Sunday, 2 June 2019

Rotten Capitalism and the Phillips Curve

We have argued for a long time that the so-called collapse of the Phillips Curve, which shows that unemployment and inflation are (as is intuitively obvious) in inverse proportion, is really no collapse at all! The reality is that the reported unemployment rates simply hide the under-employment that suppresses wage-cost push - and therefore keeps inflation low. It takes very little thought to work this out - but it seems our bourgeois economists are having difficulty seeing the blindingly obvious. Anyhow, below are two stories pointing these pellucid matters out. Of course, as Western workers rebel and re-work our nation-states in more confrontational ways, the Han Chinese Rats (whom we haven't left out of the equation) will find that ANGRY WESTERNERS WILL DESTROY THEIR CHINA DREAM AND TURN IT INTO THE WORST POSSIBLE NIGHTMARE.

The people with the most to fear, of course, are the Han Chinese Diaspora - those living outside of Rat land, who will soon feel the full impact of our anger! To them I say, Leave the West before it's too late!

This week the Governor of the Reserve Bank, Philip Lowe, made it known that the rate of interest on overnight loans between banks is about to be lowered by means of his minions intervening in the market, something they may have forgotten how to do, it’s been so long.

The gamblers who comprise the futures market had arrived at that conclusion a while ago, so futures contracts are currently priced for at least two, perhaps three, rate cuts of 25 basis points each in the months ahead.

APRA has joined in the anxiety-fest by freeing banks to use reality in assessing their customers’ ability to repay, as opposed to a fictitious 7 per cent deemed mortgage rate.

Second, the RBA is being forced into it by fiscal tightening and wants to be seen to be doing something while waiting for the government to come to its senses and respond to its pleas to loosen fiscal policy.

And third, the economists in charge of the central bank have acknowledged that they don’t understand economics any more, or at least the way it operates now. And it seems to me the reason that plot has been lost is that they’re looking the wrong way: the problem these days is underemployment not unemployment.

It used to be thought that at least 5 per cent of the workforce — about 700,000 souls at the moment — had to be out of work for the average level of annual price rises to be kept to 3 per cent or less. This has always been the central bank’s main project: to ensure that enough people were unemployed and without any money, so that the people who have money were not robbed by inflation.

They normally achieved this by artificially lifting the cost of debt capital for both businesses and households to the point where staff levels had to be cut for firms to stay viable.

But right now there are, indeed, 744,800 people without a job — more than 5 per cent — yet the rate of inflation is not much more than 1.5 per cent, half the level at which alarm bells go off, and well below the level decreed to be the minimum level of inflation required for a happy society (2 per cent).

As the governor pronounced in this week’s speech: “My judgment of the accumulating evidence is that the Australian economy can support an unemployment rate of below 5 per cent without raising inflation concerns.”

Oh? How long might this have been going on? How long, to be specific, might another 100,000 or even 200,000 people have been allowed to get a job if the RBA had been a bit less cautious and a bit less stuck in the past?

Better late than never, we suppose. But underemployment is where it’s at, and that’s much bigger than unemployment — currently 8.3 per cent, on top of the unemployment rate of 5.2 per cent.

That is, while 744,800 people can’t find work at all, another million or so can’t get enough work. And underemployment is arguably more insidious than unemployment because you can’t get the dole, and you are at the mercy of the rosters.

In total, about 1.8 million people are “under-utilised”, to use the supply-side jargon, or 13.5 per cent of the workforce. In non-jargon, these people are struggling to make ends meet, delivering Uber Eats for peanuts, trying to wrangle an extra shift or two from the czar of the roster.

Thirty years ago, when economics worked properly, underemployment was minimal, a fraction of unemployment. Now it’s the other way around and “under” is now the greater problem than “un”. It is also the main reason wages growth, and therefore inflation, is persistently low.

As a chart in the governor’s speech this week showed, while unemployment has fallen from 6.4 to 5 per cent since 2014, underemployment has barely come down at all — from 8.4 to 8.3 per cent.

But the words in that speech, and in the minutes, and monetary policy in general, remains steadfastly focused on unemployment, not “under”.

This is not just a matter of semantics, but part of the fundamental change that’s happened in the nature of work, aka the gig economy.

Employment is no longer binary, where you’re either employed or not. Everyone can get a few shifts delivering pizzas, or serving coffee, and that means they’re employed according to the ABS definition of working for at least one hour a week, but they’re not really employed, not in the way they need, and certainly not in the way that would result in higher wages and inflation in the macro economy.

Economics has changed but economists and central bankers have not. Will one or two rate cuts get underemployment down, and wages and prices up? No, but it will have to do til something else comes along.

