Friday, October 28, 2016

Iceland and Jobs: What’s Going On There?

Last week I returned from driving around a country about which people make many erroneous statements.  First, Iceland is not outrageously cold – its winters are about the same temperatures as Chicago’s.  Second, while it has permanent glaciers, most of it looks green, actually rivalling Ireland.  Third, while its population was once unusually homogeneous, now only a minority are stereotypically blonde Scandinavians.  Fourth, while once poor it is now hardly rustic, with a per-capita GDP, 30th in the world at $46,100, fitting in with others nearby, one spot above Denmark’s and four below Sweden’s. 

Despite a low share of natural economic resources (world-class scenery doesn’t quite count), Icelanders have done, in many ways, an outstanding job with their country.  In 2015, it was ranked the world’s 13th most developed by the United Nations, down from first in the world, soon before their three-year political and economic crisis, in 2007-2008. It has universal health care, the fourth highest life expectancy, lower smoking and obesity rates than in most of Europe, and unusually low pollution.  In 2015 it had almost 1.3 million foreign tourists, four times the resident population.  For those who like that sort of thing, Iceland also has one of the lowest rates of economic inequality, and is informal enough that their people still have, in effect, no last names.  I can personally attest that it has its share of gravel roads, but most of them and all of its paved ones seem in excellent condition.  Taxes are not obscene, and include a flat 22.75% on personal income, only 18% on corporate, a value-added tax (VAT) of 11% on food, room rentals, and other things consumed by humans, and a 24% VAT on everything else.  Unemployment was last seen at 3.1%.  Their government aggressively dealt with financial transgressions during their crisis, and required some bankers to make up a part of their microscopic total of 147 prisoners, a real reason why their currency, the Icelandic krona (ISK), is stable and strong today. 
On the other side, there’s one thing that pervades the experience of locals and visitors alike.  It’s expensive!  Not only, as one would think, are the mass of imported goods higher than in their original countries, but so is almost everything else.  In Alaska, locally caught salmon is a relative bargain.  Not so for the lamb and fish raised and caught in Iceland.  Restaurant meals, even plates of those things, seemed to start at ISK 3000, or over $26.  Although tips and tax are included, that’s a lot.  The largest supermarket chains, Netto, Kronan, and especially Bonus, mitigate that somewhat, and while fast food is often available and cheaper it is around double American rates, with the lowest-priced Subway footlong ISK 1199 or $10.51.  Postage on a domestic letter in that small country is ISK 160 ($1.40), and even a postcard to the United States, or elsewhere outside Europe, costs ISK 285 ($2.50).  Items for tourists were no exception either, with ordinary souvenir magnets usually ISK 899 and playing cards almost always more.  Even things where I would not think prices would vary much from one country to the other, such as silver bracelet charms, were at least double those of similar items elsewhere.  That puts a lot of pressure on locals as well as tourists, and is probably the main reason why many have more than one job.  Although I suspect high pay for workers is a real reason, and accounts for such things as unmanned fuel stations, there is no national minimum wage as such.  Yet what is in effect a lack of positions paying comfortable wages in relation to cost of living, and a general sense of balance, did not stop large numbers of Icelanders from unsuccessfully protesting a $3 billion aluminum smelting installation, despite its thoroughly modern environmental safeguards.    

To what does all this add up?  Iceland is certainly an admirable country, but, despite its long-time cultural emphasis on self-reliance, people’s choices are more limited.  There are far fewer opportunities to become truly wealthy there than in the United States.  However, its advantages in health and life expectancy are real, and lofty food prices may help that.  Almost everyone there who wants to can work, which, in 2016, is quite a strength for anywhere fully developed.  Accordingly, while I would never want to force such a system on Americans, little Iceland has plenty to teach us.  And as we have, in the past anyway, excelled at borrowing from other countries, we should keep their ways in mind.  

Friday, October 21, 2016

The Three Reasonable Presidential Candidates on Jobs: Good, Bad, and Indifferent Proposals

Three people running for president are worthy of your consideration.  What do they say they will do about employment?

In March, Hillary Clinton, later to become the Democratic Party nominee, put forth an economic plan.  She asked to roll back tax breaks for American companies moving jobs out of this country (excellent idea, and in the right direction), and create a new levy for those taking their headquarters overseas (also good, since many people work at these offices).  She wanted to raise the minimum wage (bad – we don’t want to reduce the number of positions right now), and upped her proposed floor from $12 to $15 later in the campaign (even worse).  She thinks employers should be required to pay for family leave (wrong – let them compete by offering these benefits voluntarily), and proposed the College Affordability Plan, to refinance student debt and provide free or discounted tuition to all university enrollees in need (not sure – seems off beam in principle, but could stave off a huge bubble in the form of what is now almost $1.4 trillion in US student debt).  Over the summer she spoke of a National Infrastructure Plan, costing $27 billion per year to build, repair, and improve highways, bridges, airports, water mains, and more.  That last item is the best of the candidates’ employment proposals, and I am glad to see more people suggesting it. 

