What’s
Wrong Today:

January’s BLS
employment report shows total nonfarm payroll jobs gained were 113,000 for
January 2014, with private payrolls adding 142,000 jobs. Government jobs
decreased by 29,000. The US Postal Service alone shed 9,000 jobs.

The start
of the Great Recession was in December 2007. We are still down 851,000 jobs from December 2007, more than six years ago.

There are lots of ways to look at the data, but let’s focus today on self-employment.
Self-employment has been hailed as a solution for America’s employment ills. If you’re looking to become self-employed in Britain, taxi driving is a great option but make sure you use one sure insurance for the best deals.
There was the hype of Free
Agent Nation, by Daniel Pink that declared in 1997 that the work
environment was about to get radically different, that freelancers, temps and microbusiness
owners were where America’s employment
growth would occur. The Internet revolution untethered workers and made
independent work very possible, while the mindset of Generation X and the Millennials
leads them to prefer working independently.

So,
has self-employment been growing like a weed? No, it has not.

Justin Fox of the Harvard Business Review wrote
about the BLS data for self-employed workers:

Fox shows
that the number of self-employed is unchanged since January 2000, but the
long-term trend in self-employment is headed down:

Declines
in the unincorporated self-employed are largely due to the decline in farmers. They
were more than 8% of the workforce in the late 1940s. Now they account for less
than 1%. This shows we should support people trying to run their own business in a much better fashion. Many people work as tradesman, but we have to ensure they have everything they need to thrive. In the UK, insurance companies offer all risk insurance to help support these people.

Other
long-established occupations have also declined: Mom & pop stores, and physicians,
who have been grouping together or joining hospital staffs. Real estate agents
and contractors are down due to the bust in housing.

But, we
have been told that self-employment is the future for the new economy, where free
agents, contractors and part-time work from home would explode since corporations
were not hiring and government jobs wouldn’t be coming back.

If so, where
are they in the statistics?

The BLS
gets its self-employment totals from the Current
Population Survey, (also called the household survey), a monthly survey of
60,000 American households conducted by the Census Bureau (this survey also generates
the unemployment rate). Respondents are asked, “Last week were you employed by
government, by a private company, a nonprofit organization, or were you
self-employed?”

This
either/or choice may exclude a lot of people who are working on
the side, or whose jobs are really more like gigs. Self-employed owners of incorporated
business are not counted among the self-employed, nor are workers who freelance
or have secondary sources of income.

A survey
on behalf of MBO Partners, a provider
of support services for independent workers, counts temp workers, on-call
workers, and those on fixed-term contracts as “independent workers.” They say the
total self-employed pool was 17.7 million in 2013, up from 16 million two years
before. Steve King of Emergent
Research, which designed the MBO survey says:

Wait,
there’s more. The Freelancers Union
frequently cites the number 42 million
independent workers, about a third
of our workforce. They get their number from a 2006 GAO report that said
there were about 42.6 million “contingent workers,” meaning:

The bad jobs are probably really
growing, but the BLS definitions haven’t caught up with data, so it’s hard to see them. Which
jobs had the largest increases in self-employment? Fox at the HBR included another graph that shows
which “careers” are having a party:

There hasn’t exactly been a boom in
independent white-collar work. “Managers All Other” is a category of people who can’t otherwise be classified as construction
managers, purchasing managers, financial managers, etc. Also, the definitions of
the occupational categories used by
the government has an impact: All the nation’s maids get thrown into
one category; while physicians are split into nine.

Since
the start of the Great Recession, many white collar workers who may have previously
worked as independent, freelanced, long term contractors are required to be
employees of the contingent workforce agencies that corporations now use.
Moreover, most are exempt from overtime. Few employees hired by these companies
will ever receive 20+ hours per week, unless they have skills in an area that
is in great demand.

There
are looming social costs that may contribute to the self-employment/contractor future: A recent survey by TD
Ameritrade found that even though the majority of self-employed people
think that they’ll live on their savings when they eventually stop working, 70% of them are not actually saving for
retirement on a regular basis:

• 28% of self-employed people
  report that they aren’t saving for retirement at all
• 40% aren’t saving regularly
• 83% have put their retirement
  savings on hold or cut back at one time or another

It gets
worse: For those who own a business, only
19% plan to fund their retirement through profits from the company which will
continue to run after their retirement, and only 14% think they’ll be able to
sell their business and live off the profits from the sale.


