A Return to Full Employment With Mixed Signals: This Time is Different for the World of Employment

SOURCE ITEMS

Chart-Employed Full Time Trend

St. Louis Federal Reserve, Accessed December 13, 2015.

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The Netherlands seems to be undergoing a sort of industrial revolution in reverse, with jobs moving from factories to homes. The Dutch labor market has the highest concentration of part-time and freelance workers in Europe, with nearly 50% of all Dutch workers, and 62% of young workers, engaged in part-time employment – a luxury afforded to them by the country’s relatively high hourly wages.

Sami Mahroum and Elif Bascavusoglu-Moreau, Is Jobless Growth Inevitable? Project Syndicate, March 25, 2015. Accessed December 13, 2015.

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Inequality, exclusion, and duality became more marked in countries where skills were poorly distributed and many services approximated the textbook “ideal” of spot markets. The United States, where many workers are forced to hold multiple jobs in order to make an adequate living, remains the canonical example of this model.

Dani Rodrik, The Evolution of Work, Project Syndicate, December 9, 2015. Accessed December 13, 2015.

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Forced labor permeates supply chains that stretch across the globe, from remote farms in Africa and the seas off Southeast Asia to supermarkets in America and Europe. Almost 21 million people are enslaved for profit worldwide, the UN says, providing $150 billion in illicit revenue every year.

Erik Larson, These Lawyers Want Slave Labor Warnings on Your Cat Food, Bloomberg, December 10, 2015. Accessed December 13, 2015.

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Over all, the Labor Department data painted a picture of an economy that is growing steadily and creating jobs at a healthy pace, even as wage gains remain subdued and many Americans are still stuck on the sidelines of the recovery.

Nelson D. Schwartz, Robust Jobs Report All but Guarantees Fed Will Raise Rates, New York Times, December 4, 2015. Accessed December 13, 2015.

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In reality, the 35-hour workweek has become mostly symbolic, because a multitude of loopholes allow companies to work around the law. French employees work an average of 40.5 hours a week — more than the 40-hour average in the European Union — and have high productivity.

Liz Alderman, Smart Car Standoff Pits Social Progress Against Global Competition, New York Times, December 12, 2015. Accessed December 13, 2015.

COMMENTS

A question emerged after 2008 that unsettled the field of economics and is still unanswered: is this time different? Was the financial crisis of 2008 an economic crisis of a unique kind in the history of capitalism; or was it just a very severe version of a routine kind of economic crisis?

This phrase gained currency from the publication of the book, This Time is Different: Eight Centuries of Financial Folly, by Carmen Reinhart Kenneth Rogoff.[1] They argue that the financial crisis of 2008 is not different. But others disagree.

In a 2012 article, Lawrence King et al make the argument that this time is different because it is the result of a level of financial liberalization and a degree of free market economics that did not exist before the 1970s.[2]

A few of our world’s best and brightest economists expressed their uncertainty and sense that this time is different in this way:

“As a world economic crisis developed in 2008 and lasted longer than most economists predicted, it became increasingly clear that beliefs about macroeconomics and macroeconomic policy needed to be thoroughly examined. … we knew that we had entered a brave new world…”[3]

Different Seems More Likely Than the Same

After 2008 optimism about a return to robust economic growth has been the rule. But actual economic growth has not rewarded that optimism. A few economists have been trying to explain this poor record.

Robert J. Gordon, professor of economics at Northwestern University, recently asserted that “It is time to raise basic questions about the process of economic growth, especially the assumption – nearly universal since Solow’s seminal contributions of the 1950s (Solow 1956) – that economic growth is a continuous process that will persist forever.” He went on to propose that U.S. economic growth may grind to a halt because the kinds of technological innovations that drove rapid U.S. economic growth are not on the horizon.[4]

Professor Gordon was speaking only about the U.S., but the logic would apply to all of the world’s affluent nations.  Moreover, the World Bank and other global institutions have repeatedly warned of below par levels of global economic growth, in some cases for years to come.

