The New York Times reports that the emerging democracy of Afghanistan is taking a strong stand against bank bailouts, that was an interesting twist. Yes the government is calling upon others to bailout the bank, but that doesn't mean that the government is not willing to do is its part. It sent soldiers to prevent workers from entering the bank to claim their back wages. At least, the new government, for all its faults, clearly understands the priorities of a modern capitalist system.
http://www.nytimes.com/2010/09/09/world/asia/09kabul.html?_r=1&ref=world
Wednesday, September 8, 2010
CNNMoney Fails Introductory Macro
OK – I just ripped off the title of Peter Dorman’s ripping of Peter Orszag’s NYTimes oped but how else can you describe the CNN/Money piece entitled Boehner unveils his own plan to aid economy?. Boehner and other GOP leaders propose to cut government spending which would deepen the recession. How can any reporter say this is an aid to the economy? Could at least one reporter have the intelligence and integrity to entitle such a piece Boehner unveils his own plan to screw economy? If you any decent reporting on such GOP gibberish – let us know.
Tuesday, September 7, 2010
No Increase In Social Security Age Eligibility!
Ezra Klein had an excellent piece in Sunday's WaPo criticizing the current push from the Deficit Reduction Commission to raise the retirement age for social security, which he notes seems to have bipartisan support on the commission and is the item they are most enthusiastic about, even though it would do a big fat zero about the size of the deficit in the near term and is widely opposed by the US population. Mark Thoma links to it and quotes a big chunk of it along with additional comments at http://economistsview.typepad.com/economistsview/2010/09/making-social-security-less-generous-isnt-the-answer.html#comments .
Klein notes that many supporting this age increase point to a large increase in life expectancy over the last 75 years, but much of this is due to a sharp decline of infant mortality. Men at 60 do not have that much greater life expectancy now than did men at 60 back then. Furthermore, there is a huge distributional factor: most of the increase in such expectancy has been among higher income people, and many of those people work in jobs that do not involve physical labor or are boring and oppressive, where people really would like to retire, but with the collapse of the defined benefit pension plans means more are going to rely on social security.
It really is astounding how totally sold out these commission members are. Almost nobody wants this, and it does little for near term deficits, but Klein notes that other things such as further reforming the medical system or reducing defense spending or raising taxes all seem more politically fraught, even if the public does not like this raising the age requirement. Indeed, the majority of workers who reach 62, take social security then, not waiting for the higher benefits of retiring at 66 or 70.
Klein notes that many supporting this age increase point to a large increase in life expectancy over the last 75 years, but much of this is due to a sharp decline of infant mortality. Men at 60 do not have that much greater life expectancy now than did men at 60 back then. Furthermore, there is a huge distributional factor: most of the increase in such expectancy has been among higher income people, and many of those people work in jobs that do not involve physical labor or are boring and oppressive, where people really would like to retire, but with the collapse of the defined benefit pension plans means more are going to rely on social security.
It really is astounding how totally sold out these commission members are. Almost nobody wants this, and it does little for near term deficits, but Klein notes that other things such as further reforming the medical system or reducing defense spending or raising taxes all seem more politically fraught, even if the public does not like this raising the age requirement. Indeed, the majority of workers who reach 62, take social security then, not waiting for the higher benefits of retiring at 66 or 70.
An Explanation of Social Security, the Trust Fund and National Savings for Those Who Are Still Wondering
A while back, I lambasted Matt Bai of The New York Times for saying that the Social Security Trust Fund, because it is invested in Treasuries, is just a pile of worthless IOU’s the government won’t be able to redeem. I made fun of his suggestion that Uncle Sam is teetering on the edge of default, but there is a deeper issue I didn’t address. Bai, despite his economic confusions, is conveying a mainstream sentiment, endorsed by the broad center of American politics, that the drawing down of the Trust Fund is an impending catastrophe for the federal budget and national savings. Every T-bill sold back to the government is seen as another arrow in the heart of fiscal prudence, and we must somehow find a way to keep the fund at its current level by cutting benefits or raising payroll contributions.
Here I want to shed some light on the overall relationship between pensions and savings.
First, imagine a society with no money at all. Suppose it is an isolated fishing community: early each morning, every able-bodied adult sets off in a boat and dips a net into an ever-renewing fishing bank. Then they come home, unload their fish and eat them. This is the entire economy—fish, fish, fish.
Now introduce retirement. When people grow old, they lose the ability to fish, or perhaps they just want to do something different in the years remaining before they die. (Maybe they want to take up surfing.) How can they do this without starving? There is only one answer: their younger compatriots must eat fewer fish than they catch and divert the surplus to their elders. There is simply no way for people to “save” fish when they are working for consumption in future years, since the fish are perishable. This society may have complicated arrangements, perhaps involving pieces of paper (IOU’s) that convey entitlements to various quantities of fish, but in the end there is no escaping the reality that the working population supports the concurrent retired population at whatever level of abundance is agreed upon. If the ratio of retirees to working fishers rises, or if retirees want to eat more fish in their golden years, either the working population has to increase its fishing efficiency (catch more fish per person) or reduce its own consumption, or both.
Now consider the Social Security system. The Trust Fund has accumulated a huge portfolio of government securities, and in a few years it is scheduled to begin a slow process of cashing-in—selling securities for money that can be used to write checks to recipients. This money will come from the Treasury, which can raise it by selling new securities. This will raise the public debt unless non-SS related deficits are brought down by the same amount, since the ownership of Treasuries will have shifted from the government (the Trust Fund) to the public. That is what the SS alarmists are pointing to.
But, for the sake of argument, suppose that we had no Social Security system at all—that all pensions were privately financed out of the personal savings accumulated before retirement. Upon retiring, individuals would stop accumulating savings and begin drawing them down. Say they had bought only private securities, like stocks, corporate bonds and shares in equity funds. To pay for their retirement consumption, they would have to sell this paper, and those still working would have to buy them. The money for these financial purchases could come from either increased savings (less consumption) by the working population, improvements in productivity (increased real income from work), or increased debt (borrowing by issuing new debt in order to purchase retiree debt). In other words, it’s the same set of alternatives faced by the government in dealing with Social Security.