Even worse: According to the
TD Ameritrade survey, 29% of Gen X and 32% of Millennial self-employed aren’t currently saving for their
retirements. So, a significant minority of our youngest self-employed
are expecting a miracle to bail them out when they face retirement.

The next
time one of our political elites celebrates the energy and entrepreneurship being
shown by our self-employed, perhaps we should remind them that most of the jobs
being created in this category are service industry workers who earn below or near
median wage, and that many of these “entrepreneurs” are not saving for
retirement.

Oh, and remind
the politicos that the self-employed often find it very difficult or impossible
to qualify for a mortgage
and for health
care insurance.

What’s
Wrong Today:

Have you
ever heard of the Heckman
Equation? Neither had the Wrongologist.

Dr. James Heckman is an
American economist and winner of the Nobel Prize for Economics in 2000. Heckman is a
professor of economics at the University of Chicago. His research shows that poor
families should have guaranteed access to education for their 3- and
4-year-olds.

Heckman says
he isn’t advocating socialism, it’s just the opposite: He is fixing a market
failure.

Unlike
our political elites and some of their captured economists, Heckman stresses using observable data in making public policy. His thesis is that
focused and individualized attention paid to the young children of poor families
can be a hard-nosed investment that pays off in lower social welfare costs,
decreased crime rates, and increased tax revenue.

The Heckman
Equation demonstrates the numbers that prove his point. According to Business
Week, Heckman says:

Heckman’s
equation is based on two long-term studies, one begun in the 1960s in
Ypsilanti, MI, and another a decade later in Chapel Hill, NC. Both provided
free preschool to children from lower-income families. In the decades since,
researchers have followed those children, who are now adults.

• At
  age 40, the subjects from the Ypsilanti study were far more likely than their
  peers to have graduated from high school and have jobs. They were more likely
  to own homes and less likely to have needed social services. The boys were more
  likely to have grown up to raise their own children and less likely ever to
  have been arrested.

• Children
  from the program in Chapel Hill had higher test scores than their peers through
  adolescence and were more likely to have gone to college.

While both
studies are well-known to education researchers, Heckman and several co-authors
produced in 2010 what he called the “first rigorous cost-benefit study” of the
Ypsilanti program. The free instruction cost $17,759 per child per year in 2006
dollars (the year they began working with the data). Heckman set out to find
out what taxpayers got for that money. He calculated what the program had saved
the state and federal government in social welfare, what it had paid in
increased tax revenue from higher wages, and, most significantly, what it had
saved in police, court, and prison costs.

The initial investment provided what
Heckman calls a “return to society” at an annual rate of 7% to 10%. In dollar
terms, each dollar spent at age 4 is worth between $60 and $300 by age 65.

A lot of the return
on investment comes from crime reduction, but Heckman’s research
paper indicates that early learning boosts lifetime earnings:

Heckman
also cites the Perry
preschool program as an example that proves his points: Between 1962 and
1967, the Perry program offered preschool to a group of three- and
four-year-olds born in poverty. Interviewed
at age 40 in the mid-2000s, that group was significantly more likely to have
graduated from high school and to earn more than $20,000 a year.

So, when
Mr. Obama said in the 2014 State of the Union address:

He
was talking about Heckman. Last year, the White House acknowledged Heckman’s research
(along with the Perry preschool work) by including early education grants for
states in its budget proposal. On Dec. 13, congressional negotiators put $250
million for new early education funding into its omnibus spending bill.

According
to Business Week, some states
are way ahead of the Obama Administration. Fifteen governors, both Republicans and Democrats, included new money for early childhood education in their
budgets in 2013. In all, states are now spending $400 million more on pre-K
than before the economic downturn, so Heckman’s ideas are gaining ground.

Heckman’s data
show that the earlier a child gets help, the better the results through each
stage of education. Yet, younger parents are on the whole, more financially constrained
at that point than when their kids are older. So when they ought to be putting
their kids into early education programs, they don’t have the money or credit
to pay for it.

Economists
call this an imperfect market. Business Week quotes Heckman:

So, Dr.
Heckman is building a case for a soft-hearted investment in America’s
pre-schoolers. If you are a certain kind of politician, you will be able to smell
the socialism and redistribution. Sadly for them, Heckman’s work is backed by
data, not just the bias of Randian fundamentalism.

