Japanese Unemployment Rate

[moda0306]

Seriously, not bad, at any point over the last 25 years... adjust the chart to see back to the 1980's...

Not sure how much that tells us about where we're headed... could be inflationary (since we'll try harder with high-employment to monetize our way out of this), or deflationary (since a deflationary spiral is more likely with cripplingly high unemployment).


http://www.tradingeconomics.com/japan/unemployment-rate

[Indices]

Hopefully this means our economic situation is not a long decline like Japan's.

[MediumTex]

Hopefully this means our economic situation is not a long decline like Japan's.

Frankly, I think that Japan is a best case scenario for the U.S.

As a nation and economy, we've got too many people without the right skills to remain employed, and we've got too many people, companies and governments with WAY too much debt.

Those are very stiff economic headwinds to try to overcome.

[moda0306]

I mean, in some ways we're already a lot worse off than Japan... look at their unemployment and savings rates... it's just a different country, and while they haven't been "outputting" to their potential, who cares if they have a job and plenty of net wealth.

I know I wouldn't output to my potential if I were wealthy.

[Storm]

If Japan is what happens when you have a nation of savers and low unemployment suffering a balance sheet recession, I hate to think of what the US will look like.  I'm picturing 25% actual unemployment, bread lines, and tent cities.

[moda0306]

I read an article recently that, while deflationist, pointed out the main difference between Japan & the US.

Japan's balance sheet recession was contained solely within corporate balance sheets.

The U.S.'s balance sheet recession is contained mostly within household balance sheets.

[MediumTex]

Even if Japan's unemployment figures don't look that bad, I've read the stories on a regular basis the last few years about how a lot of work for young people in Japan today is in the nature of temporary non-career path work that pays less than the same work used to pay.  Thus, for a lot of young people in Japan they have both less income and poorer career prospects with the same set of skills compared to years past.

Does that sound familiar?

[moda0306]

Underemployment is so prevalent... it's unbelievable all the idle minds going to waste doing menial, unchallenging tasks.

I'm not saying I have the answers, but it's a tragedy.

[Tortoise]

My understanding is the main reason for underemployment is automation.  Many tasks can now be done with far less human capital than before.  For example, I work in the chemical industry, and, roughly speaking, at my company we put out 50% more pounds of stuff with 50% less people than we did 15 years ago.

That's impressive, but if automation is indeed allowing us to produce more stuff more efficiently across the entire economy, then most people's standard of living should be steadily rising as a result.

Since we have been seeing the opposite in recent years, despite all the increasing automation, my hunch is that what we're actually witnessing is supply for fossil fuels and other non-renewable resources gradually outstripping demand. Increased automation has helped to counteract much of this supply/demand shift, but it is starting to become dwarfed by our accelerating drawdown.

The fact that this dynamic is not manifesting itself solely in the form of higher fuel and commodity prices, but rather in various ways simultaneously, makes it more difficult to pinpoint drawdown as one of the main causes of the general decline in living standards. But I do suspect it is one of the main causes. Of course, my recent reading of William Catton's interesting book Overshoot surely has nothing to do with my having this hunch.

Regarding unemployment, things have been looking pretty grim for the past couple of years at the company where I work. Layoffs are frequent, raises and promotions are nonexistent, and morale is quite low as a result. It's been educational for me to watch this unfold, because it's taught me some important lessons about human nature, about the ultimate raison d'être of most giant corporations, and about myself. My generation is living through an interesting time.

[stone]

Tortoise: "That's impressive, but if automation is indeed allowing us to produce more stuff more efficiently across the entire economy, then most people's standard of living should be steadily rising as a result."

That would only be true if those efficiency gains got distributed out to "most people". If efficiency gains get manifested as unemployment, falling wages and increased indebtedness; then you get our situation. I know you think macro-economics is bunk and I agree that it gets abused by appologists for damaging state command but I do think its a macro-economic problem.
Personally I think the whole "peak oil" scenario is important but certainly not the key driver of the situation. From what I can see, if we had some "free-energy" dream, we would still be up against the distributional deadlock and the situation would not be significantly different. It would merely give some tempory breathing space that we would quickly use up. Current solar-thermal energy technology could provide energy with the only expense being currently unemployed labor. Doesn't that in reality amount to free energy?

