The Broken Capitalist World Economy and the Future of Good Jobs

SOURCE ITEMS

But things are changing. Longer-term shifts—such as declining middle-class jobs, a continued fallout from the global financial crisis, but also a shrinking global workforce—are shaping labor markets worldwide. Whereas the problem today seems to be a glut of workers, in coming years the global labor force will shrink. These shifts could constrain growth, but they should also help correct some of the current labor market imbalances that have prevented workers from sharing in productivity gains. The beneficiaries, however, will mainly be high-skilled workers. The prospects for lower-skilled workers are less hopeful, which is bad news not only for them, but for efforts to reduce inequality.

Ekkehard Ernst, The Shrinking Middle, Finance & Development, International Monetary Fund, March 2015, Vol. 52, No. 1. Accessed September 19, 2015.

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“It has become clear that we are really dealing with a different kind of economic recovery than anyone has experienced since World War II,” says Mr. Hammond, chief executive officer of Hammond Power Solutions Inc., a Guelph, Ont. company that makes electrical transformers for industrial clients around the world. … “This is far different from any recession I have seen.” … Seven years after Europe and the United States slipped into what would become the one of the deepest global recessions in history, and five and a half years since the North American economy returned to growth, the recovery remains a perplexing, inconsistent and frustratingly elusive work in progress.

David Parkinson, Richard Blackwell and Iain Marlow, The 7-year slump: Why the global economy can’t seem to get started. The Globe and Mail, January 23, 2015. Accessed September 19, 2015.

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Many have characterized the U.S. economy’s inability to grow robustly as an expected after- effect of a severe cyclical downturn. Such interpretation is well past its sell-by date. It’s time to recognize that globalization has brought with it issues that defy cyclical economic prescriptions.

Daniel Alpert, Why the US economy can’t seem to shake off the Great Recession, BusinessInsiDer.com, May 21, 2015.

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Climate change threatens to provoke a new ecological panic. So far, poor people in Africa and the Middle East have borne the brunt of the suffering. … Climate change has also brought uncertainties about food supply back to the center of great power politics. China today, like Germany before the war, is an industrial power incapable of feeding its population from its own territory, and is thus dependent on unpredictable international markets.

Timothy Snyder, The Next Genocide, New York Times, Sept. 12, 2015. Accessed September 19, 2015.

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Together with his team of designers and engineers, Dutch artist and innovator Daan Roosegaarde is working on a prototype of a Smog Free Tower, that would create a clean air zone outside. … This smog solver is meant to move to other major cities too. So everyone can get acquainted with it. This way, Roosegaarde wants to bring NGO’s, concerned citizens and designers together in smog-free bubbles, to work on healthy cities around the globe.

Daan Roosegaarde’s clean air zones, Rotterdam City Blog, July 28, 2015. Accessed September 19, 2015.

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The paper contends that we have already crossed four “planetary boundaries.” They are the extinction rate; deforestation; the level of carbon dioxide in the atmosphere; and the flow of nitrogen and phosphorous (used on land as fertilizer) into the ocean.

Joel Achenbach, Scientists: Human activity has pushed Earth beyond four of nine ‘planetary boundaries’, Washington Post, January 15, 2015. Accessed on August 27, 2015.

COMMENTS

An abundance of good jobs is one of the core features of societal prosperity and it is an article of faith for most of the peoples in affluent societies that capitalism is the engine of growing prosperity.

However, it is quite clear to almost everyone that global capitalism is malfunctioning. Economists who write for the media and journalists who cover economic matters routinely refer to the fact that the world economy has still not recovered from the financial traumas of 2008 and that global employment trends are not good one.

There is much more to the problems afflicting the world economy than a cyclical downturn and poor national policy choices. The world economy has entered an era of declining wealth accumulation that is irreversible. Without increasing prosperity, the world economy will not be able to generate the growing stock of good jobs for the world’s working people.

The few good jobs the world economy has to offer are found almost exclusively in the affluent cities and nations in the world economy. And even in those affluent areas very large proportions of workers are consigned to jobs that pay low wages and benefits, expose them to health risks, and offer no employment security.

The reason is straight forward: good jobs are expensive to create and maintain. Not only do good jobs garner premium wages and benefits, they also require high cost work environments (expensive machines, high volumes of consumable supplies, expenditures on training and workplace safety), and expensive public and private oversight and enforcement activities. Thus, for the world economy to continue to produce and maintain good jobs, the wealth of the world’s people must continue to grow. But, it can’t.  The world economy has hit a wealth production wall.

We typically use the word ‘wealth” to refer to human made goods and services, yet we know, at least intuitively, that such things as the oxygen rich air we breath and zones of moderate temperature that support agriculture are forms of wealth that nature produces. What we have yet to fully acknowledge is that these two worlds of wealth creation are inextricably interconnected.

