Perelman has previously written about the investment/technology of the 1930s.
It is disappointing that seemingly all the opinionators and prognosticators talk about the current mess as a FINANCIAL crisis. If we can't get beyond that, only mugglers proposing monetary policy will be our fate. Gene On Oct 9, 2011, at 7:55 AM, Louis Proyect wrote: > (Interesting article. Leonhardt argues in effect that the 30s were a > Schumpertian "creative destruction" moment that has no counterpart today.) > > NY Times October 8, 2011 > The Depression: If Only Things Were That Good > By DAVID LEONHARDT > > David Leonhardt is The New York Times Washington bureau chief. > > UNDERNEATH the misery of the Great Depression, the United States economy > was quietly making enormous strides during the 1930s. Television and > nylon stockings were invented. Refrigerators and washing machines turned > into mass-market products. Railroads became faster and roads smoother > and wider. As the economic historian Alexander J. Field has said, the > 1930s constituted “the most technologically progressive decade of the > century.” > > Economists often distinguish between cyclical trends and secular trends > — which is to say, between short-term fluctuations and long-term changes > in the basic structure of the economy. No decade points to the > difference quite like the 1930s: cyclically, the worst decade of the > 20th century, and yet, secularly, one of the best. > > It would clearly be nice if we could take some comfort from this bit of > history. If anything, though, the lesson of the 1930s may be the > opposite one. The most worrisome aspect about our current slump is that > it combines obvious short-term problems — from the financial crisis — > with less obvious long-term problems. Those long-term problems include a > decade-long slowdown in new-business formation, the stagnation of > educational gains and the rapid growth of industries with mixed > blessings, including finance and health care. > > Together, these problems raise the possibility that the United States is > not merely suffering through a normal, if severe, downturn. Instead, it > may have entered a phase in which high unemployment is the norm. > > On Friday, the Labor Department reported that job growth was mediocre in > September and that unemployment remained at 9.1 percent. In a recent > survey by the Federal Reserve Bank of Philadelphia, forecasters said the > rate was not likely to fall below 7 percent until at least 2015. After > that, they predicted, it would rarely fall below 6 percent, even in good > times. > > Not so long ago, 6 percent was considered a disappointingly high > unemployment rate. From 1995 to 2007, the jobless rate exceeded 6 > percent for only a single five-month period in 2003 — and it never > topped 7 percent. > > “We’ve got a double-whammy effect,” says John C. Haltiwanger, an > economics professor at the University of Maryland. The cyclical crisis > has come on top of the secular one, and the two are now feeding off each > other. > > In the most likely case, the United States has fallen into a period > somewhat similar to the one that Europe has endured for parts of the > last generation; it is rich but struggling. A high unemployment rate > will feed fears of national decline. The political scene may be > tumultuous, as it already is. Many people will find themselves shut out > of the work force. > > Almost 6.5 million people have been officially unemployed for at least > six months, and another few million have dropped out of the labor force > — that is, they are no longer looking for work — since 2008. These > hard-core unemployed highlight the nexus between long-term and > short-term economic problems. Most lost their jobs because of the > recession. But many will remain without work long after the economy > begins growing again. > > Indeed, they will themselves become a force weighing on the economy. > Fairly or not, employers will be reluctant to hire them. Many with > borderline health problems will end up in the federal disability > program, which has become a shadow welfare program that most > beneficiaries never leave. > > For now, the main cause of the economic funk remains the financial > crisis. The bursting of a generation-long, debt-enabled consumer bubble > has left households rebuilding their balance sheets and businesses wary > of hiring until they are confident that consumer spending will pick up. > Even now, sales of many big-ticket items — houses, cars, appliances, > many services — remain far below their pre-crisis peaks. > > Although the details of every financial crisis differ, the broad > patterns are similar. The typical crisis leads to almost a decade of > elevated unemployment, according to oft-cited academic research by > Carmen M. Reinhart and Kenneth S. Rogoff. Ms. Reinhart and Mr. Rogoff > date the recent crisis from the summer of 2007, which would mean our > economy was not even halfway through its decade of high unemployment. > > Of course, making dark forecasts about the American economy, especially > after a recession, can be dangerous. In just the last 50 years, > doomsayers claimed that the United States was falling behind the Soviet > Union, Japan and Germany, only to be proved wrong each time. > > This country continues to have advantages that no other country, > including China, does: the world’s best venture-capital network, a > well-established rule of law, a culture that celebrates risk taking, an > unmatched appeal to immigrants. These strengths often give rise to the > next great industry, even when the strengths are less salient than the > country’s problems. > > THAT’S part of what happened in the 1930s. It’s also happened in the > 1990s, when many people were worrying about a jobless recovery and > economic decline. At a 1992 conference Bill Clinton convened shortly > after his election to talk about the economy, participants recall, no > one mentioned the Internet. > > Still, the reasons for concern today are serious. Even before the > financial crisis began, the American economy was not healthy. Job growth > was so weak during the economic expansion from 2001 to 2007 that > employment failed to keep pace with the growing population, and the > share of working adults declined. For the average person with a job, > income growth barely exceeded inflation. > > The closest thing to a unified explanation for these problems is a > mirror image of what made the 1930s so important. Then, the United > States was vastly increasing its productive capacity, as Mr. Field > argued in his recent book, “A Great Leap Forward.” Partly