Don’t Be So Sure the Economy Will Return to Normal

http://www.nytimes.com/2015/05/17/upshot/dont-be-so-sure-the-economy-will-return-to-normal.html?smid=tw-upshotnyt&_r=1&abt=0002&abg=0

by jseliger • 11 years ago

42 41 11 years ago

nytimes.com

jedharris• 11 years ago

Cowan talks about a "reset". Perhaps part of the "reset" will be putting some of benefits of productivity back in everyone's pocket.

csense• 11 years ago

The real issue here is globalization. In the post-WW2 years, US workers had a monopoly on labor provided to US firms, and thus were able to extract some of their firms' economic surplus (either through unionization or the threat of unionization). Company owners shared some of their profits with their workers because they had no other choice.

Now that trade borders are relatively open, companies have the option of looking elsewhere. US workers can no longer extract the surplus because if they attempt to, their company will simply relocate operations to a different country.

It's an either-or proposition: You can have free global trade, or you can have a job market that pays high wages to workers of average skill. You want both, but it's impossible; so we have to make a choice. We've chosen free global trade, and (as the article notes) there's a slow adjustment time in institutions. Figuring it began in the 1970's with Nixon opening up China, it took about 25 years to really be felt (in the dotcom bust, financial crisis and subsequent slow recovery).

digikata• 11 years ago

Globalization plays it's part, but I think the real root cause is the shift in business philosophy to systematically squeeze margins for short term goals. Worker salaries are one vulnerable facet there, but between businesses margins are tighter too. It basically optimizes efficiency & profits today, but edges out a number of avenues for better long term growth - larger investments in new products within companies as well as the worker pay & savings (which in turn hurts for example self-funded small business starts).

In theory, tighter margins means better purchasing power for everyone, but somehow that excess from the squeeze seems to be unevenly sticky as capital flows past the upper wealth brackets.

oxymoron• 11 years ago

There are other factors here:

Automation. East asia remains the manufacturing powerhouse of the world, but even that region is losing production jobs in absolute numbers. Low skilled labour opportunities are disappearing everywhere.

Transport. Free trade doesn't cause a sudden loss of jobs to abroad. Cheap and effiecient logistics did. The incentives for moving jobs abroad is there with or without trade treaties.

Regulation and incentives. Not sure if it remains the case but most of the major US tech companies including the likes of Microsoft, Dell and Intel used to be headquartered on Ireland due to tax incentives.

Unions. Love 'em or hate 'em, they do cause disturbances in the market equilibriums.

---

All of this has happened without treaties with either the EU nor the pacific countries. Some automotive factories may have ended up in Mexico, but NAFTA is hardly the reason that the US is where it's at.

a3n• 11 years ago

I think the productivity reset has already happened, but not in the way you (or I) would hope. That's why wages and confidence of individuals are stagnant, while corporations and stocks are doing well. "The recession is over" is true for corporations, but is open to debate for lots of individuals.

stegosaurus4• 11 years ago

"Normal" is hilarious in context.

In the UK we have a housing crisis so acute that even "well paid" professionals are paying 50%+ of income on a 1 bedroom flat.

We have a government that sees the unemployed as vermin, rats to be extinguished. A government with a puritanical "work will set you free" mindset.

And overlaid on that, in the past decade we've had the Internet go mainstream. Working class kids now have an acute awareness of what the other half is up to.

The whole model is bloody broken. It makes me depressed that people even engage with this tripe. It's like having a discussion about how best to cook a slab of meat that's been left out for months and has gone fuzzy and green.

We can't go on with this nonsense class based serfs and lords stuff. Really, we can't. It's not just bad for the squeezed middle, it's bankrupt from top to bottom. People working in shit jobs for shit pay to die early. Middle class kids buckling themselves in with the student debt and the mortgage to spend their entire adult life under the heel of the capitalists.

And now they _know_ it. It's not just 'how life is', any more. It's how life was made to be for them, by those.

