http://economix.blogs.nytimes.com/2013/06/17/the-current-u-s-economy-text-and-subtext/?emc=eta1
http://www.nytimes.com/2013/06/17/opinion/krugman-fight-the-future.html?partner=rssnyt&emc=rss
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"A competent leader can get efficient service from poor troops, while on the contrary an incapable leader can demoralize the best of troops." (General John J. Pershing)
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If I could put two brilliant minds together and see how the IMF views the U.S. economy, that would be my objective for these thoughts.
Jared Bernstein's view on what the IMF has just published is that they see the U.S. stuck in a "sloggy," "backward-leaning," L-shaped recovery: "The United States economy, with considerable prodding from fiscal, financial (the bailouts), and monetary help, exited a historically deep recession in the second half of 2009, but has been growing relatively slowly since then." Not enough stimulus for not long enough.
IMF: "Underlying fundamentals have been gradually improving." Bernstein: "Whose fundamentals...? At times like this, there's a risk that the economy is doing well, EXCEPT FOR MOST OF THE PEOPLE IN IT!" (my caps)
IMF: "The modest growth rate of 2.2% in 2012 reflected legacy effects from the financial crisis and deficit reduction..." Bernstein: "Current growth rates are not fast enough to put much downward pressure on the unemployment rate...(20 million who are un- and underemployed). Moreover, the IMF predicts slower growth (1.9%) this year."
IMF: "...house prices and construction activity have rebounded, household balance sheets have strengthened, labor market conditions have improved, and corporate profitability and balance sheets remain strong..." Bernstein: "All true, and all helpful developments, especially the housing part, but there's a large imbalance between improving labor market conditions and corporate profitability...In fact, the compensation share of national income is at a 48 year low, the profit share at an all-time high."
Bernstein: "The picture painted in broad strokes by the IMF is correct and not all without hope. As they say, things are improving, albeit too slowly. But in every case, we could be doing better were it not for policy mistakes."
Krugman refers to an article in the IMF Survey magazine titled "Ease Off Spending cuts to Boost U.S. Recovery." The title speaks for itself. But, Krugman has an issue with Christine Lagarde, the fund's head, who called on us to hurry up and put in place a medium term road map to restore long run fiscal sustainability. Krugman's gripe: "Why, exactly, do we need to hurry up? Is it urgent that we agree now on how we'll deal with fiscal issues of the 2020s, the 2030s and beyond?"
Krugman's answer: "No it isn't. And in practice, focusing on 'long-run fiscal sustainability' -- which usually ends up being mainly about 'entitlement reform,' aka cuts to Social Security and other programs -- isn't a way of being responsible. On the contrary, it's an excuse, a way to avoid dealing with the severe economic problems we face right now."
So, the time for big decisions about the long run is not yet: "And, because the time is not yet, influential people need to stop using the future as an excuse for inaction. The clear and present danger is mass unemployment, and we should deal with it, now."
In addition to being a Nobel Prize winner in economics, Krugman authored a book published in 2011 entitled: "End This Depression Now." The book eloquently makes the case for a burst in government spending to jump start the economy. Proof that he's right is the underwhelming GDP growth in the U.S. since the original "stimulus" was enacted. Both Krugman and Warren Buffet said, at the time, that it (the "stimulus") would not be enough, and they have subsequently been proved right.
I'm going to guess that things will start moving again by 2020. They could have started "moving" again a lot sooner with more spending and cost cutting later on after things got better.
Thursday, June 20, 2013
Tuesday, June 11, 2013
The Unemployed Economy
http://economix.blogs.nytimes.com/2013/06/07/long-term-jobless-still-a-bleak-picture/
http://www.nytimes.com/2013/06/10/opinion/krugman-the-big-shrug.html?emc=eta1
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"We talk about quality in products and services. What about quality in our relationships, quality in our communications, and quality in our promises to each other?" (Max De Pree)
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I think I'm living in an alternative universe but Annie Lowrey and Paul Krugman are helping me with that. Economists and politicians are actually happy that unemployment is down to 7.6%! Lowrey points out that long-term unemployment counts 4.4 million workers that have been out of a job for more than six months. That's not a statistic - that's people!
If you break down the demographics, the number of people (May, 2013) who report being out of work for less than 5 weeks has almost returned to the same level as in 2007. But the number of people unemployed 5 to 14 weeks is about 25% higher. For those out of a job 15 to 26 weeks, it's 78% higher. And, the number of long-term jobless, those unemployed for more than 27 weeks, is 257% higher! So, the longer a person is out of work...
Krugman defines normal (pre-crisis) as an economy adding a million or more jobs each year, enough to keep up with the working-age population. Normal meant an unemployment rate not much above 5%. And, while there was some unemployment, normal meant very few people out of work for extended periods.
