Econ 101 Post Series: Labor is not Fungible

[scott]

http://www.thefreemanonline.org/anything-peaceful/labor-is-not-fungible/

A fantastic must-read, and one that illustrates the fundemental lack of understanding from both sides of the employment debate. Those who call for "more stimulus" are just as wrong as those saying the fleet of blue-colar manufacturing jobs is the problem.

An excellent summary:


Let me ask a simple question: If your productive capacity is totally focused on making tables, but your population has plenty of tables but has a real shortage of chairs, and no one is trained to make chairs, how much fiscal stimulus would you need to pick up aggregate demand? Answer: Infinite. People don’t want more tables at any price. As long as that’s all you’re offering, aggregate demand will remain low, and all your table makers will remain unemployed. In fact, the stimulus is just masking the problem and delaying the necessary adjustment to a ‘chair economy’.

[Th'Pusher]

This I find interesting. How do you suggest we go about making chairs instead of tables?

[Th'Pusher]

This is a question. I am one of those d-bag Keyseians who think we can create artificial demand by pumping government money into much needed infrastructure. Sure ther'll be some cannibalization of the higher end jobs, but I think it'll be offset by employing the labor of the unskilled who'll spend the money. Tarring a roof and a road can't be that different. Tell me where I am wrong.

[ElNono]

Actually, the stimulus would work if it's applied directly to make chairs. You know, one of the things we were discussing with some other posters here is that there are certain needs, such as infrastructure, where if you would apply stimulus directly there then you would be creating some temporary jobs on an area where there's a need.

The other point to be made about this is that this country already transformed from a manufacturing economy to a services economy back in the 90's, when we stopped being competitive on the manufacturing business. Now, services seem to be the next thing being outsourced out there. So where do you go from here? Basically, the only thing left is intellectual property, but that's harder to enforce and it's very debatable you can run an entire country with the current standard of living off of that.

Thanks for the link!

[ElNono]

BTW, after reading the article, the specialization part is on-point, but this country already went through transformations. If anything, the argument to be made is that some of the stimulus money should've gone towards training. The other argument is that seemingly never-ending unemployment benefits entices people to wait it out instead of taking on perhaps a 'lower' job.

[Nbadan]

Obama has always been a bit of an admirer or Reagan, I wonder how much trickle-down growth Reagan was so found of, Obama believed would have spurred future job creation...yeah, didn't work to well for Reagan either.....seems that Obama wanted to create jobs but not squander taxpayer money on frivolous waste, thus the shovel ready jobs and the need for more technical expertise...it's a no-win situation...

[boutons_deux]

"Obama has always been a bit of an admirer or Reagan"

All socialist/communist/Muslim fist-bumping terrorists are St Ronnie fans, obviously.

[boutons_deux]

There is plenty of potential demand which creates jobs for consumers.

The key problem is that UCA has rigged the game, aka globalism/free trade, so they get the stuff made in Asia/China where there are no regulations for worker or environmental health, and China obliges by holding its currency 30%? below its floating value.

eg: Solyndra, etc can't compete with China for, eg, a commodity like solar panels, so Solyndra folds and kills 1000+ jobs.

Plenty of jobs in USA if Barry would slap a tariff on everything from China in compensate for their undervalued currency, including stuff made by UCA and its partners in China.

Another way to create jobs is to hire a few 1000 unemployed lawyers on contracts to review ever govt contract that is reserved for small business but are really with large businesses, and cancel those contracts and give to small businesses.

=====

"If your productive capacity is totally focused on making tables, but your population has plenty of tables but has a real shortage of chairs, and no one is trained to make chairs, how much fiscal stimulus would you need to pick up aggregate demand? Answer: Infinite. People don’t want more tables at any price. As long as that’s all you’re offering, aggregate demand will remain low, and all your table makers will remain unemployed. In fact, the stimulus is just masking the problem and delaying the necessary adjustment to a ‘chair economy’."