[Tortoise]

Tortoise: "That's impressive, but if automation is indeed allowing us to produce more stuff more efficiently across the entire economy, then most people's standard of living should be steadily rising as a result."

That would only be true if those efficiency gains got distributed out to "most people". If efficiency gains get manifested as unemployment, falling wages and increased indebtedness; then you get our situation. I know you think macro-economics is bunk and I agree that it gets abused by appologists for damaging state command but I do think its a macro-economic problem.

I don't think macroeconomics is bunk; I think it's a very useful qualitative social science, like economics in general. It's the precise quantitative models and equations that macroeconomists use to refer to the economy as an isolated test-tube chemical reaction under controlled laboratory conditions that I think is bunk. An entire economy is far too complex and interdependent on countless internal and external factors to model and conceptualize in the same way as an isolated physical experiment under laboratory conditions. Hopefully that helps clarify my position on macroeconomics.

In my post, I was referring to the gradual decline in standard of living we've seen over the past few decades, not the sharp decline that has occurred in the past few years. The latter is caused mainly by the global financial crisis and resulting credit deflation, but I see the former--the more gradual, decades-long decline--as having to do with something else completely. I could be wrong, but I suspect it has something to do with reduced availability of oil and other non-renewable resources. They are becoming increasingly expensive to find and exploit, even with all of our advances in technology and automation.

What really drives home the long-term decline in standard of living, in my mind, is the fact that single-earner households in the U.S. were much more common back in the 1950s and 1960s than they are today. Back then, an engineer like me could comfortably support a family on his salary alone, and his wife would often stay at home to raise the kids and maintain the household. Now, supporting a similar lifestyle requires two incomes--not one. And because both parents work full-time, they usually must pay for child daycare, which can be very expensive. Sometimes the high cost of daycare almost makes it more advantageous for one of the parents simply not to work and instead stay home, which would bring the family back to square one: a single-earner household--but at a lower standard of living than in the 1950s or 1960s.

Certainly a lot of this has been caused by globalization, which has increased competition with U.S. goods and services. But isn't that just another way of saying that there are now more people chasing a relatively limited supply of goods and services in a world of finite non-renewable resources? If that were not so, then globalization should have been a net benefit to most people in the world, not a source of gradual decline in their standards of living.

Personally I think the whole "peak oil" scenario is important but certainly not the key driver of the situation. From what I can see, if we had some "free-energy" dream, we would still be up against the distributional deadlock and the situation would not be significantly different. It would merely give some tempory breathing space that we would quickly use up. Current solar-thermal energy technology could provide energy with the only expense being currently unemployed labor. Doesn't that in reality amount to free energy?

I'm not sure I fully understand your point here. You seem to be saying that even if we had an unlimited supply of energy ("free energy"), we would still have a bottleneck: distributing that free energy to the end users. Is that indeed what you're saying? If so, how can that be? If energy were free, it could be used to devise just about any conceivable method of distribution--because cost would not be an issue. So I think the price of energy--which is largely determined by the availability of fossil fuel reserves--is in fact a very important bottleneck in our global economy.

Regarding the harnessing of solar energy, Catton discusses it in his book:

The ultimate fall-back position of the modern Cargoist was the expectation that new technology would eventually "enable us to use solar energy." This view overlooked the ways in which man was already heavily dependent upon solar energy.

In more ways than one, solar energy supported the agriculture that had enabled Homo sapiens to irrupt from a few million inhabitants of the earth in pre-Neolithic times to some five hundred times as many only 400 human generations later. Solar energy supported agriculture not only through photosynthesis; it also supplied the energy for evaporation which was "pumping" each day some 68.6 trillion gallons (= 260 cubic kilometers) of water from the surfaces of land and sea up into the atmosphere, whence it could rain down upon the world's farms, forests, and hydroelectric watersheds.

If only 1/10 of 1 percent of the solar energy that reached the earth's surface was captured by plants and fixed in organic molecules, this did not mean the other 99.9 percent was a "vast untapped reservoir" awaiting man's exploitation. It could be exceedingly dangerous for mankind to try using even an additional 0.1 percent; the difference between an untapped 99.9 percent and an untapped 99.8 percent might seem trivial, but it would be an imposition upon the energy system of the ecosphere comparable to that already being made by the entire standing crop of organisms of all kinds.

