middle-class salary? 80% of the country would kill to make that money.

Formerly known as Nameless:

http://swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_tr20000003.html

“The median expected salary for a typical Bus Driver in the United States is $18,663″

and I bet that benefits are SPECTACULAR.

Formerly known as Nameless:

let’s check carpenters for sh*ts and giggles too.

http://www.careerfield.org/jobs/send.php?job=2211&utm_source=Indeed&utm_medium=organic&utm_campaign=Indeed

“Salary: 41,000 – 50,000 Annually
Required Education: Some College
Required Experience: 2 Years of Experience in a Related Field Required”

  
Dave:

Apparently you aren’t aware of a phenomenon known as inflation.

$65k in 2000 is about $78k today.

Larry:

As an actual engineer… it’s rough out there. For one thing, I’d like to know exactly what counts as an IT job.

We’ve seen the collapse of the job market affect engineering departments. In last couple decades, radio frequency (RF) engineering, power engineering, petroleum engineering and nuclear engineering have all shrunk. So, all the knowledge in these fields are now overseas.

Cynthia:

According to Thom Hartmann (watch link below), the Obama Administration is proposing that the U.S. Bureau of Labor Statistics stop reporting the number of American jobs being outsourced. If he is right, then this is just another example of our most powerful elected officials trying to hide the ugly truth from us. First it was about our wars, now it’s about our jobs.

http://www.youtube.com/watch?v=_PlCO-mADfs

And I can’t think of a bigger slap in the face to the American workers for NBC to launch a comedy show about American jobs being outsourced to India!

http://www.nbc.com/outsourced/

Mike Snow:

I have spent 30 years in the commercial software industry, outsourced thousands of man hours to India (and other countries). As far as the impact on America’s abaility to inovate

1) Most of the offshore outsourcing hours come from big companies, like banks, telco’s, airlines, etc. These companies do very little in the way of innovation around software (just try their websites). Also more and more the big tech companies don’t innovate, just buy (Oracle, HP, Microsoft).

2) Most software innovation happens in tech companies, some large (Google, Amazon, or Apple), mostly small to medium. The small to medium guys do very little off shore outsourcing, and most of that is around testing (man power intensive). This is because you have to be close to your customer to design great software and so off shore is a non-starter.

3) Most off shore companies provide a lot of hype about innovation, but they don’t deliver. The do deliver low-cost, talented labor, who are very good at following directions, not so good about innovating in a way that is valuable to the end customers.

4) You don’t have to have a degree in CS to be an innovator in the software industry. Most of the real value comes from people who understand the business being served and don’t get obsessed by the tech. Many of the best designers learned to program after they got a degree in business or science.
So being a believer in the invisible hand, if the demand is really there, the supply will show up.

lark:

Thanks for being honest about your role in outsourcing jobs.

I have my own startup in Silicon Valley and I can tell you, you are dead wrong about start ups being immune from outsourcing.

Venture capital requires outsourcing to be in place before they’ll fund. That has been true for years now. You info is out of date.

Raging Debate:

Don’t know about that stringent a condition for VC but in speaking with the investors, you do have to be willing to consider it. I like the programmers in the Czech Republic. About 2/3 American wages and they innovate AND complete the bloody projects without a ton of micro-management.

lark:

Yes I’ve heard the Eastern Europeans are the best.

oliverks:

My experience after getting a PhD in math is I could not find anyone who wanted to hire me at all. Admittedly the market was not very good at the time.

CS PhDs may be more employable. Almost all PhD student in math want to become professors, although very few will eventually make it to be tenured. As a result the math departments do nothing to cultivate ties with industry.

I finally found a small little company where the owner was more interested in people. The pay was low (probably 10% less than a undergrad with CS), but it gave me my start.

I should mention that I was a TA for a computer programming course, so it was not like I had not programming background. But I had no formal education in programming.

Oliver

NR:

Yves,

I just don’t see why American companies can repatriate income by selling carbonated soda in India whereas India and China are blamed for providing goods and services to the US. When economic colonialism works for the West, why is there so much umbrage with the reverse? I could argue that highly sophisticated marketing ploy of coca-cola company is unfair against a vast majority of farmers in India who sell coconut-juice for a living (not to mention the health aspects)

If your argument is primarily around labor mobility, would you be okay if services are provided remotely from India with no onshore presence? Also, Labor arbitrage is a genuine competitive phenomenon, much like a country that possesses Uranium or makes Levis.

When does free-trade become fair-trade?

oliverks:

Unfortunately I think it is too late to solve the problem. But in essence if you are going to allow the free mobility of capital, you have to allow the free mobility of people. Capital will still be at an advantage, but the US would still be the center of software development.

The salaries of programmers would be lower here, but the future would be brighter, and the tax base would be much better.

I think it is too late for this now.

lark:

Yves you are so right on the money on this. I speak from 20 years experience.

This whole discussion has revealed to me the sick stupidity of the media. They never learn, no matter how many times they get bombarded by feedback from engineers who know the facts on the ground.

They are captives of corporate spin and press releases. No wonder they were whistling Dixie when we walked over the cliff.

I am disappointed in the FT though. The best of the lot.

Cat:

A) Software engineering isn’t as easy as everyone thinks it is. A bad hire can cause your project to fail. This is probably the reason for a dearth of entry level positions. Lets not forget the IT revolution is still pretty young. After the big growth where almost anyone would do people now realize you have to pick and chose.

b) IT Projects are hugely expensive, prone to cost over runs and failures. This keeps downward pressure on wages and hiring managers wanting specific skill sets that will help them get the project done on time with no training involved. The fractured nature of the IT business with your multitudes of programming languages and development platforms makes this even worse. While a skilled programmer with 10 years doing windows development would succeed on your Web blah point blah project, the safer route will always be to hire someone who has the ‘experience’ even if they might not be as skilled or have as much time in the workforce.

C) Because of this the desire for specific experience the pay for engineers stalls mid career. You never got to those upper pay levels because the requirement for new projects are always changing to a new paradigm. Sure you are 5x more productive then someone with 2-3 years of work experience, but you don’t know Java or .net. You’ve never worked with the compiler or the Object framework so you aren’t qualified and if you do get the job you certainly aren’t worth your high salary.

D) Which leads to the biggest problem. Software Engineer’s jobs have shelf lives unless they are elite of their profession. You will almost be unemployable with 15 years of experience or more as you will be to specialized for mid-level jobs or to expensive for mid-level jobs.

Timo:

Unfortunately one of the reasons that software engineers supposedly have a shelf life is because:

a) Investment in training good engineers is considered a waste of money if your HR department is under the illusion you can hire someone cheaply who supposedly knows the technology already. Unfortunately a lot of the companies that write software in house for their own use are often not very clued up when it comes to proper IT recruiting.

b) Most larger companies can’t tell a good software engineer from a mediocre one in the first place, which makes (a) even more prevalent, plus they are rare

c) A lot of the IT community has so gotten used to having to change employers in order to advance their career in any way that they’ve often given up on any long term career planning. This is also mirrored by a lot of the larger companies not really offering any sort of longer-term career perspective for IT employees (hint: not every IT guy wants to be come a manager).

oliverks:

I have argued before that programmers have problems pricing themselves in terms of ability. There is an interesting externality in that bad programmers get too much money by mooching of good programmers.

I don’t think software is unique to this problem. I find that lawyers suffer the same problem, and it is interesting that no one has found a way to solve this issue.

In both cases you are really paying for the prevention of future problems. For example, if a bad lawyer writes a flawed contract, it can cost millions to fix. Likewise a bad coder, who appeared to complete his / her module on time, can cost $100Ks in short term problems and $1M’s later on in software maintenance.

So the problem in both cases is that the lawyers or programmers appear to have met the short term requirements, but can saddle you with very long term costs. That is the hard part to sell, and why the price differentiation is not easy.

Oliver

sth:

A genuine competitive phenomenon? It’s not possible to compete with countries that are Mercantilist/use near slave labor, or have standards of living that *should* disgust any human being (and so have much lower costs of living.)

Money flows freely, labor does not. When standards of living, worker protections, human rights, and immigration/emigration policies come to about parity between countries, maybe we can talk about “Globalization” or “Free Trade” (or opening up the H1B program). Until then, it’s a race to the bottom in a shiny McDonald’s-yellow veneer.

You can go to IIT, get sponsored, and live in California. Can you go to MIT, get sponsored, and live in Bangalore? This question was researched recently – someone contacted various organizations in countries like India (business orgs, government orgs, immigration agencies) and asked if they had programs like the H1B. They were laughed at hysterically.

Not to mention what was laid out in paragraph 2. Even if you COULD move to these places and get a job easily, do you really want to live in a race to the bottom world? Do you want to live in places with poor sewage systems, garbage on the streets, and terrible human rights policies? Places with health care systems more broken than in the US?

I’m ALL for it once we have all those protections/roughtly equal standard of living in place. The funny thing is, once that happens, NO COMPANY WILL EVEN BOTHER UNLESS THEY ARE DESPERATE FOR A PERSON WITH A PARTICULAR SKILLSET THAT THEY CAN’T FIND IN THEIR OWN COUNTRY. Why? Well, it’s not about skills in many/most cases – it’s about cheap labor. Once labor costs are a parity between countries, that “advantage” will disappear and these sorts of programs will get little more than a shrug.

NR:

SR,

Your premise that trade is going down the path of “race to the bottom” is not well supported statistically. Trade improves countries, their peoples and their competitiveness. (Singapore, Malaysia, Japan, etc.). You cannot point to a Nike sweat shop to point out why it does not work. Generally, it works.

In the 50’s, you could have accused the Japanese of being mercantile. As their living standards improved, they enforced laws that are now consistent with global governance rules. Even within the Indian companies, the IT companies enforce better standards than the rest of the country as they start to globalize.

It is not possible to be selective about globalization, nor can you enforce pre-conditions. If the US decided not to import products and services from India due to a lack of “level playing field”, American companies should not be selling cars and juices either. Each country will come up with their criteria for level-playing fields and trade can just say bye-bye.

sth:

Well, we could come up with some wild ideas about how to fix it. Here’s one:

Government enforced price and wage reduction down to India/China/Vietnam levels along with a massive wealth confiscation scheme to to keep all the percentages lined up (could likely be done by creating massive monetary inflation, or directly via fiat.) The same would be done with debt.

No one gets richer or poorer in real terms; it only affects trade.

Here’s another crazy idea: devalue our currency so
that we’re as cheap as workers in other countries.

Along with all this, institute a /real/ free, universal
higher education and jobs training program (which
would include paying for your food, rent, bills, etc.)
until you graduate.

I could come up with more, but this would be plenty
to get started.

Doug Terpstra:

 at 3:49 pm

NR, you say “It is not possible to be selective about globalization, nor can you enforce pre-conditions….Each country will come up with their criteria for level-playing fields and trade can just say bye-bye.”

Selective rules and enforcement is exactly what’s happening now under all SHAFTA agreements—by design—because the masters of the universe, the US architects of rigged trade (not fair trade), want it that way. Do you really think Chindia is required to meet fair trade rules? If so, please send for my latest book: “Easy money in Real Estate”

That reminds me of Sen John McCain’s insult to American workers in 2006 (when he was for amnesty before he was against it, who said we didn’t need a “dang fence” because Americans wouldn’t do the jobs of illegal immigrants). At a speech to labor, as clueless as M. Antoinette, he offered $50/hr to pick lettuce and was subsequently drowned by takers.

You’re right that FAIR trade is beneficial, but sth has it exactly right about the current rigged-trade regime:

“Can you go to MIT, get sponsored, and live in Bangalore? This question was researched recently – someone contacted various organizations in countries like India … and asked if they had programs like the H1B. They were laughed at hysterically.”

Jake:

In most major engineering schools (I work at one), thousands of Indian and Chinese are brought in at full tuition rates to goose up the Universities cash flow.

So where does a poor Indian kid get $80,000 for two years masters program? Simple: the University arranges loans through Citibank and JP Morgan (no money down).

Unlike lower tier schools employers line up to hire here and until recently I’ve never heard of a single student not finding work after graduation. It’s funny to see them in the shops with their shiny new Chase credit cards swiping away.

After graduation they may work in the USA for 1 year on their student visas, which later translates into an h1-b or some other visa. In fact some go back home then return on L-1 visas; which is considered nothing more than an intra-company transfer.

Most people don’t realize that a small number of meg-schools dominate almost the entire production of US engineers. After many years of working with these people, I strongly dispute the notion these foreigners are the ‘best and the brightest’. Many can barely write a coherent sentence in English.

So Banks win, the Universities win and the employers get cheap slave labor. Now why would any of the above parties allow this state of affairs to end?

As for the IT/Software crowd one of the biggest abusers of ignoring US applicants is Bloomberg in NYC. If you look through their published (see link below) visa files from flcdatacenter.com they employ a vast number of foreign software developers across the country.

http://www.TinyURL.com/249qahz

Poco Ritard:

Just another anecdote:

While working at a certain enormous software company in Seattle in the late 90s, my dev lead (that’s “boss” to us code monkeys) was frequently out of the office. It seems there were so many trips abroad to recruit cheaper talent (particularly eastern Europe at that time) that his level of management basically was required to periodically do a stint on the meat hunt.

I remember one meeting at which THE WORD FROM THE MAN HIMSELF was loudly proclaimed “Find Something To Outsource Today!” Accompanied by blows on the conference table.

Seriously.

chad:

man so many good comments on this article. I have a BSCSE from an OK school, live in Dallas, and have about 10 years professional experience writing software for the health care industry, specifically pharmacy.

I agree that a PhD doesn’t mean a whole lot in my field with respect to salary. Software engineering is so broad and a PhD so focused that it’s hard to match a PhD to a job even remotely similar. Furthermore, most of the PhD’s I know took the route because they wanted to learn not because of job prospects. Much of the CS crowd are just people in love with technology.

Also, good software engineering is just plain hard. There will always be a shortage of people that can do it right. I’ve never ever seen an outsourced software project come to fruition but I have seen them drag on for years and years in a perpetual state of development which is common in my field unfortunately.

Nancy:

Let me try to impress upon those who don’t get the dangers and common citizen’s objections to outsourcing Information Technology; mind you, IT data and information is not in the same category as outsourcing manufacturing of diapers and pens.

I assume you commonly receive spam emails requesting your SSN and bank details, written in poor English and orginating from overseas?

How would you like it if Nigeria became the next global hub of IT outsourcing for the Financial Industry, and industry which has been in the forefront of outsourcing IT with little heed as to the security consequences?

Your identity and asset information will be at the disposal of those who would otherwise pay to obtain it.

Such customer information is a national asset, it is not meant to be handled by those who have no vested interest in enforcing security of that information, and by those whose GDP per capita are orders of magnitude less than yours.

The American public is totally oblivious to the security breaches that are occurring with their information overseas – they’re kept well under the cover, not subject to US disclosure laws.

I really wonder if CEO and executives are aware of the risk they are exposing the trusting American public to, including themselves.

The true cost of outsourcing IT will be recognized… if only too late.

Raging Debate:

You are correct but what you are describing began happening in the 1990’s. Government programs Project Echelon and Carnivore were the data collection programs and this was orchestrated through the SAIC which is a private company and which also sells data. There is no more internet or data privacy in reality. I am not saying it is right, just stating the reality.

S Brennan:

I believe every word the CEO’s are saying about how critical the H1-B & L-1 programs are to America’s future and to their companies survival. Without them, their company would fail and that they are too big to fail…no matter what size they are.

Now that we have establish this as truth, it falls to congress & the white house to show the mindless minions of America that these companies are telling the truth, heretofore all these brilliant and critically needed H1-B’s / L-1’s are to be paid MORE than 1.5 times the wage of the top earners in the industry AND all over time is to be double time.

By their own statements, CEO’s would gladly do this to:

1] Establish once and for all these brilliant and critically acclaimed individuals are truly needed to prevent their company from going into complete collapse.

2] Shut those willfully slothful US citizens up once and for all. Let them work as maids & butlers.

So lets call the CEO’s bullshit, no limit on H1-B’s just pay them what you say they are worth.

Ron Hira:

Data is available to answer at least a few of these claims/questions.

…said Francisco d’Souza, Cognizant president and chief executive. “Although unemployment in the US today is high, IT unemployment is still very low.”

RH: This is a false claim. According to the US Bureau of Labor Statistics the unemployment rate for Computer Professionals has averaged 5.8% over the first two quarters of 2010. That’s more than twice the rate of 2.6% in 2008. And more imporantly the current 5.8% rate is higher than its peer group of All Professionals, which is 4.5% for 2010. Can anyone argue that there’s a widespread systemic shortage of professionals today?

“About 70 per cent of US PhD students are foreign born and are often hired in the US, making their way into Silicon Valley or government agencies such as Nasa, said Partha Iyengar, of Gartner, the consultancy.”

RH: I guess the reporter was unaware that PhDs account for a miniscule number of workers, even in computing. According to the National Science Foundation there were 1,656 Doctorates awarded in Computer and Information Sciences at US universities in 2007 – this includes both to US and foreign students.

The US IT labor market is about 3.4 million so those 1,656 cannot have any material effect on the overall supply of IT workers. Almost all IT workers, even the ones Cognizant hires, do not hold PhDs.

Ron Hira
Rochester Institute of Technology

Formerly known as Nameless:

5.8% is close to full employment. I’m not sure how to describe 2.6% unemployment in 2008 other that “shortage”. And note that it is directly at odds with Yves’ assertions that “most of the last decade was pretty grim” and “the commentors [at Slashdot] agree on the very small number of entry level positions in IT … from at least 2005 to 2009″.

alex:

‘5.8% is close to full employment.’

For the economy as a whole, yes. For a specific profession, no. Ron Hira pointed out that 5.8% is higher than the 4.5% for all professions. Is it your claim that there’s no unemployment problem in the professions these days? Admittedly it’s not as bad as for all non-professionals, but that doesn’t make it good. Also the software engineer who’s now flipping burgers is not counted as an unemployed professional anymore, so those numbers can be very deceptive.

‘I’m not sure how to describe 2.6% unemployment in 2008 other that “shortage”.’

Why is that a shortage? That’s not an unusually low rate for professions. Incomes weren’t rising faster than productivity, so there was no shortage in any meaningful (as opposed to propaganda) sense. At best it’s close to market clearing. Is it your contention that we should always have as much slack labor as possible? Is that how your bread gets buttered?

‘And note that it is directly at odds with Yves’ assertions that … the very small number of entry level positions in IT … from at least 2005 to 2009″.’

Which isn’t a contradiction at all. The CS grad who can’t get a first job and winds up flipping burgers or going to grad school for a remunerative profession doesn’t get counted as an unemployed CS professional.

alex:

Ron,

Thanks for the hard stats. I don’t know how many people here are familiar with you and your work on this issue, but I personally want to thank you. For anyone who’s not familiar with Ron’s work, just search on his name.

I’d also suggesting searching on “Norm[an] Matloff”. Professors Hira and Matloff have been two of the best spoken and most authoritative people speaking about this issue. Both heavily base their arguments on hard data.

Doug Terpstra:

Thank you, Yves. This is the classic lament, “you just can’t find good help anymore”, and it exposes another fine example of unenlightened self-interest inaction— Econners cutting off their noses, and eating their seed corn.

Beyond hand-wringing and blaming victims, TPTB and MSM make no attempt to address root causes, including the rising cost of college education and the generally pathetic public commitment to equal-opportunity education at all levels. The Neocon motto: “A mind is a terrible thing to waste [tax dollars on]”

yoganmahew:

So many comments… who says the internet is for nerds…

Anyway, 20 years as of three days ago in airline IT (assembler). Based on an undergraduate degree in modern history and a three month training class at my first employer. The problem is, in my book, that employers aren’t prepared to spend the money (quite modest amounts) inducting people into the specific jobs they want them to do. Mostly because the employer has no idea what it is that they want done. Headless chickens on a hot tin roof…

mezurak:

You think you have it bad? Try being a hardware tech. Never mind if you have been working on computers since the Commodore 64. If you don’t have a string of certifications behind your email sig along with a BS to back it up then you don’t get in the door. I was a Field Engineer on mainframes in the 70’s. The only qualification I needed was some related military training and a HS diploma. The company taught me the rest. The young guys today are lucky to get on a help desk with a BS. Five years of experience gets them not Google but a gaggle of low end system admin jobs and useless certifications to put on their resume. Training? Ha! Hit the ground running, trial by fire, OJT, don’t let the door hit you on the way out, there’s your training. I feel sorry for these guys because they are on the buggy whip path once cloud computing strips the need for private data centers.

Wade:

I have worked in IT for 15 years and am a senior level systems engineer. Almost none of the people I work with have Computer Science degrees. As a matter of fact the best people at their jobs have either an engineering degree or no degree at all.

Since I started in the industry, there has been a shift from looking for aptitude to looking for people with degrees and certifications. This shift hasn’t helped the quality of worker at all. Getting a degree means that you can show up for 4 years, learn information that will be useless in your field, and pass tests with no bearing on reality. It doesn’t mean that you can think independently and troubleshoot problems to a rational conclusion. This has resulted in the shortage of suitable IT people since we discard candidates based on degree first.

As far as outsourcing to India goes, it isn’t as good as it once was. Training hundreds of thousands on people with no apptitude to work in the computer industry just diluted the talent pool to the point that you can’t seperate the wheat from the chaf. Outsourcing was popular mostly because it was perceived as cheap, got lots of press, and most of all shifted responsiblity for failure to someone else. The reality was that the outsource companies didn’t deliever what was contracted and their turnover was so high that they could not support anything that they wrote. I am seeing more and more projects being run in house.

lark:

One more data point.

I started at HP in a high level systems software position in the mid 80’s and stayed 12 years (left before Carly).

At that time the company allowed you to attend simulcast Stanford graduate CS classes on site for free, audit or credit, to keep up with advanced topics in your field. You could watch the class videos over lunch. You could also be supported in local grad CS programs.

This from the same company that axed 75% of its R&D a couple of years ago. A lab mgr friend of mine took early retirement from HP Labs and left the field (saw it coming). This from the same company that throws money away on acquisitions because it axed its seed corn. This from the same company that axed profit sharing. On and on and on.

And of course, the huge facility where I worked (Cupertino) is now virtually empty, due to outsourcing, and the plan before Hurd (’Hurt’) got his golden parachute was to shut it down and move the survivors to Palo Alto.

One thing that really burns me is that the press and academia gets such a ‘rise’ out of free markets and global business and the like, that they are just incapable with seeing the facts on the ground. We shouldn’t have to lose the whole industry before some ‘expert’ notices!!!!!

It really shows the problem with captive media and ideologically captured economics. It happened with the housing bubble, the financial crisis – how much destruction can this country take??

lark:

Of course now they expect you to keep up with the field at your own cost and time – of which there is none to spare.

PQS:

We shouldn’t have to lose the whole industry before some ‘expert’ notices!!!!!

Amen. I’m in construction, and just last week saw an article on the local Pacific NW paper about the massive crisis in our industry.

Construction is always on the end of the butterfly in the Amazon, but the descent into 27% UI and so quickly is unprecendented. Yet I cannot think of a single news article about this issue. Maybe everyone thinks that only the hardhats are in construction. Most of the white collar people I know have been out of work for months or even into years. Architects, engineers (not the civil guys), PMs, Superintendents with decades of experience.

2Cents:

In India entry level guys are mass hired in a batch, and based on the time they have done, they all expect their H or L visa to be filed. This is the reason all H visas are exhausted till recently the day they open for filing. Indian companies do not want to pay the additional cost arising out of visa fee hikes, nor can they manage their staff and file for visas just in planned time, they have to file them enmass.

lark:

To see another example of media bias on this topic, see

http://www.nytimes.com/2009/04/12/business/12immig.html

This article weeps for corporations who can’t recruit freely because of H1B restrictions.

I wrote the writer of this article the following letter. Of course nothing changed in the coverage of this issue. The corporate bias is an outrage.

My letter to the NYTimes (not published by them of course):

Dear Editor,

Matt Richtel’s article, “Tech Recruiting Clashes with Immigration Rules”, left out a few essential facts and thus left readers with a view of the situation shaped more by industry propaganda than reality.
One cannot understand the H1 B visa unless one grasps how it is used in practice. Richtel’s article portrays a highly skilled immigrant who wants to be a contributing member of American society. For the most part, H1 B is not used for this type of immigrant.

H1 B is and American visa used overwhelmingly by Indian software companies. Their engineers go into American firms where they are trained by American engineers and then they go back to India, taking the job to India. In 2006 the three companies who took the most H1 B visa slots were Wipro and Infosys (both Indian companies) and Cognizant Technology Solutions, which has most of its operations in India.
These companies took 70% of the H1 B visas. Statistics for 2007 can be found at http://tinyurl.com/cwst2u. This information is easy to find. There have been well publicized Congressional hearings on precisely this topic.

Your article reads like a corporate press release. This is not a simple minded case of anti-immigrant sentiment. I am disappointed that the New York Times presented this careless and one-sided article.

If Google and Intel and the rest want to fast track highly qualified individuals through our immigration system, then there is a case to be made for that. But American corporations are not arguing or acting in good faith, and thus they have undermined both the trust of American citizens and the H1 B program. Your article perpetuates this dishonesty and I believe you owe your readers a correction.

Sincerely
lark, etc

yoganmahew:

Mind you, you chaps in the US have it easy in some respects. Your high-end technical salaries are very good and you have some status with your job. Pity us poor Irish who have to deal with this:
“I find it very hard to swallow the notion that a computer programmer is
carrying on a profession. In what way is he any different from a clerk in the
19th century sense? He is just a numerate and literate person carrying out
clerical work. Obviously, not all programmers fall into that category
(numerate and literate).”

– Frank Carr, Irish Taxation Review, September 2002

Yes, our tax clerks look down on us programming clerks…

chad:

It’s interesting how so many IT industry folks read this blog.

Steve:

After 21 year in consulting and seeing the outsourcing takeover of the last few years, I can say with certainty that the average Indian IT resource is pretty useless. We have to clean-up the messes of our offshore staff all the time with the onshore staff. They simply do not have the required aptitude, they were just run through some process to memorize enough to pass a test and become billable.

This is starting to become visible to the low and middle managers at the client side who are not happy with the quality of work, but the high level client managers are simply concerned about budgets and overrule their recommendations. The next few years should bring this to a head at many companies when failures are clearly identified from this approach, I doubt that the big banks etc. that have become too large to change will do anything, but the middle tier companies are going to see that they cannot afford to let a critical part of their business become unreliable, especially with the need to compete in the technical infrastructure required for their business.

I expect that this will stabilize things in the US and should help to revive the industry if we have not completely gutted the education and experience pipeline. However I would be hesitant to push a newbie into things just now, though to be honest, what job is safe today?

cougar_w:

Just a data point:

20 years in IT, mostly web application development. Like most workers in my age group I am self-taught (there were pitiful CSCi departments in the 80s and everything now in play came about in the last 5 years anyway). I still make around 85K in the Bay Area CA.

I’ve actually worked in outsourcing for a little while. What a joke. I’ve been outsourced twice. One to India, a second time to Hungary.

I won’t let my kids do this work. Not on a bet. Mechanical or civil engineering if they want, but that’s it. IT and software development became a dead-end.

Will the US suffer for having slain their home-grown IT expertise? Seems inevitable. But companies don’t really care; current management is just harvesting the gains from innovation of a previous generation of workers, who (like myself) are now entering retirement. When that harvest has played out it will fall to the Chinese and Indians to take the game forward as the US IT industry follows the example of other empires that became deluded by their past greatness, and falls into decline and irrelevance.

[Sep 01, 2010] Another Installment of 'Scenes from a V-Shaped Recovery'

September 01, 2010 | Financial Armageddon

In honor of today's single-positive-data-point-driven-triple-digit rally, I thought it would be a perfect time for another installment of "Scenes from a V-Shaped Recovery":

"Financial Depression Spreads Among Seniors" (Blacklisted News)

President Obama has U.S. taxpayers paying billions to meet the costly payrolls of 50,000 troops and 190,000 contractors in Iraq while 20-million-plus jobless are looking for work in USA and can't find it.

Among the hardest hit now are more than 2-million people age 55 and over, half of whom have been looking for work for six months or longer. For them, the Great Recession is a no-fooling, deepening Depression.

Many of these seniors have no families to care for them. Others are too proud to ask their families, churches, or relief agencies to help them in their time of need. Even so, many a proud, independent, well-dressed senior is a soup kitchen regular because it's either that or go hungry.

Many seniors have been loyal to a corporation for much or all of their working lives only to discover the corporation has no loyalty to them. Instead, their employer laid them off before the retirement age and hired a younger, cheaper worker to replace them or just shipped their job to an office or plant on foreign soil. Many seniors are right to feel betrayed.

“The unemployment rate for this age group actually reached 7.1 percent in May, the highest it's been since the late 1940s,” writes A. Barry Rand, chief executive officer of the AARP in his September “Bulletin.” That's more than double the 2005 rate of 3 percent.

"New Job Means Lower Wages for Many" (The New York Times)

After being out of work for more than a year, Donna Ings, 47, finally landed a job in February as a home health aide with a company in Lexington, Mass., earning about $10 an hour.

Chelsea Nelson, 21, started two weeks ago as a waitress at a truck stop in Mountainburg, Ark., making around $7 or $8 an hour, depending on tips, ending a lengthy job search that took her young family to California and back.

Both are ostensibly economic success stories, people who were able to find work in a difficult labor market. Ms. Ings’s employer, Home Instead Senior Care, a company with franchises across the country, has been expanding assertively. Ms. Nelson’s restaurant, Silver Bridge Truck Stop, recently reopened and hired about 20 people last month in an area thirsty for jobs.

Both women, however, took large pay cuts from their old jobs — Ms. Ings worked for a wholesale tuxedo distributor, Ms. Nelson was a secretary. And both remain worried about how they will make ends meet in the long run.

With the country focused on job growth and with unemployment continuing to hover above 9 percent, comparatively little attention has been paid to the quality of the jobs being created and what that might say about the opportunities available to workers when the recession finally settles. There are reasons for concern, however, even in the early stages of a tentative recovery that now appears to be barely wheezing along.

For years, long before the recession began, job growth had become increasingly polarized in this country. High-paid occupations that require significant amounts of education and training grew rapidly alongside low-wage, service-type jobs that do not, according to David Autor, a labor economist at the Massachusetts Institute of Technology.

The growth of these low-wage jobs began in the 1980s, accelerated in the 1990s and began to really take off in the 2000s. Losing out in the shuffle, Dr. Autor said, were jobs that he described as “middle-skill, middle-wage” — entry-level white-collar positions, like office and administrative support work, and certain blue-collar jobs, like assembly line workers and machine operators.

The recession appears to have magnified that trend, Dr. Autor wrote in a recent paper, released jointly by the Center for American Progress, a left-leaning policy group, and the Hamilton Project, which has a more centrist reputation. From 2007 to 2009, the paper said, there was relatively little net change in total employment for both high-skill and low-skill occupations, while employment plummeted in so-called middle-skill occupations.

"The Fastest-Growing Group Among Local Homeless: Families" (Seattle Times)

On this chilly May evening in the parking lot of Southcenter mall, Cherie Moore is growing anxious. She and her 17-year-old son, Cody Barnes, sit almost unmoving in the cab of their old Ford Ranger, all their belongings crammed in the back -- their 32-inch flat-screen television, a prized movie collection, Cody's video games.

Moore is down to her last $6. It's nearing 10 o'clock and it's been hours since the two have had a meal.

Mall security has been circling. Moore knows they can't spend the night parked here, but the 49-year-old single mother, born and raised in South King County, has no clue where to go.

"I'm mentally exhausted," she says.

While overall homelessness in King County has steadied, it appears to be rising among families, a trend playing out across the nation.

Parents with children are the fastest-growing yet least-visible segment of the homeless population, far more likely to be doubled up in the homes of friends or living in their cars than to be at a busy intersection asking for help.

"Our Blue-Collar Great Depression" (Wall Street Journal)

Today's job losses are concentrated among workers under 30 who are less well-educated, with those in blue-collar industries suffering the most. Employment in construction, maintenance and repair, machine-operation and transportation (think truck and bus drivers) has shrunk 18% since the recession's start.

To put this number into context, consider this: During the Great Depression of 1929-33, total employment is estimated to have fallen by slightly more than the same figure, 18%. In short, the current Great Recession for younger blue-collar workers feels more like a depression—with no end in sight.

"‘An Equal-Opportunity Recession’" (The Jewish Week)

San Francisco — Robert M., 58, worked for a news organization in the San Francisco Bay area until September 2008, when he lost his job in layoffs that eliminated 15 percent of the company’s workforce nationwide.

Robert had eight months of savings. They ran out in six months.

After 14 months of unemployment, in December 2009 Robert turned to San Francisco’s Jewish Family and Children’s Services for help with rent, utilities and, hardest of all, food.

“It was gut wrenching,” said Robert, who asked that his last name not be used. “I’d contributed a lot to charities over the years, including JFCS. My wife and I gave to the food bank regularly. Now we were on the other side.”

It sounds apocryphal: Former donors to a Jewish charity reduced to seeking help from that very same organization. But as more and more Jews are caught up in the recession, now two years running, food banks across the United States are reporting the same phenomenon. Middle-class Jews, professional Jews, young people with families — they’re out of work, their savings are gone, and they are showing up for help at Jewish social service agencies.

With unemployment extensions about to run out for many, the problem is expected to worsen.

“In addition to the poor and the working poor, which we’ve always served, there’s been a substantial increase the past 18 months among the middle and upper-middle class who are not in a position to make it, yet are not poor enough to get benefits” from government, said William Rapfogel, CEO and executive director of the Metropolitan Council on Jewish Poverty in New York.

"POLL: Unemployment Affects Three Out Of Four Americans" (Huffington Post)

Nearly three out of four Americans have been directly affected by the recession, either because they have been unemployed or know someone who has lost their job, according to a new survey.

The report, prepared by Rutgers professors Carl Van Horn and Cliff Zukin, find that 73% of Americans have either been unemployed themselves (14%) or saw an immediate family member (12%), another member of their family (30%) or a close friend (17%) lose a job.

The survey also finds profound pessimism about where the economy is headed. More than half of Americans say they believe the downturn reflects a "lasting economic change" (56%) rather than a "temporary economic downturn" (43%). Large majorities believe that the economy will remain in recession or worse a year from now.

"After suffering through the worst economic disaster most have ever experienced," Van Horn said in a statement, "American workers have diminished expectations about America's economic future and do not have much faith that the nation's political leaders can move the country forward."

"Small Business Owners Fear Double Dip" (Boston Business Journal)

Most small business owners - 86 percent - fear that the economy is heading into a double dip recession, according to a recent small business survey by Citibank.

The survey revealed that three fourths of respondents felt they were at least somewhat prepared for this prospect. Over 60 percent of business owners say they have changed the way they run their business for good, regardless of what the economy throws at them next. Among the adjustments, business owners said they reduced debt, increased cash reserves, froze hiring and and delayed plans for expansion.

“Small businesses continue to feel the effects of today’s uncertain business environment,” Raj Seshadri, head of Small Business Banking at Citibank, said in a statement.

Given that virtually every bit of bad news these days is somehow seen as a sign that the worst is behind us, I reckon this list of horror stories is really going to get those stock jockeys' bullish juices flowing -- right?

Posted by Michael Panzner on September 01, 2010 at 08:23 PM in Economics | Permalink | Comments (0) | TrackBack (0)

[Sep 01, 2010] 'The Consumer is Totally Wrecked'

August 31, 2010

Yes, I'm sure it reflects confirmation bias on my part, but it's hard to ignore Howard Davidowitz's thoughts on the state of the economy given that he has in recent years been correctly pessimistic on prospects for a sustainable recovery.

Here is a brief snippet from a recent Bloomberg Television interview (posted below) with the long-time retail analyst, entitled "Davidowitz Says `Worst to Come' for U.S. Retail Sales: Video":

The consumer is totally wrecked and that's why there's no way this economy's coming back, because the consumer is 70 percent of the U.S. economy....

The consumer is out of money....They have no jobs. We've got 18-and-a-half percent unemployment and underemployment. The consumer's debt is 120 percent of disposable income...The consumer is wrecked

August

[Aug 29, 2010]  The Manufacturing Fallacy

Economist's View

Arne:

As an ex-manufacturing engineer my opinion is biased by personal experience (with only a couple of companies).

During the 90's we grew our production capability to meet demand. Since new production lines take 9 months, we are hugely dependent on accurate forecasts. In 2000 we found out that our forecasts were way, way off. We are an international company, so much of our expansion in the 90's was international. Nothing sinister - international sales lead to international production. When the correction for the over-capacity came, offshore production was cheaper, so onshore manufacturing took the largest hit.

The problem in my industry was that an unsustainable bubble growth rate pumped manufacturing (and manufacturing technology) offshore.

cm:

One can only guess at the industry. But I suspect while "the bubble" has assisted in driving the offshoring, the primary driver was simply that it was possible, or more feasible than before.

Much of offshore production/service delivery in many industries is not for regional sales, but for export to the West. Much offshoring activity over the past decade or so was explicitly for cost cutting, with perhaps a thin veneer of claims to chase the international talent (and to match the narrative, claims of decline in educational attainment and workforce competitiveness in offshoring nations).

The lack of domestic workforce skills was conveniently discovered when offshoring and tapping of foreign labor was becoming feasible at scale. Back in 2000 I still read and heard the phrases "valued employee", "employees as assets", etc., not so much afterwards.

Arne:

In the 90s we had to travel to teach the company's offshore workers how to manufacture our prduct. By 2000 they had the talent to keep it going, so we kept sitting new lines (which replaced old ones) offshore.

If we had not trained more than enough workers (or if demand had continued per the forecast) we would have been replacing the US lines as well.

Computers, network gear, phone systems, cubicle walls. Everything you need to equip a high-tech office saw a surge in demand in the 90s

cm:

I suppose by "replacing" you mean "upgrading"?

As for "high tech office", are there any other types of office these days (even back then)? Even the most mundane offices have the features you cite.

Arne:

Yes and no.

New product models require often require brand new manufacturing lines.

By the way. The manufacturing lines were built in the US and shipped to Asia.

Lawrence:

I thought manufacturing, by the 1970's in the United States, lagged behind that of Japan and Europe was because it taken longer for technological advances to work its way into the American manufacturing system. It certainly was never a logistical problem on part of the United States. It was more of a matter of investment going into other countries' manufacturing sectors, and not into that of the United States. The trend, I believe, actually began in the 1950's, and the outsourcing of American manufacturing jobs began in the 1970's when the investment abroad began to bear fruit.

The growth potential in war torn Europe and Japan was much greater in the 1950's than it was in the United States. So it would follow that investment in manufacturing would find its way to Europe and Japan. Even with its cheap cost of capital, investment in the US manufacturing base would lag until outsourcing would help bring down the high cost of labor.

Goldilocksisableachblonde :

True , and it's not like we had no opportunity to avail ourselves of Deming's writings early on. We ignored it until it was obvious that Japan was making better stuff more efficiently , then suddenly everyone here was reading Deming - 20 years too late.

With 800-odd U.S. military bases now scattered around the world , I think I've about had my fill of imperial consequences.

Lawrence:

I studied quite a bit about Deming while I was at UO. His ideas of statistics were never accepted here in the US in the late 1940's.

One must remember there was the Cold War going on, and the Soviets were supposed to be big and bad. The idea was if we could keep out pacing their level capacity, then we could keep them from retooling their factories with the higher technological advances. By men like Deming working in Japan, the Soviets were forced to keep antiquated factories going to the point where nothing worked in them any longer.

Problem was the MNC's thought it wise to outsource US manufacturing, instead of retooling factories here in the US. Kind of sad to see a strategy that worked so well be used against the winners.

Michael Turner:

Predating Deming, you have Homer Sarasohn -- brought in from MIT by that ubertraitor, Gen Douglas Macarthur, as part of a plan to help Japan re-industrialize (and re-arm.)

It's easier to be experimental and revolutionary about manufacturing production when you have less to lose -- and less to start with. Cheap credit, a flexible labor force with much lower wages (young men willing to live in worker dorms into their late 20s!), a willingness to get quality out of the long haul, rather by the end of next quarter -- how do you fight that?

cm:

Similar problems related to "second mover advantage" could be observed in other domains - Europe got superior norms in commercial TV (US had inferior then-feasible technology first), Europe/Asia (metros?) allegedly have superior cable/internet service (US as the first mover being locked into earlier-generation standards and installed base).

At a smaller scale, during the 90's with desktop computers and the 2000's with laptops, whenever you bought a new machine, the next guy who waited for 6 more months could get something more powerful for the same or often lower price while you had to amortize your earlier purchase for a while.

[Aug 27, 2010] Fed Watch: Driving Me Crazy

It looks more like  "his [Bernanke] concern about unemployment is disingenuous."

Tim Duy is puzzled by Ben Bernanke's reasons for keeping the Fed on hold:

Driving Me Crazy, by Tim Duy: No time for a long post this afternoon, just a short comment.

Today's speech by Federal Reserve Chairman Ben Bernanke contains one of those little inconsistencies that drives me nuts.  In his assessment of economy:

The prospect of high unemployment for a long period of time remains a central concern of policy. Not only does high unemployment, particularly long-term unemployment, impose heavy costs on the unemployed and their families and on society, but it also poses risks to the sustainability of the recovery itself through its effects on households' incomes and confidence.

I was already beginning to view this as a throw away line, something that Bernanke feels he has to say but doesn't really intend to worry much about.  That sense was reinforced later in his speech:

Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery. Consistent with our mandate, the Federal Reserve is committed to promoting growth in employment and reducing resource slack more generally. Because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current envikquote>ent there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability.

If in the current environment - note that traditionally "current" means "right now" - there is already disinflation and little or no conflict between the dual mandates, then why, why, WHY do we need to wait until conditions deteriorate and risk additional disinflation before monetary policymakers turn to the problem of high unemployment that Bernanke claims distresses him?

If there is no conflict, then there is room to maneuver. Not later, now. So either Bernanke actually believes there is a conflict, or his concern about unemployment is disingenuous.  I still don't know which. 

Selected Comments

Min:

Tim Duy: "So either Bernanke actua, or his concern about unemployment is disingenuous. I still don't know which."

Here is a clue. During his recent confirmation hearing, Bernanke was asked about the Fed mandate. He neglected to mention employment.

lark:

Our whole political establishment, including the Federal Reserve, is the product of a previous era, that of the 'Great American Job Machine'. All their habits, and habitual calculations, assume that Machine is humming and producing American jobs.

In fact, they have taken it for granted to such an extent that the policies they've pushed for corporate profit have destroyed it. That is, free trade, globalization, outsourcing, union busting, enabling Chinese mercantilism, and more, have yanked the job machine overseas. Jobs happen - elsewhere.

American jobs are so over.

(That is why Geithner and Summers were such a mistake. This reality is beyond their imagining and their policies.)

The end of the Great American Jobs Machine will cause a tsunami. It has yet to hit Washington, the Federal Reserve, Congress, and the rest. When it does, there will be wreckage, breakdown, and insanity.

[Aug 26, 2010] "Find the Unemployed and Hire Them"

It's my understanding that the editors at Bloomberg will not let their columnists say certain things, and that's one of the reasons I stopped, for the most part, sending any traffic in their direction. If the columnist persists and tries to say it anyway, the column is spiked.

I don't know the extent to which Kevin Hassett is constrained by these puppet strings, but it's interesting to hear the change in tone when he is not writing for Bloomberg.

Conservative Economist: 'Find the Unemployed and Hire Them', by Derek Thompson: Let's put this gently: economist Kevin Hassett is no Keynesian.

Hassett, the director of economic-policy studies at the American Enterprise Institute and an economic adviser to Sen. John McCain, recent attacked President Obama's economic plan as "voodoo economics"...
But when I got him on the phone to talk about the unemployment crisis, he struck a different tone. ... The problem, he said, was that Obama's stimulus was not direct enough.
With the Recovery Act, the White House eschewed direct hiring and aimed instead to raise overall economic output in the hope that more activity would lead to more demand...
"My idea is simpler. Find the unemployed and hire them."
If the government had spent the stimulus hiring people directly, we could have supported 23 million jobs, Hassett claimed. Hiring millions of unemployed workers directly into government organizations that already exist -- such as the military and the Army Corps of Engineers -- would be a much more efficient use of government funds.
Hassett defended direct government hiring, which the federal government used en masse during the Great Depression...
"Employers don't want to take a chance on some guy without a job for two years," he said. "The cycle is so long and deep that the cyclical becomes the structural." The easiest way for the government to end somebody's jobless spell is, very simply, to end it by straight-up hiring the worker.
"Since the economy has created this class of long-term jobless, the arguments for government hiring becomes stronger," he said. "If you give the person a job for a while, it helps them get a job later. You remove the stigma."

[Aug 24, 2010] Wealth And Inequality In America

The rich are getting richer and the poor are getting poorer. Cliché, sure, but it's also more true than at any time since the Gilded Age.

While politicians gloat about our "recovery," our poor are getting poorer, our average wages are still falling behind inflation, and social mobility is at an all-time low.

But, yes, if you're in that top 1%, life in America is grand.

[Aug 23, 2010] Bond Madness - Paul Krugman Blog

August 21, 2010 | NYTimes.com

Rob Buffalo:

 Low rates in fact ARE contributing to deflation.... Of wages. Companies are not expanding in this environment, but they sure are incentivized to automate and replace workers.

You like to make it seem so easy. Just manipulate these couple economic levers and presto, all is right with the world. But what is being done and what you advocate also have unintended consequences. To the extent labor and capital are competitors, cheap capital is undercutting labor.

All this government activism is just prolonging the pain, and in the long run, making things worse.

Dr. Tim

There is a way to reduce the deficit and promote employment: dramatically raise the tax on corporate profits and high income individuals. If businesses knew that the federal government would take most of their profits, they would spend their cash on new hirings and capital improvements, not stock buybacks or executive compensation.

Roman Berry

The story shifts, but the moral is always the same. Kinda sounds like the run-up to the Iraq war by another group of "very serious people." Or more appropriate perhaps, leave the war out of it and it could be the "very serious people" who pushed for the Bush tax cuts because...well...pick a reason. The moral remains the same even if the story behind it has to shift over and over.

Ya know, one might think about all of this and conclude that the "very serious people" behind all of these things actually have an agenda and that they will tell any story (even if the story they are now telling is the exact opposite of the story they were telling just a short while ago) in order to push that agenda. But that sounds almost conspiratorial, which obviously means I am not a serious person. Silly me.

[Aug 22, 2010] Can we solve two problems at once - unemployment and preparing for power down

The Oil Drum

From 1933 to 1942 the Civilian Conservation Corp (CCC) provided jobs for younger workers conserving natural resources (e.g. our national parks) in the US. The program was part of a general jobs creation program proposed by President Franklin D. Roosevelt during the Great Depression to provide a stimulus to the economy and, so to speak, kill two birds with one stone. There was a great deal of resource management work that needed to be done, things like building access roads in national parks, and there were millions of unemployed young men who, without meaningful work, would have likely run amuck. It was, in fact, a brilliant idea. Coupling work that needed doing with labor that needed work. The same thing applies today. The problem is that the powers that be don't grasp the nature of the work that needs to be done.

...Over the next twenty years the US and the world will need to transition from an industrial agriculture model to one based on permaculture and more organic, labor intensive approaches to growing food. Oil is going to decline, meaning that diesel fuels to run tractors and combines will become increasingly costly. And natural gas, meaning fertilizers, will also go into decline. The era of agribusiness is coming to a close sooner than anybody might have imagined. And we are not prepared for what follows.

Agribusiness has relied so heavily on the elements of the so-called Green Revolution, fertilizers, irrigation, and pesticides along with massive and complex delivery vehicles, all made from or run on fossil fuels. At the same time, the very use of these elements has depleted the natural capacities of regional soils. In some cases it has killed off soil microbes that are essential for natural ecosystems to survive and thrive. And that is the way we will need to understand our food production, as a natural, though assisted, ecosystem (the whole point of permaculture). Now that the soils have been so badly damaged it will take years of careful management to rebuild the natural capacities of these soils. And it won't be done with tractors so much as with compost, shovels, and horse-drawn wagons and plows.

