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Who: Kimball Corson. Text and Photos not disclaimed or that are obviously not mine are copyright (c) Kimball Corson 2004-2013
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Some Unemployment Is Structural
Kimball Corson
01/06/2015, Pago Pago, American Samoa

There is much high paying, good work available in the US for those who are highly trained and smart enough to acquire the skills, not just in the sense of having the savvy to do that but also the IQ capacity as well. Twenty-four year old Joe Poluka with his community college degree focusing on the arts, who sleeps unemployed on his parents' sofa, does qualify and isn't likely to. This is an example of structural unemployment reaching to the very base of who we are. Some structural unemployment is remedial; some isn't. How can we remedy what is fixable? That is the question.

The US Chamber of Commerce has some suggestions. Although not normally an organization to be listened to, on this topic, we might have an exception.

American companies face a skills gap where the demand for skilled workers outstrips what the education/training system is supplying. Businesses must therefore lead, as Joe Fuller, a senior lecturer of Business Administration at the Harvard Business School explains:

The overarching objective of the system is to place people in jobs that provide economic security. Employers have those jobs on offer, know the capabilities required to perform them currently, and have the best sense of what will be required of workers in the future.

A new paper from the U.S. Chamber of Commerce Foundation recommends that we take what businesses have learned from managing supply chains and use it to develop talent. The idea is "Talent Pipeline Management."

Supply chain management is about logically arranging a businesses' processes with its suppliers to coordinates those activities needed to best serve a business's goals, and, in so doing, achieves the best mix of responsiveness and efficiency for the market being served. Outside businesses work closely inside the company and with other external partners to improve quality and efficiency.

Talent Pipeline Management takes the supply chain of labor and applies it to finding and developing talent. Businesses have to align their talent strategy with their overall business strategy to determine what skills are most needed. Then, either by themselves or by working with other companies, businesses must organize and manage a network of education and skills providers to help find and develop talent.

I think the idea is a good one but have a couple of reservations. Can businesses be trusted as educators? They often, like the US Chamber of Commerce, have multiple agendas. Secondly, is vocational training the end all be all of education? Clearly not. But is the Joe Puloka outcome above optimal? Clearly not, once again.

Much unemployment is structural. Many are unemployed because they don't want to work for peanuts. The costs and benefits don't line up. A program like this one could offer hope for that problem if businesses would cast their net widely and take some educational initiatives themselves or coordinate to make them happen for those not presently in school. Not all skill packages needed are out of reach for all but a few. Many can become useful.

Some sensible compromising is needed, I suggest. The skills gap now is just too great and too little is being done about it in any direction.

Inequality Gets Even Worse
Kimball Corson
01/06/2015, Pago Pago, American Samoa

And we have no social policy -- I mean zero -- to address the problem. Academia is silenced on the problem and the Republicans deny there is an income distribution problem. Serious discussion of it in Washington, D..C. is verboten. Everyone is cowed. Obama has provided zero leadership here. It is the elephant in the parlor.

Percent change in median family income, 2010-2013 -- just for these three years (latest data)

INCOME GROUPS

(Top 1 percent . . . . . . . .+5%)
Top 10 percent. . . . . . . .+2%
Next 10 percent. . . . . . . .-3%
60th-80th percentiles. . . -2%
40th-60th percentiles. . . -6%. . . . 40th to lower 40th is real damage area
20th-40th percentiles. . ..-7% . . . . . . . . squarely in the middle class
Bottom 20 percent. . . . . . -4%

All U.S. families. . . . . . . . -5%

(Figures are changes in median pretax income in each percentile range. adjusted for inflation. Source: Federal Reserve)

Our Trade Deficit
Kimball Corson
01/06/2015, Pago Pago, American Samoa

We don't talk about it much anymore. Some think it has disappeared because we now produce a lot of oil domestically. Not so. It is huge. A half a trillion dollars annually. Why? Because the dollar is too strong and we buy a lot of stuff from abroad, not just China.

The annual deficit is currently more than $500 billion (at 3 percent of GDP). This has the same effect on the economy as if consumers were to massively cut back their annual consumption in the US by $500 billion and instead put this money under their mattress. The lost aggregate demand translates into more than 6 million jobs in the US.