The Cal Tech geochemistry professor Harrison Brown suggested back in 1954 that, a century hence, a world population of seven billion people could conceivably be living at an "American" level of energy use, and might be deriving one-fourth of that energy from solar devices. Rather simple calculations will show, however, that this would entail diverting to human use an amount of solar energy roughly three times as great as the entire quantity of energy used by the world's population in the year Brown made the suggestion. To put this in perspective, consider the fact that the total human use of energy is already equivalent to more than 10 percent of the total net organic production by the entire biosphere. To supply future humans with three times that much from solar devices means doing something to the largely unknown natural pattern of energy flow on a scale that is not infinitesimal at all. Homo colossus would be swinging almost as much weight as a third of the whole biosphere! The potentially disruptive effects upon the balanced processes of nature have to constitute an enormous risk.

[MediumTex]

Tortoise,

If you would like to, I would appreciate you writing up your overall thoughts about Catton's "Overshoot" in a separate post.

"Overshoot" is one of the most eye-opening books I've ever read.  It opened up a whole frontier of thought and ideas I had simply never considered in any kind of serious way.

For me, "Overshoot" was not just about ecological issues, but it also provided a great perspective on some of the blind spots in our survival instincts and the ways in which our mostly advanced thought processes can lead us to fool ourselves in very subtle ways.

[Tortoise]

Tortoise,

If you would like to, I would appreciate you writing up your overall thoughts about Catton's "Overshoot" in a separate post.

"Overshoot" is one of the most eye-opening books I've ever read.  It opened up a whole frontier of thought and ideas I had simply never considered in any kind of serious way.

For me, "Overshoot" was not just about ecological issues, but it also provided a great perspective on some of the blind spots in our survival instincts and the ways in which our mostly advanced thought processes can lead us to fool ourselves in very subtle ways.

Sure thing. I think a thread dedicated to Overshoot and related issues would be great. I'll see if I can organize some thoughts about the book while it's still fresh in my mind.

BTW, sorry if my Overshoot comments hijacked the thread unintentionally. It's only tangentially related to the thread's topic of unemployment.

[stone]

Tortoise, what I was trying to say was that I think that the reason why you now need two salaries rather than one is because of distribution of profits not because of the scarcity of raw materials. Imagine a hypothetical world where there was never any oil and so all energy had always been  provided by renewables and also for the sake of argument imagine that all metals etc are recycled. In such a world, all that anything costs is purely a function of human labor. In such a world, if it also had the political and financial structures we have; I believe that exactly the same phenomenon that we now see would also happen. People in such a world would similarly end up working for less as the decades went by.

[MediumTex]

Tortoise, what I was trying to say was that I think that the reason why you now need two salaries rather than one is because of distribution of profits not because of the scarcity of raw materials. Imagine a hypothetical world where there was never any oil and so all energy had always been  provided by renewables and also for the sake of argument imagine that all metals etc are recycled. In such a world, all that anything costs is purely a function of human labor. In such a world, if it also had the political and financial structures we have; I believe that exactly the same phenomenon that we now see would also happen. People in such a world would similarly end up working for less as the decades went by.

Increasing concentrations of wealth at some point do begin to undermine the stability of the society in which it is occurring.

It's a difficult problem to solve.

[Odysseusa]

If the economy is so bad in Japan and United States, then naturally and eventually the people living in those two countries will migrate to other countries to seek better opportunities. It has often been like this throughout history.

[stone]

Tortoise, imagine that as an employee of a company, you come up with an innovation that makes the manufacturing process more efficient. The innovation means that it only takes 50% as many man-hours to make the product. What the company might do is to lay off half the work-force and so the saved wage bill will go to profits. There may be a relatively fixed market size for the product so the reduced costs will do little to change consumption levels. Because there is less of a shortage for labor, the company will also be able to cut wages. Because the product is sold to the workforce, the reduced wages and unemployement cause fewer people to buy the product......I'm struggling to see how you take it as certain that efficiency gains get translated into increased prosperity for most people. I agree that in the right circumstances they could but I don't see those circumstances around me.

