Author: Jim Lunday

Workforce Trends Analyst

Employment Optimism? Really? This January was Worse than January 2011 and Adverse Global Economic Forces are Still in Play

ITEMS FOR YOUR CONSIDERATION

Downward Trends in U.S. Civ Labor Force ContinueData source: Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics

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Private Sector Job Growth is Dominated By Lower Wage Industries

Percent of Private Sector Job Growth By Selected Industries

Jan-11

Dec-11

Jan-12
Goods-Producing

30.3%

32.3%

31.5%
Private Service-providing

69.7%

67.7%

68.5%
Retail Trade

31.0%

2.8%

4.1%
Temporary Help Services

13.5%

3.8%

7.8%
Leisure and Hospitality

-6.7%

8.6%

17.1%
Other services

-5.9%

2.3%

2.7%
Total 4 Selected Service Providing

31.9%

17.5%

31.8%

Data source: Employment Situation Summary Table B, Employment News Release, Bureau of Labor Statistics, February 3, 2012.

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Job Cuts, January 2012 Greater than in January 2011

(Ten Industries with Highest Cuts)
 

January 2012

January 2011
Retail

12,426

5,755
Financial

7,611

2,822
Pharmaceutical

4,071

2,090
Entertainment/Leisure

3,910

1,545
Aerospace/Defense

3,634

3,167
Government/Non-Profit

3,021

6,450
Food

3,000

873
Consumer Products

2,464

1,783
Industrial Goods

2,230

1,874
Transportation

1,770

725
Data Source: 2012 Kicks Off With 28% Surge in Job Cuts, Press Release, Challenger, Gray & Christmas, February 2, 2012.

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January 2012 Purchasing Managers’ Index (PMI) for Manufacturing Lower than in  2010 and 2011

2010

January

April

July

Oct

56.7

59.0

55.7

57.0

2011

2012

January

April

July

Oct

January

59.9

59.7

51.4

51.8

54.1
Data source: table of Manufacturing Business PMI history, Institute for Supply Management. 

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“The man in charge of a firm with several hundred thousand staff around the world bemoaned that, ‘we live in a world where wealth creation is uncoupled from job creation. This once close connection is ruptured.'”

Tim Weber, Davos 2012: Youth unemployment ‘disaster’, BBC News website, January 28, 2012.

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SMBs in developing countries are keeping pace with their more developed counterparts when it comes to providing employees with smartphones, netbooks/mini notebooks, and media tablets. In some cases, they are actually more likely to provide these products to their staff.

The Consumerization of IT Helps Level the SMB Playing Field Across the World, IDC Says, Press Release, International Data Corporation (IDC), January 25, 2012.

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“This suggests that the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions. … Stricter market incentives to control costs in the face of stiff domestic and international competition may also be factors. In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs. These special factors are not readily addressed through conventional monetary or fiscal policies. But such policies may be able to offset the central obstacle of weak aggregate demand.”

Rob Valletta and Katherine Kuang, Why Is Unemployment Duration So Long?, Federal Reserve Bank of San Franscisco Economic Lettter, January 30, 2012.

COMMENTS

The only way to arrive at optimism about U.S. employment is to focus attention on indicators that are poorly related to unemployment changes (GDP growth, initial unemployment insurance claims, the traditional unemployment rate) and ignore global economic forces that continue to spell trouble for U.S. employment growth

Misleading indicators:

  • An uptick in the rate of GDP growth is misleading about employment growth because machines now play such a large role of in the production and sale of goods and services in the U.S.;  modest upswings in GDP can take place with almost no impact on employment
  • Initial claims for unemployment insurance (UI) get a lot of press, but only about 43 percent of unemployed workers receive UI; unemployment among workers who mostly do not qualify (many workers in retail and service industries) can rise or fall dramatically with little impact on initial claims
  • As is well known, the traditional unemployment rate is a downwardly biased measure of unemployment; it does not count as unemployed persons who have opted to do something other than look for work until prospects improve (e.g., going to school,  taking a self-financed sabbatical, making repairs to the house) and does count as employed persons who want full time employment but can only find part-time employment and persons who are working in jobs beneath their qualifications.

