America's Public Sector Union Dilemma — The American Magazine
http://www.american.com/archive/2011/november/americas-public-sector-union-dilemma
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Jeff Dunetz (@yidwithlid) 11/27/11 8:09 AM Climategate II Emails Show US/British Govs Colluded W/Scientists to Suppress Anti-Warming Data twurl.nl/h7601z #teaparty #nobama #fox |
[Published with permission from The Wall Street Examiner.]
In a report released on Black Friday around 6 PM, when nobody is around, let alone paying attention, except for crazy people like me, the NY Fed posted a mea culpa on just how lousy its economic forecasts have been, a function which I had already performed over a year ago (The Fed – Clueless, Delusional, or Both?). The author of the report stated the crux of the failure thusly:
One source for such metrics is a paper by Reifschneider and Tulip (2007). They analyzed the forecast error performance of a range of public and private forecasters over 1986 to 2006 (that is, roughly the period that most economists associate with the Great Moderation in the United States).
On the basis of their analysis, one could have expected that an October 2007 forecast of real GDP growth for 2008 would be within 1.3 percentage points of the actual outcome 70 percent of the time. The New York Fed staff forecast at that time was for growth of 2.6 percent in 2008. Based on the forecast of 2.6 percent and the size of forecast errors over the Great Moderation period, one would have expected that 70 percent of the time, actual growth would be within the 1.3 to 3.9 percent range. The current estimate of actual growth in 2008 is-3.3 percent, indicating that our forecast was off by 5.9 percentage points.
Using a similar approach to Reifschneider and Tulip but including forecast errors for 2007, one would have expected that 70 percent of the time the unemployment rate in the fourth quarter of 2009 should have been within 0.7 percentage point of a forecast made in April 2008. The actual forecast error was 4.4 percentage points, equivalent to an unexpected increase of over 6 million in the number of unemployed workers. Under the erroneous assumption that the 70 percent projection error band was based on a normal distribution, this would have been a 6 standard deviation error, a very unlikely occurrence indeed.
He then went on to enumerate the 3 big reasons the Fed had gotten it wrong:
He then added that perhaps the biggest reason for the failure was "complacency," with which I heartily concur, but to which I would also add hubris and stupidity.
At the beginning of the piece the author cited a Turbotax Tim Geithner quote: Our best plan is to plan for constant change and the potential for instability, and to recognize that the threats will constantly be changing in ways we cannot predict or fully understand.
Adding to that the author wrote, "The quotations from Keynes and Geithner at the start of this post capture the importance of constantly striving to ensure that policy is robust to unexpected events. As explained in much of the recent work of the 2011 Nobel Prize–winning economist Tom Sargent, the unexpected events for which policymakers need to make provision have the characteristic of being the most likely unlikely bad event. The collapse in housing prices and its propagation to the economy certainly fit this description."
This is what I would call the "Nobody could have foreseen" fallacy, a tool often used by the professional economist and economic pundit class. I guess that I and the countless thousands of others who frequented this and other bearish websites at the time of the top of the housing bubble, who did foresee what was coming, must be the "nobody" that the pros refer to.
It's good to be nobody or not so good, because even though nobody took precautions, nobody ultimately took the hit. Because in this case, nobody was prepared for what happened, and nobody took steps to both protect and profit from it, while the rest of the Wall Street seers and the Fedheads, who are all somebody, didn't foresee it. As a result somebody got their asses kicked. But that hasn't stopped them, because Uncle Sam bailed them out, spending nobody's money, and nobody's children's and grandchildren's futures to do it. So in that sense, it's better to be somebody, even though somebody initially took the loss that nobody saw coming, until the US government bailed them out on behalf of nobody.
I wrote the following comment on the NY Fed Liberty Street blog. I don't know if it will still be there in the morning, so here it is.
The excuse that most other professional forecasters didn't foresee it is just that, an excuse. Some professional forecasters did see it. They were derided as Cassandras and dismissed by Wall Street and Fed insiders, who are only beholden to each other, and to their own delusions.
Millions of amateur economic forecasters who frequented the financial message boards and blogs saw what was happening and what was coming. They had one important advantage. They live in the real world, not inside the Beltway, not within the marble halls and equally hardened thought processes of the Fed, and not in the ivory towers of academia, a word which sounds like a disease, because it is a disease. Not only do these environments cause delusional thinking, they attract delusional people. The same is true of policy makers.
I call it elitist personality disorder. It leads to delusions of grandeur, delusions of omniscience and omnipotence, and the unwillingness to take responsibility for failure and incompetence, instead engaging in blame shifting.
Postscript. Yep, less than a half hour later, they pulled my comment. I left a subsequent comment which isn't fit for a family oriented website like this one.
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Barack Obama sought to reignite the debate over an economic stimulus package on Tuesday, demanding that a bitterly divided Congress pass an extension of payroll tax cuts before the end of the year.
"We still have to give the economy the jolt that it needs," the US president said on the campaign trail in New Hampshire, a day after a bipartisan committee failed to agree on a $1,200bn deficit reduction package. He added he would do "everything in his power, with or without Congress".
So it turns out that Solyndra may be just the tip of the iceberg that is the Obama administration's politically charged energy-loan scandal.
Even as Energy Secretary Stephen Chu was on Capitol Hill this week, claiming — against all the e-mail evidence — that the White House played no role in the Solyndra debacle, came word of an even bigger potential scandal.
Turns out a California-based "green jobs" firm with a troubled financial history got a $1.4 billion Energy Department loan guarantee — three times the size of Solyndra's jackpot — despite mountains of debt.
And it turns out that the principal private investor in BrightSource Energy, the lucky recipient, is a company called VantagePoint — whose "venture partners" include Robert F. Kennedy Jr.
That's a name that certainly opens up a lot of doors in Barack Obama's Washington — when Kennedy's not busy preaching to New Yorkers about their environmental crimes and trying to shut down key energy sources, like Indian Point.
It also doesn't hurt that a VantagePoint official (and Obama fund-raiser), Sanjay Wagle, left the firm to become a renewable-energy-grants adviser at — yep — the US Department of Energy.
The revelation of BrightSource's bailout — and the RFK Jr. connection — appear in Peter Schweizer's explosive new book, "Throw Them All Out."
