Guest Post: How Bad Will Unemployment Get, And What Can We Do About It?

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1. George Washington Post authorSeptember 9, 2009 at 12:39 am

   This is by far the longest post I’ve ever written. Don’t worry, most of my future posts will be MUCH shorter.

   Also, I usually use regular links, instead of linked footnotes.
2. ndk September 9, 2009 at 12:58 am

   1) On residential RE: I would dispute the idea that the Chinese housing bubble is deflating. It was, but a shot of loose lending into a hungry economy fixed that temporarily. It will eventually burst, but that time doesn’t appear to be now.

   You should’ve mentioned the preposterously high prime delinquency rates(6.4%) in the U.S., as well. Any resulting increase in foreclosures could bring a lot of realized losses to a lot of generously valued securities.

   2) Loan loss rate: this is a very key point. If we’re at a stage where the anticipated losses on lending are greater than the interest that can be charged(due to government efforts to lower interest rates), those loans will not be made. And, lo and behold, consumer credit is plunging at an amazing pace, as per your Destruction of Credit section. You can have the government sponge up an arbitrary amount of losses, but ask China how much fun that strategy was with their own state-owned banks.

   3) Consumer spending & saving: The boost to the savings rate was mostly due to accounting methods for government transfers. More recent numbers more accurately reflect a very meager(4.2%) increase in saving. That anticipated resurgence in saving hasn’t even happened yet.

   4) Decline in Manufacturing: While China is the oft-cited culprit for job losses in manufacturing, that doesn’t strike me as very ingenuous. China has seen severe losses in manufacturing employment as well, thanks to the real culprit: brilliant and amazing automation. Which makes one wonder why the physical capital is there, not here, but it’s frankly not even that important from an employment perspective. Check out a modern warehouse someday. It’ll blow your mind.

   5) Destruction of Credit: The secondary markets for credit have become quite vibrant lately, and issuance is easy for those who would like to come to market. That the credit markets should pick up independently and first should come as little surprise, since that’s where monetary policy has the most traction. The short lies somewhere between the credit markets and end lending to consumers and some businesses.

   I think isolation of that short is very important to understanding why things aren’t getting better on the ground, even as credit markets improve. Transmission mechanisms are a key component of macroeconomic policy, and one or more of them isn’t working right now. I suspect lack of demand and distance from direct government mediation are involved, but that’s more conjecture and cognitive bias than reasoning.

   6) Another Trend: Increased Productivity Means Less Jobs: Normally you should get bashed for the lump-of-labor fallacy here. This is just demonstrably untrue in the long run of human history to date.

   7) Other Theories Regarding the Causes of Unemployment: Things really aren’t consistently better internationally. I don’t think this is a transfer of jobs, so much as a generally massive adjustment.

   8) Isn’t the Government Helping to Reduce Unemployment? Keynesian multipliers are well-conceived in theory but totally decoupled from empirical evidence. I consider them total voodoo(rhymes with) until proven otherwise, and this experience to date has done absolutely nothing to change my mind.

   NDK’s #1: I keep harping on this, because it seems to be forgotten. The Internet is a really revolutionary technology, and it has destroyed a ton of business models. While the Internet itself may be old news at this point, the world is very far from having adapted itself to the Internet’s evolving and growing impact.

   What happens to coffee shops and local stores? Malls? Music and movie industries? Publishers? Academics? Distributors? Knowledge workers of all stripes? The service industries that depended on the wages of those knowledge workers?

   I’ve watched Facebook, Amazon, and Google smash far more business models, whether deliberately or by accident, than they’ve enabled. They have set expectations that businesses be able to support themselves through advertising and selling personal data alone; they’ve set expectations that everything should be free, easy, and pretty.

   They’ve moved into extremely monopolistic positions. President Obama owes much of his electoral success to them, and he knows it. I expect a friendly and cooperative executive branch for awhile.

   In general, though, I think you’re right. The world must come to grips with the incredible power and superstar effects engendered by the rise of the Internet. The value of an individual is changing. There are going to be a lot of has-beens. I may well be one of them soon myself.

   We’re in a really protracted and difficult adjustment period for labor worldwide, and without wages increasing, corporate revenues will have trouble rising as well. Without wages and corporate revenues rising, it’ll be difficult to see sustained increases in profits and credit quality. I still sit long T-bonds.

   p.s. On a personal note, I think a lot of the reason that America needs to get some psychiatric help is also the Internet. I’m a child of the digital era, having received my first computer at 2 and being on the Internet lightly at 6 and heavily at 9; I’m 27 now. Most of my socialization is digital, and I have many friends who are even more wired than me now.

   While 30 years ago we might all be at some speakeasy in Manhattan together, now we see each other’s characters only in black and white, while we lead frenetic lives elsewhere. The loss of empathy, community, and compassion is probably pretty important. No offense to here, but I’d much rather be there. It’s probably healthier for all of us, in the long run.
   1. Toby Russell September 9, 2009 at 2:06 am

      “6) Another Trend: Increased Productivity Means Less Jobs: Normally you should get bashed for the lump-of-labor fallacy here. This is just demonstrably untrue in the long run of human history to date.”

