Navigation
Search
Powered by Squarespace
Friday
Aug052011

How would your family cope with 20% pay cuts? What if your customers got 20% pay cuts?

Edward Hadas, Martin Hutchinson, and Anthony Currie say, "American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close. . . .  It’s possible to run the numbers to show that American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance." Are American businesses trying to reduce their payroll costs to that extent?  You bet.  For example, after restating the management challenge in Retooling Labor Costs, management consultants Booz & Company suggest techniques for getting high-quality workers—the same ones or replacements—to do the same amount of work for 15-20% less money.

Over time, compensation policies have gotten woefully out of whack, such that wages for some workers in some jobs greatly exceed what the market says those jobs are worth.

. . . .

Many managers have chosen to ignore this emotionally charged issue — especially when business is booming. This attitude is no longer tenable, however, given the pressure that established companies feel today to cut costs wisely in order to keep up with intense competition from both upstarts and emerging markets. In this environment, the gap between high wages and market value must be narrowed, if not closed.

. . . .

For many companies, the need to address imbalanced labor costs couldn’t be more urgent: New entrants are hiring people at deeply discounted market rates, taking advantage of today’s steep unemployment numbers, and widening the labor-cost gap with established businesses that have more entrenched workforces. However, any company seeking to meet this challenge must be ready to embark on a lengthy and extremely disciplined campaign — one that will determine the morale, skills, talent levels, recruitment potential, performance, productivity, and costs of its workforce for a very long time.

. . . . With proper execution, net labor savings of 15 to 20 percent are possible, because this approach goes beyond the need for immediate savings and confronts systemic and sometimes dysfunctional wage and salary practices.

Although this is perfectly rational behavior for US companies competing with domestic startups offering much lower wages to our vast numbers of unemployed and with the even-lower employment costs in Chindia, it gives further impetus to the 10-year downward spiral of American families and our economy at large.  Only federal policy changes can reverse this retreat from greatness, but first we have to notice what’s happening and decide to care.

Tuesday
Aug022011

Congressional Republicans are still holding hostages. Will Obama deal?

Congress is scheduled to be in recess from next week until September 5.  When they get back, they will have only 25 days to authorize spending for the new fiscal year beginning October 1.  Stan Collender expects Republicans to use the same terrorist tactics they did over the debt ceiling bill

Fiscal 2011 ends Sept. 30 and, given the current state of the fiscal 2012 appropriations debate, that almost certainly means a government shutdown will be threatened over the funding level for a continuing resolution.

Yes, the debt ceiling deal includes spending caps that, in theory, should make a CR easier to enact. But, especially in the House, a cap will be taken by some as just an upper limit rather than an agreed-upon amount that doesn’t require any further changes. As a result, the CR debate will be neither quick nor simple, with tea partyers pushing for spending reductions for fiscal 2012 beyond those in the deal.

What could make matters worse is that the CR might not — or probably won’t — be for a full year. Less than 24 hours after the debt ceiling agreement was announced, the GOP leadership apparently was using the prospect of a series of short-term continuing resolutions with additional spending cuts on each as one of the inducements to convince tea partyers to vote for the debt ceiling deal.

Monday
Aug012011

Pitchforks before Parties

Disappointed progressives are talking about a third party in the 2012 Presidential election and floating the names of people they might run against Obama. I suggest that puts the cart before the horse. First, progressives need a movement organized to promote some unifying principles or ideology that becomes so big and powerful it can't be ignored by the two major parties. From there they have the potential to become much more influential in the Democratic Party—as the Tea Party has been influential in the Republican Party—which ought to be their preferred outcome. A third party would be a second best outcome because once beaten a third party will, according to historical precedents, fade back into obscurity.

