U.S. Jobs Report for October Looks Good, But Economic Forces Are Still Aligned to Degrade Employment And Wages

SOURCE ITEMS

Making matters worse, the return on investment in education is falling, because the economy is growing slowly and changing rapidly, making it difficult for some graduates to secure employment that takes advantage of their knowledge and skills. Universities are often slow to adapt their curricula to the economy’s needs, while new technologies and business models are exacerbating the winner-take-all phenomenon.

Mohamed A. El-Erian, America’s Education Bubble, Project Syndicate, November 9 2015.  Accessed November 9, 2015.

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Chart-Imports from Emerging Markets, 2015

9/11/2015-A further sharp downturn in emerging market economies and world trade has weakened global growth to around 2.9% this year – well below the long-run average – and is a source of uncertainty for near-term prospects, says the OECD.

 Emerging market slowdown and drop in trade clouding global outlook, Organization for Economic Cooperation and Development.  Accessed November 9, 2015.

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The demonstration is significant for two reasons. First, the tasks the robot is being asked to perform aren’t rigidly defined. Instead the robot needs to identify and adapt to a complex situation involving several variables. … But that technology migration is underway, and it will change the way products are manufactured and delivered. … On the robotics front, that means we’re going to see more flexible systems that can switch between tasks on the fly.

Greg Nichols, Why a fruit sorting robot will disrupt industrial automation Adaptable, smart, and cheap. Welcome to the future of automation, ZDNet, November 7, 2015. Accessed November 9, 2015.

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Without human advisers — people are the biggest expense at any securities firm — the new ventures can charge annual fees of 0.5 percent of assets under management or less. That undercuts full-service brokers, which typically charge annual fees of at least 1 percent.

Hugh Son, A Money-Managing Robot Is About to Join BofA’s Thundering Herd, Bloomberg Business, November 6, 2015. Accessed November 9, 2015.

COMMENTS

The old economic narrative that each nation has it’s economic destiny in its own hands is dead. The old economic narrative that a rising tide lifts all boats is dead. The old economic narrative that new jobs in new industries are created faster than automation displaces workers in existing industries is also dead. What this means is that the institutional and policy logics of job creation that served Americans and other western peoples well though the middle of the 20th century are dead.

We must replace those outdated logics with new ones that fit the realities of an Inclusive World Economy in which all destinies are tied together and rights to income can no longer be tied almost exclusively to having a wealth producing job.

Diverging Nations, U.S. Employment Prospects: A Matter of Interpretation

SOURCE ITEMS

The economy grew at a sizzling 5% annual pace in the third quarter of last year. And more than 1.5 million jobs were created from June to November, the best six-month stretch since 1999-2000.

With that momentum, combined with falling gasoline prices, 2015 is likely to be a good year, notwithstanding Monday’s stock market sell-off.

The Editorial Board, More jobs is not enough: Our view, USA Today, January 5, 2015.

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In the coming year, “divergence” will be a major global economic theme, applying to economic trends, policies, and performance. As the year progresses, these divergences will become increasingly difficult to reconcile, leaving policymakers with a choice: overcome the obstacles that have so far impeded effective action, or risk allowing their economies to be destabilized.

Fortunately, there are ways to ensure that 2015’s divergences do not lead to economic and financial disruptions. Indeed, most governments – particularly in Europe, Japan, and the US – have the tools they need to defuse the rising tensions and, in the process, unleash their economies’ productive potential.

Mohamed A. El-Erian, A Year of Divergence, Project Syndicate, December 8, 2014.

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Taken together, the average 10-year bond yield of the U.S., Japan and Germany has dropped below 1 percent for the first time ever, according to Steven Englander, global head of G-10 foreign-exchange strategy at Citigroup Inc.

That’s not good news. The rock-bottom rates, which fall below zero when inflation is taken into account, show “that investors think we are going nowhere for a long time,” Englander wrote in a report yesterday.

Simon Kennedy, Free Money in Bond Markets Shows Global Economy Still Struggling, Bloomberg, January 6, 2015.

COMMENTS

One can explain the divergence among nations in terms of autonomous national economies in which global economic growth is nothing more than the sum of the growth of national economies. The economic growth divergence among nations is a function of differing national policy approaches, some correct, most incorrect (since most economies are either stagnating or growing well below rates economists deem achievable). If only all nations of the world adopted correct policies, all would be growing in harmony and at a rapid clip.

