Category Archives: Employment

Manufacturing Coming Back?

In the midst of the Carrier deal as well as the long election lead up op on manufacturing, here are a couple thoughts.

Look at the Carrier deal. Good, keeps some jobs, which pays some employees, who pay taxes, and spend. Remember your spending is my income and my spending is your income. One stops, we all lose. But a few points as part of the bargain. We know the State committed to tax breaks of $7 million. We know the jobs saved to be 730. We don’t know what was promised at the federal level at all. So we know taxpayers are paying a minimum of $9,589 per job. Not going to do all the math on the tax and economic value of that, suffice it to say there is some, even quite a bit, just not a key point here. In fact the State essentially paying to have manufacturing jobs could even be argued to be say, a bit Socialistic. Hmm. The point is we traded tax revenue.

We also have to look at the long-term trend. Not just for the U.S. but the world. There is an overall down trend over time, for both.

value-added_us

U.S. Value Added

value-added_world

World Value Added

What’s it mean is the question. Perhaps it means the profit margins are lower…labor costs, global competition, soft markets? Perhaps it means consumption is down …austerity, personal trends, death of the American Dream (I call it scheme) mentality? Perhaps it means competition from areas not measured accurately by World Bank and associated monetary systems. Or that the manufacturing heyday has long passed as theorized by some economists and is my own belief. If it’s trending downward globally as data suggests, it’s certainly not coming back to the US without some major proprietary technological or quality breakthrough regardless of what we heard during the campaign.

But it certainly makes the point that one cannot asses the value or compare the impacts of domestic jobs and/or trade policies without taking into account the global and national trends. So when we hear folks, both politicians and friends, claiming success or failure of some action (like the Carrier deal) or policy. Ask about the long-term trends. And what they think it might mean. Too easy to just parrot the party response.

Income Inequality–Even the Right is in Agreement these Days

After all the writing and all the talking but none of the action required to fix this problem, here are some excerpts from Barry Ritholtz–54% of Republicans Say We’ve Got Too Much Inequality

“In fact, there are at least 5 solid conservative reasons – based upon conservative values – for reducing runaway inequality:

(1) It has now finally become widely accepted by economists that inequality drags down the economy. Conservatives like economic growth;

(2) Inequality increases the nation’s debt Conservatives don’t like debt;

(3) Runaway inequality leads to social unrest and violence. Conservatives like stability and order;

(4) Much of the cause of our soaring inequality is bailouts for the big banks and socialism for the buddies of the high-and-mighty at the Federal Reserve, Treasury, and White House.   The government has consistently picked Wall Street over Main Street, and virtually all of the big banks’ profits come from taxpayer bailouts. The Fed is still throwing many tens of billions a month at the big banks in “the greatest backdoor Wall Street bailout of all time”, which sucks the wealth away from the rest of the economy.  Conservatives don’t like bailouts or socialism; and

(5) One of the biggest causes of runaway inequality is that the big banks are manipulating every market, and committing massive crimes.  These actions artificially redistribute wealth from honest, hard-working people to a handful of crooks.  Conservatives hate redistribution … as well as crooks.  In addition, religious leaders have slammed the criminality of the heads of the big banks; and the Bible teaches – and top economists agree – that their crimes must be punished, or else things will get worse. On the other hand, if the crimes of the bankers are punished, inequality will start to decline, because a more lawful, orderly and even playing field will be reestablished.”

“This is an area of agreement between people of good faith on the left and on the right. As Robert Shiller said in 2009:

And it’s not like we want to level income. I’m not saying spread the wealth around, which got Obama in trouble. But I think, I would hope that this would be a time for a national consideration about policies that would focus on restraining any possible further increases in inequality.

If we stop bailing out the fraudsters and financial gamblers, the big banks would focus more on traditional lending and less on speculative plays which only make the rich richer and the poor poorer, and which guarantee future economic crises (which hurt the poor more than the rich).”

What we have is once again politicians not representing their constituents, but representing themselves. Time for action.

 

Income Inequality

Great article from Bloomberg about record profits by manufacturers but stagnate wages for the folks doing the producing. If I’m reading the article right, profits after taxes have risen by ~300% since 2009 while wages have slid 1%, factory pay specifically has fallen by 3%. I guess those unions are just too powerful these days. Some quotes:

Factory pay hasn’t kept pace with inflation and has fallen 3 percent on that basis since May 2009, while average pay for all wage earners slid only about 1 percent.

