Structural bifurcation vs “recovery”.

May 9, 2010 § Leave a comment

Let’s look at the perspective  .Quotes Pasted from <http://economistsview.typepad.com/

 

Duration of Unemployment

Calculated Risk notes that the long-term unemployment problem isn’t going away anytime soon:

 

But look at the reasons given.

 

Duration of Unemployment, by CalculatedRisk: This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories as provided by the BLS: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

clip_image001

Note: The BLS reports 15+ weeks, so the 15 to 26 weeks number was calculated.

 

This really shows the change in turnover – there was more turnover in the ’70s and ’80s, since the ‘less than 5 weeks’ category was much higher as a percent of the civilian labor force than in recent years. This changed in the early ’90s – perhaps as a result of more careful hiring practices or changes in demographics or maybe other reasons – but if the level of normal turnover was the same as in the ’80s, the current unemployment rate would probably be the highest since WWII.

 

What really makes the current period stand out is the number of people (and percent) that have been unemployed for 27 weeks or more. In the early ’80s, the 27 weeks or more unemployed peaked at 2.9 million or 2.6% of the civilian labor force.

 

This treats all the employed/unemployed as a kind of soup of equally affect able parts, subject to the winds of fate. The underlying idea is that "the economy" will hire on comeback. But another view is that the existing corporate structures have decided to make do with less in order to increase profit, and that the way to do this si through that old combination of outsource, automation and making existing folks work harder to keep their jobs (a kind of musical chairs.). It may be that this restructuring is what will keep unemployment from moving up very far. It is deep, not cyclical. The financial powers in the country want the economy to look like it did, but with fewer workers. That increases profit (or keeps it from decreasing) while decreasing payroll.

 

It is worth repeating some of the comments Atlanta Fed President Dennis Lockhart made in March:

There are two key types of match inefficiency. One is geographic mismatch. In 2008, the percentage of individuals living in a county or state different than the previous year was the lowest recorded in more than 50 years of data. People may be reluctant to relocate for a new job if the value of their house has declined. In addition, many who would like to move are under water in their mortgage or can’t sell their homes.

 

The second inefficiency is skills mismatch. In simple terms, the skills people have don’t match the jobs available. Coming out of this recession there may be a more or less permanent change in the composition of jobs.

 

But both of these would fit an economy with just low demand, demand that can come back. But we don’t have such an economy. The language of recovery is great for those who are recovering, those inside the structure of production and profit, but for those now outside there is not and will not be a place in the new musical chairs.  Those whoa re confident are confident about the fact that they are in, "safe", while the rest are byr-bye.

381. Calculated Risk

April 12, 2010 § Leave a comment

GDP is the key measure, as the NBER committee notes in their business cycle dating procedure:

via Calculated Risk.

This leaves out unemployment, and restructuring to maintain the incomes of the upper middle while letting go of any intent to deal with the rest. The article

Recession Measure GDP

goes on with some great graphs of all this.

Recession Measure Industrial Production

but

Recession Measure Employment

380. market, corporations and the attractions to bigness.

April 5, 2010 § Leave a comment

People who criticize market forces I think are missing that it is corporations using markets through control that cause economic difficulties. The reason, I speculate is because they tend to be progressives who really like large scale organizational interventions, because their careers are there,  and being critical of markets appears to take head on the economic difficulties of our time, but really misses that it is self-serving large corporations that are the real source (not in isolation of course, they need markets to operate in) of economic exploitation nd inequality and the purchase of governments.

Just as Burkean conservatives are lost in the right wing rhetoric, and so unheard, progressives who are also democratic and inclined to smaller scale go unheard.

see my The use of religious affiliation – a way of saying “No”? for an older but still relevant analysis.

379. Krugman on reform

April 5, 2010 § Leave a comment

Let’s look

the core problem with our financial system isn’t the size of the largest financial institutions. It is, instead, the fact that the current system doesn’t limit risky behavior by “shadow banks,” institutions — like Lehman Brothers — that carry out banking functions, that are perfectly capable of creating a banking crisis, but, because they issue debt rather than taking deposits, face minimal oversight.

Some argue that size is critical.

The Dodd bill tries to fill this gaping hole in the system by letting federal regulators impose “strict rules”……But what will actually be in those “strict rules” for capital, liquidity, and so on? The bill doesn’t say. Instead, everything is left at the discretion of the Financial Stability Oversight Council, a sort of interagency task force including the chairman of the Federal Reserve, the Treasury secretary, the comptroller of the currency and the heads of five other federal agencies.

and he adds, “Mike Konczal of the Roosevelt Institute, whose blog has become essential reading for anyone interested in financial reform, has pointed out what’s wrong with this: just consider who would have been on that council in 2005, which was probably the peak year for irresponsible lending.” A log i just discovered.

