from MacroScope:
The Law of Diminishing Greeks
The Law of Diminishing Returns states that a continuing push towards a given goal tends to decline in effectiveness after a certain amount of effort has been expended. If this weren't the case, Usain Bolt would be able to run the mile in less than 2-1/2 minutes.
From an economic standpoint, this law now seems to be fully in force in Greece. The latest jobs figures from the twice-bailed out euro zone country paint a bleak numerical picture of the impact of unrelenting austerity in ordinary Greeks, regardless of whether it was self-inflicted or not. To wit:
More than one in five Greeks is unemployed.
There are more young people without a job than with one.
The record 1.08 million people without work in January was a 47 percent tumble in a year.
Putting aside for the moment the question of what such a condition means for political dissent, there is now the issue of whether any of this austerity-fueled pain is actually helping the Greek economy.
Austerity mixed with the inability of euro-tied Greece to devalue its currency means Greece is now in its fifth year of recession. As for job-creating small and medium -sized businesses, the latest projections are that more than a net 130,000 of them will have shut down over two years by the time 2012 is over.
The biggest example of the Law of Diminishing returns, however, is the impact all this is having on what ails Greece in the first place -- its budget.
Unemployed people offer no revenue to the government in terms of income tax and far less in sales tax than they would if they were working.
Looking back on my 2011 projections
By Don Tapscott The opinions expressed are his own.
One thing pundits rarely do is review their own prognostications. A year ago I published “10 big themes for 2011” – related to how the digital revolution changes business and society. It’s helpful to review what actually occurred. Below are my projections and some 20-20 hindsight editorializing.
1. “The crisis deepens. Rather than just an economic downturn, more people will recognize that we’re entering an era of profound change. The industrial economy and many of its institutions are reaching the end of their lifecycles — from newspapers and old models of financial services to our energy grid, transportation systems and institutions for global cooperation and problem solving.”
What happened? I think I called that one. A year ago many were saying that we had come out of the global slump and that we were in full recovery, even if it was a “jobless” one. I detest the term “jobless recovery” as an oxymoron. There is no recovery unless it’s inclusive. As the for global crisis, anyone want to debate with me that it’s getting deeper and that we need to rebuild most institutions and industries, like, say, government?
2. “We’ve entered a new period of Global Risks. We are moving into an age where profound threats are emerging to the global economy, society and even the very existence of humanity. Failure of the financial system, weapons of mass destruction, new communicable diseases, collapse of environmental systems, water security and many other threats make the world a volatile place. Leaders unite to build a Global Risk Response System.”
What happened? Possible overstatement. But consider the sovereign debt crisis, America losing its triple A rating, how the Japanese tsunami disrupted the global supply chain, the destabilization of (nuclear power) Pakistan, Iran’s steps towards nuclear weapons and the deepening crisis regarding Israel’s relationship with the Arab world — and a “Global Risk Response System” sounds like a good idea.
Don, I think you pretty much nailed it. The only thing I’d quibble with is the lack of emphasis on mobile: the growth of iPads and smartphones (iPhone and Android), and everything that impacted (mobile commerce, mobile search, etc) could have been emphasized more. Yes, geospatiality is part of that, but just one aspect.
@jimewel
The deludedly optimistic youth of America
By Chadwick Matlin The opinions expressed are his own.
Friday was a slightly-better bad day to be a young person in America. The morning’s unemployment said 14 percent of Americans 20-24 years old are now unemployed, down 0.7 points from September. Teenagers’ rate was similarly down, dropping 0.5 points to 24.1 overall.
But still—14 and 24.1 percent! Well above the national average of 9 percent, which isn’t exactly something the Millennials can look forward to.
And yet young people remain stubbornly optimistic. In a comprehensive new survey of 842 young people that Demos, a New York think tank, released this week, almost 69 percent of Americans 18-34 years old “believe the American dream is still achievable.” In other news, the average student debt for new graduates is now $25,250, larger than ever. (To be fair, this isn’t entirely recession-related. My debt was around $100,000 when I graduated, and that was a year and a half before Lehman went belly-up.)
