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05/10/2010

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Jack

"A second factor in the sluggishness of the economic recovery is the housing market."

"There is pent-up demand from postponement of purchases (especially of durable goods, where postponing replacing is feasible)"


Let's add a bit more to the collapse of home building. At the peak we were building 2.5 million homes a year, today less than half a million. That alone is a lot of lost jobs; perhaps there is one or two full time jobs per home. Then there are 2 million fewer built-in ranges, dishwashers, carpets etc many of which are still mfg in the US

Next it's the purchase of a new home that is a big driver of other home furnishings. The old refrigerator may not fit, nor fit in, with new stainless built-ins. Spending quite a bit to furnish a new home is typical and much of the furniture is still mfg in the US and is fairly labor, transportation and retail sales effort intensive.

Outside there is fencing, patio or decks to be built, gardening products, and perhaps a new BBQ or even a swimming pool.

With housing below replacement plus population growth (perhaps 800,000 units) younger folks are staying home, moving home, staying in small apartments longer with space to even put the items mentioned a problem much less buy more of them.

A year or so ago I quipped to someone in housing that "housing won't be fixed until housing is fixed" or perhaps more seriously until jobs are found for some 3? 4? million either primarily or secondarily dependent on housing.

Posner describes the flat spin well but offers few suggestions for pulling out of it. No real criticism there! as it's a very tough problem.

Posner decries "the Administration’s pro-union policy" but he's probably wrong. There is no reason that the shift from mfg to service sector production such as low wages jobs in highly profitable distribution companies like Walmart should occasion going from a middle class income to being on food stamps. In the crafts, and yes even the auto biz, productivity has greatly outstripped wage gains and those jobs aren't going to be outsourced, and............ excess profits going to Walmart's Bentonville HQ's are not going to stimulate demand.

Gordon Longhouse

So where's Becker? I might agree with him too!

Gordon Longhouse

The experience in Australia of unemployment during the GFC might be of interest.

Unemployment here increased from about 4% to about 6.5% but hours worked dropped much more precipitately indicating that, rather than lay-off workers, employers put them on part-time. Also many holidays were taken during the GFC that workers were entitled to before this (Australia has generous holiday leave provisions).

I found this to be the case on the ground in that some businesses refused to meet on Monday because they were closed that day.

It seems that business here believed that the GFC would be temporary and decided that they did not want the costs involved in finding new competent workers when conditions improved and so kept their workers (or as many as they could afford) on strength.

I consider this a healthy response to a downturn: the worker is still working even if not as much and therefore not able to claim unemployment entitlements. They feel valued and business is able to respond quickly (by increasing hours) to any up-turn.

All in all a win-win-win for employer, employee, government and not incidentally, the budget deficit and capitalism.

Jim

Posner favors economic causes over political causes but the economics do not just "appear" in a magic moment like sun spots or floods. All of the factors mentioned are the direct result of public policies initiated by one political party or the other for purposes of getting and staying in power. Did job outsourcing occur because union power wasn't aided and abetted by politicians? Did the Greek situation occur because politicians were frugal and understanding of economic consequences? Did the US housing meltdown occur because Barney Frank, Fannie Mae and our congress understood that not everyone should own a home? Are the states and cities broke because their politicians understood the effects of overspending, overtaxing and anti growth policies?

Nothing will change in the US until the politicians change and once you are in the vortex headed in the narrow direction, it is very hard to escape.

NEH

"Uncertainty" as a prime cause of the "lackluster" recovery and it's consequents of fear and irrationality. As for the six items contributing to the uncertainty:

1. productivity increases via outsourcing
2. continued financial problems in housing
3. European budgetary problems at the Fed., State, and Local levels
4. U.S. budgetary problems at the Fed., State and Local levels
5. increasing deficit levels within the Fed.
6. perceived "socialistic" tendencies within the current Administration.

All good sources of the "Uncertainty" and it's consequents. The Country has faced down such uncertainty before, when it forced FDR to proclaim, "We have nothing to fear except fear itself". Remember, "Fear and irrationality" is the great mind killer and makes slaves of us all.

Perhaps we need a new watch phrase too see us through this perilous time. As one of the legions of the unemployed put it, "I only have one problem, and that is, I need a full time paying job with benefits. If I could get that, all my problems would go away". And with that, eliminate the six antecedents to "Uncertainty" and its consequents, fear and irrationality. By doing such, we could put the Economy back on track in short order.

Fidel Davila

In the last 60 years American Consumer spending has "sponsored" the development of the American, European, Japanese, Korean, Taiwanese and Chinese economies. Much of the recent sponsorship has been through debt. This had to end sometime and it did.

Does the world expect the American Consumer to be as profligate as in the past? The only way American spending can continue is for American wages to go up. Having 40% of Americans making less than $20k per year wouldn't do it.