Libertarian Party candidate Gary Johnson believes that those in government, including himself, do not create jobs – they come from, as his website puts it, “entrepreneurs, businesses, and economic prosperity.”  Accordingly, he emphasizes deregulation as the best tool to achieve employment growth – he and running mate William Weld credit that for the unusual improvement achieved in joblessness in New Mexico and Massachusetts, where they were governors.  Unfortunately, as much as I like him, and am impressed by his and Weld’s succeeding this way in their states, that course seems insufficient.  I hope, and expect, that a President Johnson would take more aggressive steps if we had a recession.

Green Party nominee Jill Stein expects to generate what she calls “millions of jobs” by changing energy use, nationally and completely, to renewable sources by 2030.  She also would get more people working by “investing in public transit, sustainable agriculture, and conservation.”  She considers employment to be “a right,” and says we should “create living-wage jobs for every American who needs work.”  I would feel better about her basis for putting more people to work if she were not against petroleum and natural gas-based sources, fields with many jobs, so much.  Since hardly every person who wants to be employed needs a “living wage,” I can’t support her there either.  However, her opinion on people’s entitlement to work does match one of the five comprehensive jobs-crisis solutions.

Those are your choices.  My views are above, but others also have strong, and sometimes differing, ones on these initiatives’ merits, how we could pay for them, and on the effect they would have on budget deficits and the national debt.  Which of these solutions are realistic and which are not?  How much are we willing to spend to get more Americans working?  Those are questions for you to answer, as you prepare for your November 8th decision.

Monday, October 10, 2016

"The Wealth of Humans" – The Latest Work’s New Age Successor Hits and Misses

Ever since I published what was the definitive book on the permanent jobs crisis almost five years ago, I have been possessive about that topic.  I think of it as mine.  That may seem imperious and probably is, but if you have written an award-winning volume based on a clear-cut but truly neglected thesis, you are likely to share that feeling. 

Last month, Ryan Avent, senior editor and columnist at The Economist, released about the third American book since the fall of 2011 on that subject, though he didn’t quite call it a permanent crisis, opting for “labour abundance” instead.  The Wealth of Humans attempted a broader scope, as shown by its subtitle Work, Power, and Status in the Twenty-First Century.  How good a descendant is it?

First, Avent did not cite Work’s New Age, but recapped, and had slightly different views, on the core issues I presented there.  He settled on the phrase “the labour glut” for what I called excess capacity, which he also called “the sheer abundance of labour,” and said that workers’ numbers “hold down wages.”  Indeed, he spent an entire chapter explaining the simple supply and demand truth that “higher wages are so economically elusive.”  He described why we are not going back to “the bygone age of mass employment,” which as I showed was due to new products never needing large amounts of employee time per item to produce.  He explained the breaking of the connection between pay and output through Baumol’s Cost Disease, an American economist’s principle, instead of by invoking scalability, or the production of iterations of goods and services at tiny additional cost, as I did.  He referred to the “digitally disappointing era,” which I specified as the lack of widespread computer-driven productivity improvement before the late 1990s.  He was also skeptical of the ability of further schooling as a solution to economic weakness, being in all fairness more eloquent than I by saying that “the low-hanging educational fruit has been picked.”    

Since The Wealth of Humans was published in 2016 instead of 2012, Avent had access to much newer information, and he covered it well.  He touched on writings by Thomas Piketty and others.  He discussed what he called “hyperglobalization,” and noted that many countries, the “never-developing world,” are not only still not contributing intellectual resources but have bleak prospects to do so soon.  He acknowledged the pooling of masses of money in a small set of companies and individuals by calling it “reserve accumulation,” correctly noted that that phenomenon explains why less of it has trickled down than it would if it were in more needy hands, and said that has led to “secular stagnation.”  He summarized progress up to press time in robotics and driverless cars, and showed its importance to the future of American employment.  He named and interpreted many other news items, including previous Republican presidential nominee Mitt Romney’s infamous comment about 47% of Americans being “victims, who believe the government has a responsibility to care for them” (referring mostly to those collecting Social Security at retirement age after decades of work).  He said, as I have implied but not put as pithily, that “in a way, it would be much easier if the robots were simply taking all the jobs,” meaning that our relatively good times have unduly blunted our awareness of the historical transition we are living through.