Politicians are as deluded as young people. Rick Perry, in a slurry speech that’s better known for its delivery than its content, said last week that “our obligation is not only to provide children with the best environment to nurture, but to ensure every child inherits a land full of opportunity.” Mitt Romney and Herman Cain, meanwhile, are spending Friday at the “Defending the American Dream” summit. And the Dream dream affects Democrats too. Don’t forget about Barack Obama’s now-abandoned Win the Future campaign, which acknowledged that while things are awful, they could easily get better—if only we tried. A dysfunctional Congress scoffs at such a quaint notion.
A person prone to cynicism—(read: this author)—looks at this wishful thinking and blames it on demographics, which is to say blames it on politics. The perpetuation of the American Dream, despite all evidence suggesting the American Dream has died, is good politics in the way that Good Politics is almost always quite bad. It hijacks the American character while ignoring the American reality.
Our political culture’s pervasive discussion of the mystical American Dream appeals to two main demographics: parents and kids. Which is to say, it appeals to nearly everyone. Parents—the very people who mucked up the earth and refuse to do anything about it—want to believe their wrongs will be absolved. Kids, meanwhile, need some dream to hold on to, else they all take to occupying the streets.
I concur with what the four commenters who precede me had to say but I’d like to add a couple things.
First… No generation is really a collective “us”. “Babyboomer” designate people whose only commonality is that they were born between 1946 and 1964. For example: George Bush, Barack Obama, Ronald Reagan, Bill Gates, Bill Clinton, Marilyn Chambers, Ted Bundy and I are all Babyboomers. Had this group of people ever conferred with each other regarding what would make America a better place, their would have been no consensus.
Second… During those “Babyboomer” years, the “non-Babyboomers” didn’t just step aside to see what the “Babyboomers” could do to improve things. For example, adding Dick Cheney, John Lennon, Lady Gaga and Timothy McVeigh to the above imagined conference would have made a consensus all the more elusive.
Trying to better understand America in the context of generations can do nothing to improve things. If we are alive now, we share in the responsibility for America’s future. For my part, I post on this bulletin board in a modest attempt to have some positive effect to that end. Today, I will suggest that you read, “Ishmael”, a short novel about a gorilla and philosophy.
The case for Obama’s jobs program
By Betsey Stevenson The opinions expressed are her own.
What should we make of the President’s new jobs plan? Ignore the politics — will it pass? — and focus on the economics: If it does, will it get Americans back to work?
The centerpiece is a series of sharp payroll tax cuts. The usual problem with payroll taxes is that they largely subsidize existing workers. But this plan — three separate payroll tax cuts — is different.
The first tax cut is the most innovative: No payroll taxes at all for firms increasing their wage bill. In economics, all the action is at the margin. If we want people to do more at the margin — hire more people — then the incentives to do so should be targeted at the margin. We will get much more bang-for-our-buck by giving the biggest tax breaks to the hiring of extra workers.
Second, there’s bigger cuts targeted at small business. The logic here is simple: these are the firms whose hiring is most likely constrained by their cash-flow.
Third, the package extends and expands the current payroll tax cuts for workers which would otherwise have expired at the end of the year. Tax cuts for low income folks generate substantial further spending. In ordinary times middle class families usually don’t spend as much of each extra dollar, but these aren’t ordinary times. With one-in-eight families directly affected by unemployment last year, it’s likely they’ll be a bit more likely to spend the extra money. And even if people don’t spend the extra dollars, it will help them work off the debt overhang that is holding back spending.
Beyond payroll tax cuts, there’s infrastructure spending. There’s a good case that more roads, better schools and improved Internet access are a good long-term investment. Better to do it today when we have so many construction workers to build these things, than to wait until later when the cost will be higher. And with negative real interest rates, there’s no case for delay — these investments will simply never be this cheap again.
What another half a Trillion dollars? Ya, we could cut a check to millions of Americans for $100,000.00 dollars each, but we wouldn’t be exercising our right to redistribute wealth to our favorite speciula interest now would we! Let’s spend, gamble our way out (call it progressive) and if we fail our kids should bring a pretty penny at auction! We’ll change when we hit bottom!
The middle-class meltdown
This is a response to Don Peck’s book excerpt, “How chronic joblessness affects us all.” Labor economist Gary Burtless also responded here.
By John Lloyd The opinions expressed are his own.
