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« If you cut them, do they not bleed? | Main | Open it up, where are the people? »

Oct 09, 2012

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sittinginthemiddle.

Yeah, that whole idea of healthcare reform being a boon for the economy was right up there with the prediction that Solyndra would be one of those green energy companies leading the world into energy independence. You just can't make this stuff up.

Account Deleted

Samuelson (not sure his politics) had an interesting column related to this subject.

The gist is that productivity gains due to technology have peaked, while having decimated labor in the past 20 years.

This paper was his point of departure.

polifrog

Jeff:

The gist is that productivity gains due to technology have peaked, while having decimated labor in the past 20 years.

From patent officials claiming the patent office should shut down because all that would be discovered had been discovered to Jeff and his comment above, one of the greatest constants in incorrect forecasts is the discounting of undiscovered technology.

I suppose one is blind to undiscovered technology by definition but one can not be excused for ignoring the unbroken history of prognostications based on technology's end being wrong.

What is worse still is the attempt to claim that technology's end is the cause of unemployment while simultaneously denying jobs in areas of new tech, fracking, or diverting jobs away from where they may naturally arise and instead toward 100 year old failed "green" products like electric automobiles.

If there is any source for the demise of labor it has not been technology's end, but rather malinvestment by the governing few.

Account Deleted

1. The only comment Jeff made was to say a guy wrote a column and here is a one line summation.

2. You should have studied history instead of something narrow like 20th century political science when you were at Carolina. Then you would know that the overwhelming path of history has been toward anticipating gains from technology, not the gibberish you posited in your first sentence above.

3. Computerized processes have been lessening the demand for labor since the 1960's. Advances in the container shipping industry, globalization of labor markets and increased automated processes have specifically crushed the American labor sector since the early 1990s.

4. It's sad to see someone so wrapped up in Ayn Rand dogma that he doesn't understand the global, technological, demographic and financial forces at work that circumnavigate his own mimetic solipsism.

bubba

"I suppose one is blind to undiscovered technology by definition but one can not be excused for ignoring the unbroken history of prognostications based on technology's end being wrong."

Neo-Luddites are often like that.

Meanwhile, here's something that expands upon the topic of King Ludd is Still Dead.

"Since the dawn of the industrial age, a recurrent fear has been that technological change will spawn mass unemployment. Neoclassical economists predicted that this would not happen, because people would find other jobs, albeit possibly after a long period of painful adjustment. By and large, that prediction has proven to be correct.

...Still, even as technological change accelerates, nothing suggests a massive upward shift in unemployment over the next few decades.

Of course, some increase in unemployment as a result of more rapid technological change is certainly likely, especially in places like Europe, where a plethora of rigidities inhibit smooth adjustment. For now, however, the high unemployment of the past several years should be mainly attributed to the financial crisis, and should ultimately retreat toward historical benchmark levels....."

bubba

Here's a working link for my last post.

polifrog

United States Unemployment Rate (1890-2008)

Jeff said:

The gist is that productivity gains due to technology have peaked, while having decimated labor in the past 20 years.

None of that "gist" is reflected in the chart, Jeff.

I would note that not only does a liberal arts education require lightly touching on history, but that my personal focuses on political science, economics, geography, and geology incorporated studying history after sifting from history much of all the soap operatic he said, she said. Drama doesn't suit me; I generally prefer a more analytical approach to my studies, even in history. Whatever works for you, though.

Andrew Brod

Bubba linked to a good article written by the highly regarded Ken Rogoff. But I wonder if Bubba realizes what it implies. Rogoff does, of course. At the end, he attributes recent high unemployment rates to the financial crisis rather than structural factors. But if the jump in unemployment wasn't due to such structural explanations as skills mismatches, then it leaves insufficient demand as the underlying cause. Insufficient demand calls for fiscal stimulus or debt relief for homeowners or a combination of the two. (As I recall, Rogoff prefers more weight on debt relief than on stimulus.)

In other words, Bubba just argued for sensible economic policy. He'll want to walk that back.

polifrog

Brod:

At the end, he attributes recent high unemployment rates to the financial crisis rather than structural factors.

The "end" referenced by Brod:

Of course, some increase in unemployment as a result of more rapid technological change is certainly likely, especially in places like Europe, where a plethora of rigidities inhibit smooth adjustment. For now, however, the high unemployment of the past several years should be mainly attributed to the financial crisis, and should ultimately retreat toward historical benchmark levels. Humans are not horsies.

