Opinion

Edward Hadas

The great race for jobs

Edward Hadas
Feb 8, 2012 14:06 UTC

The financial markets rejoiced last week because the U.S. unemployment rate fell to 8.3 percent in January, 0.8 percentage points lower than a year earlier. Back in the real world, the gain looks less impressive. The proportion of the adult American population with a job has hardly changed since January 2011 – it is up from 58.4 to 58.5 percent. That number peaked in 2000 at 64.4 percent.

The decline in American so-called “participation rate” is a serious economic problem. Many blame the cyclical downturn or inadequate GDP growth, but they are too focussed on output. The real issue is input: the supply and the need for labour. This is not just an issue for the United States. But the current shortage of jobs in most rich countries is the latest leg of a long race between technological forces that lead to job destruction and socio-economic forces which provide new kinds of employment.

Over the last two centuries, the contest has been fairly even. The labour savings in field, factory and home have been nothing short of amazing. Imagine that today’s technology and labour skills were available when Adam Smith wrote The Wealth of Nations in 1776. If people today worked as many hours a week as they did then, and for as many years of their lives, and if they consumed roughly the same quantity of goods and services, the unemployment rate would more like 70 than 8 percent.

But the forces of job creation have been equally amazing. The work has been spread out. People work less – they have weekends and holidays off, and more years of education and retirement. They also consume much more, and this creates employment. And although rampant consumerism raises some ethical questions, increased leisure and consumption constitutes basically good news.

There have been periods both of labour shortages and excess unemployment, but up to now balance has always been restored. We are now in a new period of imbalance in rich countries. The job-destructive forces of technology have pulled ahead of the rebalancing mechanisms. That should be interpreted as a call for action on jobs.

The tough road to sensible taxes

Edward Hadas
Feb 1, 2012 15:03 UTC

President Barack Obama thinks taxes can help the government achieve a precise policy objective. In last week’s State of the Union address he outlined a complex set of tax adjustments  to discourage companies from moving American jobs to foreign parts.  In the same speech, Obama also suggested that taxes can be made simple and clear:  “No side issues.  No drama”, he said. He applied that description to the extension of the cut in the U.S. payroll tax rate. It was followed by pushing for “common sense” on a minimum tax rate for the rich. “Washington should stop subsidizing millionaires”, the president said.

The rhetoric may not be entirely contradictory, but it points in quite different directions. If the tax code is written to reflect particular concerns, whether of the government or of influential taxpayers (and non-payers), it will never be simple. And if simplicity is the guiding principle, it is hard to understand why the president wants to add to a U.S. law which already has 9834 sections. 

The current president is not the first person to dream of improving a complex, arbitrary, inefficient and unjust tax system. On the contrary, the history of taxes in every country is replete with efforts at reform, although they come along far less often than desperate measures to squeeze more money out of unwilling subjects. Governments’ consistent need for more revenue and the governed’s equally consistent reluctance to pay helps explain why reformers find progress so difficult.

The social market economy

Edward Hadas
Jan 25, 2012 15:14 UTC

Capitalism is the name people give to the way the modern economy is arranged. Now that Communism has been discredited as an economic system, there seems to be no real alternative. But the word is misleading.

A capitalist analysis of any economic issue starts with capital, both physical capital – factories and land – and financial – shares and bonds. It is associated with free and competitive markets for goods and labour.  And capitalism has come to designate a system where private property is the norm, with any exception needing some sort of justification. Capitalist analysis usually treats governments and unions as economic interlopers, and ignores the broader society.

That perspective is too narrow. Capital and markets are only two parts of the complex modern economic system. People don’t only matter because they bring their labour to the owners of capital – as in the original, 19th century definition of capitalism. And governments over the years have become regulators and keepers of the monetary order. Moreover, the economy is so closely integrated with modern society that no clear border separates the two. Social forces – such as the thirst for technological innovation, the work ethic and other moral values – play a fundamental part and influence the workings of the purely “capitalist” system.