The capitalist world economy is the human part of an inclusive world economy that includes nature’s wealth production processes. The human world economy is a massive economic machine that takes forms of wealth produced by nature and converts them into different forms of wealth – the goods and services that define affluent society. In so doing, the capitalist world economy extracts and uses flows of energy and stocks of living and non-living resources that nature would otherwise use in its own production processes.

As a totality, this inclusive world economy of humans and nature is a single economic system. The only real input is the energy from the sun (discounting the miniscule meteorite contributions to the mass of the earth). We can process one form of wealth (say soil and water) into another form of wealth (crops), but we cannot make net additions to the earth’s total store of wealth.

The point here is that the human part of the inclusive world economy grows at the expense of the natural part. Conversely, the natural part expands at the expense of the human part (in the forms of rust, rot, and natural disasters). Human economies have always used nature, just as all living things do, but the capitalist world economy is the first human economy to press against the fixed stock and regenerative limits of the entire earth. This is a crucial and overlooked reason the human world economy is trapped in dysfunction.

The capitalist world economy grew and thrived on an earth where yet another pristine forest, yet another stock of game fish, yet another unspoiled river, yet another abundance of fertile land, yet another source of cheap labor, was just an explorer and a military conquest away. It was an era in which yet another technological innovation would solve a problem and increase human wealth. That was the era in which some parts of the world became extraordinarily affluent and good jobs were created.

Fossil fueled industrialization was the driving force in that period. It provided the means for accelerating the diversion nature’s supply of energy and resources into human economic activities and it provided the means by which certain parts of Europe and North America incorporated the rest of the world into the world economy, primarily as suppliers of labor and resources and more often than not through economic and military coercion. Affluent European, North American, and allied nations became more affluent and good jobs became abundant and set the standard for the world’s people.

That limitless earth disappeared over the course of the 20th century. The era of global geopolitical economic incorporation of “foreign” lands and peoples has come to an end. It is no longer possible for human wealth to increase as it did in the past. Thus, it is no longer possible to add to the stock of good jobs in the world economy and maintain them all.

The scale of the human world economy is now so enormous that the costs for maintaining human wealth are demanding an increasing proportion of the productive capacity of the world economy.

First, the scale of damage done to nature’s wealth production by the human world economy has become enormous and keeps growing, so more and more of our human economic activities must be devoted to repairing the damages and compensating for the damages we can’t yet repair (industrial cleaning of air and water because nature’s regenerative capacity has been overwhelmed). Second, the massive stock of human wealth (including people – human capital) that we have accumulated over the last several centuries gets older every day and, as we well know, with age comes deterioration and death. A large and growing proportion of human economic activity must now be devoted to maintaining this large stock of wealth and to replacing those items of wealth that are lost to rust, rot, and irreparable damage.

As the world’s population continues to grow and the world’s rulers continue to invest in massive urban infrastructures, the energy and resource conflicts between the human and natural parts of the inclusive world economy will increase. Our technologies will not save us because they were and continue to be designed to divert evermore energy and resources from nature’s wealth production processes. Nature will prevail and force an irreversible decline in human wealth and a loss of good jobs as that happens.

The world’s leaders continue to talk about restoring global economic growth and moving more and more of the world’s people into good jobs, but the actual trends in both parts of the inclusive world economy expose this as empty rhetoric. The leaders of affluent nations have already begun to dismantle the stock of good jobs available to their peoples and most people in the poor areas of the world know they have almost no chance of ever working at a good job.

The kind of affluence and the configurations of good jobs the peoples of the west became comfortable with in the 20th century can no longer be offered to the rest of the world; nor can they be retained for the majority of people in the now affluent nations. We must invent a new definition of affluence and a new kind of good job for a new kind of world. We won’t do that until the world’s economists and policy leaders acknowledge that the world has hit the ceiling on net wealth growth and incorporate this knowledge into economic and policy theory.

Uber, Coops, Falling Standards of Living, and the Future of Work in the World Economy

SOURCE ITEMS

In addition, because Uber drivers are considered independent contractors, they are not entitled to benefits; their relationship with Uber is merely about their use of the company’s app that connects them to riders. As contractors, they have the flexibility to work when they want and as many hours as they choose, but they also have to cover any costs they incur. After adding up those costs, some drivers say, making a profit is nearly impossible.

Luz Lazo, Some Uber drivers say company’s promise of big pay day doesn’t match reality, Washington Post, September 6.

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Some 130 million Americans, for example, now participate in the ownership of co-op businesses and credit unions. More than 13 million Americans have become worker-owners of more than 11,000 employee-owned companies, six million more than belong to private-sector unions.

Gar Alperovitz, Worker-Owners of America, Unite! New York Times, December 14, 201.