      Are you sure? The data I looked at from the ILO suggests otherwise over the last decade or so, looking at global GDP against labour participation rate, for example. I can’t post the chart the figures yield, but I could see no clear relationship. For me, to fall back on rhetoric for a moment, the maxim “doing more with less” means, over time, less and less need for human labour. The people (including Marx and Keynes) who feared technological unemployment did not forsee the import of the service sector, but service is not immune to technological displacement of labour. Manufacturing is not the future of labour growth. Can services be? Isn’t the fact of massively increasing public sector employment simply (in part at least — the stats on the military are frightening indeed) a way of keeping purchasing power high by tax/wealth redistribution? Another sign of the effects of technological unemployment is the diminishing power of unions generally, not to mention poor wage growth. Labour is simply not as much in demand as it was. Humans can’t compete with machines and software: we are getting better and better at automating, and AI is in its infancy.

      Rifkin quotes a figure of 2% global workforce employed in manufacturing by 2020. Services are under threat too: there are fully automated kitchens being introduced in MacDonald’s restaurants, and other wonders still to come. Our problem, as we stumble into the oddly frightening future, is our relationship with work and value. These magical concepts, as we tend to understand them today, are relics from religion, particularly Puritanism. Mercantalism and capitalism had a profound effect on religion, but religious thought had a profound effect on them too, poisoned them if you like. Technology (and particularly the internet as you rightly point out) will have a similarly profound effect on capitalism. It’s early days yet. History does repeat itself, but not parrot fashion. Tomorrow is effected by today, but not identical to it.

      @George Washington: Thank you for a detailed and important post (if it needs to be long, let it be long!). Employment is the elephant in the room.
      1. ndk September 9, 2009 at 2:26 am

         The data I looked at from the ILO suggests otherwise over the last decade or so, looking at global GDP against labour participation rate, for example.

         I think we’re talking about different long-runs. History is full of tales of people scared of gains in productivity, dating back to the industrial revolution. We’ve always found other useful ways to employ people, even up until the end of the dot-com bubble. Employment started getting really bad only around then.

         Eras of rapid productivity growth in the industrial revolution led to widespread unemployment, uproar over child labor, and sweatshop working conditions. That demonstrated an incredible surge in the productivity of a human being empowered by a little steam and a little ingenuity, and not much demand for finished goods. Sound familiar?

         The world eventually recovered. There aren’t many kids working in factories in the UK anymore — nor China, for that matter. Unemployment among adults fell, and we’ve all got a much better standard of living and more interesting things to do than make nails, as a result.

         I’m dubious that current productivity numbers reflect entirely productivity growth rather than lowered employment, but it is probably a genuine part of the answer.

         You’re right: there’s a very long way to go. Imagine the productivity of the next Feynman who digitizes all his lectures and makes them available to the world. Imagine the lot of Dr. Smith at Podunk University once this happens, and enough students complain about high education costs. That’s just one example to counterbalance your McDonald’s kitchen. It’s an egalitarian crisis, and there’s a LOT more fat on white collar bones.

         But you ask, has technological advance finally totally eclipsed mean human ability? I still don’t think so. It’s been claimed before, and though this time really is different, I maintain a trust in the incredible value, creativity, and utility of a human being. I think those qualities will shine through in 10 or 20 or 30 years. But it really is blind faith based on past experience.

         Regardless of whether you’re right or I’m right, there’s many years of difficulty and adjustment ahead. I hope both find ourselves smiling once the outcome of this one is clear.

         Our problem, as we stumble into the oddly frightening future, is our relationship with work and value.

         Having watched bored and hopeless towns across the Midwest sink comfortably into meth and other drugs, and being a firm believer in the value of “giving a damn” writ large, even apart from religion, this part really scares me.

         Unlike predictions of failure to eventually recover employment, I don’t think predictions of a generation adrift are at all premature.
         1. Toby Russell September 9, 2009 at 2:51 am

            Thanks for your thoughtful response.

            I guess I ought to preface my posts with the statement “I am an optimist.” I’m sometimes giddily excited about what the future might bring, if we face its threats and promises wisely. Like you, I too have great faith in the ingenuity of humans (while stoking a smouldering pile of worry about our stupdity). A new relationship with work and value is possible (and necessary), because humans are, above all else, creative. Bring it on.
      2. DownSouth September 9, 2009 at 11:04 am

         ndk, Toby Russel and George Washington,

         Thanks for a thought-provoking discussion.

         I’d like to add my two cents worth and also to take Toby to task over this remark:

         “Our problem, as we stumble into the oddly frightening future, is our relationship with work and value. These magical concepts, as we tend to understand them today, are relics from religion, particularly Puritanism.”

         There seems to be a great deal of misunderstanding surrounding the Puritans. Perhaps the reason they have been so demonized is because their radical ideas threatened the powers-that-be of their day. Whether this be the case or not, a portrayal of them has emerged that, as Jacques Barzun put it in From Dawn to Decadence, “omits much, takes one feature for the whole set, and yields a caricature.”

         As Barzun goes on to explain: “A drive toward something close to democracy came from these Christian sects which…are not remembered as revolutionary.”

         Perhaps it was the Puritans’ belief in equality that the English aristocrats found most threatening. The English lords and gentry based their legitimacy on three factors: tradition, divine right and property.

