The New Normal
Here is a scary thought. The Pareto Principle in economics says that 80% of the effects come from 20% of the causes. In practical terms it might mean that 20% of your movies at Warner Bros. would generate 80% of the revenue. Pareto himself noted that 80% of the wealth in Italy was held by 20% of the people.
This morning unemployment hit 10.2%, a 26 year high. Yesterday the Labor Department reported that productivity surged to 9.5%. The U.S. has worked hard to transform itself into a knowledge economy and companies like Google and Goldman Sachs record record revenues per worker. What if some version of the Pareto Principle begins to apply itself to employment--20% of the workers produce 80% of the GDP? Dan Greenhaus of Miller Taback & Co has the grim reality of our future.
We have argued and continue to argue that another jobless recovery is materializing and if our estimates for G.D.P. growth going forward materialize, the unemployment rate will remain at elevated levels for several years. Nearly 16 million people are unemployed right now while another 9 million are working part-time jobs because they cannot get a full-time job.
So here is the reality of life for the bottom 40% of America's families. After they pay for food, housing and transportation they have $1200 per year to spend on "discretionary items" like clothing, medicine and doctors. Never mind telephone, Internet or cable TV which are supposed to be middle class entitlements. I don't believe the 25 million underemployed people in this country are not going to sit on their hands passively zoned out in front of the TV set in the next two years, especially when they see Hedge Fund managers taking home $100 million bonuses for successfully taking down companies like Abitibi-Bowater, CIT, General Growth Properties, Six Flags and even General Motors with their brilliant government subsidized Credit Default Swaps and bond packages that forced the companies into bankruptcy.
In earlier times we had outsider artists who could articulate the rage like Woody Guthrie in the Depression.
Yes, as through this world I've wanderedI've seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.
I believe it's going to take a new renaissance of rebellious artists, spiritual leaders and politicians to wake up the public to the reality of the real America. Glenn Beck has no solutions but to retreat to a fantasy world of the 1950's. The truth is that for more than half a century Republicans and Democrats alike have been prisoners of the conventional wisdom propounded by Wall Street bankers, military contractors, the Chamber of Commerce and their academic neoclassical economics enablers. The result is a hollowed out economy with no manufacturing base for exports except in making weapons of mass destruction, dependent on financial bubbles to keep the party going. Well, the party is over. Anyone who thought that just electing Barack Obama was the solution to our problems, misunderstood the institutional power of the Establishment and their conventional wisdom.
As I have said before, we are in an Interregnum where the old is dying, but the new cannot be born. Obama's election was just the start of what needs to be a new age of reform. Writing of the Progressive Era 100 years ago, Richard Hofstadter noted that the reform movement "was the effort to restore a type of economic individualism and political democracy that was widely believed to have existed earlier in America and to have been destroyed by the great corporation and the corrupt political machine."
Of course the task of Teddy Roosevelt, Upton Sinclair and the Muckrakers of 1904 was a lot easier than the task of Barack Obama. America was entering a period of technological mastery and export superiority. Jobs were plentiful. What TR had to do was break up the monopolies and end the corruption and greed in industries like meat packing and coal mining. Obama will have to do all of that (break up the Big Banks and reform the food and energy businesses), but his task will be far greater because he has to help create 30 million new jobs in the next few years. To do that we will need to remake our industrial base, because it's clear these jobs are not going to come from the existing knowledge and service economy that gets more productive by the day.





















There is a saying among therapists: 10% of the patents take up 90% of the time!
I think it pertains.... I'm gonna think on this.
November 6, 2009 1:26 PM | Reply | Permalink
Basically, you're arguing that the Luddites were right. I agree with you. I think they were. But I don't think you've thought it through when you say the old ways are dying.
In the '30s those workers were needed to make things. Now they aren't. That 40 or 50 or 60 percent have no economic function. Combine that with overpopulation and all its attendant problems, and with a small military that holds all the cards if it's not constrained by humanitarian considerations, and you have an unimaginable dystopia in the making.
November 6, 2009 2:35 PM | Reply | Permalink
Tariffs. Eliminating them made out sourcing possible. Reinstating them will reverse the process.
November 6, 2009 6:26 PM | Reply | Permalink
The dystopia in question is easy enough to imagine, though Citizen Taplin is not the one to do it. To quote myself in a long response that I decided not to post,
The trouble with Citizen Taplin is quite the reverse of what is diagnosed: in fact, he cannot imagine the Luddites ever turning out to be right, he takes for granted that there can be no feasibility problems about "remake our industrial base" &c.
Well, sure! First thing we do, is cut wages lower than China's. Second, . . . .
Healthy days.
November 7, 2009 2:10 AM | Reply | Permalink
I'm not sure what you are alluding to here Jon - but this many idle people with a grudge against the establishment or rather the economic powers that be - may decide that the political and economic status quo will no longer be tolerated.
This is where revolutions and civil wars come from.
C
November 6, 2009 2:37 PM | Reply | Permalink
Silly.
No revolution was ever fomented or inaugurated by a bunch of self-admitted losers* -- here, the 30+ million un- and underemployed.
* Anomie is the traditional disease of the lumpenproletariat.
November 6, 2009 4:01 PM | Reply | Permalink
"Never mind telephone, Internet or cable TV which are supposed to be middle class entitlements"
To anyone whinning about not having internet, cable TV, or even cell phones: you are not missing anything. I have all those things, they aren't worth anything. I'd love to get rid of mine whenever my wife agrees to it.