The moral of the story is that, while the system of paper assets that governs wealth and debt is extremely important for distributional issues at the individual level, the overall relationship between retiree consumption, worker savings and productivity is deeper and ultimately determinate. Our fishing community either learns how to fish better, or its working members tighten their belts in order to feed their elders, or they make their elders tighten their belts. If they have a connection to other fishing communities, they can also borrow fish from their neighbors, with the understanding that this may reduce their living standards in the future. If you follow the money in the Social Security case, you find the same factors. Redeeming a bond is like supplying fish and must be financed through either greater productivity, reduced consumption or debt.
At the level of paper assets, Social Security is healthier than it has ever been in its history. At the level of the division of the national product between working and retired people, the political dimension is unavoidable. Overall, productivity growth has tended to exceed the rate of increase in the dependency ratio (retired to working population), but there will always be a tradeoff between the rate of growth in the consumption of workers versus that of retirees. This is less visible in the arena of private savings, since the claims of retirees upon working-age citizens are made in a decentralized way through financial markets. With Social Security, the process is centralized and guided by public decisions. The tradeoffs remain the same.
What people like Matt Bai are saying is that, as the retiree population continues to grow, it will force the rest of us to increase our borrowing because we refuse, on political grounds, to take steps that would impinge on our consumption. To avoid this, we should see to it that the growth in retiree consumption is curtailed. In my earlier post I referred to this as the catfood option, but maybe this was a mistake: cats love to eat fish.
Here I want to shed some light on the overall relationship between pensions and savings.
First, imagine a society with no money at all. Suppose it is an isolated fishing community: early each morning, every able-bodied adult sets off in a boat and dips a net into an ever-renewing fishing bank. Then they come home, unload their fish and eat them. This is the entire economy—fish, fish, fish.
Now introduce retirement. When people grow old, they lose the ability to fish, or perhaps they just want to do something different in the years remaining before they die. (Maybe they want to take up surfing.) How can they do this without starving? There is only one answer: their younger compatriots must eat fewer fish than they catch and divert the surplus to their elders. There is simply no way for people to “save” fish when they are working for consumption in future years, since the fish are perishable. This society may have complicated arrangements, perhaps involving pieces of paper (IOU’s) that convey entitlements to various quantities of fish, but in the end there is no escaping the reality that the working population supports the concurrent retired population at whatever level of abundance is agreed upon. If the ratio of retirees to working fishers rises, or if retirees want to eat more fish in their golden years, either the working population has to increase its fishing efficiency (catch more fish per person) or reduce its own consumption, or both.
Now consider the Social Security system. The Trust Fund has accumulated a huge portfolio of government securities, and in a few years it is scheduled to begin a slow process of cashing-in—selling securities for money that can be used to write checks to recipients. This money will come from the Treasury, which can raise it by selling new securities. This will raise the public debt unless non-SS related deficits are brought down by the same amount, since the ownership of Treasuries will have shifted from the government (the Trust Fund) to the public. That is what the SS alarmists are pointing to.
But, for the sake of argument, suppose that we had no Social Security system at all—that all pensions were privately financed out of the personal savings accumulated before retirement. Upon retiring, individuals would stop accumulating savings and begin drawing them down. Say they had bought only private securities, like stocks, corporate bonds and shares in equity funds. To pay for their retirement consumption, they would have to sell this paper, and those still working would have to buy them. The money for these financial purchases could come from either increased savings (less consumption) by the working population, improvements in productivity (increased real income from work), or increased debt (borrowing by issuing new debt in order to purchase retiree debt). In other words, it’s the same set of alternatives faced by the government in dealing with Social Security.
The moral of the story is that, while the system of paper assets that governs wealth and debt is extremely important for distributional issues at the individual level, the overall relationship between retiree consumption, worker savings and productivity is deeper and ultimately determinate. Our fishing community either learns how to fish better, or its working members tighten their belts in order to feed their elders, or they make their elders tighten their belts. If they have a connection to other fishing communities, they can also borrow fish from their neighbors, with the understanding that this may reduce their living standards in the future. If you follow the money in the Social Security case, you find the same factors. Redeeming a bond is like supplying fish and must be financed through either greater productivity, reduced consumption or debt.
At the level of paper assets, Social Security is healthier than it has ever been in its history. At the level of the division of the national product between working and retired people, the political dimension is unavoidable. Overall, productivity growth has tended to exceed the rate of increase in the dependency ratio (retired to working population), but there will always be a tradeoff between the rate of growth in the consumption of workers versus that of retirees. This is less visible in the arena of private savings, since the claims of retirees upon working-age citizens are made in a decentralized way through financial markets. With Social Security, the process is centralized and guided by public decisions. The tradeoffs remain the same.
What people like Matt Bai are saying is that, as the retiree population continues to grow, it will force the rest of us to increase our borrowing because we refuse, on political grounds, to take steps that would impinge on our consumption. To avoid this, we should see to it that the growth in retiree consumption is curtailed. In my earlier post I referred to this as the catfood option, but maybe this was a mistake: cats love to eat fish.
Orszag Fails Introductory Macro
Let’s leave aside the larger questions having to do with how and why the US economy got into the current bind—global imbalances, the political economy of investor hegemony, etc.—and look only at the immediate fiscal and employment effects. What’s wrong with Peter Orszag’s suggestion in today’s New York Times that the demands of the short run output gap and long run fiscal sustainability can be met by extending the Bush tax cuts for another two years, but written in disappearing ink, with a mandatory end after that?
Simple: he forgot the balanced budget multiplier. He could accomplish much more of the first goal without any cost to the second by proposing a different plan: end the tax cuts immediately while simultaneously appropriating an equivalent amount of money to a fund that could be spent on various public projects or simply rebated to the states to reduce their own program cuts. If he thinks two years is the magic timespan, he could write in two years’ worth of the revenue increases due to ending the tax breaks. The economics that every introductory students learns, and which is in fact unassailable, should tell him that the stimulative effect of an equal dose of higher taxes and higher spending is greater than the equivalent of reduced taxes and reduced spending. Of course, this difference is even greater in the case of the Bush tax cuts, which were overwhelmingly tilted toward high-income households with a much lower marginal propensity to consume. (And I leave out equity considerations, which are not supposed to infect macroeconomic analysis.)