We don't need kebabs or movies or dry cleaning. This stuff exists and these people are working in crap conditions for the sole reason that we decided as a society that people don't deserve the basics unless they submit to the machine.

It can be fixed. The difference between a landlord and a tenant is a piece of paper or a few bytes in a database.... but we cling on to the model.

When and how will it end?

jseliger• 11 years ago

In the UK we have a housing crisis so acute that even "well paid" professionals are paying 50%+ of income on a 1 bedroom flat. [...] When and how will it end?

The UK makes it prohibitively hard to build new housing, and, consequently, in the face of a rising population and not-rising housing supply, prices rise. It will end when the UK liberalizes building: http://www.buzzfeed.com/dlknowles/britains-dysfunctional-pro... .

myblake• 11 years ago

It's like San Francisco only way bigger!

ZeroGravitas• 11 years ago

It sounds like you think you're disagreeing with him, yet the housing crisis, as you say, is due to limited building, and lots of MPs have property portfolios which more building will threaten the value of. Meanwhile those who already own large properties are happy to see wealth transferred by this arrangement from the young and poor to the old and wealthy and reliably vote for it to continue (while complaining about 'subsidy junkies' who want something for nothing).

So a simple problem to solve, except for the fact that its being intentionally inflicted on people by those with power for their financial benefit.

asuffield• 11 years ago

The key detail not mentioned in that article is that this is primarily an issue of London, which the rest of the country does not share. Outside London, house prices are a lot more reasonable and there isn't really a major shortage.

The planning permission details in there appear to be a distraction - release of low-value "green belt" land, like that pictured in the article, does happen where needed. The big problem in London is that any proposal for new construction will be met with fierce opposition from nearby homeowners on the grounds of congested roads, limited parking space, overuse of local amenities, and lowering the value of their own properties.

M82• 11 years ago

Quitting EU could help with the property market. EU immigration is out of any control.

redml• 11 years ago

The main problem is that we're way too productive for the amount of people we have. The best solution in my mind is cut the average job back from 8 hours to 4-6 hours, and have some very strict rules about overtime. You basically have to make it so its worth it for the larger companies to hire more people rather than squeeze what they can out of their exisiting workforce.

collyw3• 11 years ago

"The main problem is that we're way too productive for the amount of people we have."

Look around you, there is plenty of work that needs done.

Doctors and nurses are overworked (so am I in my opinion). The streets could be cleaner. Public services are getting crapper and crapper (back in the 70's bin men came around once a week, walked up your drive and collected the bins, nowadays you have to do take it to the correct position outside your home). Teachers complain about workload.

Every time you have to wait in a queue, think if that would be there if there were more staff.

Its a complete misallocation of resources.

waps• 11 years ago

When and how will it end?

The situation is caused by the government attempting to control lending cost. This has happened before and it will happen again. Essentially governments are currently attempting to create a massive wealth transfer from, well mostly everybody, to their favored causes (firstly to government spending, and second to property values, through banks). To do this they are taking out what effectively are huge loans.

So central banks are painting themselves into a corner. They are making it extremely easy for the government to borrow. Why ? Because this will make it easy for those governments to pay off the debt burden that has become too much for them. Of course governments aren't paying off debts at all, rather they are increasing spending (look past the austerity rhetoric to the actual numbers : taking into account that their debt servicing cost is decreasing by a LOT, they're actually increasing spending by over 10%, all of them).

This makes those debt burdens a lot worse, because that cheap borrowing cost is temporary. Debt that is serviceable at 0.2% interest costs double as much in debt service at 0.4%, which is a tiny change.

So the situation becomes more and more unstable. This could last a few years though.

