The saving rate paradox
by Rebecca Wilder
Edward Harrison at Credit Writedowns is theorizing why the saving rate is falling when it should be rising, as households scram to deleverage their balance sheets. My reaction to this is twofold: first this is a meaningless exercise; but second, and worse yet, there’s likely something very “unhealthy” going on here.
Meaningless: The BEA conducts a comprehensive revision of the NIPA tables every five years. The saving rate is usually revised upward, and by a fair amount, as was the case for most of the 2000s.
So in “roughly” 5 years from 2009 (it’s not uniformly 5 years between each revision), you will see a higher saving rate than you do today. As I said in July, the
“BEA has “found” that households have been in fact saving roughly 1% more of their disposable income per quarter since 1995, 0.9% per quarter in 2008.”
They will “find” it again.
Unhealthy: But even if they don’t “find” much more than an average +1% a year, there’s probably something a bit more sinister and non-economic (i.e., in addition to the wealth, income, or substitution effects – see Edward Harrison’s post on this point) going on here: non-market activity is rising. I haven’t seen a study to this point – if you have, please send me the link; I am very interested – but I wouldn’t be surprised if non-market income has creptup lately, i.e., through the informal labor force.
With an employment-to-population ratio a shocking 58.5% in February (it was 63.4% as recently as March 2007), there’s got to be a growing supply of labor that is “working under the table” just to get by. This non-market income would flow through the spending accounts but not the income accounts. Therefore, you have official consumption going up with official income (doesn’t include non-market income) stalling, which reduces the saving rate.
Now go back and read Marshall Auerback’s push for government as ELR (appropriate credit is given in this report)!
Rebecca Wildercrossposted with News N Economics
pretty clever
but couldn’t unemployed people just be spending down their savings to, like, you know, eat?
Rebecca,
Not your usually excellent post (mostly I learn a lot from them) but…
ELR is really just workfare. It would be terrible. From the Auerback’s article wages would be at or near minimum wage and would have a “robust benefit package”. Whatever the gov set as the ELR wage would be de facto the minimum wage since you could ALWAYS get a job working for the government vs. McDonalds. And you get full benefits. Thus all your unskilled workforce would go work for the government (no pressure to perform – they can’t fire you) and it would kill employment at the bottom in the private sector. Plus can my 16 year old sign up? 17? What’s the bottom and top age cut off? Can my 78 year old father sign up and still get SS?
Then this lets a married couple have one work for the government (with all the “robust benefit package”) while the other works in the private sector and drop all benefits for cash (An option I have seen at every major business my friends or I have worked for). Heck every teacher I know, including 3 in my extended family, do this. The teacher gets the gov benefits while the husband (usually) drops his benefits for cash and is carried by the teacher. How do you plan to ‘force’ people off ELR when the economy rebounds? Why should they go when they can stay on ELR and get all the bennies even if they are unskilled labor? Or if the one spouse works will the other be ineligible for ELR? You mean my wife isn’t allowed to work for the Gov??? How absolutely 19th century and sexist of you!!!
Heck, by definition you could NOT move them off. Heck in 10 years I could retire and go on ELR and not use my SS until I hit 70. And the Gov would still give me a job! With a full “robust benefit package”!!! Can’t beat that.
Then there is the fact that the ELR minimum wage will not save any of your middle class types from losing their homes or pay for there kids to go to college. Other than forcing people into jobs they don’t want for 8 hours a day just to get there workfare check (say by collecting garbage on the sides of roads, cleaning graffiti in the inner city, other unskilled jobs), what do this idea bring to the table. Hey they can do jobs no american wants and mow & garden government owned properties! Put them all in a read, white, and blue Obama logo jump suit and your ready to go!
Exactly what kind of jobs are these that “would not compete with the private sector”? (I can think of one – military) And how are you going to get and sustain the necessary expertise that will flee the second they get a chance? Your not going to get & sustain the expertise you need paying $20K/year. Plus I bet all those Ivy league kids laid off from Wall Street are going to be eager working the trash line with the womyn’s study grads.
There is so many holes in the ELR, many of which would be incredibly unacceptable to the left (remember this is workfare), and others unacceptable to the right that it would never have a chance at acceptance. I have read in many places by learned economics PhDs etc that 4-6% unemployment is a normal “full employment” level in a capitalist society. Did I misread that?
A bad idea that should be dumped.
Otherwise a great post about how a lot of the economy is going underground. I get lots of discounts paying cash these days….
