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The surpisingly swift decline of US manufacturing

2/13/2013

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Came when China was granted permanent member status in the WTO. I told you so - 2 years ago.(read the text above the manufacturing graph).
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The link between Trade-Structural Unemployment-Rising Inequality

1/21/2013

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A job market paper from a Boston U Candidate. I have been saying theses things since the inception of the blog.

"Abstract
Hourly wage data from 1990 to 2011 show a narrowing gap between the median wage and the 10th percentile wage, but an increasing gap between the median and 90th percentile wages. In this paper, I investigate the impact of offshoring on the employment and wage distributions to determine whether it has contributed to this convexification. I use a task-based framework of the labor market with three inputs and model what happens when the world price for the middle task input declines. The model predicts both a decline in domestic employment and a reduction in the wage paid to workers in this task, resulting in a rise in upper tail  unemployment. However, I demonstrate that observed wages within an industry can rise due to selection. I construct a proxy measure of offshoring for both service and material inputs, and use industry level production and trade data
from the US Census Bureau’s Census of Manufactures, and individual level wage data from the US Census and the American Community Survey to test the implications of the model. Offshoring has the anticipated effects on employment and convexification. I find a negative effect of offshoring on  employment and a positive effect of offshoring on upper tail wage inequality. Moreover, current levels of industry offshoring are significantly correlated with an industry’s lagged occupational composition. In particular,  both forms of offshoring decrease with the share of manual occupations and service offshoring increases with the share of routine occupations."
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There but for the grace of God go I.....

7/26/2012

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The death penalty narrative. Early interdiction can prevent huge costs to society.TED Talk. Could it work? Apparently some states are already doing it (Texas is not).
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Hardship in Italy Pushes Country to Brink of a Civil War

7/21/2012

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And according to the mayor of regional capital Palermo, the misery caused by financial crisis could spark a "civil war" in the southern island of Sicily.

 "Because of an explosive mix of despair felt by many families and the stranglehold of organised crime, a civil war could even break out," mayor  Leoluca Orlando said.

"Sicily is the Greece of Italy," Mr Orlando, a member of the anti-corruption  Italy of Values party and a staunch anti-Mafia champion, said. "Many businesses are shutting, families on low incomes can no longer pay  their electricity bills," he said.

On Tuesday, Prime Minister Mario Monti expressed concern that the region ran  the risk of bankruptcy.

In only my third post I identified this as a major risk to the global eonomy. Nearly a year ago, I wrote:"If you don’t start designing polices,  like a fiscal stimulus, that will get the poor working again your system will become destabilized and may implode."

And we aren't even close to a bottom for Europe yet. The US will not be immune.


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There but for the Grace of God Go I

6/10/2012

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Michael Lewis gives the commencement speech at Princeton. He explains why the top 1% should not confuse skill with luck and that they have a responsibility to those who have been unlucky.
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Score-keeping and gratuitous ego-display vol. 1

9/12/2011

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Jeffrey Sachs and I see the US economic situation in a very similar light. I could copy the entire article and say "I told you so" in one form or other in every post I made so far. As I have shown you, the story is all there in the FRED data.  At least Sachs can recognize when there is a dragon in the room.

Here are few of the highlights.

"The structural problem is that America has lost its international competitiveness in basic industries including textiles, apparel, and several other areas of manufacturing.  The production jobs are now in China, India, and elsewhere, where wages are much lower while productivity is more or less comparable to the US (and where production often involves US companies, using US
technologies, producing overseas and re-exporting to the US market).  Only US college grads can resist the international competitive pressures; high-school grads have found the labor market fall out from beneath their feet. 

America requires at least a decade of well-designed and well-executed  national investments in people, infrastructure, and innovative technologies, in order to boost competitiveness and renovate the economy.  Yet such an effort requires serious plans, careful deliberation, and higher taxation on deadbeat corporations and the super-rich.  (Obama's endorsement of lowering corporate tax rates in return for ending loopholes augers poorly once again, since it invites yet another gimmicky tax negotiation in the interests of the rich.)  The  necessary professionalism of government and the shared responsibility of America's elites have proven to be elusive for the White House, the Congress, and both political parties." 

I have noted in almost every post so far that the problem in the US is that the uneducated poor and middle class are being disenfranchised from the US Economy and that this will eventually provoke serious social unrest and destabilze the broader economy.  If Congress and Obama were to read and adhere to Sachs advice, the US would go through a few rough years and then be back on a normal trajectory. Unfortunately, I am not optomisitc that US lawmakers will come up with such a plan in the year of a presidential election. As I said in a earlier post, trade sanctions seem much more likely than education reform and a comprehensive infrastructue plan.

Meanwhile the dragon gets bigger everyday.

