Tag: Global Economy

Lesson from COVID19: the Work of Today and Tomorrow is Constructing a Way of Life for a New and Different Historical Era

In our memories of recent jolts to daily life, the 9/11 attacks, the 2008 financial meltdown, the Fukushima nuclear disaster, the 2004 tsunami that killed more than 230,000 people across 14 countries, the destruction of life and property by hurricane Katrina along the coast of the Gulf of Mexico, and many others, stand out.  COVID19 stands out differently.  All the others were massive jolts to particular people in particular places.  COVID19 is the only one that has swept up everyone on the planet.  It is the only one that seems to be a massive jolt to the entirety of our modern way of life.

Some observers are calling COVID19 a black swan event, meaning that it is very rare, and try to reassure us that things will eventually go back to normal.  In its particulars, COVID19 is a rare event, but it is best to see it as only the biggest so far in an accelerating wave of devastating events that is sweeping across the modern world.  Each disaster in its particulars is a rare event, but they happen within and are shaped by the conditions of our modern way of life, conditions that have never existed on this planet before.  The real black swan rarity is an earth that is dominated by a species (humans) with such enormous appetites for energy and materials and space, and with such enormous powers to feed those appetites that this species is undermining the biological and social infrastructures of its own existence.  The wave of disasters that is breaking upon us is very much a part of this unprecedented black swan rarity.

COVID19 is revealing with great clarity that our capitalist world of work is all wrong for this unfolding era in human history.  Over the last several centuries the modern world of work was created to serve two interlocked priorities: maximizing the comfort and convenience of an expanding middle class and maximizing the hoarding of wealth and power by the modern version of royal families.  The global conditions in which those priorities were tenable are now gone.  On a fully populated planet bound together by transportation and communication technologies into a single societal entity where a disaster for one people becomes a disaster for all peoples and with the juggernaut of climate change growing bigger and more menacing with every month, those work priorities are no longer tenable.  It is no longer tenable to sacrifice the natural and human made infrastructures of existence in one part of the world, to subsidize the royal families and their middle class enablers in other parts of the world.  It is no longer possible for the affluent and rich of the world to escape the consequences of the conditions that the feeding of their appetites creates.

The world that capitalism made has been moving deeper and deeper into crisis for decades.  Efforts by the world’s rich and the world’s affluent to hold out for a return to better times, especially by Americans, have piled up weapons systems, piled up mountains of public and private debt, and underfunded the maintenance of vital infrastructures.  These efforts to save the conditions of historically extreme comfort, convenience, and elite wealth are futile.  Human history shows us many examples of peoples who have tried to resist the multiplication of forces that make a particular way of life no longer possible.  Those efforts always failed.  In fact, those efforts made the inevitable deaths of those ways of life more destructive and devastating and the construction of a new way to live more difficult.

The American version of capitalism, which is practiced in many parts of the world, is no longer tenable.  The priorities that now drive the world of work have to go.  They will go.  In one way or another, they will disappear.  The best we can do is to not resist the inevitable death of much of modern life, but to accept that it is happening and has to happen.  The best we can do is to thoughtfully manage the death of the American version of modern life and replace it with priorities and ways of life that reconstruct and sustain the infrastructures necessary to human existence.  Sacrifices will be made; they are already being made.  Our task is to manage the forms and distributions of those sacrifices. Failure to do so will not prevent sacrifice; it will only make it more likely that annihilating wars for survival among groups organized along the classic dividing lines of modern life will determine who sacrifices and what they sacrifice.

The Dictatorship of Climate Change: Creating Jobs for Now and the Future

SOURCE ITEMS

A dangerous, large-scale feedback loop that promotes wildfires has emerged. Forests, woodlands and grasslands hold much of Earth’s terrestrial carbon. When they burn, more carbon dioxide is released, increasing concentrations in the atmosphere and causing land and sea surface temperatures to rise. This warming increases the likelihood of even more widespread and intense fires and exacerbates the severe weather and sea level rise we are now beginning to experience.

