Wednesday, April 15, 2015

When Yesterday’s “jobless future” becomes Today’s “jobless present”

This Monday I was told another person close to me was loosing his job this month, joining a growing cohort of family, (ex)colleagues, friends and acquaintances that were forced out of the labor market, with highly uncertain prospects of ever returning (even with substantially diminished income expectations). My view on this may very well be shaped by living in Spain, one of the OECD Countries with a higher rate of unemployment, which has only gotten worse since the beginning of the crisis in 2007 (eight long years ago…). Add to that the case of many cousins and older friend’s children that either finished their studies in the last five years or dropped from them and have not been able yet to find anything resembling a stable (let’s not even consider the once desirable feature of well-paying, which nowadays seems more difficult to find than the famed Higgs boson) occupation, and you may understand why my overall outlook about the economic prospects of the whole Western world tends to be pretty gloomy.

Probably the Spanish, Greek and Portuguese experiences are the most extreme in terms of “jobless recovery”, however the lack of growth in wages seems to be one of the defining features of the current cycle that most puzzles the pundits, as seen in this article in “The Economist”: Lack of wage growth screwing up recovery or in this much commented interview Moises Naim did with Christine Lagarde, the head of the FMI, in “The Atlantic”: Interview with Lagarde Superstar. The thread that runs through both is that even in the advanced economies that rebounded sooner from the “Great Recession” of 2007 things have not gotten entirely back to normal, even when output is roughly back at pre-recession levels in most of them and the unemployment rate is approximately what it was in 2006 (which in the USA was considered, for all practical purposes, full employment) companies are not investing because they don’t see that demand is picking up, and demand is not picking up because consumers are not spending more. And of course it could be asked why aren’t consumers spending more, which points towards the real elephant in the room of the exhausted growth model of capitalism (the One and Only remaining world-system of our age, which encompasses all economies, from the mighty USA to China, including such apparent oddballs and backwaters as Cuba, Venezuela, Yemen and Sudan, which revolutionary as may claim to be still have to ask for funds in the international market, and sell whatever it is they scramble to produce): when even the meager productivity growth of an equally exhausted research model driven by short-term profits can outstrip the (non existent) population growth companies can perpetually keep on satisfying the market demands with ever decreasing work forces. Thus the only way to diminish (nominally, at least) unemployment is to discourage ever increasing numbers of would-be workers to join the workforce in the first place.

That is the real explanation why, even when supposedly close to full employment, we do not see salaries growing, neither in USA nor in the UK. Companies should have great difficulties finding employees with the right skills, and should be willing to pay them more to keep them, or that is what the statistics would lead you to believe. Until you realize the participation rate (percentage of people over 16 years old who is either working or actively looking for work) has been falling consistently (it stands at a measly 62,7% in the dynamic USA, from an already paltry 65,7% in 2009), and that the PTER rate (people working “part-time for economic reasons", i.e. they would like to have full time jobs but are unable to find them) has also been either growing or stagnant, and then suddenly all is clear again. We do have really high unemployment in all the advanced economies, we just have devised a clever way not to count it. And the little employment we are creating, and that politicians endlessly tout as a signal the “the system works” and that “we are growing again” (typically in defense of austerity policies that only compound the problem, but that we will see a bit later that neither cause nor can correct it through their repeal), is of the worst type: poorly paid (most of it below what is considered a “living wage”, and still require their perceivers to receive some aid from the state), unstable (where there are different kinds of labor contracts it is overwhelmingly concentrated in the most temporary classes) and with little prospect of professional advancement (concentrated in sectors with little “depth”, like low skilled services, where there are not much skills to be gained and thus to allow the worker to bargain for a greater participation in the results of the business in exchange for a greater contribution). So they are not your typical “entry-level” jobs that provide their occupants with a healthy and well founded expectation of future (steady) gains that would justify him spending freely, but dead-end Mcjobs in which the wiser ones will save as much as they can for as long as they last (which is usually not much).    