About solar power somehow causing ecological problems: currently the sun shines down on rocks in the Arizona desert, those rocks then radiate heat back up to space. It seems daft to me to suggest that delaying that transfer marginally (by harvesting the solar power, then having an electric train or air conditioner or whatever radiate the heat back up to space) would have any effect. If you know of anything that suggests different, I'd be fascinated to hear it but the quote you showed just seemed to me to be ultra-vague hand waving.

[Tortoise]

Tortoise, what I was trying to say was that I think that the reason why you now need two salaries rather than one is because of distribution of profits not because of the scarcity of raw materials.

I see. I mistakenly thought you were referring to distribution of energy, not distribution of profits. I'm open to the idea that increasing concentrations of wealth may have something to do with the gradual decrease in standard of living experienced in places like the U.S. But can we rule out the possibility that changes in the supply/demand dynamics of non-renewable resources have just as much--if not more--of an effect on our standard of living?

It seems that part of the challenge in identifying the main causes of a general decline in the standard of living is that the true causes may be partially masked by complex market forces. Also, regardless of the true causes, the majority of people will always be tempted to blame the wealthiest members of society as scapegoats. It's just so convenient, given the high visibility of the wealth and the natural feelings of envy it elicits from those who lack it. They often deserve the blame, but not always. We just need to be mindful of the psychological ease with which people can make wealthy people scapegoats for their frustrations.

Tortoise, imagine that as an employee of a company, you come up with an innovation that makes the manufacturing process more efficient. The innovation means that it only takes 50% as many man-hours to make the product. What the company might do is to lay off half the work-force and so the saved wage bill will go to profits. There may be a relatively fixed market size for the product so the reduced costs will do little to change consumption levels. Because there is less of a shortage for labor, the company will also be able to cut wages. Because the product is sold to the workforce, the reduced wages and unemployement cause fewer people to buy the product......I'm struggling to see how you take it as certain that efficiency gains get translated into increased prosperity for most people. I agree that in the right circumstances they could but I don't see those circumstances around me.

I understand your example, Stone, but I think you may not be tracing all of the effects for all people, as Henry Hazlitt said in his classic book Economics in One Lesson. If the market size for the product is relatively fixed, then yes, the company may decide that it makes the most sense to lay off 50% of its workforce in response to the efficiency gains.

What this effectively means is that it takes only half as many people to make the same amount of product as before. The net benefit to the economy is that those workers have now been freed up to perform other work that needs to get done. It is certainly a hardship for the laid-off workers in the short-term as they are forced to re-tool and look for new work, but if the government gets out of the way and lets businesses bid freely for the workers' labor, they will eventually find work. It's when the government gets in way with minimum wage laws, reams of regulations, or dependence-building handouts that high unemployment becomes a chronic problem.

About solar power somehow causing ecological problems: currently the sun shines down on rocks in the Arizona desert, those rocks then radiate heat back up to space. It seems daft to me to suggest that delaying that transfer marginally (by harvesting the solar power, then having an electric train or air conditioner or whatever radiate the heat back up to space) would have any effect. If you know of anything that suggests different, I'd be fascinated to hear it but the quote you showed just seemed to me to be ultra-vague hand waving.

Fair enough. I quoted that passage from Overshoot not because I agree with it 100%; I just thought it was interesting and likely to spark a little bit of debate. I think MT is right that Overshoot deserves its own discussion thread, so I'll save my comments on solar power and related topics for that thread.

[Lone Wolf]

What really drives home the long-term decline in standard of living, in my mind, is the fact that single-earner households in the U.S. were much more common back in the 1950s and 1960s than they are today. Back then, an engineer like me could comfortably support a family on his salary alone, and his wife would often stay at home to raise the kids and maintain the household. Now, supporting a similar lifestyle requires two incomes--not one. And because both parents work full-time, they usually must pay for child daycare, which can be very expensive. Sometimes the high cost of daycare almost makes it more advantageous for one of the parents simply not to work and instead stay home, which would bring the family back to square one: a single-earner household--but at a lower standard of living than in the 1950s or 1960s.

