economy

The United States of Europe

readingbyeugene 1 Comment

Niall Ferguson, author of the excellent The Ascent of Money (which I highly recommend reading), peers into Europe’s future and sees Greek gardeners, German sunbathers—and a new fiscal union. Welcome to the other United States…in 2021:

Life is still far from easy in the peripheral states of the United States of Europe (as the euro zone is now known). Unemployment in Greece, Italy, Portugal and Spain has soared to 20%. But the creation of a new system of fiscal federalism in 2012 has ensured a steady stream of funds from the north European core.

Like East Germans before them, South Europeans have grown accustomed to this trade-off. With a fifth of their region’s population over 65 and a fifth unemployed, people have time to enjoy the good things in life. And there are plenty of euros to be made in this gray economy, working as maids or gardeners for the Germans, all of whom now have their second homes in the sunny south.

The U.S.E. has actually gained some members. Lithuania and Latvia stuck to their plan of joining the euro, following the example of their neighbor Estonia. Poland, under the dynamic leadership of former Foreign Minister Radek Sikorski, did the same. These new countries are the poster children of the new Europe, attracting German investment with their flat taxes and relatively low wages.

But other countries have left.David Cameron—now beginning his fourth term as British prime minister—thanks his lucky stars that, reluctantly yielding to pressure from the Euroskeptics in his own party, he decided to risk a referendum on EU membership. His Liberal Democrat coalition partners committed political suicide by joining Labour’s disastrous “Yeah to Europe” campaign.

Egged on by the pugnacious London tabloids, the public voted to leave by a margin of 59% to 41%, and then handed the Tories an absolute majority in the House of Commons. Freed from the red tape of Brussels, England is now the favored destination of Chinese foreign direct investment in Europe. And rich Chinese love their Chelsea apartments, not to mention their splendid Scottish shooting estates.

If for nothing else, read the piece to find out who Ferguson thinks won the 2012 Presidential Election in the United States.

A Blow to Pinstripe Aspirations: Wall Street Layoffs

readingbyeugene Leave a comment

This piece in today’s NYT’s Dealbook has generated a flurry of comments. It’s about young people losing their jobs from investment banks and other financial firms. Read the entire piece here and then judge for yourself…

The money quote:

Sam Meek, 27, who was laid off in September when his Connecticut hedge fund decided to downsize, used to spend $500 on charity dinners and lavish golf outings. Now, it’s home-cooked meals and beer on the sofa. Recently, Mr. Meek and his roommate, another unemployed banker who spoke on the condition of anonymity because he did not want to jeopardize his job search, sat together in the kitchen filing for unemployment and drinking a bottle of Champagne.

“I’m scraping by right now,” he said.

Scraping by, huh? Needless to say, the majority of the 300+ comments have been pejorative; many have been deleted for abusive language and/or content.

And this was a good quote about the sentiment of elite/prestigious jobs:

The mood has darkened so much that even the young Wall Street workers who still have prestigious jobs are considering letting go of the brass ring.

“It’s lost its luster,” said a former Goldman analyst who left the financial sector this year. The former analyst, who spoke on the condition of anonymity because he signed a confidentiality agreement with the firm, said that in addition to losing some of the monetary benefits of their jobs, his friends who remained in finance were suffering from peer envy. “The new status jobs aren’t at Goldman Sachs. They’re at Google, Apple, and Facebook.”

A brief collection of comments was posted in another post here. I will agree with the nuanced comment by Timothy C. from Queens:

“Let’s not be too harsh here. I work in the financial industry, and in my own company, about half the workers (myself included) are in the back office, where salaries are generally in the middle-class range. Cuts in the financial industry tend to hit support staff much harder than the headline-grabbing six-figure earners in the front office. Many of my friends who have been laid off were making $40 or $50K a year. Not bad, of course, but nowhere near the stereotype of the financial industry worker.”

What are your thoughts on these young unemployed? Do you have any sympathy for them?