         In attacking tradition, the Puritans asserted, according to Barzun,

         “that human institutions were a matter of choice designed for a purpose and maintained by custom. They should be changed when the purpose was no longer served. Mere length of time–custom–is arbitrary, not in itself a reason. Consciously or not, some of the Puritans shared the scientists’ trust in experience, in results, in utility.”

         The attack on divine right emerged from the Puritans’ religious beliefs. Again citing Barzun:

         “When every congregation was independent and elected its minister, the whole people should be politically empowered through the vote. The religious parallel was decisive: if a purer religion, close to the one depicted in the gospel, was attainable by getting rid of superiors in church, a better social and economic life, close to the life depicted in the gospels, would follow from getting rid of social and political superiors.”

         And of course there was the attack on property rights, again from Barzun:

         “The sects and leaders classed as Puritans, Presbyterians, Independents, were social and political reformers…”

         “Now, social reform must appeal to some accepted standard…the general welfare, or the needs of a neglected group, or the desirability of…a better standard of living. The Puritans, many of whom were called Levellers, agitated for equality of rights and conditions.”

         It’s not difficult to see how, if the value and status of property were diminished, that labor, amongst other things, would become relatively more esteemed and valued. And to the landed gentry, whose property was fundamental to its entrenched privileges, this of course was an extremely radical and subversive idea.
         1. DownSouth September 9, 2009 at 6:33 pm

            Upon their arrival in America, however, many if not most of the Puritans themselves became landowners. But they left the older feudal culture behind—a culture where nobles owned the land and peasants provided the labor to cultivate it. The Puritan society instead conformed to John Locke’s conception of men “mixing their labor” with nature, or Jefferson’s ideal community consisting of independent freeholders, each tilling his own plot of ground and enjoying the fruits of his own labor.

            And, as Reinhold Niebuhr pointed out, “the descent from Puritanism to Yankeeism in America was a fairly rapid one.” America was to develop as a bourgeoisie society and, according to Niebuhr, the Puritans’ “grateful acceptance of God’s uncovenated mercies” were “easily corrupted from gratitude to self-congratulation.” The prosperity which “had been sought in the service of God was now sought for its own sake,” and the Puritans came to believe that their legendary prosperity was a result of their own virtues, which included diligence, honesty, thrift, and of course hard work. Max Weber notes in The Protestant Ethic and the Spirit of Capitalism that “capitalism remained far less developed in some of the neighboring colonies, the later Southern States of the U.S.A., in spite of the fact that these latter were founded by large capitalists for business motives, while the New England colonies were founded by preachers…for religious reasons.”
      3. jest September 9, 2009 at 11:12 am

         I agree, Krugman has hinted at this in “Pop Internationalism.” His focus was more on the manufacturing sector, but I don’t see why that couldn’t have spread to the service sector. It seems like a common sense argument.

         employment is falling because companies are replacing workers with machines, and making more efficient use of those they retain pp. 48
      4. DownSouth September 9, 2009 at 5:14 pm

         It was Marx therefore, and not the Puritans, who is to be credited (or blamed, depending on one’s way of looking at it) for being labor’s greatest champion and helping cement its current lofty status. “Marx is the only thinker of the nineteenth century who took its central event, the emancipation of the working class, seriously in philosophic terms,” Hannah Arendt observes in “Karl Marx and the tradition of Western political thought.” “Marx’s great influence today is still due to this one fact.”

         “To put it another way,” Arendt explains; “while others were concerned with this or that right of the laboring class, Marx already foresaw the time when, not this class, but the consciousness that corresponded to it, and to its importance for society as a whole, would decree that no one would have any rights, not even the right to stay alive, who was not a laborer. The result of this process of course has not been the elimination of all other occupations, but the reinterpretation of all human activates as laboring activities.”

         Cracks have appeared in this formulation, however, with the passing of time. For as Arendt writes in Crises of the Republic:

         The enormous growth of productivity in the modern world was by no means due to an increase in the workers’ productivity, but exclusively the development of technology, and this depended neither on the working class nor on the bourgeoisie, but on the scientists. The “intellectuals,” much despised by Sorel and Pareto, suddenly ceased to be a marginal social group and emerged as a new elite, whose work, having changed the conditions of human life almost beyond recognition in a few decades, has remained essential for the functioning of society. There are many reasons why this new group has not, or not yet, developed into a power elite, but there is indeed every reason to believe with Daniel Bell that “not only the best talents, but eventually the entire complex of social prestige and social status, will be rooted in the intellectual and scientific communities.”

         I might add that Arendt would not include the field of economics, nor any other of the social disciplines, under the rubric of science. Quite the contrary, she was quite adamant in insisting that the behavioral sciences were something very different from the natural sciences.
3. mogden September 9, 2009 at 12:58 am

   “Obviously, this has to be done carefully and responsibly, limited to normal expansion of the money supply and used only for projects that truly benefit the entire nation (lest it lead to inflation)…”

   Is there an icicle’s chance in Hades that our hopelessly corrupt elected overlords could adhere to this limitation?
4. Skippy September 9, 2009 at 1:41 am

   I dub thee the *Bitter Pill Post*…you may now rise. GW I have zero problem as a reader to the length of your post, is not the devil in the details and over whelming mass of them in debate.

