economic bi-furcation

November 30, 2009

A Tale of Two American Economies

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Nouriel Roubini | Nov 18, 2009

From the Globe and Mail:

While the United States recently reported 3.5 per cent GDP growth in the third quarter, suggesting that the most severe recession since the Great Depression is over, the American economy is actually much weaker than official data suggest. In fact, official measures of GDP may grossly overstate growth in the economy, as they don’t capture the fact that business sentiment among small firms is abysmal and their output is still falling sharply. Properly corrected for this, third-quarter GDP may have been 2 per cent rather than 3.5 per cent.

The story of the U.S. is, indeed, one of two economies. There is a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn.

Consider the following facts. While America’s official unemployment rate is already 10.2 per cent, the figure jumps to a whopping 17.5 per cent when discouraged workers and partially employed workers are included. And, while data from firms suggest that job losses in the past three months were about 600,000, household surveys, which include self-employed workers and small entrepreneurs, suggest a number above two million.

Moreover, the total effect on labour income – the product of jobs times hours worked times average hourly wages – has been more severe than that implied by the job losses alone, because many firms are cutting their workers’ hours, placing them on furlough or lowering their wages as a way to share the pain.

Many of the lost jobs – in construction, finance, and outsourced manufacturing and services – are gone forever, and recent studies suggest that a quarter of U.S. jobs can be fully outsourced over time to other countries. Thus, a growing proportion of the work force – often below the radar screen of official statistics – is losing hope of finding gainful employment, while the unemployment rate (especially for poor, unskilled workers) will remain high for a much longer period of time than in previous recessions.

Consider also the credit markets. Prime borrowers with good credit scores and investment-grade firms are not experiencing a credit crunch at this point, as the former have access to mortgages and consumer credit while the latter have access to bond and equity markets.

But non-prime borrowers – about one-third of U.S. households – do not have much access to mortgages and credit cards. They live from paycheque to paycheque – often a shrinking paycheque, owing to the decline in hourly wages and hours worked. And the credit crunch for non-investment-grade firms and smaller firms, which rely mostly on access to bank loans rather than capital markets, is still severe.

Or consider bankruptcies and defaults by households and firms. Larger firms – even those with large debt problems – can refinance their excessive liabilities in or out of court, but an unprecedented number of small businesses are going bankrupt. The same holds for households, with millions of weaker and poorer borrowers defaulting on mortgages, credit cards, auto loans, student loans and other consumer credit.

Consider also what is happening to private consumption and retail sales. Recent monthly figures suggest a rise in retail sales. But, because the official statistics capture mostly sales by larger retailers and exclude the fall by hundreds of thousands of smaller stores and businesses that have failed, consumption looks better than it really is.

And, while higher-income and wealthier households have a buffer of savings to smooth consumption and avoid having to increase savings, most lower-income households must save more, as banks and other lenders cut back on home-equity loans and lower limits on credit cards. As a result, the household savings rate has risen from zero to 4 per cent of disposable income. But it must rise further, to 8 per cent, in order to reduce the high leverage of the household sector.

To be sure, the U.S. government is increasing its budget deficits to put a floor under demand. But most state and local governments that have experienced a collapse in tax revenues must sharply retrench spending by firing policemen, teachers and firefighters while also cutting welfare benefits and social services for the poor. Many state and local governments in poorer regions are at risk of bankruptcy without a massive federal bailout.

Moreover, income and wealth inequality is rising again. Poorer households are at greater risk of unemployment, falling wages or reductions in hours worked, all leading to lower labour income, whereas on Wall Street, outrageous bonuses have returned with a vengeance. With the stock market rising and home prices still falling, the wealthy are becoming richer, while the middle class and the poor – whose main wealth is a house rather than equities – are becoming poorer and being saddled with an unsustainable debt burden.

So, while the United States may technically be close to the end of a severe recession, most of America is facing a near-depression. Little wonder, then, that few Americans believe that what walks like a duck and quacks like a duck is actually the phoenix of recovery.

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Confessions of a Radical Industrialist: Profits, People, Purpose
Doing Business By Respecting the Earth
Ray Anderson

Ray Anderson, founder and chairman of Interface, talks about his efforts to
transform his waste-generating commercial carpet company into one that has
no environmental footprint by 2020.  Mr. Anderson spoke at Barnes & Noble
Booksellers in Atlanta.

Ray Anderson founded Interface in Georgia in 1973.  He has been the co-chair
of the President’s Council on Sustainable Development and the Presidential
Climate Action Project.  For more, visit: rayanderson.com.

http://www.booktv.org/Program/10961/Confessions+of+a+Radical+Industrialist+P
rofits+People+Purpose+Doing+Business+By+Respecting+the+Earth.aspx

————————

Ray Anderson is founder and chairman of Interface Inc., the world’s largest
manufacturer of modular carpet for commercial and residential applications
and a leading producer of commercial broadloom and commercial fabrics. He is
“known in environmental circles for his advanced and progressive stance on
industrial ecology and sustainability.” Since 1995, he has reduced
Interface’s waste by a third, and plans to make the company sustainable by
2020.

He defines sustainability as “taking nothing from the earth that is not
rapidly and naturally renewable, and doing no harm to the biosphere.”