Note to instructors: clip this op-ed and use it in class after you cover fiscal policy. See how many students can outsmart this former head of the CBO and OMB. I realize this is setting the bar a bit low, but they might still get a charge out of it.
Simple: he forgot the balanced budget multiplier. He could accomplish much more of the first goal without any cost to the second by proposing a different plan: end the tax cuts immediately while simultaneously appropriating an equivalent amount of money to a fund that could be spent on various public projects or simply rebated to the states to reduce their own program cuts. If he thinks two years is the magic timespan, he could write in two years’ worth of the revenue increases due to ending the tax breaks. The economics that every introductory students learns, and which is in fact unassailable, should tell him that the stimulative effect of an equal dose of higher taxes and higher spending is greater than the equivalent of reduced taxes and reduced spending. Of course, this difference is even greater in the case of the Bush tax cuts, which were overwhelmingly tilted toward high-income households with a much lower marginal propensity to consume. (And I leave out equity considerations, which are not supposed to infect macroeconomic analysis.)
Note to instructors: clip this op-ed and use it in class after you cover fiscal policy. See how many students can outsmart this former head of the CBO and OMB. I realize this is setting the bar a bit low, but they might still get a charge out of it.
Economics and Asperger’s
Anyone who has been paying attention will notice that a lot of economists are Aspies. True, we don’t have any hard evidence on this, but just look around at an ASSA meeting. You will see lots of stiffly-moving men lost in their own worlds, slamming into or just ignoring the people milling around them. Then, of course, we have the testimony of “autistic economics”, portrayals of human behavior that elevate Aspie-like eccentricities to an operating norm for society.
There are many candidate explanations for this. (1) Economics, by its nature, leans in an abstract, formalistic direction, like music, math and chess, and all these fields seem to attract and make effective use of the skills of Aspies. (2) Academic life, more generally, exalts feats of the intellect over what is now called “emotional intelligence”, especially at large research institutions. (Prediction: you will see far fewer Aspie-economists in small liberal arts colleges, where collegiality and connection to students are more highly valued.) (3) The peculiar representation of human society as a field of colliding particles, each pursuing its own individual, unrelated trajectory, ought to be well received on Planet Asperger.
Whatever the etiology, the prevalence of Asperger’s among economists and the call to reform the discipline raises the question, how to raise the level of social awareness? On a personal level, I highly recommend the work of Erving Goffman, the pioneering sociologist who studied face-to-face and other immediate forms of interaction. His books on micro-norms and the nuances of language and bodily expression offer a virtual how-to manual for Aspies trying to shore up their social skills. It’s painless, too, because he does it in the context of highly analytical, abstracted discourses on institutions, roles and expectations. For a fuller run-down, see this fine appreciation by Daniel Little at Understanding Society.
There are many candidate explanations for this. (1) Economics, by its nature, leans in an abstract, formalistic direction, like music, math and chess, and all these fields seem to attract and make effective use of the skills of Aspies. (2) Academic life, more generally, exalts feats of the intellect over what is now called “emotional intelligence”, especially at large research institutions. (Prediction: you will see far fewer Aspie-economists in small liberal arts colleges, where collegiality and connection to students are more highly valued.) (3) The peculiar representation of human society as a field of colliding particles, each pursuing its own individual, unrelated trajectory, ought to be well received on Planet Asperger.
Whatever the etiology, the prevalence of Asperger’s among economists and the call to reform the discipline raises the question, how to raise the level of social awareness? On a personal level, I highly recommend the work of Erving Goffman, the pioneering sociologist who studied face-to-face and other immediate forms of interaction. His books on micro-norms and the nuances of language and bodily expression offer a virtual how-to manual for Aspies trying to shore up their social skills. It’s painless, too, because he does it in the context of highly analytical, abstracted discourses on institutions, roles and expectations. For a fuller run-down, see this fine appreciation by Daniel Little at Understanding Society.
Tuesday, August 31, 2010
Negative Voting
Nate Silver, over at 538, a New York Times blog, has a post today about the “none of the above” option in Nevada. It seems that NOTA is polling well enough to have an effect on the Senate race, where a majority dislikes Reid but fears Angle. Lots of comments weigh in on the pluses and minuses of voting for no one.
I’ve thought for a long time that a simple improvement over the current system would be to give voters the option of voting for or against a particular candidate. If they vote for, the candidate gets an additional vote, the way it works now. If they vote against, one vote would be deducted from that candidate’s total.
There are two advantages. First, in many cases it will allow voters to more accurately express their preferences. If you really don’t like candidate X and are neutral about candidate Y, negative voting makes your feelings clear. In fact, if there are more than two candidates in the running, stopping one of them may be your highest priority.
Second, the final tally may give a better representation of the public’s true feelings, especially if the winning candidate is the one with the least negative numbers. We would hear less nonsense about mandates.
I’ve thought for a long time that a simple improvement over the current system would be to give voters the option of voting for or against a particular candidate. If they vote for, the candidate gets an additional vote, the way it works now. If they vote against, one vote would be deducted from that candidate’s total.
There are two advantages. First, in many cases it will allow voters to more accurately express their preferences. If you really don’t like candidate X and are neutral about candidate Y, negative voting makes your feelings clear. In fact, if there are more than two candidates in the running, stopping one of them may be your highest priority.
Second, the final tally may give a better representation of the public’s true feelings, especially if the winning candidate is the one with the least negative numbers. We would hear less nonsense about mandates.
Virginia Judge Upholds Academic Freedom, Sort Of
The Charlottesville Daily Progress reports that in the morning of August 30, Judge Paul M. Peatross, Jr. of Albemarle County (around Charlottesville) ruled in favor of the University of Virginia against the subpoenas by Attorney General Ken Cuccinelli who sought documents including emails on the research of former U.Va climatology professor Michael Mann, "in their entirety, without prejudice."