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With nearly half of all services jobs in the OECD at risk of automation, the sharing economy can smooth the disruption caused to displaced workers as they upgrade their skills. Indeed, sharing-economy data can help governments identify those workers at greatest risk and support their retraining. … Those who are displaced will have far better prospects in the more prosperous and inclusive environment that the sharing economy promises to create.

Ayesha Khanna and Parag Khanna, Disciplining the Sharing Economy, Project Syndicate, September 25, 2014.

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Was my house cleaner — the one I’d hired through a company that has raised $40 million in venture-capital funding from well-respected firms like Google Ventures, the one who was about to perform arduous manual labor in my house using potentially hazardous cleaning chemicals — homeless?

He was, as it turned out. And as I told this story to friends in the Bay Area, I heard something even more surprising: Several of their Homejoy cleaners had been homeless, too. … Homejoy doesn’t employ any cleaners — like many of its peer start-ups, it uses an army of contract workers to do its customers’ bidding.

Kevin Roose, Does Silicon Valley Have a Contract-Worker Problem? New York Magazine, September 18, 2014.

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According to a Wells Fargo/Gallup survey of small-business owners conducted earlier this year, 56% of small-business owners, up from 45% in 2010, are either extremely or very satisfied with being a small-business owner. But fewer owners, 37%, say they feel extremely or very successful as a small-business owner — the lowest figure in a decade.

Coleen McMurray and Frank Newport, Small-Business Owners Satisfied, but Fewer Feel Successful, Gallup, September 30, 2014.

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Eighteen percent of all adults worldwide — or 29% of the global workforce — reported being self-employed in 2013. But rather than a positive sign of proactive entrepreneurial energy, high rates of self-employment can often signal poor economic performance. The self-employed are three times as likely as those who are employed full time for an employer to be living on less than $2 per day.

Ben Ryan, Nearly Three in 10 Workers Worldwide Are Self-Employed, Gallup, August 22, 2014.

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Self-employment higher than at any point over past 40 years … Average income from self-employment fallen by 22% since 2008/09

Self-employed workers in the UK – 2014, UK Office for National Statistics, August 20, 2014.

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Nearly one in three working Americans is an independent worker. That’s 53 million people – and growing. We’re lawyers and nannies. We’re graphic designers and temps. We’re the future of the economy.

About Us, Freelancers Union. Accessed October 4, 2014.

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The puzzle goes beyond earnings. Not only are the median earnings of the self-employed comparatively low, they have similar traits to those of salaried workers. … If the self-employed are a good proxy for “growth-creating innovators,” it is both puzzling that their cognitive abilities and noncognitive traits are similar to those of their salaried counterparts and that they earn less.

Ross Levine and Yona Rubinstein, Does Entrepreneurship Pay? The Michael Bloombergs, the Hot Dog Vendors, and the Returns to Self-Employment, Haas School of Business, University of California, Berkeley, July 2013.

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There, and in other countries with less well-developed social security systems and which suffered from large losses in (formal) employment, many previously economically inactive people returned to the labour market, often to take up informal employment in order to make up for the loss of household income.

Global Employment Trends 2014, International Labour Organization.

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Already we can see the contours of another economy in the shape of new communitarian movements through which local communities resist and respond to the multiple crises of global capitalism and innovate alternatives to meet economic needs…

Anup Dash, Toward an Epistemological Foundation for Social and Solidarity Economy, Occasional Paper 3, Potential and Limits of Social and Solidarity Economy, United Nations Research Institute for Social Development (UNRISD), March 2014.

COMMENTS

From time to time in the history of the capitalist world economy, its magic has faltered and then been restored. This time the magic will sporadically flicker on for a while here and there in the world economy, but it will not be restored. Conditions for a restoration are disappearing and will not come back.

The undoing of key elements of formal wage employment systems has been increasing the financial and emotional burdens on the world’s working people. The growth of these burdens is pushing the world’s communities of working people into a long-term period of economic uncertainties and crisis.

Around the world, formal (government regulated) wage employment systems are faltering. By necessity, the world’s workers are examining a wide range of possibilities for saving, improving, or changing their work life situations. At the same time, large numbers of organizing entrepreneurs are offering up a large variety of strategies, from coops to unions, to entrepreneurial self-employment, to political activism, to disengagement and resistance.

It is probably true to say that most of the world’s working people do not think of themselves as economic experimenters and do not want to be economic experimenters. In lower income parts of the world where formal wage employment systems have always been more promise than reality, most people probably want a formal wage employment system to become a reality where they are and in their lifetimes.

In the higher income parts of the world, most working people who have lost wages and benefits and job security still believe a return to “normal” scenarios of employment is possible and still look to mainstream economists and policy experts to make that return happen.

The world’s working families may not wish to be the inventors of a new world of work, but they face very limited options: nostalgically clinging to the past as the hope for the future; learning to live with less while psychologically acquiescing to the losses; or, struggling to secure employment and income security through means other than standard wage employment.

