Wednesday, February 10, 2010

Will we have a jobless era?

From a friend, Eric:

"It's a fascinating article, but in trying to paint a broad, comprehensive picture, I thought a number of underlying contradictions (among the examples) became rather apparent...
Any thoughts? "

My response, slightly edited for a public audience:

I really dislike that article. Every time he makes a historical economic reference, he's wrong (recoveries have gotten longer and longer? that's news to me... unemployment was less of a problem in the 90s? only because of a very artificial overemployment in the dotcom bubble...)
Jobs are always, always, always, the last thing to drop and the last thing to rise. This "recession" started in the stock market in like June or July 2007, but everyone forgets that, because the stock market is usually the first thing to react. Unemployment didnt begin to creep in for almost a year. The stock market recovered, because it usually recovers first. Jobs take the longest to recover. They'll come back.
It's a fair question to ask what level they'll come back to, but this starts getting into policy questions, and not all of them to do with the recession (it IS, however, a fair point to note that it will be better than everyone's expecting)
1) Yes, it's true that people out of work are less employable, meaning it's tough for them to find work. This effect will be there until the next period of intense labor demand pushes employers to hire whoever is available. That will need a little time, but it'll happen eventually
2) yes, the patent system is stifling, and it doesn't help things.
3) we have a minimum wage that's jumped from the low 5's per hour to the mid 7s per hour very, very quickly, which causes businesses to hire fewer low wage workers, especially young ones and minorities.
4) I agree with the frustrating nature of corporate focus on quarterly results, but that's been there for a long, long time - it's nothing new, and it didn't stifle us before. A longer term approach would be helpful, but im not sure what you could do about this.
5) Massive uncertainty around financial reform, healthcare reform and energy/cap and trade - people are holding off hiring to see exactly what these end up. If Obama has his way, all three will contribute to further joblessness. Fortunately, it seems as if the Republican party is actually defending jobs right now by stomping on all three. (Btw, I do think we need reform in all three areas, i just think Obama's version is awful)
6) China's the gigantic wildcard in this. They're in an asset bubble the type and magnitude of which the world has seen exactly twice in the last 200 years - the US in 1929 and Japan in the 80s. Could they learn from the mistakes of the US and Japan? Maybe, but it's going to be a rough landing. The reason this is such a wildcard is that it's going to affect the prices of everything.... i'd expect commodity prices to come down as they slow down development (did you realize that something like 35 or 40% of Chinese GDP is construction, and that a huge percentage of it is literally building random useless shit to inflate GDP?). It's hard to know if the prices of Chinese goods will drop as companies race to try and desperately sell things to finance their debt, or if prices will increase as bankrupt companies close and supply drops. It's hard to know if the US dollar will drop as the Chinese government starts spending like a madman in the country to support the economy and using dollar reserves to support its currency (or at least doesn't need to consume dollar reserves at the same rate, which is functionally the same thing), or if the dollar will strengthen as the Chinese government decides to artificially weaken the Yuan to prolong the period of growth.

Personally? I'm betting lower commodities costs as the Chinese government demands less, but a little bit mitigated because it'll be accompanied by a weakening dollar (for the simple reason that I don't see the US tolerating more Chinese mercantilism in a period of joblessness - I think tariffs, either in a constructive good form (yuan denominated import certificates) or a destructive bad form (traditional tariffs), are coming from an Obama administration that acts very anti-trade).
I don't see the Chinese letting their factories close, which means greater supply of goods, which should mean they're cheaper, except a weakening dollar should make those more expensive. It's hard to know if this makes everything cheaper or more expensive.
On net, if I'm right, what you should see is a) a productivity boost from lower commodities costs, b) a manufacturing boost from a weaker dollar and accompanying c) inflation. The Chinese goods question is an unclear one, and cheapening/more expensive Chinese goods have differential effects on jobs/productivity and overall consumption by the US.
either way, those things point to a better jobs picture down the road. This is, of course, all speculation and because there are so many effects that can cancel each other out, and so much of it is based on policy predictions, that it's highly uncertain. Anyway, the point is that China is a big wildcard - the most likely scenario in my mind is a boost to US productivity and jobs, with a hit to US consumption. But there are ways of adjusting this so that US productivity and jobs go down too.
Given all of that, it's hard to see us entering a new "jobless America" unless we let it be so. treating this all as a static equilibrium, as opposed to a point-in-time picture of a highly, highly dynamic economy, makes that article problematic.
(That said, a while ago, I posted this: and some of that still applies, though I think that it's turned out that some of the beats were cost cutting and some were analysts being behind, so it's not quite as hard hitting a question as it used to be).

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