Don J. Melnick, Mary C. Pearl and Mark A. Cochrane. The Earth Ablaze. New York Times. August 8, 2018.

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Changes in the greenhouse gas concentrations and other drivers alter the global climate and bring about myriad human health consequences. Environmental consequences of climate change, such as extreme heat waves, rising sea-levels, changes in precipitation resulting in flooding and droughts, intense hurricanes, and degraded air quality, affect directly and indirectly the physical, social, and psychological health of humans.  For instance, changes in precipitation are creating changes in the availability and quantity of water, as well as resulting in extreme weather events such as intense hurricanes and flooding.  Climate change can be a driver of disease migration, as well as exacerbate health effects resulting from the release of toxic air pollutants in vulnerable populations such as children, the elderly, and those with asthma or cardiovascular disease.

Climate and Human Health, Health Impacts webpage. National Institute of Environmental Health Sciences. Accessed August 9, 2018.

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Humanity’s challenge then is to influence the dynamical properties of the Earth System in such a way that the emerging unstable conditions in the zone between the Holocene and a very hot state become a de facto stable intermediate state (Stabilized Earth) … This requires that humans take deliberate, integral, and adaptive steps to reduce dangerous impacts on the Earth System, effectively monitoring and changing behavior to form feedback loops that stabilize this intermediate state.

Will Steffen, Johan Rockström, et al. Trajectories of the Earth System in the Anthropocene. Proceedings of the National Academy of Sciences, August 6, 2018.

COMMENTS

It is now well established that we are increasingly living under the steadily growing power of a climate change dictatorship that we brought into being.  The chance to choose a future of greater freedom is gone.  This global dictatorship will come to dominate our every waking hour and every aspect of our lives, including our work lives.  Our jobs will increasingly be the jobs forced on us by this dictatorship as it works its will on this planet with no concern for any of us.

Note that the “intermediate state” referred to in the Trajectories article is not a restoration to the cooler earth of a century ago.  It is a possible state of things that we must work hard to achieve, yet even if we bring this “intermediate state” into being, it will not be benign.  It will still inflict much ruin on our lives; it will still force us to create massive numbers of survival jobs that do not create new wealth or enhance our lives.  At best these jobs will sustain something close to the level of global human welfare we have now.  More likely, given how unwilling humans are to make proactive changes that make life less convenient and comfortable, we will not create the necessary wealth saving jobs fast enough to prevent massive losses of existing wealth.

Across the world, we can expect to see massive shifts in our work lives as the dictatorship of climate change becomes more demanding.  Just for starters, we should expect to see many more jobs in these categories of work:

  • Monitoring the conditions of the entire earth and initiating counter measures when that “intermediate state” begins to wobble in the wrong way.
  • Repairing and replacing wealth that is increasingly lost to the extreme weather events and political upheavals that will necessarily be part of a less hospitable “intermediate state” earth.
  • Population control – anger management counselors, psychiatrists and psychologists, prison guards, prosecutors, police officers, soldiers (in regular armed forces, in insurgent armed forces, and in unregulated militias and criminal organizations).
  • Medical services – to handle victims of interpersonal violence, political violence, and disease epidemics facilitated by hotter temperatures and more moisture in the atmosphere.
  • Construction – to build and maintain sea walls and levies, to reinforce existing structures against more severe stresses, to relocate homes and businesses away from flood zones, and to build border walls to check the flow of desperation driven refugees fleeing from climate change ravaged parts of the world.
  • Governmental agencies — to manage and fund the far reaching global responses to climate change crises.
  • Manufacturing — to provide equipment and supplies to facilitate all the other workforce changes taking place.

These are some of the most visible global workforce changes coming our way.  However, virtually no part of the world economy and no job will be untouched by the increasingly powerful dictatorship of climate change and the demands it is making.

