It’s been interesting watching the market take a dive and then read the comments. Believe it or not, most of them are accurate in their assessments. This means the problem that we are all immersed in is large and multidimensional and resistant to a ‘one size fits all’ or ‘silver bullet’ solution.
One fallacy is the idea that the situation has to come to a conclusion or state of equilibrium before a rebuilding process can begin. This is a regurgitation of Alan Greenspan’s ‘Mop and Bucket’ approach to busted credit or asset bubbles.
Him thinking that nothing can be done before the mess is made, because he cannot see the inflating bubble, nor can he see its maximum extent. After the bubble has deflated, the janitors can straighten up – presumably after the destruction is completed – whence everyone can start ‘growing’ again.
In our current catastrophe, there is none of that waiting crap. The bubble is deflating with accelerating force. The point when inactivism was a sensible policy choice is past, the mess has been made and is now feeding on itself. Unfortunately, the actions of the money authorities are extremely counterproductive – the equilibrium point gets pushed out farther and farther into the future. The institutional mindset or ideological investment made in these counterproductive activities becomes more and more ‘sunk’ in every manner of speaking.
The dilemma is … the awaited equilibrium is in the uncertain future; since waiting assures a large mess, something must be tried. Yet trying … and doing so reflexively – is making things much worse.
The need is to start thinking about a totally new system. This is not a temporal phenomenon, this is a dimensional re- alignment. Hate to break it to you …
I read this essay by Yves Smith who creates the Naked Capitalism blog where he gives his insights into the Nassim Taleb’s ‘Black Swan’ phenomenon – that which is described in his book, not the book itself . One of Yves’ points is that the idea of events outside the ‘normal’ course of day to day experience are resisted by both by experience and ego.
… people do not want to see the world as subject to chance to the degree that Taleb says it is. This is hugely unsettling if you really do come to terms with the implications of his argument. We like to believe we have some measure of control over our lives.
The black swan that will never appear: a new form of economic thinking from our current gurus. They are incapable of conceiving anything new. They have too much invested in the old order, they are too well trained in the manner of business that has awarded them status.
Consider Treasury Secretary Geithner. He is no doubt trembling with anxiety and concern, he meets or is on the telephone with Lawrence Summers and Ben Bernanke constantly; the large staff of highly qualified academic economists are busily worrying over different models, all are making their best effort to throw more and more printed money at insolvent business giants and hoping for the best. Tim Geithner has the same chance of unlocking this puzzle as he does beating Tiger Woods in a golf tournament. The same is true for Summers, Volcker, Rubin, Bernanke, Goolsbie … the rest. The media economists; Krugman, Reich, Samuelson, Feldstein cannot do it. The ‘trader’ economists; Soros, Noland, Rogers, Matt Simmons have … some sort of … clue but really cannot do it, either.
The real Black Swan would have the economics profession conceive of a new ‘Niewe Economy’. Something other than more Karl Marx or Carl Menger.
Meanwhile, Mike ‘Mish‘ Shedlock is giving his take on the gathering swarm of unemployed:
In the wake of yet another miserable jobs report comes news that Ohio school gets 700 applicants for janitorial job.
MASSILON, Ohio – Evidence of the slumping economy is stacking up at an Ohio school which has nearly 700 applications for one open janitorial job.
Officials at Perry Local Schools near Canton in northeast Ohio say they’ve extended the deadline until Monday to accommodate the overwhelming response to the week-old posting.
The full-time position at Edison Junior High School pays $15 to $16 an hour plus benefits. Superintendent John Richard says many applicants are laid-off workers with heart-wrenching stories about the tough economic times.
Sez Mike:
Perhaps they should reduce the pay to $7 an hour and put two people to work. I am quite certain there will still be 700 applicants. The odds of getting lucky become 1:350 instead of 1:700. Of course applications are still flowing in. The odds will change by Monday.
I don’t understand Mike’s reasoning. A full- time job pays $15 an hour which is a survivable wage, less FICA and other ‘benefits’ and ‘insurances’ withheld. How can a $7 an hour job be survivable? A big part of our current mess is the result of chronic underpayment of our workers. How can a worker save money (and avoid ruinous debt) @ $7 per hour? How can a $7 an hour man consume more than some wormy gruel – or the McDonald’s equivalent; a Happy Meal w/ Coke? $7 an hour is $280 per week, less taxes and ‘benefits’. Let Mish survive on $280 a week!
Here’s more:
In Tacoma, More than 800 show up for one Water Meter Reader Job.
Reading meters is a job that requires essentially no skills yet pays up to $23.56 per hour. People would be lining up to take it for $8.00 per hour.
In Rhode Island 1,200 apply for 40 jobs to clear unemployment backlog. @ $19 per hour.
Good Lord. These are the last kind of jobs I would hope we would be creating. Moreover, such jobs do not require a lot of skills. They could hire twice as many applicants for $8.00 per hour and serve the public far better for cheaper.
C’mon, Mike … think before typing. You could hire eight times as many applicants if you paid $2 per hour, like applicants are paid in China or Mexico. How about 50 cents an hour? How about 10 cents an hour? Think of all the applicants that could be hired at that rate?
This would not be a problem if the rent on a small apartment was $25 a month as these things were priced (in Greenwich Village) during the 1930’s. Perhaps costs/wages will fall to that level. But the current cost of living in the US still requires $12,000 a year for subsistence and the absolutely necessary car.
Here’s more:
Bear in mind the Government cannot really “create” any jobs per se. It can raise taxes and shift private sector jobs creation to government jobs creation (typically a malinvestment), and it can bring production and consumption forward for those jobs that are genuinely needed (filling potholes), but once the potholes are filled, one has to ask the question, “What will we do for an encore?”
Current ‘management arts’ do not allow for doing other than make work jobs. This is unimaginative. I would hire five hundred thousand unemployed men, put tools into their hands and have them work shifts around the clock building New York City- style subway systems in every big city in America. I would hire other tens of thousands to work shifts building molten- salt reactors to solve our electric generating/ fossil fuel/ climate change problem(S!) I would hire five hundred thousand men working in shifts around the clock to demolish the millions of abandoned houses that are unbalancing the real estate market … and will drive that market to zero if the imbalance is un- rectified. I would build electrified rail lines, streetcar lines, bury power distribution, tear down crappy plastic and steel shitbox ‘buildings’ and replace them elsewhere solidly built structures that are nice to look at …
The limit is imagination.
What people don’t understand about this crieis is that the current concept of ‘economic efficiency’ is underwater. Our productivity has succeeded in eliminating all the customers! We need customers with money in their pockets in order to have any sort of economy. Better to have a well paid and inefficient work force than an efficient company with no paying customers. Better for the workers and essential for the company.