The obvious solution is for the US to adopt policies to reduce the value of the dollar against other currencies in order to make U.S. goods and services cheaper internationally and foreign good and services, more expensive. But we have been doing the opposite The value of the dollar is a matter that is largely determined by national policy. We are getting it backwards.

We have bad hands on our economic helm

China and the Internet
Kimball Corson
01/06/2015, Pago Pago, American Samoa

Beijing is terrified of the internet and it censors much and bans more. Gmail, as of this week, Facebook, Google search, Piscasa, Twitter and YouTube, for examples, are blocked by Chinese censorship under its program Golden Shield. Gmail was just blocked with only about 20 percent in China able to use it. Businessmen are pissed at being cut off, often in mid-trip. Some Twitter is also now getting through.

The Golden Shield program, now a decade old, allows Beijing to restrict content it deems sensitive (on democracy, Tibet or the Uighur ethnic group, for example). Thousands of websites are blocked outright, and Chinese citizens who offend authorities can face judicial consequences. China also lifts the ban on Facebook but only for a select few. The effort has left Chinese Internet users with a World Wide Web that bears little resemblance to the uncensored Internet.

Instead of using Google to perform searches, most Chinese use a homegrown alternative called Baidu. Instead of posting messages on Facebook or Twitter, Chinese users are pushed to Weibo. These domestic services are in turn heavily censored. Offensive content -- even a joke about the Communist Party -- will quickly be removed from circulation. Censors monitor activity 24/7.

For U.S. companies hoping to do business in the world's second largest economy, Beijing's approach presents a series of tough choices. Companies that resist Beijing's censorship -- as Google has done -- are often punished as a result. Of major U.S. social media platforms, only LinkedIn has been allowed to operate in China -- and only after it agreed to block offensive content.

China is unlikely to ease its restrictions in the near-term. Beijing often describes what is known colloquially as the "Great Firewall" as a critical national security tool. "I can choose who will be a guest in my home," China's top Internet regulator Lu Wei said earlier this year. Also,the Chinese argue that the Internet structure serves U.S. "hegemonic interests." We counter that view is "cynical and hypocritical."

During a recent visit to the US, Mr. Lu Wei told The HuffingtonPost readers how the internet should operate in his view. The internet should operate as an adjunct of the state with all the deference and restraint that requires. The internet must serve the interests of the Communist Party is the bottom line.

Fragmented Understandings
Kimball Corson
01/06/2015, Pago Pago, American Samoa

If my friends on Facebook are a good, intelligent and representative sampling -- and I think they are -- of smarter Americans' understanding of the core economic issues facing us, then I must say their views are too fragmented and not adequately integrated. They have a piecemeal incoherency about them. In isolation, they make sense, but nothing unifies them. I blame that squarely on economists and our news media.

The problem is too few economists do economics. The neo-classical, orthodox economists in mainstream academia do micro-economics, but don't do serious macro economics. They do not understand and explain the problems of our income distribution and rents in our economy and how the two are integrated like Joe Stiglitz and Michael Hudson do (nor do they or these gents have the expository skills of John Harvey) because they are not trained to, they don't much think about such matters and they are discouraged from doing any of that. That is, they don't do serious economics that matter.

Neither do the Heterodox Schools. They rail against the neo-classical economists, swap papers and mimic and model their behaviors and academic structures on the orthodox economists. They too don't do much useful economics. The attitude of both groups is too much, we have our own concerns, the public be damned, with a few exceptions. Indeed, they do not even want to hear what is going on economically in fact.

It should be the charge of all economists to do useful economics that explains how our economy operates, how it is operating now, why that is so and how to fix its problems -- to give us big integrative pictures. It should be a job of the media to explain all that to the public. Piketty had to write his book in Paris as a foreigner to try to do much of that. From economists in the US, we have and get next to nothing.

Economists and the media are failing miserably, if my FB friends are any indication. They drown is myriad disjunctive pieces, in the main and it is not their fault or lack of intelligence. An incoherent economic viewpoint can never lead to a coherent political agenda.

Economists are dropping the ball and rendering themselves increasingly irrelevant and useless.

