Explaing the Basics of Finding a Job to Economists

[Author's note: this is a comment on an article that ran on FiveThirtyEight five years ago (how the time flies!). I just found the draft laying around in the back-end of this here blog and thought "yeah, might as well post it." Better late than never, and anyway, I don't think mainstream economists have gotten any smarter in the intervening half decade.]

A website ostensibly aimed at intelligent people ran this article the other day, entitled Out of Work, Out of Luck.

As Bill Black says, it's impossible to compete with unintentional self-parody:

Economists aren’t sure why being out of work for more than six months makes finding a new job so much harder.

Really?  How about this: 'cause having a big gap in your employment history looks shitty on your resume.  Who are these "economists" and what planet do they come from?  And when is the last time they actually had to participate in our earthly labor market?

Once they cross the six-month threshold, their odds of finding a job drop off dramatically.

Know why?  The "economists" probably can't figure it out but the obvious reason is that employers (like everyone else) uses rules of thumb.  Unemployed for a couple of months is one thing, but once the magic half-year mark is crossed that gap suddenly raises red flags.  I would guess that employers, like economists, have an unconscious cut-off for acceptable absence from employment at six months.  Just a guess.

In the present, it means the long-term unemployed are, for all practical purposes, no longer part of the job market; most of them aren’t going to find jobs even if the economy improves. That means there’s less “slack” in the job market — a concept my colleague Andrew Flowers explained in more detail on Wednesday — than we might otherwise think.4 It looks like the Federal Reserve has reached the same conclusion: The Fed has been pulling back on its efforts to stimulate the economy, despite continued high unemployment and low inflation, suggesting it thinks the long-term unemployed are gone for good.5

[snip]

“The lesson I take away,” Krueger said in an interview this week, “is try to prevent the short-term unemployed from becoming long-term unemployed.”

How about this for a lesson: we need to come up with something effective to help the long-term unemployed, especially since there are likely to be ever more of them/us in the future...maybe a bailout or access to the Fed's discount window.  Re-defining the structural unemployment rate upwards is obviously not a solution.

And apparently we define slack in the labor market not as the number of people who want a job, but the number of people we can reasonably expect to get hired.  Hmmm...dubious.  I think slack is everyone who wants employment but can't find it.  A Job Guarantee program would address this, but the Fed only creates unlimited funds for banks, not the unemployed.

The Paradox of Profit Pt. 3

Industry is carried on for the sake of business, and not conversely; and the progress and activity of industry are conditioned by the outlook of the market, which means the presumptive chance of business profits...[The] consequences for the theory of business make it necessary to keep the nature of this connection between business and industry in mind. The adjustments of industry take place through the mediation of pecuniary transactions, and these transactions take place at the hands of the business men and are carried on by them for business ends, not for industrial ends in the narrower meaning of the phrase.

The economic welfare of the community at large is best served by a facile and uninterrupted interplay of the various processes which make up the industrial system at large; but the pecuniary interests of the business men in whose hands lies the discretion in the matter are not necessarily best served by an unbroken maintenance of the industrial balance. Especially is this true as regards those greater business men whose interests are very extensive... Gain may come to them from a given disturbance of the system whether the disturbance makes for heightened facility or for widespread hardship, very much as a speculator in grain futures may be either a bull or a bear. To the business man who aims at a differential gain arising out of...disturbances of the industrial system, it is not a material question whether his operations have an immediate furthering or hindering effect upon the system at large. The end is pecuniary gain, the means is disturbance of the industrial system... so far as touches his transactions in this field it is, by and large, a matter of indifference to him whether his traffic affects the system advantageously or disastrously. His gains (or losses) are related to the magnitude of the disturbances that take place, rather than to their bearing upon the welfare of the community.

The outcome of this management of industrial affairs through pecuniary transactions, therefore, has been to dissociate the interests of those men who exercise the discretion from the interests of the community...Broadly, this class of business men have an interest in making the disturbances of the system large and frequent, since it is in the conjunctures of change that their gain emerges.

~Thorstein Veblen, from Theory of Business Enterprise

Economics is a Mankini

To steal a line I heard somewhere recently (don't quite remember where): economic theory is like a mankini: it shows you everything except what you actually want to see. A case in point comes from commenter MikeNY at the Naked Capitalism blog {waves}:

In theory, all else being equal, I can’t argue with the efficiency of comparative advantage (i.e., that the sum of output should be higher).

An analysis of this one sentence can reveal a lot of what's wrong with economic theory. 1) "all else being equal"--of course, all else is never equal in the real world. In the real world you have things like environmental damage (from intensive industries and long supply-chains), over-dependence on single industries (aka Banana Republics) and national security/sovereignty to worry about (import dependence limits political independence).