To be sure, BrightSource itself was upfront on just how iffy an investment its company was: "This offering involves a high degree of risk," warned its IPO registration statement. "We have generated substantial net losses and negative operating cash flows since our inception and expect to continue to do so for the foreseeable future."
How much in losses? "We have incurred losses of approximately $204.1 million from our inception through March 31, 2011," it conceded.
Moreover, "our proprietary technology has a limited history and may perform below expectations when implemented."
Wait — it gets better.
In an SEC filing, BrightSource conceded that its very survival depends on its ability to build Ivanpah, a 370-megawatt solar power plant, in California — even while admitting that its ability to do so is "subject to significant risk and uncertainty."
None of this should surprise: The New York Times reported Thursday on "the new calculus on political and policy shifts" when it comes to energy "as the White House sharpens its focus on the president's re-election."
Still, this is a viable candidate for a $1.4 billion taxpayer-funded bailout?
In Barack Obama's Washington, yes.
Especially if you've got someone like Robert F. Kennedy Jr. on board.
"With a total length of close to 3,000 kilometers, the new [Keystone XL] pipeline would add just over 1 percent to the already existing network of crude oil and refined products lines that crisscross the United States and parts of Canada. Why, if pipeline safety is a key concern, have we not seen waves of civil disobedience focused on more than a quarter million kilometers of existing pipelines?
Long-term statistics show convincingly that there is no safer way to transport large masses of liquids over long distances than a pipeline. Moving the same amount by trucks or rail would be much more risky, in addition to being vastly more expensive. So would be moving the oil from Alberta to British Columbia and then shipping it by tankers via the Panama Canal to Texas.
Here comes the craziest twist: if the opponents of the XL succeed and prevent its construction, there is a strong possibility that Alberta's oil sand-derived oil will be piped westward to Canada's Pacific coast and loaded on supertankers going to Asia, to feed China's grossly inefficient industries.
By preventing the oil flow from Canada, the United States will thus deliberately deprive itself of new manufacturing and construction jobs; it will not slow down the increase of global CO2 emissions from fossil fuel combustion; it will almost certainly empower China; and it will make itself strategically even more vulnerable by becoming further dependent on declining, unstable, and contested overseas crude oil supplies. That is what is called a spherically perfect decision, because no matter from which angle you look at it, it looks perfectly the same: wrong."
Leonard Park (@RIGHTZONE) 11/18/11 5:56 AM OWS, Rape, public masterbation, public deficating, demands for handouts, anti-semitism, violence, destruction of private property. |
Poor Conservative (@poorconservativ) 11/18/11 5:55 AM Watch This Devastating Video: #Obama Knew, So Holder Is A Liar bit.ly/nxLL06 |
WisConservative (@CarterFliptMe) 11/18/11 5:52 AM Class Warfare at Occupy Wall Street hulu.com/w/961l Liberal Hypocrisy in Full Bloom. This is Progressive BS at it's Finest! #tcot #ows |
The New York Times reports this morning:
An unrepentant energy secretary [Stephen Chu] will square off on Thursday with a Republican-led committee that has spent months arguing that his department showed political favoritism and incompetence when it approved a $535 million loan guarantee for Solyndra.
As I pointed out in the Washington Post this week, Peter Schweizer blows the lid off of the Obama-Chu loan guarantee and grant programs in his new book, Throw Them All Out: How Politicians and Their Friends Get Rich off Insider Stock Tips, Land Deals, and Cronyism That Would Send the Rest of Us to Prison. Here are five questions House members may want to pose to Secretary Chu today, based on Schweizer's research:
1. "$16.4 billion of the $20.5 billion in loans granted went to companies either run by or primarily owned by Obama financial backers—individuals who were bundlers, members of Obama's National Finance Committee, or large donors to the Democratic Party." How is it that 71 percent of the loan money went to President Obama's political cronies?
2. Please explain your decision to approve more than $2.4 billion for Leucadia Energy, a company that Schweizer writes "had one employee and $120,000 in annual revenue." Schweizer notes that "The company is a subsidiary of Leucadia National, whose chairman and CEO is Ian Cumming. Cumming served as a member of President Obama's 2008 National Finance Committee and was on the 2008 Democratic National Convention Committee. Curiously, Ian Cumming wrote three rather large checks to Democratic Party committees just weeks before his funds were approved. He wrote a total of $69,900 in checks in April 2009." Is this a coincidence, Mr. Secretary? Moreover, according to a government audit, as of December 2010, eighteen months after the loans were made, the Leucadia projects had resulted in a grand total of three jobs. Do you consider this an example of success, Mr. Secretary?
3. Please explain your decision to provide $1.4 billion in loan guarantees to a company called Brightsource to build the Ivanpah Solar Electrical System on federal land in California. According to Schweizer, at the time the company had debt obligations of $1.8 billion and in 2010 lost $71.6 million on revenue of just $13.5 million—and had informed the Securities and Exchange Commission, "Our ability to complete Ivanpah and the planning, development, and construction of all three phases are subject to significant risk and uncertainty." Is it a mere coincidence that the single largest shareholder (25 percent) in Brightsource is VantagePoint Partners, whose principals included Sanjay Wagle, the managing co-chairman of Cleantech and Green Business Leaders for Obama, which raised millions for Obama's campaign?
4. After the 2008 election, Schweizer writes, Sanjay Wagle joined the Obama administration as a "renewable energy grants adviser" at the Department of Energy. Please explain Mr. Wagle's role, if any, in loans and grants made to VantagePoint-backed companies.
5. Please explain how it is that ten members of President Obama's finance committee collectively raised $457,834 for his presidential campaign, and were in turn approved by your department for grants or loans of nearly $11.4 billion? Is this a mere coincidence? Would you consider that a good return on investment?
There is enough material in Schweizer's book to grill Chu for weeks—but answering these five questions would be a good start.
Precious Liberty (@preciousliberty) 11/17/11 12:15 PM The U.S. is 235 years old yet over 1/3 of our debt will have been accrued by President Downgrade in just 4 years - ow.ly/7wQQe |
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The most recent recession in the United States began in December of 2007 and ended in June of 2009, according to the official arbiter of recession dating, the National Bureau of Economic Research. However, two years after the official end of the recession, few Americans would say that economic troubles are behind us. The unemployment rate, in particular, remains above 9 percent. Some labor market indicators, such as the proportion of long-term unemployed, are worse now than for any postwar recession.