I am surprised that you believe that today's standard of living is lower than that of the 1950s.

While I certainly acknowledge that real GDP isn't a perfect measure of standard of living, the increase in real GDP since the 1950s and 1960s has been enormouse.

A 1950s standard of living involved a modest house with 1950s construction, no cable tv, a single 1950s car, 1950s medical care, 1950s air conditioning, a very small TV, a land-line phone, no video game systems, no internet, no digital cameras, no digital video cameras (or affordable video cameras of any kind.)

Even people that are quite poor today have access to a much higher standard of living than that.  A single-earner household that lives modestly can certainly enjoy a standard of living that's much higher than the 1950s.

We live better in every material way than we did in the 1950s.  (I make no comment on non-material differences!)

I enjoyed Jeffrey Tucker's free book It's a Jetsons World for an enjoyable reflection on just how incredible today's world really is (and how it got that way.)

[MediumTex]

What really drives home the long-term decline in standard of living, in my mind, is the fact that single-earner households in the U.S. were much more common back in the 1950s and 1960s than they are today. Back then, an engineer like me could comfortably support a family on his salary alone, and his wife would often stay at home to raise the kids and maintain the household. Now, supporting a similar lifestyle requires two incomes--not one. And because both parents work full-time, they usually must pay for child daycare, which can be very expensive. Sometimes the high cost of daycare almost makes it more advantageous for one of the parents simply not to work and instead stay home, which would bring the family back to square one: a single-earner household--but at a lower standard of living than in the 1950s or 1960s.

I am surprised that you believe that today's standard of living is lower than that of the 1950s.

While I certainly acknowledge that real GDP isn't a perfect measure of standard of living, the increase in real GDP since the 1950s and 1960s has been enormouse.

A 1950s standard of living involved a modest house with 1950s construction, no cable tv, a single 1950s car, 1950s medical care, 1950s air conditioning, a very small TV, a land-line phone, no video game systems, no internet, no digital cameras, no digital video cameras (or affordable video cameras of any kind.)

Even people that are quite poor today have access to a much higher standard of living than that.  A single-earner household that lives modestly can certainly enjoy a standard of living that's much higher than the 1950s.

We live better in every material way than we did in the 1950s.  (I make no comment on non-material differences!)

I enjoyed Jeffrey Tucker's free book It's a Jetsons World for an enjoyable reflection on just how incredible today's world really is (and how it got that way.)

If you're a college educated black person, I would say that the U.S. is a MUCH better place to live now than in the 1950s.

I always chuckle when people talk about the "good old days" in the U.S.  It wasn't good for everyone.

[moda0306]

I think it's the fact that our current society's "prosperity" seems to be built on a house of cards called debt... and, yes, the "efficiencies" that have emerged in debt (credit cards, etc) can provide people with needs that they wouldn't otherwise be able to meet, and, like MT has said, it is easily serviced by the options the debt gives you if you spend it on an the right things.... but then people started using debt to finance consumer items, like the very things LW mentioned that bring our quality of life up so much today.

So, in some ways, we are more prosperous today much like someone who just took a line of cocaine is "more alert" than someone who just worked out and is exhausted.... ok that's a bit much, I'm still working on my "MT analogy chops," but you get what I'm saying.

I'm not trying to discount the wonderful things modern society has given us, but when you see how it is being supported by false financial footings, it's difficult to get too excited about.  If everyone today had to start paying for their cable tv, second car, air conditioning, computer, video game system, camera, etc with cash, I think we'd see a lot less common ownership of it.

Most of us here being relatively financially savvy, we probably see all those things as much more of a positive influence in our own lives, because when we purchase them we can afford them.

[stone]

Tortoise "The net benefit to the economy is that those workers have now been freed up to perform other work that needs to get done. It is certainly a hardship for the laid-off workers in the short-term as they are forced to re-tool and look for new work, but if the government gets out of the way and lets businesses bid freely for the workers' labor, they will eventually find work."

