Jobs Never Coming Back
One of the recurring themes that Dave Schuler and I have advanced since the global recession began is that we’re seeing a massive realignment of the economy and that many of the lost jobs will never come back. That’s especially true of the financial sector. There will simply be fewer people making big money moving money around, speculating on stock and commodities futures, and all the rest in 2017 than there were in 2007. And it’s not at all clear what the rebounded economy — which will eventually happen — will look like.
A front page piece in today’s NYT by Catherine Rampell makes a related point: The global meltdown is speeding up the permanent abolition of jobs that were eventually going to go away, anyway.
Many of the jobs lost during the recession are not coming back.
Period.
For the last two years, the weak economy has provided an opportunity for employers to do what they would have done anyway: dismiss millions of people — like file clerks, ticket agents and autoworkers — who were displaced by technological advances and international trade. The phasing out of these positions might have been accomplished through less painful means like attrition, buyouts or more incremental layoffs. But because of the recession, winter came early.
[…]
[Prototypical anecdotal character to humanize the story, much to my annoyance] is one of 1.7 million Americans who were employed in clerical and administrative positions when the recession began, but were no longer working in that occupation by the end of last year. There have also been outsize job losses in other occupation categories that seem unlikely to be revived during the economic recovery. The number of printing machine operators, for example, was nearly halved from the fourth quarter of 2007 to the fourth quarter of 2009. The number of people employed as travel agents fell by 40 percent.
This “creative destruction” in the job market can benefit the economy. Pruning relatively less-efficient employees like clerks and travel agents, whose work can be done more cheaply by computers or workers abroad, makes American businesses more efficient. Year over year, productivity growth was at its highest level in over 50 years last quarter, pushing corporate profits to record highs and helping the economy grow.
But a huge group of people are being left out of the party.
Millions of workers who have already been unemployed for months, if not years, will most likely remain that way even as the overall job market continues to improve, economists say. The occupations they worked in, and the skills they currently possess, are never coming back in style. And the demand for new types of skills moves a lot more quickly than workers — especially older and less mobile workers — are able to retrain and gain those skills.
These shakeouts happen with every recession but seldom to this extent. It’s looking like an economic realignment rather than just the normal operation of the business cycle.
What’s particularly interesting — and frightening — to me is that, typically, the jobs that are lost are those at the lower end of the skill pool. The example I always use is gas station attendants, who were employed in the millions when I was a kid and are now virtually non-existent outside New Jersey (where self-service gas stations are outlawed). Many assembly line workers have been replaced by robots or cheap foreign labor and, to a certain extent, clerical workers have been replaced by computers. And, of course, most farmers and old-style tradesmen (blacksmiths, cobblers, etc.) have been replaced by more efficient (if lower quality) production techniques.
While traumatic at the personal level — few 40-year-old gas station attendants or textile workers shifted into software development and high finance — it was good for the overall economy. Jobs that should have been held by robots or illiterate Third World peasants went there and the next generation of Americans were forced to become better educated and move into safer, more enjoyable work.
Now, though, we’re seeing the loss of very high skill, upper middle class jobs. And it’s not clear to me how we’re going to train and educate our way out of this one.
A commentator has also been talking “structural unemployment” from way back ;-), and the free-trade versus minimum-wage connection.
Oregon’s answer was to make it illegal for you to pump your own gas … but that’s not too complete a solution.
In the future we’ll have to decide if we can prop millions into the middle class, or if we need to adjust things to make a poorer life more civilized. Either that, or try to unroll the globalization.
Shorter: Someone could do amazing things with a million US workers, but not at the wages they are asking.
(Maybe that ties in with National Service. Draft a generation and you change the employment ratio.)
So the economy is improved if business becomes more efficient and profitable. I guess that depends on your definition of the economy.
Many years ago I was down in Mexico with a friend of mine who was a contractor. We were looking at a construction job that was progressing slowly with hand labor and asked our guide why no machinery was being used. He said the government would not allow machinery to be used and Tom wondered how the contractor could make any money without using equipment. We asked why the government prohibited the use of equipment.
“Because, senores,” our guide said ” the government does not care about the profits of the contractor. The government cares that these men are able to feed their families.”
Mexico defines “the economy” somewhat differently than we do.
Well, if a recession is when your neighbor loses his job and a depression is when you lose yours, we are going to be in a depression for a good while and a recession for decades.
So the question is what do we do to keep these displaced workers from becoming a drain on society. Yes, some will retrain but as the last jobless recovery showed, quite a few will not recover well from the hit. Plus, what is the hot industry? It’s not like the 1930s when millions left agriculture for jobs in the factories. And hopefully there isn’t a WWII on the horizon to speed getting them off the farms. It’s more like the 1990s where that skilled manufacturing job went away but few 30 yr olds in 1985 were prepared to enter the software boom of the 1990s.