There are two widely circulated narratives to explain what is going on. The Keynesian narrative is that there has been a major drop in aggregate demand. According to this narrative, the slump can be largely cured by using monetary and fiscal stimulus.
The main anti-Keynesian narrative is that businesses are suffering from uncertainty and over-regulation. According to this narrative, the slump can be cured by having the government commit to and follow a more hands-off approach.
I want to suggest a third interpretation. Without ruling out a role for aggregate demand or for the regulatory environment, I wish to suggest that structural change is an important factor in the current rate of high unemployment. The economy is in a state of transition, in which the middle-class jobs that emerged after World War II have begun to decline.
As Erik Brynjolfsson and Andrew McAfee put it in a recent e-book Race Against the Machine:
The root of our problems is not that we're in a Great Recession, or a Great Stagnation, but rather that we are in the early throes of a Great Restructuring.
In fact, I believe that the Great Depression of the 1930s can also be interpreted in part as an economic transition. The impact of the internal combustion engine and the small electric motor on farming and manufacturing reduced the value of uneducated laborers. Instead, by the 1950s, a middle class of largely clerical workers was the most significant part of the labor force.
The Great Transition from 1930 to 1950
Government's role as an employer and as a regulator is likely to exacerbate earnings inequality going forward.
Between 1930 and 1950, the United States economy underwent a Great Transition. Demand fell for human effort such as lifting, squeezing, and hammering. Demand increased for workers who could read and follow directions. The evolutionary process eventually changed us from a nation of laborers to a nation of clerks.
The proportion of employment classified as "clerical and kindred workers" grew from 5.2 percent in 1910 to a peak of 19.3 percent in 1980. (However, by 2000 this proportion had edged down to 17.4 percent.)1 Overall, workers classified as clerical, professional workers, technical workers, managers, officials, and proprietors exceeded 50 percent of the labor force by 2000.
Corresponding declines took place in the manual occupations. Workers classified as laborers, other than farm or mine, peaked at 11.4 percent of the labor force in 1920 but were barely 6 percent by 1950 and less than 4 percent by 2000. Farmers and farm laborers fell from 33 percent of the labor force in 1910 to less than 15 percent by 1950 and only 1.2 percent in 2000.
The advent of the tractor and improvements in the factory rapidly reduced the demand for uneducated workers. By the 1930s, a marginal farm hand could not produce enough to justify his employment. Sharecropping, never much better than a subsistence occupation, was no longer viable. Meanwhile, machines were replacing manufacturing occupations like cigar rolling and glass blowing for light bulbs.2
If a job can be characterized by a precise set of instructions, then that job is a candidate to be automated or outsourced to modestly educated workers in developing countries.
World War II also demonstrated the increase in the relative importance of white-collar workers and machines. With all due respect to GI Joe and Rosie the Riveter, it could be that Cynthia the Clerk is a more appropriate symbol of the war effort, as logistics and communications came to be dominant factors. Although Winston Churchill famously praised "the few" who flew airplanes during the Battle of Britain, historians emphasize the role played by the communications and control systems on the ground, staffed to a considerable extent by women, in making the British victory possible. Female clerks also played a crucial role in the process of decoding German messages—the famous Enigma intercepts.
The structural-transition interpretation of the unemployment problem of the 1930s would be that the demand for uneducated workers in the United States had fallen, but the supply remained high. The high school graduation rate was only 8.8 percent in 1912 and still just 29 percent in 1931. By 1950, it had reached 59 percent.3 With a new generation of workers who had completed high school, the mismatch between skills and jobs had been greatly reduced.
What took place after the Second World War was not the revival of a 1920s economy, with its small farming units, urban manufacturing, and plurality of laborers. Instead, the 1950s saw the creation of a new suburban economy, with a plurality of white-collar workers. With an expanded transportation and communications infrastructure, businesses needed telephone operators, shipping clerks, and similar occupations. If you could read, follow simple instructions, and settle into a routine, you could find a job in the post-war economy.
The trend away from manual labor has continued. Even within the manufacturing sector, the share of production and non-supervisory workers in manufacturing employment went from over 85 percent just after the Second World War to less than 70 percent in more recent years. To put this another way, the proportion of white-collar work in manufacturing has doubled over the past 50 years. On the factory floor itself, work has become less physically demanding. Instead, it requires more cognitive skills and the ability to understand and carry out well-defined procedures.
The Current Transition
Blockbuster video adversely affected the capital of movie theaters, Netflix adversely affected the capital of Blockbuster, and the combination of faster Internet speeds and tablet devices may depreciate the organizational capital of Netflix.
As noted earlier, the proportion of clerical workers in the economy peaked in 1980. By that date, computers and advanced communications equipment had already begun to affect telephone operations and banking. The rise of the personal computer and the Internet has widened the impact of these technologies to include nearly every business and industry.
The economy today differs from that of a generation ago. Mortgage and consumer loan underwriters have been replaced by credit scoring. Record stores have been replaced by music downloads. Book stores are closing, while sales of books on electronic readers have increased. Data entry has been moved off shore. Routine customer support also has been outsourced overseas.
These trends serve to limit the availability of well-defined jobs. If a job can be characterized by a precise set of instructions, then that job is a candidate to be automated or outsourced to modestly educated workers in developing countries.
The result is what David Autor calls the polarization of the American job market. Autor and various research collaborators have documented a number of findings that reflect this polarization:4
• In recent decades, wage and employment growth have both been lowest at the middle segment of the skill distribution. Wage improvements have tended to be concentrated at the high end, and employment gains have tended to be largest at the low end of the skill distribution.
• This particular symptom of polarization is also prevalent in OECD countries other than the United States.
• In the United States, this polarization was exacerbated by the economic downturn. While both high- and low-skill jobs have held steady, the brunt of the recession has been borne by mid-skill workers. For example, growth in employment in sales was 54 percent from 1979 to 1989, 14 percent from 1989 to 1999, 4 percent from 1999 to 2007, and -7 percent from 2007 to 2009. Employment in sales was a key component of upward economic mobility after World War II, but technological change and globalization appear to have stalled or perhaps reversed this engine of middle-class affluence.
• From 1980 to 2007, real wages for male workers with only a high school degree fell by 12 percent, real wages of male workers with only a college degree rose by 10 percent, and real wages of males with post-graduate degrees increased by 26 percent. Female workers show a similar pattern, although wage gains were generally higher for females over this period.
