We are in a Bizarro economy

[Denny Crane]

There is no "how" because 2/3 of the economy is not "driven" by consumer spending. 2/3 of the economy is consumer spending. 2/3 of a pie does not drive the rest of the pie. It is 2/3 of the pie.

As you say, the issue is not spending, it's getting people to work. Those are supply issues. Why aren't people working? Well, for pretty much the reasons I laid out in the second post.

Look at the people who aren't working. They are disproportionately your working class folks. I won't bother using the term "low skilled", but point out that the employment rate for high skilled workers is quite small. The recession looks like a "bizarro" economy because it affects different people differently.

The policies I've pointed out are basically
1. Making it more costly for businesses to hire working class folks (uncertainty, higher min wage), so they're less willing to hire.
2. Making it more costly for working class folks to go out and work (unemployment benefits work out to a better deal, in many cases, than taking an available but low paying jobs).

Thus, we have high unemployment.

Right now, 2/3 of the economy is not consumer spending. It's some fraction of what it was and what it could be (if people had jobs).

Without the consumers spending as much, there's a whole slew of industries that have less demand for product and less need to build and keep inventory of their products. So less need for them to hire. Though oddly, those they would hire would be consumers of their product, directly or indirectly...

It is a fucking big deal to hire anyone, even in a state like California where employees can be terminated at will. Employers are subject to lawsuits for wrongful termination anyhow, and there's unemployment insurance they have to pay for their workers, etc. An employee is an investment in the corporate culture and knowledge as well. If it takes a month or a year to fully train said employees, there's that additional cost to hiring. Thus it better be worthwhile to the employer.

 

[MikeDC]

Higher minimum wage does drive down employment to some extent. However, I don't see how uncertainty changes hiring of low-skilled, low paid workers. Low-skilled, low-paid workers are by definition easy to find, and easy to get rid of. If I need them now, I hire them now. If conditions change in the future, I get rid of them.

I'd argue that uncertainty would have a much bigger effect on hiring professionals, where the time and effort to recruit is higher, and there are higher costs for termination.

Directly, yes. Indirectly, you've got to consider that low-skilled, low paid workers are often complements to not only expensive professionals but also expensive capital improvements. The uncertainty isn't in hiring/firing them per se, but in creating and using the more expensive system of assets to make use of them.

People on unemployment are lazy and don't want to work? I'd like to see evidence for that assertion.

No, I didn't they were lazy and don't want to work. I said working, given the alternative, works out to be more costly for them than not working.

It is true that getting laid off from a high-paying job will provide better unemployment benefits than taking a minimum wage job. Those people, I would expect to stay unemployed until they have to go flip burgers. However, now we are talking about replacing a high paying job with a low-paying job. That might help the unemployment rate, but it is not helping the economy. The unemployment rate isn't the only measure of success here.

barfo

Indeed it is not pleasant for a worker forced to do so, but it certainly does help the economy. In the case of a worker refusing work and taking unemployment, they are, essentially, sitting on the wagon everyone else is trying to push. By getting off the wagon and joining in the effort to push, the wagon is going to get further, lose weight, and have more folks pushing it. By increasing the value of staying on the wagon and not helping to push, unemployment hinders success.

I agree in the long-run that that reducing unemployment isn't the only measure of success, but it's a step in the right direction to get people employed in the first place.

 

[barfo]

Directly, yes. Indirectly, you've got to consider that low-skilled, low paid workers are often complements to not only expensive professionals but also expensive capital improvements. The uncertainty isn't in hiring/firing them per se, but in creating and using the more expensive system of assets to make use of them.

Frequently the more expensive system of assets reduces the need for low-skilled labor via automation. So I'd argue that lack of industrial investment may actually be supporting the low-wage labor pool, rather than harming it.

Indeed it is not pleasant for a worker forced to do so, but it certainly does help the economy. In the case of a worker refusing work and taking unemployment, they are, essentially, sitting on the wagon everyone else is trying to push. By getting off the wagon and joining in the effort to push, the wagon is going to get further, lose weight, and have more folks pushing it.