This is also a glitch in the oft promoted raising the retirement age as part of the fix for social security. A great idea but often those older workers are in fields that no longer need such a large pool of workers. We saw this with say machinists in the manufacturing realignment in the 1980s. Jobs got cut and younger machinists found other work in fields like builiding maintenance. It is just now 25-30 years later that younger workers are being sought in escalator repair, etc. as these older workers retire out. Retirement is a way to move less productive workers (by age and skill) out of the workforce and make room for younger workers with fresher skills. Or higher education. Older workers will sit on the jobs as they opportunities decrease but retirement needs increase and younger workers will live at home.
This, to me, is one of the places where the rubber meets the road and most of the people who call themselves “conservative” come up short (JJ excepted). Because if you believe in traditional values and hard work, there is no greater issue than the disappearance of jobs. But I can’t think of anyone on that side seriously addressing it. (Other than the mantra of lowering taxes for the wealthy and from my point of view we have 30 years of empirical evidence to the contrary).
Those on the liberal or progressive side of the aisle also have a massive failure here. The reason I’m calling out conservatives is that they claim to be interested in, well, conserving the traditional American ideal of hard work and good moral character ensuring a solid life.
In my opinion, it is a conservative position to support unions, while keeping organized crime out of them. Not blindly, as I’ve been in a lot of manufacturing facilities and have seen truly despicable behavior by union members in old line plants, as well as terrible practices by management in non-union plants. On balance, the unionized plants provide more stability and craft better products than the non-unionized ones. And after all, the era of the fasted sustained rise in GDP was one of increasingly strong unions (1930’s – 1970’s).
Embracing environmentalism should also be seen as a conservative value. Both because of the common sense notion of conserving our environment and also because many of the most automated processes are also the most environmentally destructive. Industrial logging results in clear cutting uniform sized trees by massive machines. Sustainable logging is much more labor intensive. In coal mining, blowing the tops off mountains and processing the debris, then dumping it into the rivers and streams requires relatively little labor. Taking that coal out in a sustainable way uses many more employees. I’ve picked two cases where you kill two birds with one stone – increased labor usage and market demand leveled to less environmentally damaging levels.
Now, people who call themselves conservatives may disagree with my specific examples here. And if they were coming up with realistic alternatives and fighting for them, I wouldn’t have a problem with that. But shooting something down without bringing something else into the breech is just hot air.
Definitely JKB, the retirement angle is big. We hear of many people who took stock and housing market hits, and “can’t retire.” When they are the same who lost jobs it gets sad.
(MarkedMan, conservatism has always had a thread of “I’ve got mine.” It happens when “enlightened self-interest” loses the “enlightened” part.)
There are jobs in engineering. Starting salaries are in the 50-80K range, depending on degree. Even mediocre MS students are getting jobs. (Some of them are my students.) I have no idea whether or not this means anything at the level of the whole economy, just throwing out a data point.
Same thoughts here, and props to the article for pointing out that it’s not obvious where these workers are headed in terms of unemployment, other than poverty.
I suppose one solution would be to try and get as many people as possible to acquire some type of income independent of their employment, like bonds/savings/other assets. In a job market where flexibility is king and re-training frequent, the above would be enormously helpful in weathering the periods when job-related income plunges.
Educational reform might be another good idea. Part of the problem is that there just isn’t a real future for most high school drop-outs in terms of careers and income (other than those who either get a GED, or make it in an entrepeneurial sense), and even workers with only a high school education have been in trouble for the past decade.
More likely, the construction workers had a union or the like with political pull in the Mexican government.
One more thing –
The “no self-service gas” thing strikes me as bizarre. I can see why people would want full-service, but to actually outlaw stations from offering it is . . . strange. It reminds me of how rent control continues to linger on, in spite of near-universal opposition from economists.
In theory, the people with experience and critical skills that lose their jobs could go out, develop new ideas and start up small business ventures. Unfortunately, our current patent laws and intellectual property laws so favor the corporate interests it is difficult to do so. Not to mention the barriers that existing companies have managed to get put in place to limit competition.
We definitely need to work out some of the read tape from starting new businesses, but there may be some help in that direction, if we could get the corporatists off our back…
And this concern is the best way to raise the overall welfare of Mexicans, which is why the Mexican standard of living is higher than the US standard of living.
While I share your policy preferences, I think it’s unrealistic to expect that any significant number of displaced “file clerks, ticket agents and autoworkers” are going to go out and create new businesses, let alone develop new ideas. Maybe some of the people displaced from Wall Street and the big banks will do that.
Keep in mind the old statistic that 90% of small businesses fail in the first year (or whatever).
