The euro area economy is in a terrible mess.
In December 2013 euro area GDP was still 3 percent lower than in the first quarter of 2008, in stark contrast with the United States, where GDP was 6 percent higher. GDP was 8 percent below its precrisis level in Ireland, 9 percent below in Italy, and 12 percent below in Greece. Euro area unemployment exceeds 12 percent—and is about 16 percent in Portugal, 17 percent in Cyprus, and 27 percent in Spain and Greece.
Europeans are so used to these numbers that they no longer find them shocking, which is profoundly disturbing. These are not minor details, blemishing an otherwise impeccable record, but evidence of a dismal policy failure.
The euro is a bad idea, which was pointed out two decades ago when the currency was being devised. The currency area is too large and diverse—and given the need for periodic real exchange rate adjustments, the anti-inflation mandate of the European Central Bank (ECB) is too restrictive. Labor mobility between member countries is too limited to make migration from bust to boom regions a viable adjustment option. And there are virtually no fiscal mechanisms to transfer resources across regions in the event of shocks that hit parts of the currency area harder than others.
Will the United States remain as civilized as Greece or Spain if its unemployment rate ever gets as high as theirs?
Greeks and Spaniards can, out of desperation, go work in Germany or the Netherlands and send money home. But if the economy gets that bad in America where could Americans go to do work to send money home? Um, nowhere.
America's next economic downturn might turn out to be much worse than the 2008 crisis because the last time the US government could run up big debts. This time the US government would start out with a much larger existing debt and the economy would start from a higher initial unemployment rate.
The American people have voted for expensive old age entitlements (Medicare is by far the biggest) and voted against the very high level of taxes that would be needed to fund them. The American people have also voted for a large military without the taxes needed to fund it. The American people have even voted for lots of entitlement programs for poor people. Again, not enough taxes to pay for them. This gap between promises and revenue is widening as a result of aging. Plus, the young folks aren't doing as well as previous generations (thank you immigrationists) and therefore aren't earning enough to pay enough taxes either. So the US government's financial condition will be far worse going into the next financial crisis. My advice: be prepared.
Come the next financial crisis will the Euro survive? Will some countries exit?
A sign of the times. They've also already cut average store size in half.
As retail store fronts continue to shrivel up what will the lower skilled and less bright members of society do for a living?
I am struck by my declining need to buy goods and services from the left half and even the middle of the IQ Bell Curve. It has been many months since my last visit to a bricks and mortar bank. I think I went to Target and Wal-Mart maybe once or twice in 2013. Still going to grocery stores for fresh fruits and vegetables. It has been years since I bought clothing or shoes in a store. I get all electronic devices online. Ditto bed sheets and pillows. Unlike the residents of New Jersey I pump my own gasoline. I do still shop in physical furniture stores though.
What can the less skilled do? Trash collection, but the trucks reach out and grab the cans without the driver leaving his seat. So not as many people collecting the trash. They can still work in food preparation. But automation will come to food prep in time. I'd be surprised if the fast food restaurant of 2034 needs even half the labor of the same sort of restaurant in 2014.
Not much productivity improvement has come to fast food restaurants so far. The rise in fast food restaurant productivity has been slow with a productivity increase of about 12% since 1987. But ordering and payment will get automated with touch screens and smart phone apps. Eventually automation will come to food prep as well.
The decline in wholesale and retail employment has not been as sharp as the decline in manufacturing. That page has a lot of useful graphs on employment trends per sector. Look at those graphs and see if any sector looks like it has the potential to absorb a lot of low skilled workers as employment in other sectors shrink.
Recent college graduates are ending up in more low-wage and part-time positions as it’s become harder to find education-level appropriate jobs, according to a January study by the Federal Reserve Bank of New York.
My standard advice: Upgrade your skills. You've got to go up if you don't want to go down.
