Saturday, August 07, 2010

Employment in the Great Stagnation

Lester Thurow wrote "The Zero Sum Society" in 1980…

Written during a period of acute economic stagnation in 1980, The Zero-Sum Society discusses the human implications of economic problem solving. Interpreting macroeconomics as a zero-sum game, Thurow proposes that the American economy will not solve its most trenchant problems-inflation, slow economic growth, the environment-until the political economy can support, in theory and in practice, the idea that certain members of society will have to bear the brunt of taxation and other government-sponsored economic actions.

Thurow is 72 now, and out of the public sphere. History was not kind to many of Thurow's speculations, but if I still had my copy I'm sure it would be interesting reading today.

We don't remember the 80s now. Those were the days when Japan was going to take over the world, when a block in Tokyo was worth more than Manhattan. My 1987 Panasonic 8086 was better in every way than any other comparable PC. It was obvious that the entire PC industry would move to Japan, so panicky tariff threats forced Japanese companies to give up the desktop market (they went into laptops instead). Congressmen smashed a Toshiba radio with sledgehammers. In 1989 Sony's Akio Morita co-authored "The Japan That Can Say No" (Do follow that wikipedia link. Morita's criticisms of the 1980s US are particularly interesting.)

Then it all changed. The 90s were good for America, but not for Japan. Concerns about structural unemployment, and about American losing manufacturing, were forgotten until the Great Recession, when it all came back again. I wonder, in retrospect, if the structural unemployment of the 1980s will be seen as the beginning of a trend that resumed with the tech crash of 2000. The picture now is even grimmer than it was in the 80s ...

How Bad Is It? | Talking Points Memo

Last month I showed you what kind of private sector job growth was needed to get us back to pre-Great Recession employment levels. For example, at 200,000 new net private sector jobs per month, it takes 12 years to close the jobs gap, according to Laura Tyson.

The numbers out this morning put July private sector job growth at 71,000. As you can see from this chart, 71,000 jobs per month is literally off the chart on the low end. The Brookings researchers figured it wasn't worth charting anything less than 150,000 net jobs per month because the time horizon for that sort of 'recovery' is too distant to even contemplate....

Or perhaps, even as the gloom deepens, the wheel will turn again. Even though I am a student of Krugman and DeLong, I do wonder how well our economics can model this whitewater world. I honestly don't know what will happen next. I really shouldn't try to make a prediction.

But I will, because, hell, this is the blog where I predicted $5/gallon gas by 2011 -- just before the world economy went off a cliff.

My prediction is that we are seeing a continuation of a secular trend that started in the 70s with the rise of Japan, was transiently interrupted in the 1990s, and resumed about 10 years ago.

This is a trend driven by technology (cheap computing primarily) and by the extremely rapid industrialization of most of the world. These developments are creating prosperity around the world, but they're also producing turbulence and dislocation. When changes are too fast, our economy blows up. Then we put it back together again (sooner with Obama, later with the GOP) until it blows up again.

This turbulence isn't going away. Even as China runs short of labor, India has a vast supply. IT innovation isn't slowing down, and the robots are coming (from Japan, interestingly. The Sun shall rise again.) Heck, Skynet is probably coming too, not to mention our transiently deferred Peak Oil (I'm holding to my sunk costs!).

In America this turbulence favors those with substantial resources, with the capacity to adapt, and with the talents to compete. It is hard, however, on non-wealthy Americans with less than 70th percentile cognitive and social skills. It is exceedingly hard on the bottom 20th percentile. They are the mass disabled.

It's easy to think of solutions to America's problems (see also - 2007, 2004). Health Care Reform was the first troubled step towards separating benefits from jobs. Even without encouragement the market will find new ways to absorb low skilled labor. We can even figure out ways to emulate the Japan of 1990, when the staff/customer ration seemed to be about 1 to 1.

It's easy to think of solutions, but hard to make them work when people like Glenn Beck are cultural heroes.

This is going to be tough.

Public references

Krugman - it's not 1982, it's 2001 on steroids

FiveThirtyEight: Politics Done Right: Labor Force Realignment and Jobless Recoveries / Ed Luce - The crisis of middle-class America

… The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the ­multiple is above 300.

The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.

Andy Grove on the Need for US Job Creation and Industrial Policy « naked capitalism - the return of tariffs, and the editorials of the 1980s

Bob Herbert - A Sin and a Shame -

Comparing This Recession to Previous Ones: Job Changes - Catherine Rampell -

David Leonhardt on the Ratf*^#: Understanding the U.S. Reponse to the Great Panic - Grasping Reality with Both Hands

How to Make an American Job Before It's Too Late: Andy Grove – Bloomberg

The Ant Tribe - Schott's Vocab Blog -

The Speculist: What if the Jobs Are Never Coming Back?

Robert Reich (The Future of American Jobs)

China’s Industrial Heart Facing Acute Shortage of Factory Workers -

The New Poor - The Economy Shifts, Leaving Some Behind -

Plan B - Skip College -

Robert Reich - Are Today’s ‘Entrepreneurs’ Actually the Unemployed? -

Shaken and Stirred - The Atlantic 2005 - predicting upheavals

Robert Reich: Obama, China, and Wishful Thinking About American Jobs

Philip Greenspun - unemployed = 21st century draft horse.

Gordon's Notes related

Apple's battery charger, occult inflation, and the future of American industry

How could Krugman be wrong?

I, Robot. The alternative to Foxconn.

Post-industrial employment: adjusting to a new world (lots of interesting links)

Causes of the Great Recession: China, GPSII and RCIIIT. Now for Act III.

American crisis – imagining a way out

The paradox of 21st century prosperity

Why the US can't separate benefits from employment

Mass disability and Great Depression 2.0

Where has the money gone? To the very American oligarchy.

The day of the American engineer has passed

Neo-Feudalism: Return of the Trades (2004)

On redistribution

Jared Bernstein & Brad DeLong on "Outsourcing": a dialog with interesting discussions

Signs of the end times? Or just new times ... (2005 - conspicuous consumption before the crash)

Krugman on globalization: how to manage the losers (2007)

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