It’s one thing to risk when you are young, or with OPM, but to risk your remaining worth on a first-ever late-life venture? I would not recommend it.
(I see some people starting viable businesses, but others just really trying to sell crap to their peers who are in the same bind.)
Two steps are required to bring on the next great expansion of the economy.
1. Abandon the idea of energy conservation. By standardizing on one nuclear reactor design and having the government assume the building costs, waste disposal and liability protection, 500 plants could be built within 5 years. Unlimited electric energy at one tenth the current cost provided by federally owned, privately run nuclear plants widely dispersed would be the competitive advantage U.S. industry needs to dominate the market.
2. Institute the Fair Tax Plan. By eliminating the tax on production and moving it to consumption, the U.S. would become the world’s tax haven and the location where all companies would want to operate.
It wasn’t all that long ago, when the benefits of “telecommuting” were “going to change the work place!” Work from home, or from that remote vacation site, you know? If you can work from “the beach,” someone else that had no way of getting into this country could work “from home” too. Who didn’t see that one coming?
For decades, certain jobs and career tracks were deemed “too valuable” to outsource. Well guess what, they are now. If not directly outsourced then H1B visas are being issued to bring cheaper “professionals” from outside, in.
I was told for decades teaching can’t be outsourced — several large cities, and many smaller school districts, are both laying off teachers, and importing science and math teachers from overseas. These H1B visa holders are NOT union, not Americans (or on a citizenship track) and are working from MUCH LESS than a 23 year old new college grad with a high student load to repay.
Yes, many jobs will NEVER return.
That would probably lead to some amusing advertising slogans. “Invest in the USA! We’re like Bermuda, only bigger!”
“We’re like Bermuda, only bigger!”
There are people throughout the world that believe a government has no business knowing what business an individual is in or how much money they make.
This alone would be a gigantic investment magnet.
jwest, walmart leads on energy conservation not because anyone told them (when did they ever listen?) but because it makes dollars and sense.
What are you going to do, use my taxes to subsidize 500 nukes so that walmart can cut back on the efficiency?
I don’t think it’s worth it, and I don’t think energy is really the limiting factor now in our competitiveness or jobs. Yes, cheap and dirty coal power is a factor in China’s emergence, but not the only one.
(Not to call you names, but to reuse the old phrase: “It’s the wages, stupid!”)
(BTW, our safe nukes would not even beat China’s dirty coal plants on price, so the energy intensive processes would still tip their way.)
The idea is to change the paradigm.
People are just coming to the realization that the country needs industry as opposed to the “service economy†that was to be the future.
Unlimited, practically free energy would not only bring back the old industries, but make possible industries, processes and products not thought of yet. Just as the bulk of the country couldn’t think of why anyone would want a computer in the home in the early ‘80s, most people fail to imagine what an economy that factors energy in as a minor cost would look like.
Wages rise as employers compete for labor. Let the creative forces of the U.S. loose with nearly-free energy and watch business bid for every warm body.
Sandra, along the same lines is if you work for a company and think, Hey, I could start a business and sell my programming expertise back to this company as a contractor, well, you should see the seeds of your own destruction. If they can contract it out to a firm a few blocks away it won’t be long before they contract it to a firm a thousand miles away and after that to one overseas. Look at textiles. Started in the NE in the US and trudged along till….transportation exploded in the 1920s when the mills moved south for cheaper labor. Then overseas shipping got more efficient and the mills moved overseas (I’ll grant this is a simplified example).
Unless, transportation gets enormously expensive, low skill manufacturing isn’t coming back to the US or to the high cost of living areas of the US. Unless we lose the undersea cables and satellites, anything that moves by bits and bytes isn’t coming back. Once education is separated into from indoctrination, it’ll move to the most cost effective provider as well.
Perhaps I erred, then. It should have said “Having trouble finding a place to invest your conflict diamonds’-generated wealth? Invest American!”
jwest, the guy called FuturePundit tracks these things pretty well. From a 2005 post of his:
I don’t think that includes the Chinese “cheap and dirty” coal plants, but I think we can assume they are as close to your “practically free energy” as anyone will get with near-future tech.
Yes, but competition like this always exists. If they can outsource it to India for better and cheaper, that means that India is better and cheaper than US software companies, and they will eventually outcompete US companies.
So how can US companies hope to compete? Simple. Make sure that we keep providing the best business, political, economic, AND social environment that allows people to work their butts off and excel, regardless of whether they were born in the US or not.
John,
The overnight cost of a new AP1000 is under 1.5 billion, even without the benefit of economies of scale in committing to 500 plants. Because of government regulations, licensing and legal costs, the cost of a nuclear plant built in the private sector is projected at 4 to 5 times that cost.