The possibility of nostalgically clinging to hope for a return to the past is fast disappearing. Acquiescence and inventiveness are really the only two options available. And in the realm of inventiveness, the paths taken include not only coops and various forms of independent self-employment and franchised self-employment, but also a wide range of criminal activities, including violent grabs for economic resources.

The future of work is not predictable in any specific sense, but we can be fairly certain that the spread of systems of formal wage employment that were created in the U.S. and Europe during the 20th century has come to an end. The belief that the global nation state system will soon produce safe, secure, and well paid (by western standards) jobs for the majority of the world’s workers is no longer plausible.

Other ways for the world’s working people to have safe, secure work at living wages must and are being created.

Why are Americans Stumped about the Economy? Nonsense for Analysis

SOURCE ITEMS

Some Federal Reserve policy makers are citing the lowest inflation rate in at least five decades as an alarm bell for the economy. Economists at UBS Securities LLC say the figure isn’t as troubling as it appears. … Among the reasons for slowing inflation are improved efficiency and a stronger dollar, which puts downward pressure on prices of imported goods such as cars and clothing.

“If anything, the price softening is helping to support demand,” and the dollar is set to rise further, said Coffin [an economist at UBS Securities]. … “Households are getting a little bit more purchasing power out of their income growth.”

Michelle Jamrisko, Inflation at 53-Year Low Belies U.S. Demand Vigor: Economy, Bloomberg, June 12, 2013.

COMMENTS

If a stronger dollar means you can buy more T-shirts from Bangladesh, then the manufacturing job growth will be there not here.  Just as importantly, who says you are going to buy another T-shirt or a new Toyota with money saved because a stronger dollar creates lower real prices.  Maybe you just might bank the extra money  or buy a couple more GM stocks.   What happens to demand growth in that case?

Then, there is the other side of the stronger dollar.  While American consumers can buy more T-shirts from Bangladesh with the same wages, the factory owners in Bangladesh have to pay higher real prices for the American parts to keep their sewing machines running.  Maybe they turn to China or Brazil for those parts.   Quite logically, any demand growth at home can easily be offset by losses in demand from abroad.

(Of course, most economists either work for global corporations and investors or support their agendas.  Global corporations and investors don’t care where the demand is rising and where it is falling or where jobs are being created or being destroyed.  Unlike you and me, they are not tied to a particular nation or a particular city or a particular family, so their fortunes do not rise and fall in connection with a particular place or a particular group of people.)

The key point is that supply and demand functions are global.  To write about supply and demand in nation terms is misguided and misguides readers.  The U.S. has to export goods and services to pay for the things we import — although we are now wedded to a way of life in which we buy goods and services made in other countries on credit and then pay our debts by selling ownership of our tangible wealth to global investors in those other countries.

Debt supported buying has obscured the loss of wealth in the U.S.  But, only in the short term can debt do this.   Sooner or later a transfer of real wealth has to take place to clear the debt — then the loss that occurred a decade ago is finally seen for what it is.  (It may well be that one part of the value of  the foreclosed home down the street from you now belongs to an Asian investor and the other part belongs to a Swiss investor.)

In a world economy, what matters for the working people in the U.S. and for working people everywhere else in the world is the structure of global investment decisions that give life to the relationship between global supply and global demand.  Globally, there are now too many businesses and not enough buyers, and tracking the ebbs and flows of demand within the U.S. obscures the far greater power of this global reality over our working lives.

Job and Earnings Churning Is Not Job and Earnings Growth

Paul robs Peter, then Peter robs Paul.  Round and round and round.  And we all fall down.

SOURCE ITEMS

At the price of a doubling in unemployment and near-10 percent plunge in labor costs, the so-called peripheral euro nations are reviving manufacturing and trade. In Spain, exports reached a record 222.6 billion euros ($287 billion) in 2012.

Joblessness already tops 25 percent in both Spain and Greece…

Ford Motor Co. (F) (F) said at the end of last year it will increase capacity near Valencia as it shuts plants in the U.K. and Belgium. Peugeot (UG), which is cutting workers in its home market of France, is also lifting output in Spain and Portugal.

Simon Kennedy, Even Greece Exports Rise in Europe’s 11% Jobless Recovery, Bloomberg, March 21, 2013.

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Barely two years ago, Brazil’s rapid economic growth and expanding middle class made it the darling of financial markets …. With slow growth and stalled economic reforms, financial markets were about to write off Mexico as a lost cause.

So Brazil has become the star that disappoints, while Mexico is the underperformer that suddenly shines.

Andres Velasco, A Tale of Two Countries, Project Syndicate, March 14, 2013.