Weighing anecdotal evidence, some discernible trends, and expert opinion, it seems reasonable to conclude that this time is different for economic growth.

That means this time is almost certainly different for the world of employment.

A Different World of Employment

In mainstream theories of economic development, the future of work is directly tied to the future of economic growth. Economic growth is the engine that pushes us toward the ever expanding prosperity goals that make for widespread affluence: high profits, high wages, and full employment. When economic growth slows down something has to give in the world of employment.  We are trapped in a long period of slow economic growth, so the employment trends of the past cannot continue.

We can be fairly certain that workers in the U.S. and other affluent nations will not experience the kind of return to full employment with high wage conditions we have known in the past. In the context of global competition and slow economic growth,  the world’s economic and political leaders are pressing hard to cap and reduce wage bills at all levels of employment. We have entered into an era of global degradation of employment.

In affluent nations they  are forcing working people to choose between fewer jobs and fewer hours at higher compensation levels or more jobs and more hours with lower wages and less valuable benefits.  In the rest of the world, where such a choice has seldom existed in any meaningful sense,  global competition and slow economic growth mean an end to the dream of jobs that will deliver better lives.  Everywhere, employment rights and workplace protections are falling away.

What we don’t know quite yet is how the ongoing degradation of the world of employment will play out in national and global politics. At the moment it appears that the world’s political and economic leaders have chosen to promote a free-for-all battle struggle among working people by defining rights to crumbs from the capitalist table using the old reactionary lines of difference – race, ethnicity, gender, religion, and nation. And, at the moment, too many workers in affluent nations are falling into this trap, as shown by the rise of Trumpism in the U.S., the growth of reactionary movements across Europe, and the destruction of governing institutions that embody common interests, and the rise of militaristic movements intent on redrawing national boundaries.

Intentionally engendering antagonisms can’t solve the fundamental problems for global economic growth, so the right wing policies can have only one ultimate outcome – a global catastrophe in multiple forms. Hopefully, this  will become clear to the world’s working people well before such a catastrophe becomes unavoidable.

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[1] Carmen M. Reinhart and Kenneth Rogoff, This Time is Different: Eight Centuries of Financial Folly, Princeton University Press, 2009.

[2] Lawrence King, Michael Kitson, Sue Konzelmann and Frank Wilkinson Making the same mistake again—or is this time different? Cambridge Journal of Economics 2012, 36, 1–15 doi:10.1093/cje/ber045.

[3] From the Preface: Olivier J. Blanchard, David Romer, A. Michael Spence and Joseph E. Stiglitz, In the Wake of the Crisis: Leading Economists Reassess Economic Policy, MIT Press, 2012.

[4] Robert J. Gordon, Is US economic growth over? Faltering innovation confronts the six headwinds, VOX, September 11, 2012. http://www.voxeu.org/article/us-economic-growth-over.

Crisis and Recovery Work: the Future of Jobs in the World Economy

 

SOURCE ITEMS

Pipes carrying Flint River water are opened; the Detroit supply is shut off. The switch was made as a cost-saving measure for the struggling, black-majority city. Soon after, residents begin to complain about the water’s color, taste and odor, and report rashes and concerns about bacteria. … Flint urges residents to stop drinking water after government epidemiologists validate Dr. Hanna-Attisha’s finding of high lead levels. Mr. Snyder orders the distribution of filters, the testing of water in schools, and the expansion of water and blood testing.

Jeremy C.F. Lin, Jean Rutter and Haeyoun Park, Events That Led to Flint’s Water Crisis., New York Times, January 21, 2016. Accessed January 22, 2016.

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Health care employment expanded by 475,000 in 2015, compared with a gain of 309,000 in 2014.Chart-Job Growth by Sector 2015

 

Source: Current Employment Statistics Highlights, December 2015, Bureau of Labor Statistics, January 8, 2016. Accessed January 22, 2016.