By having the government as the owner and standardizing on one design, all the additional costs could be eliminated with the stroke of a pen. Allow each state to have a referendum on if they want nuke plants. If they vote for it, allow each community to vote for it. People and businesses in the communities that want the plants receive the lowest rates, while excess power is sold at higher (though far less than present) rates to those who didn’t want the plants.
We have stockpiles of weapons-grade fuel that can be reprocessed for these plants.
By having a standardized design, operating costs are lowered. Grid distribution is simplified and redundancy is assured by having dispersed, multiple plants.
But best of all, using this method to stimulate the economy is the way the U.S. can create the environment for robust employment, which would lead to increased revenues and an eventual elimination of the debt.
There are any number of companies that move production to China, Vietnam, etc but realize no net savings.
Why don’t they realize net savings? Well, take electronics. Component costs make up 98%+ of the final product due to automation and economies of scale, etc. You can get the labor for free and it is not going to have a dramatic effect.
So why do they move? Several reasons:
– They can pollute without risk of having to face the government – or their neighbors
– They don’t have to worry about worker safety blowing up into a big expensive scandal. If they care about worker safety, it is because they are decent people, but if their attention wanders and someone gets hurt, there will be no government investigators showing up.
– Management no longer has the stomach for the stress of running a production facility. Managers in the US are primarily MBA’s and production guys don’t become senior execs
So what could we do as a country? Well the “conservative” mantra is to let everyone pollute here and get rid of OSHA, and so forth. But why not the opposite? Why not impose a huge tax on imported goods unless they can trace their origin back to safe, non-polluting factories. This doesn’t give any advantage to US plants, it merely takes away some of their disadvantages.
Let’s expand the deficit by assuming costs of nuclear waste disposal in order to subsidize our already pretty cheap energy?
Somehow I don’t think this is going to revolutionize the economy, but rather just make our already astronomical debt bigger.
I started my career when the US was going to get crushed by the Japanese, because they worked so much more cheaply than Americans, and am now regularly involved in decisions on outsourcing engineering to India. As the Japanese engineers became better and had more experience, they commanded higher salaries, to the point that no one would ever consider a Japanese firm as a low cost option today.
The same is happening in India, perhaps even faster since there is no stigma attached to moving from one company to another. Ten years ago you paid 30% on the dollar to outsource to India and now it is closer to 70%. On the other hand, ten years ago most of those projects were disasters and now a significant number make it through to completion.
oh and then remove many of our means of controlling debt by establishing the same tax codes as (as previously stated) Bermuda.
I fully understand how tax cuts can lead to a stronger economy, but I really don’t get this argument. America–the most prosperous country, and one with some mid to high taxes–is losing ground economically to China–who has very high taxes. So let’s fix this by instituting the same tax code as country with a poverty rate of 20%.
And then poof! Our country is strong again.
Ulysses,
Bahama was used as an example of a country that values privacy in business and individual finances, not as a country that uses the Fair Tax Plan.
Take a moment and look over the plan:
http://www.fairtax.org/site/PageServer?pagename=about_main
By shifting taxation to consumption as opposed to production, the country could get back the jobs that moved overseas.
It’s not that bizarre. You keep a sizable pool of jobs that have extremely minimal entry requirements to help kids just starting off get some work experience and keep them off the streets (even if only on the street corners). A lot of my friends worked for gas stations growing up (in Oregon). It’s not unlike McDonalds except that gas is much less dangerous that the latest food abomination from McDs.
As for nukes-
it’s dead end and a stupid idea. Leaving beside the whole issue of having no good means of containing the waste we quickly find that the supply of uranium is just not sufficient to provide more than the current chunk of power to the US for a length of time that makes it worth investing in. I break it down in detail here:
http://www.swordscrossed.org/diary/20081202/nuclear-fuels
Short version is current reactor designs will eat through our fuel supply at current levels of use within a couple centuries. Expanding our nuclear power cuts that number way down. There are some technological possibilities to expand that number (Uranium from seawater, Thorium, Breeder reactors) but all of them are either unproven technologically or unfeasible politically/economically. Unless a breakthrough happens fission is dead end.
A big part of our problem is a lack of innovation. Compared with others in the OECD, we have fewer self employed workers. A much higher percentage work for large companies. Other than health care, we invest less than many of our competitors in research. Without the innovation to create new products and services, our jobs and standard of living will suffer.
I remain unclear about why this is so and would recommend regular reading of Mandel for those interested. I suspect that our generational wealth transfer to the elderly is partly to blame. I also think that we have concentrated too much of our income and way too much of our wealth into the hands of very few people. If they screw up, see our recent financial crisis, the whole country suffers.
Steve
We put all our money into houses, Steve.
(What’s another mfg robot when you could have a granite counter-top?
jwest,
You’re right. I combined your comment’s with Brett’s. Sorry about that.