Americans need decent wages to buy and yet, capitalist won't pay them. Capitlaism sure likes shooting themselves in the foot. Employment at a living wage is the issue--not just employment.

NEH

A "decent livable wage"? Imagine that. That's only possible with a process known as "Collective Bargaining" and that's a Union thing. We haven't practiced Global Labor Arbritrage for the last twenty five years or so in order to "bust" the Unions for nothing. Welcome to the new American Economy. Management is not like the old Henry Ford of old. Who stunned the economic world by giving his employees the unheard of sum of five dollars a day. That allowed the workers to purchase the product of their labor and as they say, the rest is history.

Fidel Davila

Without decent wages, a way to get money to the people who will spend it and restart the consumer-based economy then is to tax the rich (a.k.a., Management) or increase national debt and increase entitlement programs for the unemployed (a.k.a., workers). That is what two years of extending unemployment payments have done. Wouldn't it be better to have full employment with livable wages and let tempered capitalism work? The American consumer will probably not spend itself into unmanageable debt again; so, a livable wage is the only alternative to this conundrum.

Jack

Gordon: The AUS way does seem a win-win-win and perhaps a harbinger of the future should it turn out that, as I suspect, fairly high unemployment is systemic and will be with us for a long time, rather than cyclical. Trouble is "middle class" and lower wages in the US have eroded to the point that folks need full time and perhaps a Saturday or moonlight gig to make it in "normal" times.

Geez Jim, you partisan slip is showing again! While there may be fault to go around:

All of the factors mentioned are the direct result of public policies initiated by one political party or the other for purposes of getting and staying in power.

......... yeah, I've been calling that Reagan, or "read my lips", cut taxes taxes........"because" campaigning style "slopping the hogs" Worked pretty well too.

Did job outsourcing occur because union power wasn't aided and abetted by politicians?

.......... Well....... we'd have to take a look, especially as laws were changed back in the Reagan era that greatly weakened the labor movement. Perhaps you've noticed the ALL of the benefits of a doubling of productivity since going to the topmost tiers while union and other wages did not even keep pace with inflation?

Did the Greek situation occur because politicians were frugal and understanding of economic consequences?

.......... Not sure about their frugality but the number one news item appears to be that of corruption in general and an abhorrence of paying taxes. US take a warning?

Did the US housing meltdown occur because Barney Frank, Fannie Mae and our congress understood that not everyone should own a home?

......... There were certainly problems with Fannie and Freddie since LBJ "kinda" sold them off to hide a bit of the warmongering debt of his and Nixon's era. All in all it looks as though their overcompensated biggies found a similar hole in the fences so they too could lard up bonuses and leave our economy and taxpayers a very fat bag to hold.

But do you mind telling us, and only if you know, where the SEC went during the Bush Admin? If Madoff's perfect 20% score year after year didn't arouse a bit of suspicion, mightn't several detailed letters to them have tweaked some curiousity? But then perhaps they were "surfing" either in Costa Rica? or overloading their hard drives with spicy pictorial matter?

Are the states and cities broke because their politicians understood the effects of overspending, overtaxing and anti growth policies?

......... Not sure. Many years ago I lived in CA in a time of great expansion, with immigrants from Mexico and Oklahoma and many other states and they seemed to keep up with building schools, ranking near the top scholastically, building one of the greatest community college, state college and university systems in the world which arguably led to their strong economy in air, space, and Silicon Valley. Then something happened....... perhaps the Jarvis led Prop 13 that Warren Buffet denounced as one of the worst examples of property tax management in the nation in his all to brief moment as Arnie's economic adviser.

Spending too much? Hmmm, seems that despite CA having one of the highest per capita GDP's with the highest number of millionaires and being a very high cost place to try to live be one a teacher, cop or movie star, their per capita spending ranks only 12th in the nation. Puzzling, eh? BTW did you hear about the beating they took on "energy dereg" at the rapacious paws of Enron and similar varmints?

Nothing will change in the US until the politicians change and once you are in the vortex headed in the narrow direction, it is very hard to escape.

.... mebbe so. And knowing what you do of how a representative democracy is s'posed to work, do you hope for dramatic improvement as the hordes of money-laden lobbyists of K-Street infamy are turbo-charged by the unlimited corporate lucre made available to them by the recent, uncalled for, precedent ignoring, blatant activism of largely Bush family SC appointees?

Perhaps our founders erred in not banning dynastic holders of presidential and Congressional office; wasn't Adams the younger a dud too?

NEH

Jack, education and the development of productive capacity, i.e. industry, "then something happened"? Try "Global Labor Arbitrage" and the collapse of the "American School of Economics". Economically, Socially, or Politically, it's no longer about the "Harmony of Interests" - Agricultural, Industrial, Commercial, Financial, Governmental and the health and wellbeing of the Nation.
It has become everyone for themselves in this "race to the bottom".