Those European rigidities, some may call them structural factors, Rogoff references currently exist to a lesser extent in the US than in Europe but to greater extent than the US of yesterday. Try selling food from a food-truck on a public road. I believe Rogoff recognizes that our current unemployment is not the either/or choice you suggest it is, Doc.

Demand...

Brod:

...then it leaves insufficient demand as the underlying cause.

Demand can mean different things to different people. What is "demand" to you?

Andrew Brod

You're obviously free to "believe" whatever you want about Rogoff's opinion. I took a different approach and read his actual words. What he says is that structural unemployment is indeed possible and even likely but isn't the main cause of our current high unemployment.

polifrog

And I read your actual words:

At the end, he attributes recent high unemployment rates to the financial crisis rather than structural factors.

Not that they mean anything.

Demand?

Spag

"Insufficient demand calls for fiscal stimulus or debt relief for homeowners or a combination of the two."

Tax relief is a form of debt relief because it puts more money in peoples pockets so they can buy stuff, thereby increasing demand.

Andrew Brod

That's very true. But it also matters who receives the tax cut, because to give your statement the biggest bang for the buck, we need the money to be put in the pockets of those most likely to spend it.

Romney's 47% comment is relevant here. Nearly half of the country doesn't pay federal income tax and most of those who don't pay tend to be on the lower end of the income distribution, which is where you find the highest likelihood to spend new money. So tax relief via the federal income tax doesn't give much bang for the buck. One can like it and want it, but it doesn't do much to increase aggregate demand.

The temporary payroll tax cut is the opposite. This is one of Obama's clear successes, but no one's defending it as it's about to expire. This tax cut hits everyone and accounts for a large share of the federal taxes paid by lower-income higher-likelihood-to-spend folks. It's done quite a lot to increase aggregate demand.

Frog: In the context of this thread, "demand" means aggregate demand, i.e. the aggregate spending by consumers, businesses, and governments.

polifrog

There are different types of demand. There is that demand that is increased by feeling "pocket rich" and there is that demand that is increased by competitive pricing.

Not only are the motivations for the individual influenced by each type of demand quite different, but the two types of demand are distinct from one another in terms of longevity.

So, when I read:

Insufficient demand calls for fiscal stimulus or debt relief for homeowners or a combination of the two.
I wonder what the real goal is. While stimulus and debt relief each increase demand it is a form of "pocket rich" demand that causes prices to remain higher than they would otherwise be and in turn causes people delay purchases until the next round of debt relief and stimulus comes their way.

We must ask ourselves, what truly fixes a situation in which consumers delay consumption. Does maintaining bubble era pricing through debt relief and stimulus cure the mismatch between the pocket poor and high prices or does allowing, possibly incentivizing, prices to fall to the point at which consumers consume cure the mismatch between the pocket poor and bubble era pricing?

Each impact demand, but only the latter grows an economy; the former, debt relief and stimulus, stalls an economy.

And no where in the linked piece did Rogoff call for the stalled Brodian economy we endure today.

Andrew Brod

It's my economy, is it?

Anyway, in macroeconomics, especially as it's applied to a depressed economy, there are not two kinds of demand. There is just one. The idea that the solution is for prices to drop to a market-clearing level doesn't make sense, for two reasons.

First, falling prices would be wrenching and slow because it would have to include wages and salaries. And on that I'd want you to go first. Don't want to? Precisely. We're obviously not seeing prices adjust downward and it's due to various cultural and social factors that economists lump together under the rubric of "sticky prices." It's very hard, even in a Randian paradise of no government, to get everyone to cut their prices. The reason prices aren't falling isn't that government or the stimulus or any of your pet culprits are preventing it from happening, but because markets in the U.S. and most industrialized countries simply aren't wired like that.

Second, downward price adjustment won't work because it has to be more than just product prices and wages. The adjustment also has to include financial prices, in particular the interest rate. But there's a zero bound that prevents that price from falling to its (negative) market-clearing level. As long as there's a commodity called cash, we're not going to see negative nominal interest rates. This is essentially a market failure (which of course Randites believe don't exist).

So the idea of non-financial prices falling to clear the market looks fine on a blackboard but is utterly unrealistic. The idea of interest rates doing so doesn't even make sense on a blackboard.

Andrew Brod

A point of clarification: I'm not saying that prices can't adjust downward, because of course they can and do for particular goods. It happens with individual commodities all the time. What price "stickiness" refers to is the wholesale downward adjustment of all prices in an economy, which is a very different thing.

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