HuffPo Sinks
Kimball Corson
01/06/2015, Pago Pago, American Samoa

The Huffington Post has increasingly become a Hollywood tabloid, even and especially on its front page. It is ever less a collection of serious and interesting articles. Man decapitates mother on New Year's Eve is not what I want to read about. What Gwenyth Paltrow does to get creamy skin doesn't cut it either. Ditto, a story on the life and loves of a man with two penises.

I am put off and can find fewer interesting articles, especially on the front page.
I find myself pulling up the New Your Times more and looking at All Top--Top Economic New more, too.

It is a bad state of affairs. HuffPo is a great idea that is slipping.

Why Oil Prices Continue to Slide
Kimball Corson
01/06/2015, p

The quick answer is supplies are greater than demand, but that is economically obvious and doesn't tell us what is going on. What is going on is world economies are slipping and use less oil more efficiently and oil production has increased. Why the latter?

OPEC members cheat on their quotas, trying to make up in volume what they are losing in price. Sands and shale oil have come on line from Canada and the US. Turmoil in Libya and the ISIS are interfering less with oil production, as control of fields stabilize. But the big answer is the world economies, including the US -- which is more experiencing a financial boom than a boom in its real investment economy -- are tapering back on oil use quickly just as relatively too much oil shows up for sale. Producers are trying to sell more to make up for lower prices and that creates a vicious circle. But the big issue is the worldwide economic down turn.

China's economy is braking fast -- indeed, much too fast, increasing the chances of a hard landing -- quaint phrasing for a recession or growth so slowed it feels like a recession. The Eurozone is seriously slowing and facing a triple dip recession. Japan is in the doldrums, as the consensus is Abenomics has failed, and Germany, the world's fourth largest economy, is still pushing austerity as it barely hangs on itself. What this all means is those economies are using relatively less oil just when there is more of it because producers seek the same revenues to maintain their budgets.

The drop in oil prices mirrors drops on other raw material commodity prices as well, with similar producer reactions further feeding the declines.

Here is One to Roil . . .
Kimball Corson
01/06/2015, Pago Pago, American Samoa

US News & World Report Economics Department Ratings and Ranks for 2015:

#1
Harvard University
United States Cambridge, Massachusetts
#1 - Best Global Universities
100 Subject Score

#2
University of Chicago
United States Chicago, Illinois
#9 - Best Global Universities
91.1 Subject Score

#3
Stanford University
United States Stanford, California
#4 - Best Global Universities
90.4 Subject Score

#4
University of Pennsylvania
United States Philadelphia, Pennsylvania
#19 - Best Global Universities
89.7 Subject Score

#5
Massachusetts Institute of Technology
United States Cambridge, Massachusetts
#2 - Best Global Universities
88.9 Subject Score

#6
University of California--Berkeley
United States Berkeley, California
#3 - Best Global Universities
86.1 Subject Score

#7
New York University
United States New York, New York
#36 - Best Global Universities
85.8 Subject Score

#8
Columbia University
United States New York, New York
#10 - Best Global Universities
81.8 Subject Score

#9
Tie
London School of Economics and Political Science
United Kingdom London
#328 (tied) - Best Global Universities
79.7 Subject Score

#9
Tie
Northwestern University
United States Evanston, Illinois
#25 - Best Global Universities
79.7 Subject Score

The Consequences of Our Bad Economic Choices
Kimball Corson
01/06/2015, Pago Pago, American Samoa

I wrote a recent note on what worries economists, suggesting the 2008 crash/recession was not really over yet because that crash/recession did not remove or eliminate the excesses and imbalances in the economy that lead to it, except housing prices did fall. Some interpreted me to say I favored a continued recession and the human hardship attending it. Not so. Let me explain more.

Excesses and imbalances develop in our economy mostly because we fail to properly regulate and moderate economic activity which needs regulation and moderation. Banking excesses and excessive investment in the housing sector led to the housing bubble and the crash on Wall Street. The interest deduction, relaxed housing loan standards and the unregulated banking industry taking multiple wrongful advantages generated the 2008 crash/recession. We could have prevented it with good regulation of Wall Street, elimination of the interest deduction, more federal regulation of loan standards, regulation of derivatives and banking regulations controlling leverage ratios, loan practices and mortgage backed securities and their sale.