What does it mean to push here? Seems to me the most obvious meaning is to engage in consumer spending. Which they can do more of if they have more, not less, money. So they are pushing harder by taking unemployment rather than flipping burgers.

barfo

 

[MikeDC]

I touched on this issue in another thread, but the more fundamental question is why has personal consumption become such a large percentage of our economy? When you are merely producing for the populace, you limit your market to 300M people who are affected by many of the same local and national issues. This leads to more boom and bust. Developing a true export economy allows you to spread your risk over the entire planet and also increases your market.

I agree with the idea that basing current spending (and by that I mean all current spending, not just consumption) on too much credit is risky, has been, and is a problem. I don't agree that developing an export driven economy always reduces risk. First, everyone can't have an export-driven economy. More importantly, while risk is reduced in general by enlarging your market, you also tend to aggregate local issues to the extent your market integrates.

This is often a good thing. For instance, it's pretty inconceivable, despite big talk, that China and the US would fight a war. It would be ruinous for both sides. However, with different sets of politicians responding to different incentives, there's also the possibility they might not understand or care about this.

The economic growth over the past two decades has largely been built on consumer spending, and even worse, consumer credit. That is a foundation of sand. There is no more slack in the line; consumers are tapped out. Until we repay our personal debts, the economy won't get going again. A more fundamental change has to occur in our economy. We have to move to an economy where we export more goods and services. One that's less consumer-based and more business-based.

I'm not a mercantilist by any means, but citizens need to not only pay off their debts, but have some substantial savings for retirement. Our parents and grandparents did fine with fewer consumer products; I bet we can as well. The Yankee ideal of thrift has faded away and needs to be reborn. In fact, that heritage of using what you have laying around is consistent with being "green", which should make all the PC folks feel terrific.

And we haven't even begun to address the spending problems we have with our local, state and federal governments. Too many people are dependent on them for their daily needs. People need to become more dependent on themselves. If we're going to promote a new service or expansion of benefits, it needs to be paid for from the get-go. I bet if taxes were increased immediately after passing a new "benefit" we'd see fewer of those types of programs. Government deficit spending should only be a last resort.

This stuff won't be sorted out overnight. And barring a miraculous new invention that transforms our economy, we're headed for a "new normal"--much slower growth. We have the Japanese example of what not to do. They have not only one "lost decade", but are on the verge of two of them. The relationship between our population and government needs to change. Our expectations of filling the void in our lives with new stuff has to end.

Welcome to the 1930s.

I think you're much more on the mark when you talk about the relationship between our population and government needing to change than on the export stuff. The latter would require significant government manipulation, and it's a variety of government manipulations that have laid the ground for the pernicious problems you point out with respect to debt and savings. It's worth considering that Japan is the original "export driven economy", is it not?

 

[MikeDC]

Right now, 2/3 of the economy is not consumer spending. It's some fraction of what it was and what it could be (if people had jobs).

Without the consumers spending as much, there's a whole slew of industries that have less demand for product and less need to build and keep inventory of their products. So less need for them to hire. Though oddly, those they would hire would be consumers of their product, directly or indirectly...

Actually, consumer spending is well over 2/3 of total spending. Over the last 30 years, it's increased from about 65% to over 70% of GDP. Essentially, as GDP has grown, the extra income we've made has gone toward additional creature comforts.

It is a fucking big deal to hire anyone, even in a state like California where employees can be terminated at will. Employers are subject to lawsuits for wrongful termination anyhow, and there's unemployment insurance they have to pay for their workers, etc. An employee is an investment in the corporate culture and knowledge as well. If it takes a month or a year to fully train said employees, there's that additional cost to hiring. Thus it better be worthwhile to the employer.

Yup

 

[MikeDC]

Frequently the more expensive system of assets reduces the need for low-skilled labor via automation. So I'd argue that lack of industrial investment may actually be supporting the low-wage labor pool, rather than harming it.