Global forces that undercut U.S. job growth are still in play:

  • Global and U.S. GDP growth rates will be modest through at least 2012 because of financial turmoil, lots of supply, and weak demand
  • The number of competing nations in the world economy has not diminished and very high levels of unemployment are pushing many nations to become even more aggressively competitive
  • Slow global market growth continues, which means the world’s global businesses must continue to relentlessly cut labor and other costs to survive
  • Emerging market countries with skilled workers, advanced production capacities, and much lower production costs will continue to outbid the U.S. for the investments that produce the most jobs per dollar of investment
  • Facing higher production costs in the U.S., much of the investment in the U.S. will continue to be in high tech, high profit activities that produce relative few jobs, and those jobs will be ones for which very few U.S. workers have the required skills.

The labor force participation rate, which is a better indicator of whether we should be optimistic about job growth, has been trending downward for many years.  Taken as a whole, economic signals indicate that this trend is locked in, whatever economists and reporters may wish to read into short term economic indicators.

IMF: World’s Economic Recover Stalls at End of 2011; Global Policy Coordination Needed (Addendum to January 22, 2012 Post)

ITEMS FOR YOUR CONSIDERATION

Note: WEO refers to the IMF's World Economic Outlook report.

“For the United States, the growth impact of such spillovers is broadly offset by stronger underlying domestic demand dynamics in 2012. Nonetheless, activity slows from the pace reached during the second half of 2011, as higher risk aversion tightens financial conditions and fiscal policy turns more contractionary.

…

Importantly, not all countries should adjust in the same way, to the same extent, or at the same time, lest their efforts become self-defeating. Countries with relatively strong fiscal and external positions, for example, should not adjust to the same extent as countries lacking those strengths or facing market pressures. Through mutually consistent actions, policymakers can help anchor expectations and reestablish confidence.”

World Economic Outlook Update: Global Recovery Stalls, Downside Risks Intensify, International Monetary fund, January 2012.

COMMENTS

Most economists say (and the record of job growth during 2011 shows) that the U.S. must have GDP growth over 3 percent for a long period of time to substantially reduce the unemployment rate and bring discouraged workers back into the labor force (which will raise incomes).  Surely,  the U.S.  will not achieve the needed level of employment growth without working closely with other nations to implement a coordinated global policy approach to fixing the world economy and increasing global demand for workers.

Click this link to see related items and more comments on this topic:

The World Economy’s Demolition Derby of Competing and Overlapping Economic Policy Making Entities, January 22, 2012

The World Economy’s Demolition Derby of Competing and Overlapping Economic Policy Making Entities

CONSIDER THE FOLLOWING ITEMS

“Why can’t that work come home? Mr. Obama asked. …Mr. Jobs’s reply was unambiguous. ‘Those jobs aren’t coming back,’ he said, according to another dinner guest. … ‘We sell iPhones in over a hundred countries,’ a current Apple executive said. ‘We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.'”

Charles Duhigg and Keith Bradsher, How U.S. Lost Out on iPhone Work, New York Times, January 21, 2012.

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“… we demonstrate that an individual country’s role in crisis spreading is not only dependent on its gross macroeconomic capacities, but also on its local and global connectivity profile in the context of the world economic network. … These results suggest that there can be a potential hidden cost in the ongoing globalization movement towards establishing less-constrained, trans-regional economic links between countries, by increasing the vulnerability of global economic system to extreme crises.”

Kyu-Min Lee, Jae-Suk Yang, Gunn Kim, Jaesung Lee, Kwang-Il Goh, In-mook Kim, Impact of the topology of global macroeconomic network on the spreading of economic crises, version 2, arXiv.org, April 2011.

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“Open feedback mechanisms ensure a supply chain’s ability to respond to a changing environment, but, in the case of financial supply chains, feedback mechanisms can amplify shocks until the whole system blows up. The Lehman Brothers collapse triggered just such an explosion … Since a complex network comprises linkages between many sub-networks, individual inefficiencies or weaknesses can have an impact on the viability of the whole.”

Andrew Sheng, Global Finance’s Supply-Chain Revolution, Project Syndicate, January 5, 2012.

