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Dangerous Economic Fault Lines

New analysis of deep fault lines still threatening our economy and the world’s. We speak with ex-IMF chief economist Raghuram Rajan.  

People wait in a line to enter a job fair, Wednesday, Feb. 24, 2010 in New York (AP)

A vote yesterday in the U.S. Senate came down against a new jobs bill and extending unemployment benefits.  

There may still be a way. But a big question now hangs over the United States: What happens if the jobs really don’t come back?  What if millions of Americans are stranded without paychecks and millions more see paychecks that won’t cover the cost of life?  

For a while, people make do. But what then, as some go shopping and many others just suffer?  

Economist Raghuram Rajan says we are in for a rough ride. Economically. Politically. Socially.  

This Hour, On Point: American fault lines, under pressure. 

 

Guest: 

Raghuram Rajan, former chief economist at the International Monetary Fund and a professor of finance at the University of Chicago Booth School of Business. He is also economic adviser to the prime minister of India. He is author of “Saving Capitalism from the Capitalists.” His new book is Fault Lines: How Hidden Fractures Still Threaten the World Economy.” You can read an excerpt

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  • joshua

    In crisis we should look for opportunity. All these crisis and we do nothing about anything-we are letting opportunity slip through our fingers in the mouths of crooked politicians.

  • joshua

    We need more government and less corporate rule. Corporations are not people. We have a social contract to fulfill. We need executive orders. Where is the War on Poverty, the War on Dirty Energy, the War on Climate Change? Where are the armies of tree-planters. Put people to work!

  • joshua

    Instead of bailing out banks and insurance companies we should be pouring those billions of dollars into local organic farming, rehabilitation projects, tree planting, house weatherizing work forces, cooperative Mon-dragon-style industries, voter-owned elections, etc…

    But that doesn’t happen because our government on both sides of the isle is beholden to and is the corporate elite.

    A good show for ON Point would be the Mon-dragon (mon-druh-gohn–i think) cooperative system in Spain. how can we build on that here?

  • http://www.richardsnotes.org Richard

    Two nights ago on The NewsHour, two economists (Nassim Taleb and Nouriel Roubini) talked with Paul Solman about the potential for a long term recession.

    http://www.pbs.org/newshour/bb/business/jan-june10/makingsense_06-15.html

    In a word: Ugh.

  • cory

    Joshua,

    I agree with a lot that you have said. The question is, how do we drive a wedge between our government and the wealthy corporate interests? Legislative attempts are inevitably watered down and deflected, and we live in a culture that likes to blame the victim and deride the poor.

    You’ve put your finger on the big problem… we just need the big solution.

  • peter nelson

    We can expect the usual polemic spitball contest of an OnPoint discussion forum over this topic. Complexity and nuance have never been hallmarks of US political debate – hence our clinging like Linus to his security blanket to our two party system. In David Wessel’s Wall Street Journal review of Rajan’s book he says,

    “The left has figured out who to blame for the financial crisis: Greedy Wall Street bankers, especially at Goldman Sachs. The right has figured it out, too: It was government’s fault, especially Fannie Mae and Freddie Mac. Raghuram Rajan of the University of Chicago’s Booth School of Business says it’s more complicated: Fault lines along the tectonic plates of the global economy pushed big government and big finance to a financial earthquake. To him, this was a Greek tragedy in which traders and bankers, congressmen and subprime borrowers all played their parts until the drama reached the inevitably painful end. (Mr. Rajan plays Cassandra, of course.) But just when you’re about to cast him as a University of Chicago free-market stereotype, he surprises by identifying the widening gap between rich and poor as a big cause of the calamity.”

    Other countries have worked out practical, real-world means of dealing with these same issues. Americans can cling to their simplistic, blinkered ideologies comfortable in the assurance that if they don’t actually study how things are done elsewhere in the world, then that world won’t impinge on them. Like Dr Pangloss, Americans enjoy their ignorance, content that they live in the “best of all possible worlds”. And meanwhile the talent, money, business ventures and jobs will abandon our dysfunctional, sclerotic society to go to societies which function better than we do.

  • nick

    The Middle Class is the wealth of any nation. Since the late 1970s, our country has been sucking the Middle Class’s wealth, sip by sip, until it is stripped and struggling – for that small fraction at the top of the pyramid. Costs of education, health care, credit and so forth went up but salaries really have not.

    Unless we change this, we are doomed to crash and crisis. In a world of growing middle classes, we are shrinking ours.

  • Thomas Johnson

    I think the question you’re really asking is what will happen in 16 days and 15 hours when the funding for the last Emergency Unemployment Extension expires, thanks to certain Senators who still have THEIR jobs, and they have no money for gas, mortgage, or even food for the family.
    The answer is simple for any historian. When the economic gap between rich and poor widens as far as it has now, and the rich decide the poor are on their own, then the barbarians crash the gates and we start over.
    Unfortunately, this time the barbarians are already inside, and thanks to the NRA, they have plenty of guns.

  • Alan Capewell

    I hope it is obvious to all reading this thread that peter nelson has it “spot on” or “präzise”. Get it? i’ve got my tickets.

  • peter nelson

    A good show for ON Point would be the Mon-dragon (mon-druh-gohn–i think) cooperative system in Spain. how can we build on that here?

    I don’t think I’d be using Spain as a good role model these days. They’re in line to be the next Greece.

  • jeffe

    I will second that. Peter pretty much sums it up for me.

  • Ellen Dibble

    Last night this economist was put up then taken down; meantime I printed out all the long exegeses upon his work posted by readers at Amazon I believe. Wow. Gotta go back and read it. But just here, Joshua, interesting that you don’t think government helpless and hopeless. Consider it costs a million dollars a year to keep a soldier in the war theater, I heard. Not counting lifelong care if he/she is injured. Say we used that million dollars a year to hire 400 college kids for 4 months at $3,000 apiece to help with the Gulf cleanup. One soldier equals 400 cleaner-uppers during summer vacation. Priorities?

  • peter nelson

    When the economic gap between rich and poor widens as far as it has now, and the rich decide the poor are on their own, then the barbarians crash the gates and we start over.
    Unfortunately, this time the barbarians are already inside, and thanks to the NRA, they have plenty of guns.

    Except that those people come from the “less government is better” side of the political spectrum, so they aren’t demanding unemployment checks in the first place. In most societies when the poor revolt it’s to make the government help the poor. Since the Tea Party / NRA crowd don’t believe in that idea they’re unlikely to take that approach.

    When Bush was first proposing his tax cuts the polls showed that affluent Americans did not generally support it, but poor whites who had the least to gain, were among the biggest supporters of it.

    One remarkable thing about our culture is that poor whites often imagine that someday they’ll be rich. I think this helps to keep poor whites docile even as they become poorer. Liberals are amazed at this and think that surely the poor whites will wake up someday and realize the rich are taking advantage of them and turn left. I don’t think that’s ever going to happen.

  • CHRIS M

    People will continue to remain unemployed because we have no jobs for them. We make nothing in this country anymore, we are a nation of paper-pushers and all the manufacturing jobs have gone off-shore in the never-ending fight to keep prices artifically low. You can see where that will be coming to an end in China with all the recent strikes by workers looking for higher wages. We are not represented in our government because our elected officials are owned by the corporate world, R&D both. The lot of the “Common Man” will only get worse as we become further & further tapped out by the goal of the super rich to create 2 classes in this country with the Middle Class the loser. Rich vs. Poor – No room for anything in between – Aristocracy vs Peasant, sound familiar??

  • Ellen Dibble

    Peter, the reason is Americans shun the state of being Politically Incorrect. I am called that by all the big liberals in town. I tell them it’s my role in life. Okay, they say, you call it like you see it. And they stare at me as if I were about to be hanged.
    All I say is that living in subsidized (affordable) housing such that your housing constitutes a tax break for the developer, and thus your own rents don’t go toward municipal taxes creates a class that is tied to whatever politician keeps up the housing subsidy, and is not granted Voice aside from that, since everybody else quotes their tax paid and then speaks. I think if this keeps being thrown around, Taxpayer for 8 Years, then renters should go for Net Net rents wherever possible, where they directly pay the property taxes and insurance. People subsidized in various ways can be manipulated so many ways; they’re virtually serfs, using their voice to demand their rights to more, not seeing themselves as democratic participants. Try telling that to Barney Frank et al.

  • JP

    Our political and economic systems are the real culprit, across the board.

    All parties worked in their own short-term interest, which is the way our systems are geared… “short-term” being the only arguable point that anyone acted illogically here, as they often acted against even their own long-term interests.

    … But our absurd political and economic system isn’t geared towards long term sanity, it is geared towards short-term interests.

    The only real innoculation for this virus is Campaign Finance Reform.

    CFR is not a guaranteed cure for all of our problems, but it is the best hope for politicians to begin acting in their broader constituents’ interests… couple CFR with the more intense scrutiny of individual actors which the internet provides, and we may find the formula for a decent, fairly sane system that addresses the broadest possible interests of the populace.

    If CFR were thoroughly pursued, the two party system would have far less clout, and I might even find myself voting for conservative politicians occasionally.

  • Nancy

    Wow. That is nicely put JP. I agree.

  • peter nelson

    All parties worked in their own short-term interest, which is the way our systems are geared…

    All democratic political systems are geared that way. What makes ours pernicious is that we only have two parties. Virtually all other democracies have more. Multiple parties keep things from getting polemical and encourage compromise for several reasons:

    1. In our system everything is zero-sum – a gain or win for one party is a loss for the other which makes people resist giving an inch on anything.

    2. A party can’t get away with just nay-saying on the sidelines like the GOP did on the healthcare debate – because the 3rd or 4th party would see that as an opening to take advantage of.

    3. Campaigning becomes less polemical and less dirty because you may have to form a coalition government with some of the other guys, so you can’t spend the campaign tearing them down too much.

  • jeffe

    Robert Reich’s recent essay is on the recent speech given by Obama, but he goes into this subject.

    His thinks we are living in the times of the robber barons once more. For those who are familiar with this period which was also called the Gilded Age, “it was a time when finance, oil, railroads and steel ran roughshod over America” (from Robert Reich’s essay) and it was also a time when we had a lot of strikes, and anarchist were on the rise as was extreme right wing groups.

    http://robertreich.org/

    http://www.du.edu/ludlow/cfhist.html

    http://en.wikipedia.org/wiki/Timeline_of_labor_issues_and_events

    http://en.wikipedia.org/wiki/Battle_of_Blair_Mountain

    Read this whole piece it’s scary.

    http://www.globalsecurity.org/military/ops/coal-mine.htm

  • Ellen Dibble

    Don’t forget that many Americans think (rightly) that we depend on the stability and success of the corporate plutocracy. They want retirement accounts to grow. They want “good” jobs with benefits. They want the money strewn around, never mind those corporate interests displace dozens of independent local small businesses along the way. Never mind that the corporations outsource wherever they can to get cheaper labor. Unions depend on corporate stability too. What other entity can afford the full health benefits and so on? The Goose that Laid the Golden Egg is also consuming us. What now?