Most observers are very pleased with this, including Michael Mann reportedly, now at Penn State, and I am also. However, there is an unfortunate caveat in the story. The judge also ruled that Cuccinelli has the authority to issue further "civil investigative demands" (CIDs), although they need to be more specfic than the ones he issued earlier that were struck down by this judge. Thus, I saw Cuccinelli on local TV earlier this evening proudly declaring that he would be right back at it again with further CIDs for U.Va, although this time more specific so that he can "satisfy this judge." So, unfortunately this business is not over at all, despite this favorable ruling for the moment. The assault on academic freedom will be continuing in Virginia, along with the publicity machine for Cuccinelli to be a big hero for the Know Nothing right wing.
Most observers are very pleased with this, including Michael Mann reportedly, now at Penn State, and I am also. However, there is an unfortunate caveat in the story. The judge also ruled that Cuccinelli has the authority to issue further "civil investigative demands" (CIDs), although they need to be more specfic than the ones he issued earlier that were struck down by this judge. Thus, I saw Cuccinelli on local TV earlier this evening proudly declaring that he would be right back at it again with further CIDs for U.Va, although this time more specific so that he can "satisfy this judge." So, unfortunately this business is not over at all, despite this favorable ruling for the moment. The assault on academic freedom will be continuing in Virginia, along with the publicity machine for Cuccinelli to be a big hero for the Know Nothing right wing.
Friday, August 27, 2010
Any Experts on the German Economy Out There?
The Wall Street Journal has two articles about German. One describes how German wages are stagnating, despite the expansion.
Here is the first articles:
Thomas, Andrea. 2010. "German Workers' Wages Belie Country's Rebound." Wall Street Journal (15 August).http://online.wsj.com/article/SB10001424052748704296704575431240767523752.html?mod=WSJ_World_MIDDLENews
"Germany has surprised the world with a sharp acceleration in its economic recovery, but perhaps the least impressed by this feat are Germans themselves. The German economy expanded a sharp 2.2% in the second quarter from the first -- the fastest pace since reunification in 1990. But, despite the export-driven rebound, most German workers aren't getting any richer."
"Chancellor Angela Merkel's government has hailed Germany's "job miracle" after whittling the jobless rate down to 7.6% of the work force, compared with unemployment levels of about 10% in the U.S. and France. But the bulk of that reduction has come from the emergence of part-time jobs, often at low pay. That helps explain why German domestic demand has remained sluggish even as German exporters boast booming foreign orders. The disparity has drawn accusations from Germany's neighbors, notably France, that it is exploiting the world recovery without contributing to global demand."
"Average annual net income per employee has fallen steadily since 2004, reaching 15,815 euros in 2009, down from 16,471 euros in 2004. As part of the so-called Hartz IV labor-market overhaul program to support low-income groups, the government has spent 50 euros billion in welfare subsidies since 2005 for people who earn too little to make a living."
"Lobby groups for low-paid and unemployed workers worry that an increasing number of jobs have to be subsidized. "Hartz IV has made it possible for companies to get their profit subsidies from the general public, with companies paying starvation wages while those affected need Hartz IV to survive," said Martin Behrsing, spokesman for the Unemployed Forum Germany."
"Another measure for low-income workers is looking at people who earn two-thirds or less of the average income. By that measure, the number of low-paid workers increased by almost 2.3 million people to 6.55 million between 1998 and 2008, according to a recent study by the Institute for Employment and Qualification at the University Duisburg-Essen."
"The Organization for Economic Cooperation and Development's employment outlook report 2010 shows that 21.5% of Germans worked in the low-pay sector in 2008, up from 16% in 1998. In an international comparison, the share of low-paid workers remained unchanged at 24.5% in the U.S. and increased only slightly in the U.K. to 21.2% from 20.8%. The average among OECD countries is 16%."
"I think we have seen in Germany for quite a while now an expansion of the low-wage sector, since the mid, late 1990s," said Herwig Immervoll, an economist with the OECD, which is based in Paris. "There is an increase in the inequality in Germany. We see this in other countries too, but maybe not as much as in Germany."
"Duisburg-Essen University's employment institute puts it even more starkly: "No other country has experienced a similar increase in the low-income sector over the past years and a differentiating of wages to the downside as Germany has," it says in its study."
"The upswing hasn't reached me. What I am witnessing is exploitation. There is more and more low-paid work. People don't find work, and if so only as temporary work, which is a great mistake because it's destroying the wage system," Mr. Friedrich said. "It might well be that the upswing has reached the big companies and that they are making more money, but it's the opposite for the ordinary guy," he said."
"Such sentiments are weighing on Ms. Merkel's center-right government, whose popularity has been tumbling in opinion polls that increasingly favor the center-left opposition. One recent poll showed that four out of five Germans say they aren't personally benefiting from the rebound."
"Hubertus Heil, deputy parliamentary floor leader of the opposition Social Democrats, is angry about the increasing number of subsidized jobs and said a legally binding minimum wage is urgently needed. "It's a shame that people who work full time have to put up with this," he said."
"At present, Germany has no general minimum-wage level. Minimums do exist for specific sectors, such as for the construction, cleaning, waste and nursing sectors. To match the minimum-wage levels in other European countries, Germany would have to introduce hourly minimum pay of between 5.93 euros and 9.18 euros."
"The DGB umbrella group of trade unions has called for an hourly minimum of 8.50 euros. But others, such as the Ifo economic research institute, warn that this could result in the loss of 1.22 million jobs, largely among those earning low incomes."
"Nelli Einstein, a 48-year-old from Berlin, has been selling clothes, bags, jewelry and tools for 1 euros apiece for the past two years. It sometimes takes her as long as a year to sell 10,000 euros of merchandise."