On one subject, though, the author fell into traps.  He stated that “car ownership could be obsolete,” which has no chance to happen soon among rural residents.  He cited Uber drivers averaging $19 net per hour as opposed to traditional taxi operators earning $13, which can only be due to poor cost accounting, but followed it up with descriptions of how cab driving is becoming more automated, and thus, according to his other examples, will allow them to be less skilled and in turn to be paid less.  These slip-ups, though, look suspiciously old in this fast-moving field, and may reflect his collecting information a year or more before the book’s publication date, when these issues were not as well understood.

As opposed to these two errors, I flagged four places where I thought Avent’s analysis was especially insightful.  One of his subtheses was that the ways of managing technological growth socially are lagging behind the progress itself.  He advocated more government spending, without which we are most unlikely to adequately deal with the jobs crisis.  He proposed an immigration policy similar to those I saw in Australia, New Zealand, and the European Union, that of allowing people in who can do jobs where there are not enough workers, and, additionally, those who can perform tasks especially valuable to an aging population.  Last, I’m still working out what he meant by saying “software is eating everything,” but I suspect something about which we all should be aware. 

On conclusions, I found his vague.  He said we should be “generous,” but did not define that clearly enough for me to understand.  I did not see any mention of guaranteed basic income, still the most obvious possible jobs-crisis solution and about which there has been a lot of post-2011 commentary and developments.  He stopped short of evaluating or even mentioning other ways out. 

Overall, Ryan Avent would have benefited by reading Work’s New Age.  That he works for a major publication is no excuse.  Information is available from a variety of sources, and this time it was personally clear, to me, that some were not considered.  The Wealth of Humans has a lot to offer, but it missed too much. 

Who will be next on this topic? 

Friday, October 7, 2016

We’re Leveling Off Now: AJSN Shows We’re Short 17.64 Million Jobs, Worse Than a Year Ago

This morning, the jobs, population, and expatriate-count data told us something unfavorable. 

No, it’s not the net new nonfarm positions added, which, while at 156,000 for September fell a bit short of the apparent consensus 174,000 projection.  No, it’s not the commonly publicized seasonally-adjusted unemployment rate, which rose from 4.9% to 5.0%.  It’s not the number of long-term jobless, those out 27 weeks or longer, which stayed the same at 2.0 million.  And it’s certainly not the other major statistics.  Those improved:  the labor force participation rate was up 0.1% to 62.9 percent; the employment to population ratio, the best metric for determining how common it is for Americans to actually be working, climbed the same amount to 59.8%; the count of people employed part-time for economic reasons, or unsuccessfully seeking full-time labor while on the job but for fewer hours than that, dropped 200,000, a lot for one month, to 5.9 million; unadjusted unemployment was down from 5.0% to 4.8%; and average hourly wages went up a penny more than inflation, 6 cents, to $25.79.   

It’s not even, on the surface of it, September’s American Job Shortage Number or AJSN, which tells in one number our latent demand for work, or how many additional positions could be quickly filled if being hired were quick, easy, and routine.  That improved 356,000, as follows:

This August to September change was nothing meaningful, as more people are employed in the latter month.  Our cause for concern is that we are no longer improving.  Finally, after about 80 months of year-over-year gains, going back gives us a lower AJSN.  Here is that one:

How did we manage to get 221,000 jobs shorter when they have been created faster than our rising working-age population?  The difference is mostly in the fifth category from the bottom, “did not search for work in previous year.”  These people, whose numbers grew 268,000 from a year ago, say they want employment but are not looking for it.  There are also more American expatriates, some of whom would return if they thought they could be hired here, than in September 2015.  The same goes for those in school or training and for people officially unemployed, who, though only 30,000 more numerous, at their estimated rate of 90% taking readily available work still adds 27,000 to the difference.

What does this mean?  First, it tells us that we are not only breaking even with jobs demand, but may be getting worse.  Second, it reinforces that our prosperity improvement is leveling off.  Third, it reminds us that most people who would work if the country had an employment supply similar to that recently in western North Dakota are not officially jobless – in fact, they would absorb only 39% of the new positions those in our country could now fill. 

Beyond that, we’re still looking good.  We’re creating jobs well.  Wages, which still have reason to be held back by the worker surplus, are hanging on.  It is particularly favorable to see the two employment ratios get further away from post-1977 record territory.  Yet we now have no reason to think that in a year or two, times will be better.  The turtle took a small step forward, but he might not soon have many more of those.