How fucking stupid and false.

Obviously, employers know where demand is and won't make tables when there is no demand.

[scott]

How fucking stupid and false.

Obviously, employers know where demand is and won't make tables when there is no demand.

LOL you fucking moron. That's exactly the point being made, if you weren't so stupid as to go into every thread trying to disagree with things you'd be able to see that.

[scott]

There is plenty of potential demand which creates jobs for consumers.

Actually, this is exactly another point made in the Original Article, had you turn off the bot long enough to read it instead of just firing off more of your typical buzzword nonsense.


Aggregate demand may be way down, but Apple has no problem selling every iPad it makes.

[scott]

This is a question. I am one of those d-bag Keyseians who think we can create artificial demand by pumping government money into much needed infrastructure. Sure ther'll be some cannibalization of the higher end jobs, but I think it'll be offset by employing the labor of the unskilled who'll spend the money. Tarring a roof and a road can't be that different. Tell me where I am wrong.

I think there are two key take-aways. The first is that if you are going to enact a stimulus, the targets need to be better thought out - so the idea of a stimulus itself isn't per se the problem, but the execution of it is.

The second, bigger, take-away more has to do with the philosophical aspect of a "stimulus" package and how no matter what, there will still be some amount of structural unemployment present that the economy will just need to "suck up" and take its lumps on.

THIS ITALICS SECTION DEVOTED TO BASIC ACADEMIC DISCUSSION ON STRUCTURAL UNEMPLOYMENT SO THAT DEFINITIONS ARE CLEAR. When we think of unemployment, we are typically thinking of Frictional Unemployment, or the process of getting the right people in the right jobs (the example I like to use with my students is to think of a student just graduated from college. This student may be "unemployed" for awhile while they wait for the right job as opposed to just working at McDonalds (which would immediately remove them from the ranks of the unemployed).

Structural Unemployment, on the other hand, is a longer term condition (though not permanent) that results from a mismatch of the type of labor needed versus the skills workers possess. This is the table vs. chair builder analogy and is the crux of the OP - labor is not a fungible commodity, where everyone who supplies labor is interchangeable with each other.

The argument that stimulus should be more delicately targeted is obviously an easy one to make, but naturally the size of the bureaucracy is going to lead to inefficiency of managing a program of this scale (even if it is more targeted, especially as those managing the implementation, i.e., local and state governments, prioritize their interests and not those of competing localities), no matter how nuanced the program is.

Some may argue that it's best to just let the economy takes its lumps, with the question posed: would it be better to have a prolonged recession, or a shorter, more severe depression? The implication being that a stimulus program, by its very nature lending itself to inefficiency, only serves to temporarily mask the true problems rather than letting the economy recover, thereby prolonging a downturn You end up with: "Hey, it looks like demand for tables is up! The Stimulus worked!" when in fact the root of the problem, not enough chair-makers hasn't been fixed, and the problem has only been pushed down the road.

The thought provoked by this article, at least for me, goes back to that question: what is better, prolonged recession or shorter, more severe depression? The other being, how can we make stimulus programs more efficient?

[boutons_deux]

"prolonged recession or shorter, more severe depression"

that's A and B,

why are you ignoring C? :

a prolonged, severe depression.

For Human-Americans, C. is what they can expect. 15M+, 20M+?, Americans are/will be unemployed/underemployed/malemployed/non-participating for 3+ years, at least, is what the major forecasters are saying. For H-A workers, they're looking at a long L-shaped depression, not a narrow V-shaped recession.

In fact, the VRWC/UCA has achieved such intimidating, controlling power over H-As and the govt, that it's plausible that the American Dream is evaporating, and may not materialize for decades.

For Corporate-Americans and the financial sector, the "recession" was short and is fully over, as corporate profits and liquidity are at record levels.

Corporate-Americans have almost completely detached themselves from Human-Americans, either as employees or as consumers. Exploitative production and consumer growth is on other continents.