“All that is solid melts into air,” wrote Karl Marx in the Communist Manifesto. He meant that the sheer, revolutionary power of capitalism had wrenched larger and larger parts of the world out of its feudal or tribal doze, and sent it running round the track of modernization, smashing down habits, customs, faiths as it went. The agents of this wrenching change: the middle classes, or as he would have it, the bourgeoisie, the new class which grew in the womb of feudalism, and then destroyed it. And they would, he prophesied, be destroyed in their turn.
Do you not fear, in anxious moments at dawn, that he was right, just a bit (163 years: the Manifesto came out in 1848) before his time? Do you feel the solid world melting? Do you tremble that we in the rich states are living, not just on borrowed money, but also on borrowed time – and that it is running out? That our way of life is being gnawed at from below?
John Gray, the British philosopher, once a Thatcherite, thinks Marx is right, and that the melting has gone beyond effective political control. Marx was wrong, to be sure, about communism producing a decent society, judging by what’s been on offer so far. But Gray thinks he was right about how the apparently triumphant bourgeoisie, builders of a productive, industrial, city-based society, would themselves melt. “The weapons,” Marx wrote, “with which the bourgeoisie felled feudalism to the ground are now turned against the bourgeoisie itself.” The constant churn and change which capitalist development required would, in the end, attack those who had created the process: the middle classes. Now they – we – are for churning.
Our fate has become linked to that of the classes we thought we had left, or left behind. The industrial working class in the rich societies, whom Marx thought would lead the revolution, is now small, and in most states the trade unions are weakened, as are the socialist parties. Those in what Marx called the “lumpenproletariat” are growing in numbers, and can be dangerous – see the London riots in August. But they are also disorganized. In an article in London’s Guardian earlier this week, the UK Justice Secretary Kenneth Clarke called the rioters a “feral underclass” and said they were “cut off from the mainstream in everything but its materialism.”
But is there also a feral overclass which sets the materialist tone and style? In the United States, a growing number of economists see society separating more and more into the rich and the poor, with a middle squeezed down and out. As Don Peck writes on Reuters.com and in his sober piece in The Atlantic: “the most important economic trend in the U.S. over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers…the recession has pressed hard on the broad center of American Society.” Peck quotes Emmanuel Saez, a Berkley economist, as saying that “the rich seem on the road to recovery,” while the jobs for those in the middle “are being wiped out. And what will be left is a hard and a pure market.”
Thanks for sharing – Acetracy. I find that succinct analysis to be extremely insightful, and would explain many, many things. That is going to be my working hypothesis from now on and I will see how well it holds up.
Why the unemployed stay unemployed
This is a response to Don Peck’s book excerpt “How chronic joblessness affects us all.”
By Gary Burtless The opinions expressed are his own.
First, from a labor economics perspective Peck’s analysis is basically correct. In modern capitalist labor markets, long-term unemployment tends to feed on itself via the mechanism that Peck describes. It gets increasingly difficult for the unemployed to get re-employed the longer their unemployment lasts. (There are some hard statistics showing this is true, and that it is true regardless of the state of the economy.) The impact of this phenomenon on the overall unemployment rate became clear in 1980s Western Europe. Countries like France, Germany, Denmark, and Italy that had enjoyed unemployment rates below those in the U.S. for much of the previous three decades found themselves with jobless rates higher than those in the U.S. More worryingly, their unemployment rates stayed above the U.S. rate for a very long time.
It became clear than much of the difference was the gap between the two continents in long-term unemployment (that is, joblessness that lasts longer than 6 months or a year). Europeans who remained in unemployment longer than 6 or 12 months tended to stay unemployed, sometimes up until the age they qualified for an old-age pension. Even when the European job market improved, these unfortunates stayed unemployed. Employers hired from the ranks of already-employed workers (i.e., those who were on other employers’ payrolls) or from new graduates. They tended to shun the long-term unemployed.
Second, it appeared that the European long-term unemployed eventually failed to exert any downward influence on European wages. It was almost as though these unfortunates had become invisible to employers, unions, and governments in the wage-determination process. The availability of millions of willing – but long-term-unemployed – workers did not restrain unions in their wage demands or employers in their willingness to offer higher overall wages. What became clear by the second half of the 1980s was that when European economies started to improve, wage gains also started to rise – in spite of the fact that there were still millions of long-term unemployed workers who would have been happy to fill new job openings at wages below the prevailing wage rate.