-UU
A big part of our problem is a lack of innovation. Compared with others in the OECD, we have fewer self employed workers. A much higher percentage work for large companies. Other than health care, we invest less than many of our competitors in research. Without the innovation to create new products and services, our jobs and standard of living will suffer.
I remain unclear about why this is so and would recommend regular reading of Mandel for those interested. I suspect that our generational wealth transfer to the elderly is partly to blame. I also think that we have concentrated too much of our income and way too much of our wealth into the hands of very few people. If they screw up, see our recent financial crisis, the whole country suffers.
You ask a very broad question. I’ll address the issues that I’m aware of.
Self-employment:
-Countries with a highly regulated labor market tend to have high structural unemployment, so many people are forced to seek self-employment.
-Self-employment offers the ability to participate in the underground economy in a way that is impossible for salaried employees to match.
-Self-employment is often times synonymous with under-employment.
-To truly get an understanding of cross-country comparisons on the issue of self-employment researchers need to control for a host of variables. I haven’t seen any studies which have done this.
Working for Larger Companies:
-More generous benefit packages is likely a factor here. Employer provided healthcare is a greater burden for smaller companies to offer so they suffer in their ability to attract employees, all things being equal.
-A portion of the imbalance is likely an artifact of classifying those who are self-employed as working for a smaller company, even when the self-employed are under-employed.
R&D and innovation:
-We need to control for American companies conducting research oversees.
-We need to control for American companies buying research done overseas. If American human resources deployed to conduct research are more expensive than the same human resources tasked with conducting research overseas, it probably makes sense to buy intellectual property rather than develop it in-house with expensive labor.
-From a demographic POV, most other countries selectively screen their immigrants, while the US welcomes hordes who arrive with a 8th grade education. Look at this report from UC-Berkeley on the immigrant status of founders of Technology Companies. See Chart 5a “Immigrant Groups Founding Engineering & Technology Companies in California” and you see that Mexican immigrants founded 1% of all immigrant founded companies compared to 2% for Israelis and Poles and Vietnamese, 3% for Iranians, and so on.
Meanwhile, the foreign-born population of California is booming. Mexicans-Americans and Mexicans now comprise 25% of the population in California. Vietnamese about 1.3% of the population. Compare the ratio of founders/proportion of population.
Tlaloc,
Solar and wind are the perfect solution to power agricultural communes in Sedona, but if you need the electricity to put out a few thousand tons of steel per hour to compete on the world market, alternative energy is a joke.
A few centuries of usable nuclear fuel will get us over the rough road we’re on now. Bill Gates has funded a company working on a Traveling Wave reactor that burns the spent fuel from today’s nukes. In a hundred years or so fusion can take over.
Once the majority of Americans get over their irrational fear of nuclear power, they will wonder why we waited so long to take advantage of it.
I find the OECD self-employment thing astounding. Are there differences in people who show, or don’t show, as self-employed for legal and/or tax purposes? I know that the US has payroll services to basically make consultants into employees.
“California” is a word from what language again? 😉
I agree though, that we should be applying education (and means) tests for immigration. Unfortunately the thing to make that work, work visas, are opposed by mainstream politicians of both parties.
I think you guys are on to something. Employment is a really big issue. So let’s devise a strategy to spur employment, shall we?
1. Businesses create jobs. Two of the biggest cost line items in any business are labor and energy. So let’s pursue social policies that increase those costs, and hinder the business.
2. Capital formation is crucial to new business formation and existing business investment, and therefore employment. So let’s increase taxation on capital formation.
3. Success in employment creating businesses holds forth the prospect of economic gain. So let’s adopt a high tax, spread the wealth philosophy wrt those who endeavor to pull that off. That’ll motivate them.
4. Government is an inherently less efficient use of vital national resources than the private sector. So let’s vote in people who want, and are,transferring these resources toward the government.
And if all that doesn’t work, let’s whine like old women about the right, and bet it all on red for green technologies that require gov’t subsidy to be viable. Brilliant.
I’ve had an epiphany. You guys are right. Smokin’ good plan. Well done.
I agree though, that we should be applying education (and means) tests for immigration.
What are you, some kind of racist or something? Sorry, couldn’t resist.
Are there differences in people who show, or don’t show, as self-employed for legal and/or tax purposes?
I read one study which looked at the composition of self-employed in France. A majority of their self-employed had only one employee, the “owner” of the firm. They were noticeable under-employed in terms of hours worked and in terms of income earned. When asked if they would like to be a full-time employee of a larger firm, a significant number answered in the affirmative.
Italy is notorious for the size of their underground economy. Structuring employment life so that one minimizes contact with regulations and tax collectors results in a significant boost in income.