  • Expat Bob in Nassau

    One dimension of the recovery that isn’t addressed sufficiently is that consumer income — i.e., wages — declined or, at best, stagnated throughout the last decade. Economists keep looking for increased consumer spending to spur the recovery. Do they believe that there are really enough consumer dollars available to spur a recovery?

  • JP

    Peter,

    Am I getting you right?

    “All democratic political systems are geared that way,” but “Virtually all other democracies” don’t work that way?

    Take another look at your argument there, buddy.

    … and most democracies I know of which have many more than two signifcant parties tend to be fairly ineffectual… take Italy, for instance, which has tons of parties, and has forever been notoriuous for being completely ineffectual.

  • JP

    …still, CFR will cause the two-party system to lose clout, as the fund-raising function OUR two parties serve would no longer be significant.

    Therefore, more diverse party affiliations would likely find their way into the fold.

  • Lizelle

    I love the gun comments. I own five firearms myself, and the idea of “crashing the gates” (e.g. armed robbery) is a fantasy. The first person to try would be thrown in jail. If a few groups try, martial law would be declared.
    But it won’t happen. Oh, there might be riots in cities, conceivably, but there are plenty of soldiers stateside to deal with that.
    We are being slowly impoverished by inflation and a distorted “service” economy. Let’s face it: most of us don’t actually produce anything.
    The feds will put more money into unemployment, probably, but the dollar no longer has buying power. I was in Switzerland last summer and our American money didn’t go very far. Never mind how much of it just bleeds overseas.
    What may happen is that people stop paying taxes, legally or not. Remember when California couldn’t send out its refunds? People reacted by lowering or eliminating their withholding.

  • JohnP

    Fannie and Freddie need to fail and go away. If they were not under control of the politicians they would have never bought all of the junk mortgages and this government run housing bubble wouldn’t have ever occurred.

    Isn’t it funny that the government is always asked to fix the problems they cause and they want us to forget that they were the cause of the problem in the first place.

  • peter nelson

    … and most democracies I know of which have many more than two signifcant parties tend to be fairly ineffectual… take Italy, for instance, which has tons of parties, and has forever been notoriuous for being completely ineffectual.

    Since the topic of this thread is income disparity it’s worth pointing out that we have wider income disparity than Italy. Our average levels of household debt is higher than Italy in both relative and absolute terms, and while their debt as a % of GDP is higher than ours, we’re rapidly catching up because our deficit as a % of GDP is higher. So in many ways they’re not ineffectual as we are!

    But countries I really had in mind are Germany, the Netherlands, Sweden, etc – countries that have demonstrated that multiple political parties can enhance decision making and problem resolution at a national scale.

    If you want to see the future of the US look at California.

  • Ellen Dibble

    Guns or no, say some anti-government group “takes back” our country. Then how do they pay off the national debt? They make a deal with the Chinese, who simply move into DC?

  • peter nelson

    We are being slowly impoverished by inflation and a distorted “service” economy. Let’s face it: most of us don’t actually produce anything.

    Inflation? Inflation is close to an all time low right now.

    Not only that, but trouble in euro-land has caused a flight to the dollar, which is strengthening the US currency, raising the spectre of DEflation, which is very dangerous. Also a strong dollar makes US exports harder, thus destroying what little productive industry and jobs we have left.

  • CHRIS M

    Lizelle, I think you are missing the point on the firearem comments. I don’t think people who do not own or use guns believe those firearms will be used for robberies, but for armed revolt against the government and against fellow citizens who don’t agree with those who would be revolting. I think we are well on our way to a new Civil War with the polarzization of our country and clearly those who are armed will fair better. I grew up around guns, but do not own any. My husband & I have begun to discuss purchasing gun(s) and teaching our children how to properly use & fire them. This is purely for protection, not against robbers, but against those who might harm our family should it come to that horrible conclusion. I hope fervently this never comes to pass, but better safe than sorry. Maybe the soldiers will control the “riots” but that won’t bring people back to life who have been killed. “Sorry, my bad” just won’t cut it.

  • JP

    Peter,

    The countries you refer to, “Germany, the Netherlands, Sweden, etc.” are much more likely to look towards the long-term outcomes of their political decisions, so again, “all democratic systems” aren’t geared almost exclusively towards short-term interests.

  • JP

    … also again, most likely due to a different method of campaign finance.

  • peter nelson

    The countries you refer to, “Germany, the Netherlands, Sweden, etc.” are much more likely to look towards the long-term outcomes of their political decisions, so again, “all democratic systems” aren’t geared almost exclusively towards short-term interests.

    Yes, of course they have a longer-term outlook. For a good example of this listen to Anders Borg (Swedish Finance Minister) describe how his country tackled their 1990 financial crisis. The reforms they made then helped them get through the current situation 20 years later with flying colors: http://www2.lse.ac.uk/publicEvents/events/2010/20100114t1800vOT.aspx

    But the question is how do they achieve a longer-term outlook? I believe that our zero-sum-game two-party system encourages the no-compromise, focus-on-the-battle-not-the-result thinking that produces short-term thinking.

    The problem with Campaign Finance Reform is that WE’RE the ones forcing polioticians to raise all that money. The average Senate campaign in 2008 according to one study I saw cost 11 million dollars, with 85% of that going to TV ads.

    As long as voters keep responding to expensive, glitzy attack ads politicians will be under pressure to find enough money to run them because any politician who doesn’t will be destroyed by his opponent.

    I think CFR is like the war on drugs – trying to stop drugs by interdiction instead of addressing why so many people WANT drugs – it doesn’t work. You have to address the demand side. You’ll never have successful CFR by just trying to interdict spending because there will always be loopholes (especially since the Constitution guarantees free speech there is no way to stop a rich individual from running his own ads saying “vote for X”). Effective CFR needs to address the demand side so politicians don’t need money on their side to run an effective campaign.

  • Rick

    For once, I would like to hear an economist taken to task for the behavior of practitioners of “the dismal science”, as Thomas Carlyle call economics in the 19th century. The ability of economists to influence government policy is out of all proportion to the intellectual rigor of the discipline. How can one contend that the science behind climate change is too weak to drive government policy on the one hand, but unswervingly accept unprovable economic theories (i.e. free market, laissez-faire, “invisible hand”) to create policies even as those policies are causing an economic train wreck? Much has been made of a need for greater “scientific integrity”. How about a call for economic integrity?

  • http://wbur.org Judith Gondelman

    But when the soldiers get back home, how could the ‘powers that be’ deny them care by saying that it is not a real injury or not caused by the war. How is it that they passed the physical to be accepted into the armed forces if their problem was present before fighting? In addition, it is too bad if the government does not want to spend the money to treat these soldiers who could have died fighting for their country, if they (the powers that be) are willing to spend so much of our money to create wars than they need to deal with the consequences – which are only monetary for them, but life changing for the soldiers and their loved ones. And it has been said that anti-war citizens are not patriotic and don’t care about soldiers?????????

  • JP

    Sounds like you’re talking about a completely different type of CFR than I’m aware of, Peter.

    The sensible reform for which I’ve seen the most push would require all candidates to draw from the same same pools in the same ratios, and would require all media to provide equal time for each candidate in equivalent forums, including public debates.

    This is the only sane reform of which I’m aware, and it addresses all problems concerning candidates being beholden to a relative few large money interests.

    The only problem beyond that is outright graft, and that’s where the scrutiny of individual politicians through open records and watchdogs such as internet organizations comes into play.

  • Jan Conroy

    How does our economy — based on consumer spending — recover when there is high unemployment and underemployment? If we don’t have the money to spend, and the credit card era is over, how can we sustain a sustainable economy? Can we move to an economy that is not dependent on the consumption of material goods?

  • Thomas Johnson

    Peter Nelson: Who said the “Barbarians” would take on the rich? in every single revolt, the rich have made out like bandits. The escape to the current version of Switzerland, The Bahamas, or South America. Russia would be a good place to be rich right now: they’re already running things right out in the open.
    These persons you refer to, Tea Baggers mostly, are in the vast minority, and are not the working poor: those are the people that are going to be evicted, starved, etcetera. In three weeks when the unemployment extension expires, Katy Bar the Door.

  • jim thompson

    Tom:

    Great program. I think frankly that “we are screwed”. Our recoveries of late have been slow & weak. Even with the recoveries, the wages are stagnant and the standard of living remains somewhat flat.

    I think the answer may be in a revived labor movement, but I do not see that happening.

    It is very bleak.

  • Ann

    I’D LIKE TO ASK YOUR GUEST:

    I believe the huge corporations hurt us. We would be MUCH more flexible when change occurs OR when change is needed, if we were a world of SMALL companies — if we had a world economy that functioned thanks to the work a lot of small companies working like BALL BEARINGS: little friction, lots of mobility!

    Am I right?

  • Rich

    YOU AIN’T SEEN NOTHIN’ YET!

    Jobs are disappearing for two reasons:

    1) Off-shoring

    2)Automation.

    Automation anr Robotization are really the more important of the two. Technologies like RFID chips have decimated warehouse workers, go to your local supermarket and Home Depot, see the self-checkout counters. Internet travel sites have decimated that Travel Agent Business.

    The moment some smart nerd cracks computer vision you are going to see jobs disappear on a mass scale while corporate profits soar.

  • Yar

    Regardless of current quality of life much of happiness is based on the hope for a better future. If hope is eliminated then things spiral down. We can replace hope with public works or a new source of energy. But a malaise is self fulfilling. We have to hold down the rich and pick up the poor to preserve civil order.
    This is not only a US problem, China may lose control of its population. They have an even greater problem with a sexually unbalanced society.
    What is the first thing a country does when they have too many young men and not enough women?
    Usually, they declares war on someone.

  • Charlie Hunt

    Manufacturing, the creation of wealth, is the backbone of any healthy economy. Our “backbone” has been sent offshore.
    Why is this fact ignored?

  • Todd

    Does anyone else who’s listening feel like On Point has dialed a toll-free number and we’re getting domestic economic tech support from an outsourced location? Doh!

  • Steve

    I suspect that we have a new corporate aristocracy which, intentionally or not, strive to concentrate power and money by gutting the middle class.

    Middle-aged, white men will continue to be the big losers. I do NOT intend ANY racial context here, it’s an economic reality. Neither women, African-Americans, Hispanics, nor any others will benefit from this trend. As higher wages are removed from families, the whole family suffers while the rich get richer.

  • Rick

    Charlie Hunt: “the creation of wealth” was assumed to lie within the banking sector in the form of ABS, CDOs etc. I guess that was a bad call, eh?

  • Susan

    yes, deeper problem – way deep – government fiat money dismantles civilization and we are in the “writing on the wall” period of an experiment launched in 1913 – who is to blame? WE are.

    Ron Paul and others have been, and are, trying to turn things around in a necessarily fundamental way and more and more people are listening – if you can vote in Connecticut, support Peter Schiff for Senate

  • Peter

    The issue goes back to washington and it inability to deal with teh problems at hand. The mantra is cyt taxes, free market, etc. the new world requires an educated work force and a healthy one where companies are incuraged to stay in the United States not in China, or else where.