Third, one popular theory at the time to explain this kind of hysteresis (i.e., the tendency of high unemployment rates to persist for a long time) was that the skills of long-term unemployed workers atrophied the longer they were without work. Economists said there was “structural unemployment,” by which they meant that the long-term unemployed no longer possessed the skills needed for the industries and occupations that were expanding. My own explanation is a bit different. I believe that when the job-seekers’ queue is very long (as it is when the unemployment rate is 7 percent or higher), employers can be very choosy about who to hire. They can indulge many of their prejudices about which job candidates are most likely to be productive workers and which are most likely to be losers. A candidate who’s been unemployed 6 months, 9 months, or, God help him, 12 months or longer looks like a very bad bet – even if the truth is the opposite.
There is a young economist at Texas A&M named Joanna Lahey who conducted a very clever experiment showing that employers discriminate against job candidates older than, say, age 50, even when the older applicant’s qualifications are precisely the same as a younger candidate’s. If Lahey re-ran her experiment to see how often employers respond to job applications from workers with identical job qualifications, but with different spells of unemployment (say, 0 weeks, 5 weeks, 15 weeks, 26 weeks, 39 weeks, and 52 weeks), I’m pretty confident she would find that employers are much less likely to respond to the job applications of people who have been unemployed the longest. This behavior is not entirely irrational on employers’ part (especially when they’re receiving 50 job applications for each opening). But their screening method means that many of the long-term unemployed will thoughtlessly be denied access to dozens of jobs for which they are perfectly suited (or even “over”-qualified).
I agree completely with Don. The mindless pursuit of profit eventually bites the profit seeker in the hand. Also, the tendency for employers to summarily reject workers who are not currently employed should be outlawed for the sake of the misfortunate as well as everyone else. The most optimistic result for society is to have to bear the cost of disposing of the dead that litter the landscape. A burden on society that should be imposed on the corporate community who refused to think independently and simply threw the older worker and or long term unemployed under the bus. Without giving a thought to the fact that that person earned a right to be productive.
How would Keynes advise Obama on jobs?
By Nicholas Wapshott The opinions expressed are his own.
It’s still the economy, stupid. So if Obama wants to keep his job – and we must assume he does, though he doesn’t seem to be enjoying himself much — he must boost the economy and get the jobless back to work. No president since 1948 has been elected with a jobless figure higher than 7.2 per cent, so with unemployment currently running at 9.1 per cent, he looks headed for certain defeat.
Add the pivotal fact that two of his core groups of supporters, blacks and hispanics, suffer disproportionately from joblessness, at 16.2 per cent and 11.6 per cent respectively, and the president’s prospects look even dimmer. With the White House admitting there is little chance unemployment will fall before the election next year, the president needs some good advice on how to get people back to work, and fast.
What would John Maynard Keynes tell Obama? He once advised Franklin Roosevelt on how to cure unemployment, but he didn’t make much headway. “I saw your friend Keynes,” FDR told his Labor Secretary Frances Perkins. “He left a whole rigmarole of figures.” In turn, Keynes told Perkins he had “supposed the president was more literate, economically speaking.”
Keynes won’t find Obama knows much about economics either, but the founder of macroeconomics was a great charmer and would applaud the president for heading in the right direction with his 2009 stimulus. He would temper his praise, however, by saying the trillion dollar injection into the economy was far too small to do much good and in many cases went to the wrong people and was spent on the wrong projects.
To get a domestic benefit from a public spending boost, the president needed to funnel money towards Americans who would pass it on, not give it to the wealthy, who stashed it away or bought themselves foreign-made luxuries, nor those who used it to pay off their credit card bills. Keynes’s famous “multiplier,” by which every dollar spent is worth far more as it is passed from hand to hand, doesn’t work if the cash is placed under a mattress.
So what should the president do next, now that he lost the mid-terms and finds himself confronting a hostile Congress dominated by a vociferous minority who will not countenance raising taxes or adding to the national debt? Keynes would remind Obama that there are three ways to pump money into an ailing economy to bolster demand and fuel the spending that businesses need to invest and expand.