The alternative is to see what is called the U.S. economy as only a component of the world economy as a whole. The world economy is the only actual economic system and there is only one economic growth rate – the growth rate of the world economy as a whole. National policies have some effect on the global rate of economic growth, but much less effect than is commonly thought. Global parameters (such as resource and ecological limits, transportation bottlenecks, commodity price volatility, climate volatility, and institutional limits to global demand growth) have much more impact.

The economic growth divergence among nations is much less a matter of good and bad national policies than a matter of the impact of the interactions among various and changing national policies on the distribution of global economic growth among the world’s geopolitical population groups.

The interpretative difference is enormously important. The first interpretation suggests that the U.S. rate of growth did not increase in 2014 at the expense of economic growth in Europe, China, Brazil and other nations. It further suggests that the higher U.S. rate of economic growth is sustainable almost regardless of the courses of action taken by other nations (just as long as the U.S correctly modifies its policies in response to those other national courses of action).

The second suggests that a convergence can only take place through an alignment of national policies that produces a different distributional outcome for growth in the world economy. In such a scenario, the growth rates of the U.S. (and China) would have to fall so that the growth rates of the stagnating nations could rise. Given the lack of powerful global political institutions and the very low level of geopolitical cooperation (compared to the high level of economic integration in the world economy), a struggle among nations that is heated and dangerous is the likely scenario for a long time to come.

The implications for U.S. employment are obvious. Job growth in recent months should be seen as precarious. Our policy commitments to market freedom and investor dominance in economic matters puts job creation at the mercy of global economic growth volatility and divergence. At the moment U.S. workers are somewhat on the beneficial side of volatility and divergence. That will almost surely change.

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.

Tom Friedman’s Jobs World is Interesting But a Bit Flat

SOURCE ITEMS

In today’s hyperconnected world without walls — when more Indians, Chinese, computers, robots and software can perform more average blue-collar and white-collar jobs — the only high-wage jobs are increasingly high-skill jobs

Our kids face three big adjustments. First, to be in the middle class, they will need to be constantly improving their skills over their lifetime. Second, to do that, they will need a lot more self-motivation. … And third, countries that thrive the most will be the H.I.E.’s — the high imagination-enabling countries — that attract and enable talent to be constantly spinning off new ideas and start-ups, the source of most new good jobs.

Thomas Friedman, Can’t We Do Better?, New York Times, December 7, 2013.

 COMMENTS

Tom Friedman is almost always worth reading, but he has yet to acknowledge a societal development that is one of the most consequential for the world’s working families – the transformation of the role that work plays day in and day out in distributing the world economy’s newly created wealth.

Ironically, Friedman identifies the very forces that are undoing the role of work in distributing newly produced wealth, but fails to follow through. He takes us right to the door through which he could walk us to the real solutions to growing poverty and inequality.  He then turns away and offers up the same old failed conventional wisdom.

Friedman and so many others define the problem of low wage jobs and growing inequality as due to the inadequacies of workers (low skills, outdated skills, lack of drive).  They fail to seriously consider the possibility that the world of work is changing in such fundamental ways that no feasible amount of improvement in the skill levels of working people or change in their approaches to getting and keeping jobs can reverse the trend toward lower wages and greater poverty and  inequality.

As Friedman rightly notes, global integration and advancing productive technologies have great consequences for working families and societies, but not because they are creating demand for highly skilled workers and destroying demand for low skilled workers.  The core systemic change is that those forces are producing an enormous and growing surplus of labor, both skilled and unskilled.

The role of machine energy in the production of the world’s goods and services has advanced to such a large proportion of the combination of human energy and machine energy that the available human energy far exceeds the demand for human energy.  Even human thinking energy is being displaced by machine energy.

The trend shows up in the long term decline in the proportion of the world’s population that is employed.  Friedman and others apparently believe that this trend won’t eventually bring us to a point in time when more than half the world’s people are effectively outside the world of work.

How then will we distribute the world economy’s newly created wealth day after day?

The era in which employment could be the primary way in which a person could legitimately claim a fair share of the world economy’s income is nearly over.  Yet Friedman and other experts still have not asked the question in public of what will give a person a right to a fair share of income in this increasingly jobless world.

The world’s people desperately need a new kind of right to income, and until we invent that right, inequality will keep getting worse and more of the world’s people, including Americans, will be shoved into lives of destitution, begging, scavenging, and violence.

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.