Back then (pre-crisis), I was arguing that I didn't want to see an economy where 5% unemployment was what economists thought was necessary for things to hum along smoothly. Ridiculous.
Krugman goes on to help me with the language of economics: "For more than three years, some of us have fought the policy elite's damaging obsession with budget deficits, an obsession that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won -- in fact I don't think I've ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine."
Krugman goes on: "But while insiders no longer seem determined to worry about the wrong things that's not enough; they also need to start worrying about the right things -- namely, the plight of the jobless and the immense continuing waste from a depressed economy. And that's not happening. Instead, policy makers both here and in Europe seem gripped by a combination of complacency and fatalism, a sense that nothing need be done and nothing can be done."
There's a reason why Krugman has a Nobel.
Alan S. Blinder, writing this week in the Wall Street Journal (6/10/13 Opinion), points out that the Brookings Institution's Hamilton Project estimates each month what it calls a jobs gap defined as the number of jobs needed to return employment to its prerecession levels and also absorb new entrants into the labor force. The project's latest jobs-gap estimate is 9.9 million jobs. At a rate of 194,000 a month, it would take almost 8 more years to eliminate that gap.
To quote Blinder: "So any complacency is misguided. Rather, policy makers should be running around like their hair is on fire."
Blinder has concrete ideas about what to do that could work. Speaking of "fire," I'm thinking of that old saying about "Nero fiddles while Rome burns." Nobody in government is even surfacing ideas about what to do on the employment front.
Short term, we're not in a "recovery." We're in a "non-recession" because the GDP numbers are up and not down. Long term, I'm guessing appropriate growth will be back by 2020. But, at what price?
http://www.nytimes.com/2013/06/10/opinion/krugman-the-big-shrug.html?emc=eta1
***************
"We talk about quality in products and services. What about quality in our relationships, quality in our communications, and quality in our promises to each other?" (Max De Pree)
***************
I think I'm living in an alternative universe but Annie Lowrey and Paul Krugman are helping me with that. Economists and politicians are actually happy that unemployment is down to 7.6%! Lowrey points out that long-term unemployment counts 4.4 million workers that have been out of a job for more than six months. That's not a statistic - that's people!
If you break down the demographics, the number of people (May, 2013) who report being out of work for less than 5 weeks has almost returned to the same level as in 2007. But the number of people unemployed 5 to 14 weeks is about 25% higher. For those out of a job 15 to 26 weeks, it's 78% higher. And, the number of long-term jobless, those unemployed for more than 27 weeks, is 257% higher! So, the longer a person is out of work...
Krugman defines normal (pre-crisis) as an economy adding a million or more jobs each year, enough to keep up with the working-age population. Normal meant an unemployment rate not much above 5%. And, while there was some unemployment, normal meant very few people out of work for extended periods.
Back then (pre-crisis), I was arguing that I didn't want to see an economy where 5% unemployment was what economists thought was necessary for things to hum along smoothly. Ridiculous.
Krugman goes on to help me with the language of economics: "For more than three years, some of us have fought the policy elite's damaging obsession with budget deficits, an obsession that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won -- in fact I don't think I've ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine."
Krugman goes on: "But while insiders no longer seem determined to worry about the wrong things that's not enough; they also need to start worrying about the right things -- namely, the plight of the jobless and the immense continuing waste from a depressed economy. And that's not happening. Instead, policy makers both here and in Europe seem gripped by a combination of complacency and fatalism, a sense that nothing need be done and nothing can be done."
There's a reason why Krugman has a Nobel.
Alan S. Blinder, writing this week in the Wall Street Journal (6/10/13 Opinion), points out that the Brookings Institution's Hamilton Project estimates each month what it calls a jobs gap defined as the number of jobs needed to return employment to its prerecession levels and also absorb new entrants into the labor force. The project's latest jobs-gap estimate is 9.9 million jobs. At a rate of 194,000 a month, it would take almost 8 more years to eliminate that gap.
To quote Blinder: "So any complacency is misguided. Rather, policy makers should be running around like their hair is on fire."
Blinder has concrete ideas about what to do that could work. Speaking of "fire," I'm thinking of that old saying about "Nero fiddles while Rome burns." Nobody in government is even surfacing ideas about what to do on the employment front.
Short term, we're not in a "recovery." We're in a "non-recession" because the GDP numbers are up and not down. Long term, I'm guessing appropriate growth will be back by 2020. But, at what price?
Monday, June 10, 2013
Global Human Capital
http://economix.blogs.nytimes.com/2013/06/10/the-once-but-no-longer-golden-age-of-human-capital/?emc=eta1
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"People must be taught how to think, not what to think." (Margaret Meade)
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According to Nancy Folbre, only slightly more than half of college presidents (54%) believe that a bachelor's degree is worth more than 5 years ago (based on a recent survey by the Chronicle of Higher Education).