November 6, 2009 5:51 PM | Reply | Permalink
start with the internet
November 7, 2009 11:05 AM | Reply | Permalink
There is no "Pareto Principle" in economics. There are many phenomena that follow a power distribution. Wealth has been historically one such Phenomenon. Power distributions are sometimes 80%-20% but can be anything. In fact the US wealth distribution is not exactly 80%-20%. In 2004 20% owned 84% of the US wealth, i.e 80%-24% (and also 1%-35%, 5%-59%, etc.)
You cannot transfer this to labor, and you cannot measure labor by GDP fraction. If people are unemployed, their "contribution" to the GDP is 0% because that is measured by their wages. But that is not the same as their contribution to the economy. An unemployed parent raising two kids is not counted as contributing to the GDP, but try to have a society without child care. In contrast, 18% of our GDP comes from FIRE (finance, Insurance and real estate). How do you measure the real "productivity" of a Goldman Sachs executive, in bubbles per decade?
Furthermore. Unemployed people are unused capacity. Since obviously needs continue to be unmet, unused capacity doesn't represent worthless labor but labor that cannot be realized under specific social conditions. It may well be that 20% of workers are enough to meet the needs of the 10% of consumers who have money to spare. But that doesn't mean that they meet the needs of 90% of the economy. That means 90% of what we need isn't there.
November 6, 2009 6:51 PM | Reply | Permalink
November 6, 2009 8:12 PM | Reply | Permalink
To the point! I knew someone said it better than me, and I'm not surprised it is Krugman.
November 6, 2009 8:18 PM | Reply | Permalink
I'm wondering if we're already over-capacity in terms of our ability to produce/acquire things we actually need, plus plenty of extras. We have a big chunk of people working in the health insurance industry who get paid for providing an anti-service. We import endless disposable junk from China that we quickly dispose of. Etc.
I think we need to start looking seriously at reducing the work week, as a start - hire 1 extra person per every 8 employees now working 7-hour days. (Well, first we have to do what it takes to move some of that wealth out of that top 3% and back into the real economy. Wages have to go up too.) Increase vacation time as well - everyone needs 4-6 weeks off a year, as is the norm in several European countries. And, we have to make healthcare affordable - I think there's several slices of the population that would actually quite happily work part-time, if they weren't desperate for medical insurance. America works too much, doesn't get enough sleep, doesn't have time for civic involvement or time to cook healthy meals. Productivity has risen steadily but people remain overworked (when they can get it). It's unhealthy and unsustainable.
November 6, 2009 8:22 PM | Reply | Permalink
I like your ideas, Viola! :-)
November 7, 2009 10:49 AM | Reply | Permalink
How do you propose to do that - take the wealth and power from those who have it and give it to those who don't?
November 7, 2009 11:22 AM | Reply | Permalink
Where do you get this data, employment is WAY UP in the land of ...
November 7, 2009 9:30 PM | Reply | Permalink
Before anything can happen to reverse the present trends of wealth flowing to an evermore limited few the concept that an artificial state created entity that constitutionally can not vote to control elections, legislation and government in general is not empowered to control these things as though the government was a wholly owned subsidiary of those corporations (and Wall Street). Either through legislation, a constitutional amendment or a Court ruling the right of free speech of those entities not empowered by the constitution to vote must lose the ability in matters that involve influencing elections, politicians and legislation where influence constitutionally is limited to those empowered to exercise such influence with the vote. In other words: An entity not empowered to influence government policy with the vote has no standing to claim free speech rights in matters in which the constitution has limited the authority to exercise such influence to those that have been empowered with the vote to accomplish that influence.
I have no knowledge of any case in which freedom of speech to influence non-governmental policy and the right to vote to influence governmental policy were equivalent. Since the constitution provides a separate means for influencing governmental make-up and policy there is no reason to assume that freedom of speech for those entities not empowered with the vote should be considered equivalent and apply equally to both those empowered to vote and those not empowered to vote. It could as easily be argued that the freedom of speech ends where the right to vote begins! If these two rights were in fact recognized as being separated and not equivalent using money to buy influence in government (now considered constitutional as a part of free speech) would instead be considered unconstitutional because only the right to vote (I.E. a vote of approval or disapproval of a congressperson's stand on an issue replacing other communications to influence how that person represents his/her constituents) rather than the present donations of money as free speech for such influence.
Only when the power of corporate money is eliminated and the ability of corporations to control government policy as a way to protect and increase the corporate bottom line will we avoid becoming the Corporate States of America with laws written by lobbyist to enslave the people to the service of those corporations by keeping the people so close to going under they must do whatever the corporations demand. The present downturn is just a symptom of how the corporations increase their profits by getting rid of workers while threatening to replace anyone who wants better with replacement by one of the multitude waiting outside the gate. Recessions are just another tool used by corporations to get even more since it puts them in a position to make even higher profits by demanding more productivity while claiming as profit what is instead being dumped on the social safety net instead of costing them as wages. This and a stock market that flourished because of the recession for all others, the speculator who does not invest but makes quick trades in order to drain money out of the economy without putting anything productive into it and the whole trickle-down economics that Obama has bought into throwing money at those rich enough to engineer this downturn for their own gain as trickle-down was intended to do from the day Reaganomics was first proposed as a way to allow those at the top to leverage even more profits.
As long as corporation can control the government we will be their slaves.
November 8, 2009 2:04 AM | Reply | Permalink
is Cool !
November 14, 2009 10:53 AM | Reply | Permalink