This
should be an idea that everyone in America can support, particularly since the
data show it works.

This weekend, think about the “financialization” of our democracy.
It’s not that difficult to understand. Our democracy has been weakened because our politicians
have surrendered themselves to the global 1%.

Money governs. That’s your inspiration
for today’s homily.

The margins for conducting political
dissent have disappeared. And trying to find middle ground to pass legislation
is nearly impossible. Politics has become just marketing. And most politicians
have become part of the financial system: They are political entrepreneurs selling
just to make a buck.
Willy Loman says in Death of a
Salesman:

Willy Loman discovers
there’s a problem:

America is out there in the blue. It’s time for the earthquake.

The decline in our working environment never ends:

Politicians have trouble with CVS’ decision:

Political and dating advice: Don’t use Huck as your wingman:

Leno hurts job statistics:

Security is tight at the Sochi Olympics:

What’s
Wrong Today:

Yesterday’s Wall Street Journal reported
on how the backbone
of America’s labor force are out of work at unprecedented
levels. From the WSJ:

Having so
many men out of work is partly a symptom of a US economy that is slow to
recover from the worst recession in 75 years. It also shows how technology and
globalization are transforming jobs faster than many workers can possibly adapt.
More from the WSJ:

Although
the economy has improved and the official unemployment rate has fallen to 6.7%,
the numbers for working-age men are terrible: 17% of men 25-54 weren’t working in December. More than
two-thirds said they weren’t looking for work, so the government doesn’t label
them unemployed.

The
January report on the job market is due today.

For women,
the story is different. In the 1950s, only about a third of women ages 25 to 54
had jobs. That rose steadily until the 1990s, and then leveled off. At last tally,
about 70% are working; 30% are not.

The bleak
prospects for the long-term unemployed—40% of men looking for jobs say they
have been out of work six months or more—is alarming: The longer a person is
unemployed, according to a recent study, the harder it is to find a job. The good news is that there is an increase in resources for people to use when they are in this situation, such as the ability to download templates for free to use as resumes, and a rise in jobseeker facilities.

That
research is by Rand Ghayad, a visiting scholar at the Boston Federal Reserve
Bank, and William Dickens, a professor of economics at Northeastern University.
They analyzed Beveridge
curves to see who the recovery is leaving behind. A Beveridge curve shows
the relationship between job openings and unemployment.

What
Ghayad and Dickens found is that the Beveridge curves are normal across all
ages, industries, and education levels, as long as you haven’t been out
of work for more than six months. In other words, it doesn’t matter
whether you’re young or old, blue-collar or white-collar, or a high school or
college grad: The only thing that matters is how long you’ve been out of
work.

Wage
stagnation is an issue as well. Since the early 1970s, the average
inflation-adjusted wage for high-school dropouts has fallen about 25%; for
high-school graduates with no college degree, it is down about 15%.

Simply
put, many of the available jobs don’t pay enough to get men to take them,
particularly if securing a job requires moving, long commutes or surrendering
government benefits. Economists say part of the problem is that men with few
marketable skills and little education can’t find work that pays enough to get
them off the couch.

Here are
some data compiled by the WSJ:

We
reported last
week that a new Wal-Mart opened in DC and advertised that 400 people would
be hired. Over 20,000 people applied for those 400 jobs, making it harder
to get a job at Wal-Mart than to get into Harvard. It doesn’t end
there. ERE
reports:

Sure the
Internet makes it vastly easier to apply for jobs than the old-fashioned
written submission, but, according to ERE, if you are late to finding an open
position on the web, your chances are slim because the first resume is received
within 200 seconds after a position is posted.

If you
post your resume online on a major job site like Monster so that a recruiter
can find it, you are facing stiff competition because 427,000 other
resumes are posted just on Monster each week.

It is clear that at least some unemployed men are on
trajectories that can’t be sustained. They are borrowing money and selling
assets and many are falling behind on payments.

The WSJ article makes it clear that the duration and severity of
unemployment among men in their peak earning years is causing both more
suffering than is readily apparent, and that this group is also likely to wind
up impoverished in their old age.

These men, who have self-identified as producers and
breadwinners, face a grim future in psychological as well as financial terms.

This is not an Obama problem, this is a societal problem, and the Senate’s failure to pass an extension of extended unemployment benefits yesterday doesn’t help. Our society needs to wake up to the
reality that once you’ve been out of work for six months, there’s little you
can do to find work, regardless of how strong the rest of your resume is.