On More Servants

readingbyeugene Leave a comment

Megan McCardle, over at The Atlantic, answers the question “With so many unemployed, and income increasing faster among the affluent, why aren’t people hiring more servants?” It’s an interesting thought experiment. The answers:

1.  Various forms of public assistance, and wealthier families, have increased the reservation wage.  A servant in 1900 worked at least 10 hours a day, at least 5.5 days a week, and according to our archives, cost at least $25 a month for a “passable” one.  Many middle class people could probably afford to pay about $500 a month, plus a room and some food, for someone who would take care of all the housework, all the time.  But how many Americans would work for such a sum?  Our house was built in that era, and either they didn’t have live-in servants, or the help was sleeping in a pretty gnarly unfinished basement.  You’d have to be fairly desperate to take the equivalent job today, and almost no one is that desperate.
2.  There’s a tax wedge.  If servants were more common, the IRS would be more assiduous about auditing for payroll taxes, etc.  (Already a problem for working women with nannies who end up in public service). My mother actually paid taxes for her cleaning lady, and it was not only expensive, but an administrative nightmare–somehow, the numbers never added up right, the paperwork got lost, etc. Taxes reduce the differential between the value of your labor and someone else’s, because you don’t have to tax you.
3.  Regulatory overhead  See above.  The modern labor regulatory system is set up to deal with corporations, not individuals contracting for informal labor.  Either the work ends up in the gray economy (illegals), or it’s contracted out to companies that can amortize the regulatory overhead over a lot of workers (Merry Maids)
4.  Management. Workers have to be managed.  They leave.  (Hance Saki’s memorable epigram: “She was a good cook, as cooks go.  And as cooks go, she went.”)  They need to be replaced.  Sometimes the replacement doesn’t work out.  All of this takes time.  For the mistress of a house in the era before labor-saving appliances, managing servants was undoubtedly more pleasant than scrubbing the coal scuttles. But it was a job.  And many high-paid women in the sub-Gates class have full-time jobs; they don’t have the time to take on full time employees.  A large servant class may have presupposed the existence of a large class of women at home.
More here.

Peter Thiel on Technology, Science, Politics

readingbyeugene Leave a comment

Peter Thiel, the founder of PayPal, in his piece, “The End of the Future,” offers excellent food-for-thought regarding technology, science, innovation, politics, and the economy.

The state of true science is the key to knowing whether something is truly rotten in the United States. But any such assessment encounters an immediate and almost insuperable challenge. Who can speak about the true health of the ever-expanding universe of human knowledge, given how complex, esoteric, and specialized the many scientific and technological fields have become? When any given field takes half a lifetime of study to master, who can compare and contrast and properly weight the rate of progress in nanotechnology and cryptography and superstring theory and 610 other disciplines? Indeed, how do we even know whether the so-called scientists are not just lawmakers and politicians in disguise, as some conservatives suspect in fields as disparate as climate change, evolutionary biology, and embryonic-stem-cell research, and as I have come to suspect in almost all fields?

Not so sure about this statement. Nuclear engineering remains a strong major at Georgia Tech, for example:

 One cannot in good conscience encourage an undergraduate in 2011 to study nuclear engineering as a career. 

On the big pharmaceutical companies today:

In the next three years, the large pharmaceutical companies will lose approximately one-third of their current revenue stream as patents expire, so, in a perverse yet understandable response, they have begun the wholesale liquidation of the research departments that have borne so little fruit in the last decade and a half.

I think this is Thiel’s most important point in the piece.  Read it carefully:

If meaningful scientific and technological progress occurs, then we reasonably would expect greater economic prosperity (though this may be offset by other factors). And also in reverse: If economic gains, as measured by certain key indicators, have been limited or nonexistent, then perhaps so has scientific and technological progress. Therefore, to the extent that economic growth is easier to quantify than scientific or technological progress, economic numbers will contain indirect but important clues to our larger investigation.

The single most important economic development in recent times has been the broad stagnation of real wages and incomes since 1973, the year when oil prices quadrupled. To a first approximation, the progress in computers and the failure in energy appear to have roughly canceled each other out. Like Alice in the Red Queen’s race, we (and our computers) have been forced to run faster and faster to stay in the same place.

One interesting anecdote, in which Thiel quotes from the 1967 bestseller The American Challenge by Jean-Jacques Servan-Schreiber:

In 30 years America will be a post-industrial society. . . . There will be only four work days a week of seven hours per day. The year will be comprised of 39 work weeks and 13 weeks of vacation. With weekends and holidays this makes 147 work days a year and 218 free days a year. All this within a single generation.

And what does Thiel really think of John Maynard Keynes?

The most common name for a misplaced emphasis on macroeconomic policy is “Keynesianism.” Despite his brilliance, John Maynard Keynes was always a bit of a fraud, and there is always a bit of clever trickery in massive fiscal stimulus and the related printing of paper money. 