2) "efficiency"--economists define efficiency in a way that is far different than the normal understanding of the word, and rather naive from a purely technical standpoint. To wit, there is no place for ideas of sustainability in the economic usage of efficiency. Anything that increases the monetary value of the goods produced (amt. of goods X price of goods) is considered efficient, and therefore good, even if the method of increasing the value of goods is itself destructive and unsustainable. It would be like a driving instructor saying that anything that makes the car go faster is "efficient" (i.e. good), without consideration for things like sharp corners or pedestrians.

On the technical side, highway designers discovered long ago that a road operating at "maximum efficiency"--i.e. moving the greatest amount of cars/minute--was also extremely likely to experience a catastrophic breakdown (traffic jam) because when the highway is packed with traffic, just one person making a mistake can cause a huge pile up and completely stop traffic. If, OTOH, a road is functioning below it's max. capacity, someone can drive into the median divider and everyone else can just...go around. So "efficiency" actually turns out to be inefficient, in the real world. It all works great, until it doesn't work at all. This is a fundamental finding of complexity science, imho, and is widely applicable

3) "the sum of the output should be higher"--again, maximizing the value of Number of Goods (sold) X Price of Goods is not anything we should necessarily be concerned with. Numbers like GDP and trade volumes are nothing but proxies for what we are actually concerned with--which I would sum up as quality of life--but they are horrible proxies. It's like trying to gauge your health by looking at how much you're spending on health care (more money spent on health care means more health, no?) instead of looking at what you're resting heart-rate is or calculating your BMI.

 And that's before we even get to the question of distribution that MikeNY rightfully highlights in the next sentence of his comment.

These same logical inanities pop up again and again in mainstream economic theory...which, btw, is not even worthy of the name "theory," scientifically speaking. "To become a scientific theory, an idea must be thoroughly tested, and must be an accurate and predictive description of the natural world."

You're Doing it Wrong: Politics As If Democracy Mattered

Framework for a Grassroots, Transparent, Mobile Web-Based Politics

“...the Left needs to stop being a religion and become a tool in the hands of the people.”

~Iglesias, Podemos Party

Politics in this country, as in most others, is a complete clusterf**k. Despite the passionately contested battles between our legacy parties for political dominance every few years—and the venomous and vile attack ads that inevitably accompany them—most people I know, regardless of their political affiliation, don't seem to feel that they have much affect on national, or even state politics. There is an odd paradox between the heated pronouncements of our politicians, on the one side, and the icy disconnection most people feel toward electoral politics, on the other. The reaction of most folks to even their own party's candidate in any given election is more often than not a disaffected and noncommittal shrug. As we say on the interwebs, “meh.”

Inevitably, if the person is interested in politics at all—and most people are, at least a little bit—they'll give you the old saw about the lesser-of-two-evils. The “he's a bastard, but he's our bastard” mentality. This is actually a politically sophisticated view of things, in that it at least has the honesty to admit openly what our political system has become: evil...with bastards running the show.

The cynicism with which most people now greet campaign promises, knowing that all are inevitably negotiable and prone to change (depending on factors usually involving money and/or matters of personal convenience) just goes to show the utter lack of legitimacy our current political class has acquired in the eyes of most. Our elections have become essentially debates over which of the liars is going to lie the least about what's really going on — which corrupt official is the going to leave the most behind when he or she is done looting the country and selling off the best parts to their friends?

Given that this is the case, it's hardly surprising that the outcomes for most of us have been so bad. [1]

The point, however, isn't to belabor the brokenness and backwardness of the political system as it now exists—or to bemoan the perverse policies (and bailouts) this brokenness has led to—but rather to present another option for how we might organize ourselves politically that avoids entirely this whole morass of big money, special interests, and lesser-of-two-evils defeatism. The idea I would like to suggest we try is a simple one—one that should be familiar, at least in principle, to all Americans—it's called “democracy.” Perhaps you've heard of it...

Imagine a political party with no national platform—a party where local rank-and-file members select candidates from among themselves, and dictate the policies those candidates will support. [2] Imagine a political party whose candidates are transparent; one that guarantees every member an equal voice in shaping the actual policy proposals—and the votes—of their representatives. Imagine a political party whose focus is on empowering the rank-and-file members, instead of the charismatic con-artists we call politicians. Imagine a political party that runs on direct democracy, from bottom to top: open, transparent and accountable.

That, dear friends, is what I am suggesting.