   I will spam this little Bettie around like an Hawaiian with a loaf of bread and fresh Poi (homeboy delicacy).

   NDK great to see your informed thoughts back here as they always shine light into dark corners.

   Skippy…only thing that keeps me sane some days is rational, adroit and some times humorist offerings found here and a few other places.
5. BulletProof September 9, 2009 at 1:44 am

   This is what Trimtabs had to say about August job losses:
   ” Trim Tabs…estimates that the actual job loss is 335,000. The firm estimates job losses regularly and instead of the survey used by the government, Trim Tabs looks at daily income tax deposits. The idea is that such numbers show up fast and are fairly reliable because they reflect what taxpayers are paying in taxes.”
   http://newsblogs.chicagotribune.com/marksjarvis_on_money/2009/09/laboring-over-job-loss-numbers.html

   And about wages: “TrimTabs also says wages dropped by 4.1 percent, year-over-year, in August. Meanwhile, the M2 measure of savings — that’s bank savings, small-denomination certificates of deposit and retail money market funds — fell by $94.6 billion over the last three months. That’s the largest three-month drop on record. Charles Biderman, CEO of TrimTabs, attributes that drop to people “yanking record amounts of money out of savings” due to the recession.”
   http://www.bizjournals.com/sanfrancisco/stories/2009/08/31/daily44.html?jst=b_ln_hl

   Finally, echoing ndk about Chinese house prices, Caijing reported early September that “New home prices in Shenzhen rose 18.6 percent month-on-month in August, the sixth straight monthly gain, while sales by floor area fell 29.7 percent from a month earlier, real estate consultancy DTZ said in a report on Sept. 1.”
   http://english.caijing.com.cn/2009-09-02/110237354.html

   It seems that American housing bubble was just a walk in the park compared to what’s going on in China.
6. Larry Kudlow September 9, 2009 at 1:54 am

   So, what looks cheap to you?

   Also, for our audience, anything look like a bargain?
7. BulletProof September 9, 2009 at 2:27 am

   Larry: Volatility
8. t g mac September 9, 2009 at 3:21 am

   Excellent post – well thought out and detailed. An important topic demands such length and analysis. And excellent comments to boot.

   Advanced socities may have to redefine what labour and leisure really is all about in the 21st century. It seems we have been putting this exercise off for decades now. We also need to understand what the so-called service sector is really comprised of in economic outcome terms. It seems to me that the service sector doesn’t necessarily create surplus value in the traditional sense but has become a proxy for a few winners takes all outcomes.

   As for the internet giants and their present position, I see some real competition coming down the road once the Lisbon Treaty is adopted in the EU. Brussels has been targeting Microsoft and now Google for some time. I expect the EU technocrats to launch an all out assult on these giants. The Lisbon Treaty will be concentrating alot of power into a few hands. These new power brokers need to come up with some quick success at the earliest time possible to placate a continent of 500 million. Creating a few Euro lead internet giants, along the lines of Airbus, might keep the plebs happy and cement the new Federal European project into place.

   Interesting times ahead for all the new power blocs – East and West.
9. fresno dan September 9, 2009 at 4:30 am

   I hate to go to a shoot out with a knife, but with regard to the issue that we will all sit around with nothing to do because of technology:
   a. Some wag (or economist) once said that “expenditures rise to meet income.” I say that work rises to meet 40 hours. Its been over a centrury since the institution of the 40 hour week – nobody seems to be saying we should reduce it permanetly.
   b. Medical field as an example. 50 years ago a blood pressure cuff, listen to your heart, and off you go. Today, blood pressure can be monitored continuously for a week. Everybody who makes and maintains such monitoring devices, and than interprets the results. Everybody who researches drugs and treatments for high blood pressure.
   c. I remember 5 years ago buying a computer on-line — there was no option for talking to a real person. Now every site, you can talk to a real human representative – if you like (not me, I’m too ornery ;) – maybe not a high paying job, but a job that apparently didn’t exist too long ago.
   d. granted, I’m a gubermint weenie. 10 years ago, getting a peer reviewed article from the library was time consuming and frequently not doable, and therefore not done. Now it is easy and fast – and the expectation is that there will be dozens of such articles referenced in my work. (work rises to meet time available)
   e. How many people work in the entertainment field? I remember 3 networks as a kid. Now there are ????? – sure, the average TV performer is probably making less, but I imagine there are a lot more people employed in the field than there used to be.

   I tend to agree that there is going to be a reduction in the material standard of living – this society does not have the income for all the Granite filled 3,500sf McMansions with 9mpg SUV’s – but it still can be productive and have a high level of employment…if we let restructuring take place, and understand that finance can’t be 17% of the economy.
10. sangellone September 9, 2009 at 5:16 am

    From the News from 1930 website in the WSJ September 3, 1930.

    “Prof. C. Persons quit job in Census Bureau because higher official decided to exclude from count of unemployed those laid off with “promise of reemployment at some indefinite future time”; Prof. Persons estimates there are 5M unemployed, contradicting census estimate.”