For instance, under his leadership, Interface seeks to reduce and then
eliminate “petroleum from its manufacturing processes.” He is pioneering
recycling efforts with nylon and polyester which “is recyclable, leading to
more closed loop technologies for the future.” However, Anderson wasn’t
always a friend of the environment. He had his epiphany in 1994 when he read
The Ecology of Commerce, by Paul Hawken, who argues that [the] industrial
system is destroying the planet and only industry leaders are powerful
enough to stop it.

Anderson is featured in the documentaries The Corporation and The 11th Hour
as well as an interview in The Day After Peace.

Ray Anderson is the author of Mid-Course Correction: Toward a Sustainable
Enterprise: The Interface Model. Inspired by Daniel Quinn’s novel Ishmael,
Paul Hawken’s The Ecology of Commerce, and many others, Ray Anderson has
successfully composed a piece that covers his personal journey towards
sustainability in his work.

http://en.wikipedia.org/wiki/Ray_Anderson_(entrepreneur)

Economy and realism

November 8, 2009

We’ve all hard the hype about the economy is getting better. the NYT this morning has the following well-meaning editorial with some sense of correction of the normal upbeat forecasts.

EDITORIAL

Jobless Recovery

If you are looking for an economic recovery you can believe in, the October employment report is not for you.

After contracting for a year and a half, the economy grew in the quarter that ended in September, driven largely by federal stimulus. But government spending, as large and as necessary as it has been, has not been enough to revive hiring.

Unemployment surged from 9.8 percent in September to 10.2 percent last month, its highest level since 1983. At the same time, the economy lost 190,000 more jobs. That means employers have eliminated 7.3 million positions since the recession began in December 2007.

As dreadful as they are, the headline numbers understate the severity of the problem. They also obscure an even grimmer fact: Unless there is more government support, it will take several years of robust economic growth — by no means a sure thing — to recoup the jobs that have been lost.

The unemployment rate includes only jobless people who have looked for work in the past four weeks. The underemployment rate — which also includes jobless workers who have not recently looked for work and part-timers who need full-time work — reached 17.5 percent in October. And the long-term unemployment rate — the share of the unemployed population out of work for more than six months — also continues to set records. It is now 35.6 percent.

The official job-loss data also fail to take note of 2.8 million additional jobs needed to absorb new workers who have joined the labor force during the recession. When those missing jobs are added to the official total, the economy comes up short by 10.1 million jobs.

Taken together, the numbers paint this stark picture: At no time in post-World War II America has it been more difficult to find a job, to plan for the future, or — for tens of millions of Americans — to merely get by.

At a recent meeting at the White House to discuss job creation, President Obama said that “bold, innovative action,” would be needed — from the administration, Congress and the private sector — to undo the devastation in the labor market. Americans are waiting for Mr. Obama to lead the way.

There were good ideas floated at the White House meeting, including bolstered federal support for efforts to retrofit and weatherize homes and public buildings. There was also talk of using government money to establishing a so-called infrastructure bank that would issue bonds to help finance big construction projects.

The country also needs a program that would create jobs for teenagers — ages 16 to 19 — whose unemployment rate is currently a record 27.6 percent. Deep and prolonged unemployment among the young is especially worrisome. It means they do not have a chance, and may never get the chance, to acquire needed skills, permanently hobbling their earnings potential.

We know that more stimulus spending and government programs are a fraught topic. But they are exactly what the country needs. It may be the only way to prevent a renewed downturn. And the only way to create the jobs needed to put Americans back to work. Those are the essential — and missing — ingredients of a sustained recovery.

The problem is the failure to understand the dynamics. The central part of our economy, banks and large ownership, have jettisoned costs, much of it wages, at the periphery, and so while total economic activity is down, the situation has been restructured so that upper class incomes are more or less where they were, with the difference being carried by those who lost jobs. If this picture is correct, there is no motive to go back to the old job picture except solid growth. But people are maxed out on consumptions of some kinds and are not coming back, and growth or even a steady state economy will not work with climate change needs.

SO the conclusion is, I conclude, that there is no recovery possible. What we need instead is a very wide ranging rethinking our economy, how people get incomes and the costs of things that are basic. A focus on local agriculture and new ways of housing – a new  homesteading –. Hoping for a techno-green fix is hypocritical because the motive is to ride a new wave, to make money rather than make usefulness.

wealth transfer

November 3, 2009

http://www.sciencemag.org/cgi/content/full/326/5953/682

 

Small-scale human societies range from foraging bands with a strong egalitarian ethos to more economically stratified agrarian and pastoral societies. We explain this variation in inequalityusing a dynamic model in which a population’s long-run steady-state level of inequality depends on the extent to which its most important forms of wealth are transmitted within families across generations. We estimate the degree of intergenerational transmission of three different types of wealth (material, embodied, and relational), as well as the extent of wealth inequality in 21 historical and contemporary populations. We show that intergenerational transmission of wealth and wealth inequality are substantial among pastoral and small-scale agricultural societies (on a par with or even exceeding the most unequal modern industrial economies) but are limited among horticultural and foraging peoples (equivalent to the most egalitarian of modern industrial populations). Differences in the technology by which a people derive their livelihood and in the institutions and norms making up the economic system jointly contribute to this pattern.