After all, employers
hardly look at it: ERE indicates recruiters spend 6 seconds reviewing each resume that passes through the keyword screens.

The worst possible
outcome for all of us is if many men between 25 and 54 become unemployable. That has
major socio-cultural implications and it permanently reduces our productive
capacity.

This
problem is larger than any administration. Free trade policies pursued by
administrations of both parties have resulted in the loss of decent paying middle
class jobs, while automation and technological advances are also major factors.
It would be inaccurate to try to solely blame our elected officials for continued technological advancement, and the changes to the
structure of the economy that result.

But it is
horrible is that both political parties recognize the problem, but that only
one side seems energized to do anything about it.

What’s
Wrong Today:

The Great
Recession has caused continued hardship for many Americans. Yet a recent HUD report
found that homelessness is down. The report by HUD to Congress says homelessness
decreased by nearly 4% over the past year, and by 13% since 2007. The report
also states:

But the
survey doesn’t actually measure homelessness.

Instead,
it looks at people who are in shelters or transitional housing and the number
of people who are outside on a single January night. Not included are those
doubled up or couch surfing because they can’t afford their own place. Neither
are people in hospitals, mental health or substance abuse centers, jails or
prisons with nowhere to go upon release.

The
problem isn’t just the narrow scope of the count; its methods are flawed. For
the count of people in shelters and transitional housing, service providers
report their numbers on the designated night. But they are just measuring
capacity. If the number goes down, this could mean either fewer homeless or
fewer beds for them.

The
“street” part of the count tries to count people in places “not meant for human
habitation,” such as streets, parks, alleys, subway tunnels, all-night movie
theaters, abandoned buildings, roofs, stairwells, caves, campgrounds and
vehicles.

Although HUD
sets the guidelines, communities have discretion in how they count. A few use
sophisticated statistical methods, but most simply organize volunteers to fan
out and make judgments about who is homeless, sometimes avoiding locations
where they feel unsafe. How even the best prepared volunteers can cover large parts
of town thoroughly in a few hours is anyone’s guess.

Local
policies can also affect the count. For example, cities are increasingly making
it a crime to sleep in public places. If the street count goes down, is it
because need is down or because there is greater cause to fear arrest, driving
people into hiding?

Similarly,
in some cities, families seeking shelter can be threatened with removal of
their children, so families living outside have extra incentive to avoid
detection.

Homelessness
persists. It is not a single night event.

Utah has come
up with an innovative way to solve homelessness. They give away homes. What
worse way could there be to combat homelessness in America than to provide the
homeless with a place to live?

From the Daily
Kos:

 And
who is to blame for trying this experiment? That famous Chinese food lover and compassionate
conservative, former Republican Governor John Huntsman.

According
to Nationswell,
Utah has reduced its rate of chronic homelessness by 74% over the past eight
years, moving 2000 people off the street and putting the state on track to
eradicate homelessness altogether by 2015. It’s such a ridiculous proposition
that only Utah, that bastion of conservative values, could suggest and then
implement it.

Now, with
its growing success, the policy has a chance of spreading to other conservative
locales, like Wyoming.

According
to RealtyTrac,
in 2013, 14.2 million homes were vacant all year for some reason:

The
HUD report says there are 610,000 homeless in America, and we have 14.2 million
vacant homes. Utah shows us that the homelessness problem can be partially
solved with vacant housing stock. What would be wrong with giving it a try?

Earlier
this week, we wrote about Slumlord
Billionaires, Wall Street-backed investment companies that are buying up
vacant houses and renting them out.

Even
Wall Street can’t buy them all, or lease all of them back to their previous
owners. Ending homelessness requires closing the gap between the need for
housing and its availability. It requires enacting policies as Utah has done.

“For I was
hungry and you gave me food, I was thirsty and you gave me drink, I was a
stranger and you welcomed me,”


Who said that?

What’s
Wrong Today:

Most
rental houses in the US are owned by individuals, or local businesses,
but a new breed has emerged: Wall Street-backed investment companies with
billions of dollars at their disposal, while having no problems trying to find insurance for landlords either. In
just the last two years, large investors have bought as many as 200,000
single-family houses and are now renting them out.