Here is the second article:
Fuhrmans, Vanessa. 2010. "Germany Suffers a Labor Shortage." Wall Street Journal (27 August): p. A 12.
http://online.wsj.com/article/SB10001424052748704913704575453652182261156.html?mod=ITP_pageone_3
"The surprising strength of Germany's economic rebound is exacerbating an already worrying problem for legions of its companie Industrialists and economists long have warned of a looming shortage of skilled German labor, a consequence of the country's declining birth rate and an exodus in recent year of engineers and other highly trained workers, to around the European Union, the U.S. and elsewhere. But the rapid recovery of Germany's export-fueled economy in recent months has suddenly brought the problem home for many domestic companies, which fret that the shortage could restrain their ability to respond to the nascent rebound."
"Though German unemployment still hovers around 7.6%, about 70% of German companies report they are having trouble finding enough master craftsmen, technicians and other skilled labor, according to a survey released this week by the DIHK Association of German Chambers of Industry and Commerce. Companies haven't been able to fill some 36,000 engineering jobs open across the country, the Association of German engineers reports. "
"Bitkom, Germany's largest information-technology industry association, says the same goes for 43,000 IT posts. "
"And this is happening just barely out of the severe recession of 2009," said Hans Heinrich Driftmann, DIHK's president. "As the economy improves and companies need to hire more people, it's only going to get more severe."
"For now, Germany's marquee corporations, such as Siemens AG and BMW AG, have enough skilled job applicants, thanks to aggressive recruiting and generous training programs. But many of the country's Mittelstand, the thousands of small to mid-size companies that are the backbone of its export-led economy and provider of 70% of German jobs, are struggling to find needed employees as demand picks up."
"One is DELO Industrie Klebstoffe GmbH, a Bavarian maker of industrial adhesives. With ?30 million ($38 million) in sales and 230 employees, the family-owned firm is looking to hire another 60 highly skilled workers this year as orders from the electronics, auto and other industries take off. But so far, filling the posts has been difficult."
"We're troubled most of all by the search for technicians and engineers," said DELO Executive Director Sabine Herold. Located near Munich, the company says it is tough to compete for skilled job candidates with better-known companies in the area, so Ms. Herold has been trying to forge closer ties to universities and vocational-training institutes, and sponsoring business programs at local high schools."
""If we're going to expand further, we need smart people right away," Ms. Herold said. "But a lot of school graduates don't know us.""
"Behind the growing shortage is a combination of demographic trouble spots. Like in many European countries, Germany's declining birth rate-at 1.38 children born per woman on average in 2009-isn't enough to keep its population stable. And since 2008, more people have been leaving Germany than immigrating to it. That tendency is particularly strong among those with university or vocational training degrees. Last year, some 27,500 post-secondary-school graduates came to Germany from other European countries, for example, while 32,000 left for elsewhere in the European Union. "
"Economists estimate the skilled worker shortage is resulting in annual economic loss of between 15 billion euros and 20 billion euros, and with that, more potential jobs. "If there isn't enough skilled labor, then there can't be more production," said Klaus Zimmermann, president of the DIW German Institute for Economic Research. "
"Major companies are acting to counter the trend longer term. BMW and Siemens, for example, have expanded in recent years programs that train apprentices in specialized technical fields as they pursue post-secondary degrees at universities or technical colleges, thereby compressing the training time before they can fully join the work force."
""They don't have any difficulties getting hired. They're in great demand," said Gnther Hohlweg, head of Siemens' training programs, who adds that 90% remain with Siemens."
"Others are using older workers. German auto-supplier giant Robert Bosch GmbH maintains a reserve of several hundred semiretired skilled employees between ages 60 and 75 that it taps when it has to ramp up production and can't find enough qualified labor on short notice."
"Daimler AG, which manufacturers Mercedes-Benz cars, anticipates that within 10 years half of its workers will be older than 50 years, compared with 25% now. To accommodate them, it has introduced more flexible shift rotations and installed strength-training equipment near plant assembly lines. According to this month's DIHK survey, 21% of the 1,600 companies polled said they would take steps to draw more older workers."
"As Germany's economy has gathered strength in recent months, the skilled-worker shortage has reignited a debate about immigration policies, and created a new source of tension within Germany's center-right governing coalition."
"Earlier this month, the country's economics minister, Rainer Bruderle, proposed introducing cash "welcome" payments to lure more skilled foreign workers to Germany, as well as lowering the minimum income level it requires for skilled workers to be eligible for extended immigrant status. The current annual income level is 66,000 euros, which many economists and companies say is too high."
"The proposals were quickly rejected by labor leaders, as well as a spokesman for Chancellor Angela Merkel, who said the government just introduced immigration policies in January 2009 aimed at making it easier for foreigners trained in Germany to find work there, and their effect had yet to be felt."
Here is the first articles:
Thomas, Andrea. 2010. "German Workers' Wages Belie Country's Rebound." Wall Street Journal (15 August).http://online.wsj.com/article/SB10001424052748704296704575431240767523752.html?mod=WSJ_World_MIDDLENews
"Germany has surprised the world with a sharp acceleration in its economic recovery, but perhaps the least impressed by this feat are Germans themselves. The German economy expanded a sharp 2.2% in the second quarter from the first -- the fastest pace since reunification in 1990. But, despite the export-driven rebound, most German workers aren't getting any richer."
"Chancellor Angela Merkel's government has hailed Germany's "job miracle" after whittling the jobless rate down to 7.6% of the work force, compared with unemployment levels of about 10% in the U.S. and France. But the bulk of that reduction has come from the emergence of part-time jobs, often at low pay. That helps explain why German domestic demand has remained sluggish even as German exporters boast booming foreign orders. The disparity has drawn accusations from Germany's neighbors, notably France, that it is exploiting the world recovery without contributing to global demand."
"Average annual net income per employee has fallen steadily since 2004, reaching 15,815 euros in 2009, down from 16,471 euros in 2004. As part of the so-called Hartz IV labor-market overhaul program to support low-income groups, the government has spent 50 euros billion in welfare subsidies since 2005 for people who earn too little to make a living."
"Lobby groups for low-paid and unemployed workers worry that an increasing number of jobs have to be subsidized. "Hartz IV has made it possible for companies to get their profit subsidies from the general public, with companies paying starvation wages while those affected need Hartz IV to survive," said Martin Behrsing, spokesman for the Unemployed Forum Germany."