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“Asian economies are exposed to China. Latin America is exposed to lower commodity prices (as both China and the advanced economies slow). Central and Eastern Europe are exposed to the eurozone. And turmoil in the Middle East is causing serious economic risks – both there and elsewhere …The US … faces considerable downside risks from the eurozone crisis.”

Nouriel Roubini, Fragile and Unbalanced in 2012, Project Syndicate, December 15, 2011.

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“Undoubtedly politicians should do a much better job of explaining to their constituents’ that what happens beyond the borders of their country-or city has implications for what happens inside their homes. … Despite all these problems, we have no choice: we must make local politics more attuned to global imperatives and make global finance more responsive to local needs.

Moisés Naím, The Dangerous Cocktail of Global Money and Local Politics, Financial Times, November 18, 2011, published on Carnegie Endowment for International Peace website.

COMMENTS

On paper it all sounds good: in a system of global free markets, nations, provinces, states, cities and corporations pit their resources and their people’s skills and smarts against each other. As unfettered competition sorts out comparative strengths and weaknesses, each competing economic unit finds its proper role in the world economy, makes its economic contribution efficiently, and earns its share of global wealth.  And the winner is … everybody!

The reality is a global demolition derby of competing and overlapping national, transnational, sub-national, and corporate economic policy making that routinely litters the planet with the wreckage of businesses, communities, families and even whole nations.

Many of us get our images of global competition from the world of sports, but those images are disastrously mistaken.  In the sports world participation is voluntary and competition is highly choreographed.  The umbrella of rules under which teams and individual athletes face each other is comprehensive and well enforced.  The wholeness of the game dominates the individual interests and actions of the competing teams and their players.  As a result, certain teams and players seldom become permanent victors and the consequences of losing are relatively benign.

Teams and players do not bring their own rules to the field of competition; teams and athletes with big differences in competitive resources are not pitted against each other (heavyweight fighters are not pitted against welterweight fighters and minor league baseball teams are not pitted against major league teams); the ratio of referees to players is very high and referees have the power to ensure that the choreographed competition designed into the game is not destroyed by rule breakers; all players get paid whether they win or lose; competitive encounters don’t leave losing teams and players permanently broken and maimed.

This is not the case for competition in the world economy.  Participation is not voluntary and competition is chaotic and brutal.  A comprehensive umbrella of rules does not exist and the rules that do exist are not well enforced.  Global social and economic goals cannot dominate the interests and actions of the thousands of governmental and private sector competitors.  Certain competitors win and maintain dominance over all others for many decades; other competitors become chronic losers.  The consequences of losing are often devastating and extremely long-term.

Competitors do bring their own rules to the global fields of competition.  The more powerful governments and corporations create rules to serve their own interests, regardless of consequences for the good of the whole or consequences for the losers, and then impose them on the less powerful governments and corporations.  Referees in the world economy are vastly outnumbered by competitors and they don’t have sufficient powers of enforcement to reign in rogue competitors.

For almost all the world’s peoples who count themselves as winners, or at least survivors, a consequence of this global demolition derby is chronic and frightening employment and income insecurity.   For losing nations and communities the consequences are often profoundly devastating: high levels of infrastructure loss, permanently broken social institutions, widespread and chronic unemployment and impoverishment, and enormous losses of life to famines, wars, preventable disasters and curable diseases.

Almost certainly, the world’s people will be much better off if we actually do make global economic competition much more like competition in sports.

The Transition To A Clean And Sustainable World Economy Will Change Job Descriptions, But It Will Not Increase Global Job And Income Growth

CONSIDER THE FOLLOWING ITEMS

“While there are conflicting views about whether any changes in total employment would be positive or negative, there are likely to be quite significant impacts in terms of shifting employment patterns between sectors as economic development shifts from “brown” to “green” economic sectors.”

Green Growth Studies: Energy, Preliminary Version, Organization for Economic Cooperation and Development (OECD), 2011.

—————

“Across the range of issues to be addressed, policy initiatives should be designed in terms of: cost-effectiveness, adoption and compliance incentives, and ability to cope with uncertainty and provide a clear and credible signal to investors.”

Towards Green Growth, Organization for Economic Cooperation and Development (OECD), 2011. 

