Tag Archive for Great Recession

Managers Shifting Growth Gains from Labor to Capital

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Even when the US economy is technically “growing”, it is not “recovering” in any meaningful sense of the word. Aggregate demand is down, unemployment shows no real signs of improvement, and the most productive workers in the world go unrewarded (or really penalized).

Robert J. Gordon’s keen analysis of the latest figures puts this all into perspective. The key findings here, for those mainly interested in the human impact of economics, are that corporate management has favored cutting jobs over other strategies for surviving the economic downturn since ’08. This hypothesis isn’t new, but these figures offer a pretty good illustration of just how it came about, the effect it has had, and why it persists.

When the economy begins to sink […] firms begin to cut costs any way they can; tossing employees overboard is the most direct way. For every worker tossed overboard in a sinking economy prior to 1986, about 1.5 are now tossed overboard. […] My “disposable worker hypothesis” […] attributes this shift of behaviour to a complementary set of factors that amount to “workers are weak and management is strong.” The weakened bargaining position of workers is explained by the same set of four factors that underlie higher inequality among the bottom 90% of the American income distribution since the 1970s – weaker unions, a lower real minimum wage, competition from imports, and competition from low-skilled immigrants.

Gordon has been saying this for a while, so I’m eager to see if anyone can make a case that his latest analysis is somehow skewed to uphold earlier conclusions… or if he’s just been right all along.

Gordon’s analysis also demonstrates why aggregate demand and jobs have not recovered with growth. The technical causes are interesting (a “double hangover” effect rooted in the housing market — excess housing supply and excess consumer debt), but still it is the distinctly social factor of his findings that are most relevant, to my mind.

A change in labour market dynamics accounts for about 3 million of the over 10 million missing jobs in mid-2011. This shift can be traced to weakness of labour and growing assertiveness of management.

Now, if you’re thinking, “How can this be good for the capitalists in the long run?” — you’ve got a great point. In favor of fattening their short-term coffers, capitalism’s decision-makers are taking a huge bite out of domestic consumer demand, and this has an inevitable positive-feedback effect (that’s bad in this case) on the economy and thus private-sector revenues, not to mention government revenues.

This is just another failing of capitalism — it permits elites with inordinate power to make decisions that hurt working people and the economy overall, and even probably hurt themselves in the long run. Sure, capitalism allows them to not act irresponsibly, but given the nature of humans with elitist attitudes*, irresponsibility is what is to be expected, and there is no averting it without massive intervention against market forces — which won’t happen because Guess Who decides when and where the government intervenes.

* I won’t call it “human nature”, because it could be a self-selecting special “breed” that behaves this way; though I could be wrong, we’ll never find out, since capitalism will only ever allow the disproportionately greedy among us to be tested vis a vis how they prioritize constituents when setting major business policy.

Cartoon by Carol Simpson.

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The Coming Second Dip

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I don’t plan to spend a lot of time on this blog writing about acute economic scenarios like our likely double-dip Great Recession, as I have my eyes a good bit further down the road. But I’ve been seeing a lot lately about us being on the verge of that second dip. I don’t do analysis on this level, but I do pay attention to it, so I thought I’d share some. The stock market is beginning to bet on that second dip, which of course doesn’t help us avert one (if that’s remotely possible).

For a light listen, NPR is on the ball with “Double Dip: Is the U.S. Headed for Another Recession”.

So how much does this matter? This report from the Economic Policy Institute suggests the mere slow recovery is having a measurably negative impact:

[T]he last six months have seen an average growth rate of less than 1%, a rate of growth that fully explains why the previously declining unemployment rate reversed course in the past six months.

So imagine what another downturn would do.

For a slightly headier review of the prospects, check out Harvard economist Kenneth Rogoff’s analysis. He notes:

But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.

Which of those sounds most enticing? (I know my choice, if I can’t have none of the above.)

For true long-game insights, never miss Jack Rasmus. On the impending “dip” (plunge?), and how it relates to the recent debt-ceiling “debate”, Jack’s take is cynical but probably very realistic:

No wonder the stock market shuddered on Monday, notwithstanding all the “good news” about the debt deal. The performance of the real economy was far more important and “real” than all the huff and puff about debt ceilings and defaults by the US government. The alleged “good news” of the debt agreement was overwhelmed by the undisputable “real news” that the real economy was heading for a relapse.

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