"Another measure for low-income workers is looking at people who earn two-thirds or less of the average income. By that measure, the number of low-paid workers increased by almost 2.3 million people to 6.55 million between 1998 and 2008, according to a recent study by the Institute for Employment and Qualification at the University Duisburg-Essen."
"The Organization for Economic Cooperation and Development's employment outlook report 2010 shows that 21.5% of Germans worked in the low-pay sector in 2008, up from 16% in 1998. In an international comparison, the share of low-paid workers remained unchanged at 24.5% in the U.S. and increased only slightly in the U.K. to 21.2% from 20.8%. The average among OECD countries is 16%."
"I think we have seen in Germany for quite a while now an expansion of the low-wage sector, since the mid, late 1990s," said Herwig Immervoll, an economist with the OECD, which is based in Paris. "There is an increase in the inequality in Germany. We see this in other countries too, but maybe not as much as in Germany."
"Duisburg-Essen University's employment institute puts it even more starkly: "No other country has experienced a similar increase in the low-income sector over the past years and a differentiating of wages to the downside as Germany has," it says in its study."
"The upswing hasn't reached me. What I am witnessing is exploitation. There is more and more low-paid work. People don't find work, and if so only as temporary work, which is a great mistake because it's destroying the wage system," Mr. Friedrich said. "It might well be that the upswing has reached the big companies and that they are making more money, but it's the opposite for the ordinary guy," he said."
"Such sentiments are weighing on Ms. Merkel's center-right government, whose popularity has been tumbling in opinion polls that increasingly favor the center-left opposition. One recent poll showed that four out of five Germans say they aren't personally benefiting from the rebound."
"Hubertus Heil, deputy parliamentary floor leader of the opposition Social Democrats, is angry about the increasing number of subsidized jobs and said a legally binding minimum wage is urgently needed. "It's a shame that people who work full time have to put up with this," he said."
"At present, Germany has no general minimum-wage level. Minimums do exist for specific sectors, such as for the construction, cleaning, waste and nursing sectors. To match the minimum-wage levels in other European countries, Germany would have to introduce hourly minimum pay of between 5.93 euros and 9.18 euros."
"The DGB umbrella group of trade unions has called for an hourly minimum of 8.50 euros. But others, such as the Ifo economic research institute, warn that this could result in the loss of 1.22 million jobs, largely among those earning low incomes."
"Nelli Einstein, a 48-year-old from Berlin, has been selling clothes, bags, jewelry and tools for 1 euros apiece for the past two years. It sometimes takes her as long as a year to sell 10,000 euros of merchandise."
Here is the second article:
Fuhrmans, Vanessa. 2010. "Germany Suffers a Labor Shortage." Wall Street Journal (27 August): p. A 12.
http://online.wsj.com/article/SB10001424052748704913704575453652182261156.html?mod=ITP_pageone_3
"The surprising strength of Germany's economic rebound is exacerbating an already worrying problem for legions of its companie Industrialists and economists long have warned of a looming shortage of skilled German labor, a consequence of the country's declining birth rate and an exodus in recent year of engineers and other highly trained workers, to around the European Union, the U.S. and elsewhere. But the rapid recovery of Germany's export-fueled economy in recent months has suddenly brought the problem home for many domestic companies, which fret that the shortage could restrain their ability to respond to the nascent rebound."
"Though German unemployment still hovers around 7.6%, about 70% of German companies report they are having trouble finding enough master craftsmen, technicians and other skilled labor, according to a survey released this week by the DIHK Association of German Chambers of Industry and Commerce. Companies haven't been able to fill some 36,000 engineering jobs open across the country, the Association of German engineers reports. "
"Bitkom, Germany's largest information-technology industry association, says the same goes for 43,000 IT posts. "
"And this is happening just barely out of the severe recession of 2009," said Hans Heinrich Driftmann, DIHK's president. "As the economy improves and companies need to hire more people, it's only going to get more severe."
"For now, Germany's marquee corporations, such as Siemens AG and BMW AG, have enough skilled job applicants, thanks to aggressive recruiting and generous training programs. But many of the country's Mittelstand, the thousands of small to mid-size companies that are the backbone of its export-led economy and provider of 70% of German jobs, are struggling to find needed employees as demand picks up."
"One is DELO Industrie Klebstoffe GmbH, a Bavarian maker of industrial adhesives. With ?30 million ($38 million) in sales and 230 employees, the family-owned firm is looking to hire another 60 highly skilled workers this year as orders from the electronics, auto and other industries take off. But so far, filling the posts has been difficult."
"We're troubled most of all by the search for technicians and engineers," said DELO Executive Director Sabine Herold. Located near Munich, the company says it is tough to compete for skilled job candidates with better-known companies in the area, so Ms. Herold has been trying to forge closer ties to universities and vocational-training institutes, and sponsoring business programs at local high schools."
""If we're going to expand further, we need smart people right away," Ms. Herold said. "But a lot of school graduates don't know us.""
"Behind the growing shortage is a combination of demographic trouble spots. Like in many European countries, Germany's declining birth rate-at 1.38 children born per woman on average in 2009-isn't enough to keep its population stable. And since 2008, more people have been leaving Germany than immigrating to it. That tendency is particularly strong among those with university or vocational training degrees. Last year, some 27,500 post-secondary-school graduates came to Germany from other European countries, for example, while 32,000 left for elsewhere in the European Union. "
"Economists estimate the skilled worker shortage is resulting in annual economic loss of between 15 billion euros and 20 billion euros, and with that, more potential jobs. "If there isn't enough skilled labor, then there can't be more production," said Klaus Zimmermann, president of the DIW German Institute for Economic Research. "
"Major companies are acting to counter the trend longer term. BMW and Siemens, for example, have expanded in recent years programs that train apprentices in specialized technical fields as they pursue post-secondary degrees at universities or technical colleges, thereby compressing the training time before they can fully join the work force."
""They don't have any difficulties getting hired. They're in great demand," said Gnther Hohlweg, head of Siemens' training programs, who adds that 90% remain with Siemens."