    I would add comparing ‘numbers’ from the 1930’s and today ignores other changes and, despite the social safety net in place today, may make modern unemployment a bigger problem than even the elevated levels seen in 1933. We were a far more agrarian nation then with larger households. Hard to be truly ‘unemployed’ if your family farmed. Today we have vast numbers of discrete 1 or 2 person households without much in the way of family networks to fall back on. Lose your job in that situation and you are in real trouble. We may even start seeing ‘hobos’ again.
11. Toby Russell September 9, 2009 at 5:24 am

    @fresno dan:

    I read some paper on technological unemployment on the internet a while back, which said weekly hours have fallen from 80 to under forty in a century or so (can’t confirm how accurate this is). Also, the Fed’s figures show 33 hours a week and falling. I don’t know what proportion of the working population works in entertainment, but I bet it is a low percentage. Also, there was a proposal in the thirties, during the Depression, to cut the work week to 30 hours. The Senate voted it through, but Roosevelt stopped it. He claimed to regret his decision after his term. (I got this tidbit from The End of Work, by Jeremy Rifkin.) France (and maybe other EU countries) have followed a similar pattern I think, in reducing the work-week. There are stats to show it improves productivity.

    It is only our idea that “work” is “labour” that holds us back on this point, as if laziness naturally and always follows having no labour to exchange. There is no evidence for this in circumstances where a resource-based economy is in operation, for example on St. Kilda for centuries. Marshall Sahlins is instructive on this with regards hunter-gathering (The Original Affluent Society).

    I don’t think we need fear this process. Coming out of the closet here (hinted at above), I’ll state that for me a resource-based economy makes pragmatic sense as a direction to pursue in dealing with the challenge of automation. This is not at all an overnight process, needs to be tested and pondered deeply before any binding decisions are made, but I like knowing there are alternatives to the current system.

    Speculating our loud for a moment and risking opprobrium for my sins of economic ignorance:

    “Increased Productivity Means Less Jobs.” For the opposite to be true, as orthodox economics posits, wouldn’t the following also have to hold?

    increasing economic activity = increasing human labour (and vise versa)

    Which in turn would mean economic activity is joined at the hip with human labour, indeed IS human labour at root. Labour is where value comes from. Resources, ownership, scarcity and abundance are secondary to labour. Therefore, if machines, software and AI tend to replace over time the need for human labour, our ongoing challenge is to keep humans necessary for the task of producing goods and services they might want to consume, to find/create labour that cannot be replaced by machines/AI at a speed greater than technological development can match, AND in sufficient quantity to keep purchasing power sufficiently powerful.

    This process has been fitful and observed over centuries, but the race is hotting up, becoming more pressing. Assuming we don’t destroy ourselves, what are our chances of staying ahead of our inorganic competitors in this race indefinitely? Over the next hundred years? The next fifty? If we fall behind, that is, if human labour becomes sufficiently unnecessary for producing the required/demanded goods and services, we will need a new economics. I think this needs to be discussed openly and globally.

    Forgive me if I am missing something. I am but a humble seeker…
12. Skippy September 9, 2009 at 5:37 am

    Excuse me, but what will tickle labors minds whilst the transformation occurs. Just look at the freers/brithers/Rush mob gyrations when confronted with dissolution of their traditional values.

    I’m a product of that Midwest/Southwest ideology and understand their plight as they are born and bred as labors of masters, it is a birth right in their minds. Hell I spent 20 years striping that wall paper off my mind and it was not a good time for me or others around me. So what work/labors can be inserted whilst generational change occurs, they are are/going berko as ndk pointed out.

    They have the potential of becoming the American equivalent of Mujahideen, tired of rapid changes of which they have little understanding or want of with regards to long held beliefs (I wanted a pickle and got the barrel).

    BTW I’m good with annual hours completed for trade of goods and services, less than 29hrs a wk in any field, plus anything that can get us through till population growth pattens plateau/rescind .

    Skippy….Historical parallels have ceased to be relevant its a brave new dimension.
    1. Toby September 9, 2009 at 9:19 am

       Hi Skippy,

       you point out the part of this process that is both its most dangerous and tragic consequence. It has happened repeatedly throughout history, the Luddites for example, but change is nature, as Remy says in Ratatouille. In terms of hard work, sweat-of-the-brow stuff, there is an out of wack ecosystem we can’t afford to put right at the moment. That should keep people busy during any transition. But that needs a huge amount of organisation and will only be seriously considered after a total redesign of the system is taken seriously. Until that time, for those caught in its merciless maw, this process of adjustment is not going to be pretty.

       But like I already pointed out, I’m just probing around here, seeing what others think. I most certainly don’t have all the answers and could be way off base with my analysis. Time will tell.

       p.s. I always enjoy your posts.
    2. FrancoisT September 9, 2009 at 9:28 am

       “They have the potential of becoming the American equivalent of Mujahideen, tired of rapid changes of which they have little understanding or want of with regards to long held beliefs”

       That touches one of my biggest preoccupations regarding this recession. Contrary to 1930, where communities were tight knitted, families were large and living at shouting distance of one another, we have a atomized and very mobile society with few occupants per household, and a significant proportion of the population living alone.

       Factor in loss of “market value” for your skill set, rapid changes that are completely out of personal control, decrease in standard of living, an acute feeling that “things are not fair” or that “the fix is in”, “the country is headed in the wrong direction” while on teevee, those who are mainly responsible for this crisis are still making like bandits aided and abetted by the pols.