 

Explaining Workforce Changes: Working with an Inclusive Perspective Looks More Promising

SOURCE ITEMS

Some years ago, skeptical scientists began to question these methods, observing, for example, that cancer cells in a petri dish behave so differently from tumors in a human body as to cast doubt on much conventional research.

Gabriel Popkin, Cancer and the artillery of physics, Johns Hopkins Magazine, Spring 2018.  Accessed March 22, 2018.

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The tools we use to help us think—from language to smartphones—may be part of thought itself.

Larissa MacFarquhar, The Mind-Expanding Ideas of Andy Clark, New Yorker Magazine, April 2, 2018.  Accessed May 11, 2018.

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Scientists have confirmed a longstanding hypothesis that Earth’s orbit is warped by the gravitational pull of Jupiter and Venus in an epic cycle that repeats regularly every 405,000 years.

Peter Dockrill, Jupiter And Venus Are Warping Earth’s Orbit, and It’s Linked to Major Climate Events, ScienceAlert, May 8, 2018.

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And including microbiome characteristics when predicting people’s traits, such as cholesterol levels or obesity, makes those estimates more accurate than only personal history, such as diet, age, gender, and quality of life, the study finds.

Jim Daley, Environment, Not Genetics, Primarily Shapes Microbiome Composition, The Scientist, February 28, 2018.  Accessed May 11, 2018.

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For another, researchers often focus their attention on just a few interesting microbes, “and people just don’t look at what the remaining things are,” Kowarsky said. “There probably are some interesting, novel things there, but it’s not relevant to the experiment people want to do at that time.”

More than 99 percent of the microbes inside us are unknown to science, ScienceDaily, August 23, 2017.  Accessed May 11, 2018.

COMMENTS

Increasingly, researchers across a variety of fields are discovering that better knowledge of our selves and our world is produced by making the units of analysis used in research more inclusive and more dynamic.  The standard entities we use in everyday language (e.g., the body, the family, the city, the nation, the ecosystem) are often not the most productive units of analysis for scientific research.  They externalize and hide much that is really part of the actual system of causation and they tend to leave the evolution of entities and boundaries over time out of consideration.

The implications of new understandings in the physical and biological sciences for the social sciences are significant.  Studying kinship groups or cities or nations in a short time frame as though such entities and time frames enclose everything that is explanatorily relevant is less likely to produce durable explanations than we have thought.  We will be better served, it appears, by embracing a more inclusive research perspective.

Most scientific research is done by starting from hypotheses with only two or a few variables, and then perhaps, adding in one or two variables at a time in a search for a still simple but sufficient explanation.  In this approach, the field of inquiry is kept as limited as possible.  The research path is from simplicity to complexity, with the assumption that a fairly simple explanation will be found.

This attempt at simplicity is not only spatial, it is also temporal.  The explanations being sought must not only be simple, they must be time proof.  This is another simplifying premise.  There is no history that must be studied; measuring variables in one short period of time is assumed to suffice for confirming or disconfirming the full range of hypothesized explanatory relationships.

This approach is desirable because simple hypothesized explanations make possible low cost research and simple policy and treatment interventions.  However, the approach brings with it a major source of confusion and controversy.  Even for a system composed of only a few variable components, the number of possible two or three variable hypotheses is quite large.  Add in a temporal dimension and the range of competing hypotheses grows even larger.  For a real world research question, the wide range of explanatory hypotheses possible invites numerous competing and contradictory explanations.  Moreover, given the evidence that research findings are quite often wrong, each researcher is also inclined to hold tight to their particular simple explanation as long as even one study seems to confirm it.  Over the long run, the multiplication of attempts at simple explanations can run up quite a tab for research funders and yet produce very disappointing explanations.