We did nothing, except eliminate what banking regulation we had leading up to the mess. Excesses and imbalances developed and the system crashed. Washington then had a choice. 1) It could do nothing and let the crash/recession proceed, in the manner of the Austrian School of Economics. 2) It could throw liquidity at the situation in the form of bail out packages and stimulus programs to stop efforts of the economy to adjust so as to eliminate the excesses and imbalances, as the US did. or 3) It could have followed the Icelandic example and worked with the economy to eliminate the excesses and imbalances while limiting the damage to the population. Iceland put most of its big banks and many other companies through insolvency or bankruptcy reorganization proceedings and sold off the bad debt, eliminated the stockholders, kept the good debt and sold the much smaller banks and companies off to new owners. Iceland then implemented much new regulation.

Iceland did well. We did badly and now we face the prospect of the economy's renewed effort to address the excess and imbalances that the 2008 crash/recession was not allowed to correct. Round two is coming. We await The Next Financial Crash. It is not a question of whether, but only a question of when.

Banks remain unregulated and out of control. The financial markets are bubbling with froth. Derivatives are bombs waiting to go off. $1.1 quadrillion worth worldwide. The Fed distorts the system with QE and its zero interest rate policy. Nothing is regulated. Leverage ratios are sky high. The banks hold more bad loans than before the 2008 crash. Excesses and imbalances abound. It is simply a question of time when the 2008 crash/recession returns with a vengeance. The UK is in the same boat and now faces a triple dip recession. We simply don't get it and think our economy of economic rents and overseas profits is just fine and going gangbusters.

We get matters all wrong at virtually every turn and are very naive to expect good results.

Why Labor's Share of National Income Is Falling
Kimball Corson
01/06/2015, Pago Pago, American Samoa

Two reasons primarily: 1) economic rents, the province of the rich, are increasing in the economy (as I have discussed elsewhere), and 2) profits are rising and employee compensation is falling. Profits rise because global capitalism lets corporations sell their goods and services worldwide and to the emerging middle classes in developing countries to make up and exceed lost sales in the US from Labor's declining share of income.

Wages, or more correctly, employee compensation, fall because a) of a Marxian surplus of labor in the US that depresses wages, b) the decline of unions and organized labor, c) greater opportunism and greed among corporate officers who take more, d) the unequal power in determining employee compensation and e) in real terms, the fixed nominal minimum wage has fallen without mercy.

The impact on the distribution of income of these developments is, has been and will continue to be disasterous. At some point we risk social upheaval. The middle 40 percent of Americans have lost an average of 8 percent of their real income since the 2008 crash. They are getting shellacked. And Washington is doing absolutely nothing about these problems -- as Republicans push for 1) the elimination of food stamps, 2) much lower corporate taxes on profits, 3) lower income taxes on the rich, 4) a block on any increase in the federal minimum wage and 5) cuts in Medicare and Medicaid. They get matters precisely backwards.

Is there any real hope here of sensible federal remedies? The quick answer is "no." The more thoughtful longer term answer is also "no." We are stuck on a moving freight train that at some point will fly off the tracks.

What Bothers Economists
Kimball Corson
01/06/2015, Pago Pago, American Samoa

It is this, in a nut shell: the financial crash of 2008 and the following Great Recession were headed off at the pass and foreshortened by the stimulus and bailout packages BEFORE the needed and necessary adjustment processes of correction to the economy were accomplished. Recessions and depressions normally wring the excesses and imbalances out of an economy so new growth can begin from a corrected and normalized base. That didn't happen the last time around. So the excesses and imbalances are still there.

This leaves many of us with the strong impression that the 2008 Crash/Recession is not over yet. A very smart economist impliedly agrees with this view, as the title of his book indicates. Raghuram Rajan, Fault Lines: How hidden Fractures Still Threaten the World Economy. Except, he takes the proper global perspective on the matter. Other countries applied anti-hemorrhaging remedies as well, which -- as I say-- foreshortened and curtail need adjustments, especially the elimination of excesses.