[boutons_deux]

China's Making Everything in the US From Bridges to Civil Rights Memorials: That's a Huge Problem and China's Not to Blame

First, in February, ABC News reported that almost every Americana-themed trinket sold in the Smithsonian Institute is made in China. Then news hit that San Francisco is importing its new bay bridge from China. Then came the New York Times dispatch about the Big Apple awarding Chinese state-subsidized firms huge taxpayer-funded contracts to "renovate the subway system, refurbish the Alexander Hamilton Bridge over the Harlem River and build a new Metro-North train platform near Yankee Stadium."

Astounding as all of that is, it was quickly topped by news last week reminding us that the new Martin Luther King monument in Washington was designed by a Chinese government sculptor and assembled by low-wage Chinese workers.

As opposed to multinational corporations, which care only about maximizing shareholder profit, our public-policy arena is supposed to be focused on building America. But in this golden age of big-money politics, with multinational corporations buying off our lawmakers, we get the opposite — even during an unemployment crisis.
Today, municipalities outsource public works projects, congresses water down "Buy America" laws, and presidents champion trade deals that encourage companies to send jobs overseas. That trickles down to give us American iconography made in Chinese factories, American real estate owned by Chinese companies, and American civil rights memorials constructed with Chinese slave labor.

The public excuse from our corrupt politicians is that Americans don't really want the jobs that could be created if lawmakers prioritized domestic investment. Last week, for instance, the White House's U.S. trade representative, Ron Kirk, said we shouldn't be concerned with jobs that are about "making things that, frankly, we don't want to make in America — you know, cheaper products, low-skill jobs." It was a reprise of 2006, when Sen. John McCain told union members the same thing.

The truth, of course, is the opposite — millions of jobless Americans are desperate for some shred of economic patriotism that would put them back to work. But our political system isn't about patriotism anymore. It's about the deception embodied in Kirk's talking points.

Thanks to that, the idea of successfully legislating a domestic investment agenda seems not like mere wishful thinking. It seems as wholly inconceivable as walking into a big-box store and finding lots of products that are still made in the USA.

http://www.alternet.org/module/printversion/152280

[ElNono]

I think there are two key take-aways. The first is that if you are going to enact a stimulus, the targets need to be better thought out - so the idea of a stimulus itself isn't per se the problem, but the execution of it is.

Agreed.

[boutons_deux]

Ain't gonna be no more counter-cyclical Keynesian stimulus. It would probably work if big enough this time, so Repugs will kill it.

Repugs want, and will probably get, the worst possible economy for the lower 95% going into Nov 2012. Pro-cyclical spending cuts will make the economy worse. The Repugs love it that way.

[Nbadan]

Ain't gonna be no more counter-cyclical Keynesian stimulus. It would probably work if big enough this time, so Repugs will kill it.

I still agree with the premise of a demand-driven economic stimulus package but I I'd like to see a one time increase in the per child tax exception from $1K to $2k which would benefit those who need it most, and a package of tax incentives to get companies to buy American goods made in America by American workers...call it the Jobs for America Bill....the GOP will have to support it...

[boutons_deux]

"the GOP will have to support it"

If Barry and Dems propose it, the Repugs will kill it or weaken it to uselessness, or agree only if there are more "offsetting" deficit-worsening tax cuts and more pro-cyclical spending cuts, neutralizing any benefits the Dems targeted.

[RandomGuy]

I think there are two key take-aways. The first is that if you are going to enact a stimulus, the targets need to be better thought out - so the idea of a stimulus itself isn't per se the problem, but the execution of it is.

The second, bigger, take-away more has to do with the philosophical aspect of a "stimulus" package and how no matter what, there will still be some amount of structural unemployment present that the economy will just need to "suck up" and take its lumps on.