    This means national healthcare, free higher education based on competative exams and no more tax breaks for companies that take jobs off shore.

    Politically, Take the money out of the system with public financing and set up none partisan redistricting so electiona are competative.

  • THIS IS THE IMMIGRATION ISSUE

    The previous caller from Michigan just made the illegal immigration issue hit home. The lack of jobs in America really makes you empathize with the immigration problem. Replace the following word “Michigan worker” with the word, “illegal immigrant”:

    “Why can’t the “Michigan worker” just wait for the economy to come back? Imagine if the unemployed was not allowed to migrate to other states that have better economies. They should just wait in line for their state to get better. Can’t the “Michigan worker” just wait their turn?”

    Now you understand how jobs and the economy are more related to illegal immigration than being nice, patient, and legal. It’s about surviving.

  • peter nelson

    The ability of economists to influence government policy is out of all proportion to the intellectual rigor of the discipline

    YES. The economics community needs to do a FAR better job publicizing this.

    But let’s be clear: Within the academic economics community no one doubts this. I’ve studied enough economics so I can read the professional literature and I constantly and annoyingly come on here and promote the LSE’s lecture series so anyone here can stay up to date in developments in economics.

    Contrary to what some people here think, who’ve read a one hagiography of Friedrich Hayek and think they know everything there is to know about economics, economics really IS a rich area of deep study with intellectually interesting topics that you can really sink your teeth into. It takes serious study to be able to speak and think intelligently on it.

    BUT, even physics and chemistry, whose principles are a lot clearer don’t have the power to predict the weather here next month, even though, at some level, it’s all just physics and chemistry. Because it’s too complex.

    The problem is that the public and their politicians demand answers, and they demand that someone speak in soothing, confident, knowledgable tones. And there’s always a few economists happy to leave their academic skepticism behind and feed their egos by stepping up and pronouncing what the “answer” is.

    Here’s a great LSE lecture by Professor Ha-Joon Chang from Cambridge University called “Hamlet Without the Prince of Denmark: how development has disappeared from today’s ‘development’ discourse”. In it, near the end, he asks why economists don’t have to carry malpractice insurance like doctors do.

    http://richmedia.lse.ac.uk/publicLecturesAndEvents/20100225_1830_hamletWithoutThePrinceOfDenmarkHowDevelopmentHasDisappearedFromTodaysDevelopmentDiscourse.mp3

  • Webb Nichols

    The reality is that we will have a permanently unemployed population. I heard an English economist say that the United States will experience what has existed in Europe for years.

    The fact of the matter is that the quality of life and standard of living in the United States will diminish. Compensation levels will continue to fall until the US Economy can truly compete with the burgeoning economies of India and China.

    The question is will there be a more equitable distribution of wealth among management and labor.

  • Jan Conroy

    What does it mean, “When the economy comes back”? It sounds magical. How will the economy come back. I am 59 and have been unemployed for three years. I have a doctorate.

  • Jerry

    yahoo news reports that employers are not considering the unemployed for interviews, etc.

  • Phil

    One thing we need to do in this country is reevaluate and reform how we value particular positions, or who is paid what – for example, the true producers, even highly educated workers, are paid far less than those in sales or marketing. I bought into the traditional wisdom that education would set me free, graduating magna cum laude with a BS in biology, and could not buy a decent job. Had I taken the “easy” route of a degree in business, marketing or communication, my job prospects would have been much better. Ad advanced degree is no guarantee, either. I know too many well-qualified engineers, software developers, etc., whose jobs have been offshored. Also, your guest talks about the jobs being gone permanently, and in the next breath talks about “adaptation” for “when the jobs come back.” Are the jobs coming back, or not?

  • Lizelle

    I think that finger-pointing at government and business somewhat misses the mark. Government is inefficient, unwieldy — but also corporate in its mentality. The collective mindset is very similar: to maximize “profit” in the form of pay, benefits, and job security.
    Likewise, a large corporation can alter the climate in which it does business. The basic motives of both are actually self-preservation.
    The “economy” itself is more or less an artificial construct anyway. It’s crazy that a disaster such as a hurricane is deemed an economic stimulus. And it’s inconceivable that in the 21st century, so many Americans cannot meet their own basic needs for food, shelter, and education.

  • Ellen Dibble

    It strikes me middle class types need to have two skills, two career paths, just the way BP needs two relief wells. It might enrich the life, and though not the same as having one truly take off, and forget the rest, no one would lose everything in one fell swoop if a career suddenly became defunct.

  • Todd

    “Also, your guest talks about the jobs being gone permanently, and in the next breath talks about “adaptation” for “when the jobs come back.” Are the jobs coming back, or not?”
    Posted by Phil

    Not! This Rajan guy is blowing wind in a vacuum. What else would you expect from a former IMF’er?

  • Lon C Ponschock

    @Joshua (above) and others,

    The Mondragon cooperative manufacture in the Basque region of Spain can be seen on this Youtube video. It is 54 minutes (not just a clip.)

    http://video.google.com/videoplay?docid=7565584850785786404#

    In the United States, Gar Aperovitz has written about the cooperative labor movement in Ohio. He calls it the Cleveland model and it was in a recent edition of The Nation.

    And I have heard about but not seen how the Growing Power model of Will Allen (in Milwaukee WI) for producing food and soil is being done at the prison near here — also in Wisconsin.

    These are all encouraging things. But primarily we in US have to learn how to do things and make things for ourselves locally through local and state banks. Everyone can do that.

  • Thomas Johnson

    Jan Conroy: That is putting it perfectly. The “Magical Thinking” that believes the economy will recover and save us all next week is part of what has poisoned the collective mind of the country. I’m 58, and I lived through the recession of 1977-78 and this situation makes that one look like a cakewalk.
    Then we still had Manufacturing and the Auto Industry to fall back on. Now there’s nothing: no fall back for the middle class and the working poor. I’ve been out for two years now, and the checks stop 16 days and 12 hours from now.

  • Wanda

    When unemployment payments run out, the people I see will go out and get a job. There are jobs out there, but people are spoiled rotten and are too particular! Paying people to not work is a clear dis-incentive. If we are paying people to not work, how about making them do the public jobs that have been cut? There are so many non-profit and community service type jobs that are going undone while people sit and watch Oprah and collect paychecks.

  • EMPLOYER HEALTHCARE IS COMPETITIVELY BAD IN THE LONG RUN

    Heathcare and pensions linked to employers has now become a long term liability to America. How many employees hate their jobs and stay for the benefits just to survive? Imagine how energized, innovative, and competitive our workforce would be if they didn’t have to worry about the enormous cost of healthcare. The old reason for attracting the best workers because of benefits is gone, now it’s a trap to not leave. Now we know why other countries are beating us in new innovations (and eventually new industries). They have more energized and happy workers which leads to better ideas.

  • Ellen Dibble

    Time was that social mobility meant buying cheap and selling dear — selling real estate. The House as PiggyBank. And those with relatives who could assist with loans could leapfrog into “security,” until all of a sudden were underwater.
    The Construction industry was tied into this home fiasco.
    Anyway, once you’ve got a house, and a mortgage, especially an underwater one, your options — your mobility — is compromised.
    Education? Well, we are in a new model world, except the home builders and banks are hoping for a resurrection of the Old Order.

  • Dee Kieft

    Both my husband and I were laid off, but we survived as we didn’t have credit card debt. We also put down a deposit on our house. Unemployment was a help, but we dipped into our 401k and pensions. We’re both working again for companies doing government work. We adapted our project management and accounting skills. My son is going into IT, as it will continue to grow. Americans need to realize that you always need to keep up your skills and employment for life is over. Plus the mentality of spend, spend, spend needs to be addressed.

  • Trond

    I agree, in many ways the sky is falling. I’ve been battling against voodoo economics since the 1980′s. As Warren Buffet said, there is a class war going on, and its being waged by his side. STILL, there is sun on the horizon. Oil prices going up actually can help the US. Lessens demand, but also raises the price of cheap imports here and around the world. It provides US manufacturers the opportunity to win the quality aspect. Say your in Brazil, are you going to chose low price over quality, if that margin is narrowed? At the same time, your customers are demanding quality – as consumers throughout the world are watching their money and buying for things to last, not to be replaced 18 months later with the latest and the greatest. All SMBs in the US should be differentiating themselves on quality. Even small percentage gains in exports translate into hundreds of thousands of new jobs.

  • Philip

    While I certainly don’t have “the answer,” as a person with an advanced degree I never expected that to really mean more than what it was — a good education.

    NEVER buying into the American “myth” (not “dream”) of perpetual upward mobility, homeownership and the like is what has kept me fluid and above water. Healthcare was my only real concern and thank god we are beginning to grow up and move in a positive direction for all on that front!

  • Ellen Dibble

    We are mostly corporate slaves — wanting benefits. Fearing going it alone.

  • ofeu nfiu

    A long term issue is the replacement of domestic jobs with those created in foreign countries. Our higher standard of living, combined with unbalanced free trade policies have caused this.

    Three components are active here: (1) free trade means we have sourced consumer goods from overseas; (2) lower wages overseas have resulted in new jobs from new businesses being created there rather than in the US; (3) higher wages here have resulted in lack of competition with foreign goods, so factories here have closed and those jobs have moved overseas. Want an example of lower wages? KFC just announced a more than 28% increase in wages to Chinese employees to $132 per month. Does anyone here on unemployment want to take a job at that wage?

    Education alone won’t do it. There are too many workers, and there won’t be enough quality jobs, just more competition for the jobs that the educated now have. The difference in unemployment between educated and low-educated will be soaked up, and we’ll still be stuck with the same problem.

    Globally, all this has been enabled by the US Dollar’s status as a reserve currency. Unlike virtually all countries, the US has been able to run a long term balance of payments deficit. This has allowed our prices and to go up with limited restraint. This cannot continued, and when it happens, the problem will manifest itself quickly. There will be a massive crisis, and it will be worldwide.

  • Phil

    This is my second comment – while typing my first, I think I heard the guest speak of the unemployed “adapting” by taking jobs like gardeners. Gardeners? Any idea what kind of jobs are taken by undocumented workers? I always “knew” I could fall back on a past career in carpentry – not any more. I’ve heard that undocumented workers take jobs “Americans won’t take.” Nonsense. I’ve tarred roofs, I’ve seen people clean grease traps and septic tanks. Americans won’t take a job with a NON LIVING WAGE.

  • peter nelson

    Sounds like you’re talking about a completely different type of CFR than I’m aware of, Peter.

    The sensible reform for which I’ve seen the most push would require all candidates to draw from the same same pools in the same ratios, and would require all media to provide equal time for each candidate in equivalent forums, including public debates.