“We need to focus on how many jobs there are that give an adult a chance to earn a decent living,” said Gordon Lafer, an associate professor at the University of Oregon’s Labor Education and Research Center in Eugene. “Too much of the discussion has been about the number of jobs, and that’s obviously important, but there’s also a crisis in the quality of jobs.”

“Manufacturers’ after-tax profits rose to a record $289.1 billion last year, more than three times 2009’s tally, the Commerce Department reported. The Standard & Poor’s 500 Industrials Index has more than tripled since its 2009 low, and topped the broader index by 59 percentage points over that span.

The average hourly wage in U.S. manufacturing was $24.56 in October, 1.9 percent more than the $24.10 for all wage earners. In May 2009, the premium for factory jobs was 3.9 percent. Weighing on wages are two-tier compensation systems under which employees starting out earn less than their more experienced peers did, and factory-job growth in the South.

Since the U.S. recession ended in June 2009, for example, Tennessee has added more than 18,000 manufacturing jobs, while New Jersey lost 17,000. Factory workers in Tennessee earned an average of $54,758 annually in 2012, almost 10 percent less than national levels and trailing the $76,038 of their New Jersey counterparts, according to the Bureau of Labor Statistics.”

The Depressed Economy Is All About Austerity-Krugman

This is a direct repost from Paul Krugman. Why? Because he is right; he says it so well; he hits all the points I’ve made this year of the differences in spending between past administrations; and well, I like it. Enjoy:

The Depressed Economy Is All About Austerity–Paul Krugman

Right now the official unemployment rate is 7.3 percent. That’s bad, and many people — myself included — think it understates the true badness of the situation. On the other hand, there are some reasonable people (like Bob Gordon) arguing that at this point, possibly thanks to long-run damage from the Great Recession, “full employment” is now a number north of 6 percent. So there’s considerable uncertainty about just how depressed we are relative to potential.

But we’re clearly still well below potential. And we’ve also had exactly the wrong fiscal policy given that reality plus the zero lower bound on interest rates, with unprecedented austerity. So, how much of our depressed economy can be explained by the bad fiscal policy?

To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking.

Here’s a comparison of two series. One is actual government purchases of goods and services since the Great Recession began (this is at all levels; most of the fall has been state and local, but the Federal government could have prevented that with revenue sharing). The other is what would have happened if those purchases had grown as fast as they did starting in the first quarter of 2001, i.e., in the Bush years.

As you can see, the gap is large and has been growing rapidly; it’s currently at about 400 billion 2009 dollars, or more than 2 1/2 percent of GDP. Given reasonable multipliers, this suggests that real GDP is somewhere between 3 and 3.75 percent lower than it would have been without the austerity. And given the usual Okun’s Law rule of half a point of unemployment per point of GDP, this in turn says that without the austerity we’d have an unemployment rate well under 6 percent, maybe even under 5.5 percent.

I don’t want to pretend to spurious precision here. Instead, I just want to make the point that given what we know and have learned about macro these past five years — and given the modest recovery that has taken place — we’re now at a point where, to repeat, to a first approximation the depressed state of the economy is entirely due to destructive fiscal policy.

The austerians have a lot to answer for.

Inflation? Mirhaydari Missing the Mark-Again (and again, and….)

Yesterday’s MSN Money headliner, Anthony Mirhaydari, still claiming inflation is just around the corner. Guess if you hold that view for long enough–now over 4 years–it’ll get right sooner or later. Fortunately it’ll be later, and if  Bernanke stays in the seat or as I hope is replaced by Yellen, we won’t see it as a problem at all. My concern right now is deflation, but that for another day.

This week even Kiplinger’s Personal Finance talked about the lack of inflation in spite of the pundits yelling about QE being sure to cause not just inflation but “hyper”-inflation.  This inflation scare has been ongoing since QE began in November of 2008 and we have yet to see inflation. So why don’t guys like Mirhaydari get it? Are they leaning so far in one political direction they won’t or can’t learn. Or maybe never got beyond Econ 101 where we all learn the absolute basics like “increasing the money supply will cause inflation”.