THIS ITALICS SECTION DEVOTED TO BASIC ACADEMIC DISCUSSION ON STRUCTURAL UNEMPLOYMENT SO THAT DEFINITIONS ARE CLEAR. When we think of unemployment, we are typically thinking of Frictional Unemployment, or the process of getting the right people in the right jobs (the example I like to use with my students is to think of a student just graduated from college. This student may be "unemployed" for awhile while they wait for the right job as opposed to just working at McDonalds (which would immediately remove them from the ranks of the unemployed).

Structural Unemployment, on the other hand, is a longer term condition (though not permanent) that results from a mismatch of the type of labor needed versus the skills workers possess. This is the table vs. chair builder analogy and is the crux of the OP - labor is not a fungible commodity, where everyone who supplies labor is interchangeable with each other.

The argument that stimulus should be more delicately targeted is obviously an easy one to make, but naturally the size of the bureaucracy is going to lead to inefficiency of managing a program of this scale (even if it is more targeted, especially as those managing the implementation, i.e., local and state governments, prioritize their interests and not those of competing localities), no matter how nuanced the program is.

Some may argue that it's best to just let the economy takes its lumps, with the question posed: would it be better to have a prolonged recession, or a shorter, more severe depression? The implication being that a stimulus program, by its very nature lending itself to inefficiency, only serves to temporarily mask the true problems rather than letting the economy recover, thereby prolonging a downturn You end up with: "Hey, it looks like demand for tables is up! The Stimulus worked!" when in fact the root of the problem, not enough chair-makers hasn't been fixed, and the problem has only been pushed down the road.

The thought provoked by this article, at least for me, goes back to that question: what is better, prolonged recession or shorter, more severe depression? The other being, how can we make stimulus programs more efficient?

I would say a prolonged shallower recession. It takes waaay long to dig out from the self-feeding destructive cycles of a severe depression.

Seems to me that the rather simple answer to the second is that retraining programs would be a good start.

Labor is not perfectly fungible, but it is flexible. People can be retrained. Your home construction worker can be retrained to the types of basic semi-skilled things needed to build bridges.

Same thing goes for engineers and so forth. Right now there are a lot of educated people who can't find work. If you want to build a lot of infrastructure, then simply provide some credits/subsidies for college to those fields that you will need. If these people have the ability to get a four-year degree in one field, there is a fair chance they can retrain.

To be clear: I'm not saying that your average English major can, or even wants to, re-train to be a structural engineer or mathmatician, but there are enough people out there who are talented and able to acquire those skills that we can get them where the economy needs, or will need them.

The labor market takes a few years to adjust, but it *does* adjust. That data-point seems to be missing from the article in the OP.

I have no doubt that if you start advertising a lot of available positions at $200,000 per year, someone who is unemployed now will start working their way towards that job. That is what the free market does.

[RandomGuy]

The bottom line is that we have been under-investing in our infrastructure for the better part of two or three decades by what I have read, and have accumulated a pretty substantial backlog/deficit.

Moving towards correcting that will require a similar time span, and that is plenty long enough for a whole generation to have a career path to the point where they can retire.

This would be something of a structural shift in our economy, but one that is glaringly obvious we need.

I am sure the usual crowd will take this as some kind of socialist take over, but that is far from what I am saying. The kinds of things we need to do are not the kinds of things that your average corporation is going to spring up and spontaneously do, as they are far to capital intensive.

[boutons_deux]

The (certainly not) national electrical grid sucks, water systems (Blue Gold!!) lose up to 30% of the water, water treatment plants don't remove pharmaceuticals and x-icides, storm water systems easily overflowed, sewers and sewage treatment plants at or above capacity, etc, etc.

How about installing exhaust scrubbers on all coal plants?

How about building power plants that run on garbage and emit nothing but electricity?

The VRWC will either block it all or commit fraud to pocket the funds with exorbitant overbilling/overruns, failied projects.

America's infrastructure exploded after WWII as a/c allowed people to move to the Sun Belt. That stuff is in need of maintenance and repair.

[Wild Cobra]

I prefer the shorter deeper approach.

Get it done and over with.