    The problem with that is that today’s Congress is a rich man’s club. And there’s no Constitutional way to stop a candidate from funding his own campaign. If the founding fathers meant to protect any particular kind of speech it was definitely political speech, so the courts would slap down any restriction on an individual’s right to run his own ads. The Supremes have pretty consistently come down on the side of the First Amendment in such disputes, (e.g., Davis v. FEC, 2008). Even in the controversial Citizens United case some liberal groups such as the ACLU (disclaimer: I’m an ACLU member) sided with the court.

    There’s also the interesting question of what “equal time” means in an internet context. Broadcast TV is a dinosaur – the web is the future – what does equal time mean there?

  • Matt

    I have done most things right over the years. I put myself through college, graduated Cum Laude, worked very hard for 15 years, put myself through Vanderbilt grad school and worked hard another 6 years.After all this, I’ve been laid off 4 times. Most recently, I have been off for 15 months; unemployment ran out 3 months ago. I’ve applied for 309 jobs and have had only 3 face-to-face interviews. I am behond discouraged.

  • Malachi

    I’ve been out of work 2 years now. I have 4 college degrees. AS-Liberal Arts, AS-Surveying Technology, BA Classical Studies, MA-Central European Studies.

    I went back to school to be a surveyor as it was booming and my other degrees were to focused on my past career in museum work. Turns out my Survey degree is useless now too as the Housing marked failed!

    I’ve drilled water wells, worked as a furniture delivery man, roofer, plumber, electrical, carpentry… You name it in the past to put myself through school and now I’m over educated and won’t be considered for any of those jobs anymore and have started to feel like I’m part of a great unseen mass of Americans who are going to be ignored by the system, most likely to death.

    I feel lied to, by the system, by my teachers, and institutions. None of what I was told would make my future is here for me to act on.

    It all feels like a big lie

  • Tom

    Globalization is sending high education and pay jobs overseas at a huge rate. As long as an Indian engineer makes 1/8th what the American Engineer makes, those jobs will continue to go overseas … even when the economy improves. I think your guest is really missing that point.
    Globalization is happening at too fast a rate. It’s probably too late, but globalization (although inevitable) should have been enabled at a slower rate. When my engineering job finally goes overseas, what am I going to be re-trained as? At 50? Be serious!

  • Robert

    Being Unemployed Makes it Harder to Work

    Dear Tom Ashbrook,

    I’ve been an unemployed PhD Engineer for 20 months, so I’ve been listening to you a lot; although my unemployed (job-seeking) experiences do not always coincide with your shows on this issue. (I’ve started lots of my email experiences to you…maybe will finish some). I don’t agree that the new economy (in the US) wants more more-well-trained employees, maybe because I feel I am proof of what technical needs have gone overseas. But the social issues seem even more depressed and divided than the financial ones.

    I just had a bad day (or was it bad year). I had an argument with a customer in a local-chain hardware store. The customer is always right; I’ve always known that even when I had 6-figure jobs working at national research labs or teaching at Harvard. No, I wasn’t working at the hardware store, I was another customer waiting in line, as a man was irate and rude to two of the store attendants about a mistaken price quote on an unmarked item. I finally snapped and told the man to be more polite to other human beings even if he was the customer. He told me it was none of my business and told me to “go to H…”, to which I replied, “I am already there because I am right next to you”. And I followed up that he should move to Nebraska where he could belittle cornstalks if he did not want to interact with our human frailties in a (crowded) civilized society. As I continued to argue (loudly) back with him, but refused to step outside with him, his language got more foul until I told him his foul words were inappropriate. This was followed by another customer saying similarly, that there were women and children present; …which woke me up to my being wrong.

    I apologized to the man with the boy…and he later made a laughing comment to me…and 2 of the hardware store employees reached to shake my hand before I left the store.

    But 2 hours later I am still in tears over having been so wrong in my interaction with another person.

    You are mistaken if you interpret that I was “standing up” for the store employees, who had clearly been well-trained to treat the customer as right in each of their ignoring of the customer’s rudeness. I did it for myself for 2 reasons.

    I saw myself (I have seen myself for the past year) in the elderly (over 50, or over 60, or over 70) white-male chain-hardware-store employees. I have wondered if I could do that job…if not this year, then next as my chances of being an engineer/scientist again continue to diminish, and my need to subsist increases…and so you see I failed even at that minimum wage job. I am not sure I could cower to the customer more than 3 rude comments in a row. One of my early jobs cleaning toilets in an ivy league college taught me well the importance of being the invisible man in my interactions with customers be they male or female. But having no work for a year I see how I am losing my skills, including these people skills requiring submission (as well as lower wage). I would be (will be, and so I cry) unemployed again.

    And as I have spent more of the waking hours of the day not interacting with other people (as I had behaved in so many high-tech, high-finance, high-profile meetings), I find myself less willing to accept many of the less-civilized interactions that many (more-successful) humans exhibit toward other humans that (often) comprise the service economy. Being unemployed it is easier for me to avoid interactions, whether it be rush-hour traffic, store lines on weekends, etc…or even meetings and work emails. And with over a year of this nonconfrontational noninteraction, I am beginning to doubt my ability to be nonconfrontational (again?) if I do get a job with meetings and interactions.

    Friends tell me that with my skills, experience and creativity (you can look my work up if you ever wondered what may follow the “nanostructures” of this emerging technology); that I should use this career change to start my own business (noting that owners do not have to put up with rudeness of coworkers…but they still must treat all customers as always right). But I have always worked for others, in a “service lab” even when I was a professor. I have been proud to have famous scientists or oilrig toolpushers or Alabama farmers all tell me they have never had anyone do as good work for them as I have provided.

    I want to work, and I want to work for others in society. But as I spend more time not doing so, it makes me wonder if I can again. I am not ready to retire, and yet I feel I begin to understand why elderly scientists and engineer do retire. Not working certainly has given me a different outlook on how I view those of more unfortunate classes who maybe have never had a chance to work for others, and why they often have a harder time getting/keeping a job. When you are unemployed, it becomes harder to work.

  • Ellen Dibble

    Malachi, I’ve heard that “it’s not what you know; it’s who you know.” You’ve got to become part of a scrum, a team with a problem to solve. Anyway, I hear you about educators not really understanding the job market.

  • Susan

    kudos to the caller just brought up the idea of re-thinking – he should be assured that there’s lots of that going on… dailybell.com lewrockwell.com mises.org

    freedom is always possible

  • Philip

    In the 80′s Public Enemy encouraged us all to not “believe the hype”. Herein, I’d encourage all to reevaluate notions of “success,” “comfort,” “happiness,” “consumption,” et al and whether the American dream we have all been conditioned to buy is, in fact, not a type of zombie-state nightmare that only and ultimately benefits the aristocratic class.

  • sixerjman

    Once again, a clueless academic offering a worthless prediction about ‘when the recovery will happen’. Do any of these people even _know_ anybody who is unemployed? When was the last time they had to fill out a job application?

    “Well, I know somebody who knows somebody who once got layed off, but the more important thing to note is ”

    Dumber than a bag of hair.

  • JP

    Peter,

    You’ve often described your love of debate in this forum…

    You make excellent contributions to the dialogue here, certainly, but I believe your love of debate sometimes bests you, and you end up debating more for the sake of argument than for the sake of making a point you genuinely believe.

    I’m going to go out on a limb and guess that you actually agree with everything I’ve said about Campaign Finance Reform… at least the kind of CFR for which I’m advocating.

    My intention is not to put words in your mouth, but I’ve argued with you a few times in this forum, only to have you ultimately say, “I actually agree with you, but…”

    … Thus, I eventually find you’ve merely been playing Devil’s advocate to argue a point about which you’re nonetheless in agreement.

    As to the internet equal time question, I don’t see it as equivalent to the problem in the other medias… anyone can cheaply start their own site to assure they are just as accessible on the internet, and the portals themselves can be treated like the other medias in terms of advertising revenues and CFR restrictions.

    … and since CFR can apply to any condidate, regardless of potential funding sources, self financing could be restricted by the same limitations of other funding… if not, then I would argue that unfairness of the wealthy funding themselves in a well structured CFR system would probably backfire on the candidate anyway, just as it often does now, even without CFR.

  • Phil

    “The toad beneath the harrow knows/Exactly where each toothpoint goes/The butterfly upon the road/Preaches contentment to that toad.” – Rudyard Kipling

  • Rick

    @ Susan,
    Thank you for the reference. The guest seemed only interested in defending U. Chicago’s reputation, not addressing the question of what is being his profession is doing to re-think and, hopefully, improve their theories.

    Those who created this crisis did not do so without somebody teaching them that it was OK to do so. Those “somebodies” have jobs (SAFE, tenured jobs I might add) within economics departments and business schools and I’d like to believe they’ll be teaching something different to future generations!

  • peter nelson

    My son is going into IT, as it will continue to grow

    Speaking as a software engineer I disagree that IT will grow in the US. I expect it to shrink.

    Anything involving computers – software engineering, web design, database management, and IT – can mostly be done remotely.

    In a big server farm in North Carolina you might need one or two people to sniff for smoke or hot-swap drives if there’s a head crash, but all the other management can be done remotely from Bangalore or Hanoi. And the server farms themselves don’t have to be in the US. Thanks to cloud computing they can be anywhere. Iceland is hoping to set up the world’s largest collection of server farms to take advantage of their cheap geothermal electricity.

  • http://ncpr stillin

    I have a masters degree and I teach. I live in a 40,000 home. I chop wood half the winter to stay warm. I cook from scratch. I rarely replace furniture or vehicles of which I have one. I am owed 90,000 U.S in BACK CHILD SUPPORT from my husband, who has lived on and off unemployment benefits his entire life. His last “job” was superintendent on the new world trade center site, making 3 Grand take home a week. He pays no taxes, and he pays no child support. I hope unemployment benefits are ended. I believe if anybody has to, or wants to, return to extended family lifestyles if possible. Stop buying 35-45,0000 cars, sometimes more than one. Stop buying houses that cost 250,000. Stop consuming so much. I don’t think the meltdown to the economy is the worst thing. I think having the “have’s” get a taste of what it’sl ike for the “have not’s” levels the playing field for everyone.

  • peter nelson

    … and since CFR can apply to any condidate, regardless of potential funding sources, self financing could be restricted by the same limitations of other funding… if not, then I would argue that unfairness of the wealthy funding themselves in a well structured CFR system would probably backfire on the candidate anyway, just as it often does now, even without CFR.

    I mentioned the Davis case to show that the Supremes said self-funding could not be restricted. So what I’m afraid would happen is that by putting restrictions on OUTSIDE funding while self-funding can’t be touched, we turn Congress into even more of a millionaire’s club than it already is.

    Since I’m pretty liberal what I’m afraid of is that many liberal candidates who are not, themselves, rich, wouldn’t be able to compete with rich conservatives, because they wouldn’t have access to financial support from the traditional labor or environmental groups or groups like moveon.org who support them now.

    I totally agree with you that money is destroying our politics, but like the war on drugs, I think interdiction won’t work.

    You’re right that I love to debate, but I think this is a meaty issue and the devil is in the details.

  • peter nelson

    Susan says: freedom is always possible

    No doubt, but the question in today’s topic is whether eating or having a roof over your head or paying for healthcare always possible?