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Mexico’s minimum wage commission set the increase for 2012 at 4.2% for all three of the country’s geographic zones…

The increase brings the minimum wage in Mexico to 62.33 pesos ($4.60) a day for zone A, which includes Mexico City. The minimum wage is slightly lower in other geographic zones.

What is the minimum wage in Mexico?,Maquila Reference website.

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Perry sent letters to 26 gun and ammunition manufacturers earlier this month inviting them to consider a move to Texas if the states they currently operate in impose “restrictive laws” on their industry, according to a copy of the letter and list of the manufacturers provided to ABC News by the governor’s office.

“As you consider your options … you may choose to consider relocating your manufacturing operations to a state that is more business-friendly.  There is no other state that fits the definition of business-friendly like Texas,” Perry wrote, pointing out financial incentives the state offers companies.

Arlette Saenz, Rick Perry Invites Gun Manufacturers to Set Up Shop in Texas, ABC News, February 22, 2013.

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We find that products systematically tend to co-appear, and that product appearances lead to massive disappearance events of existing products in the following years…. This is an empirical validation of the dominance of cascading competitive replacement events on the scale of national economies, i.e. creative destruction.

Peter Klimek, Ricardo Hausmann, and Stefan Thurner, Empirical confirmation of creative destruction from world trade data, arxiv, December 13, 2011.

COMMENTS

A few years back, business was booming in Ireland and experts were hailing it as the land of smart policy.  Then things went south.  Overnight, the land of smart policy became the land of dumb policy.

The problem for the world’s nations isn’t whether a nation adopts smart policy or dumb policy. The problem is that the world economy is a system of trade and competition in which nations, provinces, states, and local governments design and implement policies to steal jobs and earnings from other nations, provinces, states, and local governments.  As a result, there is much less actual job and earnings growth in the world economy and much more inter-territorial migration of jobs and earnings (churning) than is typically claimed by the champions of global capitalism.

This has always been the case, but decades ago this reality was much less visible to Americans and Western Europeans because the churning took place at a much slower pace and the winners and losers were not so intimately connected to each other through global systems of communication and transportation.  Moreover, we were usually winners in the global job churning system, so we had little incentive see the churning.

In the interceding decades, the rate of inter-territorial movement of jobs and earnings has been accelerating.  Global communications and transportation systems have expanded and improved markedly, facilitating ever rising numbers of inter-territorial financial transactions and deal closings. In turn, job and earnings churning has and continues to accelerate.

As the churning accelerates, it is becoming more visible to Americans and Europeans.  One reason is that the same communications and transportation systems that are accelerating churning are also connecting the peoples affected by the churning more closely together.  More importantly, though, Americans and Europeans are now more often finding themselves on the losing side of the churning.  Seeing the churning has become more likely because not seeing the churning only leads to policies that work only over a short period of time that is growing increasingly shorter.

The best policy move for everyone is for the world’s leaders to put an end to global job and earnings churning.  In the U.S. we certainly must put an end to interstate job and earnings churning, or our political gridlock and policy floundering will likely pull us deeper into an accelerating spiral of economic and political disasters. 

Global Shortage of Skilled Workers is a Myth; Global Failure to Create Jobs is the Reality

SOURCE ITEMS

Chart-Global Working Age Population, 2000-2010

Data Source: World Population Prospects: The 2010 Revision, Population Division, Department of Economic and Social Affairs, United Nations.

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Last May I wrote about Coursera — co-founded by the Stanford computer scientists Daphne Koller and Andrew Ng — just after it opened. … When I visited last May, about 300,000 people were taking 38 courses taught by Stanford professors and a few other elite universities. Today, they have 2.4 million students, taking 214 courses from 33 universities, including eight international ones.

 Thomas Friedman, Revolution Hits the Universities, New York Times, January 26, 2013.

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According to UNESCO data, 177 million students participated in formal tertiary education around the world in 2010, an increase of 77 million students since 2000, or 77% (UNESCO Institute for Statistics, 2011).

Education at a Glance 2012, OECD indicators. OECD Publishing, September 2012.

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The Washington-based bank yesterday projected the world economy will expand 2.4 percent, down from a June forecast of 3 percent, after growing 2.3 percent in 2012. It halved its forecast for Japan, cut the U.S. projection by 0.5 percentage point and predicted a second year of contraction in the euro region. It also lowered projections for emerging markets led by Brazil, India and Mexico.

Sandrine Rastello, World Bank Cuts Growth Forecasts as Developed Nations Lose Steam, Bloomberg News, January 16, 2013.  

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In recent years, the proportion of high-skill migrants has been rising – from 19 percent in 1980 in the United States, to 26 percent in 2010, for example – as immigrants filled demand that domestic supply alone could not match.

The World at Work: Jobs, Pay, and Skills for 3.5 Billion People, McKinsey Global Institute, June 2012.

