Occupy Wall Street and Career Paths

I’ve been writing about the decline of real wages for young college grads, which is helping provide much of the fuel for Occupy Wall Street. Along the same lines, here’s an excellent article on Occupy Wall Street from a career perspective, written by Damian Ghigliotty, the former chief correspondent for Visible Economy LLC. Damian writes:

The last thing 32-year-old Mandy Henk expected from volunteering at the Occupy Wall Street library was an invitation to speak at the American Library Association’s 2012 Midwinter Conference in Dallas, Texas. ….Henk, a certified librarian who handles circulation, reserves and interlibrary loans at DePauw University in Greencastle, Ind., joined the movement in late September and rediscovered the role she cares most about — connecting people with information.

Take a look.

Revised textbook!

I just received printed copies of the second edition of my textbook Economics:The Basics–yeah! It’s designed for a one-semester “basics of economics” course–not much math needed, but covering all the economic principles the typical person might need.

I’ve started a new twitter feed at @MandeltheBasics specifically to accompany the textbook.

If you teach economics and want to see the table of  contents, look here.

Budget Categories

While I was working out this morning, I was watching the supercommittee hearings on CSPAN (pretty lame, huh). And Doug Elmendorf was explaining all the categories that the committee had to be conscious of…discretionary vs nondiscretionary,  defense vs nondefense, security vs nonsecurity.

And it struck me that we were missing the most important budget categories: investment vs consumption.  Yes, I know that this is an age-old debate, whether the federal government needs a capital budget. But it would really clarify a lot of the debate.

The investment budget would of course include physical capital such as infrastructure; human capital such as education and training; and knowledge capital such as R&D.

 

I think that the main thing that the committee should do is protect the federal investment budget. We don’t want federal investment going back to the low levels of the 1980s and 1990s.
 

Only 2 Ways to Save the Economy: Innovation or Inflation

I have a new piece on the Atlantic website. It starts this way:

We have only two ways out of our current global economic mess: innovation and inflation. And as the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation).

Looking across the world, the underlying problem is that borrowers–households and governments–have taken on debt that they can’t afford to pay back, given the current rate of income and economic growth. In the U.S, too many homeowners are struggling with mortgages that far exceed the value of their homes and cannot be repaid from their current incomes. In Europe, Greece and perhaps other countries have issued bonds that they cannot pay back unless growth unexpectedly skyrockets.

Down the road the same principle of matching growth to debt allows us to perceive potential financial crises to come. Young male college graduates, for example, have seen their real earnings plunge by 19% since 2000, with young female college grads experiencing a similar decline. Meanwhile education borrowing has soared, suggesting that we are on the verge of a student loan crisis, where young grads simply cannot pay back their mountain of debt.

And goes on from there.  Take a look.

College Grad Earnings Continue to Fall in 2011

Even as President Obama proposes some steps for student debt relief,  real wages for college graduates continue to plunge.  In the third quarter of 2011,  full-time workers with a bachelor’s degree and no advanced degree earned 3.5% less, in real terms, than a year earlier.*  Male college graduates saw their real wages fall by 5.3% over the past year,  while female college graduates had a 1.4% decline.

This continues a long term trend of declining real wages for college graduates. I discussed the plight of young college grads here.  Because real wages are declining, it’s much harder for grads to pay back their loans.

 

*Median weekly earnings, full-time workers 25 years and older with a bachelor’s degree only. See the BLS press release here).

 

 

The Post-Industrial Production Economy

Sometimes when I write about the shift from the consumer economy to the production economy, people assume that ‘production’ equals ‘manufacturing’ .  That’s just not true.  So I asked Mary Adams of  I-Capital Advisors, and co-author of  Intangible Capital,   if she would write a guest post on  “The Post-Industrial Production Economy.”  She graciously agreed, and here it is. 

In follow-up to Michael’s post on production vs. consumption economies, he asked me to take a crack at describing what the post-industrial production economy will look like. So here goes!

We live at the cusp between the industrial and the knowledge eras. In the U.S., the shift is already very much underway. But there is still much change to come, including in the production economy.

Industrial-ize

To understand what will happen, let’s first look at what happened during the industrial revolution. Yes, mass production and factories drove huge growth. But manufacturing was not the only part of the economy that was created or “industrial-ized.” Education was industrialized to provide large numbers of capable workers. Energy production was industrialized to provide cheap, available power for factories, homes and offices. Agriculture was industrialized to provide reliable, economical food sources. The change affected almost every corner of our society.

This industrialization process occurred under a number of very simple conditions or design constraints. Some of the most important included the availability of relatively cheap energy, the relative lack of importance placed by society on externalities (such as pollution and health risks), the availability of large workforces and continued returns available from mechanization that provides greater and greater returns on the work of employees.

