Thursday, December 15, 2011
I'm definitely guilty of overusing the above graph but what it illustrates so well is the level of greed that motivated the leaders of the world's investment banks. Their bonuses were so large that they eventually exceeded the net income of their companies bankrupting the companies and allowing them to escape with billions as they helped bring down the world economy.
This is an example of a problem that is ill-described in traditional economics - the problem of unproductive versus productive labor. In the case of the financial crisis, it appears that a larger and larger proportion of our nation's output was siphoned off to a growing parasitical class which used their very rich human capital to create new financial instruments and marketing techniques which in fact created no wealth. In fact, they appeared to have destroyed a lot of human, physical and financial capital in a process that added nothing to our society.
The concept of productive versus unproductive labor has a history in Marxist economics. In Marx's complex and unfinished work, Theories of Surplus Value, in Chapter 4, Marx lays out a description of what he believed added value to the economy and what appeared to subtract value from society.
Marx made a couple of big mistakes here. One was that capitalists (or today's entrepreneurs or managers) didn't add value, only labor did. He assumed that the creativity, acumen and management ability of a capitalists was no different than any other kind of labor. There is considerable evidence that the risk-taking and management expertise of capitalists is perhaps a different factor of production than other forms of labor.
However, his analysis of finance capital appears particularly germane today. Thomas Philippon in an article last month "Has the U.S. Finance Industry Become Less Efficient?, argues that, "Surprisingly, the finance industry has become less efficient: the unit cost of intermediation is higher today than it was a century ago. Improvements in information technology seem to have been cancelled out by increases in trading activities whose social value is difficult to assess."
The sad part of Phillippon's analysis is that wasted capital in finance does not seem to have diminished as the great recession has dragged on. The question appears to be, Have we learned anything?
Friday, November 25, 2011
Friday, November 18, 2011
Wednesday, November 2, 2011
Wednesday, October 26, 2011
Monday, October 24, 2011
The demand siders assume that the problem is lack of effective demand in the economy. That businesses aren't investing because they are not confident anyone will buy their products. Furthermore, lower taxes or incentives will have little impact since firms are making huge profits and have even larger accumulations of cash which they are not investing. Furthermore, they would argue, that it is deregulation that got us here in the first place.
They would suggest restoring the confidence of consumes by quenching their desire for fairness and ensuring that the people who created the crisis are those who are paying for it. The public doesn't have any confidence in government to a large extent because they believe the government looks after the interest of big corporation and banks and does little to represent them. Perhaps, if there was an effort to create more fairness in the distribution in the costs of the recession and lay the blame where they think it belongs, then consumers may have more confidence, provide more political support for a bigger stimulus and perhaps be willing to go out and spend more. This approach incentivizes buying.
Supply siders respond by saying, nonsense, now you'll really scare them and they will never invest again and take all their money to Greece or China.
What is the answer for restoring confidence? I think a little of each perhaps. Signal to the public that you believe that the middle class and the poor have paid too much of the cost of the recession and that Wall Street and their owners need to pony up a larger share. But combine this with a thoughtful and certain long term deficit plan.
Wednesday, October 19, 2011
Saturday, October 8, 2011
The gini index measures the degree of inequality in the distribution of family income in a country. The index is calculated from the Lorenz curve, in which cumulative family income is plotted against the number of families arranged from the poorest to the richest. The index is the ratio of (a) the area between a country's Lorenz curve and the 45 degree helping line to (b) the entire triangular area under the 45 degree line. The more nearly equal a country's income distribution, the closer its Lorenz curve to the 45 degree line and the lower its Gini index, e.g., a Scandinavian country with an index of 25. The more unequal a country's income distribution, the farther its Lorenz curve from the 45 degree line and the higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect equality, the Lorenz curve would coincide with the 45 degree line and the index would be zero; if income were distributed with perfect inequality, the Lorenz curve would coincide with the horizontal axis and the right vertical axis and the index would be 100.