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Air, sea and land transport networks continue to expand in reach, speed of travel and volume of passengers and goods carried. Pathogens and their vectors can now move further, faster and in greater numbers than ever before. Three important consequences of global transport network expansion are infectious disease pandemics, vector invasion events and vector-borne pathogen importation.

Tatem, A.J., D.J. Rogers, and S.I. Hay. Global Transport Networks and Infectious Disease Spread. Advances in parasitology 62 (2006): 293–343. PMC. Web. 22 Jan. 2016.

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Thus, the net gain in jobs in New Jersey over the four year period would be 270,000 (281,000 construction-related jobs less 11,000 Travel and Tourism-related jobs). Of the 281,000 construction-related jobs, about 218,000 will be direct construction jobs. …

If all of this money is spent on reconstruction, the influx of new spending will generate $53.1 billion in new total output in those 13 counties and about 352,000 new jobs. About 299,000 jobs will be construction jobs.

Economic Impact of Hurricane Sandy, Economics and Statistics Administration, U.S. Department of Commerce, September 2013

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Future warming will bring a more volatile, dangerous world, even if the world manages to keep temperature rises within a 2C limit to which governments have committed, Fischer’s research found. On average, any given place on Earth will experience 60% more extreme rain events and 27 extremely hot days.

Karl Mathiesen, Extreme weather already on increase due to climate change, study finds, The Guardian, U.S. Edition, April 27, 2015.

COMMENTS

Safe water is one of those items of wealth that comes to us as both natural wealth and fabricated wealth. We sip water purified by nature from natural springs and we sip water purified by factories from our water taps.

The water crisis in Flint Michigan illustrates the extent to which we humans have damaged the natural production of many forms of wealth and been forced to replace natural wealth with fabricated wealth. Therein lies the story of job growth in the 21st century.

During the expansive years of capitalism (roughly the 16th century through the first half of the 20th century), we increasingly used fossil fuels to transform natural wealth into fabricated wealth. We had our eyes on the growing stock of fabricated wealth and failed to see the costs in natural wealth. Now we are beginning to see that there is no free lunch. The notion that humans figured out how to add to the total stock of wealth on the planet (the notion of creating fabricated wealth at no cost to natural wealth) has turned out to be an accounting sleight of hand.

We have never been able to increase net total wealth (natural wealth + fabricated wealth). By defining nations as economies, we externalized all costs to other nations and to nature and counted only what we wanted to: fabricated wealth. Our riches seemed to grow without end. Now we can no longer expand the stock of fabricated wealth fast enough to stay ahead of normal wear and tear and a rising tide of social, geopolitical, and ecological disasters.

The work we want to do is steadily being replaced by the work we must do. Steadily, our working hands and minds are being turned to the task of fixing damage inflicted on our fabricated wealth by domestic conflicts, wars, climate events, and just plain old wear and tear; and to the task of fixing the damages we have inflicted and continue to inflict on natural wealth.

The rate at which the world’s fabricated and natural wealth are being damaged is growing fast, so more and more our jobs will be in industries that repair our bodies (and replace body parts), that repair and replace our essential fabricated items of wealth (e.g., homes, tools, transportation equipment, educational facilities, health care technologies) and that repair the planetary systems we have damaged. The proportion of jobs that produce goods and services that can be counted as net new fabricated wealth will go down.

Into the 20th century, job growth was associated with expanding the production of net new fabricated wealth. That era is over. Job growth is now becoming associated with survival goals in place of greater affluence goals.

Today’s Strengths are Tomorrow’s Weaknesses; Today’s New Hires are Tomorrow’s New Unemployed

In an a single world economy with decentralized policy making, stability for a nation’s economy is not achievable.

SOURCE ITEMS

Cutbacks in demand from overseas customers and domestic energy producers led to the weakest growth in new orders since May 2013, prompting U.S. factories to slow the rate of hiring. At the same time, manufacturing is being underpinned by sustained spending from American consumers who are enjoying low prices at the gas pump.

