May 11, 2013

Saturday Morning Essay: Meanwhile, Up in the Troposphere

Brought to you by Peet's House Blend....

Actually, "worrying" about the economy is a nice distraction from real problems, such as global warming.  It's all in how you look at things, as Pablo & Salvador depict above.

Did you hear?  The world has achieved another milestone: 400 parts per million.  The monitoring station up on top of Mauna Loa recorded a full day's CO2 measurements where the average came in at 400 ppm.  We did it!  (Or, more appropriately:  Good Lord, man, what have we done?)  Don't worry.  That number will drop somewhat over the summer as the world's forests and other greenery snarf up a few million tons of that CO2 and photosynthesize it.

Then it will be back, higher than ever.  Higher than it's been in three million years, which, if you're playing along at home, you know is longer than human beings have been around.  For right now, however, it's kind of cool that the CO2 component of room air, .04%, matches up so perfectly with the Keeling measurements high up in the Hawaiian tradewinds.

Currently, the anthropogenic contribution to CO2 levels is doubling about every 30 years or so, which allows some easy math.  The "heritage" level of CO2 (around 1750, at the dawn of the Industrial Age) was about 280 ppm.  So, we've pumped another 120 ppm into the atmosphere during these first 260 years or so, but obviously we were just getting started.  280 + (120 x 2) = 520 ppm in 2043.

James Hansen & Co. have modeled some possible outcomes based on these increases in terms of "sensitivity" to CO2 concentrations.  Basically, 3 to 4 degrees C equates to a CO2 concentration of 520.  That's not good, not good at all.  It would be much better to hold the line where we are, although, of course, we won't.

But we should.  For the love of God, man, we should.  We may get a little more cooperation from....well, from ourselves when the deep ocean heating that has been going on over the last decade begins bubbling up to the atmosphere again.  That's where Earth has been parking the additional heat, but it's been masked by a persistent La NiƱa in the Pacific Oscillation.  I've noticed that myself over the last five years or so, out here next to the rim of the Eastern Pacific.  I suppose that buffer will dissipate (sort of built into the word "oscillation"), but I hope Earth takes her own sweet time.

It's Mother's Day tomorrow.  Don't forget Mother Earth in your remembrances.

May 07, 2013

Krugman and Stockman Battle to a No-Decision

Thus endeth my informal education in modern economics.  The truth is, in terms of the epic slugfest between Paul Krugman, Champion Keynesian, and David Stockman, Champion Sourpuss, I have no particular favorite.  I don't think either one of them is actually talking about what is going on in modern American society, and in some ways I think they're both cockeyed optimists masquerading as Gloomsayers.  For example, David Stockman manages to write 700 pages without mentioning that thing we call the "environment," and which in older times we called the "natural world."  It goes without saying that Paul Krugman never mentions the effect of reality on his economic models.

David Stockman appears to be arguing that modern capitalism in America would work within our present framework of democracy if we would just stop using so much debt financing, both public and private.  Krugman argues, contra, that we should use public debt financing to fill in for lost consumer "demand" in our economy until the economy gains "traction" and becomes self-sustaining.

Yawn.  I feel for these guys.  It can't be much fun to construct all these charts and graphs on what is essentially a dry-lab basis that has nothing to do with anything.  They're a couple of old geezers (like me) who are remembering an America of their youth and pretending it can be restored if we pick the right nostrum.  And they're both so damn angry all the time.

It's okay, guys.  It's not your fault.  For my part, you might say I'm more of a classicist.  As I've written before, I think you can learn a lot by reading and studying the works of those deep thinkers who observed the "turn" in the organization of society and thus were acutely aware of the nature of the changes taking place.  Those who come along later are born and inured to the "normal" that already exists, and thus have a difficult time seeing that the way things are set up is not necessarily "ideal" or maximally conducive to human happiness. This is the "normality bias," or the "normative tendency of the factual."   So that our modern critics, for the most part, are forever jiggering, intellectually and politically, with a social system that will never deliver the results they desire.