Popular movements have had many successes in American history. Remember these? Abolitionists got rid of slavery. The women's suffrage movement got women the vote. The temperance movement got us Prohibition at a national level and keeps it in place in some States and localities. The labor movement made it legal to strike and to engage in collective bargaining—both of which had been criminal conspiracies. The civil rights movement broke the back of Jim Crow, resulted in landmark federal court decisions and legislation, and contributed greatly to a realignment of the two major parties. The anti-Vietnam-War movement brought down at least one President and also helped cause the major party realignment. The women's liberation movement resulted in Roe v. Wade and much else. The environmental movement got us dramatically cleaner air, water, etc. The anti-tax movement was responsible for Prop. 13, its progeny in other States, and Grover Norquist's anti-tax-pledge straight jacket on the GOP. The LGBT movement is having success changing discriminatory laws that affect them. The NRA and anti-gun-control movement have made it nearly impossible to regulate guns in America. The Tea Party (not really a party but a movement), which didn't exist two years ago, now has 53 members of Congress acting in concert to exercise a virtual veto power over GOP policy in the House of Representatives.

Movements are initially subversive and willing to be vilified by the mainstream press and political class. They are organized around moral absolutes and/or emotions with core beliefs that can be expressed on a bumper sticker. They are committed to a relentless struggle over a long haul. They are interested in electoral politics only as a way to achieve their policy goals. Political parties, on the other hand, are organized around candidates coalitions, try to downplay ideological divisions that interfere with coalition building/maintenance, are focused almost entirely on the winning the next election, and are ready to "rise above principle" to win elections. A movement can take over or change a political party, but a political party probably can't take over a movement.

So, I guess what I'm saying is that progressives need some good community organizers long before they'll need another candidate.

Monday
Aug012011

Are you as dumb as a bag of hammers?

An online IQ test has determined that the lower your IQ, the more likely you are to be using Microsoft's Internet Explorer as your browser.

Switch to Opera, Camino, or IE with Chrome Frame (whatever those are) and gain 40 IQ points.

Sunday
Jul312011

Most Read Realitybase Posts in July

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post is now the #1 response to a Google search for "plutonomy memo."

How the Luckiest Generation lived the American Dream A narrated slide show (in movie format) with graphs showing how Depression Babies surfed through life on a big wave of job creation, upward mobility, and rising real wages not seen before or since.

US health care efficiency did not go off the rails until about 30 years ago. Updates to this post show that the rate of increase in US life expectancy at birth, especially for females, abruptly slowed in 1982 and that this was apparently unrelated to healthcare spending which continued rising at a very steady rate.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions.

American Youth: Digitally Skilled and Unemployable. A graph shows that Americans under 25, who presumably are the most familiar with digital technology, are losing employment share to those over 55, who presumably are least at home in the digital age. This counterintuitive trend started long before the Great Recession.

The Plan to Reduce Income Inequality by Driving down the Wages of College Graduates Critique of a recent paper by Georgetown University economists who say the college wage premium is too high and estimate how big an oversupply of college graduates we need to turn out to drive that wage premium down from 74% to 46%.

The score is Chindia 98, USA 2, and USA is sticking to its game plan. Only 2% of the additional jobs created in America between 1990 and 2008 were in sectors subject to foreign competition, but there is no evidence America will change the policies that caused this disaster.

Skilled labor shortages in declining industries accelerate the decline. One might think that widespread layoffs in a shrinking industry would create a surplus of willing workers, but in fact there are shortages because skilled workers with options move as fast as they can to growing, better-paying industries.

The Recession Is Coming! The Recession Is Coming! (Republished with corrected chart.) December 2007 post with charts showing America's middle class had already been in recession for 7 years and asking if we really care about them.

Monday
Jul252011

The score is Chindia 98, USA 2, and USA is sticking to its game plan.

There were 27.3 million net new jobs created in America between 1990 and 2008, but 98% were in sectors of the economy that are not subject to foreign competition, according to a recent paper by Nobel laureate Michael Spence and Sandile Hlatshwayo

Government at all levels is the largest employer in the nontradable sector and accounts for more than 22.5 million jobs in 2008. Health care is a close second, with an end of period total of 16.3 million. In terms of increments, health care’s growth of 6.3 million jobs tops the list and the government’s addition of 4.1 million comes in second. These two increments combined produced almost 40 percent of the total net incremental employment in the economy since 1990.