       To compound the problem even more, said teevee vomits a torrent of blablabla about how the economy is recovering (Really? where?), that the situation is improving (for whom) and of course, never an in-depth look at how bad things *really* are for the ordinary people. And if by happenstance they do, well, it’s just one of those things, you know. Gotta pull up you socks and get going buster!

       Far out! You, the buster in question, have been frantically looking for a job for over a year now. Money is awfully tight, you’re back on your mortgage, groceries are more controlled than access to a nuclear plant, you pray no one in the family get sick; as for anything entertainment…you canceled everything cable, restaurant and movies a long time ago. Of course, if you get rear-ended, the car is gone too. Everything you ever believed in, the importnace of Church and family, hard work get rewarded, save every month, be good and loyal to your employer…all these long held beliefs are severely tested, to say the least. As for any sense of self-worth…

       But…things are *improving* man!

       How long can this disconnect be sustained in the face of crude and cold reality? What about the effect of time? Should I also mention the abysmal success rate of worker retraining in the US?

       Feeling isolated, frazzled, discouraged, anxious and confused, you listen to this guy on the radio who provides simple and clear “explanations” to all your woes. The “others” stole you job, “the increase in criminality, it’s them!”, the government and the *libruls* (gasp!) “wants you to pull the plug on granma” and so on and so forth.

       Doesn’t sound like much, but there are 4 people who, influenced by these hate mongers, already acted out and murdered innocent people. With this this economic crisis as a powerful catalyst, we’ll see more of it. To pass form these random events to the “Mujahideen” stage, the only thing needed is a catalyst like an organized group a la survivalist/militia type.

       Sigh! This could be really ugly.
13. Praedor Atrebates September 9, 2009 at 9:17 am

    @fresno dan:
    “a. Some wag (or economist) once said that “expenditures rise to meet income.” I say that work rises to meet 40 hours. Its been over a centrury since the institution of the 40 hour week – nobody seems to be saying we should reduce it permanetly.”

    Ok, I’LL go out and say “we should be permanently reducing hours worked/the work week as a new normal”.

    Hell, how many futurists of the past kept going on about how technology would “free us” such that we would work less and enjoy more leisure? THAT WAS THE POINT OF TECH INNOVATION! Yet all it has done is lead to MORE hours worked and LESS leisure. Americans in particular, are the least vacationing people in the known (developed) universe…and this is NOT a good thing.

    The work week should be 4 days and vacation time should be expanded AND mandatory. The new normal needs to be less work, more time off, more leisure, exactly the way it was always supposed to be (the way it has always been sold to us).

    Switch to social credit with the government creating interest-free money into existence (rather than owing some private bank the instant money is “borrowed into existence”) and leave the private banks out to fill in the cracks as MUCH smaller entitities.
    1. earthday September 10, 2009 at 4:10 pm

       May be time to look at the Work Less Party who are actively working to reduce working hours and get mandatory vacation time in the US. I know they are struggling right now. Look them up and pass the word on.
14. Siggy September 9, 2009 at 9:36 am

    Good piece, it will take me some time to fully apprehend its content.

    I do have this thought; what we are experiencing is the global equilibration of the cost of labor. The equilibration process is manifest in the exercise of the labor cost arbitrage, the exported production jobs to lower wage locales. This equilibration is imputing reduced wages in the US while they are rising in the rest of the world.

    Our profligate spending that has been financed by easy credit that has created what is best described as a false level of demand. Capacity utilization rates are low and concurrently so is employment. The declines in labor utilization have been global. They are headed lower;i.e., we will see higher rates of unemployment.

    The global reliance on easily inflated fiat currencies lies at the core of the false price and demand signals. To fix the employment situation we need to simultaneously fix the global currency and to rebalance the means of production. This is problem of complexity that will take years and may never be resolved.
15. Peripheral Visionary September 9, 2009 at 10:52 am

    I suppose it is a sign of the times when otherwise respectable economists are openly considering printing money.

    It won’t work, of course; there is no such thing as a free lunch, and the murderous adjustment in interest rates will more than offset any economic growth purchased with printed money.

    If the U.S. wants the jobs back from China and Mexico, the solution is simple: it will have to look more like China and Mexico. No minimum wage, no required benefits for full-time workers, no special treatment for labor unions, and lower taxes for companies. Until then, our unemployment rate will be moving up to join Spain’s and Italy’s.
16. Anonymous Monetarist September 9, 2009 at 11:03 am

    Your article is a rogues’ gallery of datapoints. Thanks!

    I missed this nugget in the stress test : But the Federal Reserve’s more adverse scenario for the stress tests – which everyone knows is too rosy concerning most of its assumptions – predicts a loan loss rate of 9.1%, nearly three times higher than during the 1930s.

    ‘Nuff said eh..

    The HealhEdGov complex and the fact that ‘private sector job growth was almost non-existent over the past ten years’ translates for me as as ‘socialized guts results in diminished glories’.

    Looks like UK redux, we need a North Sea equivalent.

    Here’s a couple bits back.

    Bill King: ADP counts 2.5 million small biz job losses since January 2008. For the same period, the BLS’s Net Birth/Death Model, which is supposed to account for small biz job losses and gains, shows 1.507 million job gains. The difference is over 4 million jobs, which is substantial economically.