Most traditional economists would discard all this doom and gloom as a result of the (tragical, unavoidable, to some extent even desirable as it enables “creative destruction” to fully manifest itself) business cycle: today it is both cause and effect of a chain of reinforcing tendencies: businesses do not invest because they do not forecast a robust demand for their products and service, that lack of investment means they do not buy capital equipment to replace the old and worn out, and do not hire additional people. People out of work do not spend, and thus can not boost the demand for the companies’ products, perpetuating the downward spiral. To top it off, with companies producing less, a smaller percentage of the population receiving wages and even some firms going entirely out of business, fiscal receipts of the state decrease, and there is less money for public investment to try to pick up the slack created by the private sector (there is a parallel debate about the efficiency of that investment, and if there is a “crowding out” effect that makes the dollars publicly spent more or less effective in boosting growth –or at least countering the shrinkage, in which I do not wish to engage right now). According to this (I’m afraid dominant) view, there are only two alternatives: to do nothing but act as "lender of last resort" to keep credit flowing and avoid bank runs (their proponents argue that public intervention only makes matter worse in the long term, increasing the public debt which is already at very high and “problematic” levels, although who is to bear the consequences of the supposed problems is never clearly spelled out –“future generations” are the most frequently mentioned, but future generations are certainly affected negatively by the general impoverishment the “do nothing” crowd favors, which seems far worse that the hypothetical one the increased debt may or may not entail) or to increase public spending to compensate for the private sector weakness. Either one or the other (It is assumed) would in the end cause a shift in the “animal spirits” of the herd and finally the vicious circle will be broken, confidence will return, consumers will start spending again and companies will resume their ever upward march towards full use of the society’s capacity (for material production, of course), getting us all closer to the economic bliss of full employment (of truly rewarding, skill-developing, well-paying, secure jobs) and full material well-being (when everybody, everywhere, will own a house, two cars, a couple of huge plasma TV’s and will eat prime beef everyday).

Even the most casual glance at the content of this blog will probably give some hint to my readers that I assign to that scenario a probability similar to that of the tooth fairy and the Easter bunny coming through my office door in the next five minutes to present me with a cauldron full of gold coins they found at the end of the rainbow (the proverbial leprechaun that guarded them can also come for the ride). In more prosaic terms, “not gonna happen”, or “no way Jose”. I’m not saying in the next decades we won’t see some anemic growth, or some marginal improvement of macro indicators (from GDP to unemployment, hell, maybe even the participation rate, and even salaries may give us some totally unexpected piece of good news), but I’m afraid those nice surprises will be few and far between, and they will be sooner rather than later swamped by a more robust and more persistent regression to the negative trend that has been dominating the last decade. Not that different from the climate pattern: some winters will still be cold, some years may seem not to confirm the general pattern of growing warmth, but those little temporary variations are but “noise” overlapped on an unyielding signal of ever increasing temperatures (or ever decreasing average wealth creation, with ever decreasing participation and increasing inequality between those that can keep a decent job and the vast and growing majority of unemployed, half employed, not too employed and the myriad categories we will doubtlessly see flourish).

The depressing (even terrifying) thing about it is that it doesn’t matter what kind of policy the ruling elites adopt. If we keep on imposing austerity in the semi peripheral zones of the world system (to which Spain, like it or not, still belongs) we are screwed. But it we eschew austerity and start spending like there is no tomorrow, we are equally screwed, as Japan amply attests: two decades (and counting) of budget deficits above 5% (and even 7%) have created a national debt above 200% of GDP, which in turn has utterly failed to a) increase the aggregate demand and thus incentivize the private sector to invest and the economy to grow and b) create some inflationary pressures to further incentivize private spending (in the face of the decreasing value of the currency). It is easy to see why: an aging population means shrinking demand for the private sector output, so they wisely choose not to produce more (to defend their already paltry profit margins), whilst they still have some (admittedly meager) additional productivity they could squeeze from their existing assets (both material and human). Which in a some roundabout manner takes us to one of the cruxes of this post: acting as a buffer against potential salary raises (raises whose absence make any strong economic recovery highly unlikely) I see not only the mass of people wholly or partly out of employment that the official statistics cunningly forget to account for, but also the mass of “make jobs” that the companies accumulate in their headcount, which they could let go with very little impact in their ability to produce at the same level, which somewhat cavalierly I have sometime estimated may account for as much as 20% of the current workforce. The situation is essentially the same in the EU as in Japan (aging population, demographic shrinkage, hidden productivity gains to keep salaries in check easily materialized by just letting go of the excess headcount not doing any productive work), so it is hard to see how the result of more expansive fiscal policies would be any different (i.e., no results at all). But, regardless of the outward appearances, it is not that different either in the economies of the most dynamic developing nations (BRICS), which exhausted their demographic engine a couple decades ago (maybe with the exception of India, which explains its somewhat less somber prospects) and which have (specially in over protected public sectors that corruption and cronyism kept reliably sheltered from competition) a bigger problem of unnecessary manpower easily “fireable” and which depends even more heavily of low salaries to stay competitive in a cutthroat international environment. Not much growth in purchasing power to be expected there, as the already working population could increase a 20-40% the output without adding much people to the workforce… but who would buy that additional output in a scenario of overall stagnation? A Country’s gain can only come from another Country’s loss, in a race to the bottom that doesn’t bode well for 99% of the world’s people.