"Tradable" goods and services are those that can feasibly be provided from afar.  For example, pipe is tradable, but installing pipe in your house is not; x-rays can be read by experts thousands of miles away, but massage therapy is strictly local.  What does it mean that the US has created almost no net jobs in tradable sectors since 1990?  Nothing good for America.  It means we are not increasing our ability to export goods and services, which conventional trade theory assumes--and requires to prove mutual benefit to both trading nations.  There is no economic reason for any company to want to create tradable sector jobs in America so long as US labor rates continue to be higher than in Chindia and there are labor surpluses in both places. Under current policies, we should be expecting continuing stagnation in all tradable sectors of the US economy for a long, long time to come.

What makes this even worse for ordinary Americans is that non-tradable sectors like government and health care services have continued to grow and to outgrow the ability of the population at large and taxpayers to pay for them. The political attack on the revenues of these two sectors is a natural reaction to that growing reality. That is regrettable because we can't shrink our way to greatness. Instead, we should be doing whatever it takes to achieve full domestic employment and balanced trade--even if that means balancing trade at a lower level. Neither the national Dems nor GOP seem even remotely interested in doing that. They are ignoring the ugly facts, sticking with ideology, and vying for the right to lead America's long painful retreat from greatness.

Saturday
Jul232011

Our Plutocrats Versus Their Plutocrats

Economist Jeffrey Sachs says both major political parties are now run by different groups of plutocrats and that the only prospect of having an America that works for ordinary people is a third party movement. (h/t Mark Thoma)

The idea that the Republicans are for the billionaires and the Democrats are for the common man is quaint but outdated. It's more accurate to say that the Republicans are for Big Oil while the Democrats are for Big Banks. That has been the case since the modern Democratic Party was re-created by Bill Clinton and Robert Rubin.

Thus, at every crucial opportunity, Obama has failed to stand up for the poor and middle class. He refused to tax the banks and hedge funds properly on their outlandish profits; he refused to limit in a serious way the bankers' mega-bonuses even when the bonuses were financed by taxpayer bailouts; and he even refused to stand up against extending the Bush tax cuts for the rich last December, though 60 percent of the electorate repeatedly and consistently demanded that the Bush tax cuts at the top should be ended. It's not hard to understand why. Obama and Democratic Party politicians rely on Wall Street and the super-rich for campaign contributions the same way that the Republicans rely on oil and coal. In America today, only the rich have political power.

. . . .

. . . . Now that the resort to mega-deficits has run its course, Obama is on the verge of abandoning the poor and middle class, by agreeing with the plutocrats in Congress to cut spending on Medicaid, Medicare, Social Security, and discretionary civilian spending, while protecting the military and the low tax rates on the rich (if not lowering those top tax rates further according to the secret machinations of the Gang of Six, now endorsed by the president!)

Who runs America today? The rich and the multinational corporations. Who runs the White House? David Plouffe, whose job it is to make sure that ever word, every action of the president is calculated for electoral gain rather than the country's needs. Who runs the Congress, on both sides of the aisle? The lobbyists, who win in every negotiation. And who loses? The American people, who have said repeatedly that they want a budget that sharply cuts the military, ends the wars, raises taxes on the rich, protects the poor and the middle class, and invests in America's future not just in Obama's speeches but in fact.

America needs a third-party movement to break the hammerlock of the financial elites. Until that happens, the political class and the media conglomerates will continue to spew lies, American militarism will continue to destabilize a growing swath of the world, and the country will continue its economic decline.

Saturday
Jul232011

The recent post on healthcare efficiency has been updated.

I've done some more analysis of the matters raised in US healthcare efficiency did not go off the rails until about 30 years ago and posted a lengthy update with charts there.  It became clear that there was no "going off the rails" of healthcare spending--it increased every year at a near constant rate.  What did go off the rails in 1982 was the rate of increase in life expectancy at birth--the rate of increase slowed abruptly and dramatically. Possibly that's because we suddenly shifted spending away from those kinds of care that most affect life expectancy and started spending instead on care that has less or no effect on that outcome.  Or maybe there is only a tenuous connection between spending and life expectancy, and we need to look to other outcomes to measure healthcare spending efficiency.  Or maybe we need to look at how life expectancies at birth are estimated.