The cruise industry’s rough sail

Edward Hadas
Jan 18, 2012 17:50 UTC

The cruise industry demonstrates much of what works well in the industrial economy. The debacle of the Costa Concordia – 11 people confirmed dead and at least 23 missing, and a financial loss of as much as $1 billion – shows some of the ways that the economy can malfunction.

The loss of life from the accident off the Italian coast is tragic, and the loss of money is remarkably large for a business that has global annual revenues of around $34 billion, according to Cruise Market Watch. That is not a big business by global standards; airline revenues, as calculated by the International Air Transport Association, are 17 times larger.

Still, the cruise trade is large and familiar enough to provide an illuminating microcosm of the modern economy at work.

It’s not always the economy, stupid

Edward Hadas
Jan 11, 2012 15:38 UTC

“It’s the economy, stupid.” The words date from Bill Clinton’s 1992 presidential campaign, but the basic idea that political shifts are the visible manifestations of hidden economic developments was first articulated by Karl Marx, who wrote before the word “economy” had its current meaning. When he declared, in 1848, that “The history of all hitherto existing society is the history of class struggles,” the notion was truly revolutionary. It has become a commonplace. Pundits ferret out economic causes for everything, politicians strive to present voters with economic good news, and careful studies show that economic trends influence elections.

Like most often-repeated generalizations (“Germans are orderly” or “an army marches on its stomach”) the claim that politics is fundamentally about economics has some truth to it. But I think pundits, politicians and voters would all benefit from a bit of revisionism. It’s not always the economy, and when it is, politicians cannot do much about it in a hurry.

Start with the expert commentators. I’m thinking of the people who confidently declare that the Arab Spring was caused by the increased cost of food. Or the ones who explain the poor performance of Vladimir Putin’s party in the recent Russian parliamentary election as a reflection of stagnating average incomes. The invasion of Iraq? It was the oil, stupid. The rise of anti-immigrant parties in Europe? Look no further than the job market.

The spirit of Christmas presents

Edward Hadas
Dec 20, 2011 19:39 UTC

By Edward Hadas

The opinions expressed are his own.

Ah, the curse of materialism. The true spirit of Christmas has been obliterated by a landslide of gifts. The crass commercialism which surrounds the experience of holiday shopping, not to mention the returns and post-Christmas sales, has turned this joyous holiday into little more than an exaltation of the worst aspects of our modern consumerist economy.

Or so it is often said. But is the complaint fair? It’s certainly true that the exchange of gifts on a large scale is a relatively new feature of Christmas festivities. In the 1840s, Charles Dickens has the Spirit of Christmas Present take the miser Ebenezer Scrooge to witness joyous celebrations of the feast. Food, drink and good cheer are in abundant supply, but there are no presents.

In the 1880s, hand-made gifts were making the day special for many American children. By the 1920s, a more commercial spirit had triumphed in the land of mass production and the factory-made Christmas was already causing complaints about inappropriate gifts. According to historian William Waits, some businessmen felt a little queasy about advertisements for such supposedly ideal Christmas gifts as a can of paint, a cooperative apartment, potatoes and floor wax.

Casting the runes on climate change

Edward Hadas
Dec 14, 2011 14:58 UTC

Something has gone wrong with global warming. It’s not that the world has stopped heating up. It’s that the anti-warming political movement, which seemed almost unstoppable when the Intergovernmental Panel on Climate Change won the 2007 Nobel Peace Prize, has stalled.

Last week’s United Nations climate change conference in Durban ended with little more than an agreement to talk some more about what to do next. Even that was too much for Canada, which has just said no to emission-reduction targets. The activists blame recalcitrant governments and many commentators blame economic distractions. They are probably both right, but I think the activists’ own approach bears much of the responsibility.