And, again according to Folbre, a majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they spend (based on a recent survey by the Pew Research Center).
Folbre's perspective is that the problems are particularly conspicuous on the "supply side:" declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt. To quote Folbre: "The investment costs more than it once did and remains beyond the reach of those who need it most."
Folbre goes into great depth about the economics of what is currently transpiring and notes that students are now being encouraged to think more strategically about their majors. But, as more and more students pile into science, technology, engineering and mathematics (the so-called STEM fields), the wage premiums for those fields could decline.
Interestingly, she also points out that Richard Vedder "...warns against both public and private over-investment in education, pointing to the growing tendency for college graduates to land in jobs that don't actually require the credential they hold."
By the same token, colleges ought to be working more to evaluate the "markets" for the degrees they confer (graduate school, business, etc.). Maybe history majors go to law school. Fine. Where do English majors go? Where do philosophy majors go?
Maybe our current lazy GDP growth will begin to accelerate again as we approach the end of this decade. Hopefully, "jobs" will follow.
***************
"People must be taught how to think, not what to think." (Margaret Meade)
***************
According to Nancy Folbre, only slightly more than half of college presidents (54%) believe that a bachelor's degree is worth more than 5 years ago (based on a recent survey by the Chronicle of Higher Education).
And, again according to Folbre, a majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they spend (based on a recent survey by the Pew Research Center).
Folbre's perspective is that the problems are particularly conspicuous on the "supply side:" declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt. To quote Folbre: "The investment costs more than it once did and remains beyond the reach of those who need it most."
Folbre goes into great depth about the economics of what is currently transpiring and notes that students are now being encouraged to think more strategically about their majors. But, as more and more students pile into science, technology, engineering and mathematics (the so-called STEM fields), the wage premiums for those fields could decline.
Interestingly, she also points out that Richard Vedder "...warns against both public and private over-investment in education, pointing to the growing tendency for college graduates to land in jobs that don't actually require the credential they hold."
By the same token, colleges ought to be working more to evaluate the "markets" for the degrees they confer (graduate school, business, etc.). Maybe history majors go to law school. Fine. Where do English majors go? Where do philosophy majors go?
Maybe our current lazy GDP growth will begin to accelerate again as we approach the end of this decade. Hopefully, "jobs" will follow.
Thursday, June 6, 2013
The Current Employment Rate
http://economix.blogs.nytimes.com/2013/06/03/how-work-is-rebounding-or-not-globally/?src=recpb
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"Millions saw the apple fall, but Newton was the only one who asked why." (Bernard Baruch)
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I think it's great that the Fed has a goal of continuing low interest rates (or whatever they call it) until the unemployment rate gets down to 6.5%. I've never seen the Fed connect that way with a real employment number before (that doesn't mean they haven't).
Edward Lazear, who was the chairman of the President's Council of Economic Advisers (2006-2009), and is a Hoover Institution fellow, and is a professor at Stanford University's Graduate School of Business, says in a June 5 article for the Wall Street Journal: "At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards."
His point is that watching the unemployment rate is not the best guide to the strength of the labor market: "Instead, the Fed and the rest of us should be watching the employment rate." First because the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't: "In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years."
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as the numerator the number of individuals who are actively seeking work but do not have jobs. That's OK, as far as it goes, but there is another more relevant number that covers a larger portion of the population: the "U6." The U6 counts those marginally attached to the workforce, "...including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work."
Lazear: "Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because people are actually working or because people dropped out of the labor market entirely, reducing the number actually seeking work. The employment rate - that is, the employment-to-population ratio - eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working."
So, while the unemployment rate has fallen over the past three plus years, the employment-to-population ratio has stayed almost constant at about 58.5%. So, we're not gaining any ground on where we were in 2006 (63.4%). Why create any more jobs than you need to if you have exceptional manufacturing productivity by producing more with fewer people?
What About the Rest of the World?
Annie Lowrey has looked at a major report from the International Labor Organization published on Monday of this week on employment around the world. As she says, "The study paints a picture of a world struggling to create jobs in the wake of a global recession, with developing economies enjoying stronger growth and a better jobs picture than developed economies..."
Some points:
* The global employment rate of 55.7% is still nearly a percentage point lower than it was before the crisis. The world needs about 31 million jobs to make up the gap.
* Globally, there are about 200 million -- 200 million -- unemployed people.
* For developing economies, employment rates will return to their precrisis levels around 2015. For advanced economies, it will take until after 2017. For some countries, the crisis never ended (Cyprus, Greece, Portugal and Spain).