The economic analysis finds that Millennial college graduates ages 25 to 321 who are working full time earn more annually—about $17,500 more—than employed young adults holding only a high school diploma. The pay gap was significantly smaller in previous generations.2 College-educated Millennials also are more likely to be employed full time than their less-educated counterparts (89% vs. 82%) and significantly less likely to be unemployed (3.8% vs. 12.2%).
Part of the effect reported here is due to a larger fraction of smarter people going to college. A bright high school grad of 1970 was probably less likely to go to college than a bright high school grad of 2000. So the people who remain in the ranks of high school grads aren't as smart and ditto for high school drop-outs. Though at the same time IQ of the average college grad has dropped as more people have been encouraged to go to college. That would tend to depress the job performance of the average college grad.
Large demographic changes due to immigration further muddy the water. What we need: income by IQ level for each generation. That would let us see more clearly how much the wage premium for higher intelligence is rising.
Patrick Buisson, former political advisor to former French president Nicolas Sarkozy, secretly recorded conversations that Sarkozy had with Buisson present. Now Sarkozy is trying to block having all these conversations made public. The funniest part of this episode: Buisson is a royalist.
Buisson, 64, is a former historian and journalist and a self-styled royalist with links to the far right.
I am reminded of Gregory Clark's recent book, The Son Also Rises: Surnames and the History of Social Mobility, in which he finds that surnames are linked to social class and income for many generations. He finds that intergenerational mobility in status and income are much lower than economists believe.
Why this royalist reminds me of Clark's book: Swedes with noble surnames are much more successful (e.g. far greater representation among lawyers and doctors) than people with other surnames. At least in Sweden the nobility is much smarter than the population as a whole and therefore would make much more competent political rulers.
So what I'd like to know: in which countries are noble surnames associated with higher intelligence and which countries have the smartest nobility?
In Gregory Clark's excellent new book The Son Also Rises: Surnames and the History of Social Mobility (The Princeton Economic History of the Western World) the following line leaps out:
The idea of tradeoff between quantity and quality of family life is one of the sacred doctrines of neoclassical economics, one that lies at the heart of attempts to explain the long-delayed arrival of modern economic growth.
What is wrong with neoclassical economics? It has sacred doctrines.
What is incredibly refreshing about Gregory Clark's books: They are so incredibly empirical and undoctrinal. Reading him makes reading even the best economics blogs dissatisfying because he reminds me of just how many bad assumptions underlie modern economic thinking.
What is the real reason it took so long before the Industrial Revolution started? First, the conditions needed for natural selection for much higher IQ levels had to come into existence. Next hundreds of years had to transpire during which selection process selected for higher IQ and other attributes needed for an industrial society to develop. Eventually people sufficiently smart were born and grew up to invent the steam engine and then to improve its efficiency. Then those smarties and other smarties could keep refining the technologies inventing new gadgets to enable an escape from the Malthusian Trap.
This latest book by Clark demonstrates that status is far more persistent across generations than conventional measures of economic mobility have led economists to believe. Clark's previous book, A Farewell To Alms, demonstrated that in England for centuries the higher status middle and upper middle classes left more progeny than the poorer lower classes. That caused selection for higher IQ, higher social competency, longer time horizons, and lower impulsiveness.
In the 20th and 21st centuries the selective pressures have been running in the opposite direction and industrialized societies are suffering from declining smart fractions. Until liberals throw off their tabula rasa faith we have no chance of reversing the decline.
inequality is sharply higher in economically vibrant cities like New York and San Francisco than in less dynamic ones like Columbus, Ohio, and Wichita, Kan.
San Francisco achieves a high level of inequality by having really high top earners. That requires lots of hard work and considerable talent. By contrast, Miami has found a way to achieve almost as high a level of inequality without such high-producing elites. Miami's top 5% earn less than half as much as SF's top 5%. So how do they do it? They've got much larger low performing lower classes imported from Latin America. That's great if you attach a higher value to your relative standing than your absolute standing
The "less dynamic" cities are falling behind the cities where people make the big bucks. But you can buy a much nicer house on a median income on also-ran cities than in top tier cities:
To frame this another way, the median income in metro San Francisco is about 60 percent higher than it is in Akron. But the median for-sale housing price per square foot today is about 700 percent higher.