All of these country specific scenarios need to be controlled in order to develop an understanding of international comparisons of self-employment rates.
I see. So everybody’s an F-ing idiot but you and your buddies? Sarcasm instead of facts to promote your opinions? That’s your plan? That’s how we’ve gotten into this mess. This so-called philosophy has held sway since Reagan and most of the citizenry of this country has had little benefit from it. Explain to me why the residents of a country should support a system wherein all economic gain from productivity, wage cuts, etc goes to a few percent of the people at the top?
Sarcasm and insults were what we had when the Reaganauts set out to deregulate the banks. Invade Iraq. Drill Baby Drill. You people never pause to look at your results. I don’t even think you see results. You just sit on the end of the bar and snicker and complain.
Did that feel good Drew? Too bad it was all feel and so little fact.
We came into this after the Bush administration, remember? The administration that de-regulated and de-inforced Wall Street to make this mess, and then (whoops) thanks to their “starve the beast” walked into that same crash broke and in debt.
Let’s pretend we can just do the Bush game again and it will get better … no, I don’t smoke anything that crazy.
“So everybody’s an F-ing idiot but you and your buddies?”
Gosh, and here I thought you had no insight…..
“Sarcasm instead of facts to promote your opinions?”
Facts? What did I say that was off base? And where are your “facts” on base? You are dancing among rabbit turds oblivious of the whale shit descending upon you.
“Explain to me why the residents of a country should support a system wherein all economic gain from productivity, wage cuts, etc goes to a few percent of the people at the top?”
Setting the falsity of the implication in your assertion aside, explain to me why you would support a suite of policies that are so obviously at odds with job creation. My points are basic economics. And amidst such anti-employment policies, what, exactly, would YOU propose to spur economic growth and employment?
“You people never pause to look at your results. I don’t even think you see results.”
“We people” observe that the biggest financial calamity in memory was in large part driven by Fannie and Freddie, and associated liberal social policy. We observe that despite idiotic assertions to the contrary, “Wall Street” is now an unapologetic supporter of Big Government, and a partner with Big Government, currently in Democratic hands, and a financier of Big Government politicians. WTFU.
“You just sit on the end of the bar and snicker and complain.”
Actually, we have dinner parties where we raid the Bordeaux and fine California cabs in my cellar. But enjoy your Boilermaker, and try not to york in the street.
I see. So everybody’s an F-ing idiot but you and your buddies? Sarcasm instead of facts to promote your opinions?
There are plenty of people who believe in things that cannot be supported empirically. Plenty of conservatives belief that the death penalty acts as a deterrent to murder. The evidence doesn’t support this view. Plenty of social conservatives believe that sex outside of marriage devalues marriage. The evidence doesn’t support this view. Plenty of social conservatives believe that teaching abstinence only is the most effective way of reducing teenage pregnancy. The evidence shows otherwise. I’m sure that plenty of liberals look with disdain upon those who hold these views.
Turnaround is fair play. The liberal worldview doesn’t really reconcile well with how human behavior manifests in the realm of economics, but that doesn’t stop liberals, as Drew has so kindly pointed out, from implementing policies based on fairy tale thinking.
Both sides like to govern as though the world worked as they see it, rather than governing in the world as it is.
This so-called philosophy has held sway since Reagan and most of the citizenry of this country has had little benefit from it.
Huh? Economic growth, median income levels, percentage of population employed, and other metrics have improved from 1980 to present when compared to most European social welfare states. If our levels of economic growth and median income levels grew, since 1980, at the same rate as France, then we’d have to lop off about a third of a median worker’s income.
“We came into this after the Bush administration, remember?”
Oh, please. Structural employment issues have been apparent for decades.
“The administration that de-regulated and de-inforced Wall Street to make this mess, and then (whoops) thanks to their “starve the beast” walked into that same crash broke and in debt.”
Balls. I can’t imagine a more fundamental regulatory provision than that separating commercial and investment banking. The repeal was signed by a certain William Jefferson Clinton. Later, in the 2003 – 2004 time frame, reform of mortgage practices was attempted. The vitriolic outrage of the Barney Franks, Maxine Waters and Chris Dodds of the world is available all over the internet. Pictures and words. No spin.
“Let’s pretend we can just do the Bush game again and it will get better …”
You need to seek help for your Bush derangement syndrome. The issues on the table transcend Bush.
“no, I don’t smoke anything that crazy.”
Point taken. Then we can only conclude your commentary is the result of a weak mind.
I was actually waiting for your standard crap Drew, and you did not disappoint. Did you drop CRA out of your normal spiel?
I was going to make sure you got in on Barry Ritholtz’ $100,000 CRA Challenge
No, it was not Freddy and Fannie. It was securtized debt as roundly summarized by Pimco’s Paul McCulley:
When are you going to get over “I know how the world works, because my wine-sodden friends tell me so”?