This incursion
by hedge funds and private equity groups into the American single-family home
rental market is unprecedented. Prior to the real estate meltdown in 2008, most
rental properties were owned by individuals or small real estate investment
companies. After the crash, many of those foreclosed houses have been purchased
by investors, but are these investors actual landlords with experience or do they have experienced landlords manage their properties for them? Many of these properties are rented out by those who have taken the time to read a great out of state real estate investing guide, and are fairly rented out, but many are handled in less favorable ways. Either way if billionaires are leasing properties out, there will be many leases they have to handle, which would be made much easier with a lease agreement template from associations like AAOA and more.

Three firms
? American Homes 4 Rent, Colony American and Invitation Homes ? have spent more
than $12 billion buying and renovating more than 75,000 homes in order to rent
them out. Now, American Homes 4 Rent is about to “Securitize” the leases it
holds. Remember Securitization? Securitization of the mortgages of single family homes was the
primary reason we had the economic crash in 2007, the crash that brought with
it such high unemployment, much of which is still with us today.

This time,
the securities – if you can call them that – are backed by rental payments on
single-family homes that are, hopefully,
rented out, and will, hopefully,
stay rented out.

According
to the New
York Times, the
latest company to test the frontier in securitization is American Homes 4 Rent
(AMH). The company talked to
prospective investors at a conference in Las Vegas last week about selling
securities tied to $500 million of debt. Apparently, the bonds will be underwritten in March by Goldman, Sachs.

The idea is to
package the leases signed by the home renters into a security backed by the
stream of rental payments to be paid by those renters, and sell the security to
investment groups and individuals. The private equity giant Blackstone Group,
backer of Invitation Homes, sold the first single-family rental securitization
of its kind last fall, a $479 million bond, attracting six times as many
investors as the private equity firm could accept.

Rental lease securitization
could provide a pick-me-up to Wall Street’s mortgage-backed business. Bankers
estimate that single family-rental bond deals could total as much as $7 billion
this year and eventually grow to about $20 billion a year. From Bloomberg:

For landlords like
American Homes 4 Rent, securitizing debt would provide them with more leverage
to buy more homes. It would also increase their profits by lowering their
borrowing costs. And with securitization, landlords could put as
little as 25% of equity into their properties, while borrowing the rest. Credit
lines from banks typically require 40% equity.

In many
markets where these mega-landlords bought vacant single-family homes, like
Phoenix or Las Vegas, prices have jumped 25% or more in just one year. But
these price gains may be ephemeral. If (when) home prices drop to where they
were a year or two earlier, and if occupancy isn’t high enough to service the
debt, these securities could turn into toxic waste.

The next
step will be to move down-market and offer this kind of securitization to all single family rental
investors, including mom-and-pop investors, and other small and
large investors. Cerberus Capital and Blackstone are already working on
offering similar programs to them.

In the
end, these rentals could all be packaged together, sliced into different tranches,
and sold indirectly to unsuspecting pension fund participants. Just like in
2007. All based on the unreliable income streams from rentals.

The impact
of this vulture capital buying program has been showing up in the housing numbers
for months. Purchases by first-time
home buyers ? the crux of the housing market ? dropped to just 27% of all purchases in December 2013, from 30% in
December 2012, and from the 30-year average of 40%.

It is the
lowest recorded in the data series going back to 2008. First-time buyers
have been pushed out by higher home prices, higher mortgage rates, and a flood
of cash buyers (in Florida, 62.5% of all buyers) many of whom are
investors.

If
you were around in 2008, you know the drill: The bonds will be AAA rated by the
rating agencies that are compensated by Goldman and the other underwriters. The
bonds will be sold to those seeking high yield without commensurately high
risk. The deal documents will not be read. Goldman salespeople will travel
around the globe finding suckers to buy the paper and get big commissions. The
investment banks will short the bonds in the interest of risk management. American
Homes 4 Rent executives will pocket incredible bonuses, move their primary
residences to a tax haven state like Florida or Nevada, and be retired from the
business before you know it.

Any
predictions on how this turns out?

How
nice that Wall Street is now buying back homes they first financed then turned
into worthless Mortgage Backed Securities (MBS). Now they are buying them back
and renting them back to same folks they foreclosed upon.

The
saying in real estate used to be: “You
can’t get hurt if you own the dirt”. One reasonable conclusion is that fewer
Americans will ever own the dirt.

Capitalism
must be refined and modified, or we will continue to see fewer owners and more
who will be renters from cradle to grave.