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“Many countries are using a menu of policy incentives instead of a single policy approach. Policy makers realize that these incentives need to be coherent, stable and designed for the long-term to be able to attract the necessary funds for robust deployment and strong markets that ultimately will reduce the cost of renewable energy.”

Report of the Secretary-General – Promotion of new and renewable sources of energy (Advance unedited copy), UN Department of Economic and Social Affairs, Division for Sustainable Development, August 15, 2011.

COMMENTS

Global job and income growth are in trouble whether the world makes the transition to a cleaner and more sustainable economy slowly or quickly.  If the transition is done slowly the world will suffer large job and income losses due to the negative impact of environmental pressures on economic growth.  Losses will also occur because of a poorly designed “green” investment strategy.

If the transition is done quickly, job and income losses due to environmental pressures will be reduced, but more losses will be caused by the “green” investment strategy itself.

The current strategy for transitioning to a clean and sustainable global economy relies heavily on market competition and traditional governmental policy tools to put downward pressures on the costs of producing cleaner energy and to motivate business enterprises to create alternatives to resources that are being depleted.  Thus, the current strategy leaves the institutional forces that are slowly eroding global employment and income levels in tact.

At the core of those institutional forces are the scope and intensity of competition among business enterprises and governments.  Global scale communications, trade agreements, investment flows, and commodity flows now bring many more investors and business enterprises virtually face to face in the same markets.

Faced with many more competitors, business enterprises invest heavily in finding ways to reduce labor costs.  Moreover, governments abet these efforts by helping their domestic business enterprises with policy structures and financial subsidies that encourage investments in machines rather than workers.  In this economic environment, job destruction and wage reductions in some sectors and regions of the world economy generally outpace job creation and wage growth in other sectors and regions of the world economy.

An accelerated “green” transition will exacerbate the gaps between job creation and job destruction, wage growth and wage decline.  It will shift more investment funds to the energy sector, which is very machine and technology intensive.  More investment funds will also go to enterprises engaged in the development and production of resource alternatives, enterprises that tend to be more highly automated and employ fewer workers that the enterprises they replace.  The net result will be a further decline in global demand for workers and lower wages.

The transition to a clean and sustainable world economy can be done without harm to employment and income growth, but only by simultaneously reducing system wide downward pressures on job and income growth.  This can be done by making increased governmental management of global market forces and the increased use of governmental employment and income programs (to supplement private sector employment and compensation levels) components of the “green” transition strategy.

What Happens In Vegas Doesn’t Stay In Vegas: National Policies Have Global Consequences

“Thus, national policies affecting capital flows can transmit multilaterally. This transmission has not been fully appreciated by national policymakers. Further, they may not have incentives to take full account of the cross-border effects of their policies. Looking ahead, the upward trend in the volume of capital flows can be expected to continue, making it ever more important to address the associated cross-border risks.”

The Multilateral Aspects of Policies Affecting Capital Flows, International Monetary Fund, October 13, 2011.

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“These two-way capital flows created a complex web among markets and institutions, some regulated and some not. Against this background, case studies were prepared for European banks and U.S. money market mutual funds (MMMFs) and for German banks and U.S. mortgage-backed securities (MBSs). Another important case is that of the near failure of the American International Group (AIG), which turned out to have complex and systemically cross-border linkages with other global institutions and markets.”

The Multilateral Aspects of Policies Affecting Capital Flows – Background Paper, International Monetary Fund, October 24, 2011.

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“Why might we expect a rise in U.S. bond yields to raise bond yields in other countries? First, openness of financial markets and arbitrage opportunities may mean that interest rate shocks are transmitted across economies. Second, a closer real integration of two economies may imply that a monetary policy shock or an inflationary shock in one economy may lead investors to expect similar developments in another, thus inducing a significant transmission of shocks in bond markets and money markets.”

Vivian Z. Yue and Leslie Shen, International Spillovers on Government Bond Yields: Are We All in the Same Boat?, August 01, 2011, Blog at website of the Federal Reserve Bank of New York.

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“The trend toward greater diffusion of authority and power occurring for a couple decades is likely to accelerate because of the emergence of new global players, increasingly ineffective institutions, growth in regional blocs, advanced communications technologies, and enhanced strength of nonstate actors and networks.”