Monday
Jul182011

America's spending problem in one picture

From Robert Borosage at Campaign for America's Future:

Also included in "Mandatory Spending" are the "automatic stabilizers" such as unemployment insurance and food stamps which exist to help cushion unemployment and go back down when unemployment decreases.

Wednesday
Jul132011

US health care efficiency did not go off the rails until about 30 years ago.

The US has the lowest life expectancy of any of the 20 richest nations and vastly higher per-capita healthcare costs. Okay, I think we knew that, but we didn't know until Lane Kenworthy did the analysis and posted the following chart on his blog that something(s) happened in the early 1980s that resulted in our going from just being one of the worst performers in this group to being a radical high-cost, short-lives outlier.

(Dollar figures are indexed to 2005. Life expectancies are at birth.)

Looking at the black lines representing the other 19 nations, they all have about the same slope of increasing life expectancy vs. increasing expenditures. Until the early 1980s, the US trend line was on that same slope, but then we alone veered off into a zone of radically increasing costs without achieving any improvement in our near-the-bottom life expectancy ranking in this group of 20. Of course, this graph does not tell us what caused the divergence, but it does point to a time period that should get our attention. What US policy changes, or market changes that affected only the US, were occurring then and continuing?

My top targets for investigation would be out-patient care and administration. Kenworthy's post links to some good sources, especially this September 30, 2009 OECD report to Congress. Chart 8 there compares healthcare spending by category (out-patient, in-patient, drugs, etc.) among the US, Canada, France, Germany, and Japan.

Note that in all seven categories, the US spends more than any of the others, but what stands out the most is that the US spends 2.4 times as much as the second-place nation on out-patient care and 2.1 times as much on administration. If both of these categories had been only at the levels of the second-place nations, US healthcare spending would have been $2,132 per-capita (29%) less than it actually was in 2007. In-patient care costs alone would have been $1,863 lower. Together these two categories were 53% of 2007 US healthcare spending.

One possible explanation for the divergence in the first chart above is that when wages and salaries for middle-income Americans started being limited to the inflation rate in about 1973, incomes of US healthcare providers kept rising faster than inflation. If that happened, it might well be because the US healthcare sector has been very effective, politically and/or otherwise, in protecting its incomes from the general stagnation of real personal incomes. If that's what happened, and if the incomes of the healthcare sector in the other 19 nations only kept pace with inflation, we should expect the above graph to look like it does.

Saturday
Jul022011

Skilled labor shortages in declining industries accelerate the decline.

There are numerous reports recently that manufacturers are having trouble finding enough skilled workers to fill domestic job openings. That seems counterintuitive because the shrinking of American manufacturing should leave, one would think, a surplus of skilled labor eager to fill those jobs and even take lower pay. Researchers at the Chicago Fed have looked into this and suggest some reasons why shortages of skilled labor are to be expected in declining industries. Shortages are not due to some deficiency in the educational system but to rational choices of people to go into growth industries instead. Since people with the most skills probably have more choices about where they work, declining industries should expect shortages of high-skill workers—even as they have gluts of low-skill workers.

In Why are manufacturers struggling to hire high-skilled workers? Lombardi and Testa compared education levels and wages between manufacturing and non-manufacturing from 1990 to 2007. They found that wage premiums in manufacturing did not rise to attract more and better high-skill workers—instead, manufacturing wage premiums shrank.  They note that US manufacturers are under such great price pressure that they can't afford to pay more even for skilled workers.  They conclude by saying—

"One possibility is that declining manufacturing job prospects may be self-reinforcing, leading to a negative image among prospective employees.  If so, the pool of available workers at any given educational attainment may be inferior to that in previous times."  

That suggestion would be consistent with other reports that new Ivy League graduates are going overwhelmingly into financial services and avoiding manufacturing like the plague, that physics Ph.D.s from top schools are still going to Wall Street to develop trading algorithms instead of doing manufacturing or even physics, and that students studying computer sciences are increasingly from abroad as Americans pursue other majors. 