And I strongly agree with Thiel here. It’s a shame how science and engineering get passed over by our politicians:

Most of our political leaders are not engineers or scientists and do not listen to engineers or scientists. Today a letter from Einstein would get lost in the White House mail room, and the Manhattan Project would not even get started; it certainly could never be completed in three years. I am not aware of a single political leader in the U.S., either Democrat or Republican, who would cut health-care spending in order to free up money for biotechnology research — or, more generally, who would make serious cuts to the welfare state in order to free up serious money for major engineering projects.

Where will the United States be in a year? In five years? In ten?

###
(via Tyler Cowen)

Mark Cuban on Creating Jobs in America

readingbyeugene 1 Comment

Mark Cuban, the outspoken owner of the 2011 NBA Champions Dallas Mavericks, has an unorthodox view on how to create jobs in America. Forget the proposals by the Republicans and Democrats, he argues, and focus at the source: American corporations. What do they need to create jobs?

How is this for a revolutionary thought: Companies that would create jobs if they had more cash know who they are. Right ? If you own a company and are thinking to yourself “Self, if I could borrow or get an investment into my company I could hire X more people to grow the company/meet demand/release a new product/whatever”  So rather than guessing and hoping what might happen, why don’t we let companies self identify themselves ?

And not only should they self-identify themselves as companies, they should be able to bid on Government Loans or even actual equity investments. Call me crazy, but I think we should be playing a game of “I Can Name that Tune in X Notes” re-named and reformatted as “I Can Create X Jobs for Y Amount of Money”

Would this system be open to everyone? No, says Mark Cuban:

Of course you will have to set some minimum parameters in order to prevent the dreamers, crazies and who knows whats from clogging up the system. I would set those minimums including: The company must be in business for at least 10 years. They must be have at least 100 full time employees. They must do 100mm in revenues.  And of course they must be up to date on their taxes and I’m sure there are other things to think of as well.

Ten years seems an awfully long time for a company to be considered established, but Cuban’s idea is certainly an interesting one. Especially if you believe Cuban’s argument that tax cuts are only going to help Americans to pay off their massive debt (credit card, mortgage, student loans) rather than go out and buy consumer goods…

What do you think?

Links of the Day (01/24/10)

readingbyeugene 1 Comment

Here are two interesting articles I read today:

(1) “Moscow’s Stray Dogs” [Financial Times] – a descriptive and insightful look into the population of roughly 35,000 stray dogs in Moscow. The articles goes in depth into the four types of dogs roaming the streets of Moscow (based on the dogs’ character, how they forage for food, their level of socialization to people, and the ecological niche they inhabit). What was most interesting to me was reading about the evolution of the dogs. Most intriguing are the Moscow Metro dogs:

They orient themselves in a number of way…They figure out where they are by smell, by recognising the name of the station from the recorded announcer’s voice and by time intervals. If, for example, you come every Monday and feed a dog, that dog will know when it’s Monday and the hour to expect you, based on their sense of time intervals from their ­biological clocks.

The metro dog also has uncannily good instincts about people, happily greeting kindly passers by, but slinking down the furthest escalator to avoid the intolerant older women who oversee the metro’s electronic turnstiles.

(2) “Underwater, but Will They Leave the Pool?” [New York Times] – an interesting look into why the mortgage default rates are so low.

Links of the Day (01/22/10)

readingbyeugene Leave a comment

Here are some of the interesting articles and blog posts I’ve read recently:

(1) “Hope” [Sergey Brin’s Blog] – Sergey Brin, one of the founders of Google, traveled to Haiti after the catastrophic earthquake struck the tiny island nation on January 12. In his blog post, he talks about what he has seen and concludes with this powerful message:

While each of us is a citizen of a particular country, we are all citizens of the world. The responsibility falls on all of us to lend a hand when a tragedy of this magnitude befalls some of us.

(2) “A Culture in Jeopardy, Too” [New York Times]- a beautiful, moving photo essay by Maggie Stebber for the New York Times Lens blog. On the resilience of the Haitian people:

Haitians are not waiting for handouts. They are rebuilding their homes and getting on with their lives, getting back to business in the markets and on the roads. They cannot afford to wait for foreigners who can’t get organized quickly enough.

(3) “Architect, or Whatever” [New York Times] – interesting to read what some people are doing in these hard economic times.