The rise of complexity theories and the increasing use of dynamic systems thinking in research suggest an alternative research approach: starting with a unit of analysis that is as spatially inclusive as seems plausible and studying it over a significant period of time seems likely to be more fruitful that the current approach.  In this approach, researchers would start with complexity and work toward simplicity, eliminating factors that can be shown to be causally inconsequential.  This approach has four advantages.  First, it aligns with the growing number of studies that show that the system totalities that matter are larger and more inclusive than we have thought.  Second, it is more likely to define a common research orientation for the many research institutes and researchers studying the same topic. Third, the inclusion of time gives researchers a better chance to learn whether a discovered explanatory system is evolving over time or is stable.  Finally, it aligns with the scientific principle that we can prove that a causal relationship doesn’t always hold, but we cannot prove that it does always hold.

For the study of workforce changes the Inclusive World Economy perspective that I have adopted (and which is derived from the World-Systems concept developed by Immanuel Wallerstein) provides the kind of system totality that probably encompasses all the possibilities for explaining changes in employment.  It also makes it easier for many workforce change researchers to adopt the same research orienting perspective even while focusing on different hypotheses.  We start with the grand hypothesis that policies, practices, and events in every part of the world and every part of nature have consequences for workforce changes in the U.S.  We add to that the premise that explanatory constancy cannot be taken for granted; it must be demonstrated, not assumed.  The shared research task is to work inward, throwing out factors that can be shown to be minimally relevant to the workforce topic being studied.  We still make use of existing research findings, but instead of looking for research that shows which variables have explanatory efficacy, we look for research that shows which variables have been found in multiple studies to have little or no explanatory efficacy.  A simple explanation is not the starting point in the search for a sufficient explanation; it is only a possible end to that search.

Widely adopting this approach would be a big shift in how we study workforce change, but it should be a fruitful shift.  A growing record of explanatory controversies and failures in the social science fields begs for a new approach, and developments in the physical and biological sciences suggest that adequate explanations for workforce changes will involve more factors and be more complex than has been assumed.  These things given, working from the inclusive and complex toward the simple should be at least as efficient in the expenditure of time and money as is the approach that now dominates the study of workforce changes and so often disappoints.

Work and the Transition to a Solar Future: A Perspective

Societal change is an unavoidable constant.  The totality of humans, other species, and physical earth systems constitute a single economy (the Inclusive World Economy) that is continuously evolving.  This global process of change is driven by the constant flow of energy from the sun.  Energy must do what it does: change the materials it interacts with and change the forms in which it presents itself.  Materials must do what they do: interact with the flows of energy, be changed, and facilitate the transformation of energy forms into different energy forms. As part of this enormous configuration of processes I call the Inclusive World Economy, the world of work must continuously become different and we must become different in dynamic association with this process — but not necessarily in the ways or at the speed we expect or want.

We humans are among the vast array of material instruments through which the flow of solar energy drives change.  Work is the primary way in which we are instruments of change.  In the last several centuries we have vastly expanded and continue to expand the human role in the processes of change in the Inclusive World Economy.  We did this by borrowing solar energy from the past (stored as fossil fuels) and adding it to the flow of solar energy that daily fuels earth’s myriad systems.[1] This dramatic daily increase in the flow of energy through the Inclusive World Economy accelerated and continues to accelerate the global processes of societal and earth systems change, has changed and continues to change the way societal and earth systems change takes place, and has transformed and continues to transform us and almost everything about our planet.

We already know that we can’t keep increasing the use of fossil fuels to augment the daily flow of solar energy.  We have to dramatically limit our borrowing from past solar energy income.  More unsettling is the possibility that we must learn to share the budget of current solar energy flow with other species and with various earth system processes – such as cleansing water through solar powered processes – to a much greater extent than we now think.  We just do not know how much solar energy we can divert from other species and processes in the Inclusive World Economy without generating a new round of system level changes that are both massive and destructive to human wellbeing.