Using the latest Census Bureau data, Matthew Slaughter found that from 2000 to 2010 the real earnings of college graduates (with no advanced degree) fell by more in percentage terms than the earnings of high school graduates. In fact, over this period the only education category to show an increase in earnings was those with advanced degrees.5
The Great Depression of the 1930s can also be interpreted in part as an economic transition.
The outlook for mid-skill jobs would not appear to be bright. Communication technology and computer intelligence continue to improve, putting more occupations at risk.
For example, many people earn a living as drivers, including trucks and taxicabs. However, the age of driver-less vehicles appears to be moving closer.
Another example is in the field of education. In the fall of 2011, an experiment with an online course in artificial intelligence conducted by two Stanford professors drew tens of thousands of registrants. This increases the student-teacher ratio by a factor of close to a thousand. Imagine the number of teaching jobs that might be eliminated if this could be done for calculus, economics, chemistry, and so on.
It is important to bear in mind that when we offer a structural interpretation of unemployment, a "loss of jobs" means an increase in productivity. Traditionally, economists have argued that productivity increases are a good thing, even though they may cause dislocation for some workers in the short run. In the long run, the economy does not run out of jobs. Rather, new jobs emerge as old jobs disappear. The story we tell is that average well-being rises, and the more that people are able to adapt, the more widespread the improvement becomes.
Challenges Due to Rapid Change
If you could read, follow simple instructions, and settle into a routine, you could find a job in the post-war economy.
There are two challenges. One is the sheer speed of adjustment. In a hyper-Schumpeterian economy, the main work consists of destroying someone else's job. Garett Jones has pointed out that the typical worker today does not produce widgets but instead builds organizational capital. The problem is that building organizational capital in one company serves to depreciate the organizational capital somewhere else. Blockbuster video adversely affected the capital of movie theaters, Netflix adversely affected the capital of Blockbuster, and the combination of faster Internet speeds and tablet devices may depreciate the organizational capital of Netflix.
The second challenge is the nature of the emerging skills mismatch. People who are self-directed and cognitively capable can keep adding to their advantages. People who lack those traits cannot simply be exhorted into obtaining them. The new jobs that emerge may not produce a middle class. Instead, if the trend documented by Autor for the period 1999-2007 were to continue, most of the new jobs would be low-end service jobs, for which competition will tend to keep wages low.
The recent trend in job polarization raises the possibility that gains in well-being that come from productivity improvements will accrue to an economic elite. Perhaps the middle-class affluence that emerged during the latter part of the industrial age is not going to be a feature of the information age. Instead, we could be headed into an era of highly unequal economic classes. People at the bottom will have access to food, healthcare, and electronic entertainment, but the rich will live in an exclusive world of exotic homes and extravagant personal services. The most popular bands in the world will play house concerts for the rich, while everyone else can afford music downloads but no live music. In the remainder of this essay, I want to extend further this exercise in imagination and consider three possible scenarios.
Three future scenarios
The most optimistic scenario is the one I consider least likely. Under this scenario, the supply of workers adapts to changes in technology. In particular, this means a future with relatively fewer workers whose skills are limited to following directions in well-defined jobs. Instead, more workers will have the cognitive ability, initiative, and self-discipline to constantly update their skills, adapt to new technology, and to participate in the creative part of creative destruction. Under this scenario, economic growth will be very high, and median earnings will also be high.
The main anti-Keynesian narrative is that businesses are suffering from uncertainty and over-regulation.
I do not believe that this optimistic scenario will emerge through more spending on education or even with education reform. My reading of the research is that variations in education techniques lead to differences in outcomes that tend to be small and transitory.6
If the optimistic scenario does arise, I suspect it will be the result of discoveries in biology. Perhaps pharmacology will succeed where pedagogy fails.
Turning to more realistic scenarios, I see the desirability of the outcome depending on the extent to which institutions serve to ameliorate problems created by disparities in ability. At one extreme, charities and government will develop humane, rational approaches for providing for the needs of people who are disadvantaged in an economic environment where rewards are concentrated among those who are disciplined, self-directed learners with creative gifts. At the other extreme, collective institutions will be arenas in which elites compete for resources, even when they claim to be fighting on behalf of the disadvantaged.
I would assess our current situation as closer to the adverse scenario. Our government is very responsive to cries for bank bailouts or to pleas for subsidies coming from well-connected companies, large (General Motors) and small (Solyndra). That same government is much less likely to target assistance in a charitable fashion.
With all due respect to GI Joe and Rosie the Riveter, it could be that Cynthia the Clerk is a more appropriate symbol of the war effort.
Economist Steve Allen calculated that a $447 billion spending plan could be used to pay all 14 million unemployed workers $32,000 a year to take low-paying or volunteer jobs.7 While there may be no practical way to implement Allen's approach, it does illustrate the deficiencies in existing stimulus proposals. Even according to the most optimistic estimates, these create or save many fewer jobs per dollar spent.
My guess is that the more power is concentrated in governmental units, the less likely it is that our collective institutions will be geared toward achieving outcomes that are charitable and make efficient use of resources. Trying to get large sums of tax money past the grabbing hands of rent-seeking elites will be like trying to get a stagecoach full of gold past a horde of armed robbers.
Government's role as an employer and as a regulator is likely to exacerbate earnings inequality going forward. Government pay scales and contract award policies tend to place a very high weight on formal academic credentials. This increases the advantages of advanced degrees both directly and indirectly. The more that government requires educational credentials, the greater the rewards to the providers of educational credentials. Of course, becoming a provider of educational credentials requires obtaining high credentials oneself.
I suspect that a more decentralized set of voluntary collective institutions would achieve better results. People are less likely to donate to institutions that provide windfalls only to elites, so that such organizations would lose out in a competitive environment. I believe that a scenario in which many people have dignified jobs and enjoyable lifestyles is more likely to emerge in an environment with decentralized voluntary charities than one with concentrated, coercive government.
To put this another way, I think it is possible that technocrats will be able to come up with programs that offer decent work and reasonable incomes for workers with modest skills. However, I have more faith in a process in which technocrats must compete for charitable donations than a process in which they compete for government power.