One of my intellectual heroes is Emile Durkheim, the French social theorist often credited with the founding of modern sociology.  The scion of a long line of rabbis from the Lorraine area of France, Durkheim jettisoned religious thinking and embarked on an "empirical" study of society, in a less "conceptual" way than Karl Marx, who tended to go in for fanciful narratives about "scientific history" that foundered on a misunderstanding about the basic nature of human psychology.  Durkheim gave us the concept of the "organic society," the beehive where citizens surrender their individual autonomy and self-sufficiency in favor of mutual dependence in a highly specialized "division of labor."  (Thus the title of Durkheim's master work, The Division of Labor in Society.)

This division of labor is the foundation of modern capitalism, and no country is more capitalistic than the United States.  It is our essential religion, in a way that Durkheim would have appreciated (since he believed that religions arise out of social utility).  Capitalism tends to push toward ever greater efficiency and increasing profit margins.  Whether these drives are consistent with the welfare of the individual members of the society is a secondary concern.  You might say that capitalism has a mind of its own.  America has now arrived at the point where about 58% of the adult population (those 16 or older) have any kind of a job.  This is called the "employment rate of the general population" and is probably the key measurement of conditions inside the "organic society."

The great thing about the various "bubble years" that we passed through over the last couple of decades is that the accumulation of debt they made possible enabled our society to employ more of our people, in the Planning & Tanning Economy, than is now the case.  Mr. Krugman liked these arrangements and disapproves of the "cranky old man" criticisms of a moralist like David Stockman. I think that's how that dynamic works.

America always tends to lead the way in social innovation.  Our employment of only 58% of the adult population does not seem to adversely affect our "productivity" or the profit margins of the large corporations which own our society and political system.  In other words, brutal as it is to say, we don't need the other 42% to avoid shortages or to maintain our vital heat.  Indeed, we don't even need the 58%, as we all know.  We don't need me, for a specific example.  The work I do could easily be taken on by a couple of other lawyers as additions to their work and I would fade into total economic irrelevance (in other words, I'm already in a state of complete economic irrelvance in terms of "productivity" and "efficiency" within the Organic Society).

I think these trends are generally taking hold in advanced industrial societies.  The problems look like something else because we insist on believing that the "organic societies" of the modern world exist in order to provide livelihoods for their individual citizens.  This is a fundamental misconception about the sociopathic (literally) tendencies of capitalism.   It leads the esteemed Mr. Krugman to argue repetitively that the American economy is "under performing" or has "unutilized capacity."  Not really.  We have everything we need, although as Gail Tverberg points out, the prices of some of the absolute essentials, such as petroleum, have gone through the roof.  The marginal effect of this price surge (which finds its way into practically everything) is that the hard-pressed citizenry abstains from the frivolous activities and purchases of the Planning & Tanning Economy, and those activities were the difference between the Bubble Years and now.  As Gail notes in Our Finite World:

Economists base their models on the assumption that the economy only needs labor and capital; it doesn’t need specific resources such as fresh water and energy of the proper type. Unfortunately, substitutability among resources is not very good, and price is all-important. In the real world, growth slows as resources become more expensive to extract.

This is something of a major oversight. Ironically, this elision comes about in another way that My Man Durkheim would appreciate:  Paul Krugman and David Stockman are not ecologists, geologists or biologists.  They do desire prominence, however, and the easiest assumption to make in order to maintain their academic or business standing is to assume (falsely) that their fields are self-sufficient, and that the world can be explained without venturing outside their narrow disciplines.  Nonsensical, isn't it?    Yet that's how we form our "opinions" these days.

To wrap this up: with automation, assembly-lines, agri-business, online commerce, automatic toll booths on the Golden Gate Bridge, voicemail, computers, outsourcing of manual labor to poorer countries, and all of our other modern wonders, we produce, for the nonce, all that is necessary to maintain the population's vital heat.  Increasingly, what we don't produce are jobs so that the American commoner can afford to buy those essential things.  We're papering over the difference now with "transfer payments:" food stamps, Social Security Disability and early retirement, straining public pension systems, which keep the hoi polloi alive, for the most part, and keep the natives from becoming so restless they rise up against those who do so well within the current system.  Eventually, we will "means test" all of these "entitlements" as the next stage of devolution, then we'll host a "Debt Jubilee," and then we'll descend into anarchy, in the great historical tradition.  It should be interesting.