“Keynesianism/Central Economic Planning and the Federal Reserve are to blame for the economic crisis. ” – EyesofVigilance
Really, because I thought Supply-Side Economics had been pretty much dominating Washington for the past 30 years? You remember, Voo-Doo economics. That’s where everything gets deregulated (like banks, OTC trading, derivatives markets, etc) and corporation get huge tax breaks so they can more easily hire and produce. Then, the rewards were supposed to rain down on the middle-class and poor. A trickle down effect as some would say.
What has the REAL outcome been?? Three near collapses of financial markets in less than 25 years due to unregulated greed (Saving & Loan, Long-Term Capital, and the TARP bailout). Of course all three collapses were avoided thanks to massive tax payer bailout programs. Oh, and let’s not forget stagnate wage growth for the middle and lower classes.
How chronic joblessness affects us all
This is an excerpt from “Pinched: How the Great Recession Has Narrowed Our Futures and What We Can Do About It.”
By Don Peck The opinions expressed are his own. Last summer, the phone maker Sony Ericsson announced that it was looking to hire 180 new workers in the vicinity of Atlanta, Georgia. But the good news was tempered. An ad for one of the jobs, placed on the recruiting website the People Place, noted the following restriction, in all caps: “NO UNEMPLOYED CANDIDATES WILL BE CONSIDERED AT ALL.”
Ads like this one have been popping up more frequently over the past year or so; sometimes the ads disappear once the media calls attention to them (a spokesperson for Sony Ericsson said its ad was a mistake). But new ones continue to appear.
The prohibition against the unemployed applying for jobs is an unjust by-product of the desperation of many unemployed Americans, who have inundated companies with applications, sometimes indiscriminately. And it also shows the extent to which this is still a buyer’s market, in which employers can afford to be extraordinarily selective. But these restrictions may portend something more enduring, as well. Temporary unemployment can become permanent after a time; companies sometimes ignore people who have been out of a job for a year or two, and the economy—somewhat shrunken—just moves on without them.
The economic term for this phenomenon is hysteresis, and it can be one of the worst consequences of a very long recession. When people are idle for long periods, their skills erode and their behavior may change, making some of them unqualified even for work they once did well. Their social networks shrink, eliminating word-of-mouth recommendations. And employers, perhaps suspecting personal or professional dysfunction even where it is absent, may begin to overlook them en masse, instead seeking to outbid each other for current or recently unemployed workers once demand returns. That can ultimately lead to higher inflation, until the central bank takes steps to depress demand again. The economy is left with a higher “natural” rate of unemployment, a smaller working population, and lower output potential for years to come.
The blight of high unemployment that afflicted much of Europe in the 1980s and ’90s is a case in point, and an important cautionary tale. The persistence of high unemployment resulted from several factors, including overly rigid labor markets in some countries and welfare programs that dulled the incentive to find a job in many others. But analysis by the Johns Hopkins economist Lawrence Ball reveals that much of it was the result of hysteresis caused by a long period of disinflation and weak demand in the early and mid-1980s. In some countries, the natural rate of unemployment rose by five to nine percentage points.
The scars from this period will be deepest for the unemployed, but they will be felt by most of us. Communities marked by high, persistent unemployment devolve over time; social institutions wither, families disintegrate, and social problems multiply. Many American inner cities still bear scars from the sudden loss of manufacturing, and the attendant rise in male unemployment, in the 1970s. Parts of Europe now struggle with a burgeoning underclass. When geographically concentrated, idleness and all its attendant problems are easily passed from one generation to the next.
There are many jobs out there and many qualified applicants. It is too bad that there are hiring managers that do say that candidates need to be currently employed. Many of the unemployed are through no fault of their own and are missing out on some good talent.
Give the states the power to build jobs
By Muhtar Kent and Ram Charan The opinions expressed are their own.
While the long-term fundamentals of our economy remain strong, America is struggling to recover from the Great Recession. With unemployment rising to 9.1 percent in May, we need more jobs, and we need them now. The good news is that we can create them by encouraging more small businesses and entrepreneurs to compete and win in the global economy.
Here’s the reality today: two out of three new American jobs are created by companies less than five years old. Small and medium-sized enterprises (SMEs) are powerful — indeed essential — engines of economic growth and job creation, not to mention tax revenues.