"Others are using older workers. German auto-supplier giant Robert Bosch GmbH maintains a reserve of several hundred semiretired skilled employees between ages 60 and 75 that it taps when it has to ramp up production and can't find enough qualified labor on short notice."
"Daimler AG, which manufacturers Mercedes-Benz cars, anticipates that within 10 years half of its workers will be older than 50 years, compared with 25% now. To accommodate them, it has introduced more flexible shift rotations and installed strength-training equipment near plant assembly lines. According to this month's DIHK survey, 21% of the 1,600 companies polled said they would take steps to draw more older workers."
"As Germany's economy has gathered strength in recent months, the skilled-worker shortage has reignited a debate about immigration policies, and created a new source of tension within Germany's center-right governing coalition."
"Earlier this month, the country's economics minister, Rainer Bruderle, proposed introducing cash "welcome" payments to lure more skilled foreign workers to Germany, as well as lowering the minimum income level it requires for skilled workers to be eligible for extended immigrant status. The current annual income level is 66,000 euros, which many economists and companies say is too high."
"The proposals were quickly rejected by labor leaders, as well as a spokesman for Chancellor Angela Merkel, who said the government just introduced immigration policies in January 2009 aimed at making it easier for foreigners trained in Germany to find work there, and their effect had yet to be felt."
Should Alan Simpson Be Forced To Resign Or To Publicly Debate?
As has been widely reported, Co-Chair of the Deficit Reduction Commission, former Senator Alan Simpson (R-WY) told some people from the Elderly Womens' League that social security is a system that involves "310 million tits." Many have called for his resignation, and I would say that quite aside from the obnoxiousness of such a comment, his presumption that "social security is a problem" certainly calls for it.
However, rdan over at angry bear says that he should not be removed. This would just lead to him being replaced by some other anti-social security slug, and things would proceed as before. Instead, he should be forced to debate the issue on TV, either before or after the upcoming elections. I do not know which is better, but I am certainly concerned that the key people on that commission are so stacked to attacking social security, most likely through raising the future retirement age, when it appears that some groups of the population that may need social security the most, such as poor women, may actually be experiencing decreasing life expectancies.
However, rdan over at angry bear says that he should not be removed. This would just lead to him being replaced by some other anti-social security slug, and things would proceed as before. Instead, he should be forced to debate the issue on TV, either before or after the upcoming elections. I do not know which is better, but I am certainly concerned that the key people on that commission are so stacked to attacking social security, most likely through raising the future retirement age, when it appears that some groups of the population that may need social security the most, such as poor women, may actually be experiencing decreasing life expectancies.
The Problem with Welfare Economics
Uwe Reinhardt repeats a familiar refrain from critics of welfare economics, that compensation tests do not erase the value judgments implicit in ignoring the distributional effects of policy. This goes way, way back, and Reinhardt might have been more forthcoming about the attempts by economists to bring distribution back in via refinements to benefit-cost analysis and other techniques. His point remains pertinent, but it misses the real problem with welfare economics.
Welfare econ rests on utility (or “preference”) theory, the idea that a person’s well-being has a stable and predictable relationship to the consumption choices they make. Reinhardt worries that economists are simply adding up utility gains and losses without taking into account who’s winning or losing, but the more fundamental issue is whether utility (or “preference satisfaction”) has any validity to begin with.
There are two deep problems with welfare economics. The first is that it actually assumes that well-being is identical to consumption choices. The absurdity of this proposition was demonstrated decades ago in several pungent articles by Amartya Sen, and no one, to my knowledge, has successfully rebutted him. The empirical failure of this assumption has more recently been exposed by “happiness studies”. There are raging disputes between happyologists (on the Easterlin paradox, for instance), but there is no doubt any more that, on an individual level, a chasm has opened up between “preference satisfaction” via consumption and empirical measures of well-being.
The second problem is that welfare economics depends on the assumption that choices are rational, that utility is actually maximized by each choice made by each individual in each situation. If you’ve paid any attention to behavioral economics, you’ll know that one went out the window some time ago.
So the problem is not just that economics fudges the distribution of utility, but that utility itself has become a sort of phlogiston, a make-believe substance that once served to prop up a theory, but got put to death by the evidence and is now no more than a curiosity studied by antiquarians and professional Scrabble players.
Welfare econ rests on utility (or “preference”) theory, the idea that a person’s well-being has a stable and predictable relationship to the consumption choices they make. Reinhardt worries that economists are simply adding up utility gains and losses without taking into account who’s winning or losing, but the more fundamental issue is whether utility (or “preference satisfaction”) has any validity to begin with.
There are two deep problems with welfare economics. The first is that it actually assumes that well-being is identical to consumption choices. The absurdity of this proposition was demonstrated decades ago in several pungent articles by Amartya Sen, and no one, to my knowledge, has successfully rebutted him. The empirical failure of this assumption has more recently been exposed by “happiness studies”. There are raging disputes between happyologists (on the Easterlin paradox, for instance), but there is no doubt any more that, on an individual level, a chasm has opened up between “preference satisfaction” via consumption and empirical measures of well-being.
The second problem is that welfare economics depends on the assumption that choices are rational, that utility is actually maximized by each choice made by each individual in each situation. If you’ve paid any attention to behavioral economics, you’ll know that one went out the window some time ago.
So the problem is not just that economics fudges the distribution of utility, but that utility itself has become a sort of phlogiston, a make-believe substance that once served to prop up a theory, but got put to death by the evidence and is now no more than a curiosity studied by antiquarians and professional Scrabble players.
Thursday, August 26, 2010
Matt Bye
In an earlier post, I expressed my initial hopes and later disillusionment with Matt Bai. But it’s worse than that, folks. In today’s Times, Bai writes
No: it’s like saying you’re rich because you have ten million bucks in Treasury bonds.
What would Bai prefer the Social Security Trust Fund invest in, Cuban cigar futures? Timeshares in Greece?
The finances of SS are just fine, thank you. And no matter how you juggle the money, the consumption of every retired generation is produced by those who are working at the time. Either you are willing to pony up for the geezers or you aren’t. Matt is apparently a catfood kind of guy.