What I'd like to know: Will SF and NYC drive out their lower classes? Are they in a transition period of high inequality until most of the lower classes leave? Erik Brynjolfsson and Andrew McAfee think robots are starting to get good enough to automate a large fraction of lower class jobs out of existence. This will bring an end to Moravec's Paradox, the idea that it is easier for computers to automate middle class information-handling jobs than to automate lower class jobs that require handling complex objects in the physical world.
The trend is for middle class areas to shrink while upper and lower class areas grow. While some cities are on the rise other cities such as Philadelphia are losing the competition for the best and the brightest and losing their middle classes. Do not buy housing in a city whose lower classes are rising as fractions of the total city. Such cities are at risk of a death spiral of shrinking tax bases, more welfare recipients, and higher crime and social pathology.
I see SF especially as a city with the potential to lose most of its lower classes. The weather is much more appealing than NYC weather and the geography isolates it better from lower class regions. Throw in extensive automation of work now done by the lower classes and in 20 years it seems possible for SF to be an extremely elite city.
Liberal policies such as obstacles to construction and also higher minimum wages will help the cities where elites cluster to cater more exclusively to the top 10%.
These comprise 5 pounds of rice, 5 pounds of sugar, 1 pound of salt, 10 ounces of beans, 8 ounces of cooking oil, 0.15 ounces of coffee mixed with unknown stuff that isn’t coffee, 6 ounces of very-low-quality fish, and 1 pound of a disgusting product made from unsalable animal parts, per month. No fruits or vegetables are included.
The 5 lb quantities are 2.27 kg or 2270 grams. Since white rice is only 590 calories per lb that works out to 2950 calories for the rice. But the sugar is 1757 calories per pound or 8785 calories. We are at 11734 calories so far. The cooking oil is 251 calories per ounce or about 2000 calories total. That puts the total calories still below 14,000 calories or about 7 days of living. The remaining 22 ounces might provide about 20 calories per ounce. That's only 440 more calories. Are people in Cuba barely surviving on about 1000 calories per day?
Another story puts the rations in Cuba at 7 lb of rice per month with the rations lasting only 10 days per month. People buy their remaining food on the market.
Another story says Raul Castro has been cutting the food ration. Criminal punishments reflect a food scarce socialist society: You can get 4 to 10 years in prison for killing a cow in Cuba versus 7 to 15 years for killing a human.
Can the poorest in Cuba afford enough calories?
Deposed Ukrainian leader Viktor Yanukovych had a pretty extensive private zoo.
it boasted a man-made lake as large as several football fields with a life-sized galleon and a zoo with deer, ostriches, peacocks and other animals.
Did he get the money from that from his own government or Russia?
This is a big setback for Vladimir Putin. What can he do? Try to stoke a separationist movement in the regions with large Russian populations including the Crimea.
Will the Ukraine revolution strengthen the position of the opposition in Venezuela? Certainly Ukraine is a powerful reminder that a government can be overthrown. But in Venezuela the middle class opposition might be outnumbered by the lower class supporters of the government.
And in almost all cases, Medicare doesn’t pay for health care provided outside of the United States.
Some companies will keep you on a policy for the rest of your life if you start paying while healthy. But it is not clear to me whether that is true in practice since premiums can rise. How much will, say, Allianz boost premiums?
If things turn really bad in the United States the advantages of living abroad could become much greater. Yet another reason to save lots of money for your old age.
David Brooks of the New York Times and Arthur Brooks, head of the American Enterprise Institute believe capitalism faces a crisis because capitalists need very few workers in order to make huge amounts of money.
But now capitalism faces its greatest moral crisis since the Great Depression. The nature of that crisis can be captured in two statistics. When Facebook entered a deal to buy WhatsApp this week, it agreed to pay a price equal to $345 million per WhatsApp employee. Meanwhile, the share of the economic pie for the middle 60 percent of earners nationally has fallen from 53 percent to 45 percent since 1970.