That something else must be fiscal policy, specifically tax cuts.

Elsewhere in his speech this week, Dr Lowe pointed out that “over the past year, tax paid by households increased at a much faster rate than did income; almost 10 per cent, compared with 3¼ per cent — that is a big difference and it is unusual”.

In other words, the disconnect between employment, wages and inflation is partly due to the fact that the government has been suppressing household disposable incomes by stealthily increasing taxes via bracket creep.

The gig is up: America’s booming economy is built on hollow promises

Contract workers prop up big earners but under Trump’s anti-labor administration are ruthlessly exploited themselves
Sun 2 Jun 2019 06.00 BSTLast modified on Sun 2 Jun 2019 06.01 BST
Uber just filed its first quarterly report as a publicly traded company. Although it lost $1bn, investors may still do well because the losses appear to be declining.
Uber drivers, on the other hand, aren’t doing well. According to a recent study, about half of New York’s Uber drivers are supporting families with children, yet 40% depend on Medicaid and another 18% on food stamps.
It’s similar elsewhere in the new American economy. Last week, the New York Times reported that fewer than half of Google workers are full-time employees. Most are temps and contractors receiving a fraction of the wages and benefits of full-time Googlers, with no job security.
Across America, the fastest-growing category of new jobs is gig work – contract, part-time, temp, self-employed and freelance. And a growing number of people work for staffing firms that find them gig jobs.

The standard economic measures – unemployment and income – look better than Americans feel
Estimates vary but it’s safe to say almost a quarter of American workers are now gig workers. Which helps explain why the standard economic measures – unemployment and income – look better than Americans feel.
The jobs problem today isn’t just stagnant wages. It’s also uncertain incomes. A downturn in demand, change in consumer preferences, or a personal injury or sickness, can cause future paychecks to disappear. Yet nearly 80% of Americans live paycheck to paycheck.
According to polls, about a quarter of American workers worry they won’t be earning enough in the future. That’s up from 15% a decade ago. Such fears are fueling working-class grievances in America, and presumably elsewhere around world where steady jobs are vanishing.
Gig work is also erasing 85 years of hard-won labor protections.
At the rate gig work is growing, future generations won’t have a minimum wage, unemployment insurance, worker’s compensation for injuries, employer-provided social security, overtime, family and medical leave, disability insurance, or the right to form unions and collectively bargain.
Why is this happening? Because it’s so profitable for corporations to use gig workers instead of full-time employees.
Gig workers are about 30% cheaper because companies pay them only when they need them, and don’t have to spend on the above-mentioned labor protections.
Increasingly, businesses need only a small pool of “talent” anchored in the enterprise – innovators and strategists responsible for the firm’s competitive strength.
Other workers are becoming fungible, sought only for reliability and low cost. So, in effect, economic risks are shifting to them.
It’s a great deal for companies like Uber and Google. They set workers’ rates, terms, and working conditions, while at the same time treating them like arms-length contractors.

California is countering Trump on this, as on other issues
But for many workers it amounts to wage theft.
If America still had a Department of Labor, it would be setting national standards to stop this.
Yet Trump’s Anti-Labor Department is heading in opposite direction. It recently proposed a rule making it easier for big corporations to outsource work to temp and staffing firms, and escape liability if those contracting firms violate the law, such as not paying workers for jobs completed.
On the other hand, California is countering Trump on this, as on other issues.
Last Wednesday, the California assembly passed legislation codifying an important California supreme court decision: in order for companies to treat workers as independent contractors, the workers must be free from company control, doing work that’s not central to the company’s business, and have an independent business in that trade.
(The bill is not yet law. It still has to pass the California Senate and be signed by the governor. And businesses are seeking a long list of exemptions – including ride-share drivers and many of high-tech’s contract workers.)

Whatever national rule eventually emerges for defining gig workers, they’ll need a different system of social insurance than was the case when steady full-time employment was the norm.
For example, they need income insurance rather than unemployment insurance. One model: If someone’s monthly income dips below their average monthly income from all jobs over the preceding five years, they automatically receive half the difference for up to a year.
They’ll also need a guaranteed minimum basic income – a subsistence-level cushion against earnings downturns. And universal health insurance and more generous social security, to make up for the unpredictability of work.
All of this should be financed by higher corporate taxes, ideally in proportion to a corporation’s use of gig workers.
Gig work is making capitalism harsher. Unless government defines legitimate gig work more narrowly and provides stronger safety nets for gig workers, gig capitalism cannot endure.

No comments:

Post a Comment