[Aug 20, 2010] "Worker Fatalities Fall 17% on Decline in Construction Deaths"

What about rise in suicides as more and more people are hoping for a quick fix to their financial problems at the casinos or online gambling sites.

Construction has “fallen off a cliff,” said Ed Priz, president of Riverside, Illinois-based Advanced Insurance Management LLC, a consulting firm, in an interview on Aug. 11. “It reflects a shift in the kind of work Americans are doing. There are a lot less hazardous jobs.”

[Aug 20, 2010] Another Threat to Economy: Boomers Cutting Back

Low yields present retirees with a difficult choice: Accept the lower income offered by safer bonds, or take the risk of staying in the stock market. Either way, their predicament could put a long-term damper on the consumer spending that typically drives U.S. growth.

"If these rates stay as low as they are, then a lot more people are going to be hurting," says Jack Van Derhei, research director at the Employee Benefit Research Institute. The non-partisan outfit estimates that if current conditions persist, nearly three in five baby boomers will be at risk of running short of money in retirement. "There are going to be many luxury items that will simply have to be eliminated," for retirees to make ends meet.

Despite the market's rebound from the lows of 2009, nest eggs remain severely impaired. As of the first quarter of 2010, net household assets—homes, 401(k) plans, pension assets and other investments minus debts—stood at $54.6 trillion, down 18% from the end of 2007. That's an average of about $171,000 per person, much of which is concentrated in the hands of the wealthiest.

At the same time, the return people can hope to earn on their assets has fallen, particularly for those who switch into bonds or annuities to guarantee a fixed income. The average yield on U.S. government, corporate and mortgage bonds stands at about 2.4%, while stock-market valuations suggest a long-term return of about 6%. At those levels of return, some 59% of people aged 56 to 62 will be at risk of not having enough money to cover basic living and health-care costs in retirement, estimates Mr. Van Derhei. If market returns are higher—8.9% for stocks and 6.3% for bonds—the picture isn't a lot better: The percentage at risk falls to about 47%.

Before the recession hit, many economists assumed people would solve their retirement problems simply by staying in the work force longer. Now, "the recession has blown that idea out of the water," says Alicia Munnell, director of the Center for Retirement Research at Boston College and co-author of a 2008 book that advocated working longer.

Older workers, who typically fared better than their younger counterparts in recessions, have been hit just as hard by layoffs this time around. As a result, the fraction of people 65 or older who are working has leveled off after a long period of growth. As of July, it stood at 15.9%, down from 16.3% in mid-2008.

With the overall unemployment rate hovering at 9.5%, many older workers have now found themselves at the back of the line to return to the work force. "Many employers seem to think it is not worth their time or effort to train me in a position," says Kathleen McCabe, 59, a former apartment manager in Tulsa, Okla., who has been out of work since April 2009. "They assume I will leave for retirement soon."

The diminishing work prospects will require many older folks to make do with less—a discouraging outlook for firms hoping to sell them everything from restaurant meals to cars.

As of 2008, the latest data available, people aged 65 to 74 were spending 12.3% less than they did ten years earlier, in inflation-adjusted terms. They cut spending on cars and trucks by 46%, household furnishings by 35% and dining out by 27%. At the same time, they spent 75% more on health care and 131% more on health insurance.

The impact isn't limited to people on the verge of retiring. Younger people, too, will have to reduce consumption now to save enough money to get by in retirement. That's one reason Richard Berner, chief U.S. economist at Morgan Stanley in New York, estimates that even after the economy recovers, consumer spending will grow at an annual, inflation-adjusted rate of about 2% to 2.5% in the long term, compared to an average of 3.6% in the ten years leading up to the last recession.

Policy makers have more immediate concerns, such as how to create jobs for the nearly 15 million unemployed. The predicament of retirees, though, demonstrates how policy decisions—for example, on whether to stimulate the economy through interest rates or government spending—can have repercussions for many years to come.

Dan Smedra

Also keeping in mind that for each individual who retires or leaves the workforce, "cutting back" also means they no longer are paying as much in income taxes or 'payroll' taxes. The six-decade old Ponzi dream is about to end.

Tom Licata

“The multitudes remained plunged in ignorance of the simplest economic facts, and their leaders, seeking their votes, did not dare to undeceive them.”

- Winston Churchill

Jack Wang

This article strikes at the core of the current economic malaise: asset deflation, and the inability of the Feds to re-inflate asset bubble means boomers will see their retirement account shrink further. As for why the Feds can't re-inflate the asset bubble despite its best effort, well, one must ask: why don't the banks lend the cash the media tell us they're holding? I think despite all the stress test, profit and recapitalization, there are still enormous amount of toxic asset on the books of major banks, which give them no choice but to hoard cash in case asset price continues to deflate, thus blowing another hole on their balance sheet. The government, the Feds haven't succeeded in separating all the toxic asset from major banks, exactly what the Japanese government was accused of failing to do, thus forcing the zombie banks to suck more and more resources away from the market to cover present and potential losses they might incur if the economy continues to deterioriate, which, in turn, further depresses the economy, a vicious cycle indeed.

[Aug 15, 2010] The trouble with forecasts

FT.com

American unemployment is worse than forecast under the “No Stimulus” scenario. This from Dallas Fed research (h/t zero hedge).

This rather sobering chart shows unemployment more than two percentage points above plan. The forecasts, which come from the Bureau of Labour Statistics in January 2009, predicted an almost immediate turning point in labour market fortunes. In fact, unemployment continued exactly on trend.

Arguably, the situation would have been worse had there been no intervention - and perhaps the blue line shows nothing more than a time lag. But then, forecasters should be able to anticipate that.

[Aug 15, 2010] Why do I expect the unemployment rate to increase?

Aug 14, 2010 | CalculatedRisk

This morning, in the "Negative News Flow" post, I noted that the unemployment rate will probably start ticking up again soon.

Here are a few reasons why I think the unemployment rate will increase (some overlap):

1) The main reason is the general slowing economy. There is a general relationship between GDP and the unemployment rate (see Okun's Law), and since I expect a 2nd half slowdown (from a sluggish 1st half), I also expect few payroll jobs to be added in the 2nd half - and that suggests the unemployment rate will rise.

2) With the end of the housing tax credit, I expect residential construction employment to decline further over the next few months.

3) The 4-week average for initial weekly unemployment claims has increased recently. This is the highest level since February. ...

4) Few teens joined the labor force this summer. Perversely this low level of teen participation appeared to push down the seasonally adjusted unemployment rate. If this did impact the unemployment rate (it isn't clear), the impact will be unwound over the next couple of months.

5) The Labor Force Participation Rate decreased from 65.0% in May to 64.6% in July. This was a key reason the unemployment rate decline to 9.5% in June from 9.7% in May.

Juvenal Delinquent:

None of these folks figured they'd loot retail stores a day before the riots, but what a difference a day makes~

YouTube - LA Riots 1992 - Immigrant Looters Plunder Shops

ShadowInventory

lawyerliz wrote:

GDP unhinged from pay, maybe it will get unhinged from unemployment too

Definitely with automation... Unemployment and production increase together... The only hope really is for more tech and more automation, and getting to a more automated form of govt... Computerize the congress and the courts ... That should bring out some comments...

Paradigm Lost

"Add structural economic reasons too - a lot of operations just plain need fewer bodies per level of output than times past - even recent past. Especially offices and services."

But, but Dryfly...I'll have to work til I'm 69.9 to get SS.

ShadowInventory:

Rajesh wrote:

unemployment rate is this high.

According to shadowstats.com the unemployment rate is about 23% while the rate of inflation is 8%... If that is close to correct it looks like big trouble to me... Everyone that we know, including us, has impact from these events... Only difference with us is we still have not had to change our lifestyle, but we were always frugal and still save... not as much as before though, and all the people we know who are still working are trying to come up with a plan B or something to fall back on...

Problem is, I cant think of any business that I would go into today - even something with govt contracts will probably get cut...

dryfly:

Definitely with automation... Unemployment and production increase together... The only hope really is for more tech and more automation, and getting to a more automated form of govt... Computerize the congress and the courts ... That should bring out some comments...

--------------------------------------------------------------------------------

Higher & more progressive marginal tax rates & much more generous welfare and it might work w/out ripping society apart. (See your call for comments and raise you).

Bob Dobbs:

Basel Too wrote:

the only thing americans riot over is race, and the occasional sports championship.

The bloody industrial strikes during the Depression were riots by another name. People do forget -- or never knew -- that the gov't called out the National Guard, with tanks, to put down a general strike in San Francisco in '34 (I believe).

One of my high school teachers was there, as a child. His account was vivid. And you're leaving out the rest of the '60s -- Vietnam, Berkeley riots, etc.

TagsByzantine_Ruins:

LOL. What if you're born in America?

In 'merica the gig is to become indentured to the Education Industrial Complex with the promise of a living wage J-O-B. The truth is :

Student-Loan Debt Surpasses Credit Cards, Americans owe some $826.5 billion in revolving credit, according to June 2010 figures from the Federal Reserve. (Most of revolving credit is credit-card debt.) Student loans outstanding today — both federal and private — total some $829.785 billion, according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com.

“The growth in education debt outstanding is like cooking a lobster,” Mr. Kantrowitz says. “The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.”

By his math, there is $605.6 billion in federal student loans outstanding and $167.8 billion in private student loans outstanding. He estimates that $300 billion in federal student loan debts have been incurred in the last four years.

Birthrates among indentured educated populace are going down

Anonymous Bosch:

Rajesh wrote:

What we need is to create a system to finance the restructuring of our workforce.

This was already done in one of the Scandinavian countries 35 or 40 years ago. At 45 you were subsidized for 5 years to learn a new career of your choice.

JimPortlandOR:

Juvenal Delinquent wrote:

...and imagine if they had the internet to let everybody know where to gather in the 30's or 60's for riots?

short of a full-on revolution, the value of riots to change policy is very marginal. they just call out the swat teams and nat. guard, and the rioters are marginalized as radicals or terrorists.

riots are really not needed, since fear of not being re-elected drives the local/state/fed legislatures and execs. but that requires truly large majorities who are aroused. the TPTB have learned how to split the electorate on side issues (social/religious/racial things) and the public is happy with SOMA in the form of teevee, sports, and conspicuous consumption.

short answer: we're f**ked. the oligarchies have always ruled, and they will rule in the future.

Blackhalo:

Juvenal Delinquent wrote:

imagine if they had the internet to let everybody know where to gather in the 30's or 60's for riots?

The Feds would have been waiting for them there, thanks to Carnivore?

Bob Dobbs:

Juvenal Delinquent wrote:

...unexpected happens

The local baby anarchists went wild a couple of months back -- they coopted somebody else's informal street party and smashed a bunch of plate glass windows downtown late on a Saturday night. After decoying the five patrol cops on duty to the other side of town with a false robbery call.

And even after the five cops got downtown, they didn't go in until they had backup from the county sheriff -- too many people on the street, and they didn't know how many were hostiles (almost none).

Gaming is quite doable.

Blackhalo:

Comrade Canadien avec popcorn wrote:

At what level of unemployment will the riots start?

Depends on when extensions, end. Kick 5-7% off the back end, and things get riotous in a hurry.

Byzantine_Ruins:

JimPortlandOR wrote:

the modern state has all the tools to control things as long as it isn't 70-90 % of the population against them in the streets.

Disagree. 30% genuine failure of consent and the state crumbles, and that's tops.

What if 30% of the population shows up and says "arrest me". In JIT society? It's over dude. That morning.

HomeGnome:

bearly wrote:

Dire confulence of economic reporting leading into the election for the Dems.

Maybe the Red half of the asshole will shit on us next.

rps

skk wrote:

take the money off all the ones in the parasitical, ( non-venture capitalist/angel investor) finance industry

Not gonna see that happen since the Fed and Treasury went renegade and bailed them out. Paulson and the AIG funneling of US taxpayer dole to hedge funds via foreign banks "bailout" is a strong indicator that the Treasury and Fed's maestros are globalists. Ben, Timmay and crew have zero allegiance to the usa taxpayers. They heap the debt onto our backs.

Change does not roll in on the wheels of inevitability, but comes through continuous struggle. And so we must straighten our backs and work for our freedom. A man can’t ride you unless your back is bent."
Martin Luther King, Jr.

Byzantine_Ruins:

JimPortlandOR wrote:

but I disagree that US folks ready for something more than sign waving can be gotten to that percentage.

I think you are defeated before you start. You are preoccupied with your defeat.

I think a hungry mob is an angry mob. Absolutely massive bribes are being paid to keep the lid on the pot. Much of that money is the bribe of outsized salary + outsized pension that keeps cops and other servants of the state the last vestiges of the American middle class.

When resources get short, not only will the looters leave the mob hungry, they'll cut the salaries of their toadies as well. That's because looting is not an occupation of people with a sense of stewardship.

You aren't going to get anything today. The question is what you will get when the rubber hits the road. That's a different matter. Iran is a rentier state. America is NOT a rentier state.

Bob Dobbs:

JimPortlandOR wrote:

Protests got Johnson out in 1968, but Kent State was in 1970 and US withdrawal from Vietname was in Nov. 1972. Kissinger rebuffs them, saying, "I want to end this war before the election." Last Americans evacuated in April 1975. More than 10 years of protests.

And if those ten years hadn't happened, what? Tell me that we would have pulled out when we did if the American public had remained placidly acquiescent. The MIC would have been happy to continue. As the protests went on, opposition to the war became more and more mainstream. There were doctors and lawyers opposing the war not just at the dinner table but out in the open in front of TV cameras.

Why didn't we get this in Iraq? I think Byz nailed it; one of the core issues was the draft. Make military service voluntary, and middle-class America settled back into its Laz-E-Boy. Wars of choice could continue as long as military service was voluntary.

Largely the purview of the romantically patriotic, the adrenaline-charged, and the working-class or lower young males who took a chance to get upward mobility through the service.

rps:

Citizen AllenM wrote:

I would prefer to keep the damage from this depression contained to Wall street and the rich

Well that horse left the barn awhile ago. We are fighting the same battles as did Paine, Jefferson, Adams, Henry, etc....and that battle is against the monied interests and their lackeys.

“Men who look upon themselves born to reign, and others to obey, soon grow insolent; selected from the rest of mankind their minds are early poisoned by importance; and the world they act in differs so materially from the world at large, that they have but little opportunity of knowing its true interests, and when they succeed to the government are frequently the most ignorant and unfit of any throughout the dominions.”

“Interested men, who are not to be trusted; weak men who cannot see; prejudiced men who will not see; and a certain set of moderate men, who think better of the European world than it deserves; and this last class by an ill-judged deliberation, will be the cause of more calamities to this continent than all the other three.”

Thomas Paine

rps:

Bob Dobbs wrote:

Why didn't we get this in Iraq?

The media wanted the war. People protested around the world and it was barely reported. During Vietnam, I remember the news showed soldiers in the field and body bags. Today, war has been sanitized and sold as a video game in the USA.

Excerpt from a speech delivered in 1933, by Major General Smedley Butler, USMC.

War is just a racket. A racket is best described, I believe, as something that is not what it seems to the majority of people. Only a small inside group knows what it is about. It is conducted for the benefit of the very few at the expense of the masses.....

There isn't a trick in the racketeering bag that the military gang is blind to. It has its "finger men" to point out enemies, its "muscle men" to destroy enemies, its "brain men" to plan war preparations, and a "Big Boss" Super-Nationalistic-Capitalism..

[Aug 12, 2010] America’s Biggest Jobs Program — the U.S. Military by Rdan

Robert Reich lays out some figures for the military jobs programs both in manpower and hardware:

America’s biggest — and only major — jobs program is the U.S. military

Over 1,400,000 Americans are now on active duty; another 833,000 are in the reserves, many full time. Another 1,600,000 Americans work in companies that supply the military with everything from weapons to utensils. (I’m not even including all the foreign contractors employing non-US citizens.)

If we didn’t have this giant military jobs program, the U.S. unemployment rate would be over 11.5 percent today instead of 9.5 percent.

And without our military jobs program personal incomes would be dropping faster. The Commerce Department reported Monday the only major metro areas where both net earnings and personal incomes rose last year were San Antonio, Texas, Virginia Beach, Virginia, and Washington, D.C. — because all three have high concentrations of military and federal jobs.

This isn’t an argument for more military spending. Just the opposite. Having a giant undercover military jobs program is an insane way to keep Americans employed. It creates jobs we don’t need but we keep anyway because there’s no honest alternative. We don’t have an overt jobs program based on what’s really needed.

...

The Pentagon’s budget — and its giant undercover jobs program — keeps expanding. The President has asked Congress to hike total defense spending next year 2.2 percent, to $708 billion. That’s 6.1 percent higher than peak defense spending during the Bush administration.

This sum doesn’t even include Homeland Security, Veterans Affairs, nuclear weapons management, and intelligence. Add these, and next year’s national security budget totals about $950 billion.

[Aug 07, 2010] Ugly Non-Farm Payrolls Revisions

"While the census jobs correction may seem like the only remaining employment drag, the now emerging state budget crises is also likely to impact jobs in the coming months, perhaps dramatically"

While the preparation of economic data is always a fraught business, one hopes that errors are more or less symmetrical, particularly in data series that (as is the case for some important metrics in the US, like GDP), are released on an initial basis (almost without exception the only one Mr. Market notices) and tidied up subsequently. It’s troubling when a statistical release shows a marked bias over time in corrections. It suggests at best a need for a change in methodology (something statisticians are reluctant to implement, since it means the series will not be strictly comparable over time) or at worst, political meddling (pressure to interpret legitimate ambiguities in the early findings so as to produce a prettier picture).

And employment-related data is particularly important politically.

Andrew Horowitz of The Disciplined Investor sent a series of charts by e-mail, and I’ve included the ones I found most interesting below. Employment context comes first, then the pattern of revisions to non-farm payrolls.

William J McKibbin:

In addition, the US employment to population worker is also plummeting — more at:

http://wjmc.blogspot.com/2010/08/us-employment-to-population-ratio.html

The US needs to refocus on creating private sector jobs rather than on retaining public jobs — the next stimulous needs to go directly to Main Street and bypass Wall Street, the states, and public employees…

Hugh:

These were some comments I made earlier today on this elsewhere on the web.

-131,000 jobs lost in July (initial estimate)
-221,000 revised job losses in June, up from -125,000
-181,000 decline in the size of the workforce in July

+117,000 the number of jobs needed in July to keep the unemployment number where it currently is.

Wages and hours were little changed, but these are not broken down by income level so it is not clear if there are offsetting movements in them.

What to look for next month.

Will there be a big adjustment to the July figures as there was this month for June?

There should be at least another month of job losses due to the Census winding down.

Job losses at the state and local level. How much will the $26.1 billion aid package to states offset these?

I have been writing for a while now myself about how dicey the BLS numbers have become, especially the initial numbers on jobs. But also its data collection is not really set up to track a lot of what is going on in the kind of economy we have, with erosion in the size of the workforce and, as I said above, no breaking down gains and losses in a clear cut way based on income level (to get an idea of who is and is not doing well). There is some of this but not clearly laid out.

One other point is that to date and with the numbers we have, the economy has added 640,000 jobs since the beginning of the year. A minimum of 618,000 were needed to just take up those entering the workforce with no changes to the unemployment/employment rates. If we are talking about finding jobs for every new entrant over the first 7 months of the year, 683,000-686,000 jobs would have to have been created over this period. So depending on which way you wanted to look at it, we are currently either 32,000 jobs ahead for the year or 43,000-46,000 behind. Now what is important to keep in mind is that this period marks the high point of the Obama stimulus. And the best it did was to bring us back to in or around a zero point. At the same time, not all the uptick due to the Census has been worked through and we don’t know how many jobs states and local government are going to cut.

Private sector hiring remains weak. So we should see worsening employment numbers for the rest of the year, barring a new and highly unlikely stimulus package. This is more or less what I predicted in a general way last year. This is an election year. Small sporadic efforts would be made to keep the economy from tanking before the election but what we are seeing is the beginning of a slide downward.

The probability range for a critical point began last fall. It was offset by the continuation of the Fed’s ZIRP and buying of bank crap assets. There has also been an offloading of crap on to Fannie and Freddie. Geithner took off the loss limits on these to keep them from blowing up but they are showing strains and will blow up at some point.

The European crisis could have blown things up too but it has been papered over for the time being. Much the same could be said about China’s many bubbles. In our country, the calculus seems to be to get through the election. Then you have end of the year effects where profits are pumped up to justify end of the year bonuses. So it is not until the early months of 2011 before it looks like things go seriously off the rails.

This is not to say things might not blow up at any time. They could. But the period of maximum probability for the next crash is some time next year. That’s my opinion. I think the more consensus view of liberal economists is there won’t be another crash but rather a profound and prolonged muddle.

pebird :

New normal = 10% unemployment

[Aug 06, 2010] Is the Unemployment Problem Cyclical or Structural?

The "cyclical" and "structural" labels do not have a strong conceptual foundation in economics. Both involve a lot of what economists call "hand-waving" a reference to what lecturers do, when they have to skip over an issue, which they are not ready, or are not able, to analyze. It's that lack of conceptual foundation that makes this "debate" feasible.
August 5, 2010

I have a new post at MoneyWatch:

Is the Unemployment Problem Cyclical or Structural?

If it's mainly cyclical, does that mean the government is powerless to help?

Bruce Wilder:

If the government fails to "help", does that mean the government is "powerless", and being "powerless", the government cannot be held responsible for the state of affairs?

It seems to me that's the "real" question, behind the "cyclical" v. "structural" debate.

More precisely, it's not an argument about substantive points of economics, economic theory or even economic policy analysis -- though it could be turned into one, if there was a will to do so. The "cyclical" and "structural" labels do not have a strong conceptual foundation in economics. Both involve a lot of what economists call "hand-waving" a reference to what lecturers do, when they have to skip over an issue, which they are not ready, or are not able, to analyze. It's that lack of conceptual foundation that makes this "debate" feasible.

"Feasible" as what? Feasible, as an effort to induce the mass hypnosis, necessary to manufacture consensus and a legitimating conventional wisdom. Those, who lost the political struggle over power, politics and policy, of course, see what is coming, and offer predictions of narrative gambits as a prophylaxis against the inevitable post-hoc rationalizations. It doesn't work.

It didn't work in earlier rounds. It would be shocking, if anything changed at this late date. Just a reminder of how well earlier rounds of conventional wisdom manufacture worked: Ben Bernanke.

Gentle Ben, a reactionary Republican, has been re-appointed Fed Chairman and treated, in conventional wisdom at the technocratic hero-of-the-crisis. Objectively, he was one of the principal architects of the crisis, and he chose and implemented a remedy, that has condemned the country to stagnation and the continued debilitating skim of a predatory financial system, but, hey . . . he's soft-spoken and hired PK at Princeton, so he's a great guy, and really knowledgeable, even if he is wrong about most everything.

We are being moved as a body politic, step-by-step, away from the clear recognition that this economy is a product of human hands, an artifact -- not the weather -- and if that economy screws the a large part of the labor force and home "owners", while benefitting JPMorganChase and GoldmanSachs, that's by design.

Roger Chittum :

"Structural unemployment is defined as unemployment arising from technical change such as automation, or from changes in the composition of output due to variations in the types of products people demand. For example, a decline in the demand for typewriters would lead to structurally unemployed workers in the typewriter industry."

So "structural unemployment" does not include unemployment arising from offshoring of jobs or the RMB currency peg? If unemployment arising from offshoring and globalization is not structural, cyclical, or frictional, then it must be something for which we don't even have language that lets us discuss it, let alone consider making changes. How convenient for defenders of the globalization status quo.

Fred C. Dobbs:

Wiki:

 'Cyclical or Keynesian unemployment, also known as deficient-demand unemployment, occurs when there is not enough aggregate demand in the economy. It gets its name because it varies with the business cycle, though it can also be persistent, as during the Great Depression of the 1930s. Cyclical unemployment is caused by a business cycle recession, and wages not falling to meet the equilibrium level. Cyclical unemployment rises during economic downturns and falls when the economy improves.'

When jobs leave the country, they're not coming back, any time soon. This is not 'cyclical'.
 

Lawrence:

One thing the stimulus did not do was to spur new lending. That's not all that surprising with FAS 157 forcing banks to "mark-to-market". Maybe "mark-to-fiction" was better after all. There were not that many Enrons out there to damage the economy like what I saw on balance sheets nearly two years ago as a result of FAS 157.

Although you might call this a "balance sheet" recession, there is a liquidty crisis going on. The customers I have cannot let their age reports get out of hand: cash is king, you know. Many of their customers have been cut off because they no longer have the ability to pay in net 21 days. The firm I work for will cut any customer off if they pay in greater than 45 days. Since short term credit to aid a firm's cash flows is difficult to obtain, only the strong are still working, but only at a percentage of what they were doing three years ago. If stimulus were to help spur more lending, then we might see more commerce rather quickly, thus increasig demand to hire more workers.

Hawkewinde:

FAS 157 forcing banks to "mark-to-market"

"forcing" is a bit strong marking to market was around a long time before FAS 157. Even afterward, there's Level 3. Tell us about that

Until then, it sounds a lot like the ole talking point about "forcing banks" to lend under CRA or any other such blaming of increased street sign presence for the phenomena of speeding & crashing

Lawrence

i like where you're coming from but short term credit is primarily used for 3 things:

1) payroll
2) inventories
3) investment carry

If it doesn't go straight to 1), it's not injuring to demand. At least not sustainably so.

Lawrence:

To give an example, I booked trucks for Campbell Soup for awhile. They paid me in 90 days from date of invoice, but their credit was outstanding. I was willing to take them on, which was unusual for the industry I'm in. One day I asked why they pay in 90 days, and I was told they use no short term credit to pay their bills in less time. In other words that is how their cash flows work, and either accept the reality of it, or do no business with them.

Yes, payroll is a big part of the need for short term credit, but it also is necessary to aid cash flows to pay customers who will cut them off from any future business.

Most firms pay in net 21 days from date of invoice, that was until FAS 157 came along. Procurement officers at Sysco Foods began watching watching their age reports more stringently the day FAS 157 went into effect. I watched truck orders decline since then. Many shippers and receivers, wholesale or retail, were using lines of credit to build their inventories with so they could pay in net 21 days.

By June 2008, many receivers either saw their lines of credit drastically reduced, or were completely cut off.

Hawkewinde:

"it also is necessary to aid cash flows to pay customers"

Indeed, i agree solvency and liquidity are necessary conditions for each other where equity cash is limited. But equity remains the end game for recovery, even if mark-to-market insolvency is temporarily arrested.

The old keynes' w/p=mpl/(mpc+mpi) is an airtight argument for avoiding payroll cuts but I think it still begs the question of capacity, supply & demand for goods, and consequently the deflationary spiral.

The last time this structural-vs-cyclical debate flared up it was the late 50's whence there was no shortage of monetary inflation. I even think Samuelson's famous Demand-pull/push dichotomy giving direction to the Fed in '61 seems to be a bit overplayed given concomitant tax cuts and minimum wage hikes under Kennedy.

Thanks for the excellent illustration of a real-world example by the way. IMO more of this kind of real-world testimony is needed to get people thinking about the form & substance of vertical and horizontal integration problems in deflationary environments. It's a highly STRUCTURAL world of problems out here in any case.
 

Min:

"One thing the stimulus did not do was to spur new lending."

No, the bank bailouts did that. Remember? "So they can start lending again." ;)

It just hasn't happened yet. But not to worry. ;) If historical patterns hold, lending will start to return this fall or winter.

BTW, isn't lending part of pending small business legislation?

Lawrence:

I thought the bailout money was supposed to be used to pay bankers' bonuses for their ineptitude, and to also help industry wide bank consoldiation.

don:

It seems apparent that the unemployment cannot be entirely structural. High structural unemployment would reduce demand for goods and services and so creates cyclical unemployment.

I think part of the problem might be definitional. For example, unemployed housing construction workers - are they cyclically unemployed because the recent overbuilding was cyclical, or structurally unemployed because the overbuilding was so extensive that the overhang will last a long time? Or should we use some average of past housing cycles to get the structural and cyclical components?

It's not even clear that the distinction has that much to do with the proper government policies - structurally unemployed workers with an extended period in which there will be no opportunity for work are a wasted resource that can be used with little opportunity cost. Putting them to work would eliminate the cyclical unemployment their unemployment creates. The only cost I can think of (over that in putting cyclically unemployed workers to work) is if they would have spent the time unemployed training for another occupation. But it seems more likely that they would merely lose job skills and perhaps take up counterproductive habits.

anne:

"One thing the stimulus did not do was to spur new lending...."

Corporate interest rates reflect there being ample credit availability. Corporate earnings are high, interest rates low, so where is the problem with credit availability?

Hawkewinde:

anne
from your database,

in terms of inflationary vs deflationary environments,

what were the 1920's like
what were the 1950's like

Min :

What about attributional unemployment? I.e., you are unemployed because you are an unemployed kind of person. We are seeing that now, with so much long term unemployment. Instead of seeing that as a systemic problem caused by the financial crisis, potential employers are attributing that to some undefined flaw in the unemployed person. That happened during the Great Depression, as well.

This can affect self-image, as well, becoming a self-fulfilling prophecy.

"Well, I wouldn't give a nickel for the bum I used to be.
Worked as hard as any man in town.
Got a pretty gal,
She thinks the world of me.
A man would be a fool to let her down.

Go bum again.
Go bum again."

-- Fast Freight

save_the_rustbelt:

I think a more relevant problem maybe geographical mal-distribution.

There is some employer self-fulfilling prophesy, Joe has been unemployed for a long time so something must be wrong with Joe.

But I think in a hotter economy Joe would get a job, or Joe could get a job if he could sell his house in Michigan and move to Texas.

Hawkewinde :

Mr Thoma,

Since you have academic credentials and perhaps an expense account, maybe you could comment on Demsetz' findings on the "significant" connection between unemployment and structural factors:

http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/jlecono4&div=6&id=&page=

What is the nature and methodologies of the studies that have already been done on this phenomena?

don:

Mark - just read your post here more carefully. I think you meant to say "If it's mainly structural, does that mean the government is powerless to help?"

stunney:

http://www.dailykos.com/story/2010/8/5/890685/-BREAKING:-Christina-Romer-To-Resign-From-WH

anne:

Hawkewinde:

in terms of inflationary vs deflationary environments,

what were the 1920's like
what were the 1950's like

http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
http://www.measuringworth.com/inflation/

January 15, 2009

Inflation Rate, 1920-1929

(Percent change) *

1920 ( 15.6)
1921 (- 10.5) Harding
1922 (- 6.1)
1923 ( 1.8) Coolidge
1924 ( 0.0)

1925 ( 2.3)
1926 ( 1.1)
1927 (- 1.7)
1928 (- 1.7)
1929 ( 0.0) Hoover, contraction begins, August

* Consumer price index

anne :

Hawkewinde:

in terms of inflationary vs deflationary environments,

what were the 1920's like
what were the 1950's like

http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
http://www.measuringworth.com/inflation/

January 15, 2009

Inflation Rate, 1789-2008

(Percent change) *

1950 ( 1.3)
1951 ( 7.9)
1952 ( 1.9)
1953 ( 0.8) Eisenhower
1954 ( 0.7)

1955 (- 0.4)
1956 ( 1.5)
1957 ( 3.3)
1958 ( 2.8)
1959 ( 0.7)

* Consumer price index

anne:

Hawkewinde:

in terms of inflationary vs deflationary environments, what were the 1920's like; what were the 1950's like

http://www.measuringworth.com/inflation/

January 15, 2010

Inflation Rates

1920 - 1929 = -1.73

1950 - 1959 = 2.15

July

Local Governments To Cut 500,000 People In 2010 And 2011, As $400 Billion Budget Shortfall Brings State Economies To A Halt by Tyler Durden

07/27/2010

Ever wonder why according to the latest economic poll published by Reuters earlier the general public's satisfaction with Obama's handling of the economy is deteriorating faster than any other issue? (not to mention that 46% of Americans believe Obama is not focused enough on job creation, and that 72% of republicans say they are certain to vote at the November congressional elections versus 49% of democrats). A part of the answer comes courtesy of a new study produced by National League of Cities, the U.S. Conference of Mayors and the National Association of Counties titled simply enough: "Local Governments Cutting Jobs and Services: Job losses projected to approach 500,000", showed local governments moved to cut the equivalent of 8.6 percent of their workforces from 2009 to 2011. As a result of local government cutbacks, almost 500,000 people will lose their jobs, and the total will likely rise. The summary of the report attached below, is particularly grim: "Over the next two years, local tax bases will likely suffer from depressed property values, hard-hit household incomes and declining consumer spending. Further, reported state budget shortfalls for 2010 to 2012 exceeding $400 billion will pose a significant threat to funding for local government programs. In this current climate of fiscal distress, local governments are forced to eliminate both jobs and services." If Americans are dissatisfied with Obama's handling of the economy now, just until 2012.

[Jul 21, 2010] The Lies of the Creative Class by Henry

July 4, 2010

Evidence that history happens the first time as a Doug Henwood book and the second time as farce.

“the only way to keep your job nowadays is to constantly re-invent it”

This rather sad article in the New York Times about long-term, middle class unemployment got me thinking…

Got me thinking about the cartoon above, in fact.

Any long-time blogger knows this: The only way to keep people reading your blog is by “Constant Re-Invention”. Keep on finding new things to talk about. Keep on DOING and CREATING new things worth talking about.

i.e. Creativity. Yes. That. Exactly.

And what has always been true for bloggers is now true for anyone hoping to live above the basic subsistence level.

The only way to keep your job nowadays is to constantly re-invent it.

Again, Creativity.

And that’s your responsibility, not your boss’. If your boss won’t let you do that, then quit. Right now. Do something else. It’s your move. Nobody else’s. Sorry.

It isn’t rocket science. But sadly, it’s something far too few of us ever think really hard about.

Formatting preserved from the original, which you should read if only to see the sorry-ass cartoon that it is based around. Although the offensiveness of the post is partially mitigated by the stink of desperation that wafts through despite the author’s best efforts. If this post had an XKCD mouseover it would be something like ‘oh god, please. maybe if I can just somehow be creative enough, I’ll make it through while the rest of the fuckers drown. please. god. please.’

[Jul 21, 2010] Thoughtful Advice from One of My Favorite Thinkers

In "Action List for the Newly Unemployed," Charles offers some thoughtful advice for those who suddenly find that the rose-colored recovery they've been promised by the experts in Washington and on Wall Street is little more than a nightmarish illusion:

Here is a basic, common-sense list of actions to consider should your household income fall drastically for any reason. It is based on the concepts I laid out in Survival+.

  1. Cut expenses immediately. Middle-class households seem especially prone to thinking they can weather a radical drop in income without any real change in lifestyle until a new job appears. Some even resort to pulling money out of IRAs and retirement accounts (and paying penalties to do so) to maintain the lifestyle to which they have grown accustomed.

    The better strategy is to perform immediate triage on the household budget and eliminate all extraneous spending. Cut expenses in every way: unplug zombie appliances and chargers, stop buying snacks and convenience food, stop going to high-priced yuppie markets, borrow films from your library rather then rent them, etc.

    Write the budget down and track your actual expenses monthly. Reward yourself with a small treat if you stay within the new budget.

  2. Look at your biggest expenses and reduce them to your "new normal" income by whatever means are necessary. Typically, the biggest expenses are housing, healthcare and perhaps education.

    There is abundant evidence that when it comes to unsustainable mortgages, The wealthy strategically default as a business decision. If a mortgage is completely out of line with the household's reduced income, then the wealthy may have the right idea: it's just business. Anyone considering defaulting on debt should of course do what the wealthy do and consult experienced, licensed real estate and tax attorneys before making any decisions.

    Some people have found that renting out rooms in their house allows them to align their income with their mortgage costs. Either expenses must be cut or income increased, or both. Hoping to find a high-paying job in the near future is not a strategy, it is just a form of denial.

    Many people we know who have seen their small business income suffer have already cancelled their health insurance--$1,000+ a month is a lot of money. There may be professional organizations which offer cheaper catastrophic-type insurance to members; those seeking to slash their health insurance costs will have to look around for creative ways to do so.

  3. Keep productive. All work has dignity. Base your pride in being productive, not on your position or title. It is very easy to fall into feeling lousy about oneself when unemployed, and the best way to counteract that natural diminishment is to stay productive. Find an organization who needs your energy and skills; yes it is "working for free" but you get value for your efforts: you keep your skills sharp and maybe add new ones, you have self-worth by contributing to a worthy organization, and you network with others in ways which might lead to some paying work.

    One value we have lost in the U.S. is the inherent value and dignity of all work. Too many people feel that all sorts of work is "beneath them." No wonder, perhaps, given that our popular culture worships at the altar of narcissism, self-glorification, indulgence and victimhood.

    I personally consider picking up trash around my neighborhood a highly valuable form of unpaid labor. There is nothing lowly about work performed with care, attention and impeccability.

  4. Work to establish multiple sources of household income. If there are potentially employable members of the household earning nothing, then get them out there making some sort of income, even if it is informal, sporadic and low-paying. Something is better than nothing.
  5. Think like an employer. The attitude built up by 60 years of prosperity is generally "give me a job and I'll do good work." That was no hindrance in decades of rising employment but now there is a new reality: a thousand other people will also do good work when given a job.

    The key word here is "given." If you think like an employer, then you realize that doing good work is the minimum baseline. You have to provide additional value that gives the employer/supervisor some hope that you will bring a much-needed spark to the enterprise. That could be a cheery, generous nature; it could be a can-do attitude of wanting to learn new things. It could be a willingess to be flexible in hours worked.

    This is not a suggestion to work for free for an enterprise which pays others to do similar work. But even in this recessionary environment, all too many people expect to work according to their own requirements rather than the needs of the enterprise. This difference in baseline assumptions is most visible between native-born Americans and recent "green card" immigrants, who typically will do whatever it takes to get ahead.

  6. Beware the illusion of incremental change. Sustained effort brings results, but within this common-sense approach is a pernicious trap I call The Seductive Illusion of Incremental Change (May 13, 2008). Picking the "low hanging fruit" produces significant improvements, and with that the illusion is formed: if we just keep doing what we've been doing, little by little the problem will be chipped away to zero.

    For example, in the first round of household budget cuts, it's not too difficult to pare away a few hundred dollars (travel, eating out, unlimited texting phone plans, etc.). That initial success can lead to a false confidence that such cuts can be continued to the point that income and expenses are actually aligned.

    But incremental change often starts yielding diminishing returns. Are the changes being made fundamental, or are they essentially tweaks to a system heading toward collapse?

    Weight loss is an example many of us can relate to. A pound of human fat contains 3,500 calories. To lose a pound of fat you need to burn 3,500 calories in excess of what you eat. To lose five pounds, you must burn 17,500 calories more than you eat. If you ramp up your exercise program and burn 500 more calories a day, then in 35 days you will lose the five pounds. Alternatively, you can cut 250 calories from your intake and expend 250 calories in additional exercise.

    This sort of sustained effort will produce fundamental results, but anything less will not. Just sending out 10 resumes a week may not produce any job offers, and cutting marginal expenses rather than making the deep cuts needed to re-align income and expenses will only set aside the day of reckoning.

  7. Preserve capital. Pulling money out of savings, IRAs and 401Ks to maintain a giant mortgage or an unsustainable lifestyle is unwise; that savings might be needed down the road for a really important emergency such as getting a knee replacement (paid in cash).

    Given the likelihood that the stock market will eventually reflect the weakness of the real economy, then keeping IRAs and 401K capital in cash rather than stock mutual funds is a form of capital preservation.

  8. Become fluid and flexible. Someone to whom various kinds of work is "beneath them" is like the person who has no interest in learning new skills; their inflexibility dooms them by reducing their adaptability. The living branch bends in the wind, the dead branch snaps off.
  9. Accept the new reality. If someone offers you four hours of work, take it. It might lead to something else, and if not, at least you made a few bucks. Clinging to past paradigms is a dead-end.
  10. Get healthy, stay healthy. Losing status, income, security, etc. are wounds to self-worth and the soul. Increased stress and anxiety are not healthy. Exercise and productive work/learning are important ways to reduce stress and build a positive response to unwanted change. Walk a quarter mile; when that's easy, walk a half-mile. When that's easy, walk a mile, and so on. Seek respite and renewal in Nature. Your body is a temple; don't feed it crap.
  11. Think entrepreneurally. The basics of entrepreneurism are simple: seek out unfilled needs, or offer a service/product which offers customers faster, better, cheaper. Identify what you like doing even if it's unpaid (at first) and pursue that line.

[Jul 21, 2010] Small & Large Business Employment by spencer

Angry Bear


CoRev brought up the claim that small firms account for 70% of job creation in the US economy.

Several years ago the Small Business Administration and Census began an annual survey of employment by firm size.

You can find the data here:

http://www.census.gov/econ/susb/historical_data.html

Here is a table of what the joint survey of employment by firm size found. From 1988 to 2006 -- the most recent year published -- small firms (under 500 employees) share of total employment fell from 54.5% to 50.2% of private employment. Over the entire period employment by small firms grew 13.3% while large firms employment grew 21.8%.

That sure does not look like small firms account for 70% of employment growth.

Care to show us the data supporting the claim that small firms account for 70% of job growth.


The other interesting results of the survey was that payroll per employee in large firms averages 125% of that in small firms. The Small Business Administration published a study that claimed small business account for over 50% of business real GDP. They based this result on the claim that productivity was much larger in small firms. But if small firms salaries are so much smaller than large firms salaries I find it hard to accept that their productivity is higher.

terry

The other great myth that is continously trotted out is that we need to keep taxes low on folks making over $200K a year to spur the economy because those are the small business owners who are not going to employ people unless their taxes are low. I am a part owner of a small business that employs around 300 people. We decide to employ new people whenever we figure that we can make a profit doing so. That depends on what we can obtain that person's services for and what we can sell that person's services for in the market. Right now the cost of employing new people is not particularly high, but the price we can get for that person's services is a function of demand and that isn't oo high either.We take all of the profits out of the business every year and each owner pays income taxes on his or her share. If tax rates increase each of us will have less after tax money to spend or save--actually we will all probably max out our 401K contributions--but it will have no effect on hiring. Now if demand for our services increases that will certainly spur hiring.

spencer

Appaqrently the Republican party, that great bastion of small business owners, has never heard of the concept of retained earnings whereby you can keep your profits in a business inside the firm and invests it in growing the business without ever paying any taxes on it.

m.jed

Care to show us the data supporting the claim that small firms account for 70% of job growth.

http://www.bls.gov/web/cewbd/table_d.txt

This is "Table D. Average percentage share of gross job gains and gross job losses by firm size, third quarter 1992 - third quarter 2009, seasonally adjusted"

which shows the cumulative share of net [job] change is 66.3% for firms employing 499 or less.

spencer

m.jed-- interesting. we have two survey by respected organizations that directly contradict each other.

Tim -- I believe you are wrong about retained earnings being taxed in the US.

My tax lawyer says the IRS will only tax retained earnings when it is blatantly obvious that firms are using it to avoid paying taxes. Other wise, retaining earnings to finance capital spending is tax free.

[Jul 20, 2010] Boston Properties' Mort Zuckerman Obliterates Barack Obama zero hedge by Tyler Durden

The fundamental problem is starkly simple: jobs and the deepening fear among the public that the American dream is vanishing before their eyes. The economy's erratic improvement has helped Wall Street but has brought little support to Main Street. Some 6.8 million people have been unemployed in the last year for six months or longer. Their valuable skills are at risk, affecting their economic productivity for years to come. Add to this despairing army the large number of those only partially employed and those who have given up their search for work, and we have cumulative totals in the tens of millions.
07/13/2010

Media and real estate tycoon Mort Zuckerman, who recently admitted he helped write Obama's speeches in the past, has come out blazing with easily the most damning missive of the president and his legacy to date. Mort joins such other distinguished and notable CEOs as Steve Wynn to openly blast the administration and its policies. In the meantime, the president has surely not made many new friends in the executive offices of the E&P space. Before all is said and done, look for letters such as the one attached to become a daily occurrence.

Obama Is Barely Treading Water (first posted in US News)

By Mort Zuckerman

The hope that fired up the election of Barack Obama has flickered out, leaving a national mood of despair and disappointment. Americans are dispirited over how wrong things are and uncertain they can be made right again. Hope may have been a quick breakfast, but it has proved a poor supper. A year and a half ago Obama was walking on water. Today he is barely treading water. Then, his soaring rhetoric enraptured the nation. Today, his speeches cannot lift him past a 45 percent approval rating.

There is a widespread feeling that the government doesn't work, that it is incapable of solving America's problems. Americans are fed up with Washington, fed up with Wall Street, fed up with the necessary but ill-conceived stimulus program, fed up with the misdirected healthcare program, and with pretty much everything else. They are outraged and feel that the system is not a level playing field, but is tilted against them. The millions of unemployed feel abandoned by the president, by the Democratic Congress, and by the Republicans.

The American people wanted change, and who could blame them? But now there is no change they can believe in. Sixty-two percent believe we are headed in the wrong direction­—a record during this administration. All the polls indicate that anti-Washington, anti-incumbent sentiment is greater than it has been in many years. For the first time, Obama's disapproval rating has topped his approval rating. In a recent CBS News poll, there is a meager 15 percent approval rating for Congress. In all polls, voters who call themselves independents have swung against the administration and against incumbents.

Even some in Obama's base have turned, with 17 percent of Democrats disapproving of his job performance. Even more telling is the excitement gap. Only 44 percent of those who voted for him express high interest in this year's elections. That's a 38-point drop from 2008. By contrast, 71 percent of those who voted Republican last time express high interest in the midterm elections, above the level at this stage in 2008. And these are the people who vote.

Republicans are benefiting not because they have a credible or popular program—they don't—but because they are not Democrats. In a recent Wall Street Journal/NBC poll, nearly two thirds of those who favor Republican control of Congress say they are motivated primarily by opposition to Obama and Democratic policy. Disapproval of Congress is so widespread, a recent Gallup poll suggests, that by a margin of almost two to one, Americans would rather vote for a candidate with no experience than for an incumbent. Throw the bums out is the mood. How could this have happened so quickly?

The fundamental problem is starkly simple: jobs and the deepening fear among the public that the American dream is vanishing before their eyes. The economy's erratic improvement has helped Wall Street but has brought little support to Main Street. Some 6.8 million people have been unemployed in the last year for six months or longer. Their valuable skills are at risk, affecting their economic productivity for years to come. Add to this despairing army the large number of those only partially employed and those who have given up their search for work, and we have cumulative totals in the tens of millions.

Many people who joined the middle class, especially those who joined in the last few years, have now fallen back. It's not over yet. Millions cannot make minimum payments on their credit cards, or are in default or foreclosure on their mortgages, or are on food stamps. Well over 100,000 people file for bankruptcy every month. Some 3 million homeowners are estimated to face foreclosure this year, on top of 2.8 million last year. Millions of homes are located next to or near a foreclosed home, and it is the latter that may determine the price of all the homes on the street. There have been dramatically sharp declines in home equity, representing cumulative losses in the trillions of dollars in what has long been the largest asset on the average American family's balance sheet. Most of those who lost their homes are hard-working, middle-class Americans who had lost their jobs. Now many have to use credit cards to pay for essentials and make ends meet, and they are running out of credit. Another $5 trillion has been lost from pensions and savings.

But it is jobs that have long represented the stairway to upward mobility in America. For a long time, it was feared they were vulnerable to offshore competition (and indeed still are), but now the erosion is from economic decline at home. What happens as those domestic opportunities recede? Middle-class families fear they have become downwardly mobile and have not hit the bottom yet. The financial security that was once based on home equity and a pension has been swept away.