Global Trends 2025: A Transformed World, National Intelligence Council, PDF version, November 2008.

———————–Comments———————–

The words in the quotes above are dispassionate, but the realities to which they refer get in our faces every day.  The mix of global economic processes and competitive and uncoordinated national policy making creates a bubbling soup of chaotic change.  (Go-it-alone economic policy making by sub-national and regional governments surely contribute to this soup of chaotic change as well.)

This environment makes decision making and planning very difficult and prone to error for the majority of the world’s investors and business owners and managers. It destabilizes the global world of work and damages the families and communities that depend on that world.  And it confounds policy experts because it is not possible to find logic in the illogical.

Moreover, this environment plays into the hands of the bad actors in the world economy, who promote and thrive on the high volumes of misunderstandings and errors that now plague economic and policy decision making at every level of organization in the world economy.

For more on this topic see my post, Fragmented and Weakened Global Governance Perpetuates the World’s Employment Crisis, September 9, 2011. Also see the topic Economics and Economic Policy (under U.S. Economic Policy heading at right).

Climate Change Is Increasing Global Employment and Income Instability

From Key Findings on Climate Change, THE OECD ENVIRONMENTAL OUTLOOK TO 2050 (forthcoming, 2012), Organization for Economic Cooperation and Development.

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“New figures from the U.N. weather agency Monday showed that the three biggest greenhouse gases not only reached record levels last year but were increasing at an ever-faster rate, despite efforts by many countries to reduce emissions.”

Seth Borenstein , Greenhouse gases soar; scientists see little chance of arresting global warming this century, Washington Post (Associated Press), November 21, 2011.

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Primary sectors such as agriculture, forestry and fisheries will be affected more severely than others. The attraction of tourist destinations will change. … Ski resorts at low and medium altitude could be affected by reduced snow cover …The likelihood of the development of extreme weather conditions will affect the insurance industry, which will be forced to pass on the rising cost of damages to other economic sectors … Jobs will be created in companies that can take advantage of opportunities created by climate policies and jobs will be lost in companies that cannot adapt.

Climate Change and Employment, European Trade Union Confederation.

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About 1.3 billion people, or 40 percent of the economically active people worldwide, work in agriculture, fishing, forestry, and hunting or gathering.

Human Development Report 2011, United Nations Development Programme.

 

———————–Comments———————–

In recent decades, the world’s communities and working families have faced increasing employment and income instability as the pace of technological change and the pace of transnational capital transfers have increased.  More and more communities see whole industries come and go; more and more working families now cope with recurring periods of unemployment and underemployment; increasingly, working people find themselves having to negotiate major job transitions (many of which require investments in retraining and many of which result in lower wages and benefits); larger numbers of workers become trapped in long-term unemployment.

Climate change is adding to global employment and income instability through its impacts on the global distribution of investment opportunities and risks.  Primary impact is on climate sensitive industries (e.g., agriculture, fisheries, forestry, tourism, insurance, health care — in response to changing disease threats, emergency services).  Changing global weather patterns are transforming local and regional mixes of market opportunities, production and distribution costs, and risks to communities across the world.  Older business models and technologies are being modified or abandoned and replaced with different business models and new technologies, and the responsibilities assigned to governments and non-profit organizations are being transformed, as the consequences of climate change accumulate.

The contribution of climate change to global employment and income instability extends well beyond the most climate sensitive industries.  Weather is totalitarian: every aspect of our lives is affected to some degree by its patterns and changes, from housing codes to travel decisions, from clothing requirements to food choices, from health care requirements to leisure activity decisions.  Thus, as the consequences of climate change accumulate, we will make large and small changes to the way we live.

In some parts of the world, the changes made will be substantial and rapid, generating newsworthy investment and employment upheaval.  In other parts of the world they may be minor.  But even minor individual changes, when made in a short time span, can aggregate into a force that unsettles business opportunities and demands made on governments.

Recent evidence suggests that climate change is accelerating.  As it does, the consequences of climate change will accumulate more rapidly, awareness of the consequences will increase, and corporations and investors will accelerate their efforts to respond to consequences already felt and prepare for those just ahead.  Global employment and income instability will increase all the more.