377. Economic reform: a blog as yet unseen

April 5, 2010 § Leave a comment

But it has been around. Sorry I’ve missed it. Looks good, . Rortybomb Ah, another Roosevelt Institute person.

He reviews 13 bankers,

The book walks us backwards through time for a history of the United States’ relationship with banking, up and to the “rip the face off the customer” era of financial markets in which we find ourselves. It also gives a cross-section of the numerous financial crisis that have occurred across the world, using Korea and Russia as particularly interesting case studies. It also brings us through 2009 which I think is the most fascinating part of the story, and gives some coverage on how the current reform efforts look.

I think it is one of the few (only?) books that brings up campaign contributions from the financial sector, which should tell you plenty enough about how lacking many of the other financial narratives are when it comes to the political realm.

The discussion looks to do what few do, put ideas against each other and sum.

373. Robots, nano, and third world economies

April 5, 2010 § Leave a comment

*And so we have a Japanese restaurant with robot waiters.  Net unemployment?  The human value of contact with a real person? Probably quite high.

 

*Reading last night  on why science and democracy go together. This theme is important because science at its best contains an ethic of honesty and openness that is wonderful for its practitioners. But science has also mainstreamed itself into an instrument of power and money. This book is not very helpful because it keeps making statements that don’t hold up to any analysis. In fact these mistakes  so egregious I am almost inclined to believe the author must know this. The question then is one of motive. The science of liberty by Tim Ferris (once editor of  wired). Liberty is defined insucha an open way that those who merely wnt the capcity to crate monopoly corporations are included. In fact the problem of corporations as closed systems attempting market control is not touched on. He is rather a publicist and slings language the way a child (paiget) says the red block goes with the green ball goes with the green spoon,,

 

*Perhaps all farce is implcitly metaphysical.

-Harold Bloom in "shakespeare"

 

*Nanotech is seen by many, and I am inclined, as one of the great hopes for redesigning the economy, both as to purpose and as to means. But there are warnings

 

Amid Nanotech’s Dazzling Promise, Health Risks Grow

 

See the timeline for nanotech

 

And a conference  posted videos.

 

January 16-17, 2010

Palo Alto, California

http://foresight.org/conf2010/

We are happy to announce that all videos from Foresight 2010, our January conference, are now posted:http://www.vimeo.com/album/176287

 

Pasted from <http://www.foresight.org/>

 

*The tendency to feature Feynman as the founder of nanotech  raises the intriguing question. Einstein and Feynman are two of the world’s mot charismatic people, and give a a kd of humanist seal of approval to science in ways they might not like

 

And

 

The financial backbone of the economy is a corner of capitalism that requires more intrusive and careful regulations than a lot of economists thought. Because of the centrality of credit in a capitalist economy, a capitalist economy is inherently unstable. This instability can become catastrophic unless you have something in place to mitigate it. Unfortunately no one seems to have very many great ideas on how to do this.

 

Pasted from <http://www.harpers.org/archive/2010/03/hbc-90006718>

 

 

This instability can become catastrophic unless you have something in place to mitigate it. Unfortunately no one seems to have very many great ideas on how to do this.

 

Pasted from <http://www.harpers.org/archive/2010/03/hbc-90006718>

 

If you’re a company who owes your creditors their capital every night,

 

Pasted from <http://www.harpers.org/archive/2010/03/hbc-90006718>

 

There’s a major exception to this, which is Raghuram Rajan. He is listened to a lot and has a lot of good ideas. He’s one of the skeptics of excessive deregulation. So he’s riding high now.

 

Pasted from <http://www.harpers.org/archive/2010/03/hbc-90006718>

 

The point of quoting this is because it represents a major division toward the future: will it be one world of managerial necessity, or regional and local, with wars and fears? I think history is on the side of regional, avoiding the large bureaucratization of the world, but one humanity on one planet is compel
ling logic. there are major attempts ahead to deal with the problems, intertwined, of economics, finance, and consumption.

369. Soros & Johnson to Shake Up Economic Thinking

April 3, 2010 § Leave a comment

After a description of an attempt to bring progress out of the current economic malaise, a reader writes,

I don’t know about you, but when I see the words, “Toward a New Global Financial Architecture,” all the red lights on my dashboard start to flash. And when these words are coupled with the name of Soros, I start to hear sirens.