Um, no. It is not capitalism that faces this crisis. It is the middle and lower classes that face this crisis. The capitalists will find ways to move more of their productive assets out of the reach of the lower classes.
Take a messed up country like Venezuela where the government just killed a beauty queen at a protest (finally an event in Venezuela important enough for most people to pay attention so) and the government restricts media coverage. The lower classes in Venezuela are so incredibly short-sighted and foolish in choosing leaders that Venezuela is doomed to dysfunction. Capitalists will do very little investing in Venezuela and the most productive and able people in Venezuela will look to escape.
Venezuela reminds me of the dysfunctional and successful American cities. Some US cities become so messed up by their lower classes that their middle and upper classes flee. It becomes a vicious cycle where the remaining voters elect even more irresponsible local political leaders and better people become even more motivated to flee. Meanwhile, some other cities get into an upward cycle where the most able people flock in, drive up housing costs, and drive out the lower classes. This is the future of the world.
How does this relate to the enormous winner-take-all trend in capitalism where the most successful companies employ only upper middle class and above? This trend concentrates wealth and enables the wealthy to flock together and drive out the least able.
What is in question about this trend: Which whole countries will remain in the winners' circle? Will some currently first world industrialized countries develop such large dysfunctional lower classes that the countries will start to drive out their upper middle and upper classes?
If the elites of the US weren't so foolish they'd try to make sure that US immigration policy turned the US into the place where the most able came to in order to escape social pathology and destructive government policies elsewhere. Those of less than high ability would be kept out.
The most innovative people and companies increasingly do not need the masses for any purpose other than as customers. The middle classes in industrialized countries should be very mindful about whether immigration policies and other policies will drive their most able to somewhere else.
There is an opening here for a few smaller countries to become niche places for the most able and productive people on the planet.
CEO Glenn Murphy probably thinks he'll get a more productive workforce.
Burt P. Flickinger III, managing director of the Strategic Resource Group, a retailing consulting firm, said Mr. Murphy used to run Shoppers Drug Mart, a pharmacy chain in Canada that tended to pay higher wages than its rivals. “By doing that, they got more productivity per person and they really eclipsed the other Canadian drug chains,” he said.
Even if minimum wage does not increase unemployment it might increase unemployment of the least skilled. More able people might be enticed to work more if they can get more per hour worked. Consider that more able (smart, motivated, skilled) people tend to live with each other rather than with less able people. So one can live off the work of the other and stay home. But bump up wages enough and at the margin and then some idle but able workers will decide to go get a job (and I know examples of such people).
As these relatively more able people decide to work more they will show up at the Gap or other establishments and the hiring manager will recognize their qualities and favor them for new positions. If more productive people do the work either the quality of services improves or fewer people are needed to do the work.
In order for retail establishments to survive online competition they are going to need to offer services that require a more skilled workforce. For example, a retail clothing outlet could employ seamstresses to customize clothes and even to make custom clothes on the spot.
Another consequence of higher wages: more investments in labor-saving equipment. I think we are moving toward a society where the least skilled and most skilled will be increasingly separated geographically. In cities with lots of highly paid workers and high housing costs the average service establishment (e.g. restaurant, beauty parlor) will use more automation.
You can read nuanced discussions of the effects of higher minimum wages. But all the measures of short term effects will get swamped in the long run by changes in business strategies and technological innovations.
My guess is that in the long run the economy will have little use for the least skilled workers and the main effect of a higher minimum wage is to accelerate the arrival of that eventual future.
The minimum wage for foreign maids in Hong Kong — a flat rate of $517 per month — works out to be significantly lower than it is for locals, which is about $3.85 per hour. By paying foreign maids much less for longer working hours, Hong Kong has, in effect, created an underclass of foreign female laborers. The women who take care of Hong Kong’s children and elderly are on the lowest rung of the socioeconomic ladder.
Some maids get beaten by their masters and get their travel documents taken away so they can't leave. Read the whole thing. The Indonesian government even forces the women to go into debt before leaving so that back in Indonesia some parasites can live off the domestic workers once they are in Hong Kong.