The coalition bases its case on the idea that Social Security is actually in fine fiscal shape, since it has amassed a pile of Treasury Bills — often referred to as i.o.u.’s — in a dedicated trust fund. This is true enough, except that the only way for the government to actually make good on these i.o.u.’s is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases — none of which seem like especially practical options for the long term. So this is sort of like saying that you’re rich because your friend has promised to give you 10 million bucks just as soon as he wins the lottery.
No: it’s like saying you’re rich because you have ten million bucks in Treasury bonds.
What would Bai prefer the Social Security Trust Fund invest in, Cuban cigar futures? Timeshares in Greece?
The finances of SS are just fine, thank you. And no matter how you juggle the money, the consumption of every retired generation is produced by those who are working at the time. Either you are willing to pony up for the geezers or you aren’t. Matt is apparently a catfood kind of guy.
Wednesday, August 25, 2010
Charles Walgreen, Chicago Economics, and Prohibition
Charles Walgreen was a major influence on Chicago economics, both leading witch hunts against unreliable academics and funding others, including George Stigler, who used these resources to significantly shape the discipline of economics. Here is another take on his career.
Okrent, Daniel. 2010. Last Call: The Rise and Fall of Prohibition (New York: Simon and Schuster).
197: Charles Walgreen ... who built his Chicago-based chain from nine locations in 1916 to twenty four years later. In 1922, Walgreens introduced the milk shake, which family histories have credited the chain's next growth spurt. But it's doubtful that milk shakes alone were responsible for Walgreens rocketing expansion from 20 stores to an astonishing 525 during the 1920s. Something Charles Walgreen Jr. told an interviewer many years later suggests another possibility. The elder Walgreen worried about fire breaking out in his stores, his son recalled, but this apprehension transcended concern for his employees: he "wanted to get in as fast as possible and to get out as fast as possible, Charles Jr. remembered, "because whenever they came in we'd always loose a case of liquor from the back."
Okrent, Daniel. 2010. Last Call: The Rise and Fall of Prohibition (New York: Simon and Schuster).
197: Charles Walgreen ... who built his Chicago-based chain from nine locations in 1916 to twenty four years later. In 1922, Walgreens introduced the milk shake, which family histories have credited the chain's next growth spurt. But it's doubtful that milk shakes alone were responsible for Walgreens rocketing expansion from 20 stores to an astonishing 525 during the 1920s. Something Charles Walgreen Jr. told an interviewer many years later suggests another possibility. The elder Walgreen worried about fire breaking out in his stores, his son recalled, but this apprehension transcended concern for his employees: he "wanted to get in as fast as possible and to get out as fast as possible, Charles Jr. remembered, "because whenever they came in we'd always loose a case of liquor from the back."
Social Insurance Is a Good Idea
The current flap over Alan Simpson’s idiotic emails is above all about what kind of guy he is and whether he should be co-leading a high-profile commission for Obama, but behind it is a basic philosophical debate over the concept of social insurance.
The neoliberal caucus, which includes the Pete Petersons, Alan Simpsons and Paul Ryans of this world, believe in incentives. Each one of us, at every moment, should have an unmistakable incentive to work as much as possible, save as much as possible, and do everything else to promote economic growth. Marginal tax rates should be rock-bottom, and no government program should shield us from the consequences of our failure to accumulate wealth. It is pure social darwinism.
Their sworn enemy is social insurance, the idea that the members of a society would want to pool their risks and achieve a bedrock of security. This means opposition to any form of national health insurance, which pools our medical expense risk, Social Security, which pools retirement risk, and unemployment insurance, which pools labor market risk. We should be prepared, they say, to sink or swim on our own and not look to the “nanny state” to take care of us.
I think it’s time for the other side, a.k.a. the forces of civilization and progress, to defend social insurance. It is an enormous advance for a society provide economic security to all its citizens. It gives us peace of mind, and it expresses a humane concern for the well-being of all members of the community, something we should not be ashamed to embrace as a moral principle.
Sure, insurance always comes bundled with moral hazard issues. Some people will react by doing things that increase the risks we insure against. But this is not a reason to abandon insurance, just to design programs carefully so that moral hazard doesn’t get out of hand. If you think Social Security has generated disincentives that need to be fixed, indicate what they are and help come up with solutions. Don’t reject insurance itself; it’s one of the highest achievements of the last thousand years of human development.
The neoliberal caucus, which includes the Pete Petersons, Alan Simpsons and Paul Ryans of this world, believe in incentives. Each one of us, at every moment, should have an unmistakable incentive to work as much as possible, save as much as possible, and do everything else to promote economic growth. Marginal tax rates should be rock-bottom, and no government program should shield us from the consequences of our failure to accumulate wealth. It is pure social darwinism.
Their sworn enemy is social insurance, the idea that the members of a society would want to pool their risks and achieve a bedrock of security. This means opposition to any form of national health insurance, which pools our medical expense risk, Social Security, which pools retirement risk, and unemployment insurance, which pools labor market risk. We should be prepared, they say, to sink or swim on our own and not look to the “nanny state” to take care of us.
I think it’s time for the other side, a.k.a. the forces of civilization and progress, to defend social insurance. It is an enormous advance for a society provide economic security to all its citizens. It gives us peace of mind, and it expresses a humane concern for the well-being of all members of the community, something we should not be ashamed to embrace as a moral principle.
Sure, insurance always comes bundled with moral hazard issues. Some people will react by doing things that increase the risks we insure against. But this is not a reason to abandon insurance, just to design programs carefully so that moral hazard doesn’t get out of hand. If you think Social Security has generated disincentives that need to be fixed, indicate what they are and help come up with solutions. Don’t reject insurance itself; it’s one of the highest achievements of the last thousand years of human development.
Tuesday, August 24, 2010
Administrative Bloat in Education
In addition to the higher salaries for university executives, academic management is continually becoming more bloated. In effect, picking up the worst practices of corporate America. Here is the report from the Goldwater Institute.
http://www.goldwaterinstitute.org/file/4942/download/4944 (.pdf)
http://www.goldwaterinstitute.org/file/4942/download/4944 (.pdf)
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