There are, of course, many factors that can influence individuals in their career choices. One that seems to show up here is that many people intuitively understand how different it is to work in a growing business from working in a shrinking business, and they try to avoid the latter. In a growth business, wages and benefits tend to rise as employers staff up by hiring workers away from the good jobs they already hold, the threat of layoffs seems remote, learning opportunities and promotions come quickly with staff growth, the workplace is happier and full of achievers, and the American Dream of increasing prosperity seems at hand. In a shrinking business, there is downward pressure on compensation, there is job insecurity, learning and promotion opportunities are rare to non-existent, and work places are apt to be populated by unhappy hangers-on who know the American Dream is unrealistic for them. I think these differences may be sufficient to explain career choices that result in skilled labor shortages for declining industries, but the matter of compensation deserves emphasis.

Declining industries generally have shrinking profits and enormous pressure to minimize costs. So, if they have a skilled labor shortage, the normal management response of increasing compensation to attract and hold workers is unavailable. To some extent, US companies are solving the problem with immigrant workers on H-1B visas because the US wage level is still higher than in their native lands. However, as global wage convergence proceeds, the wage premiums US companies are able to pay to attract foreign workers will decline and they will tend to stay/return home. Instead of saving US industries by reducing pressures on margins, global wage convergence may accelerate their decline by drying up their last remaining source of skilled labor.

Thursday
Jun302011

Most Read Realitybase Posts in June

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared.

Is this what ended the American Dream? The Democratic Party lost its focus on economic security and prosperity and became more concerned with a range of other liberal values. Without control of the Democratic Party, labor and consumers lost a long and continuing series of tactical political battles.

American Youth: Digitally Skilled and Unemployable. A graph shows that Americans under 25, who presumably are the most familiar with digital technology, are losing employment share to those over 55, who presumably are least at home in the digital age. This counterintuitive trend started long before the Great Recession.

Canada has lousy health care. In a ranking of seven advanced nations, Canada's health care quality exceeds only the USA's, but Canada's costs are half as much per person.

The American Dream died in February 1973 With graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions. Views of this 2009 post tend to spike every exam season.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFÉ standards, and has fluctuated only slightly with retail price changes.

How the Luckiest Generation lived the American Dream A narrated slide show (in movie format) with graphs showing how Depression Babies surfed through life on a big wave of job creation, upward mobility, and rising real wages not seen before or since.

We probably need better college graduates, but we certainly don't need more. With charts showing young grads are massively unemployed and mal-employed and which majors are the best and worst.

Wednesday
Jun292011

The Plan to Reduce Income Inequality by Driving down the Wages of College Graduates

Georgetown University's Center on Education and the Workforce is proposing to increase the number of college graduates America turns out each year in order to create an oversupply and drive down the wage premium from 74% to 46% vs. high school graduates. If we don't do this, the report says, the college wage premium will rise to 96% by 2025, and that would be bad. The report, The Undereducated American by Anthony P. Carnavale and Stephan J. Rose and funded by the Lumina Foundation and the Bill and Melinda Gates Foundation, was released June 27, 2011.

The sheer blundering goofiness of this report is illustrated by its wildly-wrong assertion, at 33, that "if we continue following current trends, there will be 8 million more postsecondary-educated workers by 2025." In fact, according to this report from the US Department of Education, National Center for Education Statistics, there are now more than 1.5 million bachelor's degrees awarded every year (projected to be 1.8 million by 2019), and by 2025 America should have turned out at least 25 million new college graduates and 12 million with AA degrees. That's a total of 37 million, not very close to the 8 million stated in the Georgetown report.