Arnold Kling is a member of the Financial Markets Working Group at the Mercatus Center of George Mason University. He writes for econlog, part of the Library of Economics and Liberty.
Footnotes
1. See Ian D. Wyatt and Daniel E. Hecker, "Occupational Changes During the 20th Century," March 2006.
2. See Amy Sue Bix, Inventing Ourselves Out of Jobs? America's Debate Over Technological Unemployment, 1929-1981. Baltimore, MD: Johns Hopkins University Press, 2000.
3. See Claudia Goldin and Lawrence Katz, The Race Between Education and Technology. Cambridge, MA: Harvard University Press, 2008, p. 27.
4. The facts reported here are taken from David Autor, "The Polarization of Job Opportunities in the U.S. Labor Market," a paper for the Center for American Progress and the Hamilton Project, April, 2010.
5. David Wessel, "Only Advanced-Degree Holders See Wage Gains," September 19, 2011.
6. That is my reading of the work of Nobel Laureate James Heckman. For example, he and co-author write, "Schools work with what parents give them. The 1966 Coleman Report on inequality in school achievement clearly documented that the major factor explaining the variation in the academic performance of children across U.S. schools is the variation in parental environments—not the variation in per pupil expenditure across schools or pupil-teacher ratios. Successful schools build on the efforts of successful families. Failed schools deal in large part with children from dysfunctional families that do not provide the enriched home environments enjoyed by middle class and upper middle class children." See James Heckman and Dimitriy V. Masterov, "The Productivity Argument for Investing in Young Children," 2007.
7. Steve Allen, "Some jobs bill arithmetic," September 10, 2011.
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The Ex-SEIU Boss, Donor Dollars, No-Bid Contracts & Testing Anthrax Vaccines on Kids
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Rory Cooper (@rorycooper) 11/10/11 9:50 AM RT @iowahawkblog: College: a place where you are taught to get angry at the bank who lent you $100,000 to go to college. |
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Scott Walker move over; San Francisco is the latest front line in the battle against abusive public sector unions.
The bluest city in the bluest state in the union has woken up and smelled the latte; generations of extortionate collusion between shamelessly greedy and shortsighted union leaders and unforgivably opportunistic and irresponsible politicians have left the Blue Paradise on the Bay with a pension bill that it simply can't pay. As MercuryNews.com tells it,
San Francisco's public pension system took a beating during the recession, which has left it carrying a hefty unfunded liability for its 26,000 current and 28,000 retired employees. The city's pension obligation is growing by $100 million a year, leaving less funding for police and fire protection, park maintenance and health services for the needy.Unable to keep up, San Francisco is among several California cities asking voters to help tackle the public pension problem—which is now one of the biggest causes of municipal budget shortfalls.
Several things about this story deserve a closer look; one is that Blueville by the Bay has more retired workers than current employees. Unless San Francisco has been on a hitherto unnoticed frenzy of cost cutting and layoffs, this means that the city has long had a grotestquely out of line pension system that permits people to retire much earlier than they should. A more reasonably retiree ratio would be something like one to four; a one to one ratio means that the city is paying as many people to rest as it is to work. The technical term for this in accounting circles is "blind folly". It is often written in Greek: ατη and it is well known as the stage that comes between hubris and nemesis while a tragedy unfolds.
San Francisco may be the Athens of the West, but it is not the only California city that is taking ballot measures to the voters as a way of reducing unsustainable pension obligations. San Diego and San Jose are also planning ballot measures; the unconscionable collusion between greedy union leaders and ambitious politicians threatens to ruin cities up and down the coast.
California's shortsighted unions and politicians have left their successors in a horrible position: do you slash pensions that old people rely on, or do you cut government services like police, fire protection and education? Taxpayers generally favor the first alternative; it is hard to persuade hardworking immigrants struggling to raise kids that they should send their kids to bad schools on dirty, unsafe streets to save the money necessary honor abusive contracts made by past generations of labor and political bosses.
The courts, however, take a different view. Contracts are contracts and cannot lightly be broken. Union lawyers are appealing ballot initiatives and pension changes in the courts; often, they win.
Via Meadia thinks that contracts ought normally to be honored, but some agreements are so unrealistic that they are unenforceable. If the unions fight too aggressively in the courts, the cities can always go bankrupt.
Meanwhile, the public unions in California are isolating themselves politically. Insisting on "geezers first, kids last" public policy is neither decent nor honorable nor wise. The political and economic failures of the Baby Boom generation are nowhere more obvious than in California. The Boomers inherited a golden state of promise and dynamism; as they begin to retire they are leaving it a debt ridden hulk — and the wrecking crew wants fat pensions for a job well done.
Many will have to make do with less than they'd expected; a generation that failed to make California rich enough to afford generous pensions will not be able to collect.
Posted on | November 5, 2011 | 70 Comments and 8 Reactions
"Let it sink in: Their protests now need rape shelters. This is actually happening. And New York City lets it go on. . . . [T]he coverage of OWS protests compared to the coverage of tea-party protests is the worst media double standard in recent history."
– Allahpundit, Hot Air
"These are the people the Democrats and their accomplices in the media stand with."
– The Lonely Conservative
Michelle Fields has posted her crew's video of the violence and intimidation perpetrated by the "Occupy DC" mob Friday night:
About the elderly woman you see on the video (3:20) who got shoved to the ground by the "Occupy" mob:
"Her name is Dolores Broderson, age 78. She rode on a bus for 11 hours from Detroit to get there. She went to the emergency room with a bloody nose and bruises on her hand and leg."
We can no longer tolerate media assertions that this is a non-violent movement. When your purpose is to inspire hatred, to threaten and intimidate, when you trespass and obstruct traffic, when you chant obscenities and deliberately seek to provoke confrontations — no, you're not being non-violent, no matter how often you claim to be "peaceful."
But who can expect honesty from such savages? And who can any longer doubt that the mainstream media are acting as accessories to this criminal movement by pretending that the "Occupy [Whatever]" mob's regular eruptions of violence and criminality are atypical aberrations? Just look at the headlines:
Occupy Protester Arrested In $10M Arson Fire
– KMGH-TV
Occupy Boston Occupies Israeli Consulate
– Ira Stoll
Zuccotti protesters put up women-only
tent to prevent sexual assaults
– New York Post
Fear Of Violence Spreading To OccupySeattle
– Thomas Ferdousi
"Nothing to see here, move along. Just what 'democracy looks like.'"