Bloomberg News, Manufacturing in U.S. Expands at Slowest Pace in a Year, Bloomberg, March 2, 2015.

COMMENTS

Back in the Fall of 2014, economists hailed the strong dollar as evidence of a strong U.S. economy and only whispered warnings about the potential for lost foreign demand for U.S. goods. Similarly, they have hailed the shift in consumer spending that low oil prices allow, but only whisper warnings about the resulting job losses in the energy related industries.

Economists completely ignore the fact that a very large proportion of consumer goods that we American’s buy are produced abroad.  This matters because whatever job growth we get from the shifts from buying gasoline and heating oil to buying furniture, electronic goods, and trinkets will mostly be in lower-wage retail, not in higher-wage production. Moreover, when fuel prices begin to rise again, as they will, consumer spending will shift back into heating oil and gasoline, destroying the retail jobs that were so recently created and restoring jobs in energy industries.

Economists tell us that we have entered a period of positive economic trends; they have been doing this almost every year since the financial crisis of 2008. It’s wishful analysis because economic instability and volatility are build into the institutional structure of world economy.  So, if you just got a new job, don’t count on it lasting.

The Sharing Economy: Mobilizing Underutilized Assets or Degradation of Quality of Life in Times of Job Scarcity and Income Stagnation?

SOURCE ITEMS

PAUL SOLMAN: A peak efficiency economy, that is, putting idle resources to work, like a car, or your own idle time. Cook a meal for strangers on Feastly or work a freelance gig in your downtime on oDesk or Elance.

And speaking of idle, how about that empty space in your house? The app DogVacay lets you rent it out to bored canines. One of the most popular sharing economy platforms extends that idea to humans, Airbnb, now turning the hospitality industry on its head.

The new ‘sharing economy’ can enrich micro-entrepreneurs but at what cost? PBS NewsHour, October 10, 2014.

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Our indicators of leisure quality show that, despite increases in the quantity of leisure over this period (as reported by Aguiar and Hurst [2007 ] and others, and confirmed in Section 5 below), the quality of leisure has decreased for all groups.

Almudena Sevilla Sanz, José Ignacio Giménez, Nadal Jonathan Gershuny, Leisure Inequality in the US: 1965-2003, Sociology Working Papers, Department of Sociology, University of Oxford.

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But this is not by virtue of people wanting to work less — it’s by virtue of people being able to work less.

That’s an important distinction: being able to make a living and support your family by working 40 hours a week versus 80 hours a week.

Peter Diamandis, Evidence of Abundance #1: More Leisure, Less Work, Forbes, June, 27, 2014.

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Specifically, the allocation of time for less‐educated and highly educated adults started to diverge in 1985 (panel B of Table 6) and was dramatically different by 2003 (panel C of Table 6).
Taken together, the results of Table 6 and Figures 6a and 6b document an increase in the dispersion of leisure favoring less educated adults, particularly in the last 20 years. This corresponds to a period in which wages and consumption expenditures increased faster for highly educated adults.

Mark Aguiar and Erik Hurst, Measuring Trends in Leisure: The Allocation of Time over Five Decades, Working Papers, Federal Reserve Bank of Boston, January 2006.

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In economics, capital goods, real capital, or capital assets are already-produced durable goods or any non-financial asset that is used in production of goods or services. … Homes and personal autos are not usually defined as capital but as durable goods because they are not used in a production of saleable goods and services.

Capital (economics), Wikipedia, Accessed 10/11/2014.

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Around the world, working-age people with full-time jobs (and therefore weekends and distinct non-work time) are now a minority: According to a new survey of 136,000 people in 136 countries by Gallup, 26 per cent of working people “worked full-time for an employer in 2013.” In India, nearly three of four are informally employed, according to the national statistics agency, either doing day-by-day piecework or buying and selling things.

Doug Saunders, Work? Leisure? It’s all a blur these days, The Globe and Mail, Aug. 30 2014.

