"Our greatest responsibility is to be good ancestors."

-Jonas Salk

Saturday, September 3, 2011

It's Not Your Father's Recession

I was contemplating pointing out how there really hasn't been an "ordinary" recession for thirty years in the US: how employment recovers has been much slower since the early 80s. I guess it was in the air, because I came across somebody else ("mikekr") making the same point (with convenient graphics).

mikekr's attempt at an explanation is this:
(1) Let’s consider a stereotypical manufacturing situation.

With 5 workers, you product 5 widgets in 8 hourswith 5 machines

If your demand is 10 widgets, then you need 10 workers and 10 machines to produce these in 8 hours.

Often these relationships are pretty clear to management.

In a service economy, things are less clear. A retail shop has certain minimum staffing (say, 1) but if business is slow there is 1 staffer, doing not much. You might cut hours, but that cuts business even more. Once business picks up, there may be excess capacity (less boring time for the 1 clerk), OR it may be a while before the shop owner figures the queues are too long and more help is needed.

Similarly in sales: commission salesmen may not really want more “help”. Having suffered through the recession, they’d like to have people lining up outside their offices.

Either way, there is a less clear relationship between the amount of revenue and the amount of labor.

(2) Let’s consider consumer credit. If you have savings, or home equity, then in bad times you can tap these. But if you were using these assets during the previous “boom”, you will find your credit restricted and so instead of there being assets/credit lines to tap, there’s both no home equity to tap and possibly restricted credit.
There is probably something to that, but that isn't the way I see it. The way I see it is that there is that post 1980, there really is no profit-driven demand for labor. The slow growth you see in employment is demand-driven. Unemployed people desperate for incomes jockeying for position, driving employment conditions gradually down, eventually finding some way back to the trough.

In short, every bit of that work, no matter what the economists' idea of "efficiency" is totally unnecessary. It is not driven by actual demand for goods and services, but by demand for employment. Because of how politics works, politicians are totally frantic to drive these numbers back up, and so help the process. But the process only makes matters worse in the long run.

Now everybody is being paid part-time wages for full-time work and half the work being done doesn't do anybody any good.

At least, I have trouble seeing it any other way. But admittedly I'm strange about this stuff.


David B. Benson said...

Looks to me as similar to what has happened to the Japanese economy snce their real estate bubble burst.

Pangolin said...

Automation and offshoring have destroyed a huge number of jobs. It's past time we went to 32-hour weeks or job-sharing that reduces workloads on those already employed.

France's much condemned experiment with 35 hour weeks didn't seem to bankrupt the country anymore than our 40++ hour weekly averages bankrupted us. Conversely, by many standards the French enjoy a higher standard of living and economic security than we do here.

Finally, 32-hour, 4 day work weeks would cut fuel used for commuting by almost a fifth. Obviously, the added numbers of commuters would cut into that figure somewhat.

David B. Benson said...

Pangolin --- So-called automation has changed the nature of work, but I've not seen a concensus of economists who opine that it actually hs reduced the required work force. [Offshoring maybe has.]

As many more tele-commute and with the revitalization of public transit, Seattle, for example, has fewer commuters.

Dol said...

Pangolin, cf. lump of labour fallacy (though note criticism).

Dol said...

I'm guessing you won't miss this, MT, but just in case: `Miracle or mirage – what's the truth about Rick Perry's Texas?'

David B. Benson said...

No, its my children's recession.

David B. Benson said...

Is the global economy a Ponzi scheme?

Pangolin said...

Dan_ The wikipedia article you linked to on the "lump of labor" fallacy begins "In economics" and then goes on to classify it as a variant on the "zero-sum fallacy."

That's about all I needed to read to know that the rest was pure b.s. We live on one planet with no exits to other viable biospheres. Labor available is a zero-sum equation on a global scale and can approach a zero-sum equation on local scales.

My opinion is that modern economics makes so many assumptions unsupported by fact that it might as well be phrenology or astrology.

The facts are that it takes far less labor to produce basic foodstuffs, fuel, clothing and housing on a retail level than it did even twenty years ago. The lack of job growth in the last ten years clearly reflects that. Labor market participation rates are also clearly falling.