In a large, complex, and dynamic system, system level change can remain evolutionary even while subsystems are going through deep and far reaching change and components are being created and destroyed at a rapid pace.  This is what is now happening in the Inclusive World Economy.  Species are being destroyed; whole communities of people are losing their ways of life; institutions that have been central to our wellbeing are losing there effectiveness and new institutional arrangements are popping up; planetary threats that we have never encountered before have emerged.  The effects of climate change, species loss, limits to vital resources like fresh water and arable land, and conflicts over these things are multiplying and coming faster and faster.

Not surprisingly, the world’s institutional arrangements, which we took for granted only a few decades ago, are becoming dysfunctional in various ways and being subjected to mounting attacks from various quarters.  This is happening to the world of work, where big changes are under way and conflicts over these changes are growing.  The pay and benefits associated with high end jobs are disappearing; protections against harmful work environments are being weakened; more and more jobs involve the work of repairing the damages inflicted by climate change, wars, and illegal business operations.  The world’s stock of wealth (including its people) is growing older, forcing us to devote much more of our work activity to fighting the ordinary ravages of time.

Everything in the Inclusive World Economy is connected, so this is a very dynamic situation.  No one can escape this global upheaval, so everyone is or will be forced to respond to and manage the specific forms in which these massive and life-altering global crises visit us.  As we take actions to respond, every other part of the Inclusive World Economy will change in response to our actions.   Ironically, as we do more to respond to the crises by exerting more technological control over other species and earth systems rather than adapting our own activities to the laws of the universe as they operate in the Inclusive World Economy, the more we accelerate the intensification of the crises.  Unwittingly and carelessly, we have pushed the Inclusive World Economy into a new and dangerous era of change.

In this increasingly hostile global environment, many of us are already struggling with life-altering consequences of these global crises.  Where this is happening, working people are experimenting with old and new ways of making a living and old and new ways of protecting their work opportunities. They have no choice.  But, some of these efforts only work for the short term because they propagate effects through the dynamic processes at work in the Inclusive World Economy to intensify crises and create new ones.

The future of work is uncertain, but at the moment bad outcomes look more likely than good outcomes.  Rising support for authoritarian governments that divide the world’s workers into categories and help one category by taking from the others is accelerating the destruction of the very institutions we need to respond to global crises effectively.  Much more importantly, though, the world’s leaders continue to strongly embrace the idea that the economic growth “miracle” of the last two centuries has no end in sight.  If only we make the right policy choices,  they continue to claim, the material riches of the world can continue to grow, everyone can enjoy a share of those riches, and the crises will wither away like so many storm clouds.

From the perspective of the Inclusive World Economy, the end of the material growth miracle is right in front of us.  The era of fossil fuel energy is coming to an end, the world’s material riches are beginning to diminish, and the world of work is changing quickly.  A shift to solar energy, no matter how successful and complete, will not sustain the material wealth miracle created by massive fossil fuel energy flows.  The only choice before us is how we make the shift to a world of less.  For now, a democratic and equitable shift seems very out of reach, but an authoritarian and inhumane transition is not inevitable.  An inclusive perspective, attention to the limits of a solar future, and hard and careful political work can move the world in the direction of a much more desirable future than the one now looming darkly on the horizon.

[1] In economics we borrow from future income to augment current income.  In the case of energy, however, we can borrow from past solar energy income.

Tax Cuts and American Jobs: Where will the Corporations Put Their Tax Savings?

SOURCE ITEMS

Imagine all enterprise functions automated by software and performed through a single point of access, which happens to be a virtual agent with cognitive capabilities. You can stop imagining and start thinking about the repercussions, because this is much closer than you may think.

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I have not met a single CEO, from Deutsche Bank to JP Morgan, who said to me: ‘ok, this will increase our productivity by a huge amount, but it’s going to have social impact — wait, let’s think about it’.

George Anadiotis, Who’s automating the enterprise? Meet Amelia and the future of work, ZDNet, November 8, 2017.  Accessed November 8, 2017.