Just a few years ago, this idea might not have been thinkable, but widespread adoption of mobile technology, even among people with lower incomes, makes creating a truly grassroots driven political party—without the need for big money or expensive political consultants—a real possibility.

First I'll describe the basic ideas behind this new structure, and then we'll get to the technological implementation.

In our party, the platforms of the local candidates will be decided by the members through face-to-face and on-line dialogue and discussion, and on-line voting. If someone has a policy proposal, they submit it for discussion, debate, and amendment; if the proposal gathers a preponderance of support from the members, it becomes a local policy position.

Candidates are nominated by the members in their district and have the obligation to submit and vote on legislation only in line with the positions of the local party chapter, once they are elected. In office, the job of the representative is to present and explain legislation up for vote to the members, and, in cases where the proper vote is not clear from the local positions, to have the local party vote on which way the representative should cast their vote in the legislature. Our party will not only allow, but encourage real-time interaction and meaningful participation from the members in the daily work of legislating. This will give members the chance to actually effect the votes of their representatives in a meaningful and transparent way.

The candidates in our party will be contractually obligated to represent only the preferences of their constituencies, regardless of their personal opinions or interests. Any candidate failing to do so will be recalled at the soonest possible time. In this way of doing politics, the political candidate is not the leader of the party, but merely the spokesperson for her or his constituents.

Compare that to both Democratic and Republican representatives, who spend most of their time on Capitol Hill schmoozing with lobbyists and dialing-for-dollars to fund their next campaign, when they'll do their darndest to convince enough voters that they are the lesser evil and to put them back in power for another term...which they plan to spend schmoozing with lobbyists and dailing-for-dollars.

There are two essential ingredients necessary for this plan to work: 1) the dissaffection of enough people with the maneuverings and continual disappointments of both major political parties, and their willingness to join a party that offers first and foremost, a direct voice in the political process, and; 2) the willingness of these people to put in the energy and effort to get as many people involved as possible. For reasons I'll explain a little later, the more people involved in the project, whatever their political views, the more successful this project—this party—will be.

Also, we'll need an app...maybe two. More in a little while.

To be continued....

[1] Full-time jobs are still below their pre-crisis peak, some six years after the crash; overall job numbers have caught up to and surpassed previous peaks only thanks to the BLS's habit of counting anyone working at least one hour of paid work per week as “employed.”

[2] Rather than the other way around, which is how we do things currently: i.e. the candidate selects the rank-and-file (D or R) and dictates the policies to support to them.

The Unquiet Conscience of a Master/Slave

 One of capitalism's greatest coups and most resounding victories has been the successful combination of both the master and slave mentalities within nearly every individual among the working classes of the population. Under the current capitalist system, each person has become their own master—has become their own slave.

Under the old system, the slave was made to work so that the master might have material abundance. The master had ample time to enjoy this abundance, since s/he did not have to spend her/his time working—that was the slaves' job. From the capitalist perspective, this type of system presents a problem in that the amount of goods the master and his/her household can consume is relatively limited, even in the most opulent cases. Additionally, resources devoted to the maintenance of slaves are unavailable for use by the capitalist.

Were there more masters to purchase goods from the capitalist, the slave system would not present such a problem—but more masters would also require more slaves to serve them which would, in turn, reduce the amount of resources available to the capitalist and impede his/her ability to take advantage of this larger market of masters. What to do?

The Capitalist system has solved this problem quite elegantly, by replacing the external, interpersonal master/slave division with an internal, intra-personal one. This has had the result of increasing the number masters, who can purchase the output of the capitalist process, without increasing the number of slaves needed to sustain them, thus leaving resources plentiful and inexpensive for capitalist exploitation.

While this solution has proven quite useful for the capitalists, the effects on the working classes have been less salubrious. Whereas, in the former system the master had ample time to enjoy the material abundance provided by his/her slaves, the new master/slave hybrid does not have the same luxury. Being also his/her own slave, this new type of person is expected to both work like a slave and to have material abundance, like a master. The abundance is in vain, however, as being also a slave, he/she lacks adequate time with which to enjoy the abundance that slavery produces.

The result for the working-class master/slave is an unquiet conscience. Whereas a mere slave knew better than to seek fulfillment in material possessions, the master/slave hybrid is imbued with no such wisdom. S/he has adopted the value system of the master and so seeks fulfillment in material wealth, but is unable to enjoy it due to the constant lashing of the slave aspect of the self—to drive it to work harder to provide more wealth for the master aspect. This disjointed self of the modern working-class human, enmeshed in capitalist society, far from representing an overcoming of the previous slave-based economy, is rather the pinnacle of its ascendancy.