* For developed countries, a better job market has often gone hand-in-hand with worse jobs. More people are being hired, but those jobs are often part time, low paying or temporary. This is not true for the U.S. The U.S. has fewer jobs, but those jobs are, on balance, of higher quality.
* The American middle class is shrinking. And, it has been for three decades. The share of adults living in middle-income households has fallen from 61% in 1970 to 51% in 2010.
Overall, the futurists (and the good ones take everything into account) see the U.S. taking off again by the end of this decade. Between now and then, who knows?
***************
"Millions saw the apple fall, but Newton was the only one who asked why." (Bernard Baruch)
***************
I think it's great that the Fed has a goal of continuing low interest rates (or whatever they call it) until the unemployment rate gets down to 6.5%. I've never seen the Fed connect that way with a real employment number before (that doesn't mean they haven't).
Edward Lazear, who was the chairman of the President's Council of Economic Advisers (2006-2009), and is a Hoover Institution fellow, and is a professor at Stanford University's Graduate School of Business, says in a June 5 article for the Wall Street Journal: "At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards."
His point is that watching the unemployment rate is not the best guide to the strength of the labor market: "Instead, the Fed and the rest of us should be watching the employment rate." First because the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't: "In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years."
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as the numerator the number of individuals who are actively seeking work but do not have jobs. That's OK, as far as it goes, but there is another more relevant number that covers a larger portion of the population: the "U6." The U6 counts those marginally attached to the workforce, "...including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work."
Lazear: "Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because people are actually working or because people dropped out of the labor market entirely, reducing the number actually seeking work. The employment rate - that is, the employment-to-population ratio - eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working."
So, while the unemployment rate has fallen over the past three plus years, the employment-to-population ratio has stayed almost constant at about 58.5%. So, we're not gaining any ground on where we were in 2006 (63.4%). Why create any more jobs than you need to if you have exceptional manufacturing productivity by producing more with fewer people?
What About the Rest of the World?
Annie Lowrey has looked at a major report from the International Labor Organization published on Monday of this week on employment around the world. As she says, "The study paints a picture of a world struggling to create jobs in the wake of a global recession, with developing economies enjoying stronger growth and a better jobs picture than developed economies..."
Some points:
* The global employment rate of 55.7% is still nearly a percentage point lower than it was before the crisis. The world needs about 31 million jobs to make up the gap.
* Globally, there are about 200 million -- 200 million -- unemployed people.
* For developing economies, employment rates will return to their precrisis levels around 2015. For advanced economies, it will take until after 2017. For some countries, the crisis never ended (Cyprus, Greece, Portugal and Spain).
* For developed countries, a better job market has often gone hand-in-hand with worse jobs. More people are being hired, but those jobs are often part time, low paying or temporary. This is not true for the U.S. The U.S. has fewer jobs, but those jobs are, on balance, of higher quality.
* The American middle class is shrinking. And, it has been for three decades. The share of adults living in middle-income households has fallen from 61% in 1970 to 51% in 2010.
Overall, the futurists (and the good ones take everything into account) see the U.S. taking off again by the end of this decade. Between now and then, who knows?
Tuesday, June 4, 2013
What's Behind the Rise in Home Prices?
http://dealbook.nytimes.com/2013/06/03/behind-the-rise-in-house-prices-wall-street-buyers/?src=me
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"Even if you're on the right track, you'll get run over if you just sit there." (Will Rogers)
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According to DealBook, the comeback in prices for houses is being fueled by institutional money. The Blackstone Group has purchased 26,000 homes in 9 states. Most of these firms are renting out houses with the possibility of unloading them at a profit when the prices get high enough.
Quoting DealBook, "Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't...Nationwide, 68% of damaged homes sold in April went to investors and only 19% to first time home buyers...these investors put a floor under the housing market."
That's the good news. The bad news is what happens when the big institutions decide they want to sell because the market has peaked?
Nobody knows where this is going but wouldn't it be strange if we had a second "housing bubble" to follow up the first?
Stranger things have happened.
***************
"Even if you're on the right track, you'll get run over if you just sit there." (Will Rogers)
***************
According to DealBook, the comeback in prices for houses is being fueled by institutional money. The Blackstone Group has purchased 26,000 homes in 9 states. Most of these firms are renting out houses with the possibility of unloading them at a profit when the prices get high enough.
Quoting DealBook, "Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't...Nationwide, 68% of damaged homes sold in April went to investors and only 19% to first time home buyers...these investors put a floor under the housing market."
That's the good news. The bad news is what happens when the big institutions decide they want to sell because the market has peaked?
Nobody knows where this is going but wouldn't it be strange if we had a second "housing bubble" to follow up the first?
Stranger things have happened.
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