It’s not derangement when it’s fact, and more and more of the world is coming around to what really happened.
How many SEC investigations will be launched this year? How many could have been headed off by effective enforcement in 2006, 2007?
Here’s the crux, boys and girls, here is where the Fed sprang into action, socializing losses on a massive scale:
That was not about Freddy and Fannie, the hob-goblins of blowhards everywhere, it was about the bank-like entities, the entities that grew over decades but especially in the 00’s to act as banks without bank supervision.
Those shaddow banks were aided and coddled by those same sorts of blowhards who want us to think of Freddy and Fannie, and nothing else.
And they want us to go back to less regulation … because that always works … doesn’t it?
Andrew Cuomo at press conference crowing about his success at forcing banks to approve mortgages which will have a higher default rate.
And they want us to go back to less regulation … because that always works … doesn’t it?
I agree that every politician who pushed home ownership as a goal in itself was misguided. That includes GWB, who pushed it right up to the brink. Heck, in Cuomo’s day they were still making good loans. I’d love it if those were the loans we had in 2007. In 1998 (that video), they had not gone no-doc, and claimed income. If we wanted to play the game we could say that the no-docs were part of Bush’s ownership society program
… but the numbers don’t show the crash coming out of the low income sector alone. It was profit driven, not political. It was that securitization drove higher and higher LTVs across the board. It was the middle class folks refinancing houses to “take out cash” for big cars.
BTW, I told you before, spending is not enforcement. It’s just sad that Bush raised those budgets even as his appointees told their staff to keep hands off.
Once government requires private actors to submit to a management matrix, wherein strictly financial decisions now also have to meet social conditions imposed on the loan criteria, then that infection of irrational standards will spread through the financial system.
The impetus for this infection was CRA. Governments set the rules by which markets work and capitalists work within those rules to maximize their profits.
It’s kind of like injecting a person with the AIDS virus. They won’t die immediately and when they do die it’s technically not AIDS that kills them rather it’s organ failure or a form of cancer. The same principle played out in this financial crisis. CRA was the infectious agent that screwed up the financial system and because the rules of the game changed it now became impossible to approve a mortgage for a low income minority with bad credit and then deny a mortgage to a non-minority with the same credit score. That would be discriminatory. The upshot of this changing environment was an adaption of business practices to off-load mortgages. FM/FM were very instrumental in this endeavor and they spawned imitators. The Canadian banking system wasn’t infected with the matrix management virus regarding financial criteria for loan origination and they also held onto the loans they originated. A different environment yields a different response. Evolutionary theory is actually quite applicable to this mess.
Thirty years ago I voted the person and, at least locally, I honestly couldn’t tell you if the candidates were D or R. I remember some of them, but don’t remember the party. But today, I vote a semi-straight ticket (not necessarily all D, but most definitely no one on the R side). After 30 years of watching Republicans break things, then walk away and hurl insults at the people who have to come in and fix them, I’ve had enough.
It’s ironic some people use the term “RINO” to refer to the blowhards that talk big and spend bigger. Because to me, those are the heart of the Republican party. Are they conservative? Of course not. They merely call themselves conservative. But they control the party.
My ‘car-loyalty’ forming years were the 70’s and 80’s. American cars were junk. I can’t tell you how many times I stood at the side of the road in the freezing snow with the hood up trying to figure out what was wrong with the ‘beater’ (5 years old, 70K miles – today that would be barely broken in). So now, even though American cars are as good as most, I can’t bring myself to buy one. They just feel… cheap. And junky. Some day the Republicans might get some decent people steering the boat. But they’ve lost me and, I suspect, many like me.
Some day the Republicans might get some decent people steering the boat. But they’ve lost me and, I suspect, many like me.
Sticking with the car analogy. It’s completely understandable to abandon your American car when you have to confront design failure in a 5 year old vehicle, but when you jump from a 5 year old GM car to a brand new Yugo, really, that’s a jump backwards. The shine and new car smell on that Yugo will only last for a few weeks.
I think the thing you are skipping Tango, is that we have data for the post-mortem. We know where the bad bets were made. It was not in mandated loans. Period.
Toyota. Honda. Saturn (yes I wanted to believe the hype. A great car, until it started burning oil at 70K and I learned the engine could not even be rebuilt.) Passat (not great mechanically but not horrible, and wonderful to drive). Mini Cooper S (what can I say, when we bought this I had a 25 mile commute to work on winding mountain roads) and now an Accord (Honda by another name). No Yugos. I knew they were a disaster the moment they were announced.