In a survey just released, the Pew Research Center explored the recession's impact on households and how they are changing their spending and saving behavior. Nearly half the adults polled intend to boost their savings, cut their discretionary budgets, and cut their debt loads. The report concludes that the present enforced frugality will outlast the recession and its overhang. Fully 60 percent of those ages 50 to 61 say they may delay retirement. What does that mean for the young would-be employees entering the labor force over the next few years?

The administration's stimulus program, because of the way Congress put it together, has created far fewer jobs than anyone expected given the huge price tag of almost $800 billion. It was supposed to constrain unemployment at 8 percent, but the recession took the rate way above that and in the process humbled the Obama presidency. Some 25 million jobless or underemployed people now wish to work full time, but few companies are ready to hire. No speech is going to change that.

Little wonder there has been a gradual public disillusionment. Little wonder people have come alive to the issue of excess spending with entitlements out of control as far as the eye can see. The hope was that Obama would focus on the economy and jobs. That was the number one issue for the public—not healthcare. Yet the president spent almost a year on a healthcare bill. Eighty-five percent in one poll thought the great healthcare crisis was about cost. It was and is, but the president's bill was about extending coverage. It did nothing about the first concern and focused mostly on the second. Even worse, to win its approval he accepted the kind of scratch-my-back deal-making that suggests corruption in the political process. And as a result, Obama's promise to change "politics as usual" disappeared.

The president failed to communicate the value of what he wants to communicate. To a significant number of Americans, what came across was a new president trying to do too much in a hurry and, at the same time, radically change the equation of American life in favor of too much government. This feeling is intensified by Obama's emotional distance from the public. He conveys a coolness and detachment that limits the number of people who feel connected to him.

Americans today strongly support a pro-growth economic agenda that includes fiscal discipline, limited government, and deficit reduction. They fear the country is coming apart, while the novelty of Obama has worn off, along with the power of his position as the non-Bush. His decline in popularity has emboldened the opposition to try to block him at every turn.

Historically, presidents with approval ratings below 50 percent—Obama is at 45—lose an average of 41 House seats in midterm elections. This year, that would return the House of Representatives to Republican control. The Democrats will suffer disproportionately from a climate in which so many Americans are either dissatisfied or angry with the government, for Democrats are in the large majority in both houses and have to defend many more districts than Republicans. In any election year, voters' feelings typically settle in by June. But now they are being further hardened by the loose regulation that preceded the poisonous oil spill—and the tardy government response.

The promise of economic health that might salvage industries and jobs, and provide a safety net, has proved illusory. The support for cutting spending and cutting the deficit reflects in part the fact that the American public feels the Obama-Congress spending program has not worked. As for the healthcare reform bill, the most recent Rasmussen survey indicates that 52 percent of the electorate supports repeal of the measure—42 percent of them strongly.

It is clear that the magical moment of Obama's campaign conveyed a spell that is now broken in the context of the growing public disillusionment. Obama's rise has been spectacular, but so too has been his fall.

[Jul 17, 2010] Recession cut into employment for half of working adults, study says By Michael A. Fletcher>

June 30, 2010 | washingtonpost.com

The recession has directly hit more than half of the nation's working adults, pushing them into unemployment, pay cuts, reduced hours at work or part-time jobs, according to a new Pew Research Center survey.

The economic shock has jolted many Americans into a new, more austere reality, which is likely to have lasting consequences for an economy fueled mostly by consumer spending. More than six in 10 Americans say they have cut down on borrowing and spending, the survey found.

Among adults 62 and older who are still working, 35 percent say they have postponed retirement. Six in 10 working adults between ages 50 and 61 say they may be forced to do the same. Meanwhile, half of the survey respondents say they have whittled down their mortgages, credit card balances, car loans and other borrowing.

... ... ...

Four in 10 adults say they have tapped savings and retirement accounts to make ends meet. Others have sought help from friends and family. Almost a quarter say they have borrowed money from someone. And one in 10 -- including 24 percent of workers from 18 to 29 years old -- say they moved back in with their parents to weather the economic storm.

The new, more frugal lifestyles may outlast the recession and its immediate aftermath, the survey indicated. Nearly half of respondents say they plan to save more; nearly a third say they plan to spend less and 30 percent say they plan to borrow less.

[Jul 16, 2010] Economist's View In Finance We Distrust

albrt

I don't think it is possible to have effective cultural norms for the financial system when the distribution of income in this country is so skewed. The wealthy have always lived by somewhat different rules than the rest of us, but today in America the wealthy live in a completely different world. The point of cheating in finance is not just the money, it's to get yourself into the world where rules don't apply.

[Jul 16, 2010] Paul Krugman: Redo That Voodoo

Economist's View

Redo That Voodoo, by Paul Krugman, Commentary, NY Times:

For a while, leading Republicans posed as stern foes of federal red ink. ... But this past Monday Jon Kyl of Arizona, the second-ranking Republican in the Senate, was asked the obvious question: if deficits are so worrisome, what about the budgetary cost of extending the Bush tax cuts for the wealth...? What should replace $650 billion or more in lost revenue over the next decade?

His answer was breathtaking: “You do need to offset the cost of increased spending. And that’s what Republicans object to. But you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.” So $30 billion in aid to the unemployed is unaffordable, but 20 times that much in tax cuts for the rich doesn’t count.
The next day, Mitch McConnell, the Senate minority leader, confirmed that Mr. Kyl was giving the official party line...

[Jul 16, 2010] Demographic Story Coming to the Fore By Invictus

July 16th, 2010 The Big Picture

(Invictus here, ladies and gents):

Shortly after the minimum wage was raised last year, the right-wing chorus rose up and began to assert that the rise in teen unemployment was directly attributable to the more generous pay scale. To my eye, and based on numbers I’d crunched, I thought demographics were much more at play (note: that’s “much more,” not “exclusively”), and said so here last September:

There is evidence – real, actual evidence! – that it’s the 55+ age cohort staying in – or re-entering – the job market that is much more at play than the minimum wage…Where there had been less than 2.5 workers 55+ per teen worker in the year 2000, that number has now jumped to a record 5.5…As a percent of the workforce, the 55+ age cohort has now reached a new record of 19.4%, clear evidence that older workers are squeezing younger workers from the workforce.

and here last November:

…simple demographics coupled with the damage wrought by this recession on the Baby Boom generation — in terms of both real estate and investment portfolios (particularly retirement portfolios) — is so great that many Boomers have realized they’re going to have to postpone retirement (see one story on that here, there are thousands on “postponing retirement” out there on The Google).

I reiterated that position here at TBP last month when illegal immigrants became the target of choice for stealing teen employment:

What about demographics — an aging boomer population — and a crappy economy that has the 55+ cohort postponing retirement and consequently crowding out the younger generation (parents keeping their own kids/grandkids out of the job market, as I put it a while back). The data is there for all who choose to explore it.

Well, now comes Bloomberg news with this:

Workers Over 65 Vie With Teens in Labor Market for First Time Since Truman

U.S. employees old enough to retire are outnumbering their teenage counterparts for the first time since at least 1948 when Harry Truman was president, a sign of how generations are now having to compete for jobs.

Bloomberg provides some very cool interactive features (that are way beyond my capabilities and definitely worth checking out).

I guess the facts continue to have a well-known liberal bias.

(Notes: A BLS study – “As the baby-boom generation ages, the share of workers in the 55-years-and-older age group will increase dramatically…” — analyzed this trend in detail here (.pdf) last November, thankfully after I’d already written about it. Also, this demographics angle was recently picked up by the NY Times Economix blog via the San Francisco Chronicle (which cited Bloomberg, closing the loop), but you did read it here — or other places I’ve written about it — first.)

[Jul 15, 2010] The U.S. Middle Class Is Being Systematically Wiped Out Heres the Stats to Prove It

Yahoo! Finance/Tech Ticker

The 22 statistics detailed here prove beyond a shadow of a doubt that the middle class is being systematically wiped out of existence in America.

The rich are getting richer and the poor are getting poorer at a staggering rate. Once upon a time, the United States had the largest and most prosperous middle class in the history of the world, but now that is changing at a blinding pace.

So why are we witnessing such fundamental changes? Well, the globalism and "free trade" that our politicians and business leaders insisted would be so good for us have had some rather nasty side effects. It turns out that they didn't tell us that the "global economy" would mean that middle class American workers would eventually have to directly compete for jobs with people on the other side of the world where there is no minimum wage and very few regulations. The big global corporations have greatly benefited by exploiting third world labor pools over the last several decades, but middle class American workers have increasingly found things to be very tough.

Giant Sucking Sound

The reality is that no matter how smart, how strong, how educated or how hard working American workers are, they just cannot compete with people who are desperate to put in 10 to 12 hour days at less than a dollar an hour on the other side of the world. After all, what corporation in their right mind is going to pay an American worker 10 times more (plus benefits) to do the same job? The world is fundamentally changing. Wealth and power are rapidly becoming concentrated at the top and the big global corporations are making massive amounts of money. Meanwhile, the American middle class is being systematically wiped out of existence as U.S. workers are slowly being merged into the new "global" labor pool.

What do most Americans have to offer in the marketplace other than their labor? Not much. The truth is that most Americans are absolutely dependent on someone else giving them a job. But today, U.S. workers are "less attractive" than ever. Compared to the rest of the world, American workers are extremely expensive, and the government keeps passing more rules and regulations seemingly on a monthly basis that makes it even more difficult to conduct business in the United States.

So corporations are moving operations out of the U.S. at breathtaking speed. Since the U.S. government does not penalize them for doing so, there really is no incentive for them to stay.

What has developed is a situation where the people at the top are doing quite well, while most Americans are finding it increasingly difficult to make it. There are now about six unemployed Americans for every new job opening in the United States, and the number of "chronically unemployed" is absolutely soaring. There simply are not nearly enough jobs for everyone.

Many of those who are able to get jobs are finding that they are making less money than they used to. In fact, an increasingly large percentage of Americans are working at low wage retail and service jobs.

But you can't raise a family on what you make flipping burgers at McDonald's or on what you bring in from greeting customers down at the local Wal-Mart.

The truth is that the middle class in America is dying -- and once it is gone it will be incredibly difficult to rebuild.

[Jul 12, 2010] The Debt Party Is Over -- Seeking Alpha

The U.S. Employment Situation

Total nonfarm payroll employment declined by 125,000 in June, driven primarily by a decrease of 225,000 in the number of temporary employees working on the 2010 census. The unemployment rate (from a separate household survey) decreased 0.2% to 9.5% versus 9.8% expected, primarily due to a 0.3% decrease in the civilian workforce participation rate which now stands at 64.7%. The alternate U6 measure which includes total unemployed plus discouraged workers, plus all persons marginally attached to the labor force for economic reasons went down 0.1% to 16.5% on a seasonally adjusted basis, or about 1 in 6 workers.

The average workweek for workers on private nonfarm payrolls decreased by 0.1 hour to 34.1 hours. The manufacturing workweek decreased by 0.5 hour to 40.0 hours. Average hourly earnings for all employees in the private nonfarm sector decreased by 2 cents, or 0.1%, to $22.53 in June.

The two really bad pieces of information here are the decrease in the workweek especially in manufacturing and the fall in hourly earnings. It is basically telling us that the inventory-induced upturn cycle we had is ending very fast.

The deflationary implications of lower hourly earnings combined with fewer hours work each week, reduce income very fast. It is the second time that earnings are lower this year (there was a two cent decrease in the March report as well).

[Jul 07, 2010] Older, more educated workers, have highest length of unemployment

I wouldn't read too much into the education level of the 45+ demographic. A lot of that education is dated and not necessarily relevant for jobs they are seeking.
Jul 06, 2010 | Calculated Risk

Reader Ann (retired lawyer with economics degree) has obtained some publicly available raw data on the long term unemployed from the BLS Current Population Survey. Ann was able to break down the long term unemployed into two age cohorts, 1) 25 to 45, and 2) 45+.

She also broke down the data by four levels of education: 1) no high school degree, 2) high school only, 3) some college or Associates degree, and 4) BA degree or higher.

The following table summarizes the data (click on link to see table - it doesn't fit here):

Table Long Term Unemployed

(1) This includes all who have some college classes but no degree or certificate, those with certificates and those with an associates. Only 30%+/- of the “some college” group has an associates. There is not statistically significant difference in their average length of unemployment as between the ‘few classes’ or ‘certificate’ and an associates..

(2) I do not have the breakdown of all the unemployed by age combined with education. I only have that data for the long-term unemployed.

The first finding is not too surprising for the longer term unemployed:

the average length of unemployment is always higher for the older cohort (45+) regardless of the level of education.

The 2nd finding is a more surprising:

Generally the more education an individual has, the higher the average length of unemployment.

For the long term unemployed, it is better to be younger - and have less education.

Ann adds these comments:

More education = longer unemployment if the job is lost. The upside is the more educated the worker, the less likely they are to lose their job, but the downside of being more educated is that once they hit 45 if they lose their job, they are toast.

So what does one do with the over-45s with a BA or higher? ... The current mantra is 'more education is good for you' but this shows that it can, in the long run, hurt you.

It is tough to find a job, especially if you are older and better educated.

badger

I wouldn't read too much into the education level of the 45+ demographic. A lot of that education is dated and not necessarily relevant for jobs they are seeking.

shill:

I wouldn't read too much into the education level of the 45+ demographic.

I think the bigger question is, how many of these 45+ are still paying ( new ) student loans and looking for employment. Seems to me when job loss kicks in and one gives up looking the usual folly is to jump back into school and start a new carer goal. As we are all aware School is not free..

sgetz99

It's probably a combo of reasons., won't take the first thing offered but may not get as much offered because the decision maker at employer may be younger or less educated and intimidated and an older worker is more expensive in terms of pay and BENEFITS. Or this is just another sign of middle class squeeze. If you make big $$, budgets can be balanced by knocking off a few sizable salaries and then delegating those tasks to positions above and below. The fact that 45 is considered an older worker is pretty scary.

broward:

badger wrote:

A lot of that education is dated and not necessarily relevant for jobs they are seeking.

Bahahahahahaha.

That's the funniest thing I've read today.

Dude, I have no interest in a simple coding job, that's part of the problem.

It's boring.

From my past two years of job interviews - the real problem is that younger people just have no context for making judgements. It's like being judged by high schoolers on sexual performance, they just don't have the background to judge. Plus, they're much more defensive and selfish about maintaining their own career path. The last thing they want is somebody that knows more than they do.

Byzantine_Ruins:

badger wrote:

A lot of that education is dated and not necessarily relevant for jobs they are seeking.

Once upon a time, before college was grades 13-16, they actually taught you humanities, classics, etc. Stuff that made you educated your entire life. You might be fooled by modern degrees like Homeland Security but college once actually educated you.

Speed:

once they hit 45 if they lose their job, they are toast

Expensive positions that require a degree are being cut. The only thing left are service sector jobs that require physical labor (young workers).

Byzantine_Ruins:

Cinco-X wrote:

Perhaps the real impetus behind this trend is the lack of small businesses being formed. Smaller companies generally do not hire inexperienced workers, and often try to hire those that can "hit the ground running". The current environment is not friendly to small businesses, and as such is not friendly to more experienced employees.....

Cinco has a very good point here.

Edit: Small firms are also less hierarchical, so, less of the whole 'he is working for me but I am junior in age'.

Interesting this is scary to so many people in the civilian world, but the US military practice to have senior NCOs subordinate to highly junior officers is a known war-winner. Wonder if this lack of skill transfer and low-level operational polish, combined with a lack of a business equivalent to auftragstaktics / Tante Freida (i.e. normative doctrine you normally substitute for experienced judgement in an unadvised junior leader system) is contributive to US economic decline.


Work harder, not smarter.

EvilHenryPaulson:

What about a selection bias? Post-secondary enrollment has surged in conjunction with those listed not in labor force

Older workers would be less likely to commit X years on a new degree, and thus stay on unemployment instead of the alternative student loan benefits program. If you look at employment rates, which don't conflate unemployment with labor force participation, the story is different -- although more education is still correlated to longer duration of unemployment.

I would posit the reason for the longer duration of unemployment according to education are that households with more education had higher incomes and would have higher monthly expenses.

Even if they cut everything else, they'll still have that fat mortgage. I've seen local news reports of people who earned over $100,000 working for less than $10 an hour in unflattering jobs, and we have seen economic studies show that ending of the benefits period does not significantly lead to an increase in employment -- so let's assume these more educated people as a group are willing to work any job. What prevents some of them from being as likely to take any job is that they require a job that can keep them cashflow positive. They're holding out for the chance to keep their home

Milovy:

Simply put: Many people are going to have to drop the notion of "having a job." The kind with benefits, pensions, paid vacation time, etc. For years, they've been telling the factory workers to drop these notions, but now, "the educated" are going to have to "get with the program."

Dmitry Orlov writes very well about the obsession with "having a job" in his book Reinventing Collapse. Having a regular, stable job tends to depress the number of meaningful and mutually beneficial relationships you have with those around you - people who can do you favors, and for whom you can do favors in return, so that everybody eats.

In our society, the expectation is that there will always be someone who is paid to provide goods and services for you, if you have the money (or "income" which is brought in by a "job"). In a world where less and less people have regular jobs, goods and services are procured more often through personal influence or favor. This is how Russians survived the collapse of the Soviet Union and its economic system. And it's something that Americans are going to have to re-learn after a century of "education"-fueled job specialization.

So, that's what the educated-but-unemployable 45+something is going to have to do with their time from now on.

Not An Economist:

Having direct experience in this (over 45 and looking for work, back in the mid 2000s) three factors come to mind:

1) Simple age discrimination: youth often sells better than age for any one of a number of reasons. Cheaper, more 'energetic', flexible, willingness to learn, on and on. Having worked in the UK where there are no rules against it (adverts regularly put age limits right in the want ads them, at least they did back in the 90s), it was less of a shock. But still disheartening.

2) Overqualified: too much experience for the job, fear of leaving when something better came along.

3) Perceived 'lack of ambition'. This was a surprise. Had one 30 something end an interview with the line “with your resume I thought you'd have more ambition” when I answered “where do you see yourself 5 years from now” truthfully: doing good work at the relatively low level position supporting the organization and enjoying life in the community.

I did get work, and still have it for now at least, though the process was kind of a shock. I'm still 15, 18 or 26 in my mind – depending on the subject at hand. Curse you aging process!

pavel.chichikov:

This is how Russians survived the collapse of the Soviet Union and its economic system.

A different society with different traditions. I think people would also be surprised by how many low income workers there were under "socialism."

wally

If you read Andy Grove's recent comments about moving manufacturing overseas, you'll realize that his point is that we have moved a large part of the former U.S. middle class overseas, too.
Today, the U.S. is increasingly made up of haves and have-nots. Most U.S. jobs today will not allow a single wager-earner to support a family. Many will not allow two wage -earners to support a family.
I see easing of polygamy restrictions as the best solution.

broward:

badger wrote:

As far as computer programming and IT, flee it as fast as you can.

There's quite a few IT jobs listed, even now. What's not listed is senior jobs. Something like 90% are "five-year experience" jobs and mostly at large companies - Amazon is something like 50% of listings for Seattle, Microsoft is probably 25%, etc. Very much about being a good brain-washed worker bee in the interviews so I don't waste my time now.

sgetz99:

Cinco-X wrote:

Smaller companies generally do not hire inexperienced workers, and often try to hire those that can "hit the ground running".

They try but can't afford them. Try to afford the health insurance premium necessitated by a risk pool for health insurance if you hire a handful of 50 somethings. The importance of small biz as an engine of growth is way overplayed. Small businesses creating the majority of jobs reflects how poor job growth really is in larger employers.

I would posit that small biz growth are feuld by experienced, educated who are newly laid off or tired of working scared for someone else. Its by necessity not pure choice. Small business loan growth is down because there is little demand for their services. They aren't getting loans because they are a bad credit risk for small banks already screwed by CRE. Creating a small biz is the obvious thing to do for older, experienced people. These types of workers are too expensive to be employable in most small businesses unless they are the entrepreneur.

Mark Beauchamp:

Older workers with more education are more specialized, which does not lend itself to easy transferability with their payscale intact. A more specialized worker will either have to go back down in payscale to a "fork in the road" where their general field of work splits out into more specialized jobs, and/or go back to school. Also, more educated workers were paid more, and are drawing better than average unemployment benefits b/c of the payscale their employers were filing them at, so there is a higher dis-incentive to rejoin the labor force. Until the benefits run out.

Rob Dawg:

broward wrote:

Very much about being a good brain-washed worker bee in the interviews so I don't waste my time now.

"Coding? I don't do coding. I thought the job was for a programmer."

Milovy:

Well, ask any woman (with open eyes and a brain) when HR starts culling a department or company. They always start with the fiftysomething women, and age 50 seems to be when it starts. For men, it is traditionally coming later in the life cycle. ("Fifty for women is sixty for men") Being a single/divorced fiftysomething woman with mouths to feed/educate, and/or mortgage debt or other debts,is a terrible place to be. Most anecdotal stories in the mainstream media about New Depression Horror Stories focus on these women.

A single/divorced woman over forty has no business running up debts, mortgage or otherwise. IMHO.

black dog

The current mantra is 'more education is good for you' but this shows that it can, in the long run, hurt you.

Many small biz owners (me included) are wary of hiring someone overly qualified. It takes a while to break in an employee in and you want them to stay to get a return on your investment. Wrongly or not, I'm assuming anyone overly qualified is looking to jump ship at the first chance. For me, street smart and personable ko's degrees every time.

EvilHenryPaulson:

reposting from the last day age-employment came up
via House Passes Homebuyer Tax Credit Closing Extension | Hoocoodanode?
United States Population and Post-Secondary Enrolment
United States Post-Secondary Enrolment and Change in Government Student Loans Outstanding

for current federal student loan data, http://federalreserve.gov/releases/z1/Current/z1r-3.pdf
Flows Table F.106
Line 36 Consumer Credit (Student Loans)
Billions of dollars; quarterly figures are seasonally adjusted annual rates
2004 3.7
2005 3.7
2006 1.9
2007 6.7
2008 12.6
2009 75.0
09q1 36.7
09q2 56.8
09q3 84.5
09q4 121.9
10q1 84.8

josap:

My solution

Remove FICA cap on wages, completely.
Set retirement age to 50.

Get everyone else working.

Increasing the retirement age does nothing for the SS deficit. Worsens the employment availbilty for those entering the job market.

pavel.chichikov:

This is actually what Orlov speaks directly about. "Closing The Collapse Gap."

We'd have to suffer as much as the Russians have suffered.

Byzantine_Ruins:

Rob Dawg wrote:

Yes it would but that's not what happening with health insurance reform now is it?

You're forgetting that the transfer of national wealth to insurance companies trumps the importance of job creation.

ndk:

EvilHenryPaulson wrote:

female employment has fared better than male employment in the recession fwiw

The percentage of the working age males who are actually employed (employment to population) is at record lows, almost certainly lower than during the Great Depression, though that was prior to the keeping of those records.

RockyR:

Byzantine_Ruins wrote:

Emergent gender prejudice. Women are responsible worker bees, boys are jovial and irresponsible bucks. Watch and see it grow.

between that and "old people... err... middle-aged people know nothing" and we have an interesting set-up coming.

basically, today, you have to make your fortune in 20 years to sustain yourself for 40, whilst paying off debts for school and housing... this system really won't work. but, the culture of incompetence endures.

born and bred american dopes, or whatever it was he used to say...

Milovy

Being a crack head does foster a varied amount of "mutually beneficial" relationships you can have with those around you. You have to find a pipe, acquire crack, foster a wide variety of people to cop from when your dry, maybe rob tourists to keep the habit going or turn tricks for money. Your right, there are many ways in which having a job unreasonably inhibits human expression and a mulltiplicity of opportunities to "relate" to those around you.

Exactly.

I'm sure the 45+ highly edumacated American worker with the big fat underwater mortgage in their tickytacky neighborhood where they don't actually know anyone's names will have nothing to fear, though.

In truth, Americans need to act a little more like crackheads... except without the drugs, of course.

sgetz99:

Byzantine_Ruins wrote:

Actually he's quite right. I would say that for many 40+s, the need to "get a job" at all is reduced, as their age cohort is less self-commoditized, and their relationship network much stronger, compared to both young people from a personal perspective (less chances to grow laterally with decreasing age) and a cohort perspective (progressive destruction of social networks over time in the American white middle class milieu).

I couldn't help but make a sarcastic joke, I don't totally disagree w/ his idea, it reflects a sad realty that the political process is bankrupt and that your only best hope for a decent living may be that we all have to be independent operators stoking our "network" to find entrepreneurial opportunities. That we have to commoditize all our relationships so they can become financial opportunities. On the other hand you can complain about the light turning off or start making a fire. I was hoping my existence could become more european not more russian.

EvilHenryPaulson:

Nanoo-Nanoo
I am in solidarity with you if you support equal pay for equal performance.

However in Vancouver a couple years ago the librarians went on strike to demand pay raises citing underpayment due to gender. What they did was compare degrees in Librarian Studies to other MS/PhD degrees, when it should be obvious a Doctorate in Librarian studies has nothing in common with a Doctorate in Chemistry which has higher pay (chosen to make a point because it's a female dominated field, or soon to be based on the graduation rates at least)

badger:

Suburbs are just ghettos for white people. If we build walls high enough and long enough, we can ignore all the problems of our country and be comforted in knowing that only 'they' have problems.


If you know of a good study/link to share, I would be happy to read it later.

Byzantine_Ruins:

badger wrote:

If we build walls high enough and long enough, we can ignore all the problems of our country and be comforted in knowing that only 'they' have problems.

Actually I will sit on top and throw down pieces of stale bread to watch them fight over it.

Whiskey:

EvilHenryPaulson wrote:

I am in solidarity with you if you support equal pay for equal performance.

Ditto. A large percentage of the cited gaps are due to careers that are not comparable. A second component is the penalty women face for leaving the workforce for a few years to have children.

I suspect that debt loads for divorced fiftysomethings are a disaster regardless of gender, at least based on anecdotal evidence.

Byzantine_Ruins:

sgetz99 wrote:

it reflects a sad realty that the political process is bankrupt and that your only best hope for a decent living may be that we all have to be independent operators stoking our "network" to find entrepreneurial opportunities.

War As a Network Enterprise. Mark Duffield. Recently systematically expurgated from the World Wide Web. Interesting speculation on if the former colonial / neocolonial dominations have a systematic edge on the West in confronting the face of 21st century modernity due to a significant lead-time in existence in a chaotic, non-hierarchical network-organized milieu.

Interesting parallels with Orlov's work on the Soviets and Pavel's remarks as well.

ldmeier:

badger wrote:

As far as computer programming and IT, flee it as fast as you can.

Programming yes, systems analysis, i.e. figuring out what needs to be done no. Basically IT is becoming much more a business discipline and much less a technical one. In the early 1970s where I worked we wrote compilers and operating systems because we had no choice in the matter. For the last 20 years if someone had walked into the bosses office and said we need to right a compiler he would have been laughed out of the building.

Today the question is given the business objectives how can IT be used to assist them, requiring more business and domain specific skills and much less on the programming side. Now if one looks at the engineering side its a bit different on the embedded side, but here the goal is to make some device better thru IT. Again IT is a tool, not the be all and end all.

sum luk:

from: 3.6 million “missing workers”

In the last two months, the labor force has declined by 974,000 workers, reversing much of the 1.7 million increase in the labor force in the first four months of the year. The labor force should have increased by around 3.5 million workers from the start of the recession in December 2007 to June 2010, given working-age population growth over this period, but instead it decreased by 128,000.
This means that the pool of “missing workers” now numbers around 3.6 million, none of whom are reflected in the official unemployment count.

Rob Dawg:

ldmeier wrote:

IT is becoming much more a business discipline and much less a technical one.

Shortened:
"IT has become a modern business practice."

My hat is off to you. Elegant brevity and truth.

Its_Science:

It seems to me that there are likely two main things going on with this:

1) Both older and more educated workers tend to be highly specialized in terms of skills and industry experience. When they are let go, their background may not fit the current job openings particularly well.

and

2) if their skills and experience do not fit the openings particluarly well, but they are accustomed to a relatively high salary, then they will be hesitant to apply to or accept positions outside of their expertise at lower salaries.

The conclusion that "The current mantra is 'more education is good for you' but this shows that it can, in the long run, hurt you," is not necessarily valid though, since the years when this specialization and expertise are applied can be much more lucrative than jobs for generalists or the less educated.

shill :

Maybe this is better for society. Leisure time means more time for civic engagement and energy to focus on raising children and inculcating moral values, as opposed to resorting to surrogate parenting in the form of corporate propaganda through die Fernsehen. They say idle hands are the devil's workshop, but I have also heard that when the hands fold, the eyes rest upward (to ideals).

Yes yes and more yes....Maybe now parents will actually talk to their children instead of texting them.

Cinco-X:

The United States bubble economy and lessons from Japan | Harvard Magazine Jul-Aug 2010

Saving more. Consuming less. Paying down debts. Making sacrifices. Most Americans have not experienced austerity in a long time, so the decade ahead may come as a shock. Expect continued high unemployment, slow wage growth, the possibility of social and political unrest, higher taxes, cuts in government services. Hope for moderate inflation to help reduce public and private debt loads. And be happy if all that is the only price this country must pay as part of the financial hangover from the party that began in 2001.

Japan's "lost decades" -- and economic stagflation in the U.S. | Harvard Magazine Jul-Aug 2010

[Jul 05, 2010] Reversion To 10 Year Average Labor Force Participation Rate Implies 11.8% Unemployment Rate

The only reason for the decline in the unemployment rate to 9.5% was yet another decline in the labor force participation rate, which according to the BLS dropped another 652k people in the month of June.

This resulted in a labor force to the civilian non-institutional population ratio of 64.7%: the second lowest number in decades of data, and only better than December 2009, when this number was 64.6%. The problem with this is that it badly underestimates the split between those who are marginally attached and those 14,623 who were formally unemployed in June. As the chart below shows, the double dip in the labor force participation is now very much pronounced.

What this chart implies is that if there was a mean reversion to the last 10 year labor force participation average rate of 66.2%, there should be another 3.5 million jobless added to the 14.6 million tally. And as this differential is the easiest thing in the world for the BLS to fudge, adding the two and dividing by the labor force of 153,74, we get an unemployment rate of 11.8%, leaving aside all other such fudge factors are government hiring, temporary workers, birth death, etc. 9.5% or 11.8% - which one is more realistic for an economy finally realizing it never left the second great depression, you decide.

Gully Foyle:

"civilian non-institutional population of 64.7%"

http://www.globalresearch.ca/index.php?context=va&aid=8289

The prison industry in the United States: big business or a new form of slavery?

http://www.networkworld.com/news/2010/052710-prison-labor-outsourcings-b...

Prison Labor: Outsourcing's "Best Kept Secret"

http://mydd.com/2010/2/7/a-nation-incarcerated-the-american-gaol-crisis

A Nation Incarcerated: The American Gaol Crisis

The British game show Quite Interesting hosted by the comedic actor Stephen Fry tackles the subject of the American gaol (the Oxford Dictionary spelling of jail) population. As always, the erudite QI uncovers some statistical gems demonstrating how insane our criminal justice policy is.

You can learn more at the Prison Policy Initiative and at Drug War Facts.

It's hard not to disagree with the Anglo-Irish comedian Jimmy Carr that a prison policy based on a baseball metaphor is "bizarre." Frankly, it is poor public policy.

Washington state passed the first three strikes law in 1993. Anyone convicted of three separate violent felonies must be sentenced to life in prison with no possibility of parole. The California followed a year late in 1994 enacting a three strikes law that mandates a sentence of 25 years to life for a third felony conviction. Unlike Washington, the California law counts nonviolent felonies, such as burglary and theft, as "strike" offenses. The popularity of the three strikes law in California has been pronounced. By 2001 over 50,000 criminals had been sentenced under the three strikes law in California, far more than any other state, with almost one-quarter of the inmates facing a minimum of 25 years in prison.

Back in March 2009, Senator Jim Webb of Virginia, a state that in 1871 declared its prison population to be "slaves of the state", proposed a "top-to-bottom review" by Congress of the nation's criminal-justice system with an eye toward reducing the growing prison population.

Webb's office says the panel should take a sweeping look at the way the nation controls crime, metes out punishment and returns felons to society.

A background document says of the commission: "Its task will be to propose concrete, wide-ranging reforms to responsibly reduce the overall incarceration rate; improve federal and local responses to international and domestic gang violence; restructure our approach to drug policy; improve the treatment of mental illness; improve prison administration, and establish a system for reintegrating ex-offenders."

Webb has been speaking out on the prison issue for over a year, warning of the economic and social consequences of housing a growing population of criminals.

We talk about human rights abroad and condemn regimes from North Korea to Iran but are we any better? This is human rights issue and it needs to be pushed forward. When we are being mocked by a British game show, albeit a very cerebral one, things have really gotten out of hand.

http://www.startribune.com/local/95697814.html?elr=KArks:DCiUHc3E7_V_nDa...

TOP FIVE COMPANIES USING DEBT ARREST WARRANTS

Companies that buy bad debts frequently seek warrants to arrest Minnesota debtors. More than 1,600 other creditors also used the process, in most cases just once.*

Warrant cases

Firm Location Type of firm 2005-2009

Unifund CCR Partners Cincinnati Debt buyer 247

Portfolio Recovery Assoc. Norfolk, Va. Debt buyer 130

Debt Equities LLC Golden Valley Debt buyer 92

Capital One Bank McLean, Va. Credit card issuer 53

Lakes Gas Co. Forest Lake Propane supplier 41

* The Star Tribune has used warrants to collect four debts since 2005.

Source: Minnesota Judicial Branch data, analysis by Star Tribune

http://www.nakedcapitalism.com/2010/06/jail-for-unpaid-debt-a-reality-in...

Jail for Unpaid Debt a Reality in Six States (Strategic Default Pushback Watch)

On Friday, I put up a short post alerting readers to a PR campaign apparently just getting off the runway to impress the average American of his moral obligation to honor his debts. The rise of strategic defaults (and perhaps even more important, the increasingly positive coverage it is getting in the media and the blogosphere) is generating heartburn among the banking classes.

One of the tidbits we pointed to was a YouTube snippet of Peterson Institute spokesman David Walker speaking fondly of debtors’ prison and the need to “hold people accountable when they do imprudent things.” A couple of readers complained that I was being unfair, while others said they’d be happy to see the return of debtors’ prison as long at the executives at the TBTF banks were at the head of the queue.

Be careful what you wish for. Reader bill clued us in that people who fall behind on debt payments are being incarcerated in six states. While this is generally short-term, it is nevertheless a troubling development, since these are all involve private contracts and look to be an abuse of the court system. From the Minneapolis-St. Paul Star Tribune:

It’s not a crime to owe money, and debtors’ prisons were abolished in the United States in the 19th century. But people are routinely being thrown in jail for failing to pay debts. In Minnesota, which has some of the most creditor-friendly laws in the country, the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009, a Star Tribune analysis of state court data has found.

Not every warrant results in an arrest, but in Minnesota many debtors spend up to 48 hours in cells with criminals. Consumer attorneys say such arrests are increasing in many states, including Arkansas, Arizona and Washington, driven by a bad economy, high consumer debt and a growing industry that buys bad debts and employs every means available to collect.

Whether a debtor is locked up depends largely on where the person lives, because enforcement is inconsistent from state to state, and even county to county.

In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man “to indefinite incarceration” until he came up with $300 toward a lumber yard debt.

“The law enforcement system has unwittingly become a tool of the debt collectors,” said Michael Kinkley, an attorney in Spokane, Wash., who has represented arrested debtors. “The debt collectors are abusing the system and intimidating people, and law enforcement is going along with it.”

How often are debtors arrested across the country? No one can say. No national statistics are kept, and the practice is largely unnoticed outside legal circles. “My suspicion is the debt collection industry does not want the world to know these arrests are happening, because the practice would be widely condemned,” said Robert Hobbs, deputy director of the National Consumer Law Center in Boston.

Debt collectors defend the practice, saying phone calls, letters and legal actions aren’t always enough to get people to pay…..

Taxpayers foot the bill for arresting and jailing debtors. In many cases, Minnesota judges set bail at the amount owed.

In Minnesota, judges have issued arrest warrants for people who owe as little as $85 — less than half the cost of housing an inmate overnight. Debtors targeted for arrest owed a median of $3,512 in 2009, up from $2,201 five years ago.

Those jailed for debts may be the least able to pay….

The laws allowing for the arrest of someone for an unpaid debt are not new.

What is new is the rise of well-funded, aggressive and centralized collection firms, in many cases run by attorneys, that buy up unpaid debt and use the courts to collect.

Three debt buyers — Unifund CCR Partners, Portfolio Recovery Associates Inc. and Debt Equities LLC — accounted for 15 percent of all debt-related arrest warrants issued in Minnesota since 2005, court data show. The debt buyers also file tens of thousands of other collection actions in the state, seeking court orders to make people pay.

The debts — often five or six years old — are purchased from companies like cellphone providers and credit card issuers, and cost a few cents on the dollar. Using automated dialing equipment and teams of lawyers, the debt-buyer firms try to collect the debt, plus interest and fees. A firm aims to collect at least twice what it paid for the debt to cover costs. Anything beyond that is profit….

Todd Lansky, chief operating officer at Resurgence Financial LLC, a Northbrook, Ill.-based debt buyer, said firms like his operate within the law, which says people who ignore court orders can be arrested for contempt…

Few debtors realize they can land in jail simply for ignoring debt-collection legal matters. Debtors also may not recognize the names of companies seeking to collect old debts. Some people are contacted by three or four firms as delinquent debts are bought and sold multiple times after the original creditor writes off the account….

A year ago, Legal Aid attorneys proposed a change in state law that would have required law enforcement officials to let debtors fill out financial disclosure forms when they are apprehended rather than book them into jail. No legislator introduced the measure…

One afternoon last spring, Deborah Poplawski, 38, of Minneapolis was digging in her purse for coins to feed a downtown parking meter when she saw the flashing lights of a Minneapolis police squad car behind her. Poplawski, a restaurant cook, assumed she had parked illegally. Instead, she was headed to jail over a $250 credit card debt.

Less than a month earlier, she learned by chance from an employment counselor that she had an outstanding warrant. Debt Equities, a Golden Valley debt buyer, had sued her, but she says nobody served her with court documents. Thanks to interest and fees, Poplawski was now on the hook for $1,138….

She spent nearly 25 hours at the Hennepin County jail….

The next day, Poplawski appeared before a Hennepin County district judge. He told her to fill out the form listing her assets and bank account, and released her. Several weeks later, Debt Equities used this information to seize funds from her bank account. The firm didn’t return repeated calls seeking a comment.

“We hear every day about how there’s no money for public services,” Poplawski said. “But it seems like the collectors have found a way to get the police to do their work.”

http://www.startribune.com/local/95692619.html

[Jul 04, 2010] Factory Jobs Return, but Employers Find Skills Shortage - Readers' Comments - NYTimes.com

AnnS
The article states "The increasing emphasis on more advanced skills raises policy questions about how to help low-skilled job seekers who are being turned away at the factory door and increasingly becoming the long-term unemployed"

Well yes those with no high school degree, a high school degree or less than a 4 years Bachelors (some college classes, a cerficate or a BA) are long term unemployed.

The Current Population Survey section of the BLS has kindly done some special data preparations for me.

The longest lengths of average unemployment are not the workers without a high school degree (the lowest number of weeks) nor the high school graduates or those with some college but not a Bachelors (Associates, certificate or classes.) The longest average length of unemployment are those with a BA or more.

Then there is the question of how many of the unemployed in each educational group become long-term unemployed.

Interestingly, the workers in those educational groups are becoming long-term unemployed at the same percentage rate as how many of those types of workers there are in the workforce. It is true whether the worker is between 25 -44 (which has more workers who lack high school degrees than the older group) or if the worker is over 45.

The startling difference among workers who lose their jobs and those who become long-term unemployed is the workers who have a BA or higher. Around 17-18% of workers with a BA have lost their jobs. Those who are 25 -34 have a much lower rate of long-term unemployment than the rate at which all workers with a BA or more lost their jobs. The stunning difference are the workers who are over-45 and have a BA or better. Their long-term unemployment rate is more than 50% higher than that of those how have a BA but are under-45.

Basically it is the workers who are over-45 and who have a BA or better who, once unemployed, can not get back. They seem to have checked in, if not permanently then for a very longtime, to the unemployment version of the Hotel California where they "can never leave."

This makes one wonder if these employers who are whining about not being able to find just the right applicant are setting impossible standards by demanding that the applicant:

(a) have prior experience

(b) operating certain specific equipment or using one certain computer program

(c) be educated - but not too educated

(d) and experienced with a work history but not too much work history (aka another way of saying 'not over 40ish.)

(e) be located in the employer's area - right now, right this minute- because they don't want to bother with employees who would have to move and need help with moving expenses

(f) work for $8 -10 an hour while trying to pay off the student loans from community college for getting training in those specific machines or computer programs

(And I am familiar with all the complaints of employers about not being able to find just exactly the job applicant they want. I was a labor lawyer for decades.)

Like many things, there is nothing price can't fix. If the employer offers high enough wages or help with moving expenses, that will solve a lot of the labor market problems. And when they stop looking for the 26 year old with 15 years experience, that will solve a lot more. Finally, they can expand their search to workers who have similar but not identical type jobs and quit insisting that they only want applicants experienced with computer program ABC.

BTW the idea that younger workers are better educated is a myth. In fact, the number of workers between 25-44 who lack a high school degree is 22% higher than those over 45. And only 1.75% more of workers between 25 -44, have some college or a BA than do workers over 45.

CM

I recently contracted with a firm for a required routine plumbing inspection that will apparently take about a half hour. The firm quoted me a rate of about $100 for this. An online ad that I happened to see for workers certified to do this work listed $14 per hour as their prospective wage. Even considering overhead, etc., the disparity between what this company charges and what it pays its workers is appalling. A friend who had worked as an auto mechanic told me that his situation was much the same, with the mechanics getting much, much less than the auto shop's hourly charge for labor.

What has happened to the idea of workers actually being paid a reasonable percentage of the revenue from their work? We need regulations to insure that this will happen.

Jeff

Sure, there will always be some demand for CNC machinists to do low-quantity/high value work. However, the real revolution in manufacturing has occurred off the factory floor.

Think about how today's hi-tech consumer products are assembled by teenage peasant girls with little or no technical training. This didn't happen by accident. Your smartphone and your laptop were designed to be useful, reliable, AND easy to assemble using low-skill labor. This is why the employers in this article won't train anybody. In a couple of years, their trainee will be replaced either by a machine on the existing production floor, or a low-wage worker overseas using a new machine that doesn't require nearly the amount of skill to operate as today's version does.

LCO

My husband works in an industrial maintenance position for a factory here in the Cleveland area. He had years of prior maintenance experience before starting his job, but not specifically industrial maintenance. He started in his current job through a temp agency, and then was hired permanently. He now makes a little over $18 an hour, after 3 years with the factory, and several raises. He actually makes more money than I do in my office job, while he has a high school diploma and I have a bachelor's degree. My husband was laid off for a year from his current job, and had several interviews elsewhere in the meantime, and many comparable jobs only wanted to pay $11-$13 an hour. Our salaries are so low here in the Cleveland area, even for college graduates, that yes, an $18 an hour job is pretty good, even for a person with children (we have two children).

[Jul 03, 2010] US job figures add to fears for long-term unemployed by Andrew Clark

About 14.6m Americans are unemployed, of whom 6.8m have been out of work for six months or longer. About 1.3m are no longer receiving unemployment benefit under rules putting a time limit on claims.
July
The US unemployment rate dipped from 9.7% to 9.5% last month but a sluggish rate of job creation in the world's biggest economy troubled experts, adding to fears that a weak global recovery could leave many unemployed workers out in the cold.

Figures from the US labour department showed a fall of 125,000 in non-farm jobs during June. But the drop was down to a one-off government layoff of 225,000 temporary census workers. In the private sector, employers added 83,000 staff.

Although the numbers did not justify fears of an imminent "double-dip" recession, they did little to stoke enthusiasm about a swift return to prosperity. Experts on both sides of the Atlantic fear that recovery from the worst downturn since the Great Depression could prove slow to improve conditions for millions in long-term unemployment.

Speaking at Andrews airforce base near Washington, President Barack Obama said the US was "heading in the right direction" with a sixth straight month of private-sector job creation, although he conceded: "We're not headed there fast enough for a lot of Americans. We're not headed there fast enough for me, either."

The headline rate of US unemployment peaked at 10.1% in October but has since fallen only gradually. Last month's drop of 0.2 percentage points was less down to job creation than to the fact that 652,000 marginal workers, such as part-time job seekers and parents of young children, gave up searching and left the labour force.

Nigel Gault, chief US economist at IHS Global Insight, said the jobs report "could have been worse, but wasn't good" with the average working week falling from 34.2 to 34.1 hours and hourly wages down two cents to $22.53. He added: "We do not believe we are heading for a double-dip recession but the data is telling us that the economy entered the second quarter with plenty of momentum and exited it with very little."

Toronto-based Capital Economics agreed, saying the figures indicated "the economy has lost some momentum in recent months, but it is not yet collapsing".

Stubborn joblessness is proving an increasingly acute political headache for the Obama administration, which is pushing European governments to keep spending but is facing criticism that a $787bn (£519bn) US economic stimulus package had a disappointing impact. John Boehner, the Republican leader in the US House of Representatives, said: "The writing is on the wall for President Obama's stimulus policies and everyone – taxpayers, economists and the rest of the world – sees it but him."

About 14.6m Americans are unemployed, of whom 6.8m have been out of work for six months or longer. About 1.3m are no longer receiving unemployment benefit under rules putting a time limit on claims. Republicans in Congress have stalled efforts by the Democrats to extend benefits.

[Jul 03, 2010] Monster Index

Right before the BLS employment data, a chart of the Monster Employment Index. (*)


Monster Employment Index

The index is now back to 141, where it last was almost two years ago (November 2008 = 143). The year-on-year comparisons are quite strong (+21%) but the absolute level of job demand remains quite weak versus the all time high readings reached in 2007. Still, it is a sign that the private-sector labor market has stopped deteriorating and is showing tentative signs of demand.

Note that this index is not seasonally adjusted.

(*) "A broad and comprehensive monthly analysis of U.S. online job demand conducted by Monster Worldwide, Inc. Based on a real-time review of employer job opportunities culled from a large, representative selection of corporate career sites and job boards, including Monster, the Monster Employment Index presents a snapshot of employer online recruitment activity nationwide."

[Jul 03, 2010] Andy Grove on the Need for US Job Creation and Industrial Policy

Andy Grove, who lead Intel to dominance of an extremely competitive, risky industry, has a very important opinion piece at Bloomberg (several readers pointed to it, including John M, dr, Crocodile Chuck). He makes a series of points that are the polar opposite of the de facto US industrial policy, of the naive view that the US can have a viable society based on “knowledge workers”, rentiers, and service industries that depend on their earnings. Sadly, my Washington contacts tell me that the belief that the US cannot compete in anything other than financial services is deeply entrenched there, no doubt fed by media stories that draw misleading inferences from appealing-seeming case studies (see this New York Times story and Richard Kline’s able shredding in comments yesterday here and here for an example)

One thing American businessmen have utterly lost sight of is the importance of providing employment. The focus on “maximizing shareholder value” when shareholders are on the very bottom of the liability side of the balance sheet, not merely legitimates but extols screwing other stakeholders to the extent management can pull it off (and management, suborned via stock-related compensation, has gotten very good at doing just that). By contrast, in Japan, entrepreneurs like Konosuke Matsushita are revered not because they got rich, but because they created good jobs for many people.