    How would you answer that question?

  • JP

    Well, I don’t know.

    There are potentially lots of ways to legislate around the Davis decision, and Equal time requirements imposed on the media could make irrelevant the wealthy’s ability to spend big on advertising (including the corporate wealthy).

    I would love to see this dilemma carefull restudied since the advent of the Davis case.

    Anyway, the debate IS alwasy fun, isn’t it?

  • Lizelle

    Chris, I meant to say that I wouldn’t worry too much about the Tea-bagger / NRA types. They’re huffing & puffing, but I believe they have too much basic respect for the rule of law, and that they’re not amoral people. The odd guy who goes postal? OK sure. Scattered crimes? Almost certainly. (personally, I’m glad we have guns for self-defense)
    But a concerted movement against the rich and/or the government? Not gonna happen. They can afford to defend themselves, and the government has the military at its disposal.

    The truth is our problems are too deep and complex to be solved with bullets, and people are basically self-serving. What are they going to do? Shoot our civil servents? I doubt that very much. There’s just not that much benefit to going on the offensive. I’m more worried about being kidnapped by aliens than being shot at for my political views.

    Much more likely is increased unrest and eventually, martial law.

  • peter nelson

    I have a masters degree and I teach. I live in a 40,000 home. I chop wood half the winter to stay warm. I cook from scratch. I rarely replace furniture or vehicles of which I have one. I am owed 90,000 U.S in BACK CHILD SUPPORT from my husband, who has lived on and off unemployment benefits his entire life.

    In a way this illustrates the problem perfectly. You can be self-reliant in lots of things but you can’t afford a good enough lawyer to get the money that’s owed to you. A rich person who was owed $90K could get it because he could afford a good lawyer. If he needed healthcare he could afford a good doctor.

    All this self-reliance and extended-family living and frugality cannot make up for the fact that the rich still have massive and unfair advantages. In any other country the poor would be angry and rise up, demanding reform, but here we congratulate ourselves on how tough and self-reliant we are.

    I also heat my house with wood but the value of cord of wood won’t pay for even one single C-T scan.

  • Rick

    To Robert, author of the letter “Being Unemployed Makes it Harder to Work” above. Thank you for sharing your experience. For what it’s worth, there are many, myself included, who deeply relate to your situation and feelings and can appreciate how well you articulated them. If only more of those with power had your skill for introspection!

  • CHRIS M

    Lizelle, I think you give the Tea Partiers too much credit. Look at the debacles that took place at the town hall meeting with people screaming and swearing at officials. Respect for rule of law, hah!!! The vicious hyperbole being shoveled into people’s minds via Fox News et al is lighting a fire under those who feel that America owes them a higher place in society than those they prefer to keep squelched because of their political opinions, nationality, race, or sexual orientation. Militia groups and those making threats on the internet promoting hate and bigotry are increasing in alarming rates. When people are desperate, they resort to all sorts of atrocious acts and it doesn’t take much to light an explosion.

  • Barry Liu

    Take back every job from China. We need low-paid jobs as well as mid-paid jobs. For so long we have believed in the argument that American only need to keep high-paid jobs and let Chinese do the rest. We are paying terrible price for letting go of vast manufacturing activities. Jobs of high to low pay scale help local, state, and federal tax. They are the fuel of economic engine. They are the source of economic power and military might. Now what we got is a population of well trained able bodies sitting idle or permanently sidelined.

  • peter nelson

    I’ve been out of work 2 years now. I have 4 college degrees. AS-Liberal Arts, AS-Surveying Technology, BA Classical Studies, MA-Central European Studies.

    I feel lied to, by the system, by my teachers, and institutions. None of what I was told would make my future is here for me to act on.

    It all feels like a big lie

    I know exactly how you feel because I’ve been unemployed for a year and a half (although I haven’t been looking that whole time because I’ve been helping my wife fight her cancer, and sometimes I was just too depressed to look).

    I think the biggest cultural effect of all this is undermining the concept of “expertise”. We’ve seen so many things from housing to jobs to oil-rig explosions and a million other things where we assumed “the experts” knew what they were doing. And they didn’t.

    There’s nowhere to turn for advice as an individual or even if you’re a policymaker because there is no one you can TRUST. Not because they are necessarily lying (although they might be), but because they really don’t know.

  • peter nelson

    Rick says To Robert, author of the letter “Being Unemployed Makes it Harder to Work” above. Thank you for sharing your experience. For what it’s worth, there are many, myself included, who deeply relate to your situation and feelings and can appreciate how well you articulated them. If only more of those with power had your skill for introspection!

    I’d like to second that. It took lots of guts and honesty to write your comments! As I explained to Malachi, I can certainly relate to a lot of it.

    I’d love to hear an economist explain what the economic value is of forcing a PhD engineer, as Robert is, to even consider a job as a sales clerk in a hardware store. Considering the vast investment of time and effort it took to achieve that education, and considering the importance of engineering in our economic future, how is it economically rational to let that go to waste?

  • Ellen Dibble

    Robert, I work at home, and have since 1989, full-time, after 20 years working in a large library, with lots of people coming and going all day, lots of co-workers. The way it is now, there is no time to go out and see people. I try to go out once a week, and every interaction is terribly important. I’m not sure others always understand that. This week there was a young woman walking along; I was going by bike. She called out something about my bike (a 230-year-old three-speed — make that 30). I couldn’t imagine what she had said, so I hopped off to ask for a repeat. I still couldn’t understand, but it was something flattering. So I chatted about my bike. Still no clue what she called out about. I think she figured I was insane, that nobody bicycles on a contraption like that. Some people flag down oddities, maybe hoping to be made to feel more normal by comparison. I can wear that hat, no problem. But some simply have an overflow of sociability, a need for connection, and walking/biking allows for that.
    I think in a store, clerks can tell when a customer’s interaction is the high point of his/her week. Or low point.
    Well, she is a student, studying marine history. I really don’t know what happened between us. But I get to replay that all week. Well, there were several like that, take-home experiences.
    This does not me feel less like participating. When I had time, I volunteered in afterschool programs, sort of kept my sense of where I fit in the scheme of things. That is so important to me now, when I have to say no to church, no to all sorts of participatory things. Nowadays, lots of those things seem to me like time-gobblers, but like the Book of Ecclesiastes says, “To everything there is a season, turn, turn, turn.”

  • Susan

    @ Peter…I’m glad you asked. I’m not saying it will be easy, but the only way to stop ripping each other off is to restore a sound currency. When the value of the currency can fluctuate at government whim, which has been the case for years now, “bubbles” of inflation become a fact of life and one comes to count on nothing. Just as some received greater benefit on the way up (those who had access to the currency earlier on, when it was worth more) there will be many who will suffer much more on the way down (those who didn’t realize how the system works and believed their prosperity was real). We are now experiencing the inevitable outcome of a fiat money system. The most valuable commodity right now is understanding so as to steer a steady course back to honesty, reason and, yes, freedom.

    Having a roof over your head or paying for healthcare is most possible with an honest monetary system, the one the Founders incorporated into the State’s law for the federal government they created in 1789. They knew history.

    Consider this quote from Robert Harris’ “Conspirata,” about the life of Marcus Tullius Cicero. On page 230, Julius Caesar says this:

    “I somehow have to make twenty-five million sesterces just to own nothing.”

    That about says it for our day, too. There was a time in our country when real capital was raised and real wealth created, when one didn’t have to go into debt to start a business or just plain survive.

    “Fiat Money Inflation in France” is an excellent (and short) history that explains our current situation. A fiat money system penalizes saving, rewards speculation…sound familiar?

  • peter nelson

    A fiat money system penalizes saving, rewards speculation…sound familiar?

    People who use the term “fiat money system” are usually gold bugs concerned about inflation. But in fact inflation is close to an all-time low right now. And thanks to the Greek crisis people have been jumping into dollars, which has made the dollar even stronger and puts us at risk of DEflation.

    Also, there’s nothing special about gold. Gold advocates often claim that gold has some sort of intrinsic value which makes it different from other things. But the value of gold is just as much based on market psychology as dollars or oil or soybeans.

    And gold is equally volatile. If you bought gold between 1978 and 1982, today you’d be in the red compared to buying plain old corporate bonds or Treasuries! Gold will have to go up $2000 to just break-even compared to 1980, on a purchasing-power-parity basis.

    (BTW PPP is the preferred basis of price comparison so you cancel out currency-fluctuations).

    Now, I have no idea whether you were advocating gold, but I’m responding to your question “Sound familiar?” by saying yes, it sounds like a familiar gold-bug lead-up.

  • peter nelson

    We are now experiencing the inevitable outcome of a fiat money system. The most valuable commodity right now is understanding so as to steer a steady course back to honesty, reason and, yes, freedom.

    How can you say “the most valuable commodity right now is understanding” (assuming you mean understanding of our monetary system). I can’t trade that understanding for food, shelter, a car, fuel, or services. In fact it’s a commodity with zero value! Now you might say that it WILL have value if our monetary system collapses, but whether or when that will happen is pure speculation, so such understanding has what we investors call “speculative value”, like buying shares on a penny stock incase it someday becomes worth something. But you’ve already come out against speculation, so I’m surprised you seem to be advocating it.

    The “most valuable commodity right now” is good old paper cash. Sorry, but it’s true – with cash I can buy pretty much anything I want. And because interest rates are low, I have very little incentive to leave cash lying around in the bank or a CD.

    Also N.B. that in a hard-currency economy where people didn’t live on borrowing, savings interest-rates would be zero. (or negative because it costs the bank money to hold your money and protect it) – because the only reason banks pay interest now is so they can take your money and lend it to someone else. So incentives to save would be even less than they are now.

  • Alex

    “Like Dr Pangloss, Americans enjoy their ignorance, content that they live in the “best of all possible worlds”.”

    When I was growing up in my old country, I, too, thought I was living in the best country in the world. That country was the U.S.S.R. I find a lot of similarities between the states of mind of the two populations, except that the Soviets had theirs imposed on them by terror and the Iron Curtain, and the Americans just don’t want to know anything else.

  • Todd

    @ Peter Nelson:

    So, you’re putting forth an argument that ephemeral paper & ink—backed by nothing!—has parity with a commodity of intrinsic value? If so, then you’re advocating precisely the sort of fallacious logic that has conjured the current economic mess. All fiat currency eventually returns to its intrinsic value; which is ZERO, if its nominal value for wiping one’s @ss is discounted.

    The volatility of gold is minimal. Because, it isn’t the intrinsic value of gold that fluctuates; rather, the fluctuation occurs with the (non-intrinsic) value of the volatile fiat currency with which gold is being measured. It’s a manipulation game.

    Sure, it’s arguable that the value of ANYTHING is merely psychological. However, in gold’s case, said psychological value has been remarkably consistent since time immemorial. The inflation v. deflation argument will be moot when all those foreign held “ether-money” Federal Reserve Notes come home to roost—the value of ZERO isn’t inflatable or deflatable.

