New Link: EconLog

3 Responses to New Link: EconLog

1. Chris (Robotbeat) says:

   February 15, 2012 at 11:07 pm

   Check out this article by Paul Krugman:
   http://web.mit.edu/krugman/www/smokey.html
   “In Praise of Cheap Labor”
   No, seriously. Yes, that Krugman.

   Since the beginning of the recession, I’ve been really interested in economics (starting with Austrian and Keynesian economics), the banking system, industry, etc. I like to be well-rounded.
2. Chris (Robotbeat) says:

   February 16, 2012 at 12:38 am

   As far as the Patterns of Sustainable Specialization and Trade:
   http://xkcd.com/1007/

   Oh, and I completely disagree with the thesis of the paper which states that all unemployment is structural (and thus our high unemployment rate is because workers just aren’t trained in the right area… never mind the fact that there’s not a heck of a lot of difference in the unemployment rate of construction workers and everyone else). We have high unemployment right now because the housing bubble burst which caused the partial collapse of the unstable financial sector (which I think had grown far too big, actually)… That caused everyone (individuals and companies) to hold onto their wallets for dear life even if they still had a perfectly well-paying job. Everything that wasn’t essential fell in demand… Other than cash, that is. It is true that technological growth will eventually ease unemployment back to full, but that can take a while (a decade?) if left to itself. In the meantime, if people are scrapping factory equipment because there’s not enough demand, that can actually destroy supply as well, lengthening the whole process.

   Conventional macro doesn’t say that technology doesn’t develop, it says that over a short period of time, that rate of development isn’t that significant compared to big shocks like the housing bubble burst.

   And as far as “technological progress” being measured by productivity… I contest that very much. If you fire low-skilled workers, your productivity (i.e. amount of output by dollar amount per employee) will automatically improve with exactly zero technological progress. If you imagine a stock brokerage and a, say, sheet-metal fabrication factory join forces under a single company name. The stock brokerage part makes a lot more money per employee. If they then halve the number of workers in the factory but keep the stock brokers the same, then productivity of the company will increase with zero technological progress. When those lowest on the totem pole are fired and the jobs sent overseas, the productivity of the domestic economy seems to improve, but really no technological progress has taken place.

   Also, the article makes the claim that “policies enacted in
   accordance with the AS-AD model, such as the stimulus package in the United States approved by Congress in 2009, have not been successful,” which is pretty false… those who believed that it was a slump in aggregate demand were (at the time) pretty insistent in their claim that the proposed stimulus package was far too small. And just a little earlier, the article says the recession ended in 2009… So which was it?

   Also, countries like Israel which have had a more Keynesian response to the crisis have done much better than ones like Britain which have attempted austerity.

   Anyway, interesting article, even if it is wrong. 🙂 This quote did provoke one interesting thought in me though: “In any industry
   where productivity rises faster than demand, employment will decline. This will be the case when the elasticity of demand is not sufficiently high to absorb the increase in productivity, so that labour resources are released from the sector where productivity is rising. In the long run, this should be offset by increases in employment in other industries where demand is rising faster than productivity.”
   ^That seems to be explained partly by our very stagnant wages… In the post-war period until the 1970s, we had very high wage growth that matched economic growth… We were a consumer-driven economy that had well-funded consumers. After the 1970s, wages have been pretty stagnant or even declining (for whatever reason) except for a short period in the 90s (though wages now are still lower now than they were in the 1970s). That means that our consumer-driven economy had to rely on debt, and the only real asset which most consumers have that is of significant value is their home. Consumers could get away with tapping that asset because housing prices were increasing… Once that fell apart, consumers had to go back to relying on just their stagnant wages (or actually less, since they were now paying down debt instead of accumulating it), which meant an enormous drop in demand for the stuff we generally produce, which is consumer goods and services. Non-consumers (i.e. the 0.1% who really did see their incomes grow even faster than GDP) don’t spend proportionally as much of their “income,” so they were unable to keep aggregate demand up. So if there is a structural shift, it’s a structural shift away from producing goods and services that are useful and affordable to middle-class folk (which has been our country’s mode of operation for the last 60 years or so) and toward goods and services that are desired by the very rich. If wages are stagnant but the economy is still growing faster than population, that’s an inevitable shift.

   To be honest, I think the problem for America long-term is more about stagnant wages (in spite of all the education and training we are told is supposed to help deal with these issues) than unemployment… Then again, I live in a state with nearly full employment (Minnesota… with an unemployment rate of less than 5.7%).

   I absolutely agree with this 100%, though:
   “the US and the UK have to cope with the need for resources to shift out of unsustainable patterns of specialization and trade in real estate and financial services. Instead, these resources must find employment in sectors where they contribute profits that are not based on speculative manias or regulatory arbitrage.”
   Housing isn’t going to come back to where it was (at least not until my generation starts to die off…). We’re going to have a flat housing market as long as we have flat wage growth (if the house price to wage ratio rises too much, people become house-poor… that’s a sure-sign of a housing bubble). The financial services sector has become pretty bloated over the last three decades due partly to deregulation and probably also regulatory capture. And fundamentally, the financial services sector doesn’t really create wealth… at best it can help focus capital more efficiently, but often it seems just to find ways to extract money as much as possible, real economic growth be damned.

   And as far as government jobs… A very strong case can be made that we’ve been living off borrowed time when it comes to our national infrastructure and that large government investment is desperately needed for our competitive advantage as a first-world country to be maintained. Our bridges are falling down and our electrical grid has serious problems (and how is it optimal to have three different electrical grids which are barely interconnected?). The gov’t can borrow money at lower rates than inflation, so now would be the perfect time to invest in infrastructure and even capital-intensive (but very low annual cost) electrical plants like hydro, wind, geothermal and nuclear which otherwise wouldn’t return a profit as high as the private sector usually expects (which is far higher than annual GDP growth)… Though even the private sector is willing to invest with only a low rate of return if it’s a low-risk investment, simply because in a stagnant economy that’s a far better return than simply buying treasuries (or commodities in the long run).

   I have to agree with you, though. It is stimulating. 🙂
3. Chris (Robotbeat) says:

   February 16, 2012 at 12:39 am

   Wow, I’m sorry I wrote an ENCYCLOPEDIA for a post! You don’t have to read all that.