[3 July 2011: An email suggests I misunderstood the assertion the authors were making and thus being incorrect and unfair in calling it a blunder. The suggestion is correct, and I apologize for my error.  I had (mis)read the report as saying the US is projected to generate only 8 million new college grads by 2025.  In fact, I now believe they actually said the US is projected to have only 8 million more college grads in the work force net of retiring college grads. So my comparison of their statement with current and projected graduation rates was apples to oranges, but I'm leaving those projections in because they are relevant to the next paragraph. Where this leaves us is essentially talking past each other: They don't address the question of how many jobs of what types will exist, but only calculate how much higher the ratio of college-goers to HS-only workers there would need to be to reduce the college wage premium to their target level. I point out that there is already a glut of college-goers compared to the actual and projected jobs that require college, and I have no opinion about the accuracy of their estimate (but am repelled by their policy objective and still see the internal inconsistency noted below).]

While the US higher education mill grinds on at this rate, how many new jobs will there be that require a bachelor's degree or more? The latest Bureau of Labor Statistics projections in 2008 only go to 2018. (Follow the link to ftp site and download Occupation.xls.) During that 10-year period it projects there will be 11,674,700 million new and replacement jobs that normally require a bachelor's degree or more. During that same 10-year period, the lowest of three Department of Education projections puts the number of new bachelor's degree holders at 16.6 million, for a 42% oversupply. No wonder so many recent graduates are shut out of college-appropriate jobs—or any jobs.

Another internal inconsistency in the report is its expressed concern that more qualified high school graduates don't pursue college because they perceive the expected return on their investment of time and money is not great enough, i.e., the college wage premium is too small and/or the likelihood of getting a better job after graduation is too small. At 32. The authors have no sensible proposal for how to get more people to pursue college degrees if the wage premium is too small and going to get smaller.

There are many good reasons to be for better quality education and for mass higher education, not least that it promotes equal opportunity, but we should not be misleading our youth and our policy makers by making claims for education that are not true. It's not true, if 21st Century trends continue, that there is any reasonable scenario of job creation in America that will enable all college graduates to find good jobs appropriate for their credentials—even if there is no increase in the number graduating each year. It's not true that an increased labor supply induces an increase in the number of jobs when so many powerful forces are pushing/pulling those jobs offshore. It's not true that because the average college grad earns more than the average high school grad that every college grad will do better or that the current average college wage premium will necessarily continue or increase. It's not true that the mix of jobs that will exist in America in the next 10 years or so will be vastly different from today's mix. It's not true that America will be able to create and keep most of the high-skill, well-paying jobs in the world and let only the menial jobs go offshore. It's not true that having an adequately skilled workforce, or even a superbly-skilled workforce, can be America's strategic or comparative advantage instead of just being a necessary condition for success like good transportation systems, good communications systems, good government, etc.—we are still competing on price with skilled people in the rest of the world. It's not true that we lost millions of jobs to Chindia because the Chindians are better educated or more skilled—in fact, the jobs were offshored despite the fact that so far they are less well educated and less skilled. It's not true that education policy is an important part of the policy changes we need to respond to our growing joblessness crisis—and believing that it is distracts us from actions that could create jobs in America.

Friday
Jun242011

Is Bill Gross crazy? 

This post by Pimco founder Bill Gross is so contrary to bi-partisan conventional economic wisdom, you'll probably think I wrote it for him.  I didn't, but I endorse it highly. His tease:

  • The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets.
  •  Fiscal balance alone will not likely produce 20 million jobs over the next decade. Government must take a leading role in job creation. 
  • A growing number of skeptics wonder whether college is worth the time or the cost.
Sunday
Jun192011

How the Luckiest Generation lived the American Dream

I'm just back from my 50th class reunion at The College of Wooster where I was invited to summarize in ten minutes how we experienced the economy during our lives. I showed graphs of key statistics in PowerPoint about jobs, incomes, upward mobility, and effects on longevity.  A fundamental conclusion was, "No job, no income, no American Dream, premature death."  The most common comment I got was to the effect of, "I'd seen these bits of information before, but never all pulled together like this." There were numerous requests for copies, but since not a lot of retired septuagenarians have PowerPoint, I've converted the presentation to a narrated movie and posted it on YouTube.  Click the icon to view it. (If the YouTube icon doesn't show in your email or RSS update, you may have to click through to this Realitybase post to see it.)