COMMENTS

In commenting on the proposed tax cuts for businesses in the U.S., numerous business analysts have pointed out that many global corporations have lots of cash on hand (much of it off shore) and that borrowing costs are very low.  If there were investment opportunities in the U.S. that promised a decent return, those corporations would be using that cash and borrowing capital.

Profits have been rising largely via cost cutting and swallowing up rivals rather than through the growing incomes of customers and clients.  Can workers in the U.S. really expect U.S. corporations to change investment strategies solely because their cash holdings overflow even more?

Even if the tax cuts went to U.S. consumers, the impact on investment strategies would be minimal – unless Trump succeeds in creating a U.S. market protected from imported consumer goods.  Tax cuts and automation are not the private domain of U.S. economic policy; Germany and China and all the other players can be expected to respond with their own investment incentives, so increased U.S. consumer spending would almost certainly distribute new investment across the world economy, resulting in more automation, more global displacement of working people, more profits, more wealth inequality, and more damage to the natural environment.

It is worth noting one more thing from the article cited above.  Business operations can now be automated very quickly, much more quickly than underfunded retraining programs can retrain workers and return them to work.  This mismatch between the speed of business innovation and the speed of government responses to worker displacement and income losses will only get worse.

My Book on the Future of Work is now Available for Your Enjoyment

The Future of Work in the Inclusive World Economy is posted to my website.  Click this link to view and print the book in PDF format: https://iweworkfutures.org/book-download/.

The timing for posting my book is not bad.  Gallup just published a major study of the slowdown in economic growth in the U.S., “U.S. Economy: No Recovery”,  and Robert J. Gordon’s book, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War, has been getting lots of attention.  Yet, Donald Trump is vowing to buck the U.S. economic growth slowdown and a lot of economists will try to help him do it.  Elsewhere in the world, new leaders are making the same promises.  We have not had such a real world battle of economic policy ideas in a very long time.

Paradigm Premises and Insights into Stagnating Global Economic Growth

SOURCE ITEMS

Why does political instability afflict Europe and the United States? The answer is that just as the great transformation of the world economy between 1850 and 1890 generated political instability, so too does the globalization of the present era. In addition, the second great transformation of the world economy is larger than the first, and thus, not surprisingly, generates greater churn. … Those countries able to keep unemployment and inequality within bounds will be more stable. The greater the levels of inequality and unemployment, the greater the political instability and the smaller the chance of achieving stable economic growth.

David W. Brady, Globalization and Political Instability, The American Interest, March 8 2016. Accessed March 24, 2016.

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Political instability reduces the likelihood of defining and implementing a reasonably comprehensive, coherent, and sustained economic-policy agenda. The resulting persistence of low growth, high unemployment, and rising inequality fuels continued political instability and fragmentation, which further undermines officials’ capacity to implement effective economic policies.

Michael Spence and David Brady, Economics in a Time of Political Instability, Project Syndicate, March 23, 2016. Accessed March 24, 2016.

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We tend to focus on the problem of the moment — the subprime crisis, the euro crisis, the China slowdown, the oil bust. But surely these events are connected. What threads link them? I’ve been collecting possible story lines for a while now. … Put these all together, and what do you get? A Great Muddle, perhaps. Some stories overlap. At least two of them contradict each other. They don’t all add up to any kind of consistent narrative.

Justin Fox, Eight Story Lines Explain the Global Economic Crisis, BloombergView, March 10, 2016, Accessed March 24, 2016.

COMMENTS

Statements about what can be done and should be done in a particular arena of human activity rest on foundation premises about how that part of our world works. These premises establish a paradigm for gathering and interpreting data about the world. They pull certain things into view and push other things out of view.

Professor Brady says we are in an era of transformation in the world economy.   Everyone knows that things are changing rapidly and in big ways and Brady is far from alone in concluding that a transformation is underway. This is an important development because the term transformation connotes change that reaches past surface phenomena, change that runs deep into the machinery of a system.

Such deep-running change often exposes weaknesses in a paradigm that worked well in the past. This is the case for theories of economic growth.

