Sunday, September 18, 2011
My Answer Is No
One-time or limited-duration policies have one-time or limited-duration benefits. The Policy Ineffectiveness Proposition at least assumes that economic agents are forward-looking. The orthodox framework assumes that most consumption choices are impulsive.The specifics of why I don't think the temporary improvement would last:
Limited-duration policies may result in persistent losses, as it is easier to destroy a web of beneficial relationships than to build one.
The data here can be found at BLS CPS. This is another way of looking at the base of information in the graph in my prior post. First up, full-time median inflation adjusted wages (this excludes self-employed incorporated workers):
This bounces around a lot, and one of the reasons is inflation. Note that real median wages started to rise quite quickly at the end of 2008, coincident with the financial panic.
There is a time lag for higher real wages to feed through the economy, even when you have a rather dramatic move such as this. So the recession ended June 2009. Employment losses lag, of course.
In eleven years, we have made no progress on median real wages. Q2 2011 was $334 - Q2 2000 was $332.
The reason I knew that the Fed's QE2 program would be a disaster for the economy was that it was doomed to further drop real median and below wages, which had been declining slowly anyway. Of course the Fed error was exacerbated to some extent by the truly nutty "deal" reached by the Congress and President at the end of 2010, which raised federal taxes on the bottom 40% of wage earners. There is significant overlap between that bottom 40 percent and older households largely dependent on SS, but still that took the nominal damage to 45% of all households, and the inevitable inflation in base costs involved in the Fed's action took it right to 60%. From there it diffused upward.
And then we must not forgot the job losses. This graph is of fulltime workers:
So not only do we have declining median full-time wages, but we have a substantial employment problem. Rising costs, part-time work or no work. This graph gives me a headache and stomach cramps. I have a Zomig sitting right in front of me, and I may need it to get through this post.
In Q2 of 2000, we had 101,424,000 full time workers. In Q2 of 2011, we had 100,593,000 full time workers. Call me a pessimist, but given the growth in the population, I'd say we are missing a minimum of 6,000,000 full time jobs.
Filling in with part-time jobs obviously does something to household incomes. We have sustained an increase in part-time jobs, but in many circumstances this is a function of employers having leverage and using it to get the cheapest possible employees:
It's stunning to see how the end of the recession boosted part-time jobs, but not full-time jobs.
And it's not just teen-agers and young people. You can't really comprehend the damage we have sustained without looking at what I call the "core" rate of employment, which is workers 25 and over:
This graph is of the number of workers aged 25 and over who are employed full-time.
Remember, when BLS calculates real median weekly wages, it excludes part-time workers!
Shattering. You don't really need to go much further to comprehend why the housing market is so dead. The first-time purchase bracket was already exhausted from easy term lending, and since it has been eroded by the job market.
Even taking into account aging and retirements does not really redress the situation. For one thing, workers cannot retire as early as they used to:
The number of full-time workers over 65 has almost doubled in ten years.
Admittedly that age bracket has expanded, but still.... Mortgages. It's pure hell being 64 and having a mortgage with ten more years of payments.
US Population Pyramids 2001-2011-2025: Detailed breakdown 2011; 2001.
In 2001 there were about 18.3 million 65-74; in 2011 there are about 22.1 million aged 65-74 and about 13 million aged 75-84. The balance of the older population is almost 5.9 million - about 41 million total.
In 1999 there were about 18.3 million in the 65-74 bracket and about 12. million in the 75-84 bracket. The rest of the older population amounted to just over 4 million - about 34.3 million total.
In 2025 there are projected to be about 36.2 million in the 65-74 age bracket. 2030 about 38.4 million, but in the 75-84 bracket there are projected to be 24.4 million versus 2011's 13 million. For 2030, there will be over 8 million in the older age brackets, for a total of over 70 million.
I give up. I wanted to write a post about how huge hunks of our economic problem are structural, not temporary. I'll have to continue this in a separate post.
