Tag Archives: recession

Popular Economics Writing

Like most of us, I want to understand the economy and the political economy for my teaching and for my own sake.  I enjoy reading what we might call “popular” economics writing.  For example, I always try to check out James Surowiecki’s column in the New Yorker called the “Financial Page.”  Recently he wrote about the classic arguments about the source of unemployment: structural or cyclical factors (January 3,2100; page 23).  He pointed out how a blind allegiance to a vague ideology explains the persistence of belief in the idea that there must be something structural with unemployment this time.  In other words, the problem is that we do not have the “right kind” of workers for the available jobs.  Stimulus can do nothing since we just need to wait for people to retrain or leave the labor force, or die, I suppose.  If structural, then we just have to let labor markets “sort themselves out.”   The problem with the structural argument, as Surowiecki points out, is that there is scant evidence for it.  Payrolls are down and hiring stagnant across the board and not just in certain industries.  What are the industries with openings and not enough supply of workers?  None.

I have also picked up two books that I am making my way through.  One is “Crisis Economics” by Nouriel Roubini and Stephen Mihm.  I heard about him on the Planet Money podcast as one of the the economists who tried to sound the alarm bell on the housing bubble when no one was listening.  I am not sure that makes him clairvoyant all the time (of course!  He is an econmist!) but it seemed worth checking out.  I am only into the second chapter, but he already said something I have repeated so often in my classes: greed does not explain the bubbles nor their negative after effects.  My students almost universally will latch onto greed as the explanation and I see it as a key teaching need and challenge to get them off that well-worn groove.

There are two flaws in this kind of folk explanation.  First, greed can only be an explanation if you ignore the complexity of human systems and assume that what we observe as facts is due to the choices of a few people.  Given the complexity of human behavior and the way our actions are shaped by our history and context, one can not argue that it the recession is due to “some greedy people.”  This is the flaw of an under-socialized theory of human agency.  The second flaw is to grant the causal force of greed to the fact that some unspecified amount of people have just become more greedy.  As Roubini points out as well, why would wall street types become more greedy from 2002 to 2008?  Or from 1978 to 1998?  Aren’t they always very acquisitive and ambitious?  In fact, isn’t that exactly what my students admire and idolize about a career in finance?  There is no clear causal argument for why many more people would become greedy.  This line of folk reasoning makes invisible all of the inter-related organizational, institutional, and cultural forces that can interact to change the conditions of being “greedy” to make it either a controlled burn of energy or an uncontrolled conflagration. This is the second half of the under-socialized view (the term comes from the essay by Dennis Wrong) because it points out what needs to be added to have a more accurate theory of human agency.

In other words, greed ain’t enough to explain this shitstorm of economic problems.  To rely on this flawed reasoning leaves one to argue that the solution is for people to out of the blue just be “less greedy” and “more moral.”  To try to apply these solutions will only perpetuate an under-socialized view of human agency and any possibility for more effective action that addresses the conditions that enabled the recession.

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Filed under economics, macroeconomics, Scholars, Uncategorized

Some Common Sense at Last about Banks- Volcker

This strikes me as the right approach.

Volcker Calls for Restricting Banks’ Risk, Trading Activity – WSJ.com
The comments reflect Mr. Volcker’s long-held view that banks should act more in line with their traditional role and not take extremely risky gambles, which could threaten the viability of commercial banks and expose the Federal Reserve and taxpayers to large risks.

People keep yapping on about how the financial systems is the “circulatory” system of the economy.  Fine.  Then by extension, the amount of risk we have been allowing into the commercial banking systems is akin to eating four hamburgers every day for every meal, and then doing amphetamines, adn then running a marathon while smoking and hoping it won’t give us a heart attack.

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Filed under Banking, economics

Labor Day Thoughts

This post is mostly for my students (and myself)  since the unyieldingess of the academic calendar means we are in class on labor day.

I know as a kid growing up with two professional, salaried parents, I had no concept of labor day aside from that three day weekend.  I wonder how many of my students have a similarly hazy and immaterial understanding of the “labor” part of labor day.

So, how is the state of our workforce?  Not good. 

Official unemployment is at 9.7%.

This number of course, due to how it is measured (those actively looking for work in last four weeks).  That doe snot include discouraged workers, those who are marginally attached (would work more), or who have dropped out of the labor force.  This NY Times article nicely adds a human face to those categories.

They were left out of the latest unemployment rate, as they are every month: millions of hidden casualties of the Great Recession who are not counted in the rate because they have stopped looking for work.

And it has pictures!

This discouraged worker carpenter fills his time by cutting grass with clippers.

This discouraged worker carpenter fills his time by cutting grass with clippers.

The Bureau of Labor Statistics (BLS) has a very broad category to capture these various situations people find themselves in.  In August, the u6 measure, as it is known, came in at 16. 8 million. That was a 6 million increase over the year prior.  At 155 million in the labor force, that is an unemployment rate of 10.8%.  Throw in the number of people dropping out of the labor force all together, and you can  add another % point to get to an unemployment rate of around 12%.

Over at CalculatedRisk, the following chart captures the way that unemployment is steeper (big drop) and longer (more time to recover) than most recent recessions.  In short, this is a whole new world and historical analogies are rough at best.

Click to enlarge.

Well, there are bound to be bumps when you unleash the creative, destructive forces of capitalism, some might say.  Overall, we do better if we take the long view.

This is not a jobless recovery, it is a  jobless economy.  The amount of job growth since 200o is essentially zero. This graph shows that the ten year change in private employment is almost zero.

Edit

UPDATE: Here is a small glimmer of good news.  While labor-managemment, or labor unions in general, are usually seen in pretty negative terms, I am happy to share this little list of organizations acorss sectors that are successful and rely on collaborative organizaed labor partnerships.

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Filed under Business, economic sociology, economics, Political Economy