    In essence, if you counterfeited $100 bills to perfection in your basement, they are worth no more or less on the market that those issued by the U.S. Treasury. Now, try doing the same thing with gold.

  • http://www.filipinoboston.blogspot.com AKILEZ

    If you don’t have A job MOVE to Massachusetts.

    My beloved State is gradually moving to a better future. We have jobs here fellow Americans bring your entire family to Massachsuetts. We have rights for gay and women,Anti-bullying law,universal healthcare coverage and the list goes on.

    Massachusetts is ahead in all other 49 States when it comes to Economic recovery.

    My State has always provided me Job since I got here in 1993 and took good care of me and my daughter.

    Just to let you know. Jobs are waiting for you in Massachusetts.

  • AKILEZ

    Please STOP listening to THE FINANCIAL WORLD

    Why should WE listen to the people in the Financial world. the same people who took America down the drain -the Great Recession.

    I stop listing to these people Banks,Financial advisor,Investors etc.

    These are the same people who destroyed the middle class Americans. There is no reason to listen and believe in them. The people who sold the sub-prime mortages to innocent and naive people and drag the entire world with their Greed.

    Listen to them and you are a fool.

  • William

    Too bad there was not more time to explore economic ideas that came out of the U of Chicago.

  • peter nelson

    The volatility of gold is minimal. Because, it isn’t the intrinsic value of gold that fluctuates; rather, the fluctuation occurs with the (non-intrinsic) value of the volatile fiat currency with which gold is being measured. It’s a manipulation game.

    This is precisely why I specified the value of gold in PPP – so there would be no question of currency fluctuations. In the last several decades gold has been more volatile than the dollar in PPP terms. You are familiar with PPP, I assume?

    All fiat currency eventually returns to its intrinsic value; which is ZERO,

    Eventually, maybe, but as Keynes noted, “In the long run, we’re all dead”. I’m an empiricist, and empirically gold has not performed very well in the last few decades. An ounce of gold today does not buy as much bread or housing or copper or beef as an ounce of gold did in 1980. Not even close. So if you stashed a bunch of gold away then and took it out today, you’d discover there had been a lot of inflation – of your gold!

    On the other hand, if you had bought 30 year US Treasuries in 1980 they would today buy MORE stuff than they did then.

  • Rick

    Peter: “I’d love to hear an economist explain what the economic value is of forcing a PhD engineer, as Robert is, to even consider a job as a sales clerk in a hardware store.”

    Actually, Peter, it’s disturbingly easy for an economist to explain, but I need you to bear with me for a moment:

    In my opinion, part of the problem is that economists rely almost exclusively on one measure of value, namely currency, even though society recognizes value in many other forms. It seems that, for economists, to coin a phrase, if you can’t measure it, it doesn’t exist. Viewed from a strictly monetary perspective, it’s easy to justify wasting the investment in a Ph.D. in engineering if it results in the appearance of the employer having more money. Specifically, by cutting operating expenses like salaries (which amount to 20-40% of most company budgets), PRESTO! you instantaneously increase productivity because you’ve just shrunk the denominator of the productivity equation. We all instinctively know that something valuable has been lost, but economics is essentially blind to most of what has been lost.

    Companies that say they “invest” in their employees and that employees are their most valuable “asset” and may really want to mean what they say, but accepted economic principles dictate that employees are “valued” exactly the opposite. Until economists develop and teach a good way to measure the real-time value of employees and the quality of their work, we will forever be stuck in a system that only values the short-term monetary price/cost of an activity or product. I’m not espousing communism here, I’m just trying to point out the flaw inherent in trying to be highly analytical about something when your analytics don’t adequately measure that something.

  • jeffe

    The reality is that we will have a permanently unemployed population. I heard an English economist say that the United States will experience what has existed in Europe for years.

    The fact of the matter is that the quality of life and standard of living in the United States will diminish. Compensation levels will continue to fall until the US Economy can truly compete with the burgeoning economies of India and China.

    The question is will there be a more equitable distribution of wealth among management and labor.
    Posted by Webb Nichols,

    One of the big differences however is that in most European countries they have decent health care and unemployment is not tied stopped as soon as it is here.
    From what I understand in Germany they will also help you with your rent or mortgage for a while as well.
    Then again people in these countries do not change jobs as much as we do here. That said they have a much better safety net than we do.

    We are in for a lot of strife. Shame in congress for not passing the extensions on unemployment benefits. They spent billions bailing out multimillionaires but do nothing for people who really need assistance. This can explode, they should be aware of that. The anger that was shown at the town hall meetings last summer are nothing compared to the riots that are on the horizon.

  • peter nelson

    AKILEZ says My State has always provided me Job since I got here in 1993 and took good care of me and my daughter.

    Just to let you know. Jobs are waiting for you in Massachusetts.

    I assume you literally mean your “state” provided your job since you have a 403(b) retirement plan, which is normally what public workers have.

    Just to let you know. Jobs are waiting for you in Massachusetts.

    I live in Massachusetts and I’ve been unemployed for a long time and I know LOTS of other unemployed people here. Since you apparently have a job I think you have a distorted idea idea of how many jobs are here. It’s not the jobs that are waiting; it’s the workers waiting for a job. I think we’ll have to wait for a very long time.

  • Jim

    and i believe Bruce Judson’s book might highly be probable:
    It Could Happen Here (Hardcover, 2009)

    onpoint invited him last year. it is quite disgusting to see the rich become richer and the poor become poorer. surprisingly, the government highly encourages this picture.

  • peter nelson

    It seems that, for economists, to coin a phrase, if you can’t measure it, it doesn’t exist. Viewed from a strictly monetary perspective, it’s easy to justify wasting the investment in a Ph.D. in engineering if it results in the appearance of the employer having more money. Specifically, by cutting operating expenses like salaries (which amount to 20-40% of most company budgets), PRESTO! you instantaneously increase productivity because you’ve just shrunk the denominator of the productivity equation

    First of all let me say that I do have some education in economics, and you’re right WRT the layoff. What you said above might be how a company would justify a layoff – if the employee was not producing his salary’s-worth of output then a layoff could be justified in terms of productivity.

    But I wasn’t really asking about the layoff. I was really asking more of an ROI or a return-on-capital question. That is to say, we (society) have this asset – Robert, a PhD engineer – and the question is how do we get the most return on the investment represented by his training and experience? (or his value as a capital asset, if you want to think of him that way.)

    It’s like, suppose a company buys an asset – a $150 external USB harddrive. You could just use it as a paperweight, but it’s an expensive paperweight and if I were a beancounter at that company I’d demand to know why they spent $150 for a paperweight. An economically smart company would want to get maximum value out of that asset. A economically smart society would want to get maximum value out of its labor force. With all of Roberts education and experience why can’t we get a higher return on investment than store clerk?

  • jeffe

    Some tunes for the disenfranchised:

    Morrissey – In the future when all’s well
    http://www.youtube.com/watch?v=NA2hnOIkQ0g&feature=related

    Morrissey – You Have Killed Me (London Live)

    http://www.youtube.com/watch?v=JX3Y33ZvJXg&feature=related

    UB40 One in Ten
    http://www.youtube.com/watch?v=VCGcljqOSW0

    Tom Waits – Hold On

    http://www.youtube.com/watch?v=0P5jV4lHHR0

  • peter nelson

    Thanks, jeffe! Some tunes for the disenfranchised from the 1930′s Depression:

    Bing Crosby – Brother Can You Spare a Dime (1931 classic)
    http://www.youtube.com/watch?v=eih67rlGNhU

    Woody Guthrie – Do Re Mi
    http://www.youtube.com/watch?v=46mO7jx3JEw

  • Rick

    Peter,
    Of course, what you’re saying is completely sensible, but we’re talking economics here and it seems to me that the way economics teaches us to measure value leaves both the return and the investment parts of the equation narrowly and inadequately measured. Most of the value that most of us intuitively grasp in the Ph.D. engineer’s training, experience and potential is poorly quantified when monetized as present [monetary] value or net present [monetary] value terms. So, while I’d like look at it from a ROI or return on capital perspective, I don’t think we adequately quantify the investment or capital parts of those equations in a way that can be compared, apples-to-apples, to measures such as stock price, market capitalization or (on an even grander scale) GDP.

    With respect to the concept of MAXIMIZING the utility of that “investment” in an employee, the argument is pretty much the same. Why maximize something that is of little or no concrete value? The value of the USB drive is far better understood and quantified economically than is the value of the experience or potential of a highly-skilled employee. It seems that the best we can do is quantify it in terms of what salary our competitors pay that employee (professional sports being a good example) or what it would cost to replace that employee as if (s)he were indeed a USB drive. But those exclude a lot of the value that we intuitively grasp.

    If you want to try a somewhat macabre exercise that illustrates how economic orthodoxy leads to non-sensical conclusions, do the risk-adjusted net present value calculation on your average 40-50-year-old, college educated, mid-career high-tech employee with recommended life insurance coverage under two conditions: 1, they live until retirement and 2, they die right now. Guess what? From that economic perspective, you’re more valuable dead right now than alive and it gets worse the longer you live! Now, imagine if we all followed that analysis to it’s logical conclusion. For one thing, there’d still be economics, but there would no longer be people to practice it.

  • peter nelson

    do the risk-adjusted net present value calculation on your average 40-50-year-old, college educated, mid-career high-tech employee with recommended life insurance coverage under two conditions: 1, they live until retirement and 2, they die right now. Guess what? From that economic perspective, you’re more valuable dead right now than alive and it gets worse the longer you live!

    So true!!

    Now, imagine if we all followed that analysis to it’s logical conclusion. For one thing, there’d still be economics, but there would no longer be people to practice it.
    8-)

  • Grady Lee Howard

    Audiences have character, as if the consensus of the listeners congealed into one or two people. You see that on this On Point blog, with it’s frequent returns to Campaign Finance Reform (the security blanket concept for the progressives) and the Gold Standard (the magic mojo of fiscal conservatives). Also notice the self-appointed moderators with time on their hands.

    Bill Moyers Talkback blog was the same way, only slightly more radical and chance-taking (Damn me if the Boss reads this!). It is amazing how middle of the road (right of center, but corporately pleasing) Tom Ashbrook stays, as if he were tiny and driving in Stuart Little’s car. Well Talkback is frozen up and even NOW is gone (No more Maria Hino-Josa) so I’m trying listening to Tom. It ain’t easy, just slightly better than Need to Know.

    Diane Rehm’s writers (listeners) are polite to a fault because she also is polite, to a big fault. She does “Hey wait a minute” to some author jerk about 4 times a year.

    Tavist Smiley pretends controversy while selling, brings in Clown Cornell when ratings phlague.

    Two things I’ve heard lately perked me up:
    1.Noam Chomsky’s Memorial day talk on Democracy Now (more like democracy when you can afford it) “The Center Can’t Hold” comparing Obama to Germany’s Weimar leadership.
    2.Michael Hudson’s talk about the European cental Bank and how it is a tool for lowering living standards. See KPFA archives: The show was “Guns and Butter” (Yea Pacifica).