= = = = = =
And, back when they bought these houses, the conventional wisdom was "your house is your nest egg: when you retire, you sell the big one you raised your kids in, buy a little bungalow, and have cash to live on besides."
That, of course, was before the bottom fell out of ... everything.
Just when you don't expect it, the other shoe drops?
I suspect a lot of people were speculating and a lot of people thought they'd be able to sell at a profit and buy a house clear.
It hasn't worked out that way.
Also you can see the effect of higher death rates in the relative size of the "humps" if you compare 2025 to 2011. It's still a huge generation.
The plan worked if you bought with 20% down in 1960. You had a chance with 10% down in 1990. At 0% down in 2005, you were buying a hollow nest-egg.
On the demographics and the 25+ unemployeds: When we pay people to be unemployed, we will get more of them. I understand the macro (Keynesianesque) point that some unemployment compensation smooths out an economy. No matter if the payments count as C or G in the GDP equation, the spending props us what people think of as “the economy”.
But I am catholic in my microeconomic perspective. Individual actions make macro statistics. And I am acquainted with a disappointing handful of unemployed-by-choice people. Instead of realizing that whatever skills they had are no longer worth what they had been getting paid, and either taking a pay cut or moving to greener pastures, they’re using the 90+ weeks of subsidy to delay that eventual reckoning.
26 weeks of unemployment compensation in a blue-collar economy might be a stabilizer. 2 years of unemployment in a world where technical skills go stale in a few months only builds a snowball of despair.
If the lifeline was cut after 26 weeks, I expect we would see more employment, but at lower wages. Instead of being a perpetually unemployed trust administrator at MegaloBank, my pally would be managing a Kwikee Mart. Is it better to have more people working, or to have higher wages for those with jobs?
There are also far more job seekers than jobs, and there is a huge bulge of those who have been diverted to higher education during the recession still to hit the market.
Aside from government jobs, we haven't done well at job creation for quite a while.
Also, I note that a lot of "theoretical" jobs are posted, but in point of fact they are H1B postings, and so they will never be filled by US workers. Theoretically that doesn't happen - in practice it is extremely common.
So when I look at that overall picture, I see job creation as the paramount need, combined with cutting the flow of immigration. We're playing a fool's game, and it can only make our problems worse.
The question is HOW do we create jobs. Having basically diddled around for years does not help. We can reliably create more jobs by opening up oil drilling restrictions, especially on land. We should open up far more of the public lands for lease. We probably ought to take an axe to a wide range of regulations.
I think we have the resources to manufacture. I think we have the human resources still to manufacture. But I think in many areas of the country it is very hard to set up and run any new manufacturing operation due to all the regs.
My impression is that this administration doesn't have any real connection with the economy that is and what we could realistically do with it, so they don't have a clue as to where to start.
Simply borrowing money to fuel current consumption is not a plan and not even a hope. It's a recipe for economic suicide. As bad as things are now, they could well be far worse in ten years.
Each person has an ability to create their own job. He will not start out with the compensation package he was accustomed to when employed by BigCorp, but Mr. Market sets the price of labor just like everything else, and he cannot be fooled.
In a more practical, personal sense, volunteer for something. If you’re willing to work for free, you can always find a job. And it will not screw up your unemployment checks, either.
Yes, this is something like the Depression image of guys selling apples. What we have lost is that those guys were *working*. They may have been underutilized, buy there were not idle labor resources.
Another version of my view is seen in Off the Books: The Underground Economy of the Urban Poor. People without the expectation of comfort and stability can find a way to work and survive. I say the college-educated years-of-work-experience class should be able to do the same. Or similar.
Building a spreadsheet for the local scout troop fundraiser or bartering computer repair for a hot meal *is* economic activity. It builds those webs of beneficial relationships that turn into measurable GDP.
The concept of microloans was hot a few years ago for helping the 3rd world. Maybe microloans and microjobs are also effective during this Great Transition in the 1st world.