Jack


NEH: That's my view. If I'm reading you accurately that half a century ago OUR corporate interests were far more closely aligned with the interests of our people. Not quite "What's good for GM is good for the nation" but not too far off. Today? Seems "our" corporations are international corporations fueled and steered by international capital that may only incidentally have goals beneficial to either the working folk of the US or the working folk anywhere else.

Exports were never the big play for the US, but then neither were imports. Mostly we walked around in US made clothes, drove US mfg cars to stores filled with US grown food. Today our huge consumer market is the freely available dumping ground for excess production from a nearly infinite supply of low cost labor.

Absent going very far down the protectionist route our??? companies, long spoiled by our own consumerism NEED to focus more on world markets. With many of the six billion people emerging as consumers, as Japan, Germany, China and others know the potential is immense and with Germany, Japan, and South Korea, need not be dependent on slave labor.

Consider, an increase in exports from 7% or so of GDP to 12% would wipe out our trade deficit and add a couple hundred billion to our Treasury. While profitable, "service" or licensing Ipads or pharma tech doesn't do much for putting our people to work. It's encouraging to see us, finally, competing in wind and solar that combine heavy capital, technical expertise and people.

On the import side it would be interesting to see the equation on how much could and should be invested by public or public and private to build out wind, solar, smart grids etc to stop some of the bleeding of $80/ bbl oil and hopefully nip the LNG import business in the bud before more billions are invested in the costly infrastructure that would provide momentum for continuing that costly and wasteful business.

Something......... took place with LNG during the early Bush years as he publicly dissed the 52" Alaska Gas Line,that would bring much of the gas we need for 50 years from OUR known reserves with a glib ".. not wanting to distort Lower 48 gas markets".

He packed the energy commish with those favoring LNG projects and 20 or so of the things are in planning or being built. In addition to LNG ships being floating WMD they are costly to operate and rust out in 25 years and have to be replaced.

For something on the order of four or five LNG ports, and the ships, pipes to get it inland et al, our pipeline could be built and supply cheap domestic NG to America's heartland where it's most needed and put money in OUR Treasury rather than that of Indonesian or other NG exporters.

I thought in 1999, and tried to get to the Gore campaign, that with a softening economy, that he should have campaigned on this 30 billion buck labor intensive project for North America that could lower A/C costs all through the midwest and given hope to those of the "rust belt" of plentiful cheap energy of new opportunity.

Oh well, we bought a war in Iraq instead...........

NEH

Jack, Bingo! I'm still up for building the Trans-Canadian pipeline to the Midwest, but we seem too have been overruled for the NAFTA Superhighway instead. That will never come to be, because all the funds are now flooding into the Mideast to buy off Al Qaeda, the Taliban, and any other Closet Terrorists (should we include Wall St. and K St. in this group?) that may exist. So much for infrastructure projects that could employ millions of unemployed Americans and at the same time boost the wealth of the Nation.

Jack

NEH: The politics of the Alaska-Canada gasline seem to be edging along. The President has moved the Pipeline coordinator into a cabinet position and surely it fits well with his "lowering dependence" and putting folks to work theme. Here it is the main topic of the coming Gov's race.

I've spent some time in Mexico, and Ha! in my "grand design" we do have to incorporate Mexico into a NA "co-prosperity" program. There's no ignoring a population now one third that of the US...... and why should we? They're a young (half born since the late 70's) energetic workforce that carries more of the hard work ethic and desire for a better standard of living than many of the US. They, like us, are not going to sit home and watch their parents and kids starve, so "walls" and all that are a waste unless we become a nation of Arizonian Nazis. But truth is, as evidenced by only 1% per year or so of their population slipping into the US, they'd much rather stay home.

NAFTA was, for the most part, of good intent, while Mexico was one of the hardest hit victims of the China phenomenon. Consider, even were they to float the yuan, we could not make a cheaper crappy wrench or compete with them on soldering up a circuit board, but in many instances Mexico could.

Consider, we're a $14 trillion GDP while they are but ONE trillion. Were we to find a couple hundred billion of mutually beneficial biz to do with them that be a huge boom for them, soaking up some of their truly ugly unemployment numbers while enhancing our production of appliances, heavy equipment, etc. One start might be to utilize their moribund cane sugar industry as part of our ethanol production. Cane is 8 times more efficient than corn and why eth works in Brazil but for the most part not in the US.

In this era of terrorism fear and border problems, I've wondered if more north south trains might be better than highways for being easier to inspect and control.

Fidel Davila

Here's a far out idea: Create a North American Union (like EU) with Candada and Mexico and then set up "Regions" of cooperation between the USA, Canada and Mexico. This will let the "locals" in all countries work out their issues rather than having to reroute them through their Capitals.