May 05, 2013

Sunday Morning Essay: Mr. Krugman's Science, Part 9, and Stockman on "Breadwinner Jobs"

I remain a stranger in a strange land when it comes to economics.  Generally speaking, the "science" of economics appears to be on a par with witch doctoring, only with fewer useful social applications (and oddly - more smoke).  As part of my auto-didact adventures in this dubious field, however, I faithfully read the columns and blogs of Mr. Krugman, who does the valuable service of setting the terms of the debate for the other quacks.

If you dip into the vast ocean of Mr. Krugman's writing, your ladle will doubtless contain (simply through statistical probability) the words and phrases: liquidity trap; zero lower bound; austerity; stimulus; Keynesian multiplier; and, occurring more often than all other phrases, I'm right.  Also, "as a percentage of GDP;" I'm convinced Mr. Krugman has a Casio watch with an algorithm built into it so that he can instaneously calculate anything, his lunch tab, for example, as a percentage of GDP.

As Mr. Krugman is wont to tell you (as he's desperate to tell you), he has been right that the Fed's money-printing has not ignited runaway inflation, nor has it caused the yields on Treasury bonds to spike higher.  After four years of money-printing, the excess reserve accounts of the Primary Dealers (the favored members of the Fed's banker cartel) have been engorged. That's been the main effect. The big Wall Street stock indexes, allowing for inflation, have recovered to about the level of late summer, 2007; through complicated financial channels, this rise is an artifact of the Fed's legerdemain and is unrelated to the moribund state of the general economy.

Mr. Krugman's tendency to be right on a narrow range of predictions makes him my favorite Bar Bet Economist. Will the next woman walking through the door be blonde or brunette?  On that order of significance. His predictions don't really mean anything, they don't diagnose the problem, but his focus on this narrow spectrum means that he can write the phrases listed above (dipped from the Krugman Ocean) on refrigerator magnets, push them around on the door of his Sub-Zero, and produce another deathless column/blog/paean to his infallibility. 

Yet sometimes I wonder what's going on in America, and there I find Mr. Krugman's writing somewhat useless.  Distractingly pointless, in fact.  Which is why my attention was drawn to the "breadwinner jobs" analysis in David Stockman's 700 page magnum opus, The Great Deformation.

The "breadwinner job" was a hallmark of the Greatest Generation.  My father had a breadwinner job. A lot of American males did in that era between 1900 and about 1970.  I was alive for part of that, and many of my attitudes about life in America were formed then.  My "parallax of nostalgia" (to quote myself, and N.B. to Krugman: don't steal that without attribution the way you did "Very Serious Person" from Glenn Greenwald) encourages me to think life here in America should always be that way, even though it so obviously isn't anymore.

A Breadwinner Job is a job that can support a family.  A man or a woman can hold such a job.  In most parts of the country, it takes about $50,000 per year to accomplish the task.  Let's imagine it's 1965, adjust for inflation, and think about what such a job might have been.  A man could work in Detroit, in an auto plant assembling cars, and work 40 hours a week for 40 years.  At the equivalent in today's dollars of $25/hour, he could earn about $52,000 per year.  He would also receive full medical insurance for his family with no deductible, a union pension plan, and Social Security on his retirement, along with Medicare. His kids could attend free public schools of excellent quality, then outdo the Old Man (to his satisfaction) by attending Michigan State or the University of Michigan virtually for free.  I'm not saying that I would want that life, but America made such an existence possible back then.  A man could live with dignity, raise a family, follow the Lions on Sunday TV, play poker and go bowling, and die a reasonably happy man.  In a lot of ways, as Jack Nicholson told us, that's As Good As It Gets.

Increasingly, that's all gone.  This is what Stockman is writing about.  Of the 133 million jobs in America, how many are now Breadwinner Jobs?  About 66 million.  How many Breadwinner Jobs existed in America in 2000?  About 72 million.  The jobs being added during this "Recovery" are all part-time or lower-paying jobs (McJobs of the barista, restaurant, bartending, Walmart Greeter variety) or those of the "HES Complex," referring to health care (nursing home workers, home health care) education (diploma mills siphoning off money from the Student Loan Bubble), or social services.  The HES jobs are derivative of government spending, one way or another, and are an artifact of our preferred approach to our declining fortunes, the borrowing or outright hallucination of money. 