COMMENTS

The world economy has no shortage of workers and no shortage of well educated and skilled workers.  It has a devastating shortage of jobs for people of working age.

The brutal reality is that insufficient global job creation is the problem.

Flooding the world’s labor force with more and more highly educated and skilled workers will not solve that problem.  It will only expand the population of underemployed and inappropriately-employed college educated workers.

If a shortage of skilled workers really did exist, the world’s global corporations, which are awash in record profits and holding large amounts of cash, would be spending much more on worker training and aggressively lobbying governments to increase investments in higher education.  Instead, it’s only lip service for investments in education and training and, in richer countries like the U.S., lobbying for more visas for the world’s growing supply of skilled workers.

A new governmental approach to job creation is the solution.

Governments must shift from passively accepting private sector job creation failure to actively driving private sector job creation decisions.  To begin, they must stop competing with each other for the investment attention of global corporations and start working together to demand more job creation from those corporations.

More Evidence That Global Policy Making is the Only Path to Job and Income Growth

SOURCE ITEMS FOR YOUR CONSIDERATION

The size and composition of spillovers across countries is one of the many issues that have resurfaced in the wake of the Great Recession. It is now apparent that events in some countries can have profound spillovers elsewhere which are not limited to their immediate neighbors but can ricochet around the globe.

Although progress is being made, the financial sectors in large macroeconomic models are poorly developed and, at an even more basic level, there are no strong theories as to why financial markets are as closely linked as they appear to be in the data.

The structure of a typical large macroeconomic model generates low correlations of output, bond yields, and (where modeled) equity prices across countries. This does not correspond to the high correlations actually seen in the data. Imposing these financial market correlations produces estimated output spillovers that are much closer to those seen in the data, but we lack a comprehensive model explaining why these international asset price correlations are so high.

Bayoumi, Tamim ; Vitek, Francis, Macroeconomic Model Spillovers and Their Discontents, Working Paper, International Monetary Fund, January 2013.

COMMENTS

In other words, most economists are holding us back, not leading us forward.

Nations are more economically interconnected that most economists admit.  Really, we live in one world economy, not a world of national economies, and the scope of policy making must match the scope of the economy.  Otherwise, we will keep getting the terrible job and income growth consequences and the associated domestic and geopolitical turmoil we have been getting.

Debt Got Us Here; More Debt Will Keep Us Here

ITEMS FOR YOUR CONSIDERATION

The Federal Reserve opened a new chapter Thursday in its efforts to stimulate the economy, saying that it intends to buy large quantities of mortgage bonds, and potentially other assets, until the job market improves substantially.

Binyamin Appelbaum, Fed Ties New Aid to Jobs Recovery in Forceful Move, New York Times, September 13, 2012.

 COMMENTS

The likely outcome of the Federal Reserve’s new round of bond buying is another round of investment bubbles, another financial crisis, and another round of concentrating the world’s wealth in the hands of fewer and fewer people.

The underlying problems are 1) income growth for the majority of the world’s people and 2) downward pressure on global GDP growth from limits to the earth’s carrying capacity.

The tradeoff between job growth (which is dependent on rapid GDP growth) and high rates of inflation is a problem tied directly to the finite carrying capacity of the earth.  We started hitting those limits in the 20th century.

Debt growth in the 1970s, 1980s and 1990s worked fairly well as a way to sidestep stagnant income growth for the majority of the world’s middle class people, but it no longer works because of the carrying capacity problem.  As the world economy is currently structured, a jump in global demand from debt growth or from a radical redistribution of wealth sufficient to push job growth to acceptable levels would push prices toward the stratosphere.

The solution to the world’s employment problems is not more debt and it is not classical redistribution of wealth, its a global economic transformation that ends the tradeoff between employment and inflation.

The ‘All’ in ‘We’re All in This Together’ Is the Whole World

ITEMS FOR YOUR CONSIDERATION

… that if you just “work hard and play by the rules” you should expect … a decent life and a chance for your children to have a better one. There is just one problem: It’s out of date.

… when Clinton first employed his phrase in 1992, the Internet was just emerging, virtually no one had e-mail and the cold war was just ending. In other words, we were still living in a closed system, a world of walls, which were just starting to come down. It was a world before Nafta and the full merger of globalization and the information technology revolution, a world in which unions and blue-collar manufacturing were still relatively strong, and where America could still write a lot of the rules that people played by.

That world is gone. It is now a more open system.

 Thomas Friedman, New Rules, New York Times, : September 8, 2012.

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Anybody with an idea and a little expertise can set assembly lines in China into motion with nothing more than some keystrokes on their laptop. A few days later, a prototype will be at their door, and once it all checks out, they can push a few more buttons and be in full production, making hundreds, thousands, or more….“Three guys with laptops” used to describe a Web startup. Now it describes a hardware company, too.

