A Significant Ongoing Misallocation Of Resources
Readers suggested a topic on jobs and the economy. “The March jobs report looks bullish. Unemployment down to 8.2% baby.”
One asks. “Will paltry March 2012 employment numbers give the Fed the support to roll out a mortgage-bond version of QE3?”
One added, “88,000,000 people are riding the pine right now. That’s a lot of people not doing a whole lot! Accounting for the new entrants into the labor force as well as the 88 million sitting on the bench, how many months of creating only 120,000 jobs will it take to correct this?”
“158 million total unemployed, broken down as follows: 1. 88 Million functionally unemployed: No job & no longer looking. 2. 70 million children, disabled or retired. Now add U6 - Those who are marginally employed or receiving unemployment benefits to the 88 million who are functionally unemployed. Doesn’t paint a pretty picture does it? So, in essence, we create 120k jobs/month in order to account for those entering the work force. Yet we have 88 million sitting idle, plus those included under U-6 who are marginally employed (part-time but want full-time employment) or receiving unemployment benefits; yet somehow the unemployment rate is going down?”
And finally, “Nearly everything that I read says that you need somewhere between 100,000 and 125,000 jobs a month just to absorb new entrants. Now that may be a little inflated = I don’t know if, for example, that number reflects people flocking over the boarder at the times of bubble job growth. If so, we may need less. Also don’t know if enough people are staying in school to lower that number. And I think one person asserted that the real need was 150,000. In any event, 120,000 should keep us approximately even.”
“I don’t know why anyone is surprised about this. Some of the hiring that should have happened in March happened in January and February because of the mild winter. There was bound to be a slow down eventually. We aren’t in summer vacation hiring season yet.”
The New York Times. “The official statistics say that the national economy has been growing for almost three years, and that Maryland is growing faster than most states. But in Prince George’s County, where housing prices have fallen more than anywhere else in the state, there is scant evidence of renewed prosperity. ‘I don’t think you’ll find anyone in here who will tell you that it’s over,’ said the Fish Market’s owner, Rick Giovannoni, gesturing at the half-empty tables. He paused, then added: ‘Well, we are selling more drinks.’”
“Places like Gwinnett County near Atlanta, Lake County, north of Orlando, and San Joaquin County in California’s central valley, where housing booms were fueled by borrowed money, may now become long-term laggards under the weight of those debts.”
“Everett Allen, who owns a remodeling business in Prince George’s, used to have enough work for six employees. In recent years he has employed three. ‘If somebody used to call in October, I wouldn’t do the job,’ he said. ‘I wanted to be off over the holidays and I gave my guys time off. Now if somebody called in October, I probably would be doing it. But we don’t get those calls now.’”
The Diplomat. “Economist Nicholas Lardy has a new book out called Sustaining China’s Economic Growth After the Global Financial Crisis. In Lardy’s analysis, the Chinese economy is ‘unbalanced’; it relies too much on exports and residential property prices to fuel its economy, two distortions and dependencies that favor certain interests at the expense of the nation.”
“The urban real estate bubbles (are) fueled by what Lardy calls ‘financial repression’: low bank interest rates that tax depositors, and a scarcity of investment vehicles. To put in perspective the real estate bubble, consider this statistic: ‘After 2003, the urban population increased by an average of only 19 million annually, but average residential housing investment of 6.8 percent of GDP was two-thirds larger than in 2000-2003, and annual residential housing starts soared from 490 million square meters in 2004 to 1,290 million square meters in 2010.’”
“These economic trends have led Premier Wen Jiabao himself to call China’s growth ‘unsteady, imbalanced, uncoordinated, and unsustainable.’”
“Lardy frames the problem and solution more technically and diplomatically, while calling for a bold shake-up of China’s economy: ‘The central thesis of this study is that the evidence from the past seven or eight years shows that modest, marginal, incremental economic reforms will not lead to a fundamental rebalancing of China’s economy. Underlying financial distortions – including administrative controls that keep deposit interest rates low, an undervalued exchange rate, subsidized energy, and so forth – are contributing to a significant ongoing misallocation of resources throughout the Chinese economy.’”
“Currently, China’s economy is structured to benefit state-owned enterprise and real estate companies, creating a situation where China is helping the rich get richer at the cost of a vibrant society, a clean environment, and a healthy economy. So, if the solution is this straightforward and simple – and the consequences of the problem so dire and dangerous – then why hasn’t China acted already?”
“I have my own theory, which I explained in a previous post: Considering how poor and populated, chaotic and unmanageable China is, it’s in the long-term best interests of China’s elite to behave like parasites and predators. China’s elite are enriching themselves by bankrupting the state, and, already having shifted assets and family abroad, will continue to do so until the state itself collapses.”
“We’ve seen this behavior consistently throughout Chinese history, most recently with Chiang Kai-shek’s misrule that permitted the Communists to rise to power. And now, as the Chinese would say, history is about to complete yet another circle.”
The Melbourne Anglican. “Foreign investors are watching carefully Australia’s dependency on China, according to Professor Frank Milne, an Australian economist who is now a leading academic in Canada. It is causing some concern, he said, given the importance of China as a market for Australian commodities. ‘If China gets into trouble, then you’re in trouble,’ he said. ‘You don’t want to be a ‘one-trick pony.’”
“The co-existence of extreme wealth and extreme poverty in China, as in India, was ‘very disturbing’, he said, with possibilities of growing social unrest in those countries. A great deal of Chinese money was now pouring into Canada to avoid potential problems, he added.”
“Speaking on ‘Australia and the GFC’, Prof. Milne said that the financial crisis was far from over for Australia, as was the case with Canada. The size of the mining sectors in each country should not be exaggerated; in Australia it is 10 per cent of GDP. In the non-commodity sector, such as manufacturing – the huge bulk of the economy – the impact of the GFC was ongoing, and had been felt for some time. Observers were also concerned by slowing productivity growth. The mining boom had masked these deeper problems until recently, he said.”
“Since 2007, Australia had been ‘going sideways’ in terms of living standards. He referred to the ‘housing bubble’, with serious problems for housing affordability in some of Australia’s large cities. Australian financial institutions, especially the major banks, had growing exposure to housing mortgages, he said. Are there credit problems waiting to happen? ‘Serious economists have been sounding warnings in private for some time, but the media and Canberra have been tone-deaf,’ he added.”
“A return to GDP growth was ‘important for all the things that really matter for us’, he said. High quality education, training and re-training was vital for long-run productivity growth. ‘We have to think very carefully how we train people, not just fall for passing fads,’ he said.”