The "internals" of the job market are obscured by the relentless focus on "GDP" (a dumb beast of a statistic if there ever was one) and "growth."  Mr. Krugman and his ilk talk about "jobs," but they do not get down to the granular detail that an angry renegade like David Stockman does (who is motivated to skewer everybody, of whatever political persuasion).  This is what makes Stockman so valuable.  In Krugman's case, his obfuscations are because he's in the tank for the Obama Administration and his buddies on the Federal Reserve Board.  While Krugman makes no secret of his belief that Obama is doing everything wrong (Obama is not borrowing and spending enough), Mr. Krugman also wants you to believe (it helps if you can achieve a headstand with a full-length mirror for this one) that Obama is doing everything right, because of the recovery, which is so much better than anything Mitt Romney could have done.

The larger point being: it's better for The Powers That Be if you go along with the gag that we're getting somewhere, even if we aren't.  Even if we're so obviously moving backwards. Thus, the emphasis on "GDP."  In a society where wealth is so grossly unbalanced, so ruinously concentrated at the top, growth in GDP might simply mean that Jamie Dimon has added another 10,000 square foot guest house on his Hamptons estate.  It's better if we say the unemployment rate is going down, without a lot of messy detail about what kinds of jobs are being "created" in the recovery, or how many people have simply given up looking for work and dropped out of the U3 denominator.  Ben Bernanke likes to talk about the "wealth effect" of a soaring stock market engendered by money printing - a wealth effect for whom?

Even if you concede that the Breadwinner Jobs have been replaced by McCrap Jobs, you're not quite done yet.  Because the total number of jobs, period, has not increased significantly over the last 12 years, certainly not with respect to the "job entrant" category of at least 125,000 per month (Stockman uses 150,000 per month, but I'm not quite the polemicist he is).  Let us say that this latter number is about 1.5 million new workers per year, over and above deaths, retirement and other ways of escaping this lousy job market.  Between 2000, when there were a total of 130.8 million "non-farm payroll jobs" (and it may be easier to keep 'em down on the farm, after they see these data), and late 2012, when there were 133.5 million NFP jobs, America added 2.7 million jobs, of whatever quality. This needs to be measured against about 18 million new job entrants.

Stockman calculates that we've added about 18,000 jobs per month over the last 12 years (his numbers cannot be derived from my calculations above because he uses slightly different assumptions, but there's no material difference).  There has been no net gain of "Breadwinner Jobs" during this period - not a single job.  We've lost 6 million of those.  Yet of whatever quality the putative jobs may be, another question naturally arises:  How can we have only 2.7 million jobs more now than in 2000 and yet only post 7.5% as the U-3 unemployment rate, when the job pool (the denominator) grew by 18 million?  Where did all the people go?

I don't actually agree with David Stockman's emphasis on the Fed's "easy money" policies as the font from which all of America's economic travails flow.  I am afraid it is much more serious and intractable a problem than that.  In some ways he is like Krugman on that score, since Mr. Krugman is forever talking about stimulus spending until the American economy "gains traction" again.  In essence, Mr. Krugman is making a fundamentally circular argument: he is arguing that the Bubble Years of 2000 to 2007, where Americans could spill an extra tril per year into the consumer economy, can be regained on a sustained basis, and that the aberrant trend line of this one-off event can become the permanent state of affairs.  Yet even those Bubble Years did not produce Breadwinner Jobs, and without such employment, there is no foundation for sustaining such prosperity.  Put another way, what is the evidence that more Keynesian stimulus of the economy, with its concomitant increase in the debt load and fiscal imbalance of the federal budget, will lead to the massive creation of Breadwinner Jobs necessary to handle such debt and sustain such a trajectory?

Stockman's approach is to establish the "sound dollar" such as existed under the former gold standard, and to limit government spending to that which we're willing to pay for with current taxes.  To give up the money printing games, the Quantitative Easing, the American Snake Eating Its Own Tail, in other words.  Given the demographics of current America, with its aging Baby Boom population (you rang?), the utter dependence of so many on present government largesse, the breakdown of the American economic contraption caused by globalization and high energy prices, Stockman is simply sketching out a different Road to Perdition.  Both Mr. Krugman and Mr. Stockman are dabbling in fantasy, but they sell different kinds of books as a result of the choices they make.