While only experts can judge the strength of the scientific evidence for man-made climate change, no technical knowledge is required to be troubled by the way the activists present their case. The willingness to describe knowledgeable opponents as “deniers,” a word previously used only for fantasists about Nazi atrocities, suggests a very unscientific attitude.

Cheeseburgers and death: de-socializing health care

Edward Hadas
Dec 7, 2011 15:43 UTC

By Edward Hadas
The opinions expressed are his own.

Americans are both the fattest people in the world and the biggest spenders on health care. Both those facts can be traced, at least in part, to a common attitude.

First a few numbers. The latest global handbook from the Organization for Economic Co-operation and Development (OECD) shows that 34 percent of Americans are obese by the criteria of the World Health Organization. In health care spending, the United States leads with 17 percent of GDP. In both categories, U.S. numbers are almost twice as high as the average numbers of OECD members.

The extra fat accounts for only a small portion of the extra American spending on health care. Researchers recently estimated that the medical expenses caused by obesity, which is connected to problems such as high blood pressure, heart disease and diabetes, amounted to $147 billion in 2008. That number suggests that even if Americans were no fatter than the OECD average, they would only spend 3 percent less on health care than they do now.

Mr. Fine Suit visits Europe

Edward Hadas
Nov 30, 2011 06:00 UTC

Once upon a time there were 11 prosperous merchants who lived in a land of peace and plenty. They decided to form a league that would work together for everyone’s greater good. But then a charming man in a fine suit came around with a tempting speech: “I love your project and trust your businesses. I will lend you money at a very attractive interest rate”. How nice, thought the merchants. Our customers will love us if we use the money we borrow to give them better deals.

All went so well that six other merchants were proud to join the league. Mr. Fine Suit seemed pleased. He reduced the already low interest rate on the loans. The merchants all planned to repay, but today was never quite right. Today, in fact, was always a good day to borrow more, while tomorrow always looked like a better day to raise prices.

Then one day Mr. Fine Suit changed his tune. “You know, you have a mighty nice little enterprise going here. But business is business, my friends. Interest rates are going to rise for some of you.” The merchants were angry, but what could they do? They promised to be more frugal, but still had to pay up. As the months went by, Mr. Fine Suit became more hostile. Just last week he came to the G-store, the most prosperous and prudent of all the merchants, with a really nasty threat. “You know, between us, I’ve never liked your stupid league. You’re much smarter than the rest. Leave the league and I’ll keep on lending you money at a low rate. If not, well, here’s a little reminder of what I can do.” He increased the interest rate by two notches before leaving the room with a menacing smirk.

The two sides of inequality

Edward Hadas
Nov 23, 2011 15:30 UTC

Around 100 BC, a Roman nobleman calculated that it took about 100,000 sesterces a year to live comfortably. That was roughly 200 times the amount of money a poor city dweller needed to eke out a living. If an American needed the same multiple of the subsistence income to join the upper middle class today, the threshold would be $3.5 million. The United States economy has become less equal lately, but it remains much more egalitarian than the ancient Roman Republic.

The modern news on economic inequality is much more good than bad. The good news is very good. The greatest moral problem caused by inequality – the unequal access to the most basic economic goods, those which support life – has become less severe. The portion of the total population that suffers from this bottom-inequality is probably the lowest ever in history.

True, we do not know how many ancient Romans were on the wrong side of the bottom-inequality, but statistics for the most recent decades are encouraging. In 1970, 26 percent of the world’s population suffered from hunger, according to the UN’s Food and Agriculture Organisation. The proportion is now 13 percent – still scandalously high, but the gain in food-equality is clear. Nor is food an isolated example. Electricity is a relative new development, but the Soviet dream of universal electrification has already nearly become a reality; more than 80 percent of the world’s population can plug in, according to the International Energy Agency. Health care and sanitary living conditions are now considered basic goods – and access to them has become more equal. The average life expectancy at birth is 65 or above in countries accounting for roughly 80 percent of the world’s population.

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