The point of quoting this is because it represents a major division toward the future: will it be one world of managerial necessity, or regional and local, with wars and fears? I think history is on the side of regional, avoiding the large bureaucratization of the world, but one humanity on one planet is compelling logic. there are major attempts ahead to deal with the problems, intertwined, of economics, finance, and consumption.

via Soros & Johnson to Shake Up Economic Thinking at INET’s 1st Conference in Cambridge, April 8th – 11th » New Deal 2.0.

Hard to do political economy without a goal

My view now is that climate change requires that we give up the growth, wars and empire model for sustainability where we need development without growth. We also need very rapid technical innovation (current innovations do not sum to a substantial enough change in climate condition amelioration, such as clean energy. The numbers are too large.). But that innovation will be, to be clean, highly automated and robotized. The result would be even more structural unemployment. Hence we need a “citizen dividend” or guaranteed income, if people are going to e secure enough.

Hence we need an economic school of thought that looks for how to achieve high tech innovation and citizen dividend toward a sustainable low growth society.

One of the problems we face is caught in the newdeal 2.0 comment,I don’t know about you, but when I see the words, “Toward a New Global Financial Architecture,” all the red lights on my dashboard start to flash. And when these words are coupled with the name of Soros, I start to hear sirens.

The unitary world, essential to some, is the end for others.

King’s College Cambridge

· 1930 and the Challenge of the Depression for Economic Thinking: Friedrich Hayek versus John Maynard Keynes

Hayak did not make the same critique of corporations that he did of government: too big to plan well/ The background is Adam Smith’s critique of corporations as instruments of anti-market control.

· Anatomy of Crisis – The Living History of the Last 30 years: Economic Theory, Politics and Policy

This is the period of the neo-liberals. The previous liberal consensus was also a problem. Leaves out resources at one end of political economy and wealth distribution at the other. The crisis is much longer than 30 years. Perhaps the whole empire and war paradigm from the bronze age is at an end, the planet filled up, we need a really new model of development without growth (Aristotle).

· What Kind of Theory to Guide Reform and Restructuring of the Financial and Non-Financial Sectors?

 A theory of economics that begins with nature and ends with wealth. A return to the broader gauge political economy.

Has the Efficient Market Hypothesis Led to the Crisis? Collapsed with The Crisis?

No, the problem was corporate control of markets, not markets.

Toward a New Global Financial Architecture

Recognize that finance rides of economics and tries to be free of economic realities to play the game of financial arrangements. Society cannot afford the costs of finance as a separate sector.

How Empirical Evidence Does or Does Not Influence Economic Thinking and Theory: Calibration, Statistical Inference, and Structural Change

The range of “evidence” and data is too narrow. Leaves out wealth distribution and resource exploitation, unfair about real costs and externalities, treats labor as a cost but profit as a gain. This is really a mess. Measures such as productivity (increase by firing workers) show how biased the current data approach is.

The Consequences of Inequality and Wealth Distribution

This requires really deep thinking about the nature of human society, civilization, motives, quality of life and culture. But basically inequality leads to politicians bought by money and a system of elites that, as Toynbee said, “in cries, the elites abandon ther own people”. Or Joseph Tainters’ “Collapse of Complex Societies”: elites, owning infrastructure, take ou costs rather than repair, when a crisis is imminent.” (paraphrase)

Mathematical Models: Rigorously Testable, Qualitative Metaphors, or Simply an Entry Barrier

Models are fine, but of whole systems not of sub systems. Let’s measure real stuff. This gets to climate change, pollution, costs of toxicity..

Political Economy: What Can Government Do? What Will Government Do?

When governments are owned, not much. Need a deeper understanding of the role of elites, democracy, decentralization. The great problem with the mess we are in now is must we be centralized to make critical decisions, or do we need dispersion so that local experiments can flourish? Population is a key driver. But they major issue for governance is going to be centralization vs regionalization, the argument the Greeks had over Alexander and Macedonia.

Above all, larger scope, and consider

1, time line of how we got here (western civ, population, wars, materialism, etc.)

2. mess map of current nasty dilemmas and their interconnections

3. Plausible scenarios going forward

For example (few years old)

I have constructed a small graphic to represent potential future directions for the world’s societies, and what they might suggest in terms of social purpose and strategy.

Two unknowns of our future are

Can we solve our major problems?