Today is the day when bloggers are asked to
promote less-well-known sites they like within their networks.

Here is the Wrongologist’s list:

Foreign Affairs:

al-Monitor
– Go-to site for Middle East politics

Arms Control Wonk
– Analysis of arms control issues

Back Channel
– Go-to site for Iran & the international community. Part of al-Monitor

Moon of Alabama
– Alternative viewpoints on foreign affairs

Fun and Lifestyle:

Bob Lefsetz  – Bob specializes in music and marketing

Andy Borowitz –
Comedian writes Onion-style political headlines

Political
Carnival – Mostly humor, some political analysis

Jack Cluth
– Snarky political comment

Politics:

Political
Moneyline – Stay on top of money-raising by politicians

George
Washington’s Blog – Fact-based rants on issues of the day

Ed
Kilgore (Political Animal) – All day blogging on DC politics

Health:

Incidental
Economist  – MD’s who specialize
in the economics of health care delivery

Economics:

Calculated
Risk – Great analysis of economic stats of the day by Bill McBride

Economic Populist
– Thorough analysis of economic news

New Economic
Perspectives – Commentary on political economy and economics

Off The Charts
Blog – Commentary on political economy

NSA and Surveillance:

Empty Wheel – Indispensable
site for NSA and surveillance issues

Perhaps we should also have a “Guillotine Day” as well. What
blog needs to be unceremoniously cut off?

What small blogs do you recommend? Let us know the comments
section.

Super Bowl Sunday!! Also Groundhog Day…this is the first time they occur on the same day:

Whether Punxsutawney Phil sees
his shadow or not, we will have 6 more weeks of Super Bowl commercials. And 6
more weeks of posturing by Democrats and Republicans about the Minimum Wage,
unemployment and inequality. Oh, and the
Debt Limit increase should take 6 more weeks of something. So, here comes 6 more weeks of frozen
politics.

Safer than football:

SOTU reveals issues in the family:

Republicans engage in endless debate, still get wrong answer:

Plutocrats position to negotiate with Obama on Minimum Wage:

Pete Seeger’s song about the 1%:

What’s
Wrong Today

Yesterday
we wrote about inequality and how for some, notably the
ultra-rich and their Republican servants, the word is a proxy for class
warfare. Today, let’s go beyond talk of class warfare and look at the tools at our
disposal to improve the level of equality in America.

What
can be done to reduce inequality? The Obama Administration said raising the
minimum wage was a good starting point.

If we are
talking about a $10.10/hr. minimum wage, then according to the Economic Policy
Institute,
(EPI) about 30 million Americans
would get raises, including the thousands of Wal-Mart employees. That would clearly
help inequality.

Reducing
unemployment could have the largest impact on inequality. In his SOTU, President Obama mentioned
that 8 million jobs were created during his time in office. Since peaking at 10%
in October 2010, the unemployment rate has fallen more than 3 percentage
points. But The EPI’s new report on long-term unemployment has some encouraging
and depressing findings. Here is the encouraging finding:

The depressing
finding: (emphasis by the Wrongologist)

Based
on the 2010 Census, in four of the five states with
the largest populations, more than 40% of unemployed people have been out of
work for at least six months.

Restoring
unemployment insurance to the long-term unemployed or Disability insurance to those finding themselves out of work will help a little, but it
doesn’t move the inequality needle. People need jobs. And while Mr. Obama
touted a new commitment from chief executives to give long-term unemployed
workers a “fair shot at new jobs,” that won’t change things in a significant
way.

Here’s
why:

Google
has 47,756 employees, Facebook has 5,790. Microsoft has 100,000, Amazon has
109,000. Apple has 80,300. That totals to 342,846 full and part-time jobs. That’s
just 10% more than GE, which has 305,000 by itself.

And
the total employment of these tech giants equates to roughly two months of new
job seekers that enter the US job market every
month.

In
other words, it’s a pipe dream to believe that the tech giants, Internet
startups, and app developers will ever
employ the same number of people that manufacturing once did. There will
be even fewer realistic routes to full employment in the US as robots become
cheap, efficient, and more flexible.

Last
year, a new Wal-Mart opened in DC and advertised that 400 people would be
hired. Over 20,000 people applied for those 400 jobs, making it harder to get a job at Wal-Mart than to get into Harvard.
And, when there are 10 jobs and 30 job seekers, that doesn’t mean that society
has 20 slackers.