Only some of Grove’s stature could poke such a stick in the eye of visibly floundering conventional wisdom that nevertheless remains firmly entrenched because it serves those at the top of the food chain very well (it doesn’t hurt that his piece is exceptionally well argued). My only quibble is that he unintentionally supports the fiction that we don’t have industrial policy in America. Following the money demonstrates the reverse; tax breaks, subsidies, tariffs, and what issues are front and center tell you who the favored children are, including financial services, Big Pharma, the sugar industry, and real estate. And this isn’t as radical an idea as he intimates. Australia, which ranks above the US in the Heritage Foundation’s dubious Economic Freedom Index (the Heritage Foundation clearly never had an encounter with the ATO, which makes the IRS look like pussycats), has very clear priority industries. For instance, its Commonwealth Scientific and Industrial Research Organisation (CSIRO) is one of the world’s biggest science organization and is focused around priority industries for Australia, with its main divisions being information sciences, energy sciences, agribusiness, manufacturing and minerals, and environment (the latter is involved both in new tech and minimizing adverse consequences of current industrial activities).

Please do read this thoughtful article in full and discuss in comments (if you have trouble with the Bloomberg link, as I did, please try here).

A reader:

A great read. But the view may be too American-centric, thus loosing neutrality.

From the article:

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars — fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations.

It’s unlikely that the US could go to another war.

charles 2:

@ the Barefoot Bum :

“All we need — at least under capitalism — is to reduce the cost of our labor power to match China’s”

Absolutely not, there are big cost involved in offshoring (transportation, higher quality control, rejection of lots that don’t meet specifications, expat supervisors).

Yves already mentioned in her blog that some companies were offshoring even without cost advantages, just because it was “fashionable” to do so (I.e. it was going to lead to short term appreciation of the stock price, itself enabling more valuable stock options for management), or it was to have production capacity in “promising” markets.

If I judge by the last utterance of Jeff Immelt ( http://www.ft.com/cms/s/0/ed654fac-8518-11df-adfa-00144feabdc0.html ) these two illusions are dissipating.

Finally, if costs are not adjusted down, the price of repatriated production will go up to maintain profitability. I think that is part of the plan, there is no other way to get the inflation that Bernanke actively seeks, even if, as expected, he denies that (People like Rogoff are more forthcoming)

SteveB:

I think Andy Grove makes an excellent case. Warren Buffett some years ago proposed trade barriers for a different reason: to force our overall trade into balance.

Image what would happen if trade barriers of some type were to be introduced by law, with a planned gradual escalation in the rates over a period of years, that would only level off when our overall trade was in balance. All sorts of businesses would begin to shift part of their manufacturing back to the U.S.

Our current strategies of fiscal spending and monetary stimulus may be able to stop our economy from collapsing, but they can’t provide the stimulus to restart growth. They are just life-support efforts. Trade barriers, in combination with some type of conversion of debt to equity, should provide that needed economic stimulus, that spark that set people and businesses in motion. The surge of investment would end our current economic malaise. Trade barriers would of course cause problems for many businesses, but overall they should be a win for the U.S., if they are introduced through a gradual escalation.

alex:

“Image what would happen if trade barriers of some type were to be introduced by law, with a planned gradual escalation in the rates over a period of years, that would only level off when our overall trade was in balance.”

Often overlooked is that trade balancing tariffs (uniform tariffs on all imports) is WTO legal. One problem though is that includes oil imports, which would probably lead to a 2nd American Revolution.

I prefer to start with eliminating currency manipulation, and introducing tariffs against currency manipulators if they won’t “do the right thing”.

AmericaninChina:

As an American married to a Chinese national from Chengdu (China’s 4th largest city), I’ve had the opportunity to frequently travel and at times live in China during the past 5 years. Mr. Grove’s call for a US industrial policy is absolutely right-on; however, he doesn’t address the key issue pertaining to this policy. Allow me to quote from the June 17th edtion of the China Daily (English version) regarding a recent biopharmaceutical conference in Nanjing China attended by major Chinese and global corporations: “..the city (Nanjing) government will invest 10 billion Yuan (approx $1.5 billion) in supporting biopharmaceutical companies in the next three years, helping the output of local biopharmaceuticals exceed 50 billion Yuan by 2012…”.

Most in the West think that it’s China’s “undervalued” currency that is the main reason for it’s manufacturing dominance. Not so; it’s the Chinese government’s massive direct subsidies to key industries and companies that’s been the primary factor in China’s manufacturing success. Moreover, almost every major city in China provides these direct subsidies to local companies, China has now become very adept at targeting critical advanced-manufacturing sectors to support (they’ve gone way beyond producing cheap crap for US Wallmart shoppers), and most importantly, these subisidies are designed to maximize the creation of local (i.e. Chinese) manufacturing jobs. It seems that the US has only two options: either demand China cease this practice and slap them with big tariffs if they don’t comply (guarenteed trade war?), or begin doing the same in the US and try to beat them at this game.

alex:

“Most in the West think that it’s China’s “undervalued” currency that is the main reason for it’s manufacturing dominance. Not so; it’s the Chinese government’s massive direct subsidies to key industries and companies that’s been the primary factor in China’s manufacturing success.”

Maybe both are important factors. I don’t like direct subsidies to industries, but in our new “globalized” world we may have little choice. Certainly we subsidize the hell out of FIRE and certain other “key strategic sectors” like sugar and cotton.

Another approach is to have “selective difficulties” with certain imports, for reasons of “national security”, “product safety evaluation”, or whatever. Japan was famous for this and China does pretty well too. Companies that offshore too much could also suddenly find difficulties obtaining government contracts.

Neil D:

Grove’s article make perfect sense to me. Moving up the value chain is going to amplify income inequality. As Grove writes…

“But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work — and masses of unemployed?”

Creating jobs for Americans is not considered worthy goal for managers if it increases the cost of production. I had this drummed into me in my last job when my manager said it would be irresponsible not to consider moving production to India. I worked in manufacturing for evil Big Pharma at the time. While they are guilty of many things, at least they still do some manufacturing and research in the USA.

It seems contradictory to bash Big Pharma while advocating an industrial policy to keep jobs in the USA. On the other hand, maybe in return for the tax breaks we should insist they stop off-shoring drug discovery and manufacturing.

scraping_by :

The substitution of finance for all other American industries began in the late 1980’s, according to Kevin Phillips in American Theocracy, and fleshed out further in his book Bad Money. Whatever the motivations, it’s mercantilism for financial assets just as surely as the Asian mercantilism for manufactured goods. The notion that wealth doesn’t need to be created, only rearranged, is enforced and rewarded by the policies and laws enacted since the small Crash of 87.

Phillips points out not only that a dominant finance sector is based on huge private debt (dwarfing the public debt) but that it requires government guarantees for that debt. Debt inevitably grows until the only possible recourse is default. It’s easier to sell debt when the risk of default is on the government. Or in the current case, on our seniors.

One of the real downsides to manufacturing is that it doesn’t require a lot of middle management. Despite propaganda exercises like the recent NYT article, most factories can be set up so the guys on the floor don’t need suits telling them what to do. Finance, especially retail operations, require a lot of people in suits interpreting and enforcing pages and pages of arbitrary rules and conditions. More lawyering, the verb.

So Mr. Groves is within bounds calling for a realignment of the nation’s economic policy away from paper wealth to real wealth. It would upset a lot of apple carts, and not just of the high and mighty, but we would all live better for it.

M W M:

He makes a series of points that are the polar opposite of the de facto US industrial policy, of the naive view that the US can have a viable society based on “knowledge workers”, rentiers, and service industries that depend on their earnings. ”

Groves certainly says something that hit. But he doesn’t say the ugly side of intel. Why is it that such lucrative business like microprocessor is dominated only by one company? Why is it that everything dies and intel appears to be the only gigantic one left? (what happen to AMD, SUN, MIPS, etc etc)

What intel is not saying, some important aspect of US failed industrial policy and political corruption. Monopoly, lobbying money, IP court battle/patent trolling/strategic litigation, government funding/tax break for the big guys, military contracts, etc etc. Intel is notorious in that department. Only company backed by huge sovereign money can survive. (TSMC, Samsung, AMD(dubai/germany) ) Intel is great company but it is not a picture of success for the country. It is one of the absolutely wrong thing that happens in “industrial policy”. Intel will end up in to big to fail in less than a decade. (due to ARM, MIPS)

Why is it we always end up with TBTF? Why is it that start up always end up running their manufacturing in other country and ask for money from someone else? Why is it that Kodak sold/liquidate themselves to the korean? Why is it country like korea and japan with no natural resource export more petroleum and ferrous product to the world than US?

why is it e-ink being sold to PVI? etc. etc…

Somebody has to really dig the “dark secret” that keep creating this TBTF again and again…. I want to hear the “detail story” and decision making mechanism, not big picture and cultural generalization mumbo jumbo.

Yves, please consider little space about the fubar-ness of US industrial and trade policy, if you plan to write more books down the line. Somebody really needs to poke a stick and tell the truth. I don’t know exactly what, but something is going very-very wrong. It is more than one variable like forex. It’s systemic.

btw, Jack Welsch, aka neutron jack is an A-hole. GE is premier example of what’s wrong with US manufacturing long term policy. But the guy can talk and do the right jingle.

[Jul 03, 2010] How to Make an American Job Before It's Too Late Andy Grove By Andy Grove

Jul 1, 2010 | Bloomberg
Bloomberg Opfrom China. They explained, with visible excitement, that they were touring promising companies in Silicon Valley. I’ve lived in the Valley a long time, and usually when I see how the region has become such a draw for global investments, I feel a little proud.

Not this time. I left the restaurant unsettled. Something didn’t add up. Bay Area unemployment is even higher than the 9.7 percent national average. Clearly, the great Silicon Valley innovation machine hasn’t been creating many jobs of late -- unless you are counting Asia, where American technology companies have been adding jobs like mad for years.

The underlying problem isn’t simply lower Asian costs. It’s our own misplaced faith in the power of startups to create U.S. jobs. Americans love the idea of the guys in the garage inventing something that changes the world. New York Times columnist Thomas L. Friedman recently encapsulated this view in a piece called “Start-Ups, Not Bailouts.” His argument: Let tired old companies that do commodity manufacturing die if they have to. If Washington really wants to create jobs, he wrote, it should back startups.

Mythical Moment

Friedman is wrong. Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.

Scaling used to work well in Silicon Valley. Entrepreneurs came up with an invention. Investors gave them money to build their business. If the founders and their investors were lucky, the company grew and had an initial public offering, which brought in money that financed further growth.

Intel Startup

I am fortunate to have lived through one such example. In 1968, two well-known technologists and their investor friends anted up $3 million to start Intel Corp., making memory chips for the computer industry. From the beginning, we had to figure out how to make our chips in volume. We had to build factories; hire, train and retain employees; establish relationships with suppliers; and sort out a million other things before Intel could become a billion-dollar company. Three years later, it went public and grew to be one of the biggest technology companies in the world. By 1980, which was 10 years after our IPO, about 13,000 people worked for Intel in the U.S.

Not far from Intel’s headquarters in Santa Clara, California, other companies developed. Tandem Computers Inc. went through a similar process, then Sun Microsystems Inc., Cisco Systems Inc., Netscape Communications Corp., and on and on. Some companies died along the way or were absorbed by others, but each survivor added to the complex technological ecosystem that came to be called Silicon Valley.

As time passed, wages and health-care costs rose in the U.S., and China opened up. American companies discovered they could have their manufacturing and even their engineering done cheaper overseas. When they did so, margins improved. Management was happy, and so were stockholders. Growth continued, even more profitably. But the job machine began sputtering.

U.S. Versus China

Today, manufacturing employment in the U.S. computer industry is about 166,000 -- lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers -- factory employees, engineers and managers.

The largest of these companies is Hon Hai Precision Industry Co., also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenue last year was $62 billion, larger than Apple Inc., Microsoft Corp., Dell Inc. or Intel. Foxconn employs more than 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co., Intel and Sony Corp.

10-to-1 Ratio

Until a recent spate of suicides at Foxconn’s giant factory complex in Shenzhen, China, few Americans had heard of the company. But most know the products it makes: computers for Dell and HP, Nokia Oyj cell phones, Microsoft Xbox 360 consoles, Intel motherboards, and countless other familiar gadgets. Some 250,000 Foxconn employees in southern China produce Apple’s products. Apple, meanwhile, has about 25,000 employees in the U.S. -- that means for every Apple worker in the U.S. there are 10 people in China working on iMacs, iPods and iPhones. The same roughly 10-to-1 relationship holds for Dell, disk-drive maker Seagate Technology, and other U.S. tech companies.

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work -- and much of the profits -- remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work -- and masses of unemployed?

Since the early days of Silicon Valley, the money invested in companies has increased dramatically, only to produce fewer jobs. Simply put, the U.S. has become wildly inefficient at creating American tech jobs. We may be less aware of this growing inefficiency, however, because our history of creating jobs over the past few decades has been spectacular -- masking our greater and greater spending to create each position.

Tragic Mistake

Should we wait and not act on the basis of early indicators? I think that would be a tragic mistake because the only chance we have to reverse the deterioration is if we act early and decisively.

Already the decline has been marked. It may be measured by way of a simple calculation: an estimate of the employment cost- effectiveness of a company. First, take the initial investment plus the investment during a company’s IPO. Then divide that by the number of employees working in that company 10 years later. For Intel, this worked out to be about $650 per job -- $3,600 adjusted for inflation. National Semiconductor Corp., another chip company, was even more efficient at $2,000 per job.

Making the same calculations for a number of Silicon Valley companies shows that the cost of creating U.S. jobs grew from a few thousand dollars per position in the early years to $100,000 today. The obvious reason: Companies simply hire fewer employees as more work is done by outside contractors, usually in Asia.

Alternative Energy

The job-machine breakdown isn’t just in computers. Consider alternative energy, an emerging industry where there is plenty of innovation. Photovoltaics, for example, are a U.S. invention. Their use in home-energy applications was also pioneered by the U.S.

Last year, I decided to do my bit for energy conservation and set out to equip my house with solar power. My wife and I talked with four local solar firms. As part of our due diligence, I checked where they get their photovoltaic panels -- the key part of the system. All the panels they use come from China. A Silicon Valley company sells equipment used to manufacture photo-active films. They ship close to 10 times more machines to China than to manufacturers in the U.S., and this gap is growing. Not surprisingly, U.S. employment in the making of photovoltaic films and panels is perhaps 10,000 -- just a few percent of estimated worldwide employment.

Advanced Batteries

There’s more at stake than exported jobs. With some technologies, both scaling and innovation take place overseas. Such is the case with advanced batteries. It has taken years and many false starts, but finally we are about to witness mass- produced electric cars and trucks. They all rely on lithium-ion batteries. What microprocessors are to computing, batteries are to electric vehicles. Unlike with microprocessors, the U.S. share of lithium-ion battery production is tiny.

That’s a problem. A new industry needs an effective ecosystem in which technology knowhow accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer-electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies didn’t participate in the first phase and consequently weren’t in the running for all that followed. I doubt they will ever catch up.

Job Creation

Scaling isn’t easy. The investments required are much higher than in the invention phase. And funds need to be committed early, when not much is known about the potential market. Another example from Intel: The investment to build a silicon manufacturing plant in the 1970s was a few million dollars. By the early 1990s, the cost of the factories that would be able to produce the new Pentium chips in volume rose to several billion dollars. The decision to build these plants needed to be made years before we knew whether the Pentium chip would work or whether the market would be interested in it.

Lessons we learned from previous missteps helped us. Years earlier, when Intel’s business consisted of making memory chips, we hesitated to add manufacturing capacity, not being sure about the market demand in years to come. Our Japanese competitors didn’t hesitate: They built the plants. When the demand for memory chips exploded, the Japanese roared into the U.S. market and Intel began its descent as a memory-chip supplier.

Intel Experience

Though steeled by that experience, I remember how afraid I was as I asked the Intel directors for authorization to spend billions of dollars for factories to make a product that didn’t exist at the time for a market we couldn’t size. Fortunately, they gave their OK even as they gulped. The bet paid off.

My point isn’t that Intel was brilliant. The company was founded at a time when it was easier to scale domestically. For one thing, China wasn’t yet open for business. More importantly, the U.S. hadn’t yet forgotten that scaling was crucial to its economic future.

How could the U.S. have forgotten? I believe the answer has to do with a general undervaluing of manufacturing -- the idea that as long as “knowledge work” stays in the U.S., it doesn’t matter what happens to factory jobs. It’s not just newspaper commentators who spread this idea.

Offshore Production

Consider this passage by Princeton University economist Alan S. Blinder: “The TV manufacturing industry really started here, and at one point employed many workers. But as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.”

I disagree. Not only did we lose an untold number of jobs, we broke the chain of experience that is so important in technological evolution. As happened with batteries, abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry.

Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best economic system -- the freer, the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.

No. 1 Objective

Such evidence stares at us from the performance of several Asian countries in the past few decades. These countries seem to understand that job creation must be the No. 1 objective of state economic policy. The government plays a strategic role in setting the priorities and arraying the forces and organization necessary to achieve this goal.

The rapid development of the Asian economies provides numerous illustrations. In a thorough study of the industrial development of East Asia, Robert Wade of the London School of Economics found that these economies turned in precedent- shattering economic performances over the 1970s and 1980s in large part because of the effective involvement of the government in targeting the growth of manufacturing industries.

Consider the “Golden Projects,” a series of digital initiatives driven by the Chinese government in the late 1980s and 1990s. Beijing was convinced of the importance of electronic networks -- used for transactions, communications and coordination -- in enabling job creation, particularly in the less developed parts of the country. Consequently, the Golden Projects enjoyed priority funding. In time, they contributed to the rapid development of China’s information infrastructure and the country’s economic growth.

Job-Centric Economy

How do we turn such Asian experience into intelligent action here and now? Long term, we need a job-centric economic theory -- and job-centric political leadership -- to guide our plans and actions. In the meantime, consider some basic thoughts from a onetime factory guy.

Silicon Valley is a community with a strong tradition of engineering, and engineers are a peculiar breed. They are eager to solve whatever problems they encounter. If profit margins are the problem, we go to work on margins, with exquisite focus. Each company, ruggedly individualistic, does its best to expand efficiently and improve its own profitability. However, our pursuit of our individual businesses, which often involves transferring manufacturing and a great deal of engineering out of the country, has hindered our ability to bring innovations to scale at home. Without scaling, we don’t just lose jobs -- we lose our hold on new technologies. Losing the ability to scale will ultimately damage our capacity to innovate.

Blade Didn’t Drop

The story comes to mind of an engineer who was to be executed by guillotine. The guillotine was stuck, and custom required that if the blade didn’t drop, the condemned man was set free. Before this could happen, the engineer pointed with excitement to a rusty pulley, and told the executioner to apply some oil there. Off went his head.

We got to our current state as a consequence of many of us taking actions focused on our own companies’ next milestones. An example: Five years ago, a friend joined a large VC firm as a partner. His responsibility was to make sure that all the startups they funded had a “China strategy,” meaning a plan to move what jobs they could to China. He was going around with an oil can, applying drops to the guillotine in case it was stuck. We should put away our oil cans. VCs should have a partner in charge of every startup’s “U.S. strategy.”

Financial Incentives

The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars -- fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the U.S. and make these sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability -- and stability -- we may have taken for granted.

I fled Hungary as a young man in 1956 to come to the U.S. Growing up in the Soviet bloc, I witnessed first-hand the perils of both government overreach and a stratified population. Most Americans probably aren’t aware that there was a time in this country when tanks and cavalry were massed on Pennsylvania Avenue to chase away the unemployed. It was 1932; thousands of jobless veterans were demonstrating outside the White House. Soldiers with fixed bayonets and live ammunition moved in on them, and herded them away from the White House. In America! Unemployment is corrosive. If what I’m suggesting sounds protectionist, so be it.

Choice Is Simple

Every day, that Palo Alto restaurant where I met the Chinese venture capitalists is full of technology executives and entrepreneurs. Many of them are my friends. I understand the technological challenges they face, along with the financial pressure they are under from directors and shareholders. Can we expect them to take on yet another assignment, to work on behalf of a loosely defined community of companies, employees, and employees yet to be hired? To do so is undoubtedly naive. Yet the imperative for change is real and the choice is simple. If we want to remain a leading economy, we change on our own, or change will continue to be forced upon us.

(Andy Grove, senior adviser to Intel, was the company’s chief executive officer or chairman from 1987 until 2005. The opinions expressed, featured in the July 5 issue of Bloomberg Businessweek, are his own.)

For Related News and Information: Top technology stories: TTOP <GO> News on the U.S. labor market: TNI US LABOR <GO> News on the U.S. economy: NI USECO <GO> Bloomberg Businessweek: BUSW <GO>

[Jul 03, 2010] NFP - A View From the Street by Bruce Krasting

07/02/2010 | zero hedge

A pal who trades bonds for a living sent me his thoughts on the NFP numbers. An interesting take. His thinking on the birth/death adjustment in July is an early warning of what will come. I also like his comments re: QE2 and a short term back up in rates. Just another view; this guy has been good.

Quick Take: the numbers are not great. Some will want you to believe that we are 10-12mos into a recovery – we should not be losing 125k jobs at this stage.


Worse, Weekly Hours Worked edged down 0.1%. (This is a leading indicator to employment, though we cannot read all too much into one month’s data. Though if we see a tick down again next month, look out.)

The Unemployment Rate went down – great news, right? Not when it retreats by way of Labor Force Participation loss:

“The civilian labor force participation rate fell by 0.3 percentage point in June to 64.7 percent. The employment-population ratio, at 58.5 percent, edged down over the month.”

We actually have 301,000 less people working this month than last month (139,420 May vs 139,119 June), but since the labor force decreased by 652,000, less were actually counted as unemployed, and that helped the headline number:


May calculation: [14,973 Unemployed] / [154,393 Labor Force] = 9.7%

June calculation: [14,623 Unemployed] / [153,741 Labor Force] = 9.5%

That’s not improvement. It’s a faulty data point to consider: the UE Rate is not capturing what’s going on. We should not be looking at it.

Consider that the Labor Force has flat lined over the last 3+ years. This is due to discouraged workers, not because the population stopped growing:


Had the Labor Force Participation rate not dropped so severely over the last 3 years, we’d have a Labor Force around 157,500. This would equate to a UE around 11.6%. So we have nearly 2% of UE shaved off by Labor Force Participation alone.

The alternative measures of UE:


U-6 to 16.5% from 16.6% seasonally adjusted.

U-6 to 16.1% from 16.7% NOT seasonally adjusted.

Private Payrolls were up 83,000 though, so that’s improvement, right? We’ll see – without the birth/death “guess” of how many new small business were started this month, we’d have been at -64,000. Birth/death is added every month, and then adjusted in Jan and July, with hindsight, for ‘wrong’ guesses. Birth/death has added 728,000 jobs since February. Next month comes the adjustment – the last adjustment was in January, when they took away 427,000 of the previously added jobs. We’ll find out next month if the BLS found they were too optimistic in 1H2010.


With a Zero interest Rate Policy, Census hiring, QE and Stimulus mostly behind us, we’re heading the wrong way. While I have been, and still firmly am, in the deflation/lower rates camp, watch out for another head-fake and a period of higher rates like we saw in the fall and winter. In my opinion, should be very concerned about Bernanke/Obama feeling backed into a corner and going “all in” with another massive round of QE (and I mean massive). In fact, considering the election cycle, I’d be very surprised if this does not happen. We need to take our medicine, but what we’ll get is another dose of methadone, dragging this out for years more….

RockyRacoon:

"There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again."

Signed: Dubya

Congress won't be shamed, er, fooled, er.... again.

traderjoe :

A couple comments on the B/D model. I'm no expert, but the birth/death model numbers reported are non-seasonal and cannot be simply added/subtracted to the seasonal headline numbers to see the net jobs number without the model. Second, as I understand it, the B/D model is seasonal - July does not bring an "adjustment" The effect of the model depends upon the month. Here is the website for the BLS numbers: http://www.bls.gov/web/empsit/cesbd.htm . You can assume that the impact will be different per month, and that July will be a month where the model will have less of an impact.

Third, one important part of the model that is never discussed is that the BLS assumes away the deaths of businesses. So, if they call a business and get no response, the business's formerly reported numbers are still kept in the model. These numbers are never reported, so we don't know their impact. Finally, shadowstats has mentioned (you can see it on the BLS website) that the B/D model has actually been amped up 2010 v. 2009, so it has been adding more jobs. This after what only can be called a very embarrassing and massive benchmark revision that took out 800,000 jobs.

I thought BB looked really uncomfortable when with Obama the other day. Not scientific, but I think QEII is coming...

Boilermaker :

You want to know what the WORST thing about the NFP report was?

It's that it was ruthlessly manipulated to the POSITIVE and this all they could muster without going to Levenworth.

Pathetic.

[Jul 03, 2010] howard davidowitz u.s. economy is a complete disaster Tech Ticker, Yahoo! Finance

Small Businesses and Unemployment

Davidowitz says that the job market is also in ruins, noting for every new job there are six applicants. As a result of the intense competition for positions, employers can offer lower wages. Young people entering the work force today can expect to make less money in their lifetime than previous generations.

Considering the majority of new jobs are created by small businesses, Davidowitz argues that new regulations governing loans to small businesses are only making matters worse -- both for the entrepreneurs and the millions of people out of work.

"We have this insane new regulation," Davidowitz says. "Community banks will not even be able to fill out the forms. They'll pack up and quit. They're already underwater. Commercial real estate is still terrible."

The Future a Massive Struggle

Asked whether he thought the U.S. would experience another Great Depression, Davidowitz said the coming years will look more like Japan today vs. the U.S. in the 1930s.

People will be making and spending less money and the nation as a whole will be dealing with the consequences of the deficit, he says. "We are in a struggle, day by day it's ugly. At the core, when we look at our debt, we are going to have to deal with it."

A few months ago, while other analysts claimed that the economy would continue to follow a V-shaped recovery path, Davidowitz seemed out of step by insisting the nation's problems were still dire. Regardless of what you think of his message or style, Davidowitz's doom and gloom outlook now appears much more credible.

[Jul 02, 2010] Weekly Initial Unemployment Claims Remain High and Stagnant

We don't need excuses, we need action. If the big banks were in trouble, do you think more help would come? I do, and it wouldn't take long. We'd see action. But when millions of people who are are, collectively, every bit as important as a big bank are in trouble, we don't just fail to help them further, there's a battle to stop the help that is there from being withdrawn. Draw your own conclusions, but to me it's pretty obvious who Congress thinks it needs to please.

The report on new claims for unemployment insurance is disappointing. Here's Calculated Risk. The main thing to note is that claims have been moving sideways for some time now [Cross-posted at MoneyWatch]:

Weekly Initial Unemployment Claims increase to 472,000, by Calculated Risk: The DOL reports on weekly unemployment insurance claims:

In the week ending June 26, the advance figure for seasonally adjusted initial claims was 472,000, an increase of 13,000 from the previous week's revised figure of 459,000. The 4-week moving average was 466,500, an increase of 3,250 from the previous week's revised average of 463,250. ...

Weekly Unemployment Claims
Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000. The four-week average of weekly unemployment claims increased this week by 3,250 to 466,500. The dashed line on the graph is the current 4-week average. Initial weekly claims have been at about the same level since December 2009. ...

And here's a reaction from Steven Russolillo at Market Talk:

Looks Like Another Stinking Jobless Recovery: I give up. There’s nothing pretty about this morning’s jobless claims report. Claims jump 13,000 to 472,000 in the week ended June 26. The previous week’s level was also revised upward, from 457,000 to 459,000. And all this comes as economists had expected claims would fall by 2,000. ...
As we mentioned in the opener, a Labor Department economist blames the latest rise on the educational services sector, where bus drivers, cafeteria workers and others lost their jobs due to the summer holidays.
What a crock of … I mean, c’mon. Think about it, the school year coming to an end isn’t some brand new phenomena; it happens every year at the exact same time. Isn’t seasonally adjusted data supposed to take these sort of situations into account?
It also seems like the Labor Department always has an excuse in its back pocket whenever there’s an “unexpected” rise in jobless claims. Remember in early April when the increase in claims was attributed to Cesar Chavez Day? Really? ...
“Bottom line, following the weak private sector job growth seen in yesterday’s ADP report, today’s initial claims data need action. If the big banks were in trouble, do you think more help would come? I do, and it wouldn't take long. We'd see action. But when millions of people who are are, collectively, every bit as important as a big bank are in trouble, we don't just fail to help them further, there's a battle to stop the help that is there from being withdrawn. Draw your own conclusions, but to me it's pretty obvious who Congress thinks it needs to please.

[Jul 01, 2010] JP Morgan Responds To Financial Reform The Poison Pill Strategy

The Baseline Scenario

btraven

@ Ted_K

Reading that FT article leaves me thinking Orszag is the one person in the administration who gets it. I’m not 100% convinced, but leaning in that direction.

We need safety-nets and Federal direct lending to qualified small/medium businesss and for small/medium R&D – NOT billions and trillions to the bankster gang and bigCorpa.

Stephen A. Boyko:

I agree.

Entrepreneurs around the world face a common problem, obtaining the “sliver of equity” to enable their operations to achieve positive cash flow.

The importance of SMEs and the micro-cap market is not balance sheets and market capitalization, but potential for job creation, technical innovation and a portal for global capital markets. They are essential agents of change in a market economy, driving the efficient use of resources and facilitating trade between parties with different comparative advantages that accelerate the generation, dissemination, and application of innovative ideas. In modern, global, markets it is not size but innovative capability that is the key to success.

Accordingly, referenced for your review is a white paper entitled “Small is Beautiful,” http://www.findarticles.com/p/articles/mi_m2751/is_77/ai_n6353167/print that was presented at the 2004 Fall Conferences of the American Society for Competitiveness and the SEC Small Business Forum where I described the metrics for an Entrepreneurial Exchange to serve as a platform for capital formation.

EntEx specifically tailors its regulatory regime for SMEs that trade in the micro-cap market by shifting the regulatory emphasis from investor financial capacity to investor financial capability. EntEx divides governance of the capital market, like Gaul, into three separate regulatory regimes to mobilize capital for: Government securities that are bought for savings accounts; Top-tier issues that are bought for investment portfolios; and Micro-cap SME stocks that are sold to venture capitalists and private equity. EntEx provides a pathway to effectively and efficiently deal with the one-size-fits-all deterministic regulation that is suffocating our economy.

Sincerely,

Stephen A. Boyko

Author of “We’re All Screwed: How Toxic Regulation Will Crush the Free Market System” and a series of articles on capital market governance.

http://w-apublishing.com/Shop/BookDetail.aspx?ID=D6575146-0B97-40A1-BFF7-1CD340424361
Stephen A. Boyko

btraven

@ Stephen A. Boyko – Thanks for the link. I skimmed through the article and may read it more thoroughly at some point. I would say two things:

1. I am pro “competitive markets.” I do not support “free markets,” which do nothing to prevent monopolistic competition and, effectively, outright monopolies. “Free markets” undermine Capitalism.

2. I oppose the trading of publically held shares of companies. Beyond the IPO phase, which actually raises capital, further trading is effectively nothing but speculation. From my vantage point, the negatives of the equity markets outway the the positives. Bonds are fine. Private ownership is fine. Worker ownership is the best.

Bruce E. Woych

The reformation is getting hit with the counter-reformation. All nonsense since it all represents going back to regulations in hindsight, not to make them better and stronger, but to weaken them and make them useless. This is crony capitalism in the third world; but its big business here in the tunnel of Love between Wall Street, Banking and Washington DC supply chains & trains. Let’s stop this reformation and start the revolution.

We should be discussing alternatives. International alternatives to the monetary system, the financial services system and the cross border resolution mechanism. Domestically we should be taking charge of our own economy back from the crooks who are wiping it out. We need to rebuild the merchandising and trading infrastructure and stop this pricing devastation to real assets and exchanges. We need to start rallying in the streets before we start living in the streets (its already started…and I’m not kidding). We need to concentrate on a global referendum to rebuild infrastructures and develop domestic economies. we need to designate a special interest in commercial services over luxury trappings.

A Public Option financial system (essentially a utility) that concentrated upon essential domestic commercial and economic interests to compete with the existing system would provide a controlled equilibrium against derivative and speculative distortions existing in a fiat system with no anchor.

At the very least I guarantee you that if the American People start a serious discussion about really changing the game, changing the playing field, restructuring their piggy banking…”JP Morgue” will pay attention faster than a little threat from (wink wink) angry politicians. Lets just stop talking about restorative give backs in a reformation that keeps the cross on the hill with fresh bodies to “JP Mourn” about. Let’s get real people, time is not friendly!

Carla

Very good. Money IS a public utility–or in a sane world, it would be. That world can be envisioned and you can help to bring it about.

To learn more about the Center for the Advancement of a Steady State Economy go to http://www.steadystate.org. Read the position statement, and if you agree, sign it. Then send it to everyone on your list and ask that they do the same.

I first learned about CASSE on this very blog.

We CAN have a constructive response to the crap those puppets in D.C. are dishing out.

Anonymous:

“The reformation is getting hit with the counter-reformation. All nonsense since it all represents going back to regulations in hindsight, not to make them better and stronger, but to weaken them and make them useless.”

Exactly – succinct presentation!

And ditto for same thing happening with “health care”.

Considering how one of the dumbing-down social engineering tactics is “government” micro-managing in your bedroom and bank account, we should start evaluating economic “theories” in terms of biology and anatomy.

Any “thing” that “weakens and makes useless” needs to be evaluated – is the cancer/bacteria/virus/amoeba

killing the human being? Yes? Than why is the human being being weakened and made useless instead of the disease?

The economy is predatory – killing the host. And, agreed, we don’t have the time for mental masturbation.

Received yesterday in the mail the town’s “Annual Drinking Water Quality Report for 2009″. Besides the obvious cherry-picking of “data” for maximum obfuscation of “safety”, the report obviously assumes that no one will take the time to try and figure it out – how else could they get away with May 2006 being the sample date analyzed for radionuclides (their word and spelling, not mine :-)) for a 2009 report?

Tooo easy to LIE with numbers…

I already signed the Steady State petition…what happened after the Big Bang? The eons long process to achieve steady states…no?

“The reformation is getting hit with the counter-reformation. All nonsense since it all represents going back to regulations in hindsight, not to make them better and stronger, but to weaken them and make them useless.”

sniff

sniff sniff

pew

alpha dog(s) are NIHILISTS.

The Personality Cult is too strong on this blog.

What’s the list…EVERYTHING is against the LIVES of USA citizens – they’re not doing a single thing FOR the USA citizen:

global police wars? check

foreclosures? check

joblessness? check

no health care? check

hooliganism-enforced PC cnesorship on all media communication channels? check

shamanism – Jim Jones is back? check

Stop sniffing. The pack needs to challenge the alpha dogs…let’s circle around them…
Annie

June 27, 2010 at 1:57 pm
Reply
For those who are interested :

http://en.wikipedia.org/wiki/Oil_geostrategy

http://en.wikipedia.org/wiki/Petrodollar_Warfare

http://en.wikipedia.org/wiki/Petrodollar_recycling

http://en.wikipedia.org/wiki/Monetary_hegemony

http://en.wikipedia.org/wiki/New_Great_Game
Bruce E. Woych

June 27, 2010 at 2:18 am
Reply
The New Great Game is a new term for something that Niall Ferguson touched on. Ferguson opined that areas desired by multiple major powers are doomed to be fault zones of political strife. The Balkans are probably the best example, having been fought over by Russia, the Ottoman Empire, the Hapsburg Empire, and a few others. The only reason there are Muslims in Bulgaria and former Yugoslavian countries is 1) Ottoman immigrants and 2) locals who converted to Islam because it is much easier to live as a Muslim in Muslim-controlled countries. Now we have ethnic equals of different religions fighting solely because of religion.

Central Asia and the Caucasus are being fought over by China, Russia, radical Islam, and the group of oil-addicted countries topped by the USA. Add corrupt leaders, inter-tribal hatred (e.g. Uzbek-Kyrgyz) and the USA’s desire for military bases to pacify Afghanistan to the mix and a nasty stew bubbles to the surface of the pot.

As long we we are throwing URLs around, here is one of my favorites: CIA World Factbook
https://www.cia.gov/library/publications/the-world-factbook/
saucymugwump

June 27, 2010 at 10:10 am
Reply
“Now we have ethnic equals of different religions fighting solely because of religion.”

And it’s working – no Christians left in Iraq.
Annie

June

[Jun 25, 2010] Senate rejects extension of jobless benefits

Emergency jobless benefits, which provide up to 99 weeks of income support, expired June 2. Since then, more than 1.2 million people have had their checks cut off, according to estimates by the Labor Department. That number is expected to rise to more than 2 million people by the time Congress returns from its weeklong break. Unless Congress acts, the program would phase out entirely by the end of October.

[Jun 25, 2010] The Job Shortfall Then and Now

June 08, 2010 | Econbrowser

... I agree with Mr. Hennessey:

Instead, I'm trying to show that, while +290K jobs in April is a good number, and it is the most jobs created in any single month in four years, we need a much more rapid pace of net job creation for the foreseeable future to close the employment gap in a reasonable time frame. And the "best in four years" shouldn't surprise you, as we should expect more jobs to be created during a recovery than when the economy is at or near full employment.

But I would add that we should probably move beyond simple univariate characterizations of trends in our policy discussions

Andrew

Majority of job growth are government positions. Plain and simple. Also, the unemployment rate is much higher than what "official" government statistics are telling us. If the government weatherman tells me it's sunny outside but I see it raining, I'm going to bring an umbrella.

The latest New York Times unemployment number tells us something else here. The real unemployment rate is about 20% because of all the people who have quit looking for work, those who are working part-time, students who graduated from school and have not found jobs, etc.

ken melvin

Hi Min. Back in 06 I sent a long an article (that later appeared on Angry Bear) of mine that included a mark up of a graph showing the gap of 03 at some 7 million.

On 330 April, Larry Summers @ the Center for American Progress, Discussion on Jobs said: .

“40 yrs ago, at any given time, 1 in 20 adult males were out of work Today, at any given time, 1 in 5 adult males are out of work 5 yrs from now, after the recovery, at any given time, we can expect 1 in 6 adult males to be out of work, and 1 in 10 of those with college.

Causes:

  1. Technology (automation) less labor required to produce more
  2. Off shoring of low tech jobs due to globalization.”
I, too, think that the gap is now some 11 million plus; I suspect it is on the order of 15 million, may well be 17 million. More, they need be good jobs, of which a there are very few on the horizon.

[Jun 05, 2010] Duration of Unemployment

CalculatedRisk

This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories as provided by the BLS: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

Note: The BLS reports 15+ weeks, so the 15 to 26 weeks number was calculated.

As we've discussed before there was more turnover in the '70s and '80s - back then the 'less than 5 weeks' category was much higher as a percent of the civilian labor force than in recent years.

What really makes the current period stand out is the number of people (and percent) that have been unemployed for 27 weeks or more (red line). In the early '80s, the 27 weeks or more unemployed peaked at 2.9 million or 2.6% of the civilian labor force.

In May 2010, there were a record 6.763 million people unemployed for 27 weeks or more, or a record 4.38% of the labor force. This is significantly higher than during earlier periods.

It does appear the number of long term unemployed is near a peak (the increases have slowed). But it is still very difficult for these people to find a job - and this is a very serious employment issue.

GDD9000

it's much worse than this. If you adjust unemployment for the massive drop in labor force participation, you realize that its many more millions that aren't working. That, plus the working pt time for economic reasons (U6) data will show you that the reality on the ground is a depression, papered over by massive transfer payments.

Its going to be very hard to admit that we cant fix this via stimulus and deficit spending. And yet, we are hugely dependent upon that to keep the ship afloat. But sorry to say, the USS frazierflotilla be sinkin...

Bob Dobbs:

Tagsbadger wrote:

The general population is under the delusion that we live under a meritocracy and that if a person just does the right things they will be happy, working, married, and loved.

And then things fall apart and they find themselves unhappy, idle, in a stressed relationship, and despised by society. It's so easy to slip over to the other side and become one of (shudder) Them in the eyes of privileged society.

When that happens to enough people, who get mad enough, you get change. On a scale where the New Deal is toward the low end. The many stopgap transfer payments have been instituted to maintain the facade of the current order for most of the unemployed -- to keep the change from starting to happen.

GDD9000:

Tagsif you look at total employment by industry it is easy to see why you have such a huge number of LT UE. First, LT decline in manuf. If that goes down for years, its obvious that it becomes harder to get a job in that field and mobility wont help much. Next, information. That sector is also undergoing LT structural change and job loss. Then we have malinvestment (construction) - shedding jobs for longer a long time and will for another year to two at least. And NONE of these people are really very employable, especially if they are uneducated.

And don't forget, the uneducated compete with the illegal immigrants, who arent in the stats and are also hugely underemployed. Easy to see when you drive past the strrett corner illegal empl pools all with nothing to do.

broward:

The general population is under the delusion that we live under a meritocracy

It's a very political environment now. I thought my brother's resume was outstanding - 12 years at Microsoft since it IPO'ed, 11 years at Amazon since it IPO'ed but nobody wants to interview him, much less hire him. I've concluded that they're too threatened by the resume or assume he's far too high-priced. He's gotten perhaps one call per month in the past fourteen months, and done maybe four interviews.

badger:

It ain't like we got a ton of jobs for the educated. As Dryfly noted, office work is becoming unskilled labor and is quickly being automated. The "knowledge" economy is a sham. Recent law school grads will attest to what a good education gets you now a days.

JP:

broward wrote:

Dump the $60/hr contractor for the $50, then the $50 for the $45, etc.

To be fair: If you plotted software salaries/rates vs time, there was a bump in the 90s that never was terrifically rational. My sense is that it's reequilibrating.

dryfly:

GDD9000 wrote:

if you look at total employment by industry it is easy to see why you have such a huge number of LT UE. First, LT decline in manuf. If that goes down for years, its obvious that it becomes harder to get a job in that field and mobility wont help much.

It is even more enlightening when you see the kinds of jobs let go inside some of these businesses - I was in a major tier one to automotive this last week. They had been wrung out pretty well in bankruptcy and had exited a LOT lighter. Sure some direct mfg types were shed but even more so were the white collar middle manager & back office types. I was at corp HQ and the place was emptier than at any time I had ever been there [short of last years 'crunch'].

And what made it even starker was learning they had merged a large regional 'divisional HQ' into the same building.

The guy I talked to said things have never run so well - lots fewer meetings & bureaucratic BS. He said they expected a lot more 'rationalizations' to follow [right sizing, redundancy, etc.].

Its how things are going to be going forward. If you aren't in front of the customer or handling the money or the product DIRECTLY - you are potential fodder for 'rationalization'.

[Jun 02, 2010] Why is Washington Dithering with Unemployment High

“tie your own shoelaces"
June 2, 2010 | naked capitalism

Brad DeLong points out that Ronald Reagan was far more concerned about unemployment than Team Obama (or Washington generally) is, and also took far more aggressive measures to combat it.

A second reason for complacency about unemployment is just as deeply rooted. There is little confidence in conventional policy remedies. Neoclassical economics posits equilibrium, so near collapses of the world as we know it are not supposed to happen. The Austrian and Keynesian schools believe in disequilibria and have prescriptions. However, the risk of the social breakdown with the Austrian prescription is correctly seen as high (one of the reasons Roosevelt had a block of support among major corporations was they recognized the country really could fall apart, and they saw aggressive intervention as less dangerous than violence and an increasingly popular Communist movement).

... ... ...

So what explains this bizarre, self-destructive posture? One simple explanation is that the neoclassical economics orthodoxy has become so hopelessly entrenched despite its manifest failure (witness the crisis) that few can see how deeply captured they are by its ideology. A key tenet is the demonization of organized labor, combined with a refusal to recognize that many forms of commercial activity tend to lead naturally to agglomeration of power. Thus unions serve as a useful counterweight to concentrations of corporate power.

Before I hear reader howls, it is important to recognize that anti-union sentiments have been marketed aggressively since the early 1980s. I grew up with a father who ran major manufacturing operations, dealt with multiple unions throughout his career, and was horribly right wing. I never once heard him say anything bad about unions. Similarly, I graduated from Harvard Business School in 1981. I cannot recall a single person at the school, either faculty or students, criticizing unions. And this was after a near-decade of stagflation, with Japanese and German manufacturers on the rise. Germany, then as now, had strong unions; Japan did not, but was famous for having enlightened policies towards workers. In other words, treating workers decently was not seen as contradictory to economic might.

It is perverse that unions for middle and lower income workers are demonized, but unions for the educated, like the legal, accounting, and medical professions, get nary a second thought. And how about CEOs? While not a formal union, there are mechanisms that help keep pay aloft (most important, comp consultants who are hired by the CEO human resources department who manage to persuade boards to set the standard for their CEOs pay in the top 50% of his peer group or higher. That assures constant leapfrogging of pay). Why is collusion among workers to achieve higher pay levels savaged, but far more egregious featherbedding by top executives and boards given a free pass?

But most of America appears to have deeply internalized the belief that labor lacks, and perhaps more important, ought not to have any bargaining power. This is a wonderful state of affairs for the managerial elite and investors. Having labor share in productivity gains was no impediment to growth; indeed, the record from the end of World War II through the mid-1970s versus the last two decades would suggest the reverse.

And the argument that US labor cannot compete with China et al is overblown. In most cases of outsourcing and offshoring, the results are disappointing (a dirty secret you will find if you burrow into the literature; for instance, IT, a popular candidate, has a particularly poor record). But it also serves to reduce lower-level labor costs and INCREASE managerial costs (greater coordination required). From the Wall Street Journal on IT outsourcing:

Dean Davidson, an analyst who follows outsourcing for Meta Group, in Stamford, Conn., says that companies usually find their actual cost savings from moving offshore are less than they would expect based on straight wage comparisons. “The reality is a general savings of 15%-20% during the first year,” Mr. Davidson says. That’s far less than the 50% to 80% savings based on hourly labor rates, he says.

... ... ...

“But the real problem may be that all these approaches are past their sell-by dates, helpful around the margin but insufficient to provide lasting relief to our current malaise. We may be at the end of a paradigm. The US and its trade partners have engaged in a 30 year experiment of deregulation, financial liberalization, more open trade, and deep integration of markets. But most other countries had clear objectives: they wanted to protect their labor markets, which usually entailed running a trade surplus (or at least not a deficit). Many of them also had clear industrial policies. By contrast, the US pretended it was adhering to a “free markets” dogma so that whatever resulted from this experiment was virtuous. But in fact, we have had stagnant real worker wages, with a rising standard of living coming from rising household borrowings and to a much lesser degree, falling technology prices. We have also had industrial policy by default. Certain favored groups, such as Big Pharma and the sugar lobby, get special breaks.”

Yves Smith:

Pierre,

Democrats supporting unions today? You are kidding, right?

Follow the money. There is not only little substantive support for unions in the Administration and in much of Congress, they don’t even bother with optics. Tell me the last time you can recall a major political leader meet with a major union leader. Contrast that with the time they spend with CEOs.

Look at the way in the auto bailouts (for one example) that Obama crammed down the union pensions. Yet the same Administration cries “sanctity of contract” and refuses to renegotiate AIG’s CDS when MORE money was at stake. Oh, and we somehow couldn’t renegotiate the employment contracts of AIG’s staff either. All these companies were wards of the state, but the union members were given the shaft while white collar staffers were treated with kid gloves (and people in the industry who know CDS tell me very few of the existing staff were really needed to unwind positions, most could be handled by good back office types at vastly lower rates, and given Bear and Lehman, there ought to be people like that on the street).

I’m not arguing against some degree of haircut at the auto unions. I’m pointing out the obvious disparity in treatment between union and white collar workers.

And although anti-union sentiment is an obvious symptom, the critical point is the more general one: the widespread acceptance that workers have no bargaining power. I don’t mean simply in organized labor settings. How many people do you know who put up with unreasonable work demands because they are afraid to say no? If the company has some loyalty to its workers, that might not be so bad, but many companies are exploitative (such as Wal-Mart requiring workers to work off the clock) and that is now considered an acceptable way to do business.

DownSouth:

tyrone shoelaces,

Bill Moyers interviewed Trumka in January.