Unfortunately, not enough SMEs are geared toward competing internationally, despite the vast potential that exists in many global markets.
One of the great, largely untold economic stories of our time is the mutual dependency between America’s multinational corporations and small and medium-sized enterprises. Today, large U.S.-based global businesses directly employ 22 million Americans and support more than 41 million additional American jobs through their supply chains. That’s nearly one in three American workers.
Ironically, too much of our national discussion about job creation and tax policy separates small businesses from big, public multinationals. Most state governments, which are on the front lines of attracting and retaining key businesses, are better equipped to recognize this mutual dependency and create policies conducive to growth across the board.
Governors can provide invaluable leadership in this regard, given the levers they have to attract investment and connect local companies to overseas markets. And this is about more than states competing for business relocations and expansions. Such initiatives are fine, as far as they go. Instead, we urge each state to make the most of its unique competitive advantages.
All business’ require credit to grow. Our current system of private banks is performing it’s function anemically. One reason is that derivatives are still in vogue. As long as banks can make money placing these bets as to which endeavors fail or succeed, there will be no impetus to help companies expand our economy. Remember, all the remaining investment banks have received commercial bank charters. The banks have also paid record bonus’.
Our real problem this nation must face is moral conduct. Police can lie in an investigation but a citizen suspect will be prosecuted for perjury should his or her memory improve with time. Hence the attitude “That’s my story and I’m sticking to it”. Many citizens now believe torture to be a proper technique for military interrogation. One would have to be naive or foolish to believe individuals in financial power would conduct themselves differently. Neither church nor law has been able to right the U.S. ship of conduct. Perhaps a reading of Adam Smith’s prior work the “Lectures” rather than the “Wealth of Nations” is in order.
Why our employment figures are wrong
By Sara Horowitz
The opinions expressed are her own.
The national employment figures are an economic bellwether. They profoundly affect U.S. markets, consumer spending, and even the fate of national elections. With so much at stake, you’d think we would be counting the workforce accurately. Unfortunately, we’re not.
The United States treats jobs as something turned on or off—employed or unemployed—but that binary view no longer reflects how Americans really work. Whereas in the middle of the 20th century industrial employees worked one job for one company, today, there are 42 million consultants, independent contractors, entrepreneurs and freelancers working multiple gigs for multiple clients.
Although independent workers were a full one-third of the U.S. workforce at last count (which was 6 years ago), they aren’t counted by the Bureau of Labor Statistics in a consistent and ongoing way. Current statistics tend to lump workers into one of three classes: private wage and salary workers, government workers, and the self-employed. But these groupings don’t account for the nuances in how people work now and the overlap between groups. For example, on-call or contract workers might be lumped in with wage and salary workers, when really they’re independent workers. As a result, our outdated numbers have led to outdated policies that no longer meet the needs of America’s 21st century workforce.
Take, for example, the issue of nonpayment. W-2 employees know that their paycheck will be directly deposited into their checking account every two weeks, and don’t have to worry about chasing down their employer for payment. In fact, the Department of Labor could fine your employer—or send them to jail—if they don’t pay you. Independent workers, however, have no such protection from nonpayment, late payment, or partial payment, leaving freelancers with only two options: sue or walk away. According to Freelancers Union member survey data, that’s a gamble many companies are willing to make: 77% of freelancers report having trouble collecting payment at some point in their career.
In a way, we’re going back to the future. When the U.S. economy began to shift from farms to factories in the mid- to late-nineteenth century, the state of the nascent workforce was largely unknown: there was no national unemployment rate, consumer price index, or average household income. In 1884, President Chester Arthur signed a bill creating the Bureau of Labor Statistics. The BLS produced numbers, and policies soon followed, including many we take for granted today: the eight-hour workday, child labor bans, and unpaid wage claims.
Adam_S, clearly you lead a sheltered life in a comfortable village somewhere. Perhaps you should also try reading a little more than you write. The Wall Street Journal would be a good place to start in view of your bias against Reuters. The truth of the matter is you will find little difference in what they report.
By the way “ENTREPRENEURS” need financing which U.S. banks are loathe to do as they make a killing on Hedge Funds(bets against companies and investment vehicles succeeding).