I think the key thing for me is whether "the economy" equates to "most people". Whether it does or doesn't depends on ownership of the profits. If you have widely distributed ownership, then it does. If you don't, then it doesn't. To my mind the perfect situation would be where everyone was both a worker and a capitalist owner. Then, whether wages were high and profits were low or vice versa would be a mute point. My worry is that the system we have seems to be set to increasingly seperate people out so that they are either entirely workers or entirely capitalist owners. To my mind that is taking things in the wrong direction and is creating a very fragile, unsustainable, economy.

[Tortoise]

I think the key thing for me is whether "the economy" equates to "most people". Whether it does or doesn't depends on ownership of the profits. If you have widely distributed ownership, then it does. If you don't, then it doesn't. To my mind the perfect situation would be where everyone was both a worker and a capitalist owner. Then, whether wages were high and profits were low or vice versa would be a mute point. My worry is that the system we have seems to be set to increasingly seperate people out so that they are either entirely workers or entirely capitalist owners. To my mind that is taking things in the wrong direction and is creating a very fragile, unsustainable, economy.

That is certainly a valid point. While the division of labor is an absolute necessity for any modern economy, a complete separation of ownership from labor can result in feelings of alienation and human beings being treated like branded cattle. John Bogle also pointed out in his book The Battle for the Soul of Capitalism that there is something possibly even worse: separation of management from ownership.

At least if the owners are managing the business, they presumably have a long-term incentive not to run it into the ground. But if the owners are absent or too diffuse (e.g., millions of shareholders via mutual funds and pension funds) and the people managing the business have little to no stake in its long-term prosperity, the managers can get into all sorts of mischief--often practically raping and pillaging the business by giving themselves lavish compensation packages and benefits.

If unemployment gets sufficiently bad here in the U.S., I wonder if there might be a boom in the formation of small businesses as the most highly motivated unemployed people decide to go into business for themselves. Why sit around forever waiting for someone to give you a job if you can create one for yourself? That scenario would seem to mesh nicely with your ideal of highly distributed ownership.

[stone]

Tortoise, I totally agree with you about small buisnesses solving the macro-economic problem of profits not getting fed back into the economy. The problem is that impoverishment can make it very hard for people to start up small firms that are able to compete effectively with large corporations. Some things, (such as food distribution) actually get done more efficiently by small firms than large but other things such as silicon chip manufacture clearly need the economy of scale. I think it ironic that Bogel advocates involved ownership because index funds seem to me the ultimate antithesis of that. Buy and hold ownership of index funds also lately does not seem to be a way to access the profits of the constituent companies (because profits get distributed as price volatility via share buybacks and share dilution). Does Vanguard vote for dividends instead of buybacks and mergers?

About management compensation- I totally agree with you that the current system of manager compensation by share options is a racket and grossly distorting. I think it would make more sense if managers were awarded a fraction of the dividend stream for the entire life of the manager (ie until the manager died not until they got a different job) in a non-transferable (non-tradable) form. Also I think that kind of compensation should spread much further down the company so that long term profits get shared even by lowly employees.

[Tortoise]

I am surprised that you believe that today's standard of living is lower than that of the 1950s.

[...]

I enjoyed Jeffrey Tucker's free book It's a Jetsons World for an enjoyable reflection on just how incredible today's world really is (and how it got that way.)

I'm actually a big fan of Jeff Tucker's writing. Of all the writers associated with the Ludwig von Mises Institute, Tucker is one of my favorites due to his entertaining and upbeat style. His collection of essays, Bourbon for Breakfast, is quite good.

Don't get me wrong; I agree that we live in a "Jetsons world." I just think it's a very expensive Jetson's world--far more expensive than we think, as the financial crises in recent years have started to show us--and as Moda said, there is a sense in which we seem to be mortgaging the future to enjoy it. As much as I sincerely hope otherwise, I suspect much of it may eventually be revealed as an illusion.

The term "standard of living" probably means slightly different things to different people. Personally, I see the skyrocketing costs of education and healthcare, for example, as suggestive of a steadily decreasing standard of living since those two items alone consume such a large chunk of so many people's paychecks and taxes. Plus, I see dual-income households all around me when single-earner households used to be much more prevalent in previous decades. I concede that maybe it's by choice for a lot of them; perhaps most families could get by just fine on a single income if they were only willing to scale back their consumption.

If that's the case, I suppose that in itself is an interesting social commentary.