Overheated Global Competition Drives Job Growth Down

Estimated Job Shortage 2012-13
Estimated Job Shortage 2012-13

Table presented in World of Work Report 2011, International Labor Organization, October 31, 2011, Pg. 9.

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“Non-financial firms have increasingly invested in financial assets at the expense of physical assets. … This is particularly the case with firms in advanced economies, but in recent years, developing and emerging economies have started to exhibit similar trends. …   Empirical evidence shows that rising profitability in the financial sector has played an important role in drawing in investment from the non-financial sector towards the financial sector.”

World of Work Report 2011, ILO, October 31, 2011, pg. 41.

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“The great thing about the new I.T. revolution, says Jeff Weiner, the C.E.O. of LinkedIn, is that ‘it makes it easier and cheaper than ever for anyone anywhere to be an entrepreneur’ and to have access to all the best infrastructure of innovation.”

Thomas Friedman, One Country, Two Revolutions, New York Times, October 22, 2011.

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“… technology investments are playing an increasingly larger role in mid-market companies’ bottom line. Business process automation and technology improvements are the two top contributing factors to the jump in mid-market productivity; new hiring ranked fifth overall. …

“’Technology is on the mind of most mid-market executives,’ said McGee [Tom McGee, national managing partner, Deloitte Growth Enterprise Services, Deloitte LLP].  ‘ … 74 percent of respondents believe globalization is forcing U.S. companies to become more productive to stay competitive … and set themselves apart from the pack ‘”

Deloitte: Mid-Market Executives Increase Long-Term Investments Despite Economic Uncertainty, Deloitte Press Release, Oct. 10, 2011.

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“Despite representing only … 19 percent of employment [in 2007], multinational companies contributed 41 percent to overall productivity growth from 1990 to 2007.”

James Manyika et al, Growth and renewal in the United States: Retooling America’s economic engine, McKinsey Global Institute, February 2011.

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“His solution is to offer a new and altogether different kind of TV set, although in typical CEO fashion, he refuses to elaborate on what that might involve. He simply offers the assurance that a great deal of R&D investment is going into designing a new TV that could reverse Sony’s fortunes.”

Vlad Savov, Sony CEO Howard Stringer: Every TV set we make loses money, Washington Post (originally published in The Verge), Friday, November 11.

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“First, in a global economy, we need to be thinking more about the sources of apparent productivity growth. It matters greatly for wages and employment whether rising value-added per worker is being driven by domestic production improvements, supply chain efficiencies, or by productivity gains abroad. …

Second, government policies designed to increase incentives for business investment, such as accelerated expensing, may have the effect of increasing supply chain efficiency rather than domestic productivity. …

Third, we are effectively flying blind in terms of the effect of the global economy on US workers.”

Michael Mandel and Susan Houseman, Not all productivity gains are the same. Here’s why, What Matters, McKinsey & Company,  June 1, 2011.

———————–Comments———————–

The transformations in communications, transportation, transnational trade and investment flows, geopolitics, and access to advanced technologies that we summarize with the term globalization have greatly multiplied the number of businesses in every sector of the world economy competing for customers.

Moreover, companies are competing for a stagnant number of consumers and consumer dollars.   Although the buying power of working families is growing in the countries experiencing rapid economic growth (called the emerging economies), it is declining or barely growing in many of the advanced economies and in many other parts of the world.  This is greatly intensifying the competition among the worlds much larger number of competing business enterprises.

This environment of overheated competition puts enormous downward pressure on global job growth.  It drives the owners and managers of almost every business enterprise to pursue strategies that are good for the business but destructive to the world’s labor force much more aggressively than would be the case in an environment of moderated competitive pressures.  These strategies include:

  • Investments in financial assets as a way to park money that can’t be profitably invested in production of goods and services
  • Large investments in technologies that reduce work hours without reducing the capacity to meet existing customer demand
  • Large investments in product innovations designed to displace similar products rather than to create new products that meet new needs
  • Large investments in ad campaigns designed to lure current consumers to change consumption activities (e.g., switch from watching TV to playing video games)

The impact of these strategies on employment is fairly straight forward:

  • Profitable investment opportunities are in short supply, so money parked in financial assets is more likely to help generate financial bubbles than to generate new jobs
  • Productivity gains eliminate jobs when demand for products and services is not growing
  • Investments that only lure consumers to replace one product for another, to replace one consumer activity with another, and/or to buy the same product from a different company only move consumers around in the market place; the net effect on the labor force is job churning not job growth.