It has
become clear that we have entered an era where businesses just don’t need as
many people to produce the goods and services we use each year. The problem
will become even clearer with the introduction of self-driving cars (goodbye to
most taxi, bus and truck drivers) in the next 10-20 years. Bluntly, there
simply won’t be enough job slots for the entire population.

This means it’s time to assess the future
of work in the US.

Job
openings in the US have improved since the bottom of the Great Recession, but we
still have nearly 1.2 million fewer jobs
available on a monthly basis than before the recession:

And
there are roughly 3 unemployed people looking for each of those available jobs.
 

Lastly, today, we still
have 2 million fewer people working than were working in 2008!

Is
it any wonder that Pew Research says that the proportion of
Americans who identify themselves as middle class has dropped sharply in recent
years? Today, about as many Americans identify themselves as lower or
lower-middle class (40%) as say they are in the middle class (44%). At the
same time, the share of the public who says they are in the lower or
lower-middle classes rose by 15 percentage points, from 25% in 2008 to 40%.

This is inequality we cannot fix
without wholesale changes in our politics. The Anti-Keynesians are just plain
wrong; they are never confused by facts, they just ignore them.

Full
employment could return in time. According to the Wall Street Journal, the number of
children US women are expected to have over their lifetime slipped last year to
1.88 from 1.89 in 2011. That is below the nation’s so-called “replacement rate”
of 2.1.

Compare
that to the birth rates during the late 1940’s and 1950’s when we experienced
the Baby Boom, and it ranged from 3.0-3.5.

All
of that means we may get back to equilibrium of jobs required to jobs offered
sometime in the next 20 years, but not
in the next 5 or 10 years. In the meantime, we are  going to have to recognize that work, as we
currently conceive it, may no longer be the principal contribution to society
for many adults. 

One thing
we could be doing is refreshing our infrastructure. The American Society of
Civil Engineers provides an annual report card on our crumbling
infrastructure. It shows that we need to spend $3.6 Trillion on our
infrastructure by 2020.

Rebuilding
our infrastructure could be a great source of temporary jobs that could help
bridge our workers to the point where all the Boomers will have retired and our
smaller, more-tech-savvy work force can be at near-full employment.

We will
pay for the lives of these out-of-work people indirectly, through unemployment
benefits, food stamps, Social Security, Medicare and Medicaid, so what would be
wrong with paying many of them directly while we upgrade our roads, ports,
airports and build a ubiquitous high-speed Internet?

We used to live in an
industrial age, an Adam Smith and Karl Marx world, where the worker sought to
do as little as possible and the boss tried to get the worker to do as much as
possible. But today, in our self-serve economy, that’s
just not true. Today, people supply their own locomotion.  It will take another
generation for that to be a frictionless factor in our world of work.

Income
distribution is something society can and should decide. There is no intrinsic
reason why most of the benefits of our technology economy should go only to the
1% – that is really a matter of policies such as tax policy, minimum wage
policy, and pension policy.

In a
democracy, these policies should be decided by the majority, not by the 1% and their
political servants.

What’s Wrong Today:

Mr. Obama stuck his toe into the political waters about inequality at the SOTU address on Tuesday. For some perspective on income inequality, Igor Volsky at Think Progress reports that: (emphasis by the Wrongologist)

From 1979 to 2007, the top 1% of families experienced a 278% increase in their real after-tax income, while families in the middle 60% saw an increase of less than 40%. During this period, many blue collar jobs become automated by advances in technology, American workers started competing against cheaper overseas labor, and the number of workers represented by unions dropped from 20% in 1983 to 11% today. As the earnings of lower and middle income Americans stalled, however, CEOs…began paying some of the lowest tax rates in the country’s history

Stanford University reports on America’s global ranking in income inequality: (emphasis by the Wrongologist)

The US ranks third among all the advanced economies in the amount of income inequality. The top 1% of Americans control nearly a quarter of all the country’s income, the highest share controlled by the top 1% since 1928

The Wrongologist has written previously about inequality here and here.

Mr. Obama has been reluctant to talk about income inequality. In the New Yorker’s long piece about President Obama by David Remnick, there was an illuminating quote: (emphasis by the Wrongologist)

 

In 2011, at an annual dinner he holds at the White House with American historians, he asked the group to help him find a language in which he could address the problem of growing inequality without being accused of class warfare

Democrats are afraid of saying anything that can be construed as class warfare, which seems to be the sole property of conservative pundits. Democrats are afraid that they will be portrayed as socialists or worse. The fantasy is that Democrats and progressives can’t even mention inequality and the solutions to inequality.