This is a revised version of the video; the original version is here.  If you have PowerPoint you can download this narrated presentation in .PPT [revised 3/14/12 to add missing captions to one slide] and see the links to data sources.

Saturday
Jun182011

American youth: Digitally skilled and unemployable.

According to conventional wisdom, technological advances and globalization mean that jobs are disappearing for people with outmoded skills and that new jobs are being created that require new skills. Americans whose jobs are offshored should retrain for the jobs of today and tomorrow. America will fall behind in the global competition without better and universal education to teach the skills necessary for the modern jobs that are being created in America.

Specifically, it is often said that the internet has changed everything, and that being comfortable with the paperless, wireless, digital, global, online, lightning-fast, on-demand, information age is the key that unlocks the door to modern jobs. American youth are notoriously proficient in these skills, and those over 55 are notoriously lacking in these skills and resistant to acquiring them. It follows that as industrial age jobs are disappearing and information age jobs are being created, young workers will fit right in and older workers will be left in the unemployment lines. In fact, however, there has been a strong trend in the opposite direction.

The employment-population ratio for 16-24 year-olds started declining in 2000—just as we were all getting computerized and networked. Meanwhile the employment-population ratio for those 55 and older has been increasing since 1993. In the Great Recession, youth employment has been devastated and mature worker employment has hardly been affected at all. If these trends are being driven by skills, conventional wisdom must be wrong about what skills are needed and the importance of education. More likely, it hasn't been a skills story but one about the advantages of incumbency and the need of older workers to keep working as retirement benefits have declined.

And let's do remember this. American jobs were not moved to Chindia in the last decade because the Chindians have better skills. That happened—and is continuing to happen—because Chindian workers are cheaper. Full stop. We've been emphasizing education and skills development in America for decades, and there is nothing apparent in the current emphasis that seems likely to change our output of skilled workers. Nor does the historical record indicate it would contribute much to domestic job creation if we did have more skilled workers. Skilled Chindians will still be cheaper, and young Americans will still be living with their parents as long as that's true.

Wednesday
Jun152011

Which party will do a better job of leading America's retreat from greatness?

Usually when I mention David Brooks it's to disagree with him, but he got it just right in yesterday's NYT op ed, Pundit Under Protest. He is very concerned, as am I, that the 2012 elections will not be about what they should be about.  The electorate is appropriately worried about how to avert a national decline from greatness, but--

[T]he two parties contesting this election are unusually pathetic.  Their programs are unusually unimaginative. Their policies are unusually incommensurate to the problem at hand.

. . . .

The election is happening during a downturn in the economic cycle, but the core issue is the accumulation of deeper structural problems that this recession has exposed — unsustainable levels of debt, an inability to generate middle-class incomes, a dysfunctional political system, the steady growth of special-interest sinecures and the gradual loss of national vitality.

Both parties describe our problems as dire and unprecedented in our lifetimes.  Yet neither party proposes any substantial departures from the policies that got us into this mess.  They are both doubling down on defending the status quo and giving mere lip service to the idea that it would be nice if things would get better for ordinary Americans in spite of that.  There is not, for example, any Presidential candidate and scarcely any prominent Member of Congress who proposes a growth agenda like we had from 1933 until about 1970. If we were to do what is necessary to create full employment and even modestly rising real middle-class incomes, that by itself would solve almost all of our federal, state, local, and family fiscal problems. Remember how we had rising employment, rising real wages, and governmental budget surpluses in the last five years of the 20th Century?

It is somewhat of a mystery why no candidate or party has seized the unoccupied pro-growth political territory.  Surely it would be popular with a majority of voters.  The only explanation I can think of for the absence of this voice in the political fray is that it would necessarily propose significant policy changes that would be deeply unpopular with the sources of campaign funds. What's your explanation for the absence of a pro-growth political movement? 

Sunday
Jun052011

Canada has lousy health care.