So what will happen next. Most/all of the governments in Europe (and the US) will likely end up in the position Greece was in 2 years ago, or worse, due to a tiny rise in interest rates. Then they will default on at least some debt. This will cause an enormous spike in interest rates, so it will become prohibitively expensive for governments to loan money at all, and they will lose the ability to rollover debt. So they either come up with 100% of GDP without loaning money (ie. massive inflation), or they default on more debt. This will crash banks (but don't worry : government guarantees have been gutted so it won't cost the government anything. Google "bail-in legislation").

At this point interest rates will shoot up to 10%, maybe 20%. All those investment properties in Londen will suddenly be extremely costly to their investors (their monthly payments will double or triple in a year), and go on the market (the problem is not too little housing, the problem is that for the moment it's too valuable to invest in real estate, given the rising prices).

And then we're back in 1992 or so.

buckling themselves in with the student debt and the mortgage to spend their entire adult life under the heel of the capitalists.

Sadly, you can be assured of one thing : when this story has played out, you'll be worse off than today, for at least a few years. And God help those with student debt, or even worse : those with student debt backed by a state (US, UK, Australia, Netherlands all have large amounts of people with lots of student debt backed by the state).

Ntrails4• 11 years ago

We have a government that sees the unemployed as vermin, rats to be extinguished. A government with a puritanical "work will set you free" mindset.

I'll give you that, as a somewhat tinted perspective on the governments views, but I'm not sure where you want to go with it? Every government aims for minimal unemployment, it's one of their key tasks - to get people into work. I'm not sure you'll find anyone willing to say "You can work if you want to [you can leave your old friends behind], otherwise here just live on other peoples taxes".

People working in shit jobs for shit pay to die early

Most people work jobs that they do not enjoy. Working is a means to an end, survival. Please do define for me a system where the jobs are all lovely and nobody has to do anything they don't want to do. There seems to be this theory that everyone should be happy, it's pure myth. Life never has worked like that for the majority of the population in any historical system.

slirpee2• 11 years ago

Working is a means to an end, survival.

Ugh. I find this idea very distasteful. Admittedly my view is tainted by depression, so it hurts extra to be told my only reason to do work I don't like, is so I can keep experiencing a life I don't like. (But, I am apparently still here because I don't entirely dislike it, and/or have hope it will get better.) I do recognize being upset about this may be seen as childish, naive, or entitled, but...

There seems to be this theory that everyone should be happy, it's pure myth. Life never has worked like that for the majority of the population in any historical system.

I think you're missing the point, or at least something I think about. We're living in an increasingly efficient, automated, bountiful, and wealthy world; why do we have to stick to any "historical system" that sucked for 99.9% of all humans who have ever lived? You "did your time", so every other human after you should have to as well? I don't know what the point of progress as a society is, if it does not result in improving the happiness of the people.

Now, if you want to argue that unpleasant but necessary work actually improves happiness, or that people need to find their own happiness through spiritualism/religion etc., I could see some merit. But I'm reading basically "Life will always be shitty, shut up and get back to work so you can survive another day of your shitty life." Which seems like pointless, soul-crushing, circular logic I'm not willing to accept. Which again, may be naivety/depression on my part.

unicornporn2• 11 years ago

I'll give you that, as a somewhat tinted perspective on the governments views, but I'm not sure where you want to go with it? Every government aims for minimal unemployment, it's one of their key tasks - to get people into work. I'm not sure you'll find anyone willing to say "You can work if you want to [you can leave your old friends behind], otherwise here just live on other peoples taxes".

Every government also knows that we will, in the foreseeable future, have unemployed people and that their numbers will increase. (Mostly) not because these people don't want to work or aren't the entrepreneurs they should be, but simply because we are constantly rationalizing and automating our societies and less and human work is needed to keep the machine running.

So, the question is: how should we treat this pool of workless people that will always exist? My suggestion is: not like shit. I'm in Sweden, and seen from an international perspective (although I'm not content) we are quite helpful to these people. Basic income might be a solution, but that will most likely make dirty and simple work look extremely unattractive. It will drive up the prices for the kind of work that we are normally used to paying next to nothing for. That wont be politically popular at all.