Excesses are by no means eliminated from the US economy. Stock and bond markets bubble with froth. Housing is pressing up in some markets. Businesses, encouraged by sky high stock markets, have seriously bloated valuations. Bad bank debt levels are at higher percentages than before the crash. Leverage ratios in the banking industry are way up there too. Worldwide, the derivatives house of cards, is estimated to have a "value" of $1.1 quadrillion dollars. As Warren Buffet explains, "I view derivatives as time bombs, both for the parties that deal in them and the [world economy] .... derivatives are financial weapons of mass destruction." With capital's share of national income skyrocketing and Labor's trashing, the income and wealth distributions are skewing way too far out of balance. Real unemployment remains sky high, well over 30 percent.

If anything, except for housing prices, present excesses and imbalances in the US economy are greater now than they were before the 2008 crash/recession. This should not surprise us, as the 2008 crash/recession had no real opportunity to correct or repair the US economy. So, we move into phase two of the Crash and Great Recession. No one has a crystal ball on its contour of development, but we do know, it will be a mega mess when and once it breaks.

The Bogus Rents Economy
Kimball Corson
01/06/2015, Pago Pago, American Samoa

Growth in the economy is going gang-busters, right? The stock and bond markets sail to new highs, right? The economy is booming, we are told. Yet, when we look around us at the physical stock of capital in the form of buildings, roads, bridges, docks, warehouses and the like -- much of it is old and tired looking -- and things look pretty much the same nationwide, with, of course, some usual amounts of new construction here and there. Why is this true in the aggregate?

Because most of the growth is not in terms of real tangible assets or new physical capital, but is in the form of bogus money or rents reflected in the rising prices of the financial assets created by Wall Street, the economic rents from real estate assets and the usurious interest and fees on loans made in the form of new money created by banks. Spelling it out -- economic rents are "unearned" income -- in this instance most of it is in the form of 1) capital gains on financial assets, especially in the US stock, bond and other financial asset markets, 2) economic rents on land and the resources in land and 3) interest income and fees on newly created and loaned monies to American consumers mostly in the middle class.

If we backed land rents, royalties, capital gains and interest and fees on newly created money out of the economy and its growth figures, along with the very real wealth effects generated by such rents, we would be left with an entirely different picture of growth in our economy. The difference would be shocking. Growth would be paltry and look much more like what we see when we actually look around us at the nation's stock of plant, equipment and buildings. Of course, there is some real growth, but it is just not close to what is touted and claimed. Also, there is much observable aging, wear and real deterioration in our our physical capital stock that too much goes unmentioned and is not included in assessing income growth, and some construction observed is simply maintenance, not new additions per se.

Much of this economy of economic rents is the by product and result of the Fed's QE programs and zero interest rate policies. Both were intended to promote capital investment, but both have much more served to generate higher financial asset prices, large capital gains and wealth effects for those who are rich. The Fed has hugely skewed the economy and the distribution of income in the US. It has done so too largely unwittingly, in part by trying to avoid deflation by hitting its inflation target of 2 percent.

Banks in the Federal Reserve System have hugely strengthened this skew in both the economy and the income distribution by lending to the middle class at usurious interest rates and exorbitant fees. Wall Street's interest/fee take is mostly from the middle class and it is rising quickly. It is now estimated to be over 8 percent, up from about 1.3 percent in 1940.

Then there is the classic take in the form of economic land rents about which the Georgians complain and seek a single land tax to recoup. This take is also huge. So is the take from monopoly rents in the economy, including from intellectual property.

Inasmuch as the rich own most all of the appreciating financial assets, the banks, most of the land and much intellectual property, these rents amount to a net transfer from America's middle and lower classes to those who are rich at the top of the income distribution. The skewing effect is horrendous. It is a system of predation. The typical American family's real income is 8 percent lower than it was before the recession hit in 2008, but the income of the rich at the top are rising quickly The transfer skew will continue. After the financial bubbles burst or correct, any likely recession will of course hit the middle class the hardest, just like this last one did here, for the rich and wealthy well know how to step aside and avoid such injury.