    So get off your gold and your CFR because neither idea is operative and get an imagination. I’m talking to you unemployed ones too, and you underemployeds, and you “hate my jobs.” We all should hate predatory and servile jobs, and we all should have the self-respect to speak against bad behavior, no matter who’s at fault. Otherwise life is another race to the bottom.

    Tell Tom to get more gutsy shows and quit it with the financial preachers. Recovery my ass! The Sioux would have a better chance digging the white buffalo from inside the magic mountain. Don’t put on your ghost suits (like ghost shirts) and go beg Massa for a job.

  • Susan

    It comes down to who or what gets to say what money is.

    “Who” would be the people answering that question over time in the normal course of life with zero government interference. In our case, before the government got involved in the money racket, the people knew what money was and it sure wasn’t irredeemable paper.

    “What” would be government, and governments naturally like cheap money because, being cheap, they can always make lots of it to fund programs so we don’t have to be so responsible about this thing called living (one example, why go to the trouble of educating your posterity when government will do it for you?) So we get used to our government taking care of us and we vote for the same old same old over and over again because there is comfort in the status quo.

    Last year Congressman Ron Paul introduced a free competition in currency act, numbered HR 4248 in 2009.

    Here’s his short speech from when he introduced a similar act in 2008, giving the reasoning for the act:

    “Let’s Legalize Competing Currencies”:

    http://www.lewrockwell.com/paul/paul434.html

  • peter nelson

    I admit I don’t exactly know what Grady Lee Howard’s entire post was about – maybe because I’m not sure who some of the people he mentioned were – Tavist Smiley – Bill Moyers – Maria Hino-Josa – but I enjoyed reading it. I especially liked the last paragraph . . .

    Tell Tom to get more gutsy shows and quit it with the financial preachers. Recovery my ass! The Sioux would have a better chance digging the white buffalo from inside the magic mountain. Don’t put on your ghost suits (like ghost shirts) and go beg Massa for a job.

  • Mary Farbersteen

    Reality of America’s fiscal mess starting to bite…

    JOBLESS CLAIMS RISE SHARPLY TO 472,000…

    And the hits just keep on coming!

  • Ellen Dibble

    Unemployed engineers and others. Where our economy fails is when the larger institutions, those with associations and lobbyists, are protecting their turf such that new upstarts get squeezed out. Some economist said this is inevitable, that the Old Guard defends itself. Makes it tough for new ways of doing things to get a foothold.
    I could give some examples. Not today.
    But say your engineer is actually needed by an institution that would be upsizing except that oh there is this billion-dollar bail-out for the business that laid him off as a cost-saving measure. The new business or new way of doing things has headwinds, to say the least.

  • peter nlson

    Don’t put on your ghost suits (like ghost shirts) and go beg Massa for a job.

    I think this really nails the experience. The economy is run by a bunch of rich guys in suits who don’t really know what they’re doing, and like to gamble and compete in the free market in rich-guy games involving billions of dollars. Sometimes they win, sometimes they “lose”, but the “losers” never lose anything important – they get to keep the big houses and nice cars and nice clothes. For example John Thain “lost” so he had to quit his job at Merrill where he made $83 million, but now he has a new job as CEO of CIT Group.

    But because of their rich-guy games, millions and millions of people who don’t make lots of money have had their lives ruined. And when we go through the sheer hell of today’s job market if we are lucky enough to actually get a job in a corporation, with benefits and everything, we feel so GRATEFUL that we FORGET that we’re feeling the same gratitude the field-hand felt if he got promoted to a job where he could work in the master’s house!

  • jeffe

    Peter after we the tax payer bailed out AIG and some of the other banks and wall street firms I thought the least these people could do is let me eat for free in the executive dining room. I also think any citizen who needs to go to the bathroom should be able to use the executive wash rooms. Seems only fair to me, from where I sit they kind of owe us. Of course we could go French on their butts and bring back the guillotine, or better yet tar and feathering.

  • Tom Cantlon

    Mr. Rajan may have some insights but he’s not getting it. He seems to think if we just give it time and if some people get more education, it will be all right. No. There are various ways to structure a free market and the one we have squeezes the middle out and press the bottom down. There are structural changes that need to happen or that will not change. Something like a New Deal on a global scale.

  • Todd

    “This is precisely why I specified the value of gold in PPP – so there would be no question of currency fluctuations. In the last several decades gold has been more volatile than the dollar in PPP terms. You are familiar with PPP, I assume?…as Keynes noted, “In the long run, we’re all dead”. I’m an empiricist, and empirically gold has not performed very well in the last few decades. An ounce of gold today does not buy as much bread or housing or copper or beef as an ounce of gold did in 1980.”
    Posted by peter nelson

    ***The first flaw in your argument seems to be in limiting the definition of money to mean only worthless paper & ink. The fiat dollar’s PPP will become meaningless once it returns to its ZERO intrinsic value—as will ALL dollar-based paper assets (i.e., stocks, bonds, T-bills, etc.). Paper will eventually have parity will NOTHING, because NOTHING is what it will be worth. Preservation of wealth/assets is impossible in the long-run with paper. And, it will soon be impossible in the short-run as well.

    Your second flaw is closely related to your first, in limiting the measure of gold’s value to a parity against the fiat dollar. Sure, if you merely want to convert the price of gold into dollars, then of course it will appear that gold’s value fluctuates—because the dollar value by which its being measured has fluctuated! But, gold does NOT need a connection to paper to have value.

    How many dollars will you need to achieve PPP with an ounce of gold, once the dollar has collapsed and become worthless? Unlike fiat dollars, gold will always retain an intrinsic value. If, as you claim, you’re an empiricist, then perhaps you need to expand your historical observations of gold beyond the past 30 years. Because, from an empirical standpoint, gold has had an intrinsic value for EONS—and said value doesn’t appear to be on the wane anytime soon. While you’re at it, you may also want to adapt your empirical approach to the failed performance of Keynesian economics over the past 30-50 years.

    Yes indeed, Keynes was right about one thing: “In the long run, we’re all dead.” And, with Keynesianism, we’ll all die as paupers.***

  • Joshua Hendrickson

    Our prospects are frightening. The caller who pointed out that our own potential revolution will be fueled by the second amendment has it right. Couple that with the seeming desire amongst many teabaggers and militia types for such a revolution, and the future in the US looks pretty grim.

    Money, the ultimate imaginary god (even more so than the Biblical imaginary God), is an idea which has outstayed its welcome here on Earth.

  • http://whilewestillhavetime.blogspot.com/ John Hamilton

    This is a pretty empty conversation. The professor deserves credit for looking beyond the numbers, but he doesn’t look very far. In a mass industrial market economic system, the total output has to grow as a secualar trend – over the span of time. It doesn’t have to grow every year, but does have to grow as a long-term aggregate. Otherwise, it collapses, which our economy is doing.

    A functioning economic system grows by innovating – creating new products, new markets, new sources of supply, new methods of production, and/or new ways fo organizing industry. There is nothing in the offings that will generate domestic or worldwide growth in the immediate or long run.

    So, the economic system will change, either voluntarily or involuntarily. We don’t have the kind of ruling elite that is capable of voluntary change. The best way of looking at what to change to is by taking global warming as the benchmark, or frame of reference. We need to ask what kind of system will provide full employment without destroying the ecosystem?

    With the ecosystem as the starting point, we can make sane, distributive, equitable, and sustainable plans to create an economic system that has a future. The present arrangement has a very short future.

  • peter nelson

    The fiat dollar’s PPP will become meaningless once it returns to its ZERO

    Who cares about the dollar’s PPP – we’re talking about gold’s PPP. I don’t thing you understand what PPP is!

    Your second flaw is closely related to your first, in limiting the measure of gold’s value to a parity against the fiat dollar

    How many dollars will you need to achieve PPP with an ounce of gold

    OMG, you DEFINITELY don’t understand PPP!!

  • peter nelson

    A functioning economic system grows by innovating – creating new products, new markets, new sources of supply, new methods of production, and/or new ways fo organizing industry. There is nothing in the offings that will generate domestic or worldwide growth in the immediate or long run.

    I really don’t know why you say this. China and India are growing just fine, as are plenty of other nations. There are BILLIONS of people out there who are just now entering the middle classes and will want to buy all sorts of things. And WRT innovation – we’re living in the golden age of innovation with all sorts of new technologies being developed and deployed!

    The United States may be stagnant, but that’s just because Americans are provincial and anti-intellectual, and the US political system is sclerotic. That’s OK, though, because the world doesn’t need us so much anymore.

    The present arrangement has a very short future.

    Since you said “worldwide”, earlier, I can’t tell whose future you’re referring to. I think the US will go the way of California, but I don’t think Asia’s future is so bleak. But it might be a good idea to learn Mandarin.

  • Rick

    John Hamilton,
    You state that “In a mass industrial market economic system, the total output has to grow as a secualar trend – over the span of time… Otherwise, it collapses…”. I know you are simply stating the economic orthodoxy, which only a fool would challenge, but I’d like to be the fool that challenges that. Why is it that economic orthodoxy only gives us only one choice – growth – and tell us that anything else is death? What’s so awful about stability? As a scientist, I’ve always been fascinated with the economist’s view that eternal limitless growth is possible, even if it leads to conclusions that violate the Law of Conservation of Matter and Energy.

    But I’m not the only fool to suggest this. Check out “Managing without Growth: Slower by Design, not Disaster” by Peter Victor (York University). It’s a nice, succinct summary of the vast literature supporting the continuous growth theory, a reasonable dissection of some of its logical flaws and well-reasoned argument for non-growth being a healthy economic and societal situation far more often than most economists would have us believe. If Victor is too radical, read “Enough” by John Bogle, a successful financial innovator if there ever was one. He too decries the eternal pursuit of “MORE”.

    You raise the possibility that slower growth is acceptable for short periods, but not over the long run. The problem with that is everyone has their own idea of “the long run” and few seem to be longer than a couple of years. If we stopped calling no-growth or slow-growth “stagnation”, stopped panicking every time the Dow Jones average didn’t go up today and stopped expecting this year’s or quarter’s earnings or GDP growth to be bigger than last year’s or last quarter’s, we might actually find that a stable economy isn’t so bad after all. But that attitude has to start with what’s taught in the economics classroom, and right now the exact opposite is being taught in the classroom and being swallowed hook, line and sinker by tomorrow’s business and government leaders.

  • Todd

    “OMG, you DEFINITELY don’t understand PPP!!”
    Posted by peter nelson

    Well then, explain away Maynard! I think I’ve allowed you a considerable amount of liberty in your application of PPP theory thus far. So, please explain how you’ve correctly—or rather incorrectly—applied the term PPP to measuring the exchange rates between gold and/or dollars, WITHOUT even referencing the economy of any two countries between which said exchange rates are applied to the purchasing power of goods/services. It is incorrect to apply PPP theory, as you have attempted, to calculate merely the fungibility between currencies (gold:dollars), unless it is within the context of comparing the purchasing power of those currencies in the working economies of two countries.