Alternatively, a USNA would incorporate all of Mexico's and Canda's Provences and US's States in one entity. The USNA Capital would be in the middle of Kansas Farm country and have no heat or cooling--only electricity. Also, loobiest would be have a 100 mile ban.

But then again this may be too much benefits for the poor and middle classes while the rich would be weakened.

NEH

Jack, the "NAFTA Superhighway" Plan was more than just a "highway". It incorporated quad N/S Rail lines, multiple N/S pipelines and a six to eight lane highway. Running N/S along I-35 from Laredo to the Canadian border. With linkups all along the route with tie-ins to new routes established in Mexico to sea ports on the their west coast and tie ins to the Canadian transportation networks. Funding by Canada for the Canadian portion, the Mexican portion by Mexico (or the Drug Cartels, whoever wins the Civil/Terrorist War down there) and the U.S. portion by the U.S.

It would make the Trans-Continental Railroad, that was started up by the Lincoln Administration and National Interstate Highway System by the Eisenhower Administration, look like child's play in a sandbox. And how many millions were employed? And how many millions would be employed?

But, it will never happen. Much like the failure of the Nuke solution to our energy problems. Oh well ... don't expect much from private industry, "I need a full time paying job with benefits" and failing that, more of the government "doles".

bwin

Interesting comments. Becker wrote an interesting article that has raised the readers interest for commenting. Interesting discussion!

Jack

NEH: Yeah, so does North America limit its options out of fear of terrorism and concerns about illegal migration? How the heck does the EU deal with its many borders and labor movement? On terrorism there are groups of Mexican economic desperadoes developing in some areas that are so impoverished as to be ripe for revolutionary organization.

Over time it would seem like NA should cooperate in filtering foreign terrorism at the NA borders, with other filters at our national borders. The nature of borders is rapidly changing with free flow of capital, and digital information, outsourcing of production etc. It would seem that the goals spoken of during NAFTA passage of raising productivity and wages in Mexico to lessen the extreme disparity with the US were good ones. Fifty or a hundred years from now wouldn't it be a lot better of Mexico were as Spain/France or Germany to us rather than having a destitute population half that of our own next door?

The Nuke dream is a tempting one as we can build many of them in a decade that offer a lot of power on a small footprint. But even leaving out the storage of the "exhaust" it appears the life cycle cost is significantly higher than alternatives such as solar and wind, but at this point, perhaps they are a necessary bridge to a future of necessarily burning far less fossil fuels.

Having not begun a conservation effort 40, 30, 20, or even 10 years ago we should start one Monday. Even a new Five Star Energystar home is only 2/3rds of what it should be. Housing in the US and in part related to the bubble game are twice the size of EU homes, with most "upscale" subdivisions having minimum sf requirements in the range of 2500sf, so as to ensure something like community standard. Yeah, like not having similarly nicely appointed 1500 footers for down sizers or young newly weds. Even notice the number of new homes in the sunbelt with huge roofs shingled in very dark colors? Mandated by subdivision covenants as the uniformity "looks" better and in some areas light colored roofs show up dark lichen or mold that grows on them. Solar installations? Banned by covenant in much of the sunbelt areas despite those "story and half" steep roofs being nearly perfectly angled to the sun.

I do have hopes for the private sector as the water begins to lap at their ankles and would hope that we are able to choke off some of the exorbitant compensation for the WS thieves, enough so that it would divert more of our best and brightest to productive enterprise of solving some of our energy and other problems, including ramping up export.

As I'm thinking about energy just now it is puzzling that VW has about the only small mass produced diesel that meets air pollution stds in every state. Their fair-sized wagon of 3200 pounds gets 30/22 in the gas model and 41/30 in the diesel model about a 33% improvement. The benefits of diesel are even more pronounced in heavier rigs with more wind resistance like our larger cars, SUV's and mini-vans and diesel power has it all over hybrid for highway travel which with our freeways is most travel.

One would think that even if it took a consortium of what's left of our big three Detroit could develop a small quiet diesel like that of VW and another larger one with perhaps a near term target penetration of 25% in the near future. Chrysler lots may offer us some diesel choice from its lash-up with Fiat.

Chuck Matthews, SPHR

Dear Judge Posner,

Great post. The opinions of your Court are always a joy to read.

In one aspect, I respectfully disagree with your remarks: "In fact the Administration has not pursued a radical leftwing course, as some have feared. Its policies have been, in general, continuous with those of the Bush Administration."

Employment law has never been more complicated and it will not get any easier.

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Without decent wages, a way to get money to the people who will spend it and restart the consumer-based economy then is to tax the rich (a.k.a., Management) or increase national debt and increase entitlement programs for the unemployed (a.k.a., workers). That is what two years of extending unemployment payments have done. Wouldn't it be better to have full employment with livable wages and let tempered capitalism work? The American consumer will probably not spend itself into unmanageable debt again; so, a livable wage is the only alternative to this conundrum.

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