Under the old system, the slaves would sometimes rebel against their masters, turning against their overseers and disrupting the entire system of wealth extraction. The new system is superior in this regard—at least from the point of view of the capitalists—in that revolt against one's own self is infinitely more difficult than rebellion against an external authority. Thus, disruptions are kept to a minimum in the new system of slavery, where every man is his own servant, every woman her own oppressor. 

Stuff of Memory

Each of us, 

eventually

will be nothing more

than memories.

The Earth will reclaim

our material bits

and our immaterial bits will return

to wherever it was they came from--before

they were us.

 Before they were the stuff 

of memory.

Leadership Good, Leaders Bad

Leadership is good.  Leaders are bad.  Cultivate leadership.  Do not seek to become a leader.

A leader is someone who thinks they are in a position to make decisions on behalf of a group.  Leadership is the quality of knowing how to help a group make a decision.

If a group has many leaders, they will accomplish nothing.  Each will want to make decisions for the group as a whole, and thus the whole group will be divided and diffuse and never carry out any of the decisions made.

If a group has many who display leadership, then the group will accomplish much.  They will find making decisions easy; they will move as one unit, one force.  They will discover their collective will and carry out their collective decisions.

Leadership is effective, leaders are a hindrance.  Cultivate leadership, and do not seek to become a leader.

Rebuilding Economics From the Ground Up (or "This Town Needs and Enema!")

The links page of the wonderful Naked Capitalism site today, included this one from VoxEU:

The mainstream economics curriculum needs an overhaul

Yves Smith, as she is prone to do, added her own pointed commentary on the piece: "How about “mainstream economics needs an overhaul”?"

To which I say, indeed. And more than an overhaul even--this rig is due for an entire rebuild, from the ground up.  Here's what I mean by that:

I just finished reading a wonderful little book, Michael Lebowitz's Build it Now! Socialism for the Twenty-First Century.  Highly recommended.  Lebowitz's main contention is that the problem with capitalism--and I would say also with economics--is that is concerned solely with the creation of more capital.  Socialism, on the other hand, is concerned with ensuring that each individual is allowed the possibility of fulfilling their highest potential.  Capitalism, as well as mainstream economics, is concerned exclusively with the production of financial wealth (I might add "and material goods" to that sentence, except that material goods are only considered "good" if they can be turned into financial wealth, else they are seen as waste or loss).  Socialism, by contrast, is concerned with the development of human potential.

Number and money, on the one hand; human development on the other.  Unless and until our economy is based around the latter, we will continue to suffer, as a species.  Unless and until economics as a discipline places human development and the study of how best to achieve it at the heart of its enterprise, our thinking about life will continue to suffer (and the whole planet along with us).

Predictably, and sadly, the suggestions being put forth for changing the mainstream economics curriculum, as presented in the Vox EU article by Diane Coyle, the "Managing Director of Enlightenment Economics" (a job title that should, perhaps, give us pause) include only the following:

• Emphasising dynamics, instability, institutions, and environmental questions; and
• Integrating new results and empirical evidence.

• More exposure to economic history and the history of thought;
• More practical hands-on experience with data;
• Better teaching of communication skills; and
• Some exposure to new developments in economic research. 

• Some economic history, which could be integrated into existing courses, especially macroeconomics;
• An introduction to other disciplinary approaches;
• Possibly ‘tasters’ of the frontiers of academic economic research with potential policy application, such as behavioural economics, institutional economics, and post-crisis developments in financial economics;
• Awareness of some of the methodological debates in economics;

I will leave it to you, dear reader, to guess what "some" and "more" will entail in practice ("More economic history,"..."some methodological issues"), but notice that all of the proposals stay firmly within the framework of measuring (and therefore judging) all parts of our economy on the basis of the same things that the mainstream currently judges them on: namely, GDP, unemployment statistics, interest rates, inflation/deflation, spending and investment...i.e. numbers and money.

A new economics, if anyone is interested in such, must start from the premise that our economic system exists to promote the fulfilment of human potential--to ensure each has the opportunity to develop to their highest possibilities, however they happen to define them.  Numbers and money are means to an end--possible tools that we can use to better accomplish our goal of human development--but once they become seen as the ends in themselves, our thinking veers wildly off track.  The results of such thinking we see around us everyday, in the homeless and jobless, the stressed and unhealthy, as well as in those with wealth who still manage to suffer, despite having "made it."

Lebowitz's book is definitely worth the read, and much cheaper--and more to the point--than a lot of other econ texts currently available. Read it, share it, talk about it, and above all build it.  We need to rebuild economics from the ground up, and this is one place (maybe the one place) to start.