because the > Depression was eliminating inefficiencies but mostly because of the > emergence of new technologies, the economy was adding muscle and > shedding fat. Those changes, combined with the vast industrialization > for World War II, made possible the postwar boom. > > In recent years, on the other hand, the economy has not done an > especially good job of building its productive capacity. Yes, > innovations like the iPad and Twitter have altered daily life. And, yes, > companies have figured out how to produce just as many goods and > services with fewer workers. But the country has not developed any major > new industries that employ large and growing numbers of workers. > > There is no contemporary version of the 1870s railroads, the 1920s auto > industry or even the 1990s Internet sector. Total economic output over > the last decade, as measured by the gross domestic product, has grown > more slowly than in any 10-year period during the 1950s, ’60s, ’70s, > ’80s or ’90s. > > Perhaps the most important reason, beyond the financial crisis, is the > overall skill level of the work force. The United States is the only > rich country in the world that has not substantially increased the share > of young adults with the equivalent of a bachelor’s degree over the past > three decades. Some less technical measures of human capital, like the > percentage of children living with two parents, have deteriorated. The > country has also chosen not to welcome many scientists and entrepreneurs > who would like to move here. > > The relationship between skills and economic success is not an exact > one, yet it is certainly strong enough to notice, and not just in the > reams of peer-reviewed studies on the subject. Australia, New Zealand, > Canada and much of Northern Europe have made considerable educational > progress since the 1980s, for instance. Their unemployment rates, which > were once higher than ours, are now lower. Within this country, the 50 > most educated metropolitan areas have an average jobless rate of 7.3 > percent, according to Moody’s Analytics; in the 50 least educated, the > average rate is 11.4 percent. > > Despite the media’s focus on those college graduates who are struggling, > it’s not much of an exaggeration to say that people with a four-year > degree — who have an unemployment rate of just 4.3 percent — are barely > experiencing an economic downturn. > > Economic downturns do often send people streaming back to school, and > this one is no exception. So there is a chance that it will lead to a > surge in skill formation. Yet it seems unlikely to do nearly as much on > that score as the Great Depression, which helped make high school > universal. High school, of course, is free. Today’s educational > frontier, college, is not. In fact, it has become more expensive lately, > as state cutbacks have led to tuition increases. > > Beyond education, the American economy seems to be suffering from a > misallocation of resources. Some of this is beyond our control. China’s > artificially low currency has nudged us toward consuming too much and > producing too little. But much of the misallocation is homegrown. > > In particular, three giant industries — finance, health care and housing > — now include large amounts of unproductive capacity. Housing may have > shrunk, but it is still a bigger, more subsidized sector in this country > than in many others. > > Health care is far larger, with the United States spending at least 50 > percent more per person on medical care than any other country, without > getting vastly better results. (Some aspects of our care, like certain > cancer treatments, are better, while others, like medical error rates, > are worse.) The contrast suggests that a significant portion of medical > spending is wasted, be it on approaches that do not make people > healthier or on insurance-company bureaucracy. > > In finance, trading volumes have boomed in recent decades, yet it is > unclear how much all the activity has lifted living standards. Paul A. > Volcker, the former Fed chairman, has mischievously said that the only > useful recent financial innovation was the automated teller machine. > Critics like Mr. Volcker argue that much of modern finance amounts to > arbitrage, in which technology and globalization have allowed traders to > profit from being the first to notice small price differences. > > IN the process, Wall Street has captured a growing share of the world’s > economic pie — thereby increasing inequality — without doing much to > expand the pie. It may even have shrunk the pie, given that a new > International Monetary Fund analysis found that higher inequality leads > to slower economic growth. > > The common question with these industries is whether they are using > resources that could do more economic good elsewhere. “The health care > problem is very similar to the finance problem,” says Lawrence F. Katz, > a Harvard economist, “in that incredibly talented people are wasting > their talent on something that is essentially a zero-sum game.” > > In the short term, finance, health care and housing provide jobs, as > their lobbyists are quick to point out. But it is hard to see how the > jobs of the future will spring from unnecessary back surgery and > garden-variety arbitrage. They differ from the growth engines of the > past, which delivered fundamental value — faster transportation or new > knowledge — and let other industries then build off those advances. > > The United States has long overcome its less dynamic industries by > replacing them with more dynamic ones. The decline of the horse and > buggy, difficult as it may have been for people in the business, created > no macroeconomic problems. The trouble today is that those new > industries don’t seem to be arriving very quickly. > > The rate at which new companies are created has been falling for most of > the last decade. So has the pace at which existing companies add > positions. “The current problem is not that we have tons of layoffs,” > Mr. Katz says. “It’s that we don’t have much hiring.” > > If history repeats itself, this situation will eventually turn around. > Maybe some American scientist in a laboratory somewhere is about to make > a breakthrough. Maybe an entrepreneur is on the verge of creating a > great new product. Maybe the recent health care and financial-regulation > laws will squeeze the bloat. > > For now, the evidence for such optimism remains scant. And the economy > remains millions of jobs away from being even moderately healthy. > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