Will we do so primarily with large organizations, or small organizations (local and regional economic and governance)

Making axes of these gives us four future possibilities.

clip_image001

In the upper right we have market globalization. This is the "official scenario", especially in the United States. Below on the right are small organizations working to solve major problems. This we can call Jeffersonian.

Those moving into the top right have the values of those in the Jeffersonian, to live in homes in the country near the village and have their children walk to school, but the tendency is for the Jeffersonians to fight. This tension leads to increased security concerns and moves the whole society to the left hand side ("left" not in the usual sense.), fascism, if big systems dominate, and local mafias if things fal
l apart.

Thus we should avoid polarizing, and foster purposes – strategies, policies – that move in between, inter-weaving the Jeffersonians and marketists together.

But is there really an alternative to technocratic centralization?

Let me be blunt. Markets without constraints lead to monopolies, democracies without constraints lead to tyrannies. The two tend to engage the same people near the top, and that is fascism.

This tendency is exceedingly strong. But that helps define a purpose – to work hard to find an alternative viable direction for humanity, one that subordinates economics and politics to social good, not to a kind of personal gain that in practice enriches a few while impoverishing many. This has of course been a perennial issue, from Aristotle to the struggles of the 20th century, over how to manage capital, status and technology. If we understand why we get this technocratic trend, we can have a more informed purpose.

363. Europe On the Ropes An alternate compelling scenario

March 15, 2010 § Leave a comment

Good to read it all this is just an exccerpt. I;ve been interested in stories that people feel more compelling than global climate issues. Here is another such.

let;s take a closer look at the European banking industry. The following is not pretty reading. I have rarely, if ever, felt this apprehensive about the outlook. So, if the crisis has made you depressed already, don&apos;t read any further. What is about to come, will make your heart sink.

More leverage in Europe

Let;s begin our journey by pointing out a regulatory &apos;anomaly&apos; which has allowed European banks to take on much more leverage than their American colleagues and which now makes them far more vulnerable. In Europe, unlike in the US, it is only risk-weighted assets which matter to the regulators, not the total leverage ratio. European banks can therefore apply a lot more leverage than their US counterparties, provided they load their balance sheets with higher rated assets, and that is precisely what they have been doing.

,,,

On the 11th February the Daily Telegraph’s Brussels correspondent Bruno Waterfield wrote an article under the header: “European banks may need £16.3 trillion bail out, EC document warns.” In the article, the reporter revealed that he has seen a secret document produced by the EU Commission which briefed the union’s finance ministers on the true extent of the banking crisis. Less than 24 hours later, the article’s header was changed to “European bank bail-out could push EU into crisis” and two paragraphs had mysteriously disappeared. Here they are:

“European Commission officials have estimated that “impaired assets” may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the ‘trading book’ total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.

In addition, so-called ‘available for sale instruments’ worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion.”

Do yourself a favour – read those two paragraphs again. Newspaper editors do not change content light-heartedly. Did the Telegraph editor receive a call from Downing Street? Or Brussels? Did he have second thoughts about the avalanche that he could possibly instigate? I don’t know and I probably never will. But one thing is certain. If the EU Commission’s estimate of £16.3 trillion of impaired assets is correct, then the crisis is far worse than any of us could ever imagine. Not only would we have to get us

via Europe On the Ropes – John Mauldin’s Outside the Box – InvestorsInsight.com | Financial Intelligence, Advice & Research / Investment Strategies & Planning for Individual Investors..

362. and further, back to the 1850's and electricity

March 15, 2010 § Leave a comment

I like it when the frame is extended.

Brad DeLong ultimately nailed it in my opinion with the Electrical Revolution starting in 1850. Though he refers back to 1825 when the same problems seemed to occur, I do not think they were as nearly correlated in 1825. By 1850, the electrical revolution was on and it never stopped. Every generation of capitalists, since then, was presented with the next generation of technology so powerful they could gleefully knock out the old stalwarts and force an economic wide restructuring to their benefit.

via Economist’s View: Shiller: A Crisis of Understanding.

361. Further on "causes"

March 15, 2010 § Leave a comment

a further quote in the article.

As George Akerlof and I argue in our recent book Animal Spirits, the current financial crisis was driven by speculative bubbles in the housing market, the stock market, and energy and other commodities markets. Bubbles are caused by feedback loops: rising speculative prices encourage optimism, which encourages more buying, and hence further speculative price increases – until the crash comes.

Note again, nothing about causes outside the financial sector, such as the desire of money to cut costs inorder to maximize profits and in doing so to cut jobs, welfaare, higher level taxes, and push costs of society on to poorer people..

via Economist’s View.

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