Please do define for me a system where the jobs are all lovely and nobody has to do anything they don't want to do. There seems to be this theory that everyone should be happy, it's pure myth. Life never has worked like that for the majority of the population in any historical system.

No, but please remember that there is also a lot (historically) that hasn't worked the way things work right now. The technical advances and rationalizing potentials are gigantic and have the potential to reduce working hours drastically.

stegosaurus4• 11 years ago

Ehhhh... I don't really know where to start here. We have viewpoints and value systems that differ on the most basic level. I don't give a single fuck for the historical system. The historical system is a system of rich and poor, of serfs and lords, full of exploitation at every level. Forget about it.

'Living on other peoples taxes' is total nonsense. It posits a world within which my work allows you to be lazy when that is not the case at all. You can be lazy regardless of whether or not I work in the vast majority of cases. Very few jobs are actually essential and even fewer are useful to the 'lazy' person (because they would not be wealthy enough to patronise restaurants, take luxury holidays, drive flash cars, etc.)

The UK has a ton of housing stock. It exists, it's there. We need a bit more, but generally, people work in order to pay a wealthy landlord; they don't work because the home needs any labour in order for it to persist.

We do need some level of labour in order for society to continue. But I argue that we don't need to force people by withholding (yes, withholding. not failing to present them - land ownership is a withholding of the commons) basics from them.

People will work anyway because they want more. The bottom level doesn't have to be serf status.

Money is a distraction. It is the current way of distributing resources. It doesn't have to be.

There is a distinction between giving people the opportunity to work and therefore increase their wealth; and forcing them to work by withholding things and renting it back to them. The former is great! The latter is evil.

jqm• 11 years ago

I read a theory somewhere that one of the the reasons Japan and Germany did so well in the post war years was that the war had completely cleaned out the rot and corruption from their institutions and they were starting over with a clean slate.

I have no idea how true this is. But I do suspect some of the troubles in America are more than economic... they are structural. Corruption in boardrooms. Profits without production. Institutions far deviated from their original purpose. Workers showing up and barely going through the motions with a sense of entitlement. Managers who have long since ceased to serve any useful function holding on to their jobs and perniciously cutting out anyone who would threaten them by innovating or producing. It's no one persons fault. It's not even the systems fault. It's just I think what happens when systems grow stale and a bit corrupt. Maybe there does inevitably have to be a real reset before things can get better again.

meric2• 11 years ago

The situation is getting a bit like the late Qing dynasty, the late Ming dynasty, the late Ming dynasty, the late Song dynasty and before that, the late Tang dynasty, the late Jin dynasty, and the late Han dynasty before them.

The corruption amongst the wealthy and the powerful, as well as overreach of power from the central state causes instability in the empire, and with revolts, crisis and invasions abound, the empire collapses, and a new one arises like a phoenix out of ashes, along with a new era of prosperity where government officials work to the benefit of the people.

Dynasties in China rarely last more than 300 years before the corruption and the reach of the state expands too much and collapse the dynasty with it. The current global hegemon is the United States of America...How long has it been since the last rebellion in the Americas, against the last global hegemon before them, the British Empire?

239 years.

I am optimistic my future grandchildren will live in more optimistic times than my future children will.

f3llowtraveler2• 11 years ago

where government officials work to the benefit of the people.

hahahahahahahaha

f3llowtraveler2• 11 years ago

The entire financial and monetary system is a government-enforced cartel. I don't expect that to change anytime soon. Things will just keep getting worse.

mempko• 11 years ago

People of the west. The capitalists are abandoning you. They don't give a fuck about you. You live in a 'mature' economy. They are going where the growth is like China.

But don't fight it. Take it like a man. Watch more TV, drink more. Weed is being legalized so you feel better about all of this.

Don’t Be So Sure the Economy Will Return to Normal

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