Posts Tagged ‘china’

Labors lost: Six reasons

5 September 2011

The Christian Science Monitor‘s Mark Trumbull has an excellent new piece, “Six Reasons Why America Can’t Create Jobs.” Namely:

1) ‘The rent-a-worker economy’: a reliance on contract workers and outsourcing. Contract workers are easier to let go when conditions worsen. And having made do with less, many companies are eager to try to do the same even when conditions improve.

2) ‘The résumé gap’: a lack of skilled workers, or least of workers with the skills businesses want.

3) ‘Rise of the “plutonomy”‘: an increasingly skewed distribution of wealth is bad for aggregate demand because the rich don’t consume as much of their income as poor and middle-class people do.

4) ‘The China syndrome’: China can make high-tech products too, and often more cheaply than we can, even after taking productivity differentials into account.

5) ‘Somebody start a company!’: ‘. . . start-up activity has plunged. Running 25 percent below its 2006 peak, it is at its slowest pace since the Labor Department began tracking the activity in 1994.’ Reasons cited are tight funding and ‘high uncertainty and low confidence about launching new ventures in a weak economy.’

6) ‘When a home is a dungeon’: The mortgage debt overhang is still large — 11 million Americans are “underwater,” i.e., they owe more on their mortgages than their homes are currently worth. For this and other reasons, consumers are less willing to spend, even relative to a year ago.

The article tries to end on a hopeful note by citing some companies that are actively hiring, but it also notes, ‘Still, overall the country would need to generate about 21 million new jobs by the end of the decade in order to return to a 5 percent jobless rate.’ Let’s do the math: September 2011 to December 2019 is 8*12 + 4 = 100 months. So the economy would have to generate an average of 210,000 jobs per month for the next eight years (and four months) to get unemployment back to its average rate for 1997-2007. Keep that number in mind every time you see a monthly employment report. Number of times since last summer that the U.S. added 210,000 jobs in a month: 2. And the total for August was 210,000 jobs short of that goal.

Monetary policy IS currency manipulation

13 November 2010

Everyone from the Chinese to Alan Greenspan is slamming the Fed’s new round of longer-term bond purchases (QE2) as a back-door plot to weaken the dollar. The logic is that the bond purchases should lower interest rates, thereby lowering the demand for dollars and causing the dollar’s price to fall, thereby raising U.S. net exports. That much is true, but it leaves one thing out:

That’s exactly how expansionary monetary policy is supposed to work!

It’s even in a lot of macroeconomics principles textbooks:  When the Fed lowers interest rates, the lower rates are supposed to raise GDP by spurring household consumption and business investment (that much is in every principles textbook) and secondarily by lowering the demand for U.S. bonds, thus lowering the demand for dollars and weakening the dollar, thus raising U.S. exports and lowering our imports.  This effect is sketchier than the effects on consumption and investment, since net exports are very volatile and do not respond quickly to changes in exchange rates, but it is there.

So why exactly is it currency manipulation when it’s part of QE2 (which is only expected to reduce interest rates by about 20 basis points and so far has actually seemed to raise them a bit, due to inflationary expectations and the Fed’s surprise decision to concentrate its purchases on medium- rather than long-term bonds) but not when it’s part of the Fed’s zero-federal-funds-rate policy?  I’m thinking the selective outrage might have something to do with President Obama’s meetings with Asian and G-20 leaders this week.  The Chinese are happy to grasp at this new straw in order to deflect attention from their more blatant attempts to keep the yuan low, the Europeans are seeking some company for their draconian budget-slashing misery, and Greenspan is bandwagon-jumping as usual.

P.S.  Although I think this particular criticism of QE2 is bogus, I am against QE2 for a host of other reasons, which I’ll get to in another post sometime.

An answer to the $700 billion question?

29 December 2008

That question being, Why????

I’d figured the financial bailout was a combination of

(A) the reasonable (a finger in the dike to avert a systemic collapse) and

(B) the mendacious (Wall Street using its massive political clout to call in the feds to save it from itself and receiving a platinum parachute from the ex-Goldman Sachs boss at the top of the Treasury).

But buried deep in Michael Hirsh’s review of Niall Ferguson’s new financial history of the world is this nugget, which we shall call

(C) the hand that feeds us (Buck up, foreign investors!  Don’t pull your love out on us, baby):

“Indeed, it’s no secret on Wall Street and in Washington that the real targets of President Bush’s $700 billion bailout plan were the foreign funds, including “sovereign wealth funds,” that keep America’s financial system afloat. Unless these foreign financiers — principally China and Japan — get reassurance that the global financial system can function properly again, Ameri­ca’s long period of growth and power may be coming to a close.”

This has been the fear ever since the ’80s:  what happens when foreign investors decide it’s time to pull up their stakes in America?  Now that would be a harsh episode of “cut and run.”

For now, my new answer to the $700 billion question is “All of the above.”