While I think the second order effects of bad governance on low-skilled labor are much less important than the first order effects on higher skilled labor and capital, I think this is basically the "we must destroy the village in order to save it" mentality.

What does it mean to push here? Seems to me the most obvious meaning is to engage in consumer spending. Which they can do more of if they have more, not less, money. So they are pushing harder by taking unemployment rather than flipping burgers.

barfo

Regardless of what it means to push, I think you should devote some thought about what it means to sit. Consider Homer:
[video=youtube;KE0-zQBL-Sc]

 

[barfo]

Regardless of what it means to push, I think you should devote some thought about what it means to sit. Consider Homer:
[video=youtube;KE0-zQBL-Sc]

Was Homer sitting? Or was Homer pushing? Would the sled have gotten as far as it had if not for Homer's whipping?

The easier analogy is Homer-as-CEO, not Homer-as-unemployed-person-on-public-dole.

barfo

 

[barfo]

It is a fucking big deal to hire anyone, even in a state like California where employees can be terminated at will. Employers are subject to lawsuits for wrongful termination anyhow, and there's unemployment insurance they have to pay for their workers, etc. An employee is an investment in the corporate culture and knowledge as well. If it takes a month or a year to fully train said employees, there's that additional cost to hiring. Thus it better be worthwhile to the employer.

Disagree. If you want to see where it is a fucking big deal to hire someone, try France or Japan, where you are basically stuck with anyone you hire permanently. California is probably the toughest state in the union for employment law (favoring the employees) but still it isn't hard at all to get rid of employees in CA. If it takes a month or a year to train a low-skilled, low-wage employee, you are doing it wrong.

barfo

 

[MikeDC]

Was Homer sitting? Or was Homer pushing? Would the sled have gotten as far as it had if not for Homer's whipping?

The easier analogy is Homer-as-CEO, not Homer-as-unemployed-person-on-public-dole.

barfo

Painful

 

[maxiep]

I agree with the idea that basing current spending (and by that I mean all current spending, not just consumption) on too much credit is risky, has been, and is a problem. I don't agree that developing an export driven economy always reduces risk. First, everyone can't have an export-driven economy. More importantly, while risk is reduced in general by enlarging your market, you also tend to aggregate local issues to the extent your market integrates.

This is often a good thing. For instance, it's pretty inconceivable, despite big talk, that China and the US would fight a war. It would be ruinous for both sides. However, with different sets of politicians responding to different incentives, there's also the possibility they might not understand or care about this.

China needs to do two things to fully integrate itself into the world economy: They need to let the RMB float to make their exports more expensive and imports cheaper; and they're going to have to allow their citizens to spend their money. If I were President, I would be heavily leaning on the Chinese to do those very things.

Too often we've been content to take in cheap goods at the expense of our manufacturing jobs. I don't mind that dynamic where it's honest; I mind it greatly when it's being done to destroy American jobs, like the Japanese steel dumping scandal of the 1980s or today's forced ceiling on the RMB by the Chicom government.

I think you're much more on the mark when you talk about the relationship between our population and government needing to change than on the export stuff. The latter would require significant government manipulation, and it's a variety of government manipulations that have laid the ground for the pernicious problems you point out with respect to debt and savings. It's worth considering that Japan is the original "export driven economy", is it not?

The Japanese economy wasn't done in by a drop in exports; it was done in by a real estate bubble and a banking crisis that--adjusting for relative size of our economies--makes ours look like just a ripple.

 

[Fez Hammersticks]

Wait, are we heading into another recession?

 

[The_Lillard_King]

NEW YORK – Treasury Secretary Timothy Geithner pledged on Monday to move with speed to implement the biggest overhaul of the financial system since the Great Depression. He said that a top priority will be simplifying the complicated forms that consumers have to fill out to get credit cards, auto loans and mortgages.

http://news.yahoo.com/s/ap/us_geithner_financial_overhaul