Voilà, a Factory in Your Garage, Reading File, New York Times, February 6, 2010.

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Both cyclical and structural effects appear evident in the recession, suggesting that some features of the U.S. economy can benefit from stimulatory monetary and fiscal policy, while others are more permanently damaged and unlikely to respond to such policies.

 Eric Swanson, Structural and Cyclical Economic Factors, Economic Newsletter, Federal Reserve Bank of San Francisco, June 11, 2012.

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After all, borders are not impermeable. On the contrary, globalization – the immense flow across borders of people, ideas, greenhouse gases, goods, services, currencies, commodities, television and radio signals, drugs, weapons, emails, viruses (computer and biological), and a good deal else – is a defining reality of our time. Few of the challenges that it raises can be met unilaterally; more often than not, cooperation, compromise, and a degree of multilateralism are essential.

Richard N. Haass (Director of Policy Planning for the US State Department (2001-2003), To the Victors Go the Foils, Project Syndicate, Apr. 25, 2012.

COMMENTS

When there are no limits to competition, competition destroys the commons – whether that commons is arable land, fish stocks in the ocean, the earth’s breathable air, or the economy in which all the world’s working people must earn an income sufficient to support a family and contribute to the well-being of their communities.

Structural factors that rob working people of living wage jobs are not confinedto the U.S., are not confined to any nation. There are national and local variations, but, fundamentally, the structural problems are global in scope and must be addressed through globally coordinated efforts.

A global system in which one nation outdoes others for a few years, and then another nation outdoes others for a few years, while the global trend is greater hardship for the greater number, is not one the American people should want and it is not one in which a high standard of living can be sustained.

Things Come Undone: One Reason Global Economic Troubles Are Becoming Chronic

ITEMS FOR YOUR CONSIDERATION

We humans devise all sorts of methods for obstructing or “damming” the second law [of thermodynamics] for considerable periods of time. A mundane example: We paint iron to prevent it from rusting.

Frank L. Lambert (Professor Emeritus, Chemistry), Entropy Is Simple — If We Avoid The Briar Patches!, Occidental College website, February 2008.

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Our scenario shows that over the coming twenty years the world evolves from being mostly poor to mostly middle class. 2022 marks the first year more people in the world are middle class than poor. By 2030, 5 billion people – nearly two thirds of global population – could be middle class.

Homi Kharas and Geoffrey Gertz, The New Global Middle Class: A Cross-Over from West to East, Wolfensohn Center for Development, Brookings Institution, 2010.

COMMENTS

When we add a new person to the world we create a need to increase the amounts of energy and materials devoted to the production of food, clothing, shelter and other necessities that keep people alive.  We know this almost intuitively.

We are less aware of the fact that every time we add a new item of wealth (social or material) to the world we also create a need to increase the amounts of energy and materials devoted to maintaining our stock of wealth and to replacing items of wealth when they wear out or break.  We know that our cars malfunction and wear out, weeds grow in our gardens, our toys break, and alienated youth vandalize our buildings, but we tend to see these processes and events as personal or local losses, not as losses to our global stock of wealth.

Essentially, the world’s stock of wealth is an enormous and ongoing confrontation with natural forces that work to undo the things that we have done.  The more wealth the world’s people create, the larger and more costly that confrontation becomes.

This means that growing the world’s middle class (a class associated with enormous amounts of personal and social wealth) comes at the cost of devoting more and more of the world’s available energy and resources to repairing and replacing existing items of wealth.  The rates at which energy and materials are produced must continuously increase in order to produce enough to both maintain the existing level of wealth and add new wealth.

The world is finite.  At some point the rates at which energy and materials must be extracted from natural systems just to repair and replace existing items of wealth bump up against the natural and institutional limits to those rates of extraction.  Economic growth (net increases in global wealth) slows and then stops.

The global economic troubles that began with the 2008 financial crisis seem to have become chronic.  Most economists argue that the world economy continues to be troubled because the world’s governments are not pursuing the correct policies.  A few, though, admit to being perplexed by the persistence of the world’s economic troubles.

Perhaps the heart of the problem is that the world is already bumping up against limits.  Perhaps economic policies no longer work as well as they once did because the policy goal (economic growth) is becoming less and less attainable.

And if economic growth is becoming less attainable, so too is the job growth associated with economic growth.

The Rapid Global Deployment of Increasingly Smarter Machines Overturns Traditional Economic Policy Assumptions About Employment Growth and Income Distribution

ITEMS FOR YOUR CONSIDERATION

Last week Amazon, the online retailer, announced it was buying a robot maker called Kiva Systems for $775 million in cash. … Kiva Systems’ orange robots are designed to move around warehouses and stock shelves.

Or, as the company says on its Web site, using “hundreds of autonomous mobile robots,” Kiva Systems “enables extremely fast cycle times with reduced labor requirements.”