Overheated global competition will continue to do harm to global job growth until a global policy response creates a mechanism for market sharing and puts boundaries on the use of competitive strategies.  Without that response,  global rates of unemployment, underemployment, poverty, and political upheaval will continue to increase.  And the U.S. will not avoid sharing in these miseries.

How Many Professional Workers Can Ten Thousand Super Computers Supervise?

“A new supervising service called Humanoid launched today, backed by funding from Google Ventures. Humanoid will rent out armies of humans (they have 20,000 workers already signed up to start) for $4.99 per hour to develop software, supervised by an algorithm.”

Christie Nicholson, Google-backed robot overlords take over supervision of human workers, IBM SmartPlanet, November 2, 2011

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“China has made its first supercomputer based on Chinese microprocessor chips, an advance that surprised high-performance computing specialists in the United States.

…

The Sunway system, which can perform about 1,000 trillion calculations per second — a petaflop — will probably rank among the 20 fastest computers in the world. More significantly, it is composed of 8,700 ShenWei SW1600 microprocessors, designed at a Chinese computer institute and manufactured in Shanghai.”

John Markoff, China Has Homemade Supercomputer Gain, New York Times, October 28, 2011

———————–Comments———————–

It is said that at some point accumulating quantitative change becomes a qualitative change — a spring rain lasting forty days and forty nights becomes something other than a rainy spring!  Has the world had its forty days and forty nights of global technological change? – if not, it has surely had at least thirty days and the pace of technological change is accelerating.  Imagine a world in which a hundred million people (working below the U.S. minimum wage and supervised by Humanoid and similar programs) are writing software code intended to displace professional workers in law, medicine, teaching, business management, consulting, and government.

The core question for the 21st century is this: how will the world’s nations create socially legitimate entitlements to income in an era when only a minority of the world’s working-age people can obtain income through work and most of those who do work are paid less than a living wage?

The Myth of State Economies Undermines the Development of Effective Economic Policies

“In other words, if we think of state borders as physical barriers, do we also irrationally imagine that these borders protect us in some way? …

The idea was that the dark line would reinforce the biased notion that borders are impermeable—and that states are therefore meaningful categories to rely on for decision making. …

As reported in October in the online version of the journal Psychological Science, when the radioactive waste was being stored in neighboring Nevada, residents of Salt Lake City perceived much greater risk of contamination if the border was a light, dotted line. In their minds, that light, sketchy border minimized the distinction between Utah and Nevada—and thus increased their perception of risk. The thick, dark border offered psych­ological protection from radioactivity.”

 Wray Herbert, Border Bias and Our Perception of Risk, Scientific American, February 21, 2011.

———————–Comments———————–

The use of the term “state economy”, and even more to the point, terms like “Michigan economy” and “Nevada economy” by economists, economic policy experts, and policy makers is common and has the same psychological effect as drawing a dark border around a state.  The use of such terms reinforces and perpetuates the illusions that state boundaries have economic importance and that state economic policies have the power to change economic outcomes.

A state economy is nothing more than an artifact of geopolitical decisions made long ago.  Like the mix of bird species in a state, the mix of economic activities and relationships in a state is little more than an arbitrary consequence of the intersection between where a state boundary was drawn and where particular economic activities and relationships later developed.  Just as habitats expand and contract and change shape and location with time, so too do the economic boundaries defined by the distributions of economic activities and economic relationships among people.  But, state boundaries almost always stay put.

There is now only one economy, the world economy.  State economies exist only in our minds.  So too, the power of state governments to improve investment and employment outcomes exists only in our minds.

The False Promise of September Auto Sales

“Mr. Toprak said more consumers also were showing up at dealerships because their current vehicle had outlived its useful life and they had no choice but to buy a replacement.”