Friday, October 7, 2011
The next day, the Wall Street Journal reported that the number of small businesses seeing a skills shortage has crept up this year. In August, 33% of small businesses reported having few or no qualified applicants for job openings, according to a National Federation of Independent Business survey. That was up from 21% in December 2009.
Saturday, July 30, 2011
Friday, July 29, 2011
Saturday, July 2, 2011
Friday, July 1, 2011
Thursday, June 2, 2011
So where is the money going if investors aren't lending it or investing it? According to another article on the same page, at least some of it is going to purchases of luxury goods. In an article entitled "May Retail Sales Favor High-End" the journal points out that while consumer spending is barely growing in most sectors, that is hardly the case in the luxury goods end of retail trade.
The author Karen Talley quotes Saks Fifth Avenue, ""What you have right now is a bifurcation in the market," said Steve Sadove, chief executive of Saks, in an interview. "The higher-end customer has been feeling better about overall the markets, their own personal situation. ...But at the lower end, you've still got a lot of concern in the housing markets, you've got a lot of concern with gas prices. So you're seeing the higher end performing better than at the lower end."
Lower taxes on the rich aren't leading to more investments and cutting government spending is not going to lead to growth. Most of our policy makers just don't get it.
Wednesday, May 18, 2011
A lot of attention these days is being paid to the needs of research universities and the highest paying jobs at high tech and biotechnology companies. But the vast majority of workers in the Seattle region have worked in middle skills job with family wages and good benefits. These are the folks that have been hit the hardest by the deep recession and the folks whose wage recovery is the key to our recovery. And there simply isn’t going to be a recovery if these hard working people are unable to get the skills that are required by the jobs that are growing as the economy begins to slowly lift off.
The vast majority of jobs in the Seattle area are skilled professional and technical positions that range from health care on First Hill and throughout the city to aerospace, construction and manufacturing jobs in SODO and the Duwamish, and to office occupations such as accounting and office management in the city’s big downtown business and financial service industries.
The jobs we lost going into the recession are not the same ones that are going to get us out of it. Nobody has been hit harder by the great recession than the middle wage skilled workers in these companies and organizations. People such as John Woeck, for instance, who worked for seven years as an electrician just as his wife lost her job of 14 years, exhausted his savings, and was almost out of unemployment funding to support their three children. Vinita Vigil, enrolled at Seattle Central Community College, worked for a digital graphics company before she was laid off. She was the primary source of income for her family of five, and she was forced to sell her house.
One of the most distressing features about today’s recession is that Seattle has thousands of job openings at the same time it has high unemployment. Economists say this is because the recession accelerated the decline of some industries, such as housing construction, at the same that that others requiring far different skills, including health care, emerged stronger. Some economists predict that this disconnect is likely to grow as the economy continues to develop jobs that require specialized skills. And the difference for those who have lost their jobs could be fine-tuning of their skills in a job training program that takes six months to two years to complete.
Construction, real estate, and financial service workers have seen jobs with their expertise disappear, while skilled work in health care, accounting, fashion design and I-T remain unfilled. A State’s Workforce Training and Education Coordinating Board 2010 survey of employers indicated that the vast majority of these job openings require a post-secondary vocational certificate or degree. The survey indicated that 62% of employers hired people and 26% or 10,500 firms in King County were unable to find skilled employees.
Fortunately, there is a solution. The Community and Technical College Worker Retraining Program was designed to get people who lost their jobs in declining occupations back to work in new and growing fields. Even in the depth of the recessions, three out of four graduates were able to find work within 6 months of completing their programs.
John Woeck retrained from work as an electrician in the housing industry to job in the heating, air-conditioning and ventilation industry. He was also able to convince his employer to hire two of his classmates. Vinita Vigil was able to find work in the ….. and now has an income to support her family.
This year, in order to meet record demand from individuals and families such as the Woecks and Vigils, the state legislature bumped up funding for the program to allow the program to serve more 14,000 unemployed individuals across the state. However, the funding was for one year only and on July 1, the program will be forced to cut services nearly in half leaving thousands of unemployed workers stranded midway through their programs. This will leave thousands of jobs unfilled and perhaps create a bottleneck in the economic recovery of our region.