Nick Bilton, Disruptions: At Amazon, the Robot World Comes a Little Closer, New York Times, March 25, 2012.

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The value of the global industrial robot-system market will double to $41 billion by 2020, according to an estimate by Christine Wang, an analyst at Daiwa Capital Markets in Hong Kong. Global unit sales last year jumped about 30 percent to a record 150,000 units, the IFR said.

Reuter, the Kuka CEO, said higher wages in China make investing in robots a simple trade off.

“It comes down to the question: at what cost can a robot do the job more efficiently?”

Richard Weiss, Kuka Robots Invade China as Wage Gains Put Machines Over Workers, Bloomberg, April 12, 2012.

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This is the potential of the “Internet of Things”: billions and billions of devices and their components connected to one another via the Internet. 50 billion devices by 2020, according to companies like Ericsson.

The basic building block of the Internet of Things is machine-to-machine communication (M2M), devices equipped to communicate without the intervention of humans.

Large scale M2M users may offer their services dozens of countries, selling the same devices globally.

Rudolf Van der Berg, The Internet of things, OECD Insights,  January 31, 2012.

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IBM says Watson’s skills — interpreting queries in natural language, consulting vast volumes of unstructured information quickly, and answering questions with a defined level of confidence — can be applied to many industries. It has already sold the technology to WellPoint Inc. (WLP), the U.S. insurer, and Citigroup Inc. (C), and expects to generate billions in new revenue by 2015 from putting Watson to work.

… Martin Kohn, IBM’s chief medical scientist, said in an interview. Using Watson “we have access to much more information than we could possibly accomplish by reading on our own, or even 100 people reading.”

Beth Jinks,  IBM’s Watson to Help Memorial Sloan-Kettering With Cancer, Bloomberg, March 22, 2012.

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There is reason to believe that code kernels for the first Turing-intelligent machine have already been written.

“Two revolutionary advances in information technology may bring the Turing test out of retirement,” wrote Robert French, a cognitive scientist at the French National Center for Scientific Research, in an Apr. 12 Science essay. “The first is the ready availability of vast amounts of raw data — from video feeds to complete sound environments, and from casual conversations to technical documents on every conceivable subject. The second is the advent of sophisticated techniques for collecting, organizing, and processing this rich collection of data.”

Brandon Keim, Artificial Intelligence Could Be on Brink of Passing Turing Test, Wired, April 12, 2012.

COMMENTS

The prevailing U.S. policy approach to creating jobs and distributing income reflects the traditional optimism of economists about long term employment and income distribution trends.  It treats employment growth and the widespread distribution of income through private sector payrolls as beneficial side effects of economic growth that require little attention from government.  The primary concern for government is providing optimal conditions for private sector investment.

The general optimism of economists about employment and income distribution includes a specific optimism about the impact of technology driven productivity growth.  Economists generally acknowledge that the implementation of new production technologies reduces the demand for labor in the industries in which those technologies are introduced.  But, they go on to argue that the workers who are displaced (or their children) find work in new industries (also created by the new technologies).  The net result is greater wealth for society and no permanent upward trend in unemployment.

Assumptions Underlying This Optimism Are Obsolete

In the past, this logic worked fairly well in the U.S.  Today, however, three key assumptions underlying this logic are violated in the real world.

The first assumption is that technological innovations will not be implemented faster than displaced workers can retrain for and find alternative work in emerging industries.  This assumption is no longer operative because unprecedented efficiencies in research and development fields, unprecedented fluidity of capital flows, and unprecedented levels of global competition are generating employment displacement and new skill requirements faster than human institutions can respond.

The second is that global market institutions will always evolve fast enough to keep the global capacity to consume growing as fast as the global capacity to produce grows.  The expanding role of debt financed consumption in the growth of global markets in recent decades and the prolonged duration of the financial and economic crisis that began in 2008 because of the tightening of credit show that this assumption is at least questionable.

The third assumption is that machines can displace only a small portion of human work activity.  This is no longer true.  Recent years have brought businesses massive increases in computing power, lower cost high capacity information storage, and computer programs that use highly sophisticated computational algorithms.  These hardware and software advances are now being deployed to mimic an expanding range of human work activities.

Job Creation and Income Distribution Must Become Direct Goals of  U.S. Economic Policy

If the assumptions on which economists rest their optimism about employment growth and income distribution are now obsolete, then public policies that succeed in stimulating private sector investment growth are unlikely to produce the employment growth and income distribution outcomes needed by the majority of people.  Creating good jobs and implementing policies that widely distribute incomes must become direct goals of government policy making, rather than secondary goals.

To continue with the current focus only on providing optimal conditions for private sector investment will only bring us more of what we now have: declining middle class incomes, more families living in poverty, and too much wealth owned and controlled by too few people.