So far I have studiously avoided talking about the 800 pound gorilla in the economic arena: what about the USA? Isn’t its population still growing? Isn’t the technological innovation still mostly focused there? Yes and somewhat, but with a couple big caveats. First, the population growth is caused mainly by immigration, which they are showing (as they cyclically do) less and less patience for. Yup, the conservative pundits that chastise Europe for failing to create a vigorous society able to reproduce itself normally have one or at most two kids, like in that very same Europe they despise, as the ruling (mostly white) establishment reproduction rate fell well below the 2,1 kids per woman required for that reproduction a few decades ago, but kept that falling birthrate hidden as it was diluted by the still higher than average rates of immigrant groups (mostly Hispanic, but also Asian and some African). However the original sources of immigrants are quickly drying up (last year may have seen the flow from Mexico reverse itself, as the lack of economic opportunity and the growing hostility of the native population north of the border convince more and more Mexicans to return home), so the Country ends up competing for unskilled workers with the rest of the world, and the potential growth of their domestic market comes at the expense of the foreign markets it also requires. And second, as I have noticed elsewhere, the innovation engine is centered more and more in endeavors that are less and less productive of any actual wealth increase (which in itself merits a separate post, let us leave it for now at pointing that I am highly amused that some major company unashamedly proclaims that “every business is a digital business” as if a) human beings could clothe themselves, eat and shelter from the elements with bits and bytes and b) there wasn’t a point of diminishing returns in information processing –which at species level we probably passed some time ago- beyond which just moving more bits from one place to another is just a waste of time).     

So when I read articles like this one This recovery sucks, but in the future there will be pink unicorns prancing around, so full of optimism and braggadocio about how tiny Countries have managed to grow (one -Luxemburg- being a parasite of the rest of the world by becoming a glorified financial pirate haven, the other –Norway- being a parasite of Nature extracting fossil fuels leaving the rest of us to pay the price) in the face of stagnating populations and general gloom I can only smile (a sad, cynical smile). Even the shining example the authors provide (Holland, where I lived and worked –or may be the other way round- for a few months before the financial crisis hit) is pretty flawed, as in 2014 they still had not recovered their pre-crisis level (after a mostly illusory apparent return to growth in 2012 that was duly followed by a deeper plunge in recession), high productivity and all. Not many reasons to cheer up in there.

Final edit: for those that define Economics as a discipline very good at explaining why things happened like they happened (I would question even that ability, but bear with me), but very bad at predicting how they will turn out in the future, a full week after I originally published this post I found this little pearl in the WaPo: Economists "discover" unemployment rate worse than how it looks at first (myopic) sight, where they present as a piece of news what should be common knowledge; even in the economically vibrant USA there are over 3.5 million people looking for a job and not finding it, well above the official figure of 1 million unemployed (as I said in the post, we as a society have become very good at ignoring there aren't enough jobs for everybody wanting them, and by far not as good at actually creating or enabling those jobs), which explains why wages are not going up and inflation is failing to materialize, regardless of what the fiscal (chicken) hawks keep on crying (for eight long years now)...