These design constraints began to shift a long time ago in the U.S.For example, we have known for a long time that our patterns of energy and resource use were not sustainable. But rather than rebuilding or remaking our industrial economy, we chose to/had the opportunity to send much of it off shore. If you look at the rise of China in the last 20 years, you will see a replay of the industrialization process, not the end of it.

The Chinese also know that the model they are imitating is not sustainable. But the Chinese have an opportunity to use the model to quickly raise the level of living of their enormous population and generating enough wealth in time to simultaneously invent a new model. Or to follow whomever can invent the new model.

Knowledge-ize

What will the new model look like? Moving into the knowledge era does not mean the rise of services and consumption and the decline of production. Humans will have the same needs to live. Housing, transportation, consumer goods, food, healthcare, education will all remain constants in our economy. These needs require a production sector. But this new production sector will be built under a new set of constraints.

[Read more...]

Richard Florida on spiky innovation

Richard Florida seems to be embracing, somewhat, my thesis  that the U.S. is suffering from an innovation shortfall.

The economist Michael Mandel has argued that America’s capacity for innovation is faltering. Silicon Valley is of course this country’s powerhouse region for technological innovation–and seemingly a statistical outlier. With nearly 400 patents issued per 100,000 residents, the region is eight times more productive than the national average. But it wasn’t always this way. Manufacturing centers such as Detroit and Pittsburgh once led the country in patents per capita. In the last 35 years, metropolitan regions have surged and dipped in innovation, but the San Jose-Sunnyvale metro area has only climbed higher.

I’m going to do a post soon about creative economy jobs.

 

 

Nobel Prize irrelevancy?

For years when I was chief economics writer at BusinessWeek, I would write our post-Nobel piece.  I was often one of the few people who would challenge the adulation of the prize winners, notably in this 2005 piece on the Nobel in game theory.

But today’s awards to Tom Sargent and Chris Sims simply leaves me stunned.  Let me give you a brief excerpt:

“It is not an exaggeration to say that both Sargent’s and Sims’ methods are used daily … in all central banks that I know of in the developed world and at several finance departments too,” Nobel committee member Torsten Persson told the AP.

I’m not sure why this is supposed to be a good thing.  None of the central banks foresaw the financial crisis, none of them foresaw the weakness of the recovery, and none of them had the right policy prescriptions.  This lack of ability to predict big shocks and their aftermath is a central flaw of the Sargent-Sims approach.  Sargent is well known for his work on rational expectations, which has a tough time with ‘irrational’ booms and busts. And Sims’s work on ‘vector autoregressions’ has a difficult time anticipating sudden shifts in regime, such as the shift from the Great Moderation to the today’s incredible volatility.

I would have much preferred to see the awards going to a growth economist, like Paul Romer; an expert in financial markets, like Reinhart and Rogoff; or an international economics expert.  While I’m sure Sargent and Sims deserve their award, the timing makes the economics profession feel out of touch and irrelevant.

Ezra Klein on the policy response to the recession

Ezra Klein has the best piece yet on the policy response to the recession, and why it wasn’t enough.  He  highlights the way that  bad data led to bad policy mistakes.

To understand how the administration got it so wrong, we need to look at the data it was looking at.

The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history. Bernstein and Romer knew in 2008 that the economy had sustained a tough blow; they didn’t know that it had been run over by a truck.

Ezra then goes on to discuss in great detail the choices and constraints of the Obama Administration, and comes to a fascinating conclusion.

Yet the Obama administration did too little. Its team of interventionist Keynesians immersed in the lessons of the Depression and Japan did too little. Everyone does too little, even when they think they’re erring on the side of doing too much. That’s one reason “this time” is almost never different.

The tendency thus far has been to look at these crises in terms of the identifiable economic factors that make them different from typical recessions. But perhaps the better approach is to look at the political factors that make them turn out the same, that stop governments from doing enough even when they have sworn to err on the side of doing too much.

The political crisis–here, in Europe, and in Japan in the 1990s–is not separate from the economic crisis, but lies at its heart.

Plunge in Performing Arts Jobs

Up to now, paid employment at performing arts companies has held up pretty well in the downturn. In 2010 the number of jobs at music, theater, dance, and similar groups was only about 6% below the 2007 level, a decent performance considering the depth of the downturn.

But in the last few months cuts in funding seem to have finally hit hard. Over the past year, employment at  performing arts companies has dropped  a sharp 16%,  according to today’s figures from the BLS. Performing arts employment is now at the lowest level since 1990.  

The chart below shows the year over year change in performing arts employment, based on a 3-month moving average.

In all likelihood, this will not be the end of the decline, since funding is still being cut.For example, the Alabama State Council on the Arts has cut its grants to state arts groups by 25% for the next fiscal year. For the performing arts, this is the moment where recession turns into depression.

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