Trumka laid out the unions’ prescriptions for what ails America:

1) Extend employment benefits
2) More money for state and local governments
3) More investment in infrastructure
4) Direct funding of jobs

When asked “where does the money come from?”, Trumka’s response:

It’s a real simple thing. You know, let’s look at who created the mess. The banks created this mess. Wall Street created this mess. And the super rich have had a tax break from Bush of $1.2 trillion. We can take a little bit back from the rich that have really enjoyed the last ten years in an unprecedented way, and pay for the creation of jobs that they actually destroyed.

If we look at the actual policy direction Team Obama is taking, do you see any of the policy prescriptions preferred by the unions being implemented?

Obama is a master of deception. One must concentrate in keeping one’s eye on the ball, that is what Obam does, not what he says.

Yankee Frankee:

When looking back to prosperous times in this country, say the 50’s and 60’s, the top tax bracket was between 70-90% and we had strong unions. There was a living wage available in both the public and private sectors. CEO’s made around 15-20 times what there lowest paid workers earned, and as I mentioned above, they were taxed very highly. Now we have the reverse: workers do not earn a living wage in most cases, CEO’s and upper management earn 350 times their lowest paid workers, and they pay a maximum tax rate of around 35%. So, instead of looking to where all the money has actually flowed in the past 30 years (upwards to what has now become an oligarchy), some decide to bash the one group of workers that are actually earning a living wage — public sector employees. It would be funny if it weren’t so sad. I read the same drivel from Mort Zuckerman, the poor little rich boy, on HuffPo a few weeks back. So we should all (except the top 1%) live in debt slavery because states are broke? How about restoring true progressive taxation and bringing upper management salaries down from the stratosphere? If we do that and we’re still broke, then fine, we should cut worker wages in the public sector. But until that time, the people calling for the blood of our teachers should really just shut the f-ck up.

DownSouth:

alex black,

“tell me the last time you can recall a major political leader meet with a major union leader”
Does the fact that Andy Stern, head of SEIU, has logged in more visits at the White House than anyone else count?

Yep, now that the apologists for laissez faire capitalism have their Trojan Horse in the Whitehouse—-Barak Obama—-they’ll trot him out at every possible opportunity. alex black, you seem to believe that people can’t distinguish the difference between theatrics and substance. Maybe you’re right, but there exists at least some possibility that you’re wrong.

Now let me fix the rest of your comment:

That aside, what’s all the howling I hear from Wall Street workers. For every financial sector employee laid off in the recession, there have been 7 main street employees. Workers in the productive sector are seeing lowered wages and benefits. Workers in the financial sector are screaming over lack of increases.

Most corporations are facing Greek-like budget scenarios, fueled largely by bloated executive payrolls, lavish expense accounts, perks like corporate aircraft, and golden parachutes – the kind of compensation that the producers (workers) can only dream of these days. Maybe my view is skewed by living outside Delaware, Wall Street or Washington DC, where the corporate honchos have permanent leverage.

The private sector is being ravaged here – the public sector is the only sector half-way holding its own, thank you…..

I rather enjoyed the letter to the NY Times, where a Wall Street trader who makes over $1 million per year, plus other lavish benefits (he will retire with over $100 million in pension benefits to his name), complained angrily that for his education and experience, he was NOT getting compensated enough for his labor. To which I replied, “Well, you know what? You don’t have to do it then.”

I wonder if he could earn that much in the productive sector? And if he somehow could, would she miss her 15 weeks of vacation time per year, with free use of a company jet and a number of corporate-owned vacation homes scattered over the globe?

Corporate executives negotiate against themselves for their pay and benefits, and there is no one looking out for shareholders’ money – a very unfair arrangement and an unlevel playing field. No complaints, no howling, no demonizing, at least from corporate executives. But unions negotiate against corporate executives, who not only don’t give a rat’s ass about shareholder’s money, but actually stand to gain by depriving workers of everything and anything they ask for. Politicians stand to benefit too, because corporate executives give the politicians a nice quid pro quo for the favor of ignoring unions – lots of campaign money and millions upon millions of dollars spent in promoting laissez faire capitalism, both within and without the academe, and demonizing unions. NOT a level playing field. I am hearing howling hear, and to my ears, the howling sounds pretty legitimate.

greg b:

Good post Yves

In Jeff Sharletts book “The Family” he describes the almost singular focus of the “Christianization” of the powerful in this country as being driven by a fear of the power of the little people, which the founder of the movement in the early 20 th century witnessed in the “unionization” battles. I cant recall the mans name who is credited as the spiritual grandfather of “The Family” but he was driven by watching how the politics of the workers of the west coast dock workers from San Francisco to Seattle threatened the power structure.

Unfortunately it is in many of our churches where people are learning to worship the powerful and be suspicious of the lowly worker who wants to organize as a way to gain some power.

DownSouth:

NOTaREALmerican,

It’s called divide and conquer, and it’s a strategy that’s as old as the hills.

And while I largely agree with what you have to say, I nevertheless believe there’s plenty of blame to go around. For besides the “white dumbasses,” there are certainly plenty of black separatists in the mix too.

I think if you will delve into where the money comes from to fund the culture warriors of the New Left, you will find many prominent names like the Rockefeller Foundation, the Ford Foundation and the MacArthur Foundation contributing massively to the cause. And it doesn’t get much more status quo than that.

attempter:

I can see two differences between Reagan’s time and today.

One is the political difference the post discusses. Neoliberal/corporatist ideology has advanced since then. The US polity and media have moved far to the right. Only right wing “ideas” even get aired, let alone enacted into policy.

Thus for example a Democratic president could proclaim health care “reform” his centerpiece policy initiative and then with the full support of right-leaning corporate liberals everywhere end up demanding a reactionary bill, a gangster mandate, which is so bizarre and so extreme it seems to not even fit on the regular political spectrum. I guess with the health racket bailout corporatism has gone politically post-modern, post-spectrum.

Obama’s psychopathic unconcern with unemployment is another such political manifestation. If he can see a way to use the crisis to bestow more benefits on corporations like job creation tax credits (which we know don’t lead to new job creation but only loot the public in order to hand another rent to employers), he’s happy. But otherwise he doesn’t care.

I personalized that with Obama, but he’s just an example of the regular type in today’s kleptocracy.

The second is the structural difference. In Reagan’s day globalization and financialization were still in the stage of co-opting the Western “middle class” through the exponential debt economy. That imposed certain political imperatives like not allowing unemployment to get out of hand. People wouldn’t feel confident about taking on huge levels of consumer debt under those circumstances.

But today the “regular” debt economy has collapsed. We’re now Bailout America. While the system may still have some residual political concerns about mass unemployment, it’s no longer counting on consumer confidence and consumer debt from which they can extract rents. The elites know this stage is dead. They’ve moved to increasingly direct robbery. They’re going to borrow, print, and steal as many fictive dollars as possible, and then use that fictive wealth in turn to privatize all public property and expropriate all real wealth in land and other physical assets. That’s the Bailout.

In the end, they intend for the people to be left with literally nothing but public debt and endless private tolls they must pay which they cannot pay. So they become private debt slaves as well, and that’ll be the new feudalism, that’ll be the new serfdom, all enforced by a violent police state.

Under these conditions, even massive unemployment is no structural barrier. On the contrary it’s expected to help – to drive down wages even further, destroy benefits and work conditions even further, and to keep everyone who still has a job in a state of quiescent unpolitical terror.

DownSouth:

Bienvenidos a México,

It’s called a Banana Republic.

And let me assure you, it’s not the Mexicans in the United States, who are fleeing this Libertarian-Austrian-Neoliberal hellhole, who are to blame for America’s demise.

michel :

Problem is, unions are not a counterbalance to large companies. The only effective counterbalances to that are, one, a strong trust busting central government agency equipped with anti cartel legislation, and effective competitors.

Yes, the German union model worked. The British one famously did not. Where is British Leyland, aka Rover, today? And why? Driven out of business by its unions over the years. If you look at British Airways today, the same thing is happening.

I knew cases where UK unions resisted health and safety procedures on the grounds that they would not accept the disciplinary measures necessary to enforce them. Resistance to introduction of IT, because they would rather see it done manually, to ’save jobs’. Resistance to training to improve job skills, because it would increase inequality. Resistance to management training which would ’siphon off the natural leadership of the working classes’.

Ask the people who used to work for Rover what they now think of their union. Ask the British Airways people too. Well, you have your answer in the number of people who are flying through the strikes.

Its not about unions in themselves. Its about the form of unionization in a given jurisdiction. As when in the UK, the previous Government, whose ruling party was mainly funded by the two large unions, talks about ‘investing in our great public services’ and what they actually do is raise the salaries of the public sector union members, and in particular, incur huge unfunded public sector pension liabilities.

Richard Kline:

The US has a long, ugly history of virulent anti-union repression going back to before the Revolution. Yes, there have always been citizen organizers and activists, but it’s been a long uphill battle. The fact that unions won the legal sanction to bargain at all in the early 20th century was, in many respects, an historical accident.

There are numerous reasons, both social and historical-cyclical why the current anti-union rhetoric and activity gained currency, and by that gained traction in the later part of the 20th century. I’m of the view that what galvanized the corpocracy into a full scale assault against their own workers was the wave of judgments against corporations in the 1970s. OSHA violations, discrimination violations (especially in cases of sexual harrassment and promotion), impending problems from their outrageously underfunded pension obligations as their existing workforces aged all pointed one way: employees were viewed as hazardous to a company’s profitability.

So corporations set out to get rid of their employees as much as possible. The best way was to hire somebody else to hire the actual employees upon whom such legal obligations could be shed while the original corporation retained product rights, profits, and distribution intermediation. It matters not to the modern corporation that the job losses impoverish large parts of the communities in which said corporations are socially embedded. Corporate profits have soared, and with them managerial bonuses because costs were externallized even more than sales declined. In short, modern corporate enterprises, notably the American variety, turned themselves into social pathogens over the last forty years, sucking the wealth out of their communities and returning the waste into their social environment. This was a deliberate policy, successfully executed, and now vigourously defended by both castes of the political one-party system, the Profiteer Party.

This attitude is easy to see in any modern corporate for whom their employees, regardless of rhetoric, are considered an embarrassment at best, and a liability at worst to management, that is to ‘the real company,’ an attitude which would fit the 18th century aristocracy in Europe very well indeed.

As for the public, we have a thick strain of wannabe riche in the US, and always have, the land of opportunity to become personally rich. And when one doesn’t, or does a little but worries about losing what rentier slice one has acquired, it’s useful to have someone else to blame for ones inability to secure ‘what one is owed.’ The more one become rich, the more useful still to have ‘them’ to denounce to others to throw society off the scent of to whose good the way of things is rigged. Because unionism was weak here, and often loudly advanced by recent immigrants with pro-labor ideas, stigmatism of organized labor has always gone club in fist with anti-immigrant agitation as well. If one puts that tawdry cloth of deviousness and bigotry together, it is evident to any historical study that anti-unionism has always been a ‘blame the victim’ process, with a strong element of drawing attention away from the crimes of capital, often petty capital. This is an unlovely part of American society, that too many here are more ready to embrace the successful heel and criminal than those who also toil.

Yes, there are certainly corrupt unions. No process is entirely one-sided. No one would join a union if there was a better option, but workers get what they are prepared to get for themselves. The comments above that ‘what we need are powerful trust-busting organizations’ are historically naive to the point of irrelevance. Government _always_ follows, never leads.

It was agitation for the eight-hour day, public fear and disgust concerning grossly unsafe food and manufactured products, and increasingly effective strike activity by anarchist and socialist activists under great personal peril that pushed the Federal Government to tepid reforms. Has anyone actually read those putatively landmark ‘trust-busting’ activities. Much of the push for them came because other corporations and great centers of financial wealth were threatened by monopoly power in the hands of a few: the government didn’t act for society but to preserve the bulk of capitalists. And in case some of you haven’t looked up the historical records, those trusts didn’t lose any money, they just had to sell, at a profit, some of their operations or diversify. This is much of what marked ‘anti-trust,’ a level playing field for master capitalists. There was little in the way of labor reform that came out of that: this took labor agitation another generation to win.

Ain’t no Guvmint gonna ‘regulate’ for the citizenry out of a sense of fairness, decency, or respect for society. Guvmint will get off the public’s dime when the public steps on the governators feet, and not until. And that takes, well, _organization_, as in labor organization.

greg b:

One of the reasons for the huge disconnect between more American workers and unions is that that since the 80s more American workers have become investors. Everyone is a 401k watcher and CNBC is probably on in every employee lounge. When your future income is so dependent upon these companies you’ve invested in staying profitable, its easy for you to view “other” workers as impediments to your future well being. “Those greedy employees just killing the profit margins of my favorite stock and killing my portfolio…………………………………….. oooohhhh the NERVE of them”

We dont view other workers as fellow travelers, they are either people to envy and try to be like or vermin to despise and wish they got their comeuppance.

Pretty sad really.

Mandy:

Hold on there greg b. “Everybody” is not a 401k watcher– see here:

“How many Americans working in the private sector have retirement plans?

Half of America’s private sector workforce are not covered by any retirement savings plan; their retirement will be anchored only by Social Security and whatever they have managed to save on their own.

The other 50 percent have one of the two main employer-sponsored retirement savings strategies: a traditional lifetime pension or a 401(k)-style investment plan. Today, twice as many workers have 401(k)s than have lifetime pensions, a complete reversal from 25 years ago, according to David Wray of the Profit Sharing/401(k) Council of America.” http://www.pbs.org/wgbh/pages/frontline/retirement/need/#1

DownSouth:

greg b,

A great book to read on this is Jacob S. Hacker’s The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream.

What you describe is all part and parcel of the “ownership society,” and none of it happened by accident.

One of the great quotes from the book:

Asked why conservatives should support 401(k)s, a Heritage Foundation economist said simply, “When citizens have a vested interest in the economy and own more property (or investment assets), the more…politically conservative your society will be.”

alex black:

Or, as Winston Churchill said, “Anyone who isn’t liberal at age 20 has no heart, and anyone who isn’t conservative at age 40 has no brain.”

billwilson:

A couple of thoughts

1. With record low interest rates and record high deficits what exactly is left for governments to do? They are out of ammo.

2. The scary thing is looking at what proportion of Americans are employed in “non-productive” occupations. About 1% are in jail (than add on the guards etc), higher than just about anywhere. Look at the numbers in the military or in military support – hardly productive. Look at health insurance (health care being the one continuous gainer in employment) – how many clerks are used to argue over who gets paid. Finally look at the financial services industry which adds little if any value.

3. One of the fundamental problems is that in some occupations there has been almost no “productivity gain” from the application of technology. Unfortunately many of these are in the public sphere (teachers, firefighters, etc.) Their “relative increase in cost” versus the rest of the economy is a major burden on government.

4. As for unions perhaps the problem is that public sector unions have remained stronger (with no counterweight from fiscal reality), while private sector ones have gotten weaker (and now can not act as a counterweight to corporations). I continue to expect that before this is over public sector unions will become major targets.

Ignim Brites:

Why is there no sense of urgency today about unemployment as compared to the early 80s. Part of the answer lies in the stunning rate of increase in unemployment last year. I emphasize stunning. The intellectual, cultural, and political elites gaze in disbelief. And, of course, they certainly don’t want funds for the relief of unemployment to compete with funds for propping up the stock market and property values. The main aim of all the bailouts has been primarily to prop up home prices of the saltwater drinkers on the East and West coasts where the intellectual and political elite are domiciled. Disbelief, self-protection, self-soothing, catatonia. These are the reasons why unemployment is not an issue.

dave:

I come from a union family, one that has steadily become disgusted by unions in America. Unions exist for the purpose of improving the lives of union administrators and nothing more. All that crap about workers is a bunch of shit. Unions today frequently sell out younger workers (divert huge resources to pension plans while cutting new worker pay). They are often racist and xenophobic (keep out “cheap” labor). They are often violent (destroying property and attacking “scabs”). And they almost always resist any technological or efficiency change (having a robot build cars means less jobs for union workers, even if it means cheaper cars for millions of consumers).

Union bosses are just a different kind of management parasite, trying to extract their rent based on pitting people against each other.

Low skill workers have no bargaining power, why is that a surprise? Why is that wrong? Bargaining power is based on supply and demand. In an automated world there is no demand for semi literate assembly line schmoes. Either they can get some real skills (I have a lot of bargaining power) or they can accept reality.

My grandfather worked hard to organize people so they could achieve a basic level of living. Safe working conditions and enough pay to feed themselves. When my mother quit being union shop steward 50 year later it was because her workers were demanding 15 min smoking breaks every hour on the hour. That’s the state of unions today.

NOTaREALmerican:

One of the major problems that any of the guilt-ridden political ideologies have is that peasants will always resent the success of other peasants, much more than they resent the success of “their betters”. Then there’s the perpetual problem of the smart-amoral-scumbags infesting any organization where there is loot to steal.

Perhaps all peasant organizations will self-destruct before they can succeed simply because the peasants in the organization will never be smart enough to understand they need smart-amoral-scumbags (the union management) to screw business management, and this screwing process requires less-than-pure people.

The typical American peasant is wishing for purity in their political system, and are unable to comprehend why they need their own smart-amoral-scumbags to win.

dave:

Union bosses tend not to screw management. Usually they work together with them to steal from the next generation. Unfunded pension ponzi schemes are a unions best friend.

Even when they succeed in screwing management and raising wages this then attracts new employees to the field. Then the only way to keep wages up is to keep new employees out, often by discriminating against new entrants and “scabs”. Any victory for union workers usually comes at the exclusion and detriment of workers not in the union.

Wayne:

“But the real problem may be that all these approaches are past their sell-by dates, helpful around the margin but insufficient to provide lasting relief to our current malaise. We may be at the end of a paradigm.”

Exactly! But what if it’s a much bigger deal than the end of the neoliberal deregulation paradigm? What if it’s the end of the industrial capitalism paradigm? With the benefit of hindsight, it was probably not the best idea, in an era of looming resource constraints, to hollow out our industrial base and beggar the American working class while encouraging and enabling American-sized consumer appetites in the countries with populations geometrically larger than ours. (When you are 5% of the global population and consume 25% of its resources, best to let sleeping dogs lie.)

Now Macondo – the second major deepwater environmental catastrophe with just 130 or so deepwater rigs deployed so far – becomes a forcible reminder, not just of how hard it will be to extract what oil remains, but also of the incredible financial risk energy companies undertake in attempting to extract it. Industrial capitalism simply can’t function without the implicit assumption that an ever-increasing energy supply can be profitably extracted. That is why the global economy has entered its zombie phase.

ds:

some of the criticism of public sector unions here is misplaced. Firstly, the supposedly lavish salaries are only for the most senior employees. Secondly, there really is no management track in many public service professions. There is no “middle management” in a public school like there is in a corporation – so in terms of experience and knowhow, many of our public school teachers are the equivalent of managers or directors in a corporation.

Most important however is the context of this criticism. Some would say public sector workers are overpaid when compared to private sector equivalents. But why isn’t it the other way around? if anything, the reality is that private sector workers are UNDERPAID relative to public sector workers. So our focus should be on raising the wage level for all rather than trashing those who already earn a fair wage.

anonymous:

I belong to a union and agree that public service unions give trade unions a bad name. The hollowing out of the US manufacturing sector occurred for three reasons: CEO’s who placed their own earnings before those of long-term investors, union workers who defended workers who should have been fired, and consumers, many of them middle-class, who decided to purchase cheap goods made in third-world countries.

That’s the reality today. In areas where domestic demand is high, jobs and local economies survive. it’s not all grim. But the steady erosion of income and profit-producing skills is the real story, IMHO. Obama and the Dems in power are part of the millionaire elite who really don’t understand what the rest of us are going through. They don’t know and they don’t care.

Nobody should be surprised and everyone should organize.

mytwosenseworth:

I’m a member of a private labor union, but in a state with a “closed” shop – a condition of employment is that you must join the union within a short defined period. Many states are “right-to-work” states, where you can opt to be in a union or not as you so choose. The problem is that in an “open” shop situation such as this, the non-union person derives many benefits of the union without paying for them. If discipline is threatened, they can demand the union to represent them in meetings with management; this I find to be deplorable.

Unions are far from perfect entities, and public unions are especially rigid about work conditions, as has been noted here. But without a set of check and balances, many employers would run roughshod over their workers via wages, hours and rules of conduct. And without unions, the middle class would never have evolved in the first place; Those on the floor would be the “working poor” with supervisors and executives extremely well-off in wages and benefits. So until sometime better comes along, or there is a major culture change in Washington about companies being “too big to fail” and public corporate welfare, private and public unions are “necessary evils” to counterbalance the skewed policies and laws passed by those elected officials

Edward Lowe:

Yves … you’re getting closer to recognizing class-based interests. You may find yourself re-reading Marx one of these days after all — — (not the crap about Utopian projects, but his analysis of capitalism).

Michael Hudson has written often about the conflict between the rentier class on the one hand and labor and capital classes on the other. Obama is a creature of the former (indeed, given Michelle’s past, it’s a regular family concern). The squeeze on labor has been a 40 year policy project now, and, frankly, it his run up against a wall. Households are de-leveraging because they have to … wages are stagnant in real terms, dual earners in families with children (who consume the most) cannot increase their hours working and still maintain said household.

Since rentiers are making out like bandits in the current system, they simply don’t care what happens to the laboring classes, moreover, on a national level, they are happy to see the complete loss of productive capital too. BTW, I wouldn’t consider Big Pharma a capital interest, their profits seem to be coming from creating enclosures in human health (i.e., “depression” and “cholesterol”) and then putting people on life long, debilitating drug regimens — i.e., collecting rent from the sick and infirm — often made that way by said “treatments”.

The policy fix here is that same as it always has been for the 200+ years of capitalism as a world system … tax the crap out of unproductive rentiers and reward labor and capital (i.e., sectors that actually add value to the economy). Basically, a return to Fordist alliances between labor and capital against the rentiers.

When the democrats start running on that platform, then I will be listening.

Edward Lowe:

On the one hand, people are susceptible to propaganda just as Edward Bernays said they would be. On the other hand, lets face it, unions haven’t really been doing so well in representing the interests of labor in the private sector (they are losing ground rapidly in the public sector too, no matter the nonsense one reads or sees in the MSM outlets like CNN — our local teachers just ‘won’ and 10% pay cut and had to strike to get it!, for example).

Americans have been so confused about what “class” means by 60 years of BS sociology that equates class with position in an income/status hierarchy. A proper definition of class is one that recognizes your position in the division of labor and the primary source of your income associated with it (to *grossly* oversimplify). Income can come from three sources — labor, capital, or rent. That’s been true since before Adam Smith wrote about the Wealth of Nations all so many years ago, it remains true today. A social class’s interests are largely aligned with its primary sources of income and the activities it must do and relationships it must maintain to sustain that income (i.e., selling labor in the market, owning or managing or representing capital, or enclosing key economic resources and charging rent to either labor or capital to access them — and servicing rentiers rights through professions like law — again a gross oversimplification for descriptive purposes).

Since most people in any industrial society are dependent on their labor for their livelihood, they are, by definition a class and their interests are in maintaining access to labor markets and earning enough from their labor to sustain a modicum of a decent lifestyle. Sure, some in the higher end of the laboring classes may make some money in the markets (a rentier activity) but they don’t butter their bread with it.

Unions on the other hand are institutions that purportedly represent the interests of labor against the owners of capital or their managers — unions are not a social class in and of themselves. Therefore, people can still have a shared class interest and dislike unions (either because they have swallowed propaganda or ’cause the unions suck at representing their interests). I see no contradiction here.

Labor and capital do have a allied interest — building real wealth (i.e., stuff that has value) of the economy — rentiers typically sit on their butts and collect money simply for maintaining a legal fiction that grants them exclusive right to a key economic resource…they don’t actually add stuff that has value to the economy, rather, like parasites, they extract that value or redirect it into their pockets. Thus, historically, they have been vilified by both labor and capital.

JTFaraday:

Historically, maybe. But it seems to me that today’s grossly overcompensated executive class in US real economy corporations have aligned with finance, which assisted them in developing ever more creative ways of looting their organizations.

Also, over the past 20 years, Finance went from being a relative academic backwater in business schools to being front and center, calling all the shots. It seems most MBAs today are finance MBAs.

In other words, they’ve blurred the distinction between capital and rent seeking. Corporations exist to pay the executive suite. They’re ALL rent-seekers. If they manage to do anything else, with this kind of “leadership,” well, that’s just coincidental.

DownSouth:

Edward Lowe,

While a few crumbs might fall out for the workers as the landed aristocracy and the bourgeoisie duke it out, I wouldn’t get too teary eyed over the new capitalist set.

For instance, C.R. Boxer in The Dutch Seaborne Empire: 1600-1800 writes of the struggle between the monarchs and aristocrats and the new middle-class in Holland:

When the States of Holland formally renounced their allegiance to King Phillip II of Spain in 1581, they also enacted a law forbidding the town councilors to consult with the representatives of the guilds (from whom they had originally sprung in the Middle Ages) or of the civic guards (as such) on any provincial matters. The regents thus took advantage of the struggle with Spain to consolidate their position as a self-perpetuating burgher-oligarchy and to exclude the ordinary citizens from any direct say in either the local or the provincial administration.

Having thus consolidated political power, the new bourgeois ruling elite were no easy task masters, perhaps even worse than the aristocracy they displaced. As Boxer goes on to explain:

Although adequate unemployment statistics and other relevant materials are lacking, it is clear from numerous contemporary accounts of the Dutch Republic in its ‘Golden Century’ that economic expansion and national prosperity were accompanied by great poverty among many groups of workers, as happened later in England during the Industrial Revolution… As early as 1566 a Leeuwarden chronicler noted that, in sharp contrast with the wealthy regents and merchants, stood the mass of the ‘humble, distressed, and hungry common people’.

[….]

Out of 41,561 households at Amsterdam in 1747, some 19,000 were living in squalid back premises, cellars, and basements.

[….]

Taxation in the Dutch Republic, as in most other countries, was apt to fall more severely on the poor than on the rich, but it was not framed entirely without consideration for ‘ability to bear’. A vast net of excise was levied on most consumer goods and on many of the ordinary activities of living. These imposts naturally bore more heavily on the peasant, the sailor and artisan than on the wealthy burgher, the merchant and the rentier.

[….]

If the peasants had to be satisfied with what Sir William Temple called ‘short and heartless food’, at any rate they usually got more to eat than the lowest class of urban workers, the so-called grauw, or rabble. This element proliferated in the larger towns, and the strong aversion with which it was regarded by the upper classes comes out very clearly in contemporary literature and correspondence….’the sottish ill-natured rabble, who ever hate and are ready to impeach the aristocratical rulers of their republic’, as the author of the “Interest of Holland” declared in 1662. Nor did this scorn mellow with the passage of time; for over a century later the regents still denounced the ‘surly gruffness, bestial stupidity and disgraceful dissoluteness’ of the urban proletariat. A]s may be gathered from these and many other typical denunciations of the grauw, the regents were also rather afraid of the rabble, or rather, of what the rabble might do if it got out of hand.

[….]

It is true, however, that class differences in the Dutch Republic, as elsewhere, were usually accepted as an aspect of the eternal scheme of things. Moreover, the urban proletariat were unarmed, and the burgher militia or civic-guards could be relied on to obey the orders of the regents in the event of any conflict with the grauw.

charcad

Brad DeLong points out that Ronald Reagan was far more concerned about unemployment than Team Obama (or Washington generally) is, and also took far more aggressive measures to combat it.

Reagan was willing to tackle illegal immigration in the sense of also restricting it. The Great Compromise he promoted ultimately turned out to be a classic bait ‘n switch scam. We got Amnesty without improved illegal immigration enforcement.

The reasons for the long standing bipartisan agreement to undemocratically subvert the national laws on immigration are well known. The white trash WASP country club element of the GOP is addicted to dirt cheap labor. The so-called “progressives” (think Andy Stern) want to import as many non-whites as possible to swamp the GOP demographically.

The moment the high unemployment rate is brought front and center on the agenda is the moment a spotlight hits the large population of illegals. A logical and reasonable conclusion is they contribute to the twin problems of high unemployment rates and rapidly growing income stratification.

sherparick

I love how Authoritarian Cons like Charcard excuse the Sainted Ronald from all the ill effects of his policy decisions. Let’s see, from January 1987 to January 2009, Reagan, Bush Senior, and Bush Junior held the Presidency for 14 of those 22 years. And of the 8 held by Clinton, 6 years of that was controled by a Repulbican-Conservative majority in the Congress. The point of the 1986 law was to create employer sanctions for employing illegal alieans. And from the start, under Reagan, those provisions became a dead letter. Instead, the drift has been to scapegoating and outlawing the illegal immigrant so that they would be more and more under the dominion of their employer.

Andy Stern and the SEIU simply had to go where they did since so many of the people they wish to represent are illegal, or married to someone illegal. If a union is to represent the interests of its members, in requesting amnesty it just defending and promoting the interests of the people it has organized or hope to organized.

charcad

I didn’t excuse Reagan. I clearly stated his policy was a failure. And in my opinion it was designed to fail. Afterwards neither Bush was interested in enforcing the immigration laws. They did all they could to subvert it.

Bush II very openly pushed for Amnesty II. And he resisted enhanced border control and immigration law enforcement until late 2007. At that point Michael Chertoff at DHS started a show of enforcement on high profile illegals. This was designed assuage GOP voter hostility over the repetitive GOP elite betrayals on immigration. The objective was to help McCain slip in.

Your problem is you’re in such a rush to emotionally masturbate yourself with a sense of self-righteousness you didn’t bother to read what I wrote.

scapegoating and outlawing the illegal immigrant

Very illustrative of the real mentality prevailing. The immigration laws are not the only laws these illegals think they don’t have to follow.

charcad

6. Cut cost of military by 2/3 (either real cuts or make the leeches of the rest of the world pay for the cost of the world police man).

Surely you don’t mean eliminate all the political corruption embedded in so-called “military” procurement? This might compel Lockheed to reduce its F-35 subcontractor base from around 1,000 (20 per state, 2+ per Congressional district) to a lower number.

Do you have any idea what kind of revenue hit the railroads and trucking companies would take if parts weren’t shipped back and forth cross-continent 8-10 times during manufacture?

The concept of setting up 250 Hardinge and Haas vertical machining centers at Air Force Plant #6 in Marietta just doesn’t get it. I mean what’s next? Set up a foundry nearby to pour the castings before machining?

Look how many inspectors traveling around on per diem we’d have to layoff. Delta would probably lapse back into Chapter 11. And Marriott and Hilton? Look at all the prime real estate in Crystal City near the Pentagon. They already have occupancy problems in the office parks near Dulles and Herndon. My God, man! You’re attacking the industrial backbone that’s made DoD what it is today!

7. Implement fair labor standards for imports.

I think OSHA, EPA and EEOC “tariffs” should be levied on imports, too. The Foxconns of the world have gone a long way to help conceal the real very high cost of these social policies.

NOTaREALmerican

Only possible if the current crop of smart amoral scumbags – who run the existing system – see some benefit for themselves. I think you lost them at “make government smaller”.

If you were a smart amoral scumbag – living off the Federal, State, or Local governments of America, would you want less government? I sure wouldn’t. The first question I’d ask (myself) is “What’s this guys angle?” He doesn’t want smaller government for himself, only for me! Living off the government is the ultimate scam. The trick is the get in on the scam. (I work for Zombie, btw, so we’ll be a parasite on the taxpayer forever.)

Here’s a general rule of complex systems. Nothing gets smaller gracefully.

Jerry

It’s bigger than unions,….The world has too many people to employ people as we currently do now! So it’s time to think outside the box…is full world employment even possible or do we need to look at things from a different view. Maybe first looking at can we feed everyone in the world and if so how would that look…small farms where seed is provided by governments, larger farms in some places to grow wheat, rice, and how would that be dispersed? What next, education or medicine???

NOTaREALmerican

Your solutions don’t reward the smart amoral scumbags. Any solution – which happens to involved humans – must take into account that the smart amoral scumbags will always get at least half the benefits.

Therefore, I’d go with war as the only solution.

Arciero

I’m reading through the comments here, and I’d just like to state this is Exhibit A why I don’t take the discourse of blogs seriously or that they are replacing newspapers. Person makes a point, he gets told he’s implicitly hated, and it goes the other direction too. Completely stupid discussion where no one is enlightened, everyone has a hardened point of view and refuses to accept they may have a skewed view of things in the slightest.

reprobate

1. This is a more active and higher quality discourse than you see in MSM blogs (at which pretty much every outlet screens comments very heavily). Letters to the editor not at all comparable, those are cherry picked.

2. Blogging is mainly about the posts, not about the comments section. High quality comments are icing on the cake. Spurious argument.

3. Your beef per your other comment here appears to be that you simply don’t like the post and are not happy that viewpoints like yours aren’t getting much traction in comments. And there is a reason why. It’s not well grounded in fact. But you blame the messengers instead.

NOTaREALmerican

Perhaps that’s reality tho. Billions of people, each with hardened positions, in a battle to the death. What we call democracy is just a peaceful way to find the average hardened position. Why does everybody think people want to change their minds? I don’t. I’m always right.

Duke
With all due respect, I do not see an anti-union sentiment in general, but rather an anti-public-worker union sentiment. In the private sector any increase in wages must come from increased sales/profit arising from improved quality/efficiency, or from sharholder value. No such natural tension exists in public sector unions; self-interested politicans grant excessive pay/benefits in exchange for union support/votes at the ballot box. It is self-perpetuating but fully at taxpayer expense. At least for US comparisons there are a bevy of charts floating about plotting public sector compensation, value of benefits, retirement age, retirement benefits, and even rate of voluntarily changing jobs against their private sector counterparts. Unless these are mis-informing, the argument is done and what remains is deciding which resolution is most appropriate. But none of this anti-union sentiment is relevant to the private sector, excpet perhaps to use private sector union compensation as the comparison baseline.
Roger Chittum
Excellent post, Yves. I particularly liked your tightly-crafted description of the fundamental problem and broken paradigm:

“But the real problem may be that all these approaches are past their sell-by dates, helpful around the margin but insufficient to provide lasting relief to our current malaise. We may be at the end of a paradigm. The US and its trade partners have engaged in a 30 year experiment of deregulation, financial liberalization, more open trade, and deep integration of markets. But most other countries had clear objectives: they wanted to protect their labor markets, which usually entailed running a trade surplus (or at least not a deficit). Many of them also had clear industrial policies. By contrast, the US pretended it was adhering to a “free markets” dogma so that whatever resulted from this experiment was virtuous. But in fact, we have had stagnant real worker wages, with a rising standard of living coming from rising household borrowings and to a much lesser degree, falling technology prices. We have also had industrial policy by default. Certain favored groups, such as Big Pharma and the sugar lobby, get special breaks.”

One way to see the difficulty in getting America moving again is to force people to pick a side on whether they want the general US wage level as represented by real pre-tax median wages to rise consistently and substantially or not, and secondarily if they want unemployment to go down enough to create tight labor markets. The current paradigm requires the answer to be “No” because we have to compete with low-wage developing nations and the competition is on price. That is why, IMHO, we see politicians of every stripe talking only about how to respond to stagnation and decline of personal incomes and tax bases, and not promoting ideas to create a tight domestic labor market, rising median incomes, and a revival of the American Dream.

Hugh
Haven’t read all the comments but just a few points. Stagnant wages over the last 30 years is as Yves points out the major evidence of the loss of union power.

Obama got the unions to support him in his run for President but, much as with progressives, he has been screwing them over since he was elected. EFCA, a move to make it easier to form unions and harder for employers to stop certification, was labor’s prime piece of legislation. It got spiked. Obama never pushed it. During the healthcare debate, labor leaders like Trumka made a bad and politically unpopular deal to save some union plans from a cadillac tax. It kind of showed the face of the current crop of labor leaders. They get stiffed by the Democrats but try to make whatever deal they can with them. As for Andy Stern, isn’t he on Obama’s Simpson-Bowles deficit, i.e. catfood commission, you know, precisely because he is open to slashing Social Security?

If you look at Obama and the Democrats, as some of us do, as just as corporatist in their orientation as the Republicans, the complete lack of interest in job creation isn’t only explainable. It’s predictable.

notabanker
Yves-
Over the last few years, your blog has become required reading for me and I sincerely thank you for the extraordinary efforts you have put into it. Hopefully you will have waded through the 140+ comments to actually read mine.

This whole line of debate strikes me as intellectually interesting, but missing the larger point, that is the USA body politic is clearly run by corporate capitalist interests. Carrying forth the Democrat vs Republican or Management vs Union (be it private or public) ideological arguments perpetuates the fallacy that there is some semblance of balance to the current equation, when in truth, there is little to none.

Democrats are controlled by corporate interests, as are Republicans,Management and Unions.

Anyone with the capacity for independent, critical thought only has to look at the financial bailout crisis and the gulf oil spill to come to this conclusion. Subtly yet even more pervasive is the mountain of evidence of the “biotech” agriculture, defense privatization and pharmaceutical takeover of government.

What I believe your post does underscore is the divergence we are now seeing from historical norms. I agree that we are at the end of a paradigm. America in it’s quest for capitalism, found it, and the results aren’t by the people, for the people.

Ironically, Obama was put into power as a populist to quell the masses, and his inability to do so will ultimately expose the system to the very constituency it has been designed to subvert.

I wish I had the wisdom to know how the movie ends. My guess is that we are well past intermission, and Bruce Willis won’t be there to save the day.

[Jun 01, 2010] Robert Prechter's Glimpse Of The Apocalypse To Come zero hedge

Cognitive Dissonance:

While many may laugh at this list I will ask a simple question. Considering the economic and political policies in place not only in the US but around the world of denial of the current situation, where do people think we are going? And where does it end?

A careful read of the list outlines the logical progression of various problems that are not confronted and dealt with early, meaning now or over the last 10 years. An infection not treated becomes gangrene.

[Jun 01, 2010] Few Jobs for Students this Summer

May 31, 2010 | CalculatedRisk

Note: Here is the Weekly Summary and a Look Ahead (it will be a busy week).

From Mickey Meese at the NY Times: Job Outlook for Teenagers Worsens

State and local governments, traditionally among the biggest seasonal employers, are knee-deep in budget woes, and the stimulus money that helped cushion some government job programs last summer is running out. Private employers are also reluctant to hire until the economy shows more solid signs of recovery.

So expect fewer lifeguards on duty at public beaches this summer in California, fewer workers at some Massachusetts state parks and camping grounds and taller grass outside state buildings in Kentucky.

SNAFU:

What happened to 'Caulk America' programs? Jon Stewart talked about it in one of his shows.

Rob Dawg :

Eldest pup had her choice of paid internships and opted to lead her own research project at UCLA over the summer. It's important to see the gap being created for employability. Gene sequencing cabbage = employable. Picking cabbage = employable. Grocery stocking cabbage = unemployable.

Rob Dawg wrote on Mon, 5/31/2010 - 6:17 pm TagsEldest pup had her choice of paid internships and opted to lead her own research project at UCLA over the summer. It's important to see the gap being created for employability. Gene sequencing cabbage = employable. Picking cabbage = employable. Grocery stocking cabbage = unemployable.

rps

"Few Jobs for Students this Summer," not to worry if GDII is anthing like GDI. Students drop out of school to find menial jobs to support mom, pop, grandparents, etc. Congress repealed Glass-Stegall as being "outdated," next they'll repeal child labor laws so the kids can help pay the bills.

May

[May 23, 2010] Credit Indicators

CalculatedRisk

mock turtle

excellent article in washington post about how corporations and their lobbyists

play each party against the other each inducing acts of political prostitution back and forth, left to right and right, back to left with pac money

"Corporate America is gambling on the minority in its political giving this year, assuming that Republicans will win big in the November midterm elections, an analysis of campaign finance reports shows.

The pattern represents a distinct change from a year ago, when President Obama was sworn into office. Back then, corporate political action committees made a shift to the Democrats, giving 58 percent of their donations to the party. So far this year, 48 percent of the contributions from big business are going to the Democrats.

The shift in political giving represents a calculated gamble by lobbyists and executives overseeing corporate largesse that the Republican Party may regain control of Congress, say GOP funp

Worst of all, the middle class is counting on transfer payments to bail them out. Wait until they discover that the value of the transfer payments will be inflated away. Even if they have an alleged inflation tracking mechanism in their pension, the bogus CPI calculation will assure that it doesn't track actual living expenses.

The government must be planning on a deadly epidemic or a meteor strike to bail it out, because there's going to be a lot of very unhappy middle-class boomers hitting retirement over the next 20 years, and no way to keep them fed and housed.

Mr Slippery :

sm_landlord wrote:

there's going to be a lot of very unhappy middle-class boomers hitting retirement over the next 20 years, and no way to keep them fed and housed.

I met a lady at a volunteer function Thursday whose father, age 74, was forced out of retirement after losing half his retirement funds in 2008 melt down. She told me he was 100% in stocks at the time.

Slumdog:

broward wrote:

For summer jobs, this will probably be the worst year since the Great Depression.

Lucky that it's only a recession, then.

OMG. Tres astute!

adornosghost:

Hoopajoops LTD wrote:

You were protecting our "way of life," code for our financial interests and oligarchic elite.

"And so it is now: as the American empire has been crumbling, its leaders, both corporate and corporatist, were being specially selected for being unable to draw their own conclusions based on their own independent reasoning or on the evidence of their own senses, relying instead on "intelligence" that is second-hand and obsolete. These leaders are now attempting to lead us all on a dream-walk to oblivion.

Back in 2008 I published the prediction that while Chernobyl was rather decisive in putting paid to the Soviet scientific/technological program and in dispelling all remaining trust in the Soviet political establishment, the US program of scientific/technological progress and ruthless exploitation of nature is more likely to suffer a death by a thousand cuts.

But if one of these cuts hits an artery early on, a thousand cuts would be overkill. Just as with any wreck, the properties of a radically phlebotomized body politic are rather different from those of a healthy one, or even a sick one—not that our lost leaders could notice something like that! They will no doubt go on going on about money and oil (and the predictable lack thereof), but they might as well be telling us about their milk and lemonade, and please hold the drilling mud. How embarrassing!"

--Greer

[May 23, 2010] EconoSpeak Another Clumsy Attack on the European Social Model

One Salient Oversight:

I always appreciate reasonable criticism of Europe and the Eurozone. The problem is that many American commentators just seem to repeat the same old fallacies over and over and over again.

Obviously Erlanger didn't read this release from Eurostat, showing the comparison of unemployment rates between Europe and the US during the financial crisis.

Short summary: Unemployment in the US has pretty much doubled since the crisis began, while European unemployment has increased by around 50%. This means that the unemployment rates of the two economies has actually reached parity - the US recently had a higher unemployment rate than the EU and Eurozone.

And spare a thought for Japan: It's almost as if Japan has been in recession for 20 years if you believe what American commentators say. Certainly Japan has its problems, but unemployment there is half that of the US, and this despite some major downward hits on GDP.

My own research on Real Interest Rates indicate that the US is entering a period of monetary contraction - ie monetary conditions not being conducive to growth. By contrast the EU is entering a period of monetary expansion (monetary conditions being conducive to growth). I think we'll see a drop in EU27/16 unemployment rates over the next six months while US unemployment will either stagnate or rise.

[May 22, 2010] Breakfast_with_Dave_052010

DEFLATION IS EVIDENT IN THE LABOUR MARKET … JUST ASK ANY GRADUATE

The USA Today runs with a fairly bleak piece on the hiring outlook for 2010 grads. Only 44% of firms are hiring graduates this year (according to a CareerBuilder survey) which is down from 58% in 2009 and 79% in 2008. And, the average starting salary for 2010 (for those with a BA) is $47,673, or 1.7% lower than it was a year ago. That is deflation.

If your are wondering why net household formation is down below one million at an annual rate – less than half the peak during the last economic expansion – it is because 80% of the 2009 graduating class ended up going back home to be with Ma and Pa as opposed to going out on their own and creating incremental demand for a new apartment unit. And, for those who got a job, remember that the average graduate is saddled with $23,186 of student debt. In 2008, that ratio of graduates going back home was 77%, it was 73% in 2007 and in 2006 it was 67%.

[May 22, 2010] Fed's Dudley on the Economy

CalculatedRisk

From NY Fed President William Dudley's commencement speech at New College of Florida:

[T]he recovery is not likely to be as robust as we would like for several reasons.

First, households are still in the process of deleveraging. The housing boom created paper wealth that households borrowed against. This pushed the consumption share of nominal gross domestic product to a record high of about 70 percent. When the boom turned into a bust, those paper gains evaporated. In fact, many households now find that the value of their homes is less than the amount of their mortgage debt. This has created a difficult time for many families and has caused the hangover to last longer.

Second, the banking system is still under significant stress. This is particularly the case for small- and medium-sized banks that have significant exposure to commercial real estate loans. This stress means that banks have been slow to ease credit standards as the economy has moved from recession to recovery.

Third, some of the sources that have supported the nascent recovery are temporary. The big swing from inventory liquidation during the recession back to accumulation will soon end as inventory levels come back into better balance with sales. And fiscal stimulus from the federal government is subsiding and will soon reverse.
...
In this environment, finding a job will be tough, but when you hit the pavement remember that the job market is improving. Don't get discouraged.

A few comments:

First, the household "deleveraging" seemed to start last year, but consumers were back to spending more than they earned in Q1. Personal consumption expenditures (PCE) increased to over 71% of GDP in Q1 - higher than the 70% during the boom that Dudley mentioned. Some of this increase in PCE was due to government transfer payments (all of the increase in income in Q1 came from government transfer payments). I still think the personal saving rate will rise over the next year or two - and that will keep growth in PCE below the growth in income.

Second, I think the transitory inventory boost is about over.
There were hints of this in the manufacturing surveys last week from the Federal Reserve Banks of Philadelphia and New York - and also in the Census Bureau's Manufacturing and Trade inventories report for March. Also, as Dudley notes, the boost from the stimulus "is subsiding and will soon reverse" (the peak stimulus spending is right now - in Q2 2010).

These are significant headwinds, and I think growth will slow in the 2nd half of 2010.

nova:

Reading all the BP comments I was hit with an image that still lingers

A big empty plain. On it stands a phalanx of people all ages, 100 people wide, packed tight, and stretching to the horizon. I know this, no idea how, that this is people who are alive now and who will be in the future. Then a shadow falls over a significant portion of them and they are gone.

That is BP
paring about the economy is like picking up nickels in front of the bulldozer of eco change

pavel.chichikov

picking up nickels in front of the bulldozer of eco change

Environmental damage if on a large enough scale is much more serious than financial damage.

dryfly:

pavel.chichikov wrote:

Environmental damage if on a large enough scale is much more serious than financial damage.

Ecology & economy - same root.

Juvenal Delinquent:

Nature is indifferent to the survival of the human species, including Americans. ~ Adlai E. Stevenson, Jr.

greenchutes:

The Fed's misguided policies and mindless management created a housing boom that created paper wealth that households borrowed against...

Second, the banking system is still under significant stress from bad lending encouraged by the Fed. This is particularly the case for small- and medium-sized banks which are not part of the Fed's inner circle and hence seen as targets of "consolidation" by their savvier betters...

Third, the "extend and pretend" stunts authored by the Fed in conjunction with other tentacles of her such as the Treasury and FHA that have supported the nascent recovery are temporary...

Maury the Credit Responsibility Panda:

Fed Governor William Dudley said:

In this environment, finding a job will be tough, but when you hit the pavement remember that the job market is improving. Don't get discouraged.

And when you take a job formerly held by someone twice your age for half the salary, understand that this is in no way deflationary; it's a productivity improvement.

dryfly:

Maury the Credit Responsibility Panda wrote:

"And when you take a job formerly held by someone twice your age for half the salary, understand that this is in no way deflationary; it's a productivity improvement. "

I see the opposite more often - older workers taking jobs kids from college expect & would usually get for $X and doing it for $0.75X or less. The kids leave school thinking I'll be making $X so my loans won't be that bad... then get beat out for jobs paying less by mid-30 to mid-40 displaced 'mid-career' types. Where my wife works the layoffs were very heavy in the middle pyramid - white collar and 'information' workers. They are all - along with the kids - fighting for the bottom pyramid jobs.