  1. Es curioso comprobar como calidad y "popularidad" son cualidades que, en la mayoría de la cosas, son ortogonales: este blog es una prueba. Esto me anima a desvirgar la sección de comentarios.

    Sólo dos apuntes. Creo que correlar el "parasitismo" a la Naturaleza con la prosperidad económica no es muy adecuado. Venezuela extrae más petroleo que Noruega... Más bein diría que hay otras razones por las cuales unas naciones properan y otras no...

    En cuanto a la inflación, ojalá no vuelva a materializarse nunca. Es un robo al ahorrador y una bendición para los saqueadores y los estatistas. Lamentablemente los pequeños ahorradores son los que no tienen mecanismos de defensa contra ese monstruo.

    1. Tienes toda la razón con el desacoplamiento de parasitismo y crecimiento; en todo caso la correlación iría en sentido contrario (en la literatura del desarrollo se conoce como "resources curse", la maldición de disponer de recursos). Puestos a identificar la primera causa de prosperidad yo soy más de la escuela de Acemoglu y Robinson (la clave son instituciones inclusivas como las noruegas, en vez de extractivas para una pequeña élite como las venezolanas). Sin embargo, no siendo la explotación de recursos no renovables suficientes para prosperar, creo que en el caso de Noruega sí son necesarios, y que sin ellos no estaría por delante de países con instituciones y educación (cívica y técnica) similares, como Suecia, Finlandia o Dinamarca.
      Lo de la inflación tiene más miga. Mucha inflación es mala, sin discusión, pero estamos aprendiendo como sociedad (es un fenómeno relativamente moderno y con relativamente pocos precedentes históricos) que cero inflación, o incluso una ligera deflación, tampoco son ninguna maravilla. Piensa para quién es peor la inflación: para el que ha prestado dinero a un interés menor al IPC, que ve que lo que le devuelven acaba valiendo menos que aquello de lo que se desprendió (en la esperanza de que ocurriese lo contrario, y obtuviese un beneficio). Ese pobre prestamista (pero no tan pobre para no tener un exceso de renta que poder ahorrar/ prestar, cosa que no podemos asegurar del acreedor, que normalmente será más pobre aún) suele efectivamente ser de pequeño tamaño (económicamente hablando)...
      Ahora pensemos en la situación actual, en la que por cero inflación e incluso deflación el dinero vale cada vez más. Ante la perspectiva de poder comprar cada vez más cosas con la misma cantidad de efectivo nadie invierte (ni siquiera las empresas, que no prevén que vaya a haber demanda para sus productos) y la economía no crece... lo cual no es necesariamente un problema (de nuevo, ver Japón), salvo que uno tenga una tasa de paro del 25%, y del 50% entre los jóvenes, que año tras año van viendo menguar sus perspectivas de carrera...

    2. Elías CárdenesMay 1, 2015 at 10:48 PM

      Una nota sobre la inflación: cuenta Picketty (El capital en el siglo XXI) que la inflación es un fenómeno relativamente nuevo, del siglo XX para acá; según sus datos (del siglo XVIII hasta hoy, con mayor o menor detalle según países y épocas) estuvo entre 0% y 1% desde la edad antigua hasta principios del siglo XX.

    3. Elías, qué alegría leerte! (como le decía a otro amigo hace poco, pero es igualmente aplicable a tí, eres el lector ideal de este blog: inteligente, conocedor del mundo y cosmopolita...) Hombre, no sé dónde cuenta eso Picketty, pero el descubrimiento de los grandes depósitos de plata sudamericanos (Potosí y México, alrededor de lo que hoy es Taxco, qeu seguro recuerdas bien de tus tiempos allá) cuasó una inflación secular en toda Europa en los siglos XVI y XVII empezando en Iberia y extendiéndose por Francia, INglaterra, las Provincias Unidas, los países bálticos y finalmente Polonia y Moscovia. Si tengo un rato esta tarde miro mi Braudel y te digo de qué tasas anuales estamos hablando.
      Tirando aún más hacia atrás, los últimos años del imperio romano fueron también fuertemente inflacionarios, pero ahí tengo que rebuscar más por los rincones de la memoria para identificar la fuente y poder citar adecuadamente.
      Gran abrazo