– Darleen Click, Protein Wisdom
Yes, in the sense that "democracy" is a mob contemptuous of Western civilization, without respect for private property, ignorant of the Anglo-American Rule of Law tradition, and worked into a fevered frenzy by ritualistic incantations of radical-egalitarian concepts of "social justice" — well, indeed, this is what democracy looks like.
Those smelly hippies probably never even heard of Edmund Burke, Ludwig von Mises, Friedrich Hayek, Richard Weaver, Russell Kirk, Milton Friedman, Thomas Sowell, et al.
Perhaps the malodorous mobsters would reply: "We're not going to pay money for books, you capitalist vulture!" But even if you offered them Leonard Read's classic essay, "I, Pencil," online for free, they couldn't be bothered to spend the time needed to read its 2,229 words. Even if you could force them to read it, however, they couldn't possibly understand it, either because they lack the intelligence to comprehend basic reasoning, or else because they've been so thoroughly brainwashed into the collectivist mentality as to have become actively hostile to freedom.
As I explained last week, the "Occupy [Whatever]" movement is about "Organized Ignorance." Once you've seen the phenomenon first-hand — chanting slogans or doing their ridiculous "mike check" call-and-response routines — you realize that their insistence on speaking in unison is a function of their inability to think as individuals.
"The good news is that more and more Americans are seeing these disgusting creatures in action. It will help Republican candidates immensely in 2012."
– John Hinderaker, Powerline
Good news? If you look at it from a short-term partisan perspective, I suppose it's good for independent voters to be reminded of what the Democratic Party's "base" really looks like. But there is something genuinely tragic, and profoundling troubling, in watching this sorry "Occupy" farce unfold. So many young people have been so miseducated that they can't tell "heaven from hell, blue skies from pain," et cetera.
UPDATE (Smitty): Welcome, Instapundit readers!
PREVIOUSLY:
The most recent recession in the United States began in December of 2007 and ended in June of 2009, according to the official arbiter of recession dating, the National Bureau of Economic Research. However, two years after the official end of the recession, few Americans would say that economic troubles are behind us. The unemployment rate, in particular, remains above 9 percent. Some labor market indicators, such as the proportion of long-term unemployed, are worse now than for any postwar recession.
There are two widely circulated narratives to explain what is going on. The Keynesian narrative is that there has been a major drop in aggregate demand. According to this narrative, the slump can be largely cured by using monetary and fiscal stimulus.
The main anti-Keynesian narrative is that businesses are suffering from uncertainty and over-regulation. According to this narrative, the slump can be cured by having the government commit to and follow a more hands-off approach.
I want to suggest a third interpretation. Without ruling out a role for aggregate demand or for the regulatory environment, I wish to suggest that structural change is an important factor in the current rate of high unemployment. The economy is in a state of transition, in which the middle-class jobs that emerged after World War II have begun to decline.
As Erik Brynjolfsson and Andrew McAfee put it in a recent e-book Race Against the Machine:
The root of our problems is not that we're in a Great Recession, or a Great Stagnation, but rather that we are in the early throes of a Great Restructuring.
In fact, I believe that the Great Depression of the 1930s can also be interpreted in part as an economic transition. The impact of the internal combustion engine and the small electric motor on farming and manufacturing reduced the value of uneducated laborers. Instead, by the 1950s, a middle class of largely clerical workers was the most significant part of the labor force.
The Great Transition from 1930 to 1950
Government's role as an employer and as a regulator is likely to exacerbate earnings inequality going forward.
Between 1930 and 1950, the United States economy underwent a Great Transition. Demand fell for human effort such as lifting, squeezing, and hammering. Demand increased for workers who could read and follow directions. The evolutionary process eventually changed us from a nation of laborers to a nation of clerks.
The proportion of employment classified as "clerical and kindred workers" grew from 5.2 percent in 1910 to a peak of 19.3 percent in 1980. (However, by 2000 this proportion had edged down to 17.4 percent.)1 Overall, workers classified as clerical, professional workers, technical workers, managers, officials, and proprietors exceeded 50 percent of the labor force by 2000.
Corresponding declines took place in the manual occupations. Workers classified as laborers, other than farm or mine, peaked at 11.4 percent of the labor force in 1920 but were barely 6 percent by 1950 and less than 4 percent by 2000. Farmers and farm laborers fell from 33 percent of the labor force in 1910 to less than 15 percent by 1950 and only 1.2 percent in 2000.
The advent of the tractor and improvements in the factory rapidly reduced the demand for uneducated workers. By the 1930s, a marginal farm hand could not produce enough to justify his employment. Sharecropping, never much better than a subsistence occupation, was no longer viable. Meanwhile, machines were replacing manufacturing occupations like cigar rolling and glass blowing for light bulbs.2
If a job can be characterized by a precise set of instructions, then that job is a candidate to be automated or outsourced to modestly educated workers in developing countries.
World War II also demonstrated the increase in the relative importance of white-collar workers and machines. With all due respect to GI Joe and Rosie the Riveter, it could be that Cynthia the Clerk is a more appropriate symbol of the war effort, as logistics and communications came to be dominant factors. Although Winston Churchill famously praised "the few" who flew airplanes during the Battle of Britain, historians emphasize the role played by the communications and control systems on the ground, staffed to a considerable extent by women, in making the British victory possible. Female clerks also played a crucial role in the process of decoding German messages—the famous Enigma intercepts.
The structural-transition interpretation of the unemployment problem of the 1930s would be that the demand for uneducated workers in the United States had fallen, but the supply remained high. The high school graduation rate was only 8.8 percent in 1912 and still just 29 percent in 1931. By 1950, it had reached 59 percent.3 With a new generation of workers who had completed high school, the mismatch between skills and jobs had been greatly reduced.
What took place after the Second World War was not the revival of a 1920s economy, with its small farming units, urban manufacturing, and plurality of laborers. Instead, the 1950s saw the creation of a new suburban economy, with a plurality of white-collar workers. With an expanded transportation and communications infrastructure, businesses needed telephone operators, shipping clerks, and similar occupations. If you could read, follow simple instructions, and settle into a routine, you could find a job in the post-war economy.