    Alix Partners: While American industry is struggling to get through what could become the worst recession since the Great Depression, Americans say that even after the recession ends, their spending will return to just 86% of pre-recession levels, which would take a trillion dollars per year out of the U.S. economy for years to come. According to this in-depth survey of more than 5,000 people, Americans plan to save (and therefore not spend) an astounding 14% of their total earnings post-recession, with the replenishment of their 401(k) and other retirement savings leading the way among their biggest long-term concern.
17. run75441 September 9, 2009 at 11:41 am

    Siggy:

    Mostly right on the labor cost; but, I would break it down farther. With Direct labor (that labor involved in making the product) the content of it in the Cost of Manufacturing is ~10% with it being slightly higher in Asia. The playoff id coming in the overhead which is far higher in the US as compared to Asia. Overhead takes in far more than just plants and assets. I would include all of those bennies we have enjoyed for the last 50+ years and any laws to protect the environment, safety, children (and yes children do work in China), etc.

    Praedor:

    Over at econospeak is an advocate of the shorter work week by the name of sandwichman who advocates Chapman:

    “The eight-hour day has come to be regarded by some social reformers as the ideal of the future. The doctrine that the workman should normally work eight hours a day has been advanced with as high a degree of certainty as, say, the doctrine that the workman should normally sleep some definite number of hours a day. But the problem of the length of the working day is of a different nature from that of the problem of the time that should be devoted to sleep. The hours that should be given to sleep depend mainly on physiological conditions (though these physiological conditions are also affected by economic and psychological conditions). But the hours it is wise to assign to labor depend on the attitude of the workman to leisure and work, resulting as much from non-physiological as from physiological influences.

    It is my purpose to show that the non-physiological value of leisure, as well as its physiological value, must rise with progress, and that therefore, in all probability, the hours that should normally be worked per day will become steadily less. The ideal working day of the future cannot be eight hours, for it must be essentially a progressive ideal. As a community advances, agitation for shorter hours will be constantly breaking out anew. If this is a correct reading of progress, it is important that we should understand fully the forces at work at each re-settlement of the length of the working day, those on the employing side as well as those expressed in the claims of the workers. I propose now, in consequence, to disentangle the impulses and their relations, into which the question of the determination of the working day at any one time may be resolved.

    The matter being complex, it is necessary to proceed by successive steps of abstraction. In the first instance, therefore, I intend to indicate the length of working day workers and employers would respectively seek if they recognized their own interests and were endowed with complete foreknowledge of the effects of different hours of labor upon their interests. I will assume – as I may legitimately for most employment in large-scale production – that the workman tends to get as his wage his marginal worth, that is to say, the value that would be lost by his dismissal. We may assume, further, that the marginal worth of the workman for any given length of working day becomes, in the long run, a stationary amount.

    If the efficiency of labor rose continuously in consequence of a reduction of hours it would obviously approximate to some limit, and if it fell continuously in consequence of an extension of the hours of labor it would also approach a limit. After some time the differences between these limits and the actual efficiency of labor could be taken as negligible.

    For the sake of simplicity, I will for now suppose that one kind of labor only is employed. It is clear, then, that it is possible on these assumptions to indicate what in the long run (i.e., when all the reactions as regards, for instance, the efficiency of labor and provision and arrangement of other agents have taken place) the marginal daily worth of labor will be for different lengths of working day, it being understood that the number of shifts worked remains the same. If the number of shifts were increased the value of the labor would rise, as will be fully explained later.

    Let us suppose that the following table represents, at a given time, the value of labor of a given kind per week, in relation to the length of the working day:
    The fall in the value of labor after the working day exceeds nine hours is due to the fact that diminished weekly productivity more than counteracts the direct effect of the extension of the daily time for work. The diminished weekly productivity may be due to impaired vitality – physical, mental, or moral – or to some extent to irregularity, where that is possible, as in the case of colliers. The damage to productivity may be inflicted directly by excessive work, or it may be indirectly consequent upon it, the prime cause being found in the use of stimulants or recourse to unhealthy excitement in periods of leisure, reactions that are only to be expected when the day’s work is very exhausting or very dull. The use of leisure affects, of course, mental vitality, culture, and character, and it will therefore be generally observable that labor which has had its hours reduced will be capable after a time – when the use of leisure has been improved and the improvement has produced its effects – of managing satisfactorily more complicated machinery, and will be generally more responsible and trustworthy, and therefore less in need of continuous watching and directing.

    If employers are endowed with the foresight presupposed, and if their operating hours need not increase concurrently with a lengthening of the working day, it is in that case supposed to their interest collectively to come to an agreement not to employ labor more than nine hours a day, and to their interest individually not to employ labor for shorter hours than nine a day. The second conclusion follows from the fact that the weekly product would be augmented by a greater amount than is multiplied by the number of workers were the hours of labor increased, say from eight to nine, because labor, as every other agent employed in production, is paid not its aggregate but its marginal worth to the business in which it is employed. This proposition may be made more self-evident by the following example. Were labor rendered 25 percent more productive all round, the product and real wages would each be raised approximately 25 percent, other things being equal; but as the product must be greater than aggregate wages the addition made to the former by the longer hours must be greater than the addition made to aggregate wages.” http://econospeak.blogspot.com/search/label/chapman

    It does seem the 40 hour week is somewhat extinct as a measure of work, given the efficiency gains since the sixties, and also the availability of global labor. None of which of the later two have trickled down to labor. Instead we have seen a deterioation of wages and a continued 40 hour week with less labor.