Even Mr. Romney in 2012 attacked Mr. Obama about “redistribution” of wealth whenever increased taxes on the 1% were raised during the campaign. Yet, last week one billionaire, Tom Perkins, the founder of the fabulously successful venture capital firm Kleiner Perkins, tripped over his own dough when he wrote a letter to the Wall Street Journal: (emphasis by the Wrongologist)

I perceive a rising tide of hatred of the successful 1%. There is outraged public reaction to the Google buses carrying technology workers from the city to the peninsula high-tech companies which employ them… This is a very dangerous drift in our American thinking. Kristallnacht was unthinkable in 1930; is its descendant “progressive” radicalism unthinkable now?

Kristallnacht?? His comments were treated with both criticism and snark, so he took to Bloomberg TV to amplify his thinking: (emphasis by the Wrongologist)

I don’t feel personally threatened, but I think a very important part of America, the creative 1%, are threatened…I think rich as a class are threatened by higher taxes and higher regulation

Alternate read: The rich are different. They have class interests, they know it, and they act on them. But you progressives can’t or we will attack you.

Perkins transgressed the unwritten law: You never talk about class in America, because that would be “class warfare.” You especially can’t do it in the SOTU if you’re a two-term “progressive” Democratic President who is exquisitely attuned to the rules of what can and can’t be said.

Lambert Strether tells us: (brackets and emphasis by the Wrongologist)

Our elected officials listen to their [the 1%] opinions…their jobs depend on not recognizing…how stupid [their opinions] are. It is impossible to get elected president without the backing of a cadre of multimillionaires. It is nearly impossible to get elected to the US Senate without a couple in your corner

Strether goes on to say:

 

…multimillionaires and billionaires fund every effective political interest group in the country, from gun rights to gay rights groups. What makes the wealthy persecution fantasy so risible is that our political class is responsive almost solely to the priorities and views of the rich

The “we are a classless society” fantasy serves a purpose: It prevents Congress from actually acting to address economic inequality. As long as the rich perceive even ineffectual social opprobrium as an existential threat, politicians will be afraid to advance any actual agenda that might hint at redistribution.

If a study last March by political scientists Benjamin Page, Larry Bartels, and Jason Seawright at Northwestern University is any indication, the rich have little interest in solving America’s inequality problem. According to the report—which surveyed a sampling of the richest 1% of Americans—the wealthy are almost categorically opposed to efforts to reduce inequality and improve material conditions for working- and middle-class people.

Some findings:

• 40% support an increase to the minimum wage


• 32% support universal health insurance


• 30% support expanded worker training programs


• 13% support an expansion of the Earned Income Tax Credit


• 8% support a government jobs program for the unemployed

By contrast, the general public is much more supportive of all of these positions. What the rich do support, however, are policies that would shift burdens to individuals, or introduce some nebulous “competition” into the commons. That includes charter schools (90% support), vouchers (55%), Social Security privatization (55%), and merit pay for teachers (93%).

The Daily Beast editorialized:

If this agenda looks familiar, it’s because it’s basically identical to the one pushed by “centrist” deficit hawks in Washington, who have devoted themselves to the consensus positions of business and other economic elites

Never in modern times have taxes on the rich been so low, subsidies so large, legal forbearance so complete, regulations so meaningless, and the state so fully at the beck and call of the rich. Our entire government is oriented around making the rich richer and protecting them from consequences of their actions.

Even though there has not been a better time to be rich in more than a century, it is NOW that the rich complain about taxes and regulation and a hostile business environment.

Is this a cynical, self-aware ploy to press their advantage? Or are we getting a glimpse of the narcissistic pathology that underlies the thinking of so many members of the ultra-rich?

Now that the middle class has largely been destroyed, we have the poor, the working class and the investment class. There are fewer people to contribute revenues to the government that is continuing to provide massive support to the investment class.

So, the ultra-rich’s idea is to let the working class and the poor twist in the wind, the roads deteriorate and the schools fall to ruin.

But they say, we gotta keep funding the military and keep militarizing local police in case the lower classes get the idea that this way of governing is unfair.