The trend away from manual labor has continued. Even within the manufacturing sector, the share of production and non-supervisory workers in manufacturing employment went from over 85 percent just after the Second World War to less than 70 percent in more recent years. To put this another way, the proportion of white-collar work in manufacturing has doubled over the past 50 years. On the factory floor itself, work has become less physically demanding. Instead, it requires more cognitive skills and the ability to understand and carry out well-defined procedures.
The Current Transition
Blockbuster video adversely affected the capital of movie theaters, Netflix adversely affected the capital of Blockbuster, and the combination of faster Internet speeds and tablet devices may depreciate the organizational capital of Netflix.
As noted earlier, the proportion of clerical workers in the economy peaked in 1980. By that date, computers and advanced communications equipment had already begun to affect telephone operations and banking. The rise of the personal computer and the Internet has widened the impact of these technologies to include nearly every business and industry.
The economy today differs from that of a generation ago. Mortgage and consumer loan underwriters have been replaced by credit scoring. Record stores have been replaced by music downloads. Book stores are closing, while sales of books on electronic readers have increased. Data entry has been moved off shore. Routine customer support also has been outsourced overseas.
These trends serve to limit the availability of well-defined jobs. If a job can be characterized by a precise set of instructions, then that job is a candidate to be automated or outsourced to modestly educated workers in developing countries.
The result is what David Autor calls the polarization of the American job market. Autor and various research collaborators have documented a number of findings that reflect this polarization:4
• In recent decades, wage and employment growth have both been lowest at the middle segment of the skill distribution. Wage improvements have tended to be concentrated at the high end, and employment gains have tended to be largest at the low end of the skill distribution.
• This particular symptom of polarization is also prevalent in OECD countries other than the United States.
• In the United States, this polarization was exacerbated by the economic downturn. While both high- and low-skill jobs have held steady, the brunt of the recession has been borne by mid-skill workers. For example, growth in employment in sales was 54 percent from 1979 to 1989, 14 percent from 1989 to 1999, 4 percent from 1999 to 2007, and -7 percent from 2007 to 2009. Employment in sales was a key component of upward economic mobility after World War II, but technological change and globalization appear to have stalled or perhaps reversed this engine of middle-class affluence.
• From 1980 to 2007, real wages for male workers with only a high school degree fell by 12 percent, real wages of male workers with only a college degree rose by 10 percent, and real wages of males with post-graduate degrees increased by 26 percent. Female workers show a similar pattern, although wage gains were generally higher for females over this period.
Using the latest Census Bureau data, Matthew Slaughter found that from 2000 to 2010 the real earnings of college graduates (with no advanced degree) fell by more in percentage terms than the earnings of high school graduates. In fact, over this period the only education category to show an increase in earnings was those with advanced degrees.5
The Great Depression of the 1930s can also be interpreted in part as an economic transition.
The outlook for mid-skill jobs would not appear to be bright. Communication technology and computer intelligence continue to improve, putting more occupations at risk.
For example, many people earn a living as drivers, including trucks and taxicabs. However, the age of driver-less vehicles appears to be moving closer.
Another example is in the field of education. In the fall of 2011, an experiment with an online course in artificial intelligence conducted by two Stanford professors drew tens of thousands of registrants. This increases the student-teacher ratio by a factor of close to a thousand. Imagine the number of teaching jobs that might be eliminated if this could be done for calculus, economics, chemistry, and so on.
It is important to bear in mind that when we offer a structural interpretation of unemployment, a "loss of jobs" means an increase in productivity. Traditionally, economists have argued that productivity increases are a good thing, even though they may cause dislocation for some workers in the short run. In the long run, the economy does not run out of jobs. Rather, new jobs emerge as old jobs disappear. The story we tell is that average well-being rises, and the more that people are able to adapt, the more widespread the improvement becomes.
Challenges Due to Rapid Change
If you could read, follow simple instructions, and settle into a routine, you could find a job in the post-war economy.
There are two challenges. One is the sheer speed of adjustment. In a hyper-Schumpeterian economy, the main work consists of destroying someone else's job. Garett Jones has pointed out that the typical worker today does not produce widgets but instead builds organizational capital. The problem is that building organizational capital in one company serves to depreciate the organizational capital somewhere else. Blockbuster video adversely affected the capital of movie theaters, Netflix adversely affected the capital of Blockbuster, and the combination of faster Internet speeds and tablet devices may depreciate the organizational capital of Netflix.
The second challenge is the nature of the emerging skills mismatch. People who are self-directed and cognitively capable can keep adding to their advantages. People who lack those traits cannot simply be exhorted into obtaining them. The new jobs that emerge may not produce a middle class. Instead, if the trend documented by Autor for the period 1999-2007 were to continue, most of the new jobs would be low-end service jobs, for which competition will tend to keep wages low.
The recent trend in job polarization raises the possibility that gains in well-being that come from productivity improvements will accrue to an economic elite. Perhaps the middle-class affluence that emerged during the latter part of the industrial age is not going to be a feature of the information age. Instead, we could be headed into an era of highly unequal economic classes. People at the bottom will have access to food, healthcare, and electronic entertainment, but the rich will live in an exclusive world of exotic homes and extravagant personal services. The most popular bands in the world will play house concerts for the rich, while everyone else can afford music downloads but no live music. In the remainder of this essay, I want to extend further this exercise in imagination and consider three possible scenarios.
Three future scenarios
The most optimistic scenario is the one I consider least likely. Under this scenario, the supply of workers adapts to changes in technology. In particular, this means a future with relatively fewer workers whose skills are limited to following directions in well-defined jobs. Instead, more workers will have the cognitive ability, initiative, and self-discipline to constantly update their skills, adapt to new technology, and to participate in the creative part of creative destruction. Under this scenario, economic growth will be very high, and median earnings will also be high.
The main anti-Keynesian narrative is that businesses are suffering from uncertainty and over-regulation.
I do not believe that this optimistic scenario will emerge through more spending on education or even with education reform. My reading of the research is that variations in education techniques lead to differences in outcomes that tend to be small and transitory.6
If the optimistic scenario does arise, I suspect it will be the result of discoveries in biology. Perhaps pharmacology will succeed where pedagogy fails.