Nick Bunkley, U.S. Vehicle Sales Soared Nearly 10% in September, Despite Economic Gloom, New York Times, October 3, 2011

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“But other factors boosted truck sales. Small businesses must eventually replace aging fleets of work trucks…”

Associated Press, US auto sales rise in September as consumers buck trends and buy trucks, Washington Post, October , 2011

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“Personal income decreased $7.3 billion, or 0.1 percent, and disposable personal income (DPI) decreased $5.0 billion, or less than 0.1 percent, in August …Real disposable income decreased 0.3 percent in August, compared with a decrease of 0.2 percent in July.”

Personal Income and Outlays: August 2011, New Release, Bureau of Economic Analysis, U.S. Department of Commerce, September 30, 2011

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“But the companies will be able to contain their costs by not paying annual raises to their U.S. factory workers and by hiring thousands of new workers at lower wage rates.”

Dee-Ann Durbin and Tom Krisher (Associated Press), Ford to pay workers $6,000 bonus, Lansing State Journal, Oct. 4, 2011

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“Retailers are coming to terms with a new reality: the consumer who traded down during the recession and never came back.”

Ann Zimmerman, Frontier of Frugality, Wall Street Journal, October 4, 2011

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September’s jump in vehicle sales did not signal a change in the behaviors of global investors, corporations, and governments that currently translate consumer decisions into employment and income outcomes.  Global investment decisions still favor machines over workers and still favor nations with low wages, weak regulations, corruptible government officials and/or growing populations of people with disposable income.  Global economic growth is still slowing; employment opportunities are still disappearing; opportunities for investors and corporations to pit desperate nations and workers against each other in bidding wars for investments and jobs are increasing.

In this context, September’s jump in vehicle sales can’t be read as good news for U.S. working families and small business owners.  The economic benefits will be minimal and short lived.

Consumers and small businesses locked themselves into loan payments that reduce other spending: Auto sales were driven by frustrations with aging vehicles and other factors, not by income growth that had increased savings for down payments and created extra spending capacity to cover new loan payments.  It is thus very likely that tens of thousands of families and small businesses are now locked into years of new auto loan payments they can’t afford.  And global circumstances virtually insure that family incomes in the U.S. will stay flat or even decline over the next year.   Consumers and small businesses must either reduce spending on other items or take on more debt.

More debt, of course, means a larger share of income goes to loan payments.  Sooner or later, unless incomes rise enough to offset loan payments, consumer demand and business-to-business demand will fall.

With the holiday season coming, retailers may be the first to see sales losses as consumers cut back on optional spending so they can make auto loan payments.

Employment and income benefits for U.S. families are minimized by global supply chains and global wage and benefit inequalities: These days, “made in the U.S.” really means assembled in the U.S.  Many of the parts that become a finished vehicle here are produced outside the U.S.  Thus, a jump in U.S. auto sales generates job and income growth in other nations as well as in the U.S.  Moreover, the U.S. share of total job and income growth from auto sales declines over time.

Because of huge wage and benefit inequalities across nations the families in other nations that get income increases as a result of U.S. auto purchases will spent most of their extra income on goods and services produced in the U.S. — in the emerging economies (e.g., Brazil, Russia, India, China) where many high tech consumer and business goods are produced more cheaply than in the U.S. and in low wage nations that produce all the other consumer basics (blankets, dinner ware, clothing, etc.) that are mostly not produced in the U.S. (except when produced by U.S. crafts people and a select few U.S. companies that market to wealthy and status conscious consumers).

Interest on loans goes into bloated investment funds, and from there to other nations and into financial bubbles: In the early days of a loan, the part of a loan payment that goes to interest is typically at its highest.   Thus, for the immediate future, September vehicle sales will be pumping cash into the hands of bankers and other investors.  Under current global circumstances, this does not benefit U.S. families

It has become well known that U.S. corporations and investors are aggressively pursuing investment opportunities in parts of the world with growing populations of middle class consumers.  It is thus very likely that a large part of the loan payments on the new vehicles will generate jobs outside the U.S. and strengthen global competitors to smaller U.S. businesses.

Concern about the formation of new financial bubbles has been mounting because the investment world is flush with cash and a stagnant world economy has reduced the number of sound investment opportunities.  Pumping more cash into the investment world under these circumstances can only increase the risk that cash rich but profit-hungry investors will herd themselves into unsound investment trends.