Upper classes can't be trusted with lower classes. They just want bigger and more subservient lower classes. That's the story of the business lobbies for low paid jobs who want even lower paid workers. Look at Hong Kong where the upper classes are happy to use foreigners who have to work 7 days a week for long hours as domestic servants for about $17 per day.
Obama wins: During the George W. Bush presidency marketable debt of the US government grew 93%. But under Barack Obama marketable debt grew 106% and Obama still has more years in which to rack up bigger losses. Plus, that 106% growth was off of a bigger base.
...consumers took on $241 billion in new debt in the fourth quarter of 2013, the largest quarterly increase since 2007.
Many national governments shot their wad in the the last financial disaster in 2007-2009. With far more accumulated debt when the next financial disaster hits sovereign debt defaults and larger scale panic seems likely. If it hits as gobal oil production starts to decline we will go into an economic depression.
Socialism with price controls, state control of the media, and currency abasement still does not work. Venezuela's government has just arrested the biggest opposition leader. The currency is in a tail spin.
The bolivar fuerte (or “strong bolivar,” as Chávez had the currency renamed) weakened precipitously against the U.S. dollar, and dropped, on the black market, from roughly 8 to 1 (at Chávez’s death) to now 87 to 1. Maduro’s response? State intervention that has worsened matters, making it harder and harder for the private sector, on which Venezuelans rely for food, to operate.
But if you can smuggle in dollars then life there is very cheap.
Price controls are causing shortages and of course gutting the economy.
A cable news network in Venezuela, NTN24, has been taken off the air by the government because it covered anti-government protests.
Caracas is not the place to be. Read this whole story to get a sense of how much you would not want to live there.
In the serene private clubs of Caracas, there is no milk, and the hiss of the cappuccino machine has fallen silent. In the slums, the lights go out every few days, or the water stops running.
Okay Latin American commenters who think Venezuela shows the way to oppose Yankee imperialism, come out and defend Venezuela.
A large coalition of really big money pushes for open borders. Why? Their desire for cheap labor.
How to take the energy out of that coalition? Make the minimum wage so high that the users of really cheap labor would not benefit from a larger supply of it.
How to raise the minimum wage? Thru voter referendums in all the western states.
Daniel Larison takes a look at some ridiculous Netflix TV show about corruption in politics (House Of Cards) and then makes the interesting point that majority parties are very very unlikely to impeach a President of their party. Hmmm....
We are on the path to a one party state due to demographic changes caused by immigration. Once the Republican Party becomes road kill and loses both houses of Congress how can a US President ever get impeached?
If a US President ceases to be vulnerable to impeachment then the checks on executive branch action from the other 2 branches of government wither and fade. Future Presidents will be far more powerful within US borders (even as the US loses power over the world as a whole).
We face a pretty rocky road before we get to that point. For example, I'm expecting a massive economic downturn when world oil production starts going down. Plus, the welfare state will grow some more and old folks will get poorer. Not clear on how all that will play out.
Willing slave laborers: A sliver of the Millenials is determined to throw themselves at companies that do not need them.
The intern glass ceiling isn’t limited to Hollywood. Tenneh Ogbemudia, 23, who aspires to be a record executive, has had four internships at various New York media companies, including Source magazine and Universal Music Group.
These sick kids are addicted to the idea of working in mass media. Maybe deep down they think mass media control the minds of everyone else and they want to be one of the controllers rather than one of the controllees.
Lea won't reveal her last name because she doesn't want to jeopardize her next chance for a dead end low paid job or no paid internship. How she's managed to waste her time so far.
So far, her résumé has been limited to three internships — planning events for teenagers at the Walters Art Museum in Baltimore, compiling news clippings for a public relations agency in New York, and being the “fetch-the-coffee girl” at an art gallery.
I bet they could get jobs with a North Dakota oil exploration company or even with a company that installs wind farms in plains states. But no. Not good enough for them.