And as before - this isn't deflation its 'deflationary pressure' - no money created or destroyed - but sure does drive down prices & dollar velocity [symptoms of deflation].

No surprise we see Ben pushing more money out to the EU - there will likely be a lot more of that. QE World Tour 2010 - I want the shirt.

:

Tagsdryfly wrote:

Where my wife works the layoffs were very heavy in the middle pyramid - white collar and 'information' workers. They are all - along with the kids - fighting for the bottom pyramid jobs.

From the recent report published by Rutgers U's Center for Workforce Development
March 2010 job situation of people who were unemployed in August 2009:
- 68% still unemployed
- 13% employed full time
- 7% employed part time
- 12% left labor force

Yet another reason to treat U3 numbers very cautiously

[May 03, 2010] "Outcast London"

Daniel Little on Outcast London:

Outcast London, by Daniel Little : A city is a complex social agglomeration, and all too often it represents a concentration of social ills that are very difficult to eradicate. Poverty, violence, and poor public health are three social problems that seem to be almost synonymous with "urban." We might ask two rather different sorts of questions about these facts. One is "Why so?", and the other is, "Under what circumstances not?"

The "why" question has a number of fairly obvious answers -- not all consistent with each other. A city is often a magnet for extremely poor people looking for better opportunities than those afforded in their current locations. A city is often segregated and stratified, with high barriers to exit; so poor people are concentrated in their cores. Extreme poverty reproduces extreme poverty, as businesses and other social activities exit the core.

The question, "what circumstances help a city to avoid these outcomes?" also has some obvious answers. Robust business growth promotes jobs at a range of skill levels, so unemployed unskilled people (usually poor) are able to find work and to climb the ladder of economic advancement. The presence of a well funded and robust social welfare net helps the poor population. A high degree of civic pluralism in the population facilitates easy movement across the neighborhoods and jobs of the city. And there are virtuous circles at work among these factors: more job growth enables more pluralism, and helps to fund more social welfare spending; which in turn stimulates more job growth.

As we contemplate these social processes in the contemporary U.S. city, it is instructive to think about an important historical example as well. In this context it is interesting to reread Gareth Stedman Jones' Outcast London: Study in the Relationship Between Classes in Victorian Society, a brilliant piece of social and urban history first published in 1971.

Stedman Jones frames his narrative around the shocking puzzle that London presented to the English nation in the first half of the nineteenth century. London was the cultural, financial, and political center of England, a world city with a privileged and affluent population. But at the same time it was the home to a large population of extremely poor people who fell under the general label of "casual labor." And, as Stedman Jones points out repeatedly, educated London had almost no conceptual framework within which to categorize the social reality of the slum.

In fact, there was a growing perception of "two Englands" and two races of English people -- the poor and the rest. As Stedman Jones makes clear, the political economists of the mid-nineteenth century devoted a good deal of their time to the effort to decipher this paradox of wealth and poverty.

Malthus placed much of the responsibility for the slums of London on over-population; slum dwellers represented the cutting edge of "positive checks" on population growth. Alfred Marshall, on the other hand, took a more benign view of the possible future of the working class; he argued for a gradual process of improvement that lifted the quality of life for many poor people.

Economic institutions are the product of human nature, and cannot change much faster than human nature changes. Education, and the raising of our moral and religious ideals, and the growth of the printing press and the telegraph have so changed English human nature that many things which economists rightly considered impossible thirty years ago are possible now. (S-J, 9, quoting Marshall in "How far do Remediable causes influence prejudicially (a) continuity of employment, (b) the rates of wages?")

But there was a lower end of the lower class in Marshall's worldview: the "residuum" of people who would never benefit from the rising tide.

Marshall expressed the prevailing opinion when he characterized the 'residuum' as those who are limp in body and mind'. The problem was not structural but moral. The evil to be combated was not poverty but pauperism: pauperism with its attendant vices, drunkenness, improvidence, mendicancy, bad language, filthy habits, gambling, low amusements, and ignorance (11).

So Marshall's diagnosis of extreme poverty came down to something akin to a biological moral theory: there is a segment of humanity who cannot benefit from the progress of civilization and the economy. And London was ground zero for this segment:

London was regarded as the Mecca of the dissolute, the lazy, the mendicant, 'the rough' and the spendthrift. The presence of great wealth and countless charities, the unparalleled opportunities for casual employment, the possibility of scraping together a living by innumerable devious methods, all were thought to conspire together to make London one huge magnet for the idle, the dishonest, and the criminal. (12)

But here is the interesting conclusion of Stedman Jones's argument: in the end, it was not dissoluteness or poor morals that condemned the extreme poor to their stations, but simply the lack of economic opportunity presented by the urban environment of London in the 1850s. It was the lack of jobs, not the lack of morals, that constructed the great slums of London. Dock labor was the largest source of casual-labor employment in these decades, and it was notoriously prone to fluctuation. And the collapse of traditional industries left even more people unemployed. S-J quotes George Godwin in an ethnographic mode:

At the corners of the streets may be seen groups of youths of the age from 16 to 20 (evidently not of the vicious class), lean, wan and ragged. On speaking to these lads, they will tell you that they are sons of silk weavers: they have no employment: some have tried to get into a man of war, but being over 15 years of age have been refused: they have tried to enlist into the army, but their chest or height would not pass inspection. (102)

In order to treat these conditions rigorously Stedman Jones provides a careful analysis of the dynamics of the casual labor market in London in the mid-nineteenth century and its high degree of seasonality, and demonstrates that economic insecurity and immiseration were the foundation of slum culture. He quotes Henry Mayhew from London Labour and the London Poor:

Where the means of subsisence occasionally rise to 15s. per week, and occasionally sink to nothing, it's absurd to look for prudence, economy, or moderation. Regularity of habits are incompatible with irregularity of income... it is a moral impossibility that the class of labourers who are only occasionally employed should be either generally industrious or temperate. (263)

An interesting feature of Outcast London is the dual perspective that Stedman Jones takes: he offers a narrative of economic change and social class; but he also dissects the intellectual frameworks through which economists and policy makers sought to understand these processes. So the book does a good job of both describing the economic circumstances as well as the shifting theories through which British intellectuals and the public tried to make sense of these circumstances.

ken melvin:

Summers @ Center for American Progress, Discussion on Jobs 4/3010

From about 3:06 to 3:15 on the video

Social Consequences of downturn:
Calls to domestic hotline up 50%:
Loss of job: 2nd (close) only to death of a spouse, equivalent to divorce

Scope: Worse since WWII

This means fewer jobs for the less educated worker;

Causes:

This is the first time that I've heard a high ranking official dare step thru the deniality. A deniality that amounts to the greatest coverup, propaganda effort of our history.


http://www.c-span.org/Watch/Media/2010/04/30/HP/A/32373/Center+for+American+Progress+Discussion+on+Jobs.aspx

April

[Apr 25, 2010] Unemployment for Those Who Earn $150,000 or More is Only 3%, While Unemployment for the Poor is 31%

Washington’s Blog & naked capitalism

Boeing CEO Jim McNerney succinctly summarized a recent study by Northwestern University’s Center for Labor Market Studies regarding unemployment rates for different income brackets:

The Center analyzed the labor conditions faced by income-grouped U.S. households during the fourth quarter of 2009.

In the face of one of the worst economic environments in memory, those in the highest income groups had nearly full employment levels, with just a 3.2 percent unemployment rate for households with over $150,000 in income and a 4 percent rate in the next-highest income group of $100,000-plus.

The two lowest-income groups — under $12,500 and under $20,000 annually — faced unemployment rates of 30.8 percent and 19.1 percent, respectively.

The study – published in February – notes that the poor are suffering Depression levels of unemployment:

Workers in the lowest income decile faced a Great Depression type unemployment rate of nearly 31% while those in the second lowest income decile had an unemployment rate slightly below 20% … Unemployment rates fell steadily and steeply across the ten income deciles. Workers in the top two deciles of the income distribution faced unemployment rates of only 4.0 and 3.2 percent respectively, the equivalent of full employment. The relative size of the gap in unemployment rates between workers in the bottom and top income deciles was close to ten to one. Clearly, these two groups of workers occupy radically different types of labor markets in the U.S.

The study is subtitled “A Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent”.

Arianna Huffington, commenting on the study, pointed out that it if were the high-earners suffering 31 percent unemployment, the media would be discussing unemployment non-stop. But because it is the poor who are suffering Depression-level unemployment, they largely ignore it.

As I noted last August:

Chris Tilly – director of the Institute for Research on Labor and Employment at UCLA – points out that some populations, such as African-Americans and high school dropouts, have been hit much harder than other populations, and that these groups are already experiencing depression-level unemployment.

For background on unemployment, see this and this.

Selected Comments

RebelEconomist:

Not sure how meaningful this is. Presumably people who were earning (relating unemployment to current income really would be meaningless) $150,000 have some kind of employment advantage, so that their fallback position is a lower paid job rather than unemployment. Perhaps a better analysis would be to look at the percentage decline in income (from all sources including unemployment benefit) of those initially in various income brackets. Unless your intention was to make a rhetorical point of course……

Bill Smith:

I think I get his point… A lot of the $150k people who became unemployed then took jobs at $120k. Thus they are not in the $150k unemployed statistics. People at the bottom had nowhere to fall back to.

You see about the same thing when the organize the charts by education level. Post graduate/4 year college/2 year college / high school / didn’t complete high school.

ChrisPacific:

That was my thought as well. The only circumstance in which I can see a $150k earner being unemployed for any length of time without dropping an income bracket would be an extreme low supply/low demand situation – i.e., highly specialized professions where there are both very few jobs available and very few people who are qualified to do them. I would guess that accounts for the 3%. Absent evidence to the contrary I’d say this is probably normal for this level of unemployment.

The point that 10% unemployment feels much higher to those at the low end of the scale is valid, but probably true of any recession.

Terry:

People in the upper income levels are paid those salaries because they are in high demand (for whatever reason). It is reasonable to expect that the demand for such services would remain higher than for low wage/income jobs in a severe recession.

It’s not equitable, but it’s reasonable.

Cullpepper :

In demand, *or utterly corrupt thieving bastards who are untouchable due to graft and a lack of white-collar crime enforcement*.

Blurtman:

“common accepted model that full employment impels inflation by to steep wages rises” is absolute rubbish and was proven to be absolute rubbish during the Clinton administration. Yet this garbage is still taught at top schools like UC Berkeley, my alma mater. I can’t begin to describe what absolute rubbish I was forced to regurgitate in economics and finance classes to obtain a passing grade at that school. Now they run a leading program in financial engineering. Good grief!

When the scientific method came onto the scene hundreds of years ago, the charlatans fled to the social sciences where hypotheses lacking backing data, predicitivity and not based upon experimentation could continue to be accepted as dogma. This is economics.

[Apr 22, 2010] Weekly Initial Unemployment Claims at 456,000

Please note that Calculated Risk is not very good in analyzing this government statistics. Seasonal adjustment is somewhat misleading during recessions. Currently employment statistics is distorted by Census. "The advance number of actual initial claims under state programs, unadjusted, totaled 431,740 in the week ending April 17, a decrease of 79,187 from the previous week. There were 596,564 initial claims in the comparable week in 2009. "

4/22/2010 | CalculatedRisk

The DOL reports on weekly unemployment insurance claims:

In the week ending April 17, the advance figure for seasonally adjusted initial claims was 456,000, a decrease of 24,000 from the previous week's revised figure of 480,000. The 4-week moving average was 460,250, an increase of 2,750 from the previous week's revised average of 457,500.
...
The advance number for seasonally adjusted insured unemployment during the week ending April 10 was 4,646,000, a decrease of 40,000 from the preceding week's revised level of 4,686,000.

[Apr 20, 2010] The Future of American Jobs

"The jobs of well-educated Americans, although hardly immune to foreign outsourcing and technological displacement, have been less vulnerable to these trends than the jobs of Americans with fewer years of education."

April 12, 2010

Many of my students at Berkeley who will be graduating in June are worried about the job market. I understand their worries. But they and other new college grads have less cause for concern than most American workers. Let me explain.

Since the start of the Great Recession in December 2007, the U.S. economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers. That leaves us more than 11 million jobs behind. (The number is worse if you include everyone working part-time who’d rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they’re in.)

This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began.

Given how many Americans are unemployed or underemployed, it’s hard to see where we get sufficient demand to support a vigorous recovery. Outlays from the federal stimulus have already passed their peak, and the Federal Reserve won’t keep interest rates near zero for very long. Although consumers are beginning to come out of their holes, it will be many years before they can return to their pre-recession levels of spending. Most households rely on two wage earners, of whom at least one is now likely to be unemployed, underemployed or in danger of losing a job. And even households whose incomes have returned are likely to be residing in houses whose values haven’t—which means they can’t turn their homes into cash machines as they did before the recession.

While consumers have been shedding their debts like mad—often simply by defaulting on loans—their remaining burdens are still heavy. At the end of last year, debt averaged $43,874 per American, or about 122% of annual disposable income. Most analysts believe a sustainable debt load is around 100% of disposable income, assuming a normal level of employment and normal access to credit—neither of which we are likely to have for some time.

Some economic cheerleaders say rising stock prices are making consumers feel wealthier and therefore readier to spend. But most Americans’ biggest asset is their homes. The “wealth effect” is felt mainly by the richest 10%, whose net worth is largely stocks and bonds. The top 10% accounted for about half of total national income in 2007. But they were only about 40% of total spending. A vigorous jobs recovery can’t be based on 40% of what was spent before the economy collapsed.

What’s likely to slow the jobs recovery most, however, is the indubitable reality that many of the jobs that have been lost will never return.

The Great Recession has accelerated a structural shift in the economy that had been slowly building for years. Companies have used the downturn to aggressively trim payrolls, making cuts they’ve been reluctant to make before. Outsourcing abroad has increased dramatically. Companies have discovered that new software and computer technologies have made many workers in Asia and Latin America almost as productive as Americans, and that the Internet allows far more work to be efficiently moved to another country without loss of control.

Companies have also cut costs by substituting more computerized equipment for labor. They’ve made greater use of numerically controlled machine tools, robotics and a wide range of office software.

These cost-cutting moves have allowed many companies to show profits notwithstanding relatively poor sales. Alcoa, for example, had $1.5 billion in cash at the end of last year, double what it had on hand at the end of 2008. It managed this largely by cutting 28,000 jobs, 32% of its work force. But for workers, there’s no return. Those who have lost their jobs to foreign outsourcing or labor-replacing technologies are unlikely ever to get them back. And they have little hope of finding new jobs that pay as well. More than 40% of today’s unemployed have been without work for over six months, a higher proportion than at any time in 60 years.

The only way many of today’s jobless are likely to retain their jobs or get new ones is by settling for much lower wages and benefits. The official unemployment numbers hide the extent to which American workers are already on this downward path. But if you look at income data you’ll see the drop.

Among those with jobs, more and more have accepted lower pay and benefits as a condition for keeping them. Or they have lost higher-paying jobs and are now in new ones that pay less. Or new hires are paid far lower wages than the old. (In January, Ford Motor Co. announced that it would add 1,200 jobs at its Chicago assembly plant but didn’t trumpet that the new workers will be paid half of what current workers were paid when they began.) Or they have become consultants or temporary workers whose pay is unsteady and benefits nonexistent.

This shift also helps explain why the unemployment rate for Americans with college degrees is now only 5%, while it is 10.5% for those with only a high-school degree, and 15.6% for Americans with less than a high-school diploma. The jobs of well-educated Americans, although hardly immune to foreign outsourcing and technological displacement, have been less vulnerable to these trends than the jobs of Americans with fewer years of education.

The likelihood, therefore, is that as the economy struggles to recover and today’s jobless begin to find work, the median wage will continue to fall—as it did between 2001 and 2007, during the last so-called recovery.

More Americans will be working, but for pay they consider inadequate. The approaching recovery will be tepid because so many people will lack the money needed to buy all the goods and services the economy can produce.

Americans will once again be employed, but they will also be back on the downward escalator of declining pay they rode before the Great Recession.

[Apr 13, 2010] Mish Mailbag: IBM Abandons U.S. Workers

Here is an Email from "Voice in the Dark" about IBM and outsourcing. VID writes ...

Hello Mish

I read your blog every day. I do not comment much, but I think the MSM and most blogs are missing out on the greatest story not being told.

Large corporations are abandoning the US. I work for IBM. Here is a snapshot of IBM's US headcount:

2005 133,789
2006 127,000
2007 121,000
2008 115,000
2009 105,000
2010 98,000 estimate

These are all good paying jobs that can support a family and pay taxes.

Today, 75% of the total headcount is overseas. The overseas revenue is 65%. The company reported record profits last year. IBM decided to stop reporting their US headcount this year.

You know that many companies are moving their resources overseas. China is the new spot to build development centers. These incremental loses are adding up. But the saddest thing is that they are giving away the building blocks for innovation.

I just read a few weeks ago the Applied Material is planning to replace their US research center for a new one in China. That is another example of what is going on.

And no venture capitalist would attempt to build a solar panel factory from scratch in the US. The costs and the EPA will prevent that.

Please tell this story.

Sign me: Just Another Voice in The Dark

Hello "Voice in the Dark".

I covered the situation with Applied Materials in High Tech Research Moves From U.S. To China

Goodbye Silicon Valley, hello Xi’an China. Applied Materials will do new cutting edge research on solar panels in Xi’an. ...
Please see Brain Drain as a followup.

Two Drivers For Outsourcing

Outsourcing jobs has been going on quite some time. Let's address why.

For starters, global wage arbitrage is one huge factor in play.

Unfortunately, wage equalization and standard of living adjustments between industrialized countries and emerging markets will be a long painful process for Western society.

On that score, there is little that can be done except reduce wages and benefits in the public sector and stop wasting money being the world's policeman. We simply can no longer afford it. Besides, neither of those things ever made any sense anyway.

US Tax policy is another reason for outsourcing, and that can easily be addressed, at least in theory.

US corporate tax policy allows deferment of profits overseas, but profits in the US have a tax rate of 35%. This policy literally begs corporations to move profits and jobs, overseas.

[Apr 06, 2010] Breakfast_with_Dave_040510

Here we are fully 28 months past the point of the onset of the Great Recession and ostensibly nine months after the bottom in real GDP, and it seems safe to say that the economy is out of job-shedding mode. The steady downdraft in jobless claims and layoff announcements would attest to that view. Then again, after a record 8.4 million decline in payrolls from the cycle peak, bringing employment down to levels prevailing a decade ago in a cycle of job destruction not seen since the 1930s, inertia alone would have ensured that a bottom has been reached. After all, the level of payrolls was not going to decline forever. So while it may be encouraging to see employment, especially in the business sector, finally begin to rise after such a lengthy and precipitous decline, the labour market still remains in the grips of a serious deflationary undertow.

Indeed, the most disturbing aspect of the jobs report was the 0.1% MoM decline in average hourly earnings — to see a contraction in wages in any given month is practically a 1-in-100 event and the last time it happened in April 2003, Alan Greenspan and Ben Bernanke were busy building a ‘firebreak’ around deflation. The year-over-year wage trend has been sliced to 2.1% from 2.5% three months ago when employment hit rock bottom, not to mention the 3.5% pace a year ago. As long as excess supply dominates in the jobs market, expect the downward trend in wages to persist. So despite the positive headline print on payrolls, don’t think for a second that the Fed is not aware of or sensitive to the deflationary pressures that continue to build in the labour market.

Against this backdrop, any premature tightening by the central bank or a sustained backup in bond yields is simply out of the question.

In a nutshell, as one chapter of the labour market downturn is closed (employment contraction), another one starts (wage deflation). March’s employment data, on the surface, may well have met the challenge served up by the consensus of economists, but it fell well short of addressing the massive amount of excess slack that still exists in the labour market. Not only did the headline unemployment rate not budge, at 9.7%, but the broader U6 measure actually rose for the second month in a row, to 16.9% (the highest it ever reached in the prior recession/jobless recovery in 2003 was 10.4%, just to show what we are up against this time around). So long as we have this much spare capacity in the labour market — with nearly one in every six unemployed Americans vying for every job opening — deflation pressures can be expected to build.

Finally, the ranks of the unemployed who have been looking for work for at least six months soared 414k in March, or nearly 7%, to 6.5 million. This is double from 3.2 million this time last year when equity investors believed the world was coming to an end. Of course, the world did not end for the equity investor who was bailed out by massive government incursion, but the world for the long-term unemployed has tragically become even darker (the gap between Wall Street and Main Street has scarcely been as wide as it is today). Long-term unemployment as a share of the total jobless pool now stands at a record 44% versus 26% and the last time the official unemployment rate was as high as is today was back in the early 1980s. There are three main reasons for this:

  1. The first has to do with the lack of mobility in a distressed national real estate market.
  2. The second reflects the permanent job loss that permeated this recession because the jobs in bubble sectors like construction and finance are simply not going to be coming back any time soon.
  3. Thirdly, large states such as California, Florida, Illinois and New York could always be relied upon in the past to be significant drivers of employment opportunities but they are just too cash-strapped today to play any role at all.

In a nutshell, as one chapter of the U.S. labour market downturn comes to a close (employment contraction), another one starts (wage deflation).

Finally, there are many factors related to the tragedy of rising long-term unemployment that lead us to the conclusion that deflation will prove inevitable, because the longer it takes to find a job — the average duration of unemployment just hit a fresh all-time high of 31.2 weeks from 29.7 in February — the more likely it is that these people will be rehired at a lower wage than they were receiving before they were let go from their previous job.

It would be a disservice to overreach in terms of what this report means to economic growth, inflation, equity prices and interest rates over the next year and yet we are sure that many pundits will be uncorking the champagne bottles because of the headline job figure and the back-revisions. But if one is willing to look at the forest rather than the trees, it becomes clear that we still have an enormous supply-demand mismatch in the labour market, which is at odds with current valuation levels in the equity market and yield levels in the bond market.

The article, The 2010 Recovery on page A12 of the weekly WSJ is a must read. It really echoes the highly unpopular thoughts we have been writing about for some time

[Apr 04, 2010] March Non Farm Payrolls: +162K, Below Consensus, Unemployment Rate 9.7%, Ex-Census, Weather and Birth-Death NFP Change Is -67K

Submitted by Tyler Durden on 04/02/2010 07:32 -0500

Key data points for March: change in NFP: 162K; of these - Census +48K; Weather ~+100K; Birth/Death +81: Net -67,000. Underemployment increased to 16.9%. In the meantime the dollar is surging, and the 10 Year is approaching 4.00%

Census additions were 48,000 and the weather impacts is expected to be about 100,000, thus the net organic add was just barely positive. Keep in mind the birth-death in March was +81,000 (vs. 97,000 in February) for the adjusted metric, so one wonders how much of this gain was purely adjusted on paper. If one excludes birth-death we get -67,000.

The U-6 rate increased by 10 bps, to 16.9%.

Average hourly earning decreased by 0.1% to $22.47 even as the average weekly hours increased by six minutes to 34 hours.

The question on everyone's mind: is this statistic improvement in the data sufficient for the Fed to reconsider ZIRP.

The answer is a resounding no. Although keep an eye on the 10 Year. We may just break 4% today.

Selected Comments
ZackAttack :

That report flat-out sucked, what with all the calls I've been seeing for a big blowout number above 350K.

Fun fact:

"The number of long-term unemployed (those jobless for 27 weeks and over) increased by 414,000 over the month to 6.5 million. In March, 44.1 percent of unemployed persons were jobless for 27 weeks or more."

...

About 50K anti-jobs: "Employment in federal government was up over the month, reflecting the hiring of
48,000 temporary workers for the decennial census."

Then you look at what the birth-death model added... Construction + 14K, Leisure +35 K. I guess "Leisure" includes new hookers.

Cognitive Dissonance:

While these discrepancies are obvious and even alarming to you and I, to the average Joe, who's walking around in a fog and not quite sure what's happening but not willing to look too closely, it feeds into their plausible deniability impulse.

Lies are not intended to change your or my mind. We know they're lying even when we can't point to "proof" of the lie. But to those who have been numb for decades, the 2008 meltdown was a shock to the system. They need constant reassurance that it's OK to go back to sleep and pull out that credit card, take that vacation, buy that new home.

It really is a confidence game, the root of the term "con game", and the head puppeteer is the Fed. Anyone who believes that the power base lay within CONgress or the President really does need to take the red pill.

Cognitive Dissonance

For her to accept information contrary to her worldview requires lots of hard work and forays down scary dirt roads and drop offs on blind curves. In her mind what you're saying can be compared to a huge 500lb rock sitting in the driveway in front of her car, blocking her from moving forward. Her solution, that you're the problem, is just a little pebble that can safely be driven over on her way to maintaining her worldview.

You lose in that equation. Unfortunately, no one wants to discuss the dirty "C" word in this equation. That people who wish to remain in denial are cowards. I feel comfortable using that word because until I woke up a decade or so ago, I was a coward. I saw road signs all over the place and I knew deep down inside that they were important. But I lacked the guts, I wasn't brave enough to face the pain that lay ahead.

And then I did. But only because a crisis manifested and I had an epiphany. This moment of clarity gave me a few days of courage to take the red pill and move a step forward. Those first few steps allowed me to build just enough confidence to muster some more courage and take a few more steps.

Many here on ZH have probably experienced the same journey. It's frightening as hell. Of course, when in denial, we build the problem to such enormous proportions that we can safely see it as absolutely impossible, thus justifying our inaction.

B9K9

It's not just J6P. Walk onto a campus at CalTech, MIT or any other leading university and ask a random group of people (students, professors & visitors) some very basic questions about our money-credit system.

How many would know anything at all about the Fed? About FRB? About gold v fiat currencies? How about the exponential function as it relates to the inevitable divergence between compounding principal+interest & an underlying asset's carrying/servicing capacity?

They wouldn't know a damn thing, not because they aren't smart, but rather because they aren't (and were never) taught. On the contrary, the underlying principles of our current money-credit-banking system are so straightforward, in fact rather mundane & boring, that they are kept a secret for a reason.

My dad is of the type I mentioned above: a top flight MIC a few levels below POTUS - he knew nothing. Add him to the list of engineers that includes Denninger, Mish and countless others. Once it's explained, it's blindingly obvious. My dad had a 'duh?' look on his face when he put it all together. And he thought the Cold War was a big con; this takes the cake by far.

So how is that our system has been so thoroughly infiltrated & corrupted? Why have all age-old strictures against usury been discontinued? Why does the controlled media incessantly extol the virtues of debt? How is that we find ourselves in a situation where the ancient wisdom's have not only been abolished, but reversed?

Cognitive Dissonance

B9K9,

I agree that this obviously important information was never taught to the population. So the question is, why not? This takes us into the control system. Why doesn't obvious and important information even appear in basic text books purportedly teaching the fundamentals of the economic/judicial/governmental system?

Who or what is keeping it out? For those who claim no one is keeping it out deliberately I say hogwash. I had a friend who was on the school board of our county and we discussed text book choices. He was blunt. The board choses between textbooks that were offered for sale to the county. The choice wasn't made at the school board level whether or not to teach these important facts, it was made by the publisher/author.

Even the author will only include what the publisher will accept. So it isn't thousands of people participating in this omission but a dozen or so publishers, of which 2 or 3 set the "standard" of what is acceptable. Suddenly a large "conspiracy" is actually quite small and manageable.

[Apr 01, 2010] saving-rate-paradox by Rdan

There is a tremendous growth of shadow economy..."working under the table" workforce....

by Rebecca Wilder

Edward Harrison at Credit Writedowns is theorizing why the saving rate is falling when it should be rising, as households scram to deleverage their balance sheets. My reaction to this is twofold: first this is a meaningless exercise; but second, and worse yet, there's likely something very "unhealthy" going on here.
... ... ...

Unhealthy: But even if they don't "find" much more than an average +1% a year, there's probably something a bit more sinister and non-economic (i.e., in addition to the wealth, income, or substitution effects - see Edward Harrison's post on this point) going on here: non-market activity is rising. I haven't seen a study to this point - if you have, please send me the link; I am very interested - but I wouldn't be surprised if non-market income has creptup lately, i.e., through the informal labor force.

With an employment-to-population ratio a shocking 58.5% in February (it was 63.4% as recently as March 2007), there's got to be a growing supply of labor that is "working under the table" just to get by. This non-market income would flow through the spending accounts but not the income accounts. Therefore, you have official consumption going up with official income (doesn't include non-market income) stalling, which reduces the saving rate.

March

[Mar 31, 2010] Disappointing ADP Comes In At -23K, Consensus Was For +40K zero hedge

ZackAttack:

If any of our Founding Fathers were alive today, they'd go absolutely ballistic to see how Washington is colluding with Wall Street to hijack our democracy and turn it into an plutocracy. And given that they fought to free us from monarchical rule, they'd also go absolutely ballistic to see our Presidential Couple conducting themselves as though they were King and Queen of Great Britain

Who needs jobs when you have a rising stock market?

fuggetaboutit

"Pushing on a string" is one of those catch phrases people often use despite really not understanding the magnitude of the phrase. When an economy is completely disfunctional as the global economy is right now - with stimuli propping things up well above where things should be propped in an effort to reassemble humpty dumpty rather than spending less, contracting, letting the system clean itself out and then start a new sustainable upcycle -- you can print all the money you want, throw whatever gimmicks you want at it, it will not work.

Very simple law of economics at work here -- areas above the curve must by definition be followed by areas below the curve. The US consumed 7% more than it earned for a decade, and the world built infrastructure to support that habit.

Unlike 100% of wall street strategists, your average 9 year old understands you cant correct this in a year by repeating the exact same behaviors that created the initial problem.

fuggetaboutit :

This is the entirety of the problem - who cares what the number is tomorrow? We already know the answer - companies are not hiring because they understand this isnt a sustainable recovery, this is a science experiment, and after being burned 3 times in 10 years by the same economic policy, they are not gonna be the idiot who runs out and staffs up right as the whole thing rolls over.

And look at the consumption intentions of consumers - same deal. This idea of "pent up" spending is literally absurd - most families are living hand to mouth (look at what jumped in the consumption report last month - food and fuel, both of which are going up in price because of the money printing stupidity)

Did it matter in 2007 that paulson said subprime was contained? ofcourse not. why does it matter in 2010 that geithner says employment is improving?

ZackAttack :

ADP report has generally not been predictive of anything for many years now.

Census hiring ramped up. Useless temporary jobs, and every government job is actually an anti-job, but jobs nonetheless.

BLS is playing the underpromise/over-deliver game with its numbers. Concensus is set for +200K, they've talked it down from +300K a few weeks ago. The important thing will be to parse out the public sector and private sector jobs.

Another tell is, BLS is hosting a live chat Friday morning:

http://www.bls.gov/chat/

I wonder if they'd do this if they thought the numbers would be bad?

Deep

what people dont get is that the stock market is a pimple on the bond markets ass, if the number is as big as leo claims, bonds should sell off, the 10yr might break 4%, and how is that good for the zero interest rates, the FED will always cater to BOND market, not stock market. The Fed will be forced to raise rates.

Reflexivity

Perhaps this is the inflection point. We're headed back down (slippery) slope.

On a side note: Since most US blue chip stocks and most 'other' stocks sell internationally, do you think the US stocks have now become more intrinsically international and therefore are getting most of thier profits overseas? In other words, the US economy is in the hole, but if you take the profites from Rest-of-the-World, a US-based company can still pull in respectable profits in total?

Case in point: Chris Zook of Bain & Co.'s strategy office recently moved to Europe in order to -- in my pure guess -- to position Bain to access growth from international markets. If Bain (and McKenzie and the like) are the one's CEO's call when they get stuck, then why not just monitor the actions of Bain as opposed to thier advice. If Bain is, in a way, fleeing the sinking ship of the US (by seeking big growth in EurAsia), then perhaps that's the trend going forward? And since these profits get funneled back to the US headquarters (ok, mabye for repatriation taxes the cash stays overseas, but it is at least reported back in the US) then we may end up having many big US companies 'succeeding' internationally while the bottom falls out of the local US economy. Know what I mean?

[Mar 21, 2010] Extolling the Corporate Squeeze of Workers « naked capitalism

I don’t mean to beat up on Spencer at Angry Bear, who has provided an interesting set of comparisons on the perennial question of many investors, “Whither the stock market?”

But one section of his discussion, precisely because it is such conventional thinking, is an illustration of how the blind pursuit of “maximizing shareholder value” is not all it is cracked up to be:

The recent productivity report received much attention. But I did not see anyone point out that the spread between nonfarm corporate prices and unit labor cost was 5.25%, the widest spread on record.

This spread is the single most important variable driving corporate profit margins and implies that you should expect major positive earnings surprises.

Yves here. Translation: employers are continuing to squeeze down on workers to improve their margins. And the US has been pursuing that strategy for some time, of shifting the composition of GDP growth away from increases in worker incomes (via hiring and/or paying them more) to increases in corporate profits. The shift was dramatic in the last supposed expansion; it was called a “jobless recovery” for good reason. In every previous postwar growth period, the labor share of GDP growth was never less than 55% and had averaged not much less than 60%. In the pre-crisis expansion, it plunged to 29%.

Before some readers contend that this pattern is inherent to the “maximizing shareholder value,” let’s start with one consideration: strategies that focus on that goal actually do less well than ones that pursue broader aims. John Kay notes in a 2004 Financial Times article (sadly, no longer available on line):

Paradoxical as it sounds, goals are more likely to be achieved when pursued indirectly. So the most profitable companies are not the most profit -oriented, and the happiest people are not those who make happiness their main aim. The name of this idea? Obliquity….

Obliquity is characteristic of systems that are complex, imperfectly understood, and change their nature as we engage with them…..

Obliquity is equally relevant to our businesses and our bodies, to the management of our lives and our national economies. We do not maximise shareholder value or the length of our lives, our happiness or the gross national product, for the simple but fundamental reason that we do not know how to and never will. No one will ever be buried with the epitaph “He maximised shareholder value”. Not just because it is a less than inspiring objective, but because even with hindsight there is no way of recognising whether the objective has been achieved.

For most of the 20th century, ICI was Britain’s largest and most successful manufacturing company. In 1987, ICI described its business purpose thus: “ICI aims to be the world’s leading chemical company, serving customers internationally through the innovative and responsible application of chemistry and related science. “Through achievement of our aim, we will enhance the wealth and well-being of our shareholders, our employees, our customers and the communities which we serve and in which we operate.”….

In 1991, Hanson, the predatory UK conglomerate that had successfully acquired and reorganised sluggish British manufacturing businesses such as Ever Ready and Imperial Tobacco, bought a modest stake in ICI. While the threat to the company’s independence did not last long, the effects were galvanising. ICI restructured its operations and floated the pharmaceutical division as a separate business, Zeneca. The rump business of ICI declared a new mission statement: “Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world competitive cost base.”….

ICI made the opposite shift – from a grand vision of the responsible application of chemistry to a narrow concentration on established, successful activities. The aim of bringing benefit to a wide range of stakeholders was replaced by the specific objective of creating shareholder value from narrowly focused operations. The company translated this into an operational strategy by disposing of the company’s interests in bulk chemicals to acquire a niche group of speciality businesses: ICI, once the main supplier of chemical products to one third of the world, was reinvented as a smells company.

The outcome was not successful in any terms, including those of creating shareholder value. The share price peaked in 1998, soon after the new strategy was announced. The decline since then has been relentless. After two successive dividend cuts the company was ejected in early 2003 from the FTSE 100 index, the transition from industrial giant to mid-cap corporation had taken only 12 years…..

Obliquity gives rise to the profit -seeking paradox: the most profitable companies are not the most profit -oriented. ICI and Boeing illustrate how a greater focus on shareholder returns was self -defeating in its own narrow terms. Comparisons of the same companies over time are mirrored in contrasts between different companies in the same industries. In their 2002 book, Built to Last: Successful Habits of Visionary Companies, Jim Collins and Jerry Porras compared outstanding companies with adequate but less remarkable companies with similar operations….

Collins and Porras….found the same result in each case: the company that put more emphasis on profit in its declaration of objectives was the less profitable in its financial statements.

Yves again. Simple-minded profit seeking is not what it is cracked up to be. And worse, squeezing worker wages to not simply preserve, but increase profits, is destructive on an economy-wide level (note the rising gap between wages and prices disproves the canard that the wage pressure is necessary to preserve competitiveness).

US business used to operate with the idea that the returns resulting from productivity gains would be shared by workers and the company; that notion now seems as dead as the dodo. But not allowing workers to participate in improvements in corporate returns blunts overall economic growth. Companies are fattening their current bottom lines at the expense of future top line growth. But in our current climate, this strategy looks just dandy….until government stimulus starts to be withdrawn.

Omada:

The John Kay FT article can be read at johnkay.com

http://www.johnkay.com/2004/01/17/obliquity/

attempter

The Angry Bear example sure is sociopathic blindness in action. And nobody can legitimately say that “that’s just how you think and write under the circumstances.”

No, the very fact that a critical mass chooses or surrenders to such circumstances is the only thing which enables those circumstances to prevail. In a civil war you’re on one side or the other. This front line is right there every time such a “discussion” takes place.

On the other hand, with the ICI example we see how not only would this kind of institutionalized sociopathy be morally and spiritually intolerable in a human society, but it’s also a practical failure according to its own premise.

So it’s a clean sweep: the psychopathic “shareholder” mindset is not only morally disgusting, but rationally and practically wrong, from any point of view.

run75441

attempter:

One of the great capabilities spencer has, which I do not, is the access to information to examine what is going on in the world today. In the US, and lately in China, where else is one going to squeeze? Basically, Labor is one of the few variables left in comparison to Overhead (which is often legislated or turns up as ocean transportation, or capacity, etc.) and Materials (which does not vary from country to country by much). Most recently, there has been articles on this blog on a similar topic: http://www.nakedcapitalism.com/2010/03/chinas-exporters-hanging-by-a-thread.html “China’s Exporters Hanging by A Thread” Read that article again. If China’s predicament is true, I would suggest they have far more capacity to manufacture than demand. They will have a choice of either laying off people, cutting wages even more, or closing the facilities. The same has and still does hold true for the US.

Spencer also has some another chart here: http://2.bp.blogspot.com/_Zh1bveXc8rA/SuddUhLWUaI/AAAAAAAAA7M/iU2gefk317M/s1600-h/Clipboard01.jpg “Nonfarm Business: Labor’s Share” as taken from here: http://www.angrybearblog.com/2009/10/labors-share.html “Labor’s Share”. As the messenger, Spencer is “extolling” on exactly what is happening between Labor vs Capital.

How old is the issue? Another chart on profits as taken from the same Labor’s Share post and at the end will give you an idea. September 2008, BIS had this to say on Corporate Profits – Financial Services:

“From 1990 to 2006, the GDP share of the financial sector in the broad sense increased in the United States from 23% to 31%, or by 8 percentage points. During the same period, the increase in the GDP share was in excess of 10 percentage points in the United Kingdom but significantly less – around 6 percentage points – in both France and Germany. Graph 3 shows the development of the share of the financial sector in GDP for selected major advanced economies since the middle of the 1980s. The figures on profits are even more striking. For example, the financial services industry’s share of corporate profits in the United States was around 10% in the early 1980s but peaked at 40% last year.” http://www.bis.org/speeches/sp081119.htm

Coporate profits are not going into Labor intensive industry and are being placed in other industry shy of Labor. Spencer is reporting out on the issue and nothing more.

gordon:

Does anybody have a link to the Levy & Temin article? I can’t download it from the nber.

People might be interested in John Schmitt’s article “Inequality as Policy” (Oct. 2009). An extract:

“Taken together, these policies – a low and falling minimum wage; the de- or re-regulation of major industries; the corporate-directed liberalization of international capital, product, and labor markets; the privatization of many government services; the decline in unionization; and other closely related policies – are the proximate cause of the rise in inequality. Of course, the underlying cause is a shift at the end of the 1970s in the balance of economic and political power following almost five decades of ascendancy of labor and other social movements.

“I am not simply arguing that the explosion of inequality was a side-effect of these policies. I am arguing, rather, that the explosion of inequality – what is, effectively, the upward redistribution of the large majority of the benefits of economic growth since the late 1970s – was the purpose of these policies. The purported efficiency gains, which were realized in some cases but not in others, were
merely a political distraction”.

http://www.cepr.net/index.php/publications/reports/inequality-policy/

Kevin de Bruxelles

John Kay’s notion of Obliquity is closely related to a principle in military strategy developed by Basil Liddell-Hart (BLH) called the indirect approach. Liddell-Hart was kind of the Ambrose Evans-Pritchard of his time; not only did he have a hyphenated surname but BLH was also a popular polemicist who wrote a column (on military affairs) for the Daily Telegraph. His experience as an officer in the British Army during WW1 disgusted him so much that after the war ended he began to study military history in search of an alternative strategic approach to that employed in the trenches of Flanders. Through his studies he was able to develop a theory of the contrast between the ineffective direct approach (frontal attacks, also called a war of attrition which depends on pure power to achieve its aims) vs. his preferred way, the indirect approach (manoeuvre warfare which relies on surprise and throwing your opponent off balance).

His famous quote is:

In strategy the longest way round is often the shortest way there; a direct approach to the object exhausts the attacker and hardens the resistance by compression, whereas an indirect approach loosens the defender’s hold by upsetting his balance.

There is a huge debate about how much BLH’s theories (combined with J.F.C. Fuller’s theories of armoured warfare) influenced the Germany development of Blitzkrieg, as well as Charles De Gaulle’s similar ideas in France. BLH’s theories were later incorporated into William Lind’s ideas of four generations of warfare. Lind’s second generation refers to the direct approach (attrition) while his third corresponds to indirect (manoeuvre).

Obviously economic theories and military strategy have different goals but I think there are similarities between on the one hand the direct military approach and the exploitive, resource extraction mode of economic thought that emphasizes maximizing profits and free trade (think the southern US states before the Civil War); an on the other hand with the indirect approach and the cooperative strain of capitalism that builds a societal fabric such as Fordism which holds that workers should be able to buy the products produced (think of the northern manufacturing communities pre-Civil War). The exploitive form is a zero sum race to the bottom which searches markets overseas while seeing labour as simply a cost of production which needs to be minimized. The cooperative capitalist stain attempts to build a community market and then seeks to protect it. It is non-zero sum in the sense that as prosperity rises, everyone in the community benefits.

For the past twenty to thirty years America has unfortunately been captured by the exploitive capitalist paradigm which really just represents a race to the bottom. I had the good fortune to grow up in a California that had benefited from the wisdom of the more cooperative strain of capitalism as evidenced by the then outstanding UC university system as well as the less heralded community college network. These two institutions did much to accommodate social mobility and led to the rapid growth of Silicon Valley, etc.

The only good news is that as the current crisis intensifies there should at some point be a paradigm shift and hopefully it will be towards a more localized and cooperative economic model.

BullsandBears

Companies fail in the long run because they fail to recognize the value of work at all levels of the company, and how it impacts their clients, and business. In the last thirty years, the corporate philosophy is that only the upper management returns true value, and the lower levels are stricty a cost to the company’s bottom line. My employer, unfortunately, is a classic case. The new management team (all from GE) came in and declared that they are “capitalists” and began cutting salaries, wages, and employment ruthlessly while lavishing multimillion dollar bonuses on themselves. In the short term, they are making the balance sheet “acceptable” to their masters of the universe. But at the foundation level, severe cracks have appeared that will never show up on the balance sheet until too late. Screwing the workers means screwing the clients, and the clients are being sold shoddy work. Like a poorly built house in Haiti, the collapse will come.

NotTimothyGeithner

GE has been that way since at least Welch (possibly before). He knew how to raise money, buy companies (I’ll admit he did do good dillegence on what he was buying), cut duplication, and move on. He didn’t make or sell products. If he didn’t have access to the discount window, Welch would just be some tired old man complaining about alimony.

Remember the economic systems as explained by two cows. The GE system was to sell one cow and make the other cow produce the milk of 8 cows and then act surprised when it died.

Jim in SC

More on Liddell-Hart’s oblique approach applied to business can be found here:

http://tactica.org.uk/doc/IndirectApproachWhitePaper.pdf

MarcoPolo

I don’t imagine you missed this but I wish you had been more direct. “Creating shareholder value” is code for DIS_investment, the forward movement of enterprise value to NPV done at a discount, the condition in which all intangeable assets are liquidated, i. e. that which you call in your book “maximum extraction of value”.

It is a function of institutional hot-money rent-seeking ownership of enterprise and their own requirement to make their quarter at all costs in order to remain attractive to hot-money capital themselves. And is also responsible for expensive (and dangerous) takeover counter-measures.

Eric

The business that I am employed in is clearly sharing the rewards of increased productivity with employees, but the targets the rewards directly at those employees perceived responsible for increasing productivity. People are working very hard right now to make sure that the manpower reductions of the last 30 months are not reversed as business recovers (which is still not clear is really happening). In the crucible of this crisis our business found out a lot about what our customers are willing to pay for and what they aren’t and have discontinued those activities that customers didn’t value enough to pay for. This process is always going on, but gets tremendously accelerated in siuations where availability of credit gets tighter. So I would say that our business still values its employees, but we just don’t have near as many of them as in 2007, and probably won’t for many years to oome – if ever.

Michael Fiorillo

Sharing the benefits of productivity gains with labor and society at large – as opposed to the “increased productivity equals fewer people doing more work for less pay” regime we currently subsist under – can only occur when capital is forced by vigorous popular and/or labor movements to do so.

Left to its own “animal spirits,” and not forced to make concessions to other classes, capital will prey on labor, and eventually its own. What else to make of Goldman selling toxic waste to its rube fellow capitalists, which it promptly shorted?

Greedy people destroy others, and eventually themselves.

alex

Well said (especially the first paragraph). You neatly summed up what I was trying to say in my verbose essay below.

AWM

“came in and declared that they are “capitalists” and began cutting salaries, wages, and employment ruthlessly while lavishing multimillion dollar bonuses on themselves.”

Corporate Communism is what I call it.
I worked for a company that epitomizes this.
Made them 2.5 million in profit and got a $9200 bonus, the next year (with the new management) made 2.95 million in profit and got a $600 bonus. This is after they slashed pay, help, hiring, benefits, except for those multi-million dollar “performance” bonuses for themselves.
What really got me is that they were critical of my not retaining employees that left their $8/hour positions to take $15/hour positions with another company with much better benefits as well.
Needless to say, I took my talents elsewhere.

Dan Duncan

Ubiquitous Obliquity.

Obliquity is defined as “a deviation from moral rectitude or sound thinking.”

Kay gives context to the definition by giving an example of an “Obliquitous Thinker”…as one who seeks happiness as an end in and of itself. Typically, this person fails.

Another way of looking at all this…

Actions performed for the sake of the action itself become things, and these things are often as burdensome as boulders.

When working becomes “work”, it is often unsatisfying.
When loving becomes “love”, it is often absent.
When losing becomes “a loss”, it is often more painful.
When obsessing becomes “an obsession”, it is often a disorder.
When possessing becomes “a possession”, it is often lost.

Emotional baggage is the stuff of such boulders.

Keep your verbs as verbs…and Misery, too, will be fleeting.

Reply
  • alex says:

    March 21, 2010 at 9:48 am

    Does high GDP/capita lead to high wages, or do high wages lead to high GDP/capita? Most economists, accountants and business people I suspect think solely in terms of the former, but the latter plays an important role. The short term thinking of the former is handily summarized as people who know the price of everything and the value of nothing.

    Obviously a country with $10k GDP/capita can’t pay an average of $20k/capita. But what about a country where the GDP/capita is $10k, the typical person (say the bottom 95 percentile) earns $7k/yr, but the political/economic possibility of driving the typical wage to $6k/yr exists? Obviously the top 5 percentile will see that (correctly) as an easy way to increase their share of income.

    Contrast that with a country where the political/economic situation makes it difficult to drive down wages. Investors will still invest though, and want to increase their returns. Denied the easy road of reducing wages, successful capital will instead think in terms of increasing productivity ($ of worker output per hour). Given the political/economic climate of that country, a chunk of that increased output will go to the workers, but not all of it. Ergo everyone benefits.