The field of economics is in turmoil because of the unpredicted crisis of 2008 and the persisting economic growth stagnation. In the search for answers, the paradigmatic premise that humans act rationally is now widely questioned. But, other premises should be getting more attention.

One premise worth questioning is that systemic continuity is a given. This premise is embraced across the fields of economics and politics. It is reflected in two assertions that are widely made and widely accepted.

The first is that this time is really not different. Although a few economists have argued that the financial crisis of 2008 is unusual, the dominant view is that it is not fundamentally different from numerous other financial crises in the history of capitalism. Brady affirms this view by comparing the transformation of the world economy in our time to the transformation in the 19th century. He sees it as more destabilizing, but not fundamentally different. After the transformation has played itself out, life can return to what we call normal.

The second assertion is that government policy interventions can restore world economic growth. In the past, economic growth has stagnated and stalled, but in every case it was sooner or later restored. Now is no different. By adopting the appropriate economic policies, governments can restore economic growth to levels that restore full employment and steadily increase human wealth and well-being.

The concepts of transformation and systemic continuity do not sit together well. This is a telling juxtaposition to which economists should be giving more attention. Perhaps as I have been arguing in this blog, it isn’t bad policies that are limiting global economic growth; perhaps it is existential limits to economic growth that make all policy interventions fall short.

Perhaps economists, including Brady himself, should set aside the premise of continuity and explore all the implications of applying the concept of transformation to our current circumstances.

Economists are Still Dragging Their Analytic Feet

But right now I’m stuck. I have no idea how the United States economy is doing. And the closer I look at the data, the more contradictory it looks. … Yeah, but what happened in 2008 was a once-a-century kind of storm. If you always think that the big one is imminent, most of the time you’ll turn out to be wrong.

Neil Irwin, Is the Economy Really in Trouble? A Debate, New York Times, October 30, 2015.

 COMMENTS

Yes, but why would anyone, especially an economist, think that the once-a-century kind of storm rule still holds for economic matters. This century is unlike any other century before it, in so many ways. For the first time in human history, virtually every inhabitant on the planet is connected to every other inhabitant through commodity markets, communications systems, transportation systems, and a global financial system.

If economic theories and models can still be applied in any valid way, they can only be applied to the single world economy. National governments exist, nation boundaries exist, but national economies do not exist, except as ghosts of their former selves.  If an economy is a system that produces and distributes wealth, then it is glaringly apparent that the economic activities found within a national boundary do not constitute an economy.

To get un-stumped, economists must abandon the ghosts of economies past.  What’s keeping them stuck with an analytic approach that is a century behind the times?

Supply Chains, Productivity, and Economic Growth: The Global Context for Understanding U.S. Employment Growth

SOURCE ITEMS

Canada’s gross domestic product contracted for a second quarter in the three months through June, a Sept. 1 report will show, according to almost all economists in a Bloomberg survey. The economy probably shrank by 1 percent, even worse than the 0.6 percent first-quarter drop.

“When Canada hurts, U.S. exporters do, too,” Bricklin Dwyer, an economist at BNP Paribas in New York, wrote in an Aug. 27 note to clients titled “Canada (not China) matters more.”

Jeanna Smialek, Uh-oh, Canada. China Pales as a Risk to U.S. Growth, BloombergBusiness, August 28, 2015. Accessed August 29, 2015.

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Moody’s Investors Service has revised downward its forecast for GDP growth in the G20 economies to 2.8% next year, from 3.1%. Moody’s says that the revision mainly reflects the impact of a more marked slowdown now forecast in China and more prolonged negative effects of low commodity prices on G20 producers than earlier expected.

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Moody’s has slightly revised downwards its GDP growth forecast for China in 2016 to 6.3%, from 6.5% previously. Recently published economic indicators show that China’s slowdown in exports and investment has continued into Q3 2015. In addition, signs that employment growth is weakening point to a more marked and broadly-based deceleration in the Chinese economy than previously expected.