Many Americans are convinced the Canadian healthcare system is lousy because, it is understood, patients have long waits for appointments, are subject to "rationing" of procedures, and regularly travel to the US to get better, faster treatment. Via Paul Krugman, we see that the healthcare system in Canada is almost as bad as in the US—but it only costs half as much per person. The other nations surveyed, UK, The Netherlands, Australia, New Zealand, and Germany, all ranked higher and cost less than either the US or Canada, according to a 2010 survey by the Commonwealth Fund. From the report:

Wednesday
Jun012011

Most Read Realitybase Posts in May

Is this what ended the American Dream? The Democratic Party lost its focus on economic security and prosperity and became more concerned with a range of other liberal values. This post had 10 times as many reads in three days as the second most popular post did in a month.

The American Dream died in February 1973 With graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying the American business economy and our ability to compete globally, which violates fundamental insurance risk principles, and which has inherent conflicts of interest that prevent quality national health care delivery and cost efficiency, and proposing a solution.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFÉ standards, and has fluctuated only slightly with retail price changes.

Why we should pay no attention to the macroeconomists behind the scientific curtain. Too many modern economists are over-involved in their pseudoscientific models and are not held accountable when their advice fails in the real world.

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions. Views of this 2009 post tend to spike every exam season.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

Two hypotheses why US CEO pay is so high Charts show that in the US CEO pay is about double that in other advanced countries, implying either that there is a shortage of talent in the US, or that the US CEO pay market is broken.

The US trade deficit is tribute paid to foreigners. And it's big. Nobel laureates Paul Samuelson and Paul Krugman and other prominent economists including Dani Rodrik, Alan Blinder, Martin Wolf, Larry Summers, Joseph Stiglitz, Dean Baker, and even Alan Greenspan have said that the US middle class is net worse off as a result of persistent trade deficits averaging 3% of GDP.

Friday
May272011

Is this what ended the American Dream?

As often as I repeat and document (here, for example) the fact that real incomes for middle- and low-income Americans plateaued in February 1973 (and incomes for middle- and low-income families and households before the end of the 1970s), I’m still puzzled as to why that happened.  Rick Perlstein offers an explanation in today’s NYT

His narrative seems to be that in the 1970s, after the shellacking of George McGovern by Nixon in 1972 and the re-writing of the Democratic delegate selection process that gave Carter the nomination in 1976, liberalism in the Democratic Party changed its agenda.  It became less about the bread and butter issues of economic security and shared prosperity and more about civil rights, the environment, getting out of Vietnam, and honest and transparent government.  The Humphrey-Hawkins legislation in 1978, which nominally requires the Fed to keep both inflation and unemployment low, was so watered down that the Fed has never let itself be influenced in the slightest by the unemployment half of the mandate.  Humphrey-Hawkins, like Pickett’s Charge, marks the end of an era instead of a consolidation of gains. 

It has seemed to me unlikely that we would ever find a single event, policy change, or market shift that explains the persistent stagnation of real middle and low incomes starting in the 1970s.  If there had been such an occurrence, surely it would have become obvious by now, wouldn't it?  Still Perlstein’s explanation—that there was a great political realignment and all of the endless string of tactical defeats for America’s middle and lower class incomes flow from that—seems rather plausible to me. One reason it seems plausible is that it’s a fair description of my own attitudes as a life-long Democrat.  I was not friendly to labor unions but saw them as more powerful than they needed to be, corrupt, bigoted, and on the wrong side about Vietnam, the environment, and civil rights.  I was a “business Democrat,” then a wary DLC follower, a New Democrat, and even a supporter of Pete Peterson's Concord Coalition.  In short, I was a part of the wing of the Democratic Party that took over.  I regret now what we did to the rest of America. 

In addition to these changes in the Democratic Party, I would think that the August 1971 Powell Memo to the US Chamber of Commerce and how big business and conservatives reacted to that was also very important.  They organized a generations-long ideological fight using think tanks, media control, curriculum influence, campaign finance, etc., and the opposition was never organized and to a shocking degree didn’t notice there was a game on. 

What do you think blew up the American Dream? 

Page 1 ... 3 4 5 6 7 ... 29 Next 20 Entries »