    Fine discussion though and interesting.
18. run75441 September 9, 2009 at 11:45 am

    Hmmm:

    For some reason all of this took even though I deleted much of this! Not sure why! Sorry for the run on post George and Yves.
19. DoctoRx September 9, 2009 at 12:30 pm

    Congrats to the blogger. A fabulous effort.
20. Ed September 9, 2009 at 12:36 pm

    Great piece, particularly because its comprehensive.

    One thing the comments haven’t mentioned is population growth. The world population has gone from 4 billion to 7 billion in my lifetime, the US population from something like 225 million to 300 million. Has economic expansion and job growth kept pace? I doubt that it can with population growth that rapid. Note that offshoring and immigration makes the high population growth in places like Mexico very relevant for the employment outlook in the US.

    Also, people have pointed out a key difference between now and the 1930s, fewer families able to support themselves through farming. We have more welfare programs since then, but for most people if they don’t have income coming in through a job, they don’t eat. The paradigm has been that there are more jobs that need doing than people who don’t want to work, so if you don’t work, you don’t eat. It looks like that idea will have to be junked in the future.
21. Hugh September 9, 2009 at 1:12 pm

    I made a comment a day or two ago about deflation that could serve as an outline for this article. While this post concentrates on unemployment, it touches on other aspects and shows what many of us have maintained that the fundamentals suck, are not being addressed, and are getting worse. As in my previous comment, I would just add that financial institutions have been making use of their bailout money to fuel the suckers stock market and the run up in oil prices. The effect of this is to mask temporarily the full extent of how bad the economy’s overall condition is. So as bad as things look now, the reality is substantially worse.
22. Karen September 9, 2009 at 2:43 pm

    Wow, that last chart (HealthEdGov vs. rest of economy) is scary. The “Ed” part could turn out to be a good investment in a better future economy, but it could also be everyone spinning their wheels, trying to develop skills that will improve their job prospects, only to find out that it was all a waste of time and now all they have is student loans to show for it.

    I don’t like this part of the post, though:

    “If Congress chooses to take charge of its constitutional duty, it could similarly use greenback currency created by the Federal Reserve as a legitimate channel for financing important public projects”

    This is nothing more than an attempt to cheat our way out of our problems in the exact same way so many Third World countries have done, always with disastrous results.

    It robs everyone who holds dollars and dollar-denominated debt, including prudent Americans (especially those nearing retirement age) as well as a whole lot of foreigners (largely but not only because the dollar is the world’s reserve currency).

    Every time the Fed creates a new dollar, all the other dollars in existence lose a little value. It’s basic supply and demand.
23. Stelios Theoharidis September 9, 2009 at 3:33 pm

    Although I agree with a majority of your article. It was lacking in relation to the job creation puzzle. I am unconvinced of the merits of a majority of popular measures utilized to stimulate job creation and economic growth.

    I would suggest looking at Architecture 2030’s plan for jobs creation. Their idea is to trade home owners subsidized interest rates to keep them from default, for specific home energy efficiency improvement benchmarks. On the balance home owners keep their homes, save money through energy efficiency and reduced loan payments, construction jobs are created (one of the worst effected sectors), and the government only has to pay to subsidize the rate, in many cases the Government already indirectly owns the home loans (fannie/freddie). There is a parallel program for commercial property owners.

    The economic growth returns on providing revolving or subsidized loans versus the cost of administering these systems for infrastructure development, efficiency improvements, community loan institutions ect seems much better than some system of direct payments. Lending can be directed through non-profit institutions (for those that fear the hand of the gubberment) or local governments. Another good idea has been special tax assessment zones that can be applied for residential solar, water harvesting systems in the southwest, and other residential home efficiency improvments. These systems are revolving rather than one off efforts towards economic stimulus.
24. Skippy September 9, 2009 at 8:46 pm

    @Toby&Francis T.

    Thank you for your aditionl thoughts, much appreciated.

    Cheers

    Skippy
25. Obbop September 9, 2009 at 11:55 pm

    Please, ponder and consider almost any aspect of the USA society, economy, political systems… EVERY aspect from social to subjective feelings of citizens while assuming a three-decade-old and more class war has been underway.

    “There’s class warfare, all right,” Mr. (Warren) Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.”
26. Keith September 21, 2009 at 11:50 am

    Yeah, this is nitpicking, and considerably after the diary date, but…

    > Indeed, the crash in real estate and rising unemployment together form a negative feedback loop. As McClatchy notes, foreclosures rise as jobs and income drop.

    This is a POSITIVE feedback loop, not a negative one. A positive feedback loop feeds upon itself – just like the Arctic climate conditions (and the current economic conditions being described here) are ‘positive’ ones. A negative feedback loop corrects itself.

    Seems counter-intuitive in both cases, but if you think about it, the nomenclature makes complete sense.

    Excellent article. Thanks.

Comments are closed.