If any of us choses to write about and attempt to influence economic thought, surely they would have gone on to 201, 301 where all the exception come to play such as Keynes regarding liquidity traps–where adding money to the mix will not impact inflation until nearly all excess production capacity is used up.  And adding money is really the ONLY way to fix a liquidity trap without causing a full scale depression. The number of folks still yelling inflation are dwindling rapidly as the years have proven them wrong. Theseall  few diehards are perhaps too stubborn to learn or maybe have a financial or political stake. Unfortunate when logic, education, and the lessons of history become clouded by politics.

Meanwhile a lot of investment capital went onto inflation offsets in 2008 and has remained there. Those investors continue to lose equity. All the while we have stated the obvious, no inflation yet. With the right folks on the job at the Fed we have a long way to go before we see real inflation cutting into our equity, and I’ll be watching. Frankly I won’t be concerned at all until unemployment–including shadow unemployment–nears 5%. If you read back I’ve already been watching, writing, and so far being on the money.

Cutting Unemployment Benefits

Along with the recent drug testing idea comes the “theory” that cutting unemployment benefits will reduce unemployment. I’m not sure how politicians in Virginia conclude that starving people will somehow get to work within an economy bearing millions more workers than jobs, but they are pushing forward anyway. Today we have Billy Mitchell’s take on it:

“Unfortunately, the legislators in the State of Virginia clearly don’t log into the US Bureau of Labor Statistics all that often to study the latest data. Because they have determined that the way to cure their dreadful unemployment problem is to cut unemployment benefits and starve the unemployed into a job.

The problem is there is no credible theory that relates starvation with an increased capacity to gain employment when the economy is some millions of jobs short of the level necessary to provide work for all those who desire it.

Forget the smallest margin of unemployed who do not want to work. They are of a second-order of smallness that doesn’t warrant attention. The overwhelming majority (comprising millions of citizens) want to work but cannot find work because it is not to be found.”

Perhaps a bit boring for some but I can’t quit. The austerity argument is over, dead, buried. But the political calls to cut government help in spite of proof the help is needed and those dollars provide now missing stimulation for the economy continues to surprise me.

And check this little gem out. Republicans in the House of Representatives began quoting from an alleged letter from a constituent. Rep. Louie Gohmert (R-Texas) retelling a constituent’s story of watching a food stamp recipient in a supermarket checkout line pay for crab legs with an Electronic Benefit Transfer card. “He looks at the king crab legs and looks at his ground meat and realizes,” Gohmert said, “because he does pay income tax . . . he is actually helping pay for the king crab legs when he can’t pay for them for himself.”

Bad yes, and also quite untrue. But then again how much truth actually propagates on the U.S. House floor these days? Here is the Huffington Post’s take: ..” it would be a compelling story if letters to the editor featuring the same complaint didn’t appear in The Columbus Dispatch in 1993 and in the Myrtle Beach Sun-News in 2007. The crab complaint has recurred more than a dozen times in newspapers around the country..”  And the Post backs their assessment of falsehood with all the data. Who buys what, fraud rates, etc. Permanently slaying the perception that my tax money is being wasted by providing food stamps for the poor and needy.

“Nearly a third of SNAP recipients earn money by working, and 91% have annual incomes at or below the poverty line. Most recipients are either children, elderly or disabled. Fraud such as SNAP trafficking, whereby recipients exchange cards for lesser sums of cash, has dropped from 4 cents per dollar of benefits in 1993 to 1 cent per dollar from 2006 to 2008, according to the Department of Agriculture.”

There are more people on Supplemental Nutrition Assistance Program (food Stamps) and Unemployment than in 2006. That IS what happens when the economy collapses and many lose jobs, homes, and more. But to think we should starve them is clearly out of bounds. Besides Bill Mitchell brings all the data to the table demonstrating how the ratios of dependency are improving since 2010. We are heading in the right direction albeit slowly. Perhaps getting it right is why some of these guys have a problem. Hmm?

Job Growth

I fully intended to explore Social Security and Medicare this week, but I’ve been caught up in preparing for an off-shore passage from the Caribbean to the US instead. Meanwhile the US economy has kept churning slowly forward without my input.Unemployment

This months jobs and unemployment news is mostly good. Not just because unemployment is down but because it went down while the size of the labor force and the numbers of the employed actually increased. Not always the case. Ed Dolan put up a good summary here with some simple data making the sometimes confusing… clear.