I have not done one of these in a while. Excuse the rambling narrative but some of this brings together stuff I have been thinking about and trying to make sense of. I think the beginning of an interesting view is poking through and I will have to see how well this model works.
This started from a quick discussion my Mom and I had about the causes of the housing debacle we find ourselves in. I’m still working on the narrative. I believe that there were a lot of people and processes involved in making this happen, one of which is a long term process of increasing productivity from technology that appears to be making it harder for jobs to recover from recessions.
Nice talking with you. I did not mean to imply that Fannie and Freddie were not involved. But I do not think it as that simple. There was a drive through the government, both Republican and Democrat, to ‘help’ the economy by allowing people to buy and refinance houses. After the internet crash, the belief was that by getting people to access the equity of their homes in order to continue buying stuff more jobs would be created because of an expanding economy.
The fallacy seems to be that this sort of process – expand the economy to create jobs and overcome a recession – which has worked in the past, no longer seems to be very effective.
The Fed lowered interest rates to keep mortgage rates low and everyone was handing out mortgages. The microeconomic things Freddie and Fannie were doing – helping individual loans – were also being driven by macroeconomic pressures – increasing GDP, productivity, etc.
If Barney Frank was simply working at home rather than in Congress, i believe the same things would have happened. There were too many political and economic pressures to make access to equity easy, and to drive up home prices and increasing equityt to blame one man or to think that one man could have stopped it.
For example the Fed could have slowed the housing bubble down by raising in interest rates. It did not because it wanted people to tap the equity. Jobs and salaries were not increasing fast enough to get the economy going full tilt. It was the only way they could think to keep people buying stuff.
The job recovery from the Internet bust was very slow and everyone wanted to find ways to juice it up. That is why the Bush tax cuts were passed. Making it easy to get a home and its equity was another. They knew they might create a housing bubble but hoped that would not happen before the economy took off.
But the economy never really took off, at least in the sense of creating more jobs. The 2000s have been the worst decade for jobs growth since the 1940s.
This figure, looking at job losses in a recession following the peak employment month, not only shows that the job recovery from the 2001 recession took longer than any other one since WW2 – execpt for the current one – but that since the 80s, each job recovery took longer and longer.
or look at this one:
Jobs are just not coming back as quickly in the last 30 years as they did in the previous ones.
Everyone was trying to do whatever they could to get jobs back to where they had been. These were things that had been tried before – tax breaks, accessing equity, etc. And the things they did eventually created a bubble. Instead of taking our medicine dealing with the lack of jobs, the leaders created another bubble in order to jack up the economy and hopefully create jobs. Like a player taking steroids, it helped in the short term but we are now finally dealing with the consequences.
One interesting thing from these 2 charts is that the time for the job recovery to get back to square one has been slowing down a lot recently. No post-war recession took longer than 18 months to see jobs completely recover. But then the 1981took 27 months, the 1990 one took 31 months, the 2001took 47 months and the current one looks to take even longer.
Or in the second chart, where the number of jobs created AFTER the recession is over has been getting worse each time. It used to be a great thing for the economists to say that the recession was over because that meant job growth was going to get back on track. No more. As you can see, in the last 3, there have continued to be job losses even 6 months after the recession is over.
Here is one final chart to show how things are different since the 80s:
From 1945 until 1980 or so, when productivity (GDP per capita) went up, so did people’e income. In fact, this same sort of curve goes back at least to the early 1800s. Increase productivity and people have more money to spend. This changed in the earlt 1980s. In fact you can see each recession simply by the drop in income but each time, the productivity curve returns to normal but the income curve does not really recover.
Increased productivity usually came from more jobs. More jobs meant labor scarcity and thus rising salaries. But 30 years ago, something changed so that productivity was no longer tied to increasing salaries. It would appear that increasing producitivty was not resulting in a labor shortage and thus income did not rise.
How could productivity rise and not pull incomes along? How did they become decoupled?
Why have things changed so much since 1980? It is computers and technology. Here is my narrativeIt seems to me that something fundamental is happening that is simply making it much harder for our economy to recover from job losses. Productivity gains are not resulting in more jobs. Incerasing economic gains are not producing new jobs at the expected rates. Stimulating the economy is not creating jobs at the expected rates. Tax breaks are not producing jobs at the expected rate.
We all know how computers and hi tech have enhanced our abilities to get things done, to be more productive. They have meant the loss of many types of careers, from secretaries to middle managers to auto workers.
The productivity increases mean people do not have jobs and those jobs may never return. But in an expanding economy they can find other jobs. Until the point where there are no more jobs.
Then why hire someone when you can ‘hire’ technology instead?
When modern farming meant that 1 guy could do the work of 50, those 49 could at least move to the cities and find work. But now technology has disrupted things so much that there is no place for people displaced by technology to go – by displaced I simply mean jobs that are not needed because one guy can do the work of 4. Those 3 are out of luck because there is no real job open to them.
I think that is why job recovery has been slowing after every recession. Enhanced productivity means that when companies need to increase productivity, they can do it with increasing tech rather than hiring people.
It is one of the things I did wonder about in the science fiction. Where did the income come from to be able to do all these wonderful things? Robots did all the work so how did people get paid in order to buy them? Like going to the bathroom, explaining the economics in these stories was just something left unsaid ;-)
My point is that blaming one guy or one organization is way too simple because even if they had not done a thing, larger forces were driving things to be pretty much the same. Once we went down the road to high tech, at some point we were going to tip over into an economy where many humans were no longer needed to produce the work the economy required. Perhaps we are there.
That is why I think that one major thing the government should do right now with recovery is directly create jobs – infrastructure jobs, NASA jobs, green jobs, jobs to explore the ocean, just jobs. I think we are in a fundamental reframing of the overall economy and things that worked before – Keynsian stimulus, tax breaks, etc.– will really not increase the number of jobs. They just make it easier for companies to increase productivity by getting more computers and tech. A laisez faire approach will not help much. All indirect approaches will not either.
Jobs must be created, by the government or by forcing businesses.
The economy is only slowly forming jobs. In a recession, companies reserve capital and do not spend it on creating jobs. So the government could stimulate the economy with money and get companies going. Once the stimulus had primed the pump, things could go back to normal. Same sort of stimulus with tax breaks. Put more money in the hands of companies and they will use the money to create jobs.
But today, that stimulus or tax break is not resulting in companies hiring. They buy tech solutions that let their current employees get more work done.
People in power applied old approaches to solving a problem that is fundamentally radically new one – people are no longer needed for many jobs. It is easier to buy technology to increase the current employees’ productivity than to hire a person. How does an economy deal with that, in a way that successfully solves the problem?
We have seen that trying to overcome the problem by creating bubbles does not work. Lowering taxes does not work. And indirect stimulus only keeps it from getting worse but does not really help.
I say create CCC type projects. WPA projects. Put people directly to work. Retrain them specifically. Pay them for this. This will help stabilize things as we make a transition to a more efficient economy. My long term prediction is that we will accomplish that by massively reducing working hours. 20 hour work weeks would result in twice as many people working. The increase in productitivty could be harnessed to pay for this, as has been done in the past.
By pulling the productivity curve and income curve back into greater alignment, we might find a way to have a strong economy and have high employment. But, until then, I think it is better to have jobs for people and the only way to do that might be directly creating them.