COMMENTS

The positive spin on the sharing economy is that people have unused assets they can turn into capital and income.  A spare room in the house or a car that is not always in use can be transformed into capital for a business. Non-work time can be turned into work time and thus into income.

But, what does it say about the quality of life when everything you own is seen as capital or potential capital and every waking hour is seen as potential work time? Only a generation ago, being middle class was understood to include owning things just for the pleasure of having and using them and to include having lots of time not a work to spend with family and friends enjoying our spacious homes, our comfortable cars, our hobbies, and our many wonderful toys.

The rise of the sharing economy must be put in the proper context: the globalization of competition for jobs and income, the technological destruction of higher end jobs, the permanent slow down in the growth of global wealth, and the steady increase in the world’s working age population. These forces brought the growth of middle class incomes in affluent countries to a halt over the last several decades, even while costs associated with middle class life continued to rise rapidly – costs for college, good health care, and higher end consumer goods.

The sharing economy seems new to many of us in affluent nations, but it has been a staple of human societies all along. It’s the technologies that Uber, Airbnb, and other sharing economy enterprises use that fool us into thinking the sharing economy is a modern or postmodern model of economic activity. For most of human history, people have engaged in peer to peer economic activities within the small populations their communication and transportation technologies could knit together.  For most of human history people have necessarily used every available asset. They have necessarily done work in the places where they live and seen their own time and the time of their children as potential income.  They have made almost no distinction between work and leisure.  Ironically, what we are now calling a different and promising future is in fact just a continuation of what has historically been typical.

In another form, the sharing economy could offer a promising future. In its present form, it is only another of the many ways in which the world’s middle income people adapt to their ongoing economic decline by undercutting each others’ wages.

The world’s peoples do have to adapt to emerging limits to the growth of affluence, but we should choose to implement new technologies in ways that create real forms of economic sharing not new forms of all against all competition.

Are We In An Employment Bubble? Employment Growth in the U.S. Is Fueled By Debt Bubbles and Speculation Bubbles

SOURCE ITEMS

In most U.S. post-war business cycles, recessions were followed by above trend growth in output and employment. After the last three recessions, however, output and employment growth were sluggish. … This paper shows that each of the last three recessions coincided with a collapsing bubble in a category of private fixed investment: commercial real estate (1990-91), internet equipment (2001), and housing (2008-09).

From the Abstract, John Edwin Golob, Investment Bubbles and Jobless Slow-Growth Expansions: A Tale of Three Recoveries, Social Science Research Network, April 5, 2013.

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We have highlighted the two major subprime lending booms we’ve seen in that period — the subprime mortgage lending boom from 2003 to 2006, and the subprime auto loan boom from 2010 to 2014. … It appears that the key to boosting spending in the U.S. economy is subprime lending.

Atif Mian and Amir Sufi, Subprime Lending Drives Spending, House of Debt, June 13, 2014.

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Investors have grown hungrier for higher-yielding assets in far-flung parts of the world, even if they’re more volatile, as yields on junk bonds have fallen to new lows.

Lisa Abramowicz, Wall Street Clashes Over Emerging-Market Bonds as UBS Says Sell, Bloomberg, July 9, 2014.

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“It definitely feels like investors are getting overexuberant, and you can stay in overexuberant conditions for a while,” said Fred H. Senft Jr., director of fixed income and equity research for Key Private Bank in Cleveland. “But when it turns it will turn quickly and it will turn very ugly.”

Bob Ivry, Complacency Breeds $2 Trillion of Junk as Sewage Funded, Bloomberg, July 8, 2014.

COMMENTS

Households can take on more debt as their wealth increases. With more borrowed money, households can purchase more goods and services. Thus, we can get job growth from wealth growth.

But there is a hitch. The wealth growth that fuels job growth can be real or imaginary. When wealth growth is imaginary (speculative wealth bubbles), the new jobs created are unlikely to last. We saw this very dramatically in the housing bubble that preceded the financial crisis of 2008.