    Obviously the above is a highly simplified scenario, but it makes the point. The post-WW2 US, filled with memories of the Great Depression and with a political system where rising real wages were actually considered a (gasp) good thing, was the latter scenario. With strong labor protections, unionization and a political climate where fostering the cheap labor approach was political suicide, investment had to focus on improving productivity. Admittedly “capitalists” grumbled about having to share some of the wealth with labor, but they grumbled all the way to the bank. “Capitalists” who extolled the virtues of sharing the wealth and paying for quality labor were not virtuous paragons of some then-nobler-race, but people who were successful under the constraints of a political/economic system that made the race-to-the-bottom cheap labor approach unprofitable. The practices of successful people in such an environment then became part of the accepted wisdom of successful business.

    Contrast that with the political climate of the last 30 years where the discourse is as though everyone is a “capitalist” and rising wages only go to an unwashed and undeserving “them”. Labor is viewed strictly as a cost and never as an asset, save a few top executives to whose brilliance all gains are attributed (and conveniently forget that they’re just well coiffed labor). Increasingly too those overpaid American workers can be replaced with $2/day labor in some developing country while still (thanks to the extra-regulatory miracle of MNC’s) keeping the profits for a handful of Americans.

    Focusing on individual “greed” is silly. Greed is ill-defined, unhelpfully moralistic and arguably (depending on your exact definition) an essential part of a market based system. Why pay $2 for something you can get for a $1? I don’t (or at least try not to). Instead you need a political system that helps ensure that the $1 product is cheaper because of greater efficiency and not because it’s made by abusively cheap labor.

  • i on the ball patriot

    Yves said; “US business used to operate with the idea that the returns resulting from productivity gains would be shared by workers and the company; that notion now seems as dead as the dodo. But not allowing workers to participate in improvements in corporate returns blunts overall economic growth. Companies are fattening their current bottom lines at the expense of future top line growth. But in our current climate, this strategy looks just dandy….until government stimulus starts to be withdrawn.”

    @#$%^&* effing *&^%$, let’s get off this profit assumption — its not about profit! Its about CONTROL! Its about crushing the democratic ideal! Its about POWER! The obliqueness here is the orwellian cover-up bullshit that maintains the profit meme as the goal. It is not!

    At some point everyone is going to have to wake up to the fact that the old vanilla greed profit seeking is no longer the goal. The new elite pernicious greed goal is now about control. It is about gaining total global power in all institutions and crushing the democratic ideal by thrusting everyone on the planet into a divisive perpetual conflict that will end in a simple two tier ruler and ruled world.

    These pricks are smart, mean, and persistent and they own the system. It is not about profit, or ‘oblique’ financial derivatives, or share holder value, it is about pure raw mean ass power. It is about ‘slave holder value’.

    There is an interesting and well written article in the Guardian today about another democracy crushing global institution, the nazi pope Ratzinger’s catholic church, that reveals some great parallels. It is worth a read and some reflection on pernicious control …

    Excerpt;

    “The cover-up of child sexual abuse by the Catholic church is not about sex and it is not about Catholicism. It is not, as Pope Benedict rightly argued in yesterday’s distressingly bland pastoral letter, about priestly celibacy. It is about power.

    The urge to prey on children is not confined to the supposedly celibate clergy and exists in all walks of life. We know that it can become systemic in state and voluntary, as well as in religious, institutions. We know that all kinds of organisations – from banks to political movements – can generate a culture of perverted loyalty in which otherwise decent people will collude in crimes “for the greater good”.

    In none of these respects is the Catholic church unique. What makes it different – and what gives this crisis its depth – is the church’s power. It had the authority, indeed the majesty, to compel victims and their families to collude in their own abuse and to keep hideous crimes secret for decades. It is that system of authority that is at the heart of the corruption. And that is why Benedict’s pastoral letter, for all its expressions of “shame and remorse”, is unable to deal with the central issue. The only adequate response to the crisis is a fundamental questioning of the closed, hierarchical power system of which the pope himself is the apex and the embodiment. It was never remotely likely that Benedict would be able to understand those questions, let alone answer them.”

    More here …

    http://www.guardian.co.uk/world/2010/mar/21/pope-benedict-xvi-catholicism

    Deception is the strongest political force on the planet.

    [Mar 13, 2010] Lunch_with_Dave_030510

    One arcane statistic that still shows this to be an employers’ market, the "quit rate" — an old Greenspan favourite that illustrates worker confidence in the jobs outlook — dropped 5.7% from 6.1% and now stands at a five-month low. Perhaps it is because of this relentless large degree of slack in the labour market and the low level of worker security that we are seeing wage growth slow down as much as it has, even in the face of a statistical tentative recovery, with average weekly earnings down 0.2% MoM in February — the second decline in the past three months — and now just 100 basis points away from deflating outright on a year-over-year basis. The message to Mr. Market is that while there was much to cheer about in terms of the headline payroll number, there is still enough rot in the labour market below the surface that should still be a cause for concern in terms of the sustainability of the nascent economic recovery.

    In terms of sectors, as we mentioned, it is certainly encouraging to see the revival of the U.S. manufacturing sector take hold after years of competitive currency devaluation and tremendous efforts to boost productivity growth and cut costs. Health and education remain the secular bright spots, adding 32,000 jobs last month

    Staffing firms are certainly experiencing a boom with temp agency hirings totaling 47,500 in February and this followed nearly 200,000 placements in the previous three months. Many commentators look at this as a leading indicator, which may have been true in the past but extrapolating from the experience of other plain-vanilla post-recession recoveries could well be a big mistake because of the ongoing collapse we are seeing in household credit, shrinking banking sector assets and lingering stress in the real estate sector.

    It could well be that businesses see what we see — a recovery that has been engineered by massive bouts of fiscal and monetary stimulus that is likely to be unsustainable. So, against that uncertain backdrop they are opting to tap staffing firms to skate them for now rather than make a commitment to hire full-time staff. The jobs bill that has worked its way through Congress, at the margin, may entice some new hiring (especially the payroll tax relief) but estimates show that this will end up adding just 300,000 to payrolls, which is the amount we have lost since last October. What about the other 8-million plus who have lost their jobs since late 2007?

    Adding up temp agency and health/education, we get less than 20% of the employment pie generating 80,000 jobs last month; the other 80% lost 116,000. While we are seeing improvement in the jobs market compared to where we were six and 12-months ago, we are concerned that investors may be lulled into a sense that things are better than they really are, especially in view of the media treatment of the data, not to mention the immediate positive reaction we are seeing across a broad array of risk assets.

    Meanwhile, again beneath the veneer, what we see is a large swath of cyclical industries that are still shedding jobs:

    1. Construction (-64,000)
    2. Accommodation/food (-2,300)
    3. Financials (-10,000)
    4. Retail (-400)
    5. Transports (-12,000)
    6. Information services (-18,000)
    7. Of course, the State and local levels of government are in pervasive cutback mode, laying off 25,000 public servants last month (down four months in a row).

    We come back to the idea of what happens next? Companies are not deploying their cash for new capital spending growth and instead are focusing on merger and acquisition strategies. Growth through market share rather than organic expansion seems to be the course of action for many companies who understand what the broad contours of the economy will look like in the future in what is likely to be a multi-year deleveraging cycle.

    … Companies are opting to tap staffing firms rather than making a commitment to hire full-time staff

    The widespread business focus is on rationalization and improving operational efficiencies – why bother adding more plant, equipment and bodies when companies are able to churn out record 7% productivity growth as they have over the past three quarters?

    This by no means suggests that the labour market will not continue to heal but if the data we received today are any indication, it promises to be a slow grind. To get back to the full employment, we will need to see 12 million jobs created and here we are still waiting for the losses to come to an end. Until we get there, and it could take anywhere from 5 to 10 years, then expect deflation to be the primary trend in the future. Deflation in wages, rents and credit are hardly the hallmarks of a background conducive to anything other than lower bond yields, an obviously murky fiscal outlook and periodic counter-tend gyrations in market interest rates.

    [Mar 13, 2010] "The Sham Recovery"

    Economist's View

    Robert Reich is not very optimistic about the "recovery":

    The Sham Recovery, by Robert Reich: Are we finally in a recovery? Who’s “we,” kemosabe? Big global companies, Wall Street, and high-income Americans who hold their savings in financial instruments are clearly doing better. As to the rest of us – small businesses along Main Streets, and middle and lower-income Americans – forget it. ...
    Look more closely and the only ones doing better are the people and private-sector institutions at the top. Many of America’s biggest companies are sitting on huge amounts of cash right now, but that says nothing about the health of the U.S. economy. ... America’s biggest companies are also showing fat profits and productivity gains because they continue to slash payrolls and cut expenditures. ...
    (None of this, by the way, is stopping supply-side fanatics from arguing government needs to cut taxes on big corporations in order to spur the recovery. Their argument is absurd on its face. Big companies don’t know what to do with all their cash they have as it is. They aren’t investing it in new plant and equipment and new jobs. So why should the government cut their taxes and enlarge their cash hoards even more?)
    The picture on Main Street is quite the opposite. Small businesses aren’t selling much... Americans still aren’t buying much. Small businesses are also finding it difficult to get credit. ... Small businesses ... are responsible for almost all job growth in a typical recovery. So if small businesses are hurting, we’re not going to see much job growth any time soon. ...
    Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans...
    Add to all this the joblessness or fear of it that continues to haunt a large portion of the American population. Add in the trauma of what most of us have been through over the past year and a half. Consider also the extra need to save as tens of millions of boomers see retirement on the horizon. Bottom line: Thrifty consumers are doing the right and sensible thing by holding back from the malls. They saved a little over 4 percent of their disposable income in fourth quarter of 2009. In the months or years ahead they may save more.
    Right and sensible for each household but a disaster for the economy as a whole. American consumers accounted for 70 percent of the total demand for goods and services in the American economy before the Great Recession, and a sizable chunk of world demand.
    So what happens when the stimulus is over and the Fed begins to tighten again? Where will demand come from to get Main Street back, create jobs, raise middle class wages? Not from big businesses. Certainly not from Wall Street. Not from exports. Not from government.
    So, where? That question is the big unknown hanging over the U.S. economy. Until there’s an answer, an economic “recovery” for anyone other than big corporations, Wall Street, and the wealthy is a mirage.

    There's another consequence of the lagging recovery for labor markets. Here's Paul Vigna:

    Meet The New Welfare Queens, by Paul Vigna: There’s a new profligate in town, one that isn’t working, isn’t looking for a job, but is just sucking off the government teat while productive citizens slave away. This new welfare queen can be found in living rooms across the country, her (or his) feet up on the coffee table, sucking down a Fuze and turning down job offers while they waste time watching The View. They’re almost, go ahead and say it, European.
    “Continuing to pay people unemployment compensation is a disincentive for them to seek new work,” Sen. Jon Kyl said... That’s right, you 11 million or so unemployed Americans collecting benefits: you’re being “disincentivized” to work by a government handout. And in the process, you’re robbing decent productive, working Americans. It’s only a matter of time before Mark Levin or somebody starts screaming about unemployment queens.
    This is so wrong on so many levels, I’m not sure where to start with it. The worst economic meltdown in our lifetimes has thrown more than 8 million Americans out of work. The jobs have simply vanished. ... When employers are losing money because they can’t hire enough people to keep up with demand for their products, and people are on the dole for two years, then come to talk to me about lazy Americans. Not before then.
    Right now, there are precious few jobs, and for each of those precious few, there are more than five unemployed people. Employers aren’t adding jobs because people still aren’t sure how this whole thing’s gonna turn out. And until real, concrete demand starts showing up, that’s going to remain the case. ...

    Then, of course, unemployment benefits are only a slim percentage of your previous wages, so I find it very hard to believe there’s anybody out there living it up on the dole. ... At the best, you may have some two-income families that are making due on one income and the unemployment checks for the time being. ... So let’s hold off on all the joyriding jobless talk, shall we?

    If Congress had instituted the job creation programs that were needed, and done so in a timely manner instead of dragging their feet on the false hope that recovery was just around the corner, there wouldn't be so much resentment of those receiving government help since many of them would have jobs. There would, of course, still be irritation from the deficit hawks over the deficit spending that would have been required to create the needed jobs, much more deficit spending than Congress was willing to put in place was needed, but at least their ire would have been directed at the government and Congress rather than the unemployed.

    Conservatives whine about everything, and the noise they make is often quite disconnected from the importance of the problem, so the mere fact that they are making noise doesn't say much. The real problem is those who refused to give the help that was needed, people like Jon Kyl. The people sitting at home jobless as a consequence of this failure, people just trying to get by until there are jobs again, are not the ones to blame.

    Eric:


    America’s biggest companies are also showing fat profits and productivity gains because they continue to slash payrolls and cut expenditures. ...

    Well, these seems to be a serious problem, if true. Because if this is true, then re-hiring is going to be real far down on the list of things to do. I am a little amazed that there is little comment on restricting the labor supply. Make a serious effort to enforce the immigration laws and my guess is that it will become considerably easier for lower skilled Americans to profitably offer their labor. And by serious, I mean a 15 or 20 year commitment to this.

    [Mar 9, 2010] Unemployment Rate Increases in 30 States in January

    Mar 10, 2010 | CalculatedRisk

    From the BLS: Regional and State Employment and Unemployment Summary

    Thirty states and the District of Columbia recorded over-the-month unemployment rate increases, 9 states registered rate decreases, and 11 states had no rate change, the U.S. Bureau of Labor Statistics reported today. Over the year, jobless rates increased in all 50states and the District of Columbia.
    ...
    Michigan again recorded the highest unemployment rate among the states, 14.3 percent in January. The states with the next highest rates were Nevada, 13.0 percent; Rhode Island, 12.7 percent; South Carolina, 12.6 percent; and California, 12.5 percent. North Dakota continued to register the lowest jobless rate, 4.2 percent in January, followed by Nebraska and South Dakota, 4.6 and 4.8 percent, respectively. The rates in California and South Carolina set new series highs, as did the rates in three other states: Florida (11.9 percent), Georgia (10.4 percent), and North Carolina (11.1 percent). The rate in the District of Columbia (12.0 percent) also set a new series high.

    [Mar 9, 2010] Stephen Roach on Discouraged Workers

    March 8, 2010 | The Mess That Greenspan Made

    After last Friday’s print of 9.7 percent for the unemployment rate, more than a few pundits are calling the 10.1 percent jobless rate seen back in October the high for the cycle. It seems to be way too early to make that call based on the millions of “discouraged” workers who, when they start looking for work again, will suddenly count as “unemployed” again.

    Stephen Roach seems to agree, figuring that the real jobless rate today is 11.5 percent.

    The odds of a double-dip recession are now 40 percent? That’s good to know. There’s been a lot of talk about another downturn for the U.S. economy, but it comes as news to me that they’ve already taken the time to poll economists and that they were this pessimistic.

    [Mar 5, 2010] Heck of a job

    The shills on CNBC are going wild because of the “upside surprise.”
    The trend is to replace peremanent work force with temp work force. The Birth Death data finally updated — it was +97k vs a +134k in February 2009 . . .

    March 5th, 2010,

    BLS:

    Nonfarm payroll employment was little changed (-36,000) in February, and the unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and information, while temporary help services added jobs. Severe winter weather in parts of the country may have affected payroll employment and hours; however, it is not possible to quantify precisely the net impact of the winter storms on these measures. For more information on the effects of the severe weather on employment estimates, see the box note at the end of the release.

    By the numbers:

    Generally, Construction employment fell (64,000), Manufacturing and Retail were unchanged...

    Mike in Nola:

    rktbrkr: Oil prices will likely be lower than now. We have the conundrum that the commodity bubbles have been caused by stimulus from BB and China because the free money has gone into speculation instead of useful investment. Once things improve enough for the stimuli (correct plural?) to be withdrawn, all the excess liquidity that has fueled the speculation will cause the bubbles to collapse and we will see pricing based on real supply and demand.

    BTW, Bill Gross made some “well, duh” statements on CNBC (not watching it myself) which were treated as some amazing revelation. As he or El Erian has said, the Fed has essentially written a $1.5T check which is fueling the markets.

    Withdrawal will be painful http://www.cnbc.com/id/35723330

    rktbrkr:

    1.2M hired for $14B census, I wonder how this compares to 4 years ago, you’d think with increased automation and efficency the 1.2M number would be lower than last time but I bet it isn’t!

    http://www.ft.com/cms/s/0/0eecb496-27c5-11df-863d-00144feabdc0.html

    Financial Says:

    B/D now online – http://www.bls.gov/web/cesbd.htm – +97k. Mostly Leisure/Hospitality and Prof/Biz services.

    a_moran3:

    I’m not surprised at all by these numbers. The government is making the problem much worse, however, what I find amazing is this: Underemployed (U6) 16.8% if that is what I think it means, how do they measure that?

    Of course, though, the big investment firms on Wall Street aren’t feeling the pinch since they stole from me, you and Joe!

    Pat G.:

    “-Temporary help services added 48,000 jobs” And there have been way more hired for the Census than that number includes…

    rktbrkr:

    According to the Financial Times, the U.S. is hiring 1.2 million census workers for the 2010 national head count that starts in April – twice as many as were needed for the 2000 census. While census workers are government employees, they do not appear to be showing up under the government category in the monthly non-farm payrolls employment report (hiring began by March 2009). The Bureau of Labor Statistics appears to be counting these temporary jobs in the Business and Professional Services category. As a consequence, the employment numbers make the U.S. economy look much better than it really is.

    February

    [Feb 26, 2010] Unemployment and the Oligarchs

    February 23, 2010 | The World Bank

    Mark Thoma takes a look at who pays the cost of the recession:

    The recession is taking away opportunity for the young to gain employment experience, and many who are employed are working below their abilities in jobs they are likely to get stuck in for many years, if not forever.

    The recession is wiping out the accumulated assets of the unemployed as they try to bridge the gap until jobs return, and since many of these are older workers, this will have a large detrimental effect that lasts throughout their retirement years. Recessions cause skills to depreciate, there are psychological costs, there are costs to family members, the loss of a job generally means loss of health care, the costs to working class households go on and on.

    It is worth repeating that many of the externalities of the financial crisis are likely to become perpetual, as middle-aged workers are forced to retire and young workers are unable to develop the skills that they might otherwise have gained, leaving them permanently handicapped in the future job market. The gravity of this situation is so strong that has produced a temporary respite from America's partisan sclerosis, as lawmakers push for a government solution.

    Roughly one in ten Americans is officially unemployed, with the effects of unemployment becoming more dire, yet America's GDP managed to grow at 5.7 percent last quarter. What explains this juxtaposition?

    Thoma blames taxpayer-funded financial bailouts, calling for more support at the bottom of the income pyramid:

    The fact that many of the costs were concentrated among those least able to pay them stands in contrast to the fact that the bailout benefits were concentrated among those at the opposite end of the income distribution.

    Government transfers to compensate low income groups for the costs they were forced to pay but had no hand in causing, transfers that are financed by those who received the benefits during the bubble years and the bailout money when the bubble popped, seem more than justified.

    Might America's GDP growth be over-representing the gains of its wealthiest citizens?

    [Feb 26, 2010] Auerback Bernanke Fesses Up America Has No ‘Insolvency’ Issue

    "...the Fed cannot print oil or jobs"
    Naked Capitalism

    ...If Congress doesn’t pass the debt ceiling, the Treasury can default. But this constraint is not operationally inherent in the monetary system. It is put there by the same Congress that could (and should) revoke the unnecessary constraints, much as the European Union could (if it chose to do so) could eliminate its arbitrary rules limiting government expenditure. This is a problem of “willingness to pay” and not “ability to pay”, as the government is at all times in control of its spending process. In short, here we have the Chairman of the Federal Reserve openly acknowledging that, short of voluntary political constraints, there are no financial constraints on the ability of a sovereign nation to deficit spend.

    To anticipate the usual objections that we usually encounter whenever we point this out, please note that this doesn’t mean that there are no real resource constraints on government spending; this should be the real concern, not financial constraints. Government spending should be analyzed in regard to its effects on the real economy, which means that it should, like Goldilocks, be neither “too hot” (or else inflation will result), or “too cold” (as is the case today, where we have an economy characterized by high unemployment and significant resource underutilization) Debating whether the social losses due to operating below full employment are higher than economic losses due to inflation or currency depreciation, are germane discussions to POLITICAL debate, but totally separate from the issue of national solvency.

    So what’s with the Fed Chairman’s obsession with fiscal sustainability, when Bernanke knows that there is no insolvency issue?

    There’s obviously a degree of self-interest here. As head of the nation’s central bank, Mr. Bernanke (like any other central banker) is keen to assert the primacy of monetary policy over fiscal policy, despite the fact that the former’s impact on real economic activity is far more ambiguous. The manipulation of interest rates may be used to control inflation and that inflation expectations may have an influence on the spreads at the longer end of the yield curve. But the way in which interest rate manipulation (that is, monetary policy) impacts on inflation is unclear: rising interest rates certainly increase costs for borrowers and may choke of aggregate demand but equally they increase incomes for those with interest-rate sensitive portfolios which may add to aggregate demand. Fiscal policy, by contrast is far more targeted in terms of the impact it seeks to achieve.

    There is also a political dimension: the financial class (whose views still reflect the predominant economic thinking at the Fed and on Wall Street), benefits from the deflationary bias imparted as a consequence of these artificial financing rules, which are remnants of the gold standard era. But in reality this is a denial of the essence of the fiat monetary system that we now live in and there is thus no economic basis for these constraints. Keeping unemployment high provides a strong means of disciplining wage demands and enhancing profits.

    A stable ratio of federal debt to GDP may or may not be the right policy objective. But it is neither more nor less “sustainable,” under different economic conditions, than a rising or a falling ratio and Mr. Bernanke implicitly recognized that in his testimony today. We wish he had gone further. It is not, as Professor James Galbraith has argued, “a hidden evil. It is not a secret shame, or even an embarrassment. It does not need to be reversed in the near or even the medium term. If and as the private economy recovers, the ratio will begin again to drift down. And if the private economy does not recover, we will have much bigger problems to worry about, than the debt-to-GDP ratio”.

    dave:

    So spending like a drunken sailor doesn’t cause inflation, except when its wasteful (like it usually is). And an example of wasteful activity is warfare (we are two wars) and transfer payments (bailouts).

    And inflation is suppose to be great for the common man, except when you believe that wages don’t seem to keep up with prices, which you think is true today.

    So what exactly was your point again?

    Thomas Barton:

    I believe this comment reflects the view that we are inexorably headed to a Japan super-stagnation situation. I wonder if Yves or someone else could discuss the possibility that one major economy can flounder for a decade and a half when it has several large growing economies to sustain it while now we are entering an EU debt and US debt contagion which surely changes the dyanamic of the Japanese economy or does it ?

    steve from virginia:

    I appreciate it when Mr. Auerback publishes that there are some limits to deficit spending outside the mechanical process that is able to produce lending in one’s own currency to a degree greater than common sense might otherwise indicate:

    “To anticipate the usual objections that we usually encounter whenever we point this out, please note that this doesn’t mean that there are no real resource constraints on government spending; this should be the real concern, not financial constraints. Government spending should be analyzed in regard to its effects on the real economy, which means that it should, like Goldilocks, be neither “too hot” (or else inflation will result), or “too cold” (as is the case today, where we have an economy characterized by high unemployment and significant resource underutilization)

    Debating whether the social losses due to operating below full employment are higher than economic losses due to inflation or currency depreciation, are germane discussions to POLITICAL debate, but totally separate from the issue of national solvency.”

    I agree about national solvency. I also agree that most economic knuckleheads pundits don’t ‘get it’. I don’t agree that there are no finance limits to sovereign finance. The issue is credibility. A ten- quadrillion dollar deficit is absurd. A ten year old knows its absurd. No country can service a ten- or twenty- or three hundred gazillion- quadrillion dollar deficit. There are limits – money limits – to sovereign borrowing.

    The biggest real limits are resources, claims against them and reality. Auerback’s remark, “where we have an economy characterized by high unemployment and significant resource underutilization,” is an economic mischaracterization that undermines his greater thesis. The problem of all the world’s economies – including China’s – is the OVER utilization of resources leading to credit distortions and reliance on borrowing/deficit spending to create paper substitutes for the overutilized resources.

    The result of this deficit spending is a (large and increasing) surplus of claims against a declining resource base. I know, I know, Auerback uses a word resource that means a lot of funny economic things that don’t matter …

    The resource that matters is oil and it’s vanishing in its most important iteration – the cheap form. $20 oil has disappeared forever and nothing the Treasury, Barnanke, Auerback or anyone else can do can bring it back. Without cheap oil resource, the vast and varied oil dependent infrastructure that makes up the equally vast majority of our modern world is stranded and unprofitable to operate.

    Welcome to the great economic meltdown, beginning around 2000. Peak oil took place in 1998, people! We don’t have ten or twenty or eight gazillion years to get ready for it. The ship left the dock over ten years ago and all the calamities promised by the ‘Peak Oil Theorists’ have already begun … to bite us on our collective asses!

    Auerback has as always put the finance cart before the energy horse and his argument dissolves as a consequence. Even though it is a decent one – it’s irrelevant. It doesn’t matter how much the Treasury can borrow, it cannot borrow energy and the Fed cannot print oil or jobs.

    john haskell:

    Thank you Steve. I’m glad to see I am not the only person in America who is getting tired of Auerback.

    “We can service any amount of debt we want… we have a printing press!” is not a persuasive argument to any thinking person and I’m shocked at the number of people who are willing to give him a forum.

    Francois T:

    The result of this deficit spending is a (large and increasing) surplus of claims against a declining resource base. I know, I know, Auerback uses a word resource that means a lot of funny economic things that don’t matter …

    The resource that matters is oil and it’s vanishing in its most important iteration – the cheap form. $20 oil has disappeared forever…

    OK! So…we have to adapt to this new set of circumstance, whether we like it or not. Which means adoption of new technologies (the plural is intentional here) and new behaviors. I don’t buy the argument “after oil came the Great Void”, unless of course, we fail to adapt.

    So, what does the above has to do with the gist of Marshall’s post?

    steve from virginia:

    It also should be pointed out that sovereign borrowing/spending only gains traction when credit multipliers are functioning. Otherwise, there is no new money being created – as is the case right now.

    No new money, lack of velocity, the new hard dollar (pegged to crude oil by the swing producer Saudi Arabia) misguided inflation fears on the FOMC … the new super- hard petrodollar means deflation is hitting the US economy like the hammer of Thor.

    If you think times are tough on Main Street America this year, check back this time NEXT year!

    nowhereman:

    Look, I’m pretty unschooled when it comes to economic jargon, but what I know is this…no matter what happens, the middle class will pay.

    Until we stand up against TPTB we have no HOPE.

    While MISH and his crew rail against the unions protest against having to pay for the sins of the banks and their monoline enablers, maybe we should be joining in the protest.

    Who stole our pension funds? Who sold garbage to municipal bonds? Who stole our future? Who’s going to get away with it by making it our problem, not theirs. Why do we fall for this crap, are we that insecure in ourselves that we allow these assholes to define the situation.

    We need to grow a set and call them out on this. All of them, Goldman, Dodd, Pelosi, Bernanke, Geithner, Summers and Obama. Times up gents, The Jig is up. We don’t believe a word you say, you lying bastards.

    Hugh:

    Marshall Auerback nails it.

    “The reality is that all questions of “national insolvency” or fiscal sustainability go by the wayside whenever Wall Street or some other major corporate interest demands a hand-out from the government.”

    The same could be said for the wars or tax cuts for the rich. It is, as he says, a question of willingness. For our political classes and financial elites, deficit spending never stops them from what they want to do. And yes too, it is a matter of credibility. This is what the Bush and Obama Administrations have been running through far faster than any debts we have accumulated. The truth is we could be running much higher deficits than currently if there was a real perception that our government had a solid plan for the economy and a strong commitment to it. Of course, what we see is the very opposite. We see a muddle, deficits and a lack of direction. This does not destroy but it does weaken the resources we have to deal with the economy. I am a broken record on this, but the greatest obstacle to economic recovery is our elites.

    Jim:

    So do the MMT boys and girls believe that the Treasury Secretary and the Federal Reserve Chairman were acting in the public interest when they stepped in, with the help of Congress, to save the private financial oligarchy?

    Do the MMT boys and girls believe that both the private financial oligarchy and the sovereign state sector have mutual interests which end up facilitating massive wealth transfers to themselves at the expense of the American people?

    Do the MMt boys and girls assume that there is a level playing field or do they recognize that their analytical framework does not come close to dealing with this issue?

    Do the MMT boys and girls see that their appropriate critique of neo-liberalism combined with their fawning analysis of the state sector leads many of them (not all) to endorse a standard left/right paradigm which is politically inadequate and, in fact, a hindrance to understanding and changing the corrupt structure of power that has evolved in the U.S. since the early 1970s?

    Matt Franko:

    Jim,
    It’s like you can’t even read….to answer any of your questions just read Auerbacks post or any other of his recent posts.

    MMT is not a “morals” issue, it is just a recognition of the realties of how our Treasury and Central Bank actually operate….no paranoid conspiracies.

    bob goodwin:

    I am currently reading Rogoff right now, and he goes to great pains to elaborate on ‘ability to pay’ and ‘willingness to pay’ as being variation on a similar theme, as he states that countries never go belly up, they just simply find that the benefits of a partial default are sufficiently high for the government to chose to do so.

    The US does not have a history of outright default, but he does claim inflation (70s) and debasement (30s) is the US way of achieving default.

    He also is unambiguous that we are likely to head one of these directions again sooner than later. We have an exorbinant privilege visa-vis the dollar, and history tells us governments act only as prudently as they need to.

    A typical bank crisis raises debt by 70%, and our bank crisis is not over yet. By his numbers we will be have very high debt levels compared to most countries who end up defaulting.

    Higher short interest rates will push sovereigns over the edge.

    nonsense:

    WTF is this-

    The manipulation of interest rates may be used to control inflation and that inflation expectations may have an influence on the spreads at the longer end of the yield curve.

    Reply
    suggestion says:
    February 26, 2010 at 7:58 am
    Short. Declarative. Sentences.

    The manipulation of interest rates may be used to control inflation.

    Inflation expectations may have an influence on the spreads at the longer end of the yield curve.

    Reply
    Ignim Brites says:
    February 26, 2010 at 8:32 am
    So the money question for Mr. Auerback is: What level of deficit spending would be consistent with restoring full employment within the next two years? Five, Six, Seven trillion per annum? And why not shoot for it this year by going for a deficit of say eight or ten trillion? Maybe these numbers are high. Maybe they are low. The point is that Mr. Auerback seems to imply that with unemployment so high there really are no resource constraints on high deficit spending. Well, he should put out a number.

    dwight baker says:

    We the few in the many! Have been summoned for a time such as this. To rise up against the FOES that are within us disguised as Politicians, Pundits, and Warring Generals and Corporate billionaires with sin sick mean cruel lust and love for money agendas.
    By Dwight Baker
    February 25, 2010
    Dbaker007@stx.rr.com

    Birds Eye View Pointing the Finger for We the People Advocates

    Yes those are ‘the one’s hired by us’ but they represent the will of the Military Industrial Complex and the Old Line of Barons who have been in control of our nation for over 200 years. Some in Politics have thought of We the People as PUSH OVER’S. Those thoughts have emerged from the supposed intellects that comprise many of the think tanks that earn their living by studying out the best of ways of how to lie, cheat, steal and finally defeat us.

    WHY, are We the People the object of such attention? It is our communed held wealth in our People and Property. The real value of We the People living in our Rich and Abundant America far exceeds $400 Trillion net worth. And for over 200 years our individual industrious genius has been clearly seen in our creativeness in producing wealth. The deist lust for our wealth and to that end all of these people doing these things are out there to destroy the will of We the People to fight back.

    We the People by accumulating such wealth have been ‘set up’ for the siege led by Barbarian Predator Beast Wiccans along with the Barons of old worshiping the Devilish Canaanite religions. We have been ‘set up’ to be run over and overcome from within by our own elected Politicians, Pundits and Warring Generals. Included with them are the many of the Giants in the corporate cultures as Billionaires who have believed in and become converts to the same failed religious views known as Deist. They have been allowed to run rough shod over us time and time again without We the People standing up against them as in times gone by, when our true blue agrarian Patriots in our rich history resisted such tyranny.

    The siege was set up long ago and is operating today as many have seen done — too:
    1. Demoralize the American People
    2. Refuse to enforce the Laws against the many white-collar criminal minded and the controlling Predator Beast elite that are the worst of all offenders and defy the laws and have the legal staffs to put off prosecution and they have known and used ways to bribe Federal Judges to get decisions as too their wishes.
    Note: Our Present elected Federal officials have proved they cannot enforce our laws loosing 1/2 of the money spent on Medicare and Medicaid because of fraud. Therefore proving that the RULE of LAW does not exist as a NEED to DO item on the top priority. Since the beginning of the Medicare program, CMS has contracted with private companies to operate as intermediaries between the government and medical providers.[5] These contractors are commonly already in the insurance or health care area. Contracted processes include claims and payment processing, call center services, clinician enrollment, and fraud investigation. Medicare contracts with regional insurance companies who process over one billion fee-for-service claims per year. In 2008, Medicare accounted for 13% ($386 billion) of the federal budget. In 2010 it is projected to account for 12.5% ($452 billion) of the total expenditures. For the decade 2010-2019 medicare is projected to cost 6.4 trillion dollars or 14.8% of the federal budget for the period.[35]

    3. Lie about the REAL VALUE of our communed held wealth.
    4. Confuse to diffuse ALL the real Care for US issues at hand
    5. Divide the American People in warring factions one against another.
    6. Destroy the Republican Party leaving We the People uncovered by the protections of our Laws in our Constitution guaranteeing our sovereignty.
    7. Continue the dilemmas in the ravages of un-justified wars abroad spending our communed wealth without our agreements and destroying our young for no Real American Purpose.
    8. Strip away our communed owed obligations to each other and our personal defenses in an orderly devious and seemed legal way.
    Propel hypocrisy as just a rule for those to follow inside the Beltway of Washington DC.

    The above things and matters have been created and envisioned by those listed below to totally enslave us sooner than most of We the People think.

    The Pirates [offenders] in the New World Order will continue to strip from We the People our sovereignty and our love admiration and honor we hold as sacred for our People and Property. The language that We the People use should be revised to declare —we name the names of the offenders and their offense spelled out in proper legal form. Listed below.

    Why, should we do that? To let ALL of them know foremost and at first dawn daily that their CON’S HAVE RUN THE COURSE and they are coming out as the rejected and dejected losers. And sooner than they think — they will be charged and indicted for misdemeanors, felonies and acts of treason against We the People and prosecuted with the authority found in our Constitution as the Law.
    A Partial list of our FOES.
    http://mapper.nndb.com/maps/286/000003277/

    I submit you do the math. By doing you will see the CONS.
    Medicare (United States) – Wikipedia, the free encyclopedia
    http://en.wikipedia.org/wiki/United_States_federal_budget

    My take STOP THE WARS—STOP THE FRAUD —COLLECT 12.9% taxes from our Corporations. All then will work out just fine.

    Forget most you hear and see on National TV and found in the Internet Progressive Media but never forget to:

    Stand up and Shout out Stop This Madness
    STOP ALL THE WARS.

    This message brought to you by We the People Advocates
    Pass along — publish if you will in part or complete
    By Dwight Baker Grassroots Organizer for those who want to think clearly using sanguine sane common sense and reason working toward civility using sanity. With facts in history as our guide under the control of each ones own conscience! Where your voice is heard and your vote is counted. We the People Advocates
    Dwight Baker PO Box 7065 Eagle Pass TX 78853 Tel 830-773-1077

    RPB:

    Sure, we can print as much money as we like. No one would ever argue there is a physical constraint on a fiat currency. That would be an exercise in sheer stupidity.

    The problem, still, lies with the crowding out effect of private investment, the global limit to simultaneous debt creation, and the limit to export absorption. Japan was only able to avert a depression over the last two decades by means of its willingness to depreciate its currency in order to export and by keeping its low interest rates its deficit. However, Japan is the perfect example of why Keynesian stimulus is not the correct solution. After experimenting for two decades with these types of policies they show virtually no economic growth, face a retirement crisis and destroyed many resources in meaningless make work projects. That withstanding, save four identities, Japan would have gone into a major depression despite these measures. These four circumstances unique to Japan and the time period are:

    1. A Japanese cultural propensity to save and thus buy JGBs (and a demography largely positioned in the sweet spot to save)

    2. The willingness of other countries’ governments to allow their populations to absorb Japan’s productive surplus

    3. An asset/interest rate environment that favored consumption over savings in the world’s largest economy

    4. A lack of meaningful competition from the world’s large economies to do the same export/deficit stimulate

    Absent these four phenomena, the Japanese government would find themselves without buyers for both its bonds and its goods. The stimulus would have ran into hyperinflationary waters and we probably would have seen the rise of fascism or socialism (whichever way the pendulum swung). With their coming retirement crisis we will see the erosion of Japanese living standards to the point of near crisis. Hopefully, the old will be too tired for revolution.

    We are different than Japan. Both our society and the global environment are substantially different than the ones Japan faced while undergoing their Keynesian stimulus/mercantilist export regime. At the end of the day government spending cannot fill the breach and stimulus will not be as “successful” for us in the same way it worked for Japan (if you call what occurred a ’success’).

    Our largest population demographic is past the point of saving and our services based economy is geared towards consumption. Also, unlike the environment of the 90s/00s, no foreign government will allow us to flood their markets with our cheap goods absent tariff or quota. Furthermore, there is no greater economy in the world that will absorb the amount of goods we need to produce in order to achieve at least sideways growth. Last, and most importantly, we are currently in an environment, unlike Japan, where every other major economy will try to compete with us to enact the same type of stimulus/export measures.

    While you argue stimulus spending should continue until private spending fills the gap, at what point does this occur? Even with the most favorable of circumstances, Japan has not been able to kick the stimulus/deficit spending habit despite 20 years of record exports and a debt/GDP over 200%. How will we do better in a less favorable situation? And with massive stimulus spending without financial reform and possibly a cap/trade regime, are we not just further siphoning off capital away from real, productive industries and towards meaningless, lobbyist connected financial/asset/government subsidized businesses?

    Sure the Fed can take down each auction indirectly through the dealers (and give the BDs a easy few ticks on the purchases, I HAVE SEEN IT HAPPEN ACROSS THE YIELD CURVE). Sure they can do reverse repos, pay interest on reserves or enact any manner of ways to limit monetary base growth. No one would question their short term financial influence. But what type of risk perversion will we further endure if they continue to massage the interest rates on the back end (and front end) of the yield curve? At what point do we stop trying to fuel asset inflation at the point of crowding out real investment into productive industries? How long will the Fed keep back end rates low in the face of exploding M3 and eventually inflation? How long will the private lending market reflect these dovish inflationary expectations? Even with all the policy options it retains, the FED is playing hot potato with the massive amount of reserves it is creating/injecting into the economy. If they lose control of the unprecedented growth of M3 (yes you can still measure it), what magnitude of inflation (perhaps hyper) will occur in a speculative, non-productive, service based environment? Do you have a model for this? I believe you mentioned a similar one in your above missive.

    You argue these two things, fiscal and monetary policy are interrelated – they are, but again, at what point do the inflationary pressures tip the Fed’s hand to stop buying Treasurys and stop perverting risk? At that stopping point, what occurs then in terms of a US Govt bond auction? Will we see a failed auction as the broader market chokes on supply or will we see treasury rates 15.00% or more? Perhaps the latter than the former?

    This unlimited printing press facilitates inflation, perhaps not hyperinflation, but inflation none the less. If the Fed continues to misprice long term interest rates, what asset class will enable enough return for middle class investors to save enough for retirement? With interest rates kept so low, how much more real capital will be diverted toward speculative markets instead of fueling production? And in speculation, how much more capital destruction will this incur? How much more wealth transfer to the financial oligarchy will occur as the big boys scalp these retail specs?

    Are the soon to be retired to rely entirely upon social security in the face of a constantly ‘adjusted’ CPI that reflects anything but real inflation? Is the middle class going to see their savings eroded by inflation? Or will the lack of real investment return force them into low yield treasury prices? Or will we see another unproductive asset bubble? Or will all of these things occur? What will happen to the real economy when it faces both high inflationary costs, high lending rates and another asset bubble?

    Where does this dog and pony show end? What is the end game other than kicking the can down the road? Do you hope that one day we will discover some sort of technology or industry that will create magical economic prosperity that will solve these issues? Are you planning on placing these burdens solely upon the shoulders of people like myself, the young?

    “And if the private economy does not recover, we will have much bigger problems to worry about. . .”

    - Exactly my point. The economy has not recovered in Japan, why do we think it will be any different here in a cutthroat, beggar-thy-neighbor environment?

    Andrew Baumgardt:

    What an outrageous lie.

    The US already defaulted about 40 years ago when Nixon took us off the gold standard. Since then its only been the end game that has been playing out and is now starting to reach a final conclusion.

    Technically Bernamke is right when everyone accepts the legalized couterfeiting ring that exists between the Treasury and the Federal Reserve. I for one and a growing number of Americans do not. I will call it exactly what it is – theft and lawlessness.

    [Feb 22, 2010] "We Need Jobs, not Deficit Cuts"

    Jamie Galbraith:

    We need jobs, not deficit cuts, by James Galbraith, CIF: "Now that the immediate crisis has passed," Policy Network asks for "long-term strategies to shape our post-recession economies" and "to promote economic growth".

    But the immediate crisis hasn't passed. It is not over for the jobless. It is not over for those losing their homes. It is not over for Greece, Spain, Portugal, or Iceland, facing ruin in the capital markets. ...

    People need work. We face the challenge of climate change. The broad outline of a program is therefore plain. There is no mystery about it. In 1929, Keynes wrote, "there is work to do; there are men to do it. Why not bring them together?" Today as then, it is that simple.

    Do we need to "rethink the relation between the market and the state"? A futile hope! Those who once thought the market could flourish without the state have either already "rethought", or they cannot think. They are our own Stanley Baldwins and when they discourse on this subject, "it not only is nonsense … but it looks like nonsense to any simpleminded person who considers it with a fresh, unprejudiced mind".

    In the crisis, the financial sector collapsed. It hasn't recovered. ... In this situation, the state must act. It can act through the banking system by mandate, as it does in China and as it used to do in Japan and France. Or it can bypass the banks and go to work directly – as it did in America in the New Deal and as Keynes proposed for Britain in 1929.

    A jobs program? Keynes again: "No, says Baldwin. There are mysterious, unintelligible reasons of high finance and economic theory as to why this is impossible. It would be most rash. It would probably ruin the country. Abra would rise, cadabra would fall… No, cries Baldwin. It would be most unjust… Unemployment is the lot of man… For the more the fewer, the higher the less."

    The question facing world leaders today is not what to do. It is whether to do it. There are two goals to meet: full employment and sustainable energy. That's technically complex. But the complexities are complexities of engineering, organization and politics. They are not complexities of economics or finance.

    The question is posed as though it involved deep questions and high obstacles, whose true nature the uninitiated cannot be expected to grasp. Thus the hue and cry over public debt and deficits – projected to be unsustainable – for reasons never stated – in the long run. Our papers and our television speak of almost nothing else. But if they are right – as all the voices of Wall Street and the City say – then how come the long-term interest rate on the government bonds of the rich countries remains so low? ...

    In truth, the deficit/debt uproar is a deliberate effort to sidetrack attention, to defeat the will of the electorates in the US, as well as Greece among others, who stubbornly insist on effective action, economic recovery and financial reform. Those behind the uproar never foresaw the financial crisis. They never warned against the dangers of excessive private debt. Their interest is plain: they profit from private debts. So it pays to make believe that private is productive and public is sterile, that private is stable and public is not, when the reality is the other way around.

    A final word from Keynes: "It may seem very wise to sit back and wag the head. But while we wait, the unused labor of the workless is not piling up to our credit in a bank, ready to be used at some later time. It is running irrevocably to waste; it is irretrievably lost. Every puff of Mr Baldwin's pipe costs us thousands of pounds."

    Every day that goes by with unemployment higher than it needs to be means that people are struggling needlessly. People need jobs. And not at some point in the future when Congress gets around to it (if they ever do), this can't wait another day. It should have been done months and months ago.

    Congress ought to have the same urgency in dealing with the unemployment problem as it had when banks were in trouble. Collectively the unemployed are too big to remain jobless, and the millions of individual struggles among the unemployed shouldn't be tolerated. But Congress doesn't seem to be in much of a hurry to do anything about it, or give any sign that it much cares.

    Selected Comments

    Min:

    Mark Thoma: "Congress ought to have the same urgency in dealing with the unemployment problem as it had when banks were in trouble."

    Amen, brother!

    Jobs now!

    purple:

    I suspect something will eventually be done because it will have to be. US businesses cannot survive without a US consumer. But for now, a faction of US big business thinks they can just run off to Chindia and make billions there. However, both those countries are not interested in seeing their wealth drain away and will - for the foreseeable future - protect their own industries and businesses.

    Hence the whining from the EU and US Chamber of Commerce about China's favoritism of domestic companies, etc. But what do they expect ?

    anne:

    http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=02&year=2010&base_name=it_is_not_a_jobless_recovery_i

    February 20, 2010

    It Is Not a Jobless Recovery, It is a Growthless Recovery

    The New York Times has a good article * on how millions of workers are likely to face prolonged joblessness as a result of the current recession. The article implies that there has been a change in the relationship between economic growth and employment in recent decades as it has taken longer for the economy to recovery the jobs lost in the last two recessions than in prior recessions.

    While it has taken longer to recover the jobs lost in the downturn, this has nothing to do with a changed relationship between growth and jobs. The problem is simply that growth has been very weak. Here is the cumulative growth in the 8 quarters following the end of the last 5 recessions:

    1970(IV)-1972(IV) -- 8.9%
    1975(I)-1977(I) - 9.8%
    1982(IV)-1984(IV) - 13.5%
    1991(I)-1993(I) -- 6.0%
    2001(IV)-2003(IV) -- 5.9%

    As can be seen the growth coming out of the last two downturns has been very weak by historical standards. Most projections show that the growth coming out of the current recession will be similarly weak. In short, there is no mystery about the economy's failure to create jobs. Weak growth typically means weak job creation.

    By the way, the explanation for the slower growth following the last two downturns and projected for this recovery is not difficult. The 1990-91 recession was not countered with any fiscal stimulus. In fact, the government put in place a deficit reduction package at the start of the recession (not the cause, but it didn't help). In other words, we had really stupid policy, but in Washington, we don't ever say such things.

    The 2001 recession, like current one, was caused by the collapse of a bubble. It is very difficult to reverse the effects of a collapsed financial bubble.

    * http://www.nytimes.com/2010/02/21/business/economy/21unemployed.html

    --Dean Baker

    anne:

    http://www.nytimes.com/2010/02/21/business/economy/21unemployed.html

    February 21, 2010

    Millions of Unemployed Face Years Without Jobs
    By PETER S. GOODMAN

    BUENA PARK, Calif. — Even as the American economy shows tentative signs of a rebound, the human toll of the recession continues to mount, with millions of Americans remaining out of work, out of savings and nearing the end of their unemployment benefits.

    Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed.

    Call them the new poor: people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come.

    Yet the social safety net is already showing severe strains. Roughly 2.7 million jobless people will lose their unemployment check before the end of April unless Congress approves the Obama administration’s proposal to extend the payments, according to the Labor Department.

    Here in Southern California, Jean Eisen has been without work since she lost her job selling beauty salon equipment more than two years ago. In the several months she has endured with neither a paycheck nor an unemployment check, she has relied on local food banks for her groceries.

    She has learned to live without the prescription medications she is supposed to take for high blood pressure and cholesterol. She has become effusively religious — an unexpected turn for this onetime standup comic with X-rated material — finding in Christianity her only form of health insurance.

    “I pray for healing,” says Ms. Eisen, 57. “When you’ve got nothing, you’ve got to go with what you know.”