    What you DEFINITELY don’t understand is that worthless paper & ink can NEVER have any meaningful parity with gold—unless, of course, said paper & ink is backed by gold. Just sayin’.

  • david

    Japan is on the verge of economic collapse due to its debt. Japan is number 2 as a debt holder for USA.
    Hope they survive for our sake.
    Housing has tanked once again.
    Home construction drops 10 percent as building permits fall 5.9 percent.
    Fannie and Freddie have been delisted by NYSE.
    Greece given junk bond status.
    Our economy is fueled by consumption.
    But! we Americans know how to pull out of a hole.

  • Ken

    Why are professionals typically being pressured to work 60 to 80 hours a week with so many unemployed educated people? Companies have discovered that all the hours over 40 are free and there are no longer any moral compunctions against forcing people to live this kind of life and, with the economic situation, people are forced to accept.

    Imagine if salaried people were allowed to work a reasonable work week how many jobs would open up.

  • Timothy Boller

    Once again your program like the rest of the media misses the real economic issue. Negative stories like this one don’t perform a public service, they just contribute to the problem. The media can’t continue ducking this issue for much longer because I guarantee you that there are graduate students in economics out there who are already gearing up their thesis as to how the fear generated by the news media, not the so-called financial meltdown, really drove the recession.

  • joshua

    “I don’t think I’d be using Spain as a good role model these days. They’re in line to be the next Greece.”

    You are thinking about how to save the status quo. i’m thinking about changing it–radically.

    I didn’t say Spain-i said the mondragon system–cooperative businesses where everyone, the workers, own equal shares and are the management. These are successful businesses. It doesn’t mean every business has to be operated this way. people ask for solutions–this is one of them. The age of monolithic idealism is over.

    Capitalism is a zero-sum game. It’s unethical. Socialism and Communism are economic systems that crumble because of the capitalists within them–corruption, greed. And it’s still a zero sum game because expansion is not sustainable.

    We need diversity, permeaculture, organic farming, de-centralized communities mimicking nature with renewable sustainable energy. We need to throw out the bath water. We need to change our lifestyle now.

    i suggest everyone start apprenticeships in organic farming now. A barter system is the only future. Money is a myth and a lie. if you have skill and you can teach somebody that skill what van they give you in return–to share–a skill, food, shelter.

    We need to dismantle all our houses and use those resources. We need to cannibalize our cities and start puling together to form sustainable communities based on survival, health, knowledge, egalitarianism, and altruism.

    The elite are stocking up, raping the system, fortifying their own survival. they plan to let you die.

    We could have built a sustainable society 100 years ago, thirty years ago, but the greedy evil rich said to hell with you.

    That’s the truth and the only truth. All this blather about how to maintain and re-build the status quo is doomed to failure and your wasting your breath. Step out of the box and free yourself so you can help others.

    Otherwise we are going to see a feudal system again.

  • joshua

    Peter Nelson: “But because of their rich-guy games, millions and millions of people who don’t make lots of money have had their lives ruined. And when we go through the sheer hell of today’s job market if we are lucky enough to actually get a job in a corporation, with benefits and everything, we feel so GRATEFUL that we FORGET that we’re feeling the same gratitude the field-hand felt if he got promoted to a job where he could work in the master’s house!”

    You make a great point. So stop working for corporations. Stop buying from corporations. learn how to generate true wealth. Organize communities into cooperatives drawing from local resources and producing for local people. Share green-earth skills. Leave money out of it. Subvert the dominant paradigm.

  • Ellen Dibble

    Sing it, Joshua!
    Someone on Network news — I think it was PBS Newshour — was showing I think Dubuque, which gave IBM HUGE monetary encouragement to establish a grand faciliity there, and the agreement with IBM was Dubuque would remain walkable, sustainable, a lot like what you describe. The city fathers are afraid IBM will one day decide to outsource the jobs they bring (or pick up and leave, decimating the city whose pillars they plan to hold). And they note that most of the employees will be brought from outside, not hired from in town.
    It’s a compromise step into the future. Apparently without IBM the city has everything it needs except the taxes for the police, fire, and teachers, something like that. Do you have a plan for generation of local taxes?

  • peter nelson

    Japan is on the verge of economic collapse due to its debt.

    Please point us to a source for this conclusion. Japan may indeed be heading toward economic ruin but most of the research I’ve read places their high debt levels pretty far down the list of causes. The main cause is that that most of the things they’ve historically done well can now be done well by China (and even South Korea) at a lower price.

  • peter nelson

    i said the mondragon system–cooperative businesses where everyone, the workers, own equal shares and are the management. These are successful businesses. It doesn’t mean every business has to be operated this way.

    After your post I read up on mondragons, and it certainly seems to work well across a variety of different kinds of industries, and scale well (e.g., a Mondragon company is Spain’s largest retail grocery chain, and one of the largest in Europe).

    One critique I’ve seen of mondragons is that advocates underestimate one of their “secret ingredients” – the ethnic and political solidarity of the Basques. Basques are very proud of their Mondragons and especially the role that they played in giving prosperity and economic independence to their region, which they hope will achieve independence someday.

    So in other words what makes mondragons strong and why people support them may have less to do economic rationalism and more to do with nationalism and political emotionalism. It would be interesting to try to create some mondragons in places where those forces were not the main motivators.

    I think people on both the left and the right OVERestimate the extent to which consumers are willing to make political decisions at the store. Sure there are some consumers who will “look for the union label” or only buy fair-trade or organic produce, or only buy a product that’s “Made in USA” with a big American flag. But most consumers want the best product they can buy for the best price.

  • Gail

    What About A Double-Dip Recession?

    More economists are asking questions about a double-dip recession as the stimulus funds end.

    Robert Reich:
    http://marketplace.publicradio.org/display/web/2010/06/11/am-several-factors-point-to-doubledip-recession/

    Nouriel Roubini:
    http://www.youtube.com/watch?v=UifzEpMjbsQ

    Robert Shiller:
    http://www.youtube.com/watch?v=waYnnbG4nD8

  • david

    Japan on the verge of collapse
    http://news.bbc.co.uk/2/hi/business/10290933.stm
    A collapse by any cause will still have an affect on us if they are the 2nd holder of our debt.

  • http://FlusterCucked.blogspot.com Frank the Underemployed Professional

    When a nation:

    Exports millions of its middle class jobs to other nations, and

    Imports hundreds of thousands of foreigners on H-1B and L-1 visas do put downward pressure on wages and to displace Americans from the jobs people are supposed to retrain and reeducate for, and

    Imports millions of poor immigrants, legally and illegally, to displace and to put downward pressure on wages for the working poor…

    …an economic collapse such as the one we are witnessing here in the United States can happen. It’s called Global Labor Arbitrage and it’s going to merge our economy and standard of living with those of the third world. It’s just a matter of understanding the relationship between the supply of labor, the demand for labor (capital, businesses), and wages (standard of living or purchasing power).

  • http://FlusterCucked.blogspot.com Frank the Underemployed Professional

    I could only stand to listen to 8 minutes of the show. The guest Rajan sounds like a conventional “no-think” free market dogmatist economist.

    The problem according to him? Not enough people have college educations. In reality–we have a huge oversupply of people with college degrees and millions of people with college degrees are unemployed or underemployed. A great many computer and IT jobs have been outsourced to India resulting in unemployment and underemployment for people with computer science degrees. Also, professional degrees are now a dime-a-dozen and we have a huge amount of unemployed and underemployed lawyers and MBAs who cannot find jobs in their fields. We also have a similarly large oversupply of PhD. scientists.

    It’s easier to blame the problem on a lack of STEM education than it is to blame the problem on Global Labor Arbitrage.

  • Bob

    What About China?

    The Obama administration has been placing pressure on China to revalue its currency, creating economic tensions between the two countries.

    http://www.pbs.org/newshour/rss/media/2010/06/18/20100618_china.mp3

  • Meg

    Decades Of High Unemployment Likely

    Economist Dean Baker: Current policies more concerned with deficit than solving unemployment crisis.

    http://www.youtube.com/watch?v=vHZGvzKQUS4

  • Frank Listener

    Can we recognize systemic change? The press function is broken and unfunded.

    Employment must usher a new style of “growth” than carbon based industrial growth.

    The Service economy is an adjustment moment and is unsustainable. We cannot get wealthy taking in each others laundry.

    We Can get wealthy Creating stuff in an not – carbon powered way. If a quarter of us are working in agriculture, and another quarter are (believe it or not) producing art, we can then circulate the wealth created. We must recreate the middle class for this to work.

  • David Bean

    Dear Staff:

    Please put the correct podcast under this title

    This show is not downloadable on itunes, at least for me

    and please remove this when you get the message. Thanks:

  • jeffe

    IWe Can get wealthy Creating stuff in an not – carbon powered way. If a quarter of us are working in agriculture, and another quarter are (believe it or not) producing art, we can then circulate the wealth created. We must recreate the middle class for this to work.
    Posted by Frank Listener,

    Interesting idea, but a bit naive don’t you think? A quarter of “us” working in agriculture and another quarter of “us” are producing art? So you think that half the population should be tending fields and making art. Really? Why art?

    Art? Define what you mean by art. Given that reality TV and fast food is more popular than Rembrandt I would say this is a foolish idea. Talking of Rembrandt, I would guess more Americans would know the name through a tooth paste than from his work.

  • Jim

    Your Podcast download for this topic, “Dangerous Economic Fault Lines”, plays as “Vets Struggling for Brain Injury”. Could you please download the correct Podcast for “Dangerous Economic Fault Lines”? Thank you.

  • http://gaiabrain.blogspot.com John Champagne

    We see an over-exploitation of confidence, (the financial system offering loans to people who lack the ability to repay, 100% financing on mortgages near the top of a real estate bubble), that turns into a shortage of confidence when the economy slows and housing prices slump. Credit dries up and the financial system experiences a crisis.

    When civilizations collapse, it is often because environmental resources are overexploited and become scarce. The bust of an economy and the collapse of civilization are similar phenomena. We might see them as the same phenomena seen at different scales. If we use quantitative measures to chart the progress of civilization or of economic activity, we will see the same shapes drawn on our charts.

    There is a sollution. It involves an equal ownership of natural resource wealth. If industries were made to pay a fee when they take or degrade natural resource wealth, then the high end of an economic boom would be moderated by the increasing demand (and increasing price) for resource user-permits.

    If fee proceeds are shared equally among all people, then even during an economic downturn, this income source would help maintain a level of confidence among the people in their economic future. Spending on basic needs would continue, since people would have income separate from work income or investment income. The part of the economy devoted to meeting basic needs would be relatively insulated from the viscissitudes of the business cycle.

  • Rob L

    I agree with the caller that said these are tired arguments we have heard for a long time and that we have to stop buying from overseas if we’re going to get jobs back. We should level an additional 20% tariff on China until they buy as much from us as we buy from them. It would be amazing how fast the jobs came back.

    Anything else is just propaganda from the lying IMF elite.

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