U.S. job growth in that era floated on a chimera. It crashed with the evaporation of the chimera.

Millions of people bid up home prices by buying them with the intention of holding them briefly and then reselling them for profit. But this could only work if, somewhere down the road, all of those speculatively purchased homes could be sold to families who wanted to buy them as homes, not investments, and who would pay the higher prices and could pay those higher prices with jobs and real incomes that would endure year after year for decades.

As everyone knew, job and income growth in the U.S. had already been compromised by outsourcing, growing competition from companies in low wage parts of the world, and other changes associated with globalization. There was no reason to believe the future of real job and income growth in the U.S. would be better, so there was no rational basis for housing speculation.

Why did it happen anyway? A good explanation is too many investors with too much money chasing too few real investment opportunities. Two decades of tax cuts for corporations and their wealthy owners (supply side economics) had pumped up the supply of investment capital far beyond the ability of the world economy to absorb it in productive ways. In addition, years of importing goods and services from China had turned China into holder of vast amount of investment dollars.

The problem for people with vast amounts of money is that they can’t spend most of it on consumer goods and services and they can’t just put it in a mattress. They have to invest it. When there is too much money for the existing investment scene, they have to invent new investment opportunities. A whole industry grew up just for the purpose of inventing investment instruments with pretty faces and questionable (sometimes nonexistent) substance. Front and center was the packaging of imaginary housing wealth.

Optimism about the economic scene is rising in the U.S. these days. Are we sure it is not rising on the surface of another speculative bubble? The relevant fundamentals have not changed since the early 2000s: The wealthy have even more wealth; taxes on corporations and the wealthy are still very low; neither U.S. nor global consumer demand are taking off.

Debt in the U.S. is growing again – but on what economic basis? That is the key question. Best bet: the job growth we are seeing now should not be trusted.

STEM Education Falls Short: The Problem is Too Few Jobs, Not Too Little Education

SOURCE ITEMS

According to new statistics from the 2012 American Community Survey, engineering and computer, math and statistics majors had the largest share of graduates going into a STEM field with about half employed in a STEM occupation. Science majors had fewer of their graduates employed in STEM. About 26 percent of physical science majors; 15 percent of biological, environmental and agricultural sciences majors; 10 percent of psychology majors; and 7 percent of social science majors were employed in STEM.

 Census Bureau Reports Majority of STEM College Graduates Do Not Work in STEM Occupations, U.S. Census Bureau, July 2014.

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Since cohort-wage profiles display a similar pattern, these findings appear to fit with a strong increase in demand for cognitive tasks in the 1990s followed by a decline in the 2000s.

 Paul Beaudry, David A. Green, and Benjamin M. Sand. The Declining Fortunes of the Young since 2000, American Economic Review, 2014

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Chart-Labor Force Participation Rate Trend

The labor force is anticipated to grow by 8.5 million, an annual growth rate of 0.5 percent, over the 2012–2022 period. The growth in the labor force during 2012–2022 is projected to be smaller than in the previous 10-year period, 2002–2012, when the labor force grew by 10.1 million, a 0.7-percent annual growth rate.

 Labor force projections to 2022: the labor force participation rate continues to fall, Monthly Labor Review, December 2013.

 COMMENTS

We now live in a world economy in which economic processes and trends are global. Global economic growth is constrained and will continue to be into the foreseeable future. As a consequence, current patterns of investment, domestic and global, will not generate a sufficient number of jobs to produce anything near global full employment at living wages.

Economic activity in the U.S. does not constitute a separate economy, so U.S. economy policies cannot produce full employment and high wages in the U.S. while the rest of the world is stuck with high rates of unemployment and low wages.   Investment follows profits.  Profits are maximized by producing in low income places in the world economy and selling in high income places.  Unfettered transnational flows of capital and commodities combined with preventing low-skill working people from easily crossing national boundaries in search of work gives the world’s investors the legal framework with which to manage the world’s labor supply to their advantage.

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.