A Glimpse of the Future
Kimball Corson
12/30/2014, Pago Pago, American Samoa

Bingo. I have been waiting for this. Our government has now slipped over the line to convert peaceful protesters into terrorists, as I predicted would happen over a year ago. More is to come.

This is a major landmark.

Increasingly in the future, peaceful protesters who offend will simply be labeled terrorists. Watch. That plugs them into a whole other body of law and makes them eligible for detention and re-education, among other things. The legal systems, detention facilities and reeducation programs are already in place, manned and ready to go, thanks to efforts of Obama and congress over the last six years. Now we wait for the proverbial shit to hit the fan. It is only a question of time until, with a little dependable bad judgment, all hell will break loose. The government has tipped its hand on its true thinking about occupy protesters and the like.

The Department of Defense (DOD) considers protests an example of "low-level terrorism," at least according to an exam DOD employees were required to take this year. A multiple choice question on the 2009 DOD Anti-terrorism Awareness training exam asked which of the following was an example of low-level terrorism:

-Attacking the Pentagon
-Improvised Explosive Devices (IED)
-Hate crimes against racial groups
-Protests

The correct answer is "protests."

Happy Holidays and a Great New Year
Kimball Corson
12/25/2014, Pago Pago, American Samoa

From a Friend's Backyard -- Happy Holidays and a Great New Year

(I wanted to do a collage here, but cannot so I pick one. Did anyone not identify what is the tail of my friend's cat in the photo.)

Practical Problems with MMT
Kimball Corson
12/24/2014, Pago Pago, American Samoa

The first is too many people do not believe in MMT and act up in political opposition to rising deficits so as to themselves create real problems in reaction, such as conservatives threatening to shut down government. They do that because they do not understand the implications of a sovereign currency and believe rising public debt is economically destabilizing and takes food out of the mouths of their grandchildren. Alternatively, a few do understand MMT, but opportunistically oppose what they see as the expansion of or intrusion by government into the precious "free market" economy. Indeed, deficits can be the source of problems if such people adversely and over-react to them. This is a simply political reality but a very real limitation.

The next problem of MMT is it views taxes not as a source of raising revenues, but as a means of regulating aggregate demand. However, in the context of our current reality, that doesn't work well. Most of the income taxes, for example, are paid by the rich. Cutting taxes, especially on those better off, to increase aggregate demand feeds into the discredited conservative claim on how the "trickle down" theory operates to promote economic grow for the benefit of all, a theory conservatives love so, but simply doesn't hold up.

In fact, cutting taxes does less to increase aggregate demand than it does to simply add to the hoarded cash reserves of the rich. For example, Apple's largely off shored cash hoard is through the roof. The same is true for others and not just corporations controlled by the rich. As the rich are quick to point out, they pay most all of the income taxes the US collects. Their hoarded buffer of cash insulates them from affecting aggregate demand on the upside and downside.

Alternatively, increasing income taxes usually just raises taxes on the rich for the same reason. However, it impacts aggregate demand very little because increase taxes are usually paid from domestic cash hoards and very little impacts aggregate consumption expenditure. The rich spend too little on consumption to begin with. Targeted taxes on luxury items such as boats, high end cars and such would do better, but that segment of the consumer market is quite small and political muscle protects it. The fact is the middle and lower classes pay too little in taxes to make politically feasible and realistic increases or decreases in their income tax rates matter that much. To be sure, however, carefully targeting of rates can improve the situation, but many rates are politically hard to change.

The third problem I see with MMT is less practical, but a problem nonetheless. It is this: why generate deficits with attending bond sales to create needed increases in government spending, when the government, having a sovereign currency, could simply, with minor legal adjustments, just increase its balances in government demand deposit accounts and skip fooling around with the paper and debt that riles conservative so.

True, it increase the money supply, but under MMT so what? If inflation is the real limiting problem and there is none and deflation threatens instead, then what I suggest is much more optimal. The trick of course is getting the legal adjustments needed through congress. Conservative who don't understand MMT would go ballistic. But there are ways of getting things through congress that too many in congress don't understand.

These problems impose real limitations on MMT. Tax policy in the US focuses mostly on income taxes and those rates are easiest to change as a political matter, but still quite hard as we have observed. MMT needs more flexibility than the current political environment affords it.

 

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