    Warm, outgoing and prone to the positive, Ms. Eisen has worked much of her life. Now, she is one of 6.3 million Americans who have been unemployed for six months or longer, the largest number since the government began keeping track in 1948. That is more than double the toll in the next-worst period, in the early 1980s.

    Men have suffered the largest numbers of job losses in this recession. But Ms. Eisen has the unfortunate distinction of being among a group — women from 45 to 64 years of age — whose long-term unemployment rate has grown rapidly.

    In 1983, after a deep recession, women in that range made up only 7 percent of those who had been out of work for six months or longer, according to the Labor Department. Last year, they made up 14 percent.

    Twice, Ms. Eisen exhausted her unemployment benefits before her check was restored by a federal extension. Last week, her check ran out again. She and her husband now settle their bills with only his $1,595 monthly disability check. The rent on their apartment is $1,380.

    “We’re looking at the very real possibility of being homeless,” she:

    Jo:

    What they need to teach in universities for the future is that you can bail out the bad guys or you can help the good guys.

    You can't do both; governments around the world chose the former. It's no use theorizing about it after the event and making the already horrific future we face worse through a 'Bailout: Phase II - This time it's for Mainstreet'.
    That window has closed.

    To repeat, you can't do both.

    save_the_rustbelt:

    Business owners have little confidence in consumers, have limited access to credit, and are generally scared of the federal government.

    Workers are scared for their jobs, are scared to spend despite plenty of great deals, and think Congress is owned by Wall Street.

    The hole is deep and the ladder is short.

    Reniam Troop:

    We've been running outlandish deficits for a decade and job growth halted. Soviet style belief that the government can legislate jobs is folly. Mega-deficits as far as the eye can see is unsustainable and crowds capitol out of the private sector. Learn.

    Anonymous:

    Reniam:

    Until Keynesians understand the causes of structrual malinvestment, they will never learn.

    For example: we misallocated trillions of dollars into real estate with the government's support (GSEs, tax credits, etc.). The misallocation provided "jobs" that were built on a mirage of sustainability.

    More government will just generate more unsustainable jobs.

    Here are some tough steps that no one seems willing to take:

    1. Shut down casino capitalism on Wall St
    2. Shut down public sector unions.
    3. Shut down housing subsidies.
    4. Take on medical malpractice lawyers.
    5. Take on health insurance companies.
    6. Invest in self-sustaining infrastructure.
    7. Invest in education.

    Keynesian spending without structural reform will just lead to another crisi.

    Structure:

    Seems like we could solve several of your problems all at once. Impose a million dollar a year extra tax on the richest 1000 Americans for the next 10 years. Kills the banksters, CEOs, and idle wealthy (well and non-idle too, but they'll survive...) Pays off the national debt in no time.

    Of course, it does suggest that the national debt is sustainable.

    anne:

    "We've been running outlandish deficits for a decade and job growth halted. Soviet style belief that the government can legislate jobs is folly."

    Actually we have not been running any sort of deficits for 10 years, we have rather been running deficits from July 2001 following the Bush tax cut and weakening of the economy in the short and shallow recession of 2001. Following the initial Bush tax cut, there were continual increases in military spending along with further tax cuts with was just what conservatives wished.

    The combination of military spending increases and tax cuts had remarkably little to do with jobs but everything to do with the continual deficits from July 2001 through 2007. Another recession in 2008, more tax cutting and more military spending, added to the deficit.

    anne:

    "Mega-deficits as far as the eye can see are unsustainable and crowds capitol out of the private sector."

    Looking at interest rates from 2001 on would suggest that deficits have in no way crowded out capital from the private sector, but I am immediately willing to have us begin to cut military spending to deal with the deficits, especially so because the crowding out idea could mean that every dollar less in military spending would be a dollar not crowded out of the private sector.

    We could do away with "Soviet-style" military spending, and watch business and employment blossoming.

    Reniam Troop :

    "but I am immediately willing to have us begin to cut military spending to deal with the deficits"

    I agree. Military spending should be cut to 33% of current levels.

    "Looking at interest rates from 2001 on would suggest that deficits have in no way crowded out capital from the private sector"

    Times have changed. We were in a massive credit inflation. Today, we're in a massive credit deflation.

    ken melvin:

    No one ever started a business w/o borrowing in one form or another. Borrowing for stimulus is much more akin borrowing to do business than it is the household model to which you refer.

    Anonymous:

    "Times have changed. We were in a massive credit inflation. Today, we're in a massive credit deflation."

    Reniam: Japan has failed to reflate, yet Bernanke and company are committed to trying. I fear that instead of reflating, they will destroy the currency.

    Goldilocksisableachblond

    "Hope you weren't expecting change."

    I did , in fact , expect change. Instead I got "Just Words" Obama.

    It's still not too late , but I'm afraid it will be soon --- on the order of months to , at best , a few years.

    Some "Words" followed ( and preceded ) by "Deeds" , from the past :

    " But I cannot, with candor, tell you that all is well with the world. Clouds of suspicion, tides of ill-will and intolerance gather darkly in many places. In our own land we enjoy indeed a fullness of life greater than that of most Nations. But the rush of modern civilization itself has raised for us new difficulties, new problems which must be solved if we are to preserve to the United States the political and economic freedom for which Washington and Jefferson planned and fought."

    ...

    "And so it was to win freedom from the tyranny of political autocracy that the American Revolution was fought. That victory gave the business of governing into the hands of the average man..."

    "Since that struggle, however, man's inventive genius released new forces in our land which reordered the lives of our people. The age of machinery, of railroads; of steam and electricity; the telegraph and the radio; mass production, mass distribution—all of these combined to bring forward a new civilization and with it a new problem for those who sought to remain free.

    For out of this modern civilization economic royalists carved new dynasties. New kingdoms were built upon concentration of control over material things. Through new uses of corporations, banks and securities, new machinery of industry and agriculture, of labor and capital-all undreamed of by the fathers—the whole structure of modern life was impressed into this royal service.

    There was no place among this royalty for our many thousands of small business men and merchants who sought to make a worthy use of the American system of initiative and profit. They were no more free than the worker or the farmer. Even honest and progressive-minded men of wealth, aware of their obligation to their generation, could never know just where they fitted into this dynastic scheme of things.

    It was natural and perhaps human that the privileged princes of these new economic dynasties, thirsting for power, reached out for control over Government itself. They created a new despotism and wrapped it in the robes of legal sanction. In its service new mercenaries sought to regiment the people, their labor, and their property. And as a result the average man once more confronts the problem that faced the Minute Man.

    The hours men and women worked, the wages they received, the conditions of their labor—these had passed beyond the control of the people, and were imposed by this new industrial dictatorship. The savings of the average family, the capital of the small business man, the investments set aside for old age—other people's money—these were tools which the new economic royalty used to dig itself in."

    "Throughout the Nation, opportunity was limited by monopoly. Individual initiative was crushed in the cogs of a great machine. The field open for free business was more and more restricted. Private enterprise, indeed, became too private. It became privileged enterprise, not free enterprise.

    An old English judge once said: "Necessitous men are not free men." Liberty requires opportunity to make a living-a living decent according to the standard of the time, a living which gives man not only enough to live by, but something to live for.

    For too many of us the political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labor, other people's lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness.

    Against economic tyranny such as this, the American citizen could appeal only to the organized power of Government. The collapse of 1929 showed up the despotism for what it was. The election of 1932 was the people's mandate to end it. Under that mandate it is being ended."

    "These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the Flag and the Constitution. In their blindness they forget what the Flag and the Constitution stand for. Now, as always, they stand for democracy, not tyranny; for freedom, not subjection; and against a dictatorship by mob rule and the over-privileged alike."

    "Governments can err, Presidents do make mistakes, but the immortal Dante tells us that divine justice weighs the sins of the cold-blooded and the sins of the warm-hearted in different scales."

    "Better the occasional faults of a Government that lives in a spirit of charity than the consistent omissions of a Government frozen in the ice of its own indifference."

    FDR 6/27/36

    http://millercenter.org/scripps/archive/speeches/detail/3305

    yuan:

    "In our own land we enjoy indeed a fullness of life greater than that of most Nations."

    Over the past three decades the standard of living of most americans (e.g. the bottom quintiles) has decreased while income inequality in the usa has increased. Your "fullness of life" and "greater than most nations" is exceptionalist propaganda.

    tjfxh :

    Unemployment and underemployment are measures of a real output gap that represents huge losses from forgone opportunity in addition to the effect of unemployment in human cost. Not funding programs that would close the gap increases the deficit anyway through automatic stabilizer transfers and lost tax revenue. Closing the gap and addressing unemployment and underemployment makes good sense economically in addition to being the right thing to do.

    A government deficit is equal to non-government net financial assets as an accounting identity. Debt issuance to cover the deficit is just provides storage for the increased net financial assets, and it simply a transfer of one asset form (demand deposit) to an interest-bearing government security. The national debt is the accumulated non-government net financial assets saved, a portion of non-government wealth. Deficits do not cause inflation when there is significant unemployment and real capacity underutilization.

    "Efficiency is doing thing right, and effectiveness is doing the right thing." Peter F. Drucker

    Anonymous

    VOX has a post on the subject of debt cycles here:
    http://www.voxeu.org/index.php?q=node/4659

    americamart:

    Unfortunately, the private sector has become synonymous with the corporate oligarchy. Large swathes of entrepreneurial potential have been strangled by mega corporations and their de facto monopolies.

    [Feb 22, 2010] Why the US has really gone broke by Chalmers Johnson

    Feb 2008 | Le Monde diplomatique

    Global confidence in the US economy has reached zero, as was proved by last month’s stock market meltdown. But there is an enormous anomaly in the US economy above and beyond the subprime mortgage crisis, the housing bubble and the prospect of recession: 60 years of misallocation of resources, and borrowings, to the establishment and maintenance of a military-industrial complex as the basis of the nation’s economic life. The military adventurers in the Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups thought that they were the “smartest guys in the room” — the title of Alex Gibney’s prize-winning film on what went wrong at Enron. The neoconservatives in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination.

    As a result, going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out, or preparing for a war in outer space against unknown adversaries. Instead, the Bush administration puts off these costs for future generations to pay or repudiate. This fiscal irresponsibility has been disguised through many manipulative financial schemes (causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.

    There are three broad aspects to the US debt crisis.

    ... ... ...

    Some of the damage can never be rectified. There are, however, some steps that the US urgently needs to take. These include reversing Bush’s 2001 and 2003 tax cuts for the wealthy, beginning to liquidate our global empire of over 800 military bases, cutting from the defence budget all projects that bear no relationship to national security and ceasing to use the defence budget as a Keynesian jobs programme.

    If we do these things we have a chance of squeaking by. If we don’t, we face probable national insolvency and a long depression.

    [Feb 21, 2010] 2007 Spending per Affluent Elite Household

    Feb 23, 2008

    In the original Hackonomics, I buried the detailed spending habits of the of the upper echelon of wealth in America. I suspect you will find this data a bit more unequal than the quintile nonsense we saw from Alm and Cox.

    Here is how this group spent their money as follows:

    Dollars Spent Category - 2007 Spending per Affluent Elite Household

                        
    Summer Spending        *       2007       *      2005    Change 2007/2005
    Activity               %      $ Spent     %     $ Spent  $Change %Change
    Yacht Rentals        10.60%  $384,000    9.50% $317,000  $67,000  21.14%
    Redecorating         44.90%  $129,000   30.90% $137,000  ($8,000) -5.84%
    Villa Rentals        15.70%  $106,000   13.80%  $79,000  $27,000  34.18%
    Experiential
    Excursions           25.80%  $103,000   22.70%  $79,000  $24,000  30.38%
    Jewelry/watches      73.70%  $94,000    63.20%  $63,000  $31,000  49.21%
    Luxury Cruises       47.50%  $92,000    43.10%  $71,000  $21,000  29.58%
    Charitable Giving    97.50%  $82,000    98.40%  $52,000  $30,000  57.69%
    Vacation Home
    Rentals              12.10%  $82,000    11.80%  $64,000  $18,000  28.13%
    Out-of-Home Spa
    Services             67.70%  $61,000    48.70%  $49,000  $12,000  24.49%
    Summer
    Entertaining         93.90%  $56,000    92.40%  $39,000  $17,000  43.59%
    Luxury Hotels        95.50%  $48,000    93.40%  $36,000  $12,000  33.33%
    Luxury Resorts       84.80%  $41,000    82.60%  $23,000  $18,000  78.26%
    At-Home Spa
    Services             53.50%  $38,000    47.40%  $26,000  $12,000  46.15%
    Apparel/accessories  92.40%  $34,000    86.80%  $16,000  $18,000 112.50%
    Audio/visual         51.50%  $31,000    50.70%  $14,000  $17,000 121.43%
    Wines and Spirits
    for Social
    Entertaining         86.90%  $24,000    77.00%  $19,000   $5,000  26.32%
    Wines and Spirits
    for Personal
    Consumption          84.80%  $17,000    74.30%  $11,000   $6,000  54.55%
    
                                 2007             2005        $Change  %Change
        Total Luxury Summer
        Spending/Household       $622,202.02      $399,187.50 $223,015  55.87%
    
    *Percentage of those surveyed spending in this category Survey of Households with Net Worth $10 Million

    [Feb 21, 2010] March could be a bad month for the jobless

    The Mess That Greenspan Made

    According to this CNN/Money report, unless Congress acts quickly, March is going to be a pretty miserable month for many of those without jobs, particularly in California.

    One million could lose jobless benefits in March

    More than 1 million people could lose their jobless benefits and health insurance subsidy in March if Congress doesn't act fast.

    When it returns from the President's Day recess on Monday, the Senate will have one week to extend the deadlines to apply for federal unemployment benefits and the COBRA health insurance subsidy. Currently, the jobless have until Feb. 28 to sign up.

    Without an extension, people receiving state jobless benefits won't be able to apply for additional federally paid unemployment insurance, and anyone already receiving those checks could be cut off.

    While it is an entirely different situation for those who are supporting families with their jobless benefits, the phrase "funemployment" is increasingly heard regarding the condition of much younger workers or, in this case, would-be workers.

    [Feb 20, 2010] Breakfast_with_Dave_021910

    "The reality is that manufacturing employs a mere 11.5 million workers in the U.S.A., or 9% of the workforce. So let’s say we see a 5% pickup in the coming year — that is barely more than 500,000 net new jobs. Meanwhile, there are 7.7 million people in financial services and this sector is in secular downsizing mode. There are 14.4 million in retail — that is hardly a growth sector. There are another 20 million in the State and local government sector and again, an area in decline. "
    February 19, 2010 | Gluskin Sheff

    PHILLY FED OKAY BUT NO FLYER

    The Philly Fed did eke out an increase in February, to 17.6 from 15.2 in January, but still below the nearby December high of 22.5. To be sure, most of the components were firm — in contrast to the New York Fed empire index. Vendor delivery delays swung to -2.1 from +6.6 and backlogs fell to -7.5 from +3.6 — not the signposts of the inflationary climate portrayed by the PPI last month. The expectations component of the Philly Fed also dropped in January, to 35.8 from 43.3, to stand at its lowest level in 10 months.

    Interestingly, in the ‘special question’, only 18% of respondents are looking to add to inventories this year compared to 21% who intend to cut their stockpiles. The rest intend to leave them whether they are. And over the past month, only 11% reported increases in their customers’ desire to boost inventories versus 21% who intend to lighten their loads. This is another reason why the current inventory boost to GDP should be viewed as an adjustment and not a cycle.

    LEADING INDICATOR A GIANT HEADFAKE

    The Conference Board’s leading economic index (LEI) rose 0.3 points in January, to 107.4 — a new high on the level. But the good news started and ended with the headline because the data beneath the surface were not so constructive. The diffusion index collapsed to 55 from 100 — the weakest breadth since March 2009. In fact, if not for the continued vital contribution from the shape of the yield curve — it only has to stay positively sloped to add to the index; it doesn't have to move — the LEI would have actually dipped 0.1% last month.

    The coincident/lagging ratio did improve to 92.7 from 92.4, and that was the best reading since September 2008; and the coincident index itself edged up 0.2 points to 100.1 and it does look as though, based in this indicator, that the recession did end in technical terms last June.

    STILL THE HOUDINI RECOVERY

    The economy continues to pull a rabbit out of the hat and expand even with contracting employment and bank credit. As we stated above with respect to Wal-Mart’s weak sales data, how did Mr. Market manage to ignore the labour market news yesterday. All we hear from bullish strategists is that jobless claims are the key, and while they have been improving in recent months, yesterday’s data was disappointing in that claims rose 31,000 in the February 13 week, to 473,000. Unfortunately, that was the nonfarm payroll survey week.

    While the number of continuing claims was unchanged at 4.56 million that understates the situation because when all the emergency benefit programs are included, the backlog of total unemployment claimants jumped 280k in the January 30 week to a whopping 11.7 million.

    THE MANUFACTURING REVIVAL

    It was so good to see this headline on the front page of yesterday's WSJ —Factories Gear Hiring Up — because we had a manufacturing revival in the United States as a secular bullish theme in our inaugural 2008 piece while heading up Merrill’s North American economics department; we called it the "Renaissance." But let’s not get too carried away in terms of the employment pickup. No doubt that if the data are anywhere close to being in the ball park, manufacturers will be able to continue to churn out productivity gains of a 10% annual rate, as has been the case over the past three quarters. That is a record, as well as unsustainable. It stands to reason that some labour input is going to have provided some contribution to any future production growth.

    The reality is that manufacturing employs a mere 11.5 million workers in the U.S.A., or 9% of the workforce. So let’s say we see a 5% pickup in the coming year — that is barely more than 500,000 net new jobs. Meanwhile, there are 7.7 million people in financial services and this sector is in secular downsizing mode. There are 14.4 million in retail — that is hardly a growth sector. There are another 20 million in the State and local government sector and again, an area in decline.

    What about construction? In contrast to manufacturing where productivity has risen to record highs, productivity in the construction sector is near a 50-year low. In fact, if the 5.7 million level of construction employment were to go back down to the last time spending in this sector was at today’s level, we would be talking about another 2.8 million decline in employment, which would dwarf any improvement we are likely to see in factory payrolls. So the bottom line is that any improvement we are going to see in that 11.5 million manufacturing workforce is going to have to be pretty impressive in order to cushion the blow from what is likely to be downsizing in the combined 48 million workforce in the lower levels of government and the retail, financial and construction sectors.

    Until It's Too Late

    Financial Armageddon

    Throughout the financial crisis, policymakers have focused on keeping things afloat until the storm passes. They've spent vast sums of taxpayer funds trying to jumpstart growth until the economy is back on track. They've encouraged people to keep the faith until businesses start hiring again.

    But what happens if all those "untils" turn out to be wide of the mark? What if the carnage we've experienced so far is structural, not cyclical? If that's the case, then Americans are going to find that instead of experiencing better times ahead, they are going to be much worse off than they were -- or are.

    Why? Because they've not been adjusting lifestyles and spending habits to take account of a step-change decline in living standards. And, they've not been reorienting the way they manage household finances and investments to take account of a much riskier economic and financial outlook.

    In addition, many people have not been focusing strongly enough on acquiring new skills and seeking alternative careers that take account of big changes in the job market. As the following collection of articles suggests, not only is the overall employment situation likely to remain problematic for years to come, prior work experience may no longer be relevant.

    "Getting Back Lost Jobs Could Take 5-Plus Years" (Associated Press)

    Even with political focus on jobs, return to prerecession work levels could take 5-plus years

    Job creation is stuck on an uphill treadmill.

    So many jobs have been lost that the U.S. must run hard just to keep from losing more ground. Despite the election-year emphasis on job creation by both parties, the short-term outlook is bleak.

    While many economists believe the recession is technically over, nearly 15 million Americans remain unemployed. Six million of them have been out of work for more than half a year.

    President Barack Obama is asking for almost $300 billion more for recession relief and job formation. The House last December passed a $154 billion spending bill focused on jobs. The Senate is due to debate a far more modest version on Monday, but appears bogged down in partisan bickering.

    With or without new legislation, reducing a jobless rate that's now just under 10 percent to prerecessionary rates of about half that won't happen soon, especially as government efforts to prop up the economy begin to wind down.

    It could take up to five years or more just to get back to even.

    There are limits to how many jobs can be created by government action — either directly or with tax and other incentives for the private sector — and how quickly.

    "We've gone though a period of enormous job loss," said Robert Shapiro, a former adviser to President Bill Clinton and now chairman of Sonecon, an economic advisory firm.

    "The long-term problem is exacerbated by the fact that credit's still not available because we really haven't reformed the financial system. People don't have confidence in the future and people are poorer so demand is down. All these things are coming together," Shapiro said.

    Returning to prerecession employment levels and keeping up with working-age population growth will require the creation of 10 million or more jobs.

    "Despite Signs of Recovery, Chronic Joblessness Rises" (New York Times)

    BUENA PARK, Calif. — Even as the American economy shows tentative signs of a rebound, the human toll of the recession continues to mount, with millions of Americans remaining out of work, out of savings and nearing the end of their unemployment benefits.

    Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed.

    Call them the new poor: people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come.

    Yet the social safety net is already showing severe strains. Roughly 2.7 million jobless people will lose their unemployment check before the end of April unless Congress approves the Obama administration’s proposal to extend the payments, according to the Labor Department.

    Here in Southern California, Jean Eisen has been without work since she lost her job selling beauty salon equipment more than two years ago. In the several months she has endured with neither a paycheck nor an unemployment check, she has relied on local food banks for her groceries.

    She has learned to live without the prescription medications she is supposed to take for high blood pressure and cholesterol. She has become effusively religious — an unexpected turn for this onetime standup comic with X-rated material — finding in Christianity her only form of health insurance.

    “I pray for healing,” says Ms. Eisen, 57. “When you’ve got nothing, you’ve got to go with what you know.”

    Warm, outgoing and prone to the positive, Ms. Eisen has worked much of her life. Now, she is one of 6.3 million Americans who have been unemployed for six months or longer, the largest number since the government began keeping track in 1948. That is more than double the toll in the next-worst period, in the early 1980s.

    "Recovery or Not, Some Charlotte-Area Jobs Are Gone Forever" (Charlotte Observer)

    Experts say new economy can no longer support some jobs created during the boom, including finance.

    Despite some hopeful signs, the Charlotte area's economy won't outpace unemployment anytime soon, economists warn.

    Some jobs are gone forever, and those that will replace them could leave the region's lowest-skilled and least-educated workers struggling to catch up, experts say.

    "The question is, are growth levels adequate enough to get us out of the hole we're in? It doesn't look like it," said John Quinterno of South by North Strategies Ltd., a Chapel Hill economic research firm.

    Some jobs are cyclical, and economists expect them to bounce back once demand and consumer spending increase. But they worry: Government stimulus spending, which has helped spur that demand, is not a permanent fix. What's more, a larger shift is under way, with the economy moving from production to services-based.

    Economists say the new economy can no longer support some construction, real estate and finance jobs created during the boom. Many manufacturers, too, will continue to do more with less, replacing workers with technology and sending more jobs overseas.

    "Fed See Slow Job Recovery into 2012" (Journal Sentinel)

    While the economy is getting better, the jobless rate is expected to remain high - possibly for years - because of financial uncertainty among households and businesses, Federal Reserve policy-makers said when they met in a closed-door session last month.

    Minutes of the Fed meeting of Jan. 26-27, which were released Wednesday, show that officials think the unemployment rate this year will range between 9.5% and 9.7%, and from 8.2% to 8.5% in 2011. In 2012, the rate likely will be between 6.6% and 7.5%, the Fed panel forecast.

    A "sizable minority" of the Fed policy-makers took the view that a return to more-normal growth and employment could take more than five to six years.

    "The Long-Term Employment Bust" (First Things)

    High levels of unemployment may last indefinitely. A number of economists (including this writer) have been warning about permanent joblessness, and the idea is now seeping into popular magazines.

    More than 8 million American jobs were lost since 2007, based on the most recent revision of the overall job count of U.S. establishments. But that is not the worst of it, because the establishment survey fails to capture smaller businesses and the self-employed. By the Bureau of Labor Statistics’ broadest measure of unemployment, including the forced part-time workers and so-called discouraged workers, the unemployment rate rose to 17 percent from 8 percent before the recession. That is 9 percentage points, corresponding to slightly over 12 million adults. A website called Shadow Government Statistics includes “long-term discouraged” workers defined out of the labor force by the BLS, but that alternative measure has tracked the BLS broad measure quite closely in the past few years.

    There are several reasons to believe that most of these jobs never will come back. That is a less contentious statement than it might appear, because the jobs lost in the recessions since 1981 never came back. Some sectors, notably manufacturing, continued to shrink, and other sectors, such as heath care and retail, replaced them. The difference in 2010 is that it is not apparent where new jobs will come from.

    "How a New Jobless Era Will Transform America" (The Atlantic)

    The Great Recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.

    How should we characterize the economic period we have now entered? After nearly two brutal years, the Great Recession appears to be over, at least technically. Yet a return to normalcy seems far off. By some measures, each recession since the 1980s has retreated more slowly than the one before it. In one sense, we never fully recovered from the last one, in 2001: the share of the civilian population with a job never returned to its previous peak before this downturn began, and incomes were stagnant throughout the decade. Still, the weakness that lingered through much of the 2000s shouldn’t be confused with the trauma of the past two years, a trauma that will remain heavy for quite some time.

    The unemployment rate hit 10 percent in October, and there are good reasons to believe that by 2011, 2012, even 2014, it will have declined only a little. Late last year, the average duration of unemployment surpassed six months, the first time that has happened since 1948, when the Bureau of Labor Statistics began tracking that number. As of this writing, for every open job in the U.S., six people are actively looking for work.

    All of these figures understate the magnitude of the jobs crisis. The broadest measure of unemployment and underemployment (which includes people who want to work but have stopped actively searching for a job, along with those who want full-time jobs but can find only part-time work) reached 17.4 percent in October, which appears to be the highest figure since the 1930s. And for large swaths of society—young adults, men, minorities—that figure was much higher (among teenagers, for instance, even the narrowest measure of unemployment stood at roughly 27 percent). One recent survey showed that 44 percent of families had experienced a job loss, a reduction in hours, or a pay cut in the past year.

    There is unemployment, a brief and relatively routine transitional state that results from the rise and fall of companies in any economy, and there is unemployment—chronic, all-consuming. The former is a necessary lubricant in any engine of economic growth. The latter is a pestilence that slowly eats away at people, families, and, if it spreads widely enough, the fabric of society. Indeed, history suggests that it is perhaps society’s most noxious ill.

    The worst effects of pervasive joblessness—on family, politics, society—take time to incubate, and they show themselves only slowly. But ultimately, they leave deep marks that endure long after boom times have returned. Some of these marks are just now becoming visible, and even if the economy magically and fully recovers tomorrow, new ones will continue to appear. The longer our economic slump lasts, the deeper they’ll be.

    If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities. It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years.

    [Feb 19, 2010] Weekly Initial Unemployment Claims Increase to 473,000

    Feb 18 | CalculatedRisk

    The DOL reports on weekly unemployment insurance claims: In the week ending Feb. 13, the advance figure for seasonally adjusted initial claims was 473,000, an increase of 31,000 from the previous week's revised figure of 442,000. The 4-week moving average was 467,500, a decrease of 1,500 from the...(more)

    [Feb 18, 2010] Capital One Credit Card Charge-Offs Increase to 10.41%

    Credit card defaults have historically tracked unemployment.
    2/16/2010 | CalculatedRisk
    From Reuters: Capital One credit card defaults rise in January (ht jb)

    Capital One Financial Corp's U.S. credit-card defaults rose in January, in a sign that consumers continue to remain under stress, it said in a regulatory filing.

    Capital One said the annualized net charge-off rate -- debts the company believes it will never collect -- for U.S. credit cards rose to 10.41 percent in January from 10.14 percent in December.

    Capital One credit card annualized net charge-off rate is now at 10.41% - above the peak in 2005. As Reuters notes, Capital One is usually the first to report monthly credit card charge-offs. The other major credit card issuers will report later today.

    [Feb 17, 2010] CNBC's Olick- Treasury Concerned about Next Wave of Foreclosures

    "An unintended consequence of the specialist/expert society that embeds so much of that expertise into its technology and lifestyle is our growing and nearly utter dependence on those with that specialized knowledge just to live a normal modern life. "
    Feb 16, 2010 | Calculated Risk

    unirealist:

    Last night I watched that wonderful movie American Graffiti again. About America just a few years before it began its downhill slide (circa 1963), when FRN's could still be redeemed for silver coins.

    One thing that most people miss when enjoying the film: while it depicts America at its wealthiest, the wealth is mostly hidden -- embedded in the productive infrastructure. The kids don't have a lot of pocket money, no cellphones or ipods or gameboys, and their fun is pretty much cheap fun--cruising the Miracle Mile circuit on .20/gal gas, hanging out at Mel's for cheeseburgers and cokes, dancing at the freshman hop. No limo's, no expensive toys, no designer clothes.

    None of them intend to become MBA's either.

    It's an uplifting film and also heartbreaking. Is it an unrealistic portrayal of life in the US early Sixties? Not really. Yes, it overlooks racial prejudice and endemic hypocrisy and under-the-surface spousal/child abuse and lots of other societal maladies. But having been there at the time, I can tell you that it gets the temper of the times right. The US was on top of the world, and reality still could defeat illusions.

    Little did anyone know what was coming.

    Like I said, watching the film is a bittersweet experience.

    Bob Dobbs:

    unirealist wrote:

    It's an uplifting film and also heartbreaking. Is it an unrealistic portrayal of life in the US early Sixties? Not really. Yes, it overlooks racial prejudice and endemic hypocrisy and under-the-surface spousal/child abuse and lots of other societal maladies. But having been there at the time, I can tell you that it gets the temper of the times right. The US was on top of the world, and reality still could defeat illusions.

    People weren't wealthy, but society was. With so much more money in a few pockets, that society is now a dream.

    Even so -- look behind the paint and you'll see that a lot of the cars would have been salvaged from the junkyard and mod'ed by teenage mechanics. We didn't need as much stuff done/made for us in those days -- but we were taught to need more and more as the wealth allocated to society become less and less.

    ResistanceIsFeudal:

    Bob Dobbs wrote:

    We didn't need as much stuff done/made for us in those days -- but we were taught to need more and more as the wealth allocated to society become less and less.

    An unintended consequence of the specialist/expert society that embeds so much of that expertise into its technology and lifestyle is our growing and nearly utter dependence on those with that specialized knowledge just to live a normal modern life. This suggests that 'normal modern life' is a pretty radical deviation from normality

    lawyerliz:

    See, people still want to buy a house. . .even guys. It's genetic.

    And population fell severely in Europe when Rome fell. Not fun for those who starved.

    The Brits was no able to make it back to were they were before they were conquered.

    It's not a good idea to get too complex.


    Bob Dobbs:

    ResistanceIsFeudal wrote:

    An unintended consequence of the specialist/expert society that embeds so much of that expertise into its technology and lifestyle is our growing and nearly utter dependence on those with that specialized knowledge just to live a normal modern life.

    The growth of the two-income family also caused us to need more services -- all the things that would have been done withint the family, but for which there was no longer time. I'm glad for women's rights, but that whole two-earner thing was a poison pill concealed by a thin layer of virtue. If it ever was simply "you can," it quickly turned into "you have to."

    [Feb 17, 2010] Use of temps to fill jobs may no longer signal permanent hiring - By Jeannine Aversa

    Feb 15, 2010 | USATODAY.com (AP)

    ... Companies have hired more temps for four straight months. But they remain reluctant to make permanent hires because of doubts about the recovery's durability. Even companies that are boosting production seem inclined to get by with their existing workers, plus temporary staff if necessary.

    ... the main obstacle is that employers lack confidence that the economic rebound has staying power. Many fear their sales and the overall economy will remain weak or even falter as consumers spend cautiously. Companies also worry about higher costs related to taxes or health care measures being weighed by Congress and statehouses. That's what Chris DeCapua, owner of employment firm Dawson Careers in Columbus, Ohio, is hearing from clients. DeCapua says corporate demand for temporary workers has surged. That's especially true for manufacturing-related jobs involving driving forklifts, assembling products, packing merchandise and loading it on trucks. That demand hasn't spilled over into a demand for permanent workers, and DeCapua doesn't see it turning around anytime soon.

    "There is so much uncertainty, and when there is uncertainty, people and companies hold onto their checkbooks," DeCapua says. Companies "don't want to hire permanent workers and then have to turn around and get rid of them six months later," he says.

    ... ... ...

    For years, economists have regarded increased hiring of temp workers as a bridge between no hiring and healthy job creation. It meant employers would soon expand their permanent payrolls to keep up with rising customer demand.

    After the 1990-1991 recession, for instance, gains in temporary hiring starting in August 1991 led almost immediately to stepped-up permanent hiring. And after the 2001 recession, temporary hiring rose for three straight months in the summer of 2003. By September, employers were adding permanent jobs each month.

    Now, because this recovery seems more tepid and fragile than previous rebounds, temporary hiring may have lost its predictive power, economists say.

    "I think a lot of it is manufacturing," says Mark Zandi, chief economist at Moody's Economy.com. "It may be that manufacturers are relying more on temps than in the past because they are more unsure about the ongoing demand for what they produce."

    Employers added a net 52,000 temp jobs in January — the fourth consecutive month of gains. Over that time, total U.S. jobs shrank by 106,000. Employers have managed to boost productivity by squeezing more work out of their existing staffs.

    For the unemployed, temporary jobs provide a paycheck at a time when the unemployment rate remains near double digits. Still, these jobs generally offer few or no benefits.

    [Feb 13, 2010] Antidepressant use doubles in US, study finds By Maggie Fox

    "More Americans may accept diagnosis of depression"
    Aug 03, 2009 | Reuters

    Use of antidepressant drugs in the United States doubled between 1996 and 2005, probably because of a mix of factors, researchers reported on Monday.

    About 6 percent of people were prescribed an antidepressant in 1996 -- 13 million people. This rose to more than 10 percent or 27 million people by 2005, the researchers found.

    "Significant increases in antidepressant use were evident across all sociodemographic groups examined, except African Americans," Dr. Mark Olfson of Columbia University in New York and Steven Marcus of the University of Pennsylvania in Philadelphia wrote in the Archives of General Psychiatry.

    "Not only are more U.S. residents being treated with antidepressants, but also those who are being treated are receiving more antidepressant prescriptions," they added.

    More than 164 million prescriptions were written in 2008 for antidepressants, totaling $9.6 billion in U.S. sales, according to IMS Health.

    Drugs that affect the brain chemical serotonin like GlaxoSmithKline's <GSK.L> Paxil, known generically as paroxetine, and Eli Lilly and Co's <LLY.N> Prozac, known generically as fluoxetine, are the most commonly prescribed class of antidepressant. But the study found the effect in all classes of the drugs.

    Olfson and Marcus looked at the Medical Expenditure Panel Surveys done by the U.S. Agency for Healthcare Research and Quality, involving more than 50,000 people in 1996 and 2005.

    ... ... ...

    The rise in antidepressant prescriptions also is seen despite a series of public health warnings on use of antidepressant drugs beginning in 2003 after clinical trials showed they increased the risk of suicidal thoughts and behaviors in children and teens.

    In February 2005, the U.S. Food and Drug Administration added its strongest warning, a so-called black box, on the use of all antidepressants in children and teens.

    They Replaced Horses, Didn't They?

    Feb 12, 2010 | Economist's View

    Nick Rowe wonders "why human labor didn't go the same way as horse labor":

    Of horses and men, by Nick Rowe: As a teenager I read Kurt Vonnegut's novel Player Piano. It's stuck in my economist's mind ever since. It describes life in the near-future when technology and machines have destroyed the demand for nearly all human labor, except for the labor of a small, highly-educated minority. The vast majority of the population would be unemployed, but for government make-work projects.
    The book was published in 1952, so Vonnegut's near-future is our recent past. It didn't happen. But could it happen?
    You can try to answer that question by playing with production functions... Or you can think about horses.
    When horse-power became cheaper than human-power, horse labor replaced human labor. When steam-power in turn became cheaper than horse-power, horses in turn became replaced. The demand for horse labor rose, then fell. If the population of horses had kept growing at the same rate as the population of humans, most horses now would be redundant, with just a small elite minority of horses employed in very special jobs. Improving technology did in fact drastically reduce the demand for horse labor. If Kurt Vonnegut's novel had been about horses, it would have been a historical novel, not science fiction.
    It happened to horses; why couldn't it happen to humans?
    It's true that humans own the means of production (including their own labor, and horses' labor), and horses don't. That's important, because humans will therefore (at least in aggregate) reap the increased income from any increased output, even if human labor no longer has value. But for a human who owns only his own labor, that is little consolation.
    New technology destroyed the demand for the labor of horses. There is nothing that makes it impossible for new technology to destroy the demand for the labor of humans. It hasn't happened yet, but it might. What's surprising, or what ought to surprise us, is that it hasn't happened yet. ...
    The only reason I can think of why Kurt Vonnegut's novel never came true, why human labor didn't go the same way as horse labor, is this: humans are a lot more versatile than horses.

    Will human versatility always be enough to dodge and weave around all possible changes in technology, forever? I doubt it. Forever is a long time.

    Sort of reminds me of this.

    Reality Bites:

    I've thought about Vonnegut's scenario too and my conclusion is that humans are able to provide something that just isn't replaceable by any technology in the foreseeable future. Humans are able to tell stories and create designs that are useful and demanded by other humans. That is while actual physical labor can be replaced by machinery, the creative aspect cannot.

    There is a continuous demand for entertainment. Good stories, whether in the form of books, movies, videos, etc. will always be needed. Design and style will also continue to be a major factor. A machine can make a dress, but what should it look like? What colors should it have? Home interior design and landscaping are all extensions of the same concept.

    And a friend pointed out that human labor will never go away if using it also conveys some sort of social status. Handmade objects still receive a premium, but only if they are high end. In the future, it may become fashionable to build a house in the old style, with humans. Or employ a human housekeeper rather than the Cleanmatic 5000 machine. I can't imagine that certain services would be better without human interaction. Perhaps lower end places will have machine only employees, but higher end luxury shops will still give the human touch. Like with a waiter. Of course the quality of service will have to be in line with the high end expectation (handmade is only appreciated with high end items). For the people worried about exploitation, high end service requires high end pay.

    reason:

    Reality Bites...

    Yes, all well and good, but this doesn't necessarily apply to every human. The majority of humans aren't good at making stories that other humans like. And with modern information technology absolutely everyone can read the same few stories (ask Joanne Rowling about that).

    kharris:

    reason...

    Yes to both. In the narrow sense of selling a piece of entertainment, technology and the tendency toward fads combine to produce superstars. However, if we think of the broader ability to please and manipulate rather than the narrower ability to entertain, then Reality Bites' point works, I think.

    Humans are the consumers that must be pleased. Humans are the bosses whose will must be translated into action. Humans share culture and that gives us a big advantage over machines in pleasing ideosyncratic consumers and bosses

    reason said...

    Everyone should read Herman Daly "Beyond Growth". It should be compulsory reading in economics courses. He argues that eventual aim of our economic systems should be to do AS LITTLE AS POSSIBLE while maintaining our capital.

    And the 2009 US payroll revisions show… by Izabella Kaminska

    Feb 05, 2010 | FT Alphaville

    . . . significantly more job cuts in 2009 than originally estimated — about 617,000 more in fact.

    Here’s the relevant table from the Bureau of Labor Statistics:

    The sharpest revision was for March; taking jobs lost in that month to -753,000 versus an original Bureau estimate of -663,000.

    jswede:

    U-6 declined to 16.5% from 17.3% seasonally adjusted.... non-adjusted it increased to 18.0% from 17.1%... I'll wait for the revisions, but I'll take a stab and say the adjusting was overly optimistic.

    starstrike:

    It is all made up along with GDP as well I mean that is a good laugh if you ever wanted to have one. U6 in the US must be closr to 20% now, right? I think we will reach the tipping point soon of distinct but isolated social unrest.

    VP:

    Hard to get the impression it's anything other than all made up?

    [Feb 06, 2010] Don't be fooled by lower unemployment rate, job losses continue to mount

    Feb 05, 2010 | Yahoo Tech Ticker,

    the U.S. economy has lost 8.4 million jobs since the recession officially began in December 2007, a sharp upward revision from 7.2 million previously reported; that includes 930,000 jobs more than previously estimated in the 12 months ended March 2009.

    In addition, the ranks of the long-term unemployed swelled to over 6 million and the number of "discouraged" job seekers rose to 1.1 million vs. 734,000 a year ago.

    Looking at the report, one might logically ask: If jobs growth was minimal (or non-existent) and the labor force grew -- meaning more people are officially being counted as looking for work -- how did the unemployment rate fall?

    "The payroll data and the unemployment rate come from two separate surveys, which explains some of the divergence in the data," writes Diane Swonk, chief economist at Mesirow Financial, attempting to explain this conundrum. "The drop in the unemployment rate was particularly surprising, as it was predicated on households reporting an increase in employment. This could be capturing the self-employed doing slightly better than they had been, but it is still puzzling."

    Peter Boockvar of Miller Tabak notes the household survey, which is part of the unemployment calculation, showed jobs rose by 541,000.

    So, yes, there are quirks in the data, and even some of the pros found this morning's report a bit confusing. The report is a bit of a Rorschach test, with something for bull and bear alike to point to.

    The bottom line: "The recovery that we began to see in the summer of 2009 continues, and we will soon reap some benefits in terms of jobs," Swonk writes. "That said, the jobs recovery is expected to remain muted and the economic recovery is still subdued relative to those of the past."

    MichaelB:

    Unemployment has went up not down you have to gain 120K a month just for population growth to stay even. They are using the 1994 trick of not counting the long term 1 year or more discouraged unemployed people to lower the U3 and the U6. Their numbers have become a joke. Unemployment is really about 22% now in reality.

    san:

    The real unemployment rate is those in the population of working age who are not paying tax. Middle class tend not to sign on as unemployed and are not counted.

    Douglas:

    You guys don't understand. The Gov numbers are correct. It's not a lie. The deception is the way we count the unemployed. All those smucks who were laid off 18 months ago and still haven't found a job won't be counted in the stats. Only those who are filing for unemployment are counted. Just wait until April 2010, Our unemployment rate will REALLY improve when the a majority of the 403,000 who were laid-off in Oct 2008 will no longer be counted. -- Now watch me pull a rabbit out of my hat.

    [Feb 06, 2010] 7 u.s. states that are worse off than greece portgal ireland and spain Tech Ticker

    Yahoo! Finance

    Notable among three of the PIGS are their relatively small populations, and small contributions to either world or European GDP. While Spain has a population over 45 million, Portugal and Greece have populations roughly equal to a US state, such as Ohio–at around 10 million. And Ireland? The Emerald Isle has a population similar to Kentucky, at around 4 million. While the PIGS are without question a problem for Europe, whatever problems they present for Brussels are easily matched by the looming headache for Washington that’s coming from large, US states such as California, Florida, Illinois, Ohio, and Michigan.

    I’ve identified seven large US states by four criteria that are sure to cause trouble for Washington’s political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of Gregor.us kicker, I’ve thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world’s financial crisis it’s instructive to identify those US states that will struggle for years against the rising tide of higher energy costs.

    First, let’s consider a large state that didn’t make my list. Texas didn’t make the list because its unemployment rate has not risen high enough to reach my cutoff: a state must register broad, U-6 underemployment above 15%, and currently Texas has only reached 13.7% on that measure. Also, Texas’s total energy production nearly perfectly matches its total energy consumption. Of course, Texas has indeed had to borrow more than billion dollars so far to pay unemployment claims, thus technically bankrupting its unemployment trust fund. That meets my criteria. But, it’s instructive to note Texas’ energy production capacity in this regard, as that produces dollars. And one of the big reasons US states are under so much pressure, like their European counterparts, is that they cannot print currency. Being able to produce oil and gas is the next best thing to printing currency. So, Texas doesn’t make my list.

    The seven states to make my list are California, Florida, Illinois, Ohio, Michigan, North Carolina, and New Jersey. Each has a population above 8 million people. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three of these energy sources.

    Let’s consider the overall predicament for residents of states like California, with its epic housing bust, Ohio and Michigan at the end of the automobile era, or North Carolina and New Jersey in light of the financial sector’s demise. Not only have states such as these permanently lost key sectors that once drove their economies, but, residents in these states are over-exposed to structurally higher energy costs. The prospect for wage growth in the United States is now dim. We are already recording year over year wage decreases in real terms. The culprit? Energy and food costs. My seven states are squeezed hard at both ends: no wage growth at the top, and no relief through cheaper energy costs at the bottom.

    US wage growth in real terms has been stagnant for years. And the most recent decade of higher oil prices has been particularly punishing to states over-leveraged to the automobile like California, Florida, and North Carolina where highway and road systems dwarf public transport. While it’s true that states like Ohio and California produce some oil and gas, the size of their populations overwhelm any production with outsized demand for electricity and gasoline. In contrast, and as I mentioned, it will be revealing to see how this depression ultimately plays out in such states as Colorado, New Mexico, Wyoming, Oklahoma, North Dakota, and Louisiana which are all net exporters of energy.

    Were it not for peak oil, gasoline prices would have fallen to a dollar during this depression as oil returned to the lows of the late 1990’s–if not even lower. Petrol at 90 cents a gallon would begin to chip away at the painfully decreasing spread between punk wages and energy input costs, currently endured by underemployed Americans. Natural gas and coal prices are also much higher than they were at the lows of the 1990’s. And I need not remind: while energy prices are very 2010, the American workforce has lost so many jobs that our labor force has indeed returned the 1990’s.

    21st century energy prices overlaid on a 20th century economy? That’s no fun at all. The mainstream economics profession, perhaps unsurprisingly, still does not pay enough attention to the interweaving of long-term stagnant wage growth, higher energy inputs, and the resulting credit creation that OECD countries took as the solution to resolve that squeeze. Given that one of out of eight Americans takes food stamps, a visit to states like Illinois, Florida, Ohio, and North Carolina would reveal that the difference between 15 dollar oil and 75 dollar oil, and 2 dollar natural gas and 5 dollar natural gas is large.

    My seven states of energy debt represent a full 35% of the total US population. As with other US states, they face looming policy clashes between protected state and city workers on one hand, and the growing ranks of the private economy’s underemployed on the other. The recent circus at the LA City Council meeting was a nice foreshadowing that the days of unlimited borrowing by governments–against future growth based on cheap energy–is coming to an end. Washington can print up dollars and fund these states for years, if it so chooses.

    But just as with the 70 million people in Portugal, Italy, Greece and Spain, the 108 million people in these seven large states are probably facing even higher levels of unemployment as austerity measures finally slam into their cashless coffers, and reduce their ability to borrow.

    [Feb 06, 2010] NFP -20,000, Consensus +15,000, Non-Seasonally Adjusted Unemployment Rate (U3 And U6) Surges To Record 10.6% And 18%

    "The BLS is stuck and does not know how to fix its model." - Mish. The reason for the drop in the household rate to 9.7% is that the estimate of the total population in the US was increased in January.
    Feb 05, 2010 | zero hedge

    The January NFP number came in at -20,000, a mere 5k away from Goldman's -25,000 estimate. Consensus was for +15,000. December, as all prior months, saw an expected major downward revision to -150,000 from -85,000. The January Birth/Death adjustment was for -427K from +25K in December. Despite a deterioration in every metric, the unemployment rate dropped from 10.% to 9.7%, even with a consensus at 10.0%. A glitch in the excel model is further corroborated when one considers that the civilian labor force participation rate actually rose in January from 64.6 to 64.7. Yet a number that avoids some of the constant fudging by the BLS, the Non-Seasonally Adjusted number, hit a new recent record: instead of 9.7%, this number was 10.6%, a 0.9% increase from December! The same can be seen in the U-6 data. NSA U-6 is now at a record 18%, even as the seasonally adjusted number declined to 16.5%.

    Anonymous

    The reason for the drop in the household rate to 9.7% is that the estimate of the total population in the US was increased in January. If they had kept the same population data they used in December the household rate would have been 10.6%. T