Turning to more realistic scenarios, I see the desirability of the outcome depending on the extent to which institutions serve to ameliorate problems created by disparities in ability. At one extreme, charities and government will develop humane, rational approaches for providing for the needs of people who are disadvantaged in an economic environment where rewards are concentrated among those who are disciplined, self-directed learners with creative gifts. At the other extreme, collective institutions will be arenas in which elites compete for resources, even when they claim to be fighting on behalf of the disadvantaged.
I would assess our current situation as closer to the adverse scenario. Our government is very responsive to cries for bank bailouts or to pleas for subsidies coming from well-connected companies, large (General Motors) and small (Solyndra). That same government is much less likely to target assistance in a charitable fashion.
With all due respect to GI Joe and Rosie the Riveter, it could be that Cynthia the Clerk is a more appropriate symbol of the war effort.
Economist Steve Allen calculated that a $447 billion spending plan could be used to pay all 14 million unemployed workers $32,000 a year to take low-paying or volunteer jobs.7 While there may be no practical way to implement Allen's approach, it does illustrate the deficiencies in existing stimulus proposals. Even according to the most optimistic estimates, these create or save many fewer jobs per dollar spent.
My guess is that the more power is concentrated in governmental units, the less likely it is that our collective institutions will be geared toward achieving outcomes that are charitable and make efficient use of resources. Trying to get large sums of tax money past the grabbing hands of rent-seeking elites will be like trying to get a stagecoach full of gold past a horde of armed robbers.
Government's role as an employer and as a regulator is likely to exacerbate earnings inequality going forward. Government pay scales and contract award policies tend to place a very high weight on formal academic credentials. This increases the advantages of advanced degrees both directly and indirectly. The more that government requires educational credentials, the greater the rewards to the providers of educational credentials. Of course, becoming a provider of educational credentials requires obtaining high credentials oneself.
I suspect that a more decentralized set of voluntary collective institutions would achieve better results. People are less likely to donate to institutions that provide windfalls only to elites, so that such organizations would lose out in a competitive environment. I believe that a scenario in which many people have dignified jobs and enjoyable lifestyles is more likely to emerge in an environment with decentralized voluntary charities than one with concentrated, coercive government.
To put this another way, I think it is possible that technocrats will be able to come up with programs that offer decent work and reasonable incomes for workers with modest skills. However, I have more faith in a process in which technocrats must compete for charitable donations than a process in which they compete for government power.
Arnold Kling is a member of the Financial Markets Working Group at the Mercatus Center of George Mason University. He writes for econlog, part of the Library of Economics and Liberty.
Footnotes
1. See Ian D. Wyatt and Daniel E. Hecker, "Occupational Changes During the 20th Century," March 2006.
2. See Amy Sue Bix, Inventing Ourselves Out of Jobs? America's Debate Over Technological Unemployment, 1929-1981. Baltimore, MD: Johns Hopkins University Press, 2000.
3. See Claudia Goldin and Lawrence Katz, The Race Between Education and Technology. Cambridge, MA: Harvard University Press, 2008, p. 27.
4. The facts reported here are taken from David Autor, "The Polarization of Job Opportunities in the U.S. Labor Market," a paper for the Center for American Progress and the Hamilton Project, April, 2010.
5. David Wessel, "Only Advanced-Degree Holders See Wage Gains," September 19, 2011.
6. That is my reading of the work of Nobel Laureate James Heckman. For example, he and co-author write, "Schools work with what parents give them. The 1966 Coleman Report on inequality in school achievement clearly documented that the major factor explaining the variation in the academic performance of children across U.S. schools is the variation in parental environments—not the variation in per pupil expenditure across schools or pupil-teacher ratios. Successful schools build on the efforts of successful families. Failed schools deal in large part with children from dysfunctional families that do not provide the enriched home environments enjoyed by middle class and upper middle class children." See James Heckman and Dimitriy V. Masterov, "The Productivity Argument for Investing in Young Children," 2007.
7. Steve Allen, "Some jobs bill arithmetic," September 10, 2011.
Image by Darren Wamboldt | Bergman Group
On May 26, 2011, the White House posted this video praising Solyndra as a Recovery Act success story. In August, Barack Obama's gleaming example of green technology – Solyndra – filed for bankruptcy. The solar panel manufacturer squandered $535 million of stimulus money in a little over a year.
Why Solyndra?
Top Obama bundler George Kaiser made multiple visits to the White House in the months before the company was granted a $535 million loan from the government. And top Solyndra officials also made numerous visits — 20 — to the White House, according to logs and reporting by The Daily Caller. Solyndra officials in the logs included chairman and founder Christian Gronet and board members Thomas Baruch and David Prend. The company secured the $535 million loan despite the fact that it was widely known Solyndra was in deep economic trouble and had negative cash flows since its inception.
Kaiser said he did not use political influence or talk to administration officials about a massive government loan to Solyndra. However, the Solyndra investor made multiple visits to the White House in the week before the Department of Energy approved a $535 million guaranteed loan to Solyndra on March 20, 2009
(Solyndra)
But, Barack Obama had no regrets.
In fact, Barack Obama was so impressed with the failed solar company that the administration wanted to give it another $469 million on top of the $535 million to make it an even billion dollars in taxpayer cash.
Today the Obama White House announced that it would not honor a subpoena and release all documents related the the $535 million Solyndra scandal to a House committee.
The AP reported:
The White House on Friday strongly rebuffed a subpoena from House Republicans seeking all communications about a failed solar panel manufacturer that received a half-billion dollar federal loan guarantee.
In a letter to two top Republicans on the House energy panel, White House Counsel Kathryn Ruemmler said the request "was driven more by partisan politics than a legitimate effort to conduct a responsible investigation."
The White House and the Energy Department have already turned over 85,000 pages of documents on Solyndra Inc. The California-based company filed for bankruptcy and laid off 1,100 workers after receiving $528 million in federal backing.
Ruemmler said those documents show no wrongdoing or political favoritism by the administration. She added that curiosity alone is not a justification to encroach on the Executive Branch's longstanding confidentiality interests.
House Republicans have used Solyndra to highlight what they see as President Barack Obama's failure to create clean energy jobs. The company was the first to receive a federal loan guarantee under the 2009 stimulus law, which greatly expanded the program. Obama visited the company last year to praise it publicly.
Documents already obtained by the committee show that the administration knew the firm had problems, yet continued to support it.
On Thursday, a subcommittee of the energy panel voted on party lines to issue the subpoena, calling the White House "obstructionist."
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