If you have not, let me recommend you read Russ Roberts, noting his comments on the Fannie and Freddie. I think you can make a case they amplified things, but were not fundamentally necessary for this crisis. At various times between 2000-2008, F and F were losing market share and or were overshadowed by the investment banks. My own view is that this, like many disasters, was truly multifactorial. No one event or rule was enough to make things this bad. Conversely, if even one link in the chain was missing, there would have ben no crisis. I would also note that Europe managed to get to the same place, minus Fannie and Freddie.
To be clear, we should reform the mortgage markets. I like the Danish system, but others would work. Gradually get rid of the GSEs, do away with the mortgage tax deduction, require a down payment and make the originators keep a piece of the product.
Roberts link follows.
http://mercatus.org/publication/gambling-other-peoples-money
Steve
“I’ve had an epiphany. You guys are right. Smokin’ good plan. Well done.”
You had everything you wanted in the 2000s, yet we had very slow job growth by historical standards. Why did you business types fail us? Wages were stagnant for most people? What happened?
Tango- Who will pick the lettuce? I dont really expect people to migrate here from India or Viet nam to do that. They will be a completely different group. Increase the number of legal immigrants from Mexico.
Steve
I’d be fine with winding Freddy and Fannie down (along with Sally Mae) and getting rid of them. Phase out new originations.
But they weren’t driving the no-doc madness that blew the top off out bubble.
You don’t need immigrants for that. Those OECD countries, with the high self-employment, don’t use immigrants for that. They have guest-worker programs.
Tango- Who will pick the lettuce? I dont really expect people to migrate here from India or Viet nam to do that. They will be a completely different group. Increase the number of legal immigrants from Mexico.
Here’s the problem, from my perspective, in a nutshell. The desire for cheap lettuce or domestic lettuce shouldn’t justify the creation of a labor system in which gains are privatized and losses are socialized.
In the macro sense, it doesn’t really pay to have domestic lettuce production where lettuce is picked by workers who earn $15,000 per year and society must spend $40,000 per year on social benefits for that worker and his family. In the macro sense it would be better to not import the worker and instead import the lettuce from the worker’s country.
A country can’t get wealthier and the middle class can’t climb the social mobility ladder if we keep adding net tax recipients to the bottom of the ladder. The money that is taken from net tax contributors is directed to net tax recipients. We can’t keep expanding the denominator in this equation and expect median wealth per household to increase.
But they weren’t driving the no-doc madness that blew the top off out bubble.
As I remarked above, governments set the rules which create the conditions of markets and market participants maximize their individual utility within those constraints.
When the government imposed a social mandate onto what was a strictly financial decision on mortgage approval, they infected the system with a virus that corrupted decision making across a broad spectrum of sectors. The institutionalized incentives that created short term benefits for management and investors. They created markets for MBS in order to increase loan portfolio churning. This decreased the incentives for loan originators to be diligent in their assessment process and created financial incentive to write a lot of loans.
This was a government-created problem. The government had no business compelling private institutions to lend money to credit unworthy minority mortgage applicants. When they did this they started the whole system on the road to unraveling.
Look, our cultural cousins to the North never had a minority population of notable size so they never had to contend with the social costs and the political pressures that result from disparate outcomes. They, as a result, never had to bend the rules to try to equalize outcomes. This resulted in a stable banking system because their bankers were making mortgage decisions SOLELY on the basis of financial criteria, unlike our bankers and loan originators, who worked in a corrupted system, a system corrupted by politicians too chicken to tackle the social problem via direct government action, via appropriations, and who off-loaded it onto the private sector and then changed the system to accommodate the new reality.
So let me see if I got this straight. There was a massive deregulation of the banking industry starting in the Reagan years (and abetted by Bill Clinton), quickly followed by the Savings and Loan Fiasco, and then a decade later followed by massively more deregulation, followed by our current crisis. And you are contending that deregulation had nothing to do with these crisis? Rather, it was the government meanies who pressured the bankers into making loans to poor people (something, by the way, that started in the 50’s and 60’s which means it took an awfully long time to cause such an effect)?
So if we follow your position to its logical conclusion we should impose the most stringent regulation on the mortgage industry. After all, if all that deregulation, which we were promised would make the banking system sounder and more efficient, had no real effect on the soundness of the system (I’m accepting for the moment your assertion that it had nothing to do with the collapse itself), and bankers respond to government pressure by approving liar’s loans, then it’s obvious we were wrong to let them have the keys to the car. Because there are always going to be interest groups pressuring bankers. If they can’t resist, then they are like alcoholics with car keys.
Acutally, good so far …
Unfortunately you went for the 10 year earlier callback to a side issue.
Much better if you tied that first paragraph to Bush de-regulation and non-enforcement. Yes, the government did set the tune.
(I hope you aren’t serious about Clinton in the 90’s making the crash in the 2000’s. That is just stupid.)