Moody’s revises forecast for G20 economies’ growth downwards to 2.8% in 2016, Press Release, Moody’s Investors Service, August 28, 2015. Accessed August 29, 2015.

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International production fragmentation, in which manufacturing or services activities done at home are combined with those performed abroad, has now taken centre stage. This represents a major point of departure from the so-called “Fordist” production system – exemplified by the American automobile industry – where all economic activity was organised within a single firm located on one site or in close proximity (Feenstra 1998).

Increasingly, firms across advanced and developing countries add value along these global supply chains by completing a specific task associated with the production of a finished product and then exporting it. This may be an important part or component required in the production of a good. It may even be a service that is a vital intermediate input in further production.

Albert Park, Gaurav Nayyar and Patrick Low, Supply Chain Perspectives and Issues: A Literature Review, Part I, World Trade Organization, 2013. Accessed August 29, 2015.

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I prefer to date the slowdown in productivity growth from the end of 2010 because productivity growth (in the nonfarm business sector) averaged a bountiful 2.6% per annum from mid-1995 through the end of 2010, but only a paltry 0.4% since. Other scholars prefer earlier break points. For example, productivity growth averaged 2.9% from mid-1995 through the end of 2005, but only 1.3% since.

Either way, the drop is large, and the scary thing is that we don’t understand why.

Alan S. Blinder, The Mystery of Declining Productivity Growth, The Wall Street Journal, May 14, 2015. Accessed August 29, 2015.

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In advanced economies, where plenty of sectors have both the money and the will to invest in automation, growth in productivity (measured by value added per employee or hours worked) has been low for at least 15 years. And, in the years since the 2008 global financial crisis, these countries’ overall economic growth has been meager, too – just 4% or less on average.

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Hence the question on the minds of politicians and economists alike: Is the productivity slowdown a permanent condition and constraint on growth, or is it a transitional phenomenon?

Michael Spence, Automation, Productivity, and Growth, Project Syndicate, August 26, 2015. Accessed August 29, 2015.

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This paper offers an integrated analysis of outsourcing, offshoring, and foreign direct investment within a systems view of international business. This view takes the supply chain rather than the firm as the basic unit of analysis. It argues that competition in the global economy selects supply chains that maximise the joint profit of all the firms in the chain. The systems view is compared with the firm-centred view commonly used in strategy literature. The paper shows that a firm’s strategy must be embedded within an efficient supply-chain strategy, and that this strategy must be negotiated with, rather than imposed upon, other firms.

From the Abstract, Mark Casson & Nigel Wadeson, The Economic Theory of International Supply Chains: A Systems View, International Journal of the Economics of Business, Volume 20, Issue 2, 2013. Accessed August 27, 2015.

COMMENTS

Most economists explain a slowdown in a nation’s economic growth in terms of stagnant productivity growth. Yet it is seriously questionable whether such a thing as the productivity of a nation is a meaningful statistic at this late date in the development of the world economy.

Global supply chains now distribute production processes across multiple nations. Even the local bakery is, even if unwittingly, often part of supply chains that transcends national borders. The development of the global supply chain system has reached such a level of maturity that some researchers argue that the supply chain, not the individual firm, is the key competitive unit in the world economy.

The implications for measuring productivity seem obvious. If the competitive unit is a supply chain, then it is the productivity of a supply chain as a whole that is relevant to economic growth. If supply chains cross national boundaries, then measuring the productivity of only the part that is within a national boundary will obscure the positive or negative impact on total supply chain productivity of the “foreign” firms in the supply chain. The competitive position of the supply chain will not be correctly understood.

In the aggregate, measuring the productivity of a nation’s firms rather than the productivity of the supply chains in which the nation’s firms operate will lead economists and policy makers to misunderstand their nation’s prospects for economic growth. That, in turn, will lead to misguided expectations about employment and wage growth.

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.