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Long Run thinking and Macroeconomic analysis

9/8/2011

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Macroeconomic analysis is foundedon on systems thinking. One is always looking for fundamental imbalances that cannot be sustained over the long run. These imbalances are often not recognized by many analysts and build up slowly overtime. I have come to think of the global economy in terms of the  human body. If you force your body out of balance by overeating, over drinking or some other form of abuse there are short term effects and long term effects. The short term effects can seem small and inconsequential in the moment, while the long term health debts are growing.  Many analysts seem blissfully unware of the approaching dangers and indeed even argrue that the system is in no danger at all. Relax everything is fine. The market wil solve all problems.

An example of this type of bad analysis can be found on this blog post which is commenting on a report on downward mobility in America. The blogger commenting on the findings of the report states:
 
"But turn that around and what do you get? A fairly simple recipe  for staying in the middle class: Go to college, get married, stay married, steer clear of hard drugs.
 
Do those simple things and the odds are on your side. The keys to a financially successful life seem to be family, education, sobriety. Seems boring and obvious, doesn’t it? But it also suggests that American life isn’t quite as bad as the press wants to paint it."

 
I guess this blogger has a different perception of the definition of “simple” than I do. My assertion is that if 50% of marriages fail- staying married is not simple. Paraphrasing Billy Graham, America’s most revered evangelist, he once asked his wife if she had ever considered divorce to which  she replied “no - but I have considered  murder”.


Is it simple to go to college? The US public primary and secondary education system has been in decline for 30 years. Post-secondary education costs are sky rocketing, while middle class wages are stagnant to declining and health care costs are growing at 2-3 times the rate of GDP.

 What about the broader question of mobility in general. Can someone born in urban America achieve the middle class in the same way that someone who is born in Fairfax,  Virginia?

 What depresses me about society is that we often fail to even achieve the minimal threshold of discourse necessary to move policy forward. We do not reach agreement on the definition of the core of the problem.
 
Of course, the longer we take to address systemic imbalances the bigger the problem gets (see my dragon analogy last post). Have another burger and beer, watch a football game - Rome is slowly burning.

 My feelings and frustrations on this and other public policy points on this can be summed up in this way.        

JERRYPOURNELLE: DESPAIR IS A SIN:
“I do not warn you of a future you cannot avoid. On the other hand I have for forty years warned that we are approaching a precipice, and yet we continue to move toward it. Sometimes I get discouraged.”

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I Predict A Riot

8/22/2011

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Social unrest is on the rise the world over. From the “Arab spring” to the London riots to the Tea Party protests in the US to the Chinese outrage over the high speed rail derailment to protests over reforms in Greece. The global economy has been in a recession, and currently, the major economies of the world are pursing austerity measures. New research finds a link between contractionary government policies in Europe over the last 90 years and civil unrest.  60 minutes recently did a piece stating that child poverty may soon reach 25% in America. 

According to the World Bank, food prices are up 33%, year over year, in July. Some have pointed out that this is the only major accomplishment of Quantitative Easing.  Low skilled labour is down, as manufacturing has been moved to developing countries
and because the construction industry, decimated by the housing bubble, has no sign of recovering any time soon. Thus, the consequences of the global financial crisis are falling disproportionately on the poor and middle class. 
 
The Atlantic has an excellent piece on this topic, for their September issue, titled ’Can the Middle Class Be Saved?’. Hardly a progressive extremist, Warren Buffet recently wrote an article for the NY Times, ‘Stop Coddling the  Super-Rich’. He  followed the article up with an interview on Charlie Rose. Warren explained that his last year’s “all –in” tax rate at 17%, on over 60 million in earnings, was approximately half the average rate paid by those working in his office. So much for the notion of shared sacrifice.
 
My point is simple. The poor and the middle class are being disenfranchised in the developed world. The London Riots should be a warning to American policy makers. If you don’t start designing polices,  like a fiscal stimulus, that will get the poor working again your system will become destabilized and may implode. For those who say it can’t happen here because of American exceptionalism, I say it’s already happening. Sarah Palin, when pushed, couldn’t recount Paul Revere’s historic warnings. Let's hope she and her Tea Party friends can heed contemporaneous political warnings. There is a new British invasion underway, and  it doesn’t involve cute guys with mop tops.

American policy makers have been warned, take a lesson from Brazil. Otherwise expect violent unrest,  kidnapping and flash mobs.

As the Kaiser Chiefs warned:

Watching the people get lairy
Is not very pretty I tell thee
Walking  through town is quite scary
And not very sensible either

A friend of a friend he got beaten
He looked the wrong way at a policeman
Would never have happened to Smeaton
An old Leodensian

La-ah-ah, lalala la la  la
Ah-ah-ah, lalala la la la

I predict a riot, I predict a riot
I predict a riot, I predict a riot

I tried to get to my taxi
A man in a  tracksuit attacked me
He said that he saw it before me
Wants to get  things  a bit gory

Girls scrabble around with no clothes on
To borrow  a pound  for a condom
If it wasn't for chip fat, they'd be frozen
They're not very  sensible

La-ah-ah, lalala la la la
Ah-ah-ah, lalala la la la

I predict a riot, I predict a riot
I predict a riot, I predict a  riot

And if there's anybody left in here
That doesn't want to be out there 
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