Islam will change
Coberly,
Of course I think that the regular “economic” stuff is driving most of the saving rate. However, there has been strong retail sales ex-auto, and ex-food over the last couple of months that makes one wonder if there is something else happening.
I would say that the wealth effect is probably the most obvious – but then again, I assume that there are pretty long lags in the wealth effect’s affect on consumption.
Rebecca
Okay buffpilot,
I am sorry that this post disappoints; without debating the merits of the ELR, because frankly I have my own questions, Marshall does recognize the employment crisis that we’ve got here. We are back to the dark ages (if you call the 80’s the dark ages) in the EMP, and IT’S NOT due to the aging population!
Thanks for reading, Rebecca
Buff
I am not up on the economics here. Don’t even know what ELR is, but you’d be surprised that some of those government jobs are hard to get. And they do make you work. Of course firemen are allowed to nap between fires, I understand.
Nice post, Rebecca.
The employment to population ratio is stunning–back to early 1980 level…a time when we did not count on the 2-worker family.
It might be interesting to make a serious comparison between the early 80’s and today. For example, what was the level of women in the workplace…the 2-worker family? Remember, we were going
through a severe recession in the early 1980’s.
MG sent me a graph of gas usuage. We are presently matching gas usage in the pre-1983 levels.
http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=a103600001&f=m
despite the population growth since then. More importantly, the price of gas has not fallen to presumably
match the low usage level.
We are in a world of hurt. I honestly do not think people fully understand what has been happening.
Bill Mitchell’s Job Guarantee Program for Australia (very similar, if not identical, to the ELR – Employer of Last Resort).
Presumably, though, there may be an issue with low-skilled labor jobs and underutilization of resources during downturns. This is what Buff was getting at, I believe.
Rebecca
Rebecca,
I expanded on the ideas I mentioned in the post you cite, incorporating your idea about the black market. As to asset prices and consumption. I do think the wealth effect works with a lag. However, I would anticipate the debt related stress of negative equity and plunging house prices has a more immediate impact on consumption.
More important in my analysis is the conclusions about stimulus one could reach. We could see that the withdrawal of stimulus leads to a fall in asset prices and a relapse into recession.
More at the link below:
http://www.creditwritedowns.com/2010/04/why-the-fall-in-the-savings-rate-is-not-meaningless.html
Hi Rebecca:
I believe we are at a new plateau of people within the Civilian Labor Force as taken from the Civilian NonInstitutional Population. It mirrors the Employment Population Ratio that is graphed in your presented chart. I like it a little better as it tells you where the rest of the Population is . . . “Not In Labor Force” which has been growing in proportion. Laurent Guerby has her graph charting this also: http://guerby.org/images/bls-men-25-54-200912.png “Males 25-54”
and a few comment by her:
“Last point is 19.7% not working in december 2009: 12.2 millions men aged 25-54 out of 62.1 millions civilian non institutional population. If it follows usual seasonal patterns it will climb in january and february above 20%.
I didn’t graph the “part time” jobs (under 35 hours/week) but the serie starts in 1986 around 4% and peaks in december 2009 (last point) at 6.5% of population for male 25-54.
Also women 25-54 not working is 30.9% in december 2009: 19.6 millions women aged 25 to 54 out of 63.5 millions. It’s the not working level of march 1988 for this population.”
Since 2001, this particular age group has experienced a fall off in employment due to a shift in labor needs (construction/manufacturing) to service. Couple that with a lack of job creation in any sector to take up the slack and it becomes pretty obvious. It is definitely 1980’s employment with a 2010 population. Productivity, globalization, and a 40+ hour work week?
Stormy:
Gasoline is a process production industry. Those refineries do not shut down except for maintenance. Here is an iteresting chart from the EIA: http://www.eia.doe.gov/emeu/aer/txt/ptb0509.html “Refinery Capacityand Utilization” (1949-2008)” and a more reason one covering 2009: http://tonto.eia.doe.gov/dnav/pet/pet_pnp_unc_dcu_nus_m.htm “Refinery Utilization and Capacity”
I believe what you will find is we are no where near maxing out on refinery capacity in the US and crude oil reserves are about the plotted demand – inventory range as show here: http://tonto.eia.doe.gov/oog/info/twip/twip.asp “This Week In Pretroleum” (scroll down to Stocks) .
While demand for gasoline by US citizens is down and it dropped ~5% when gasoline was $4/gallon. capacity to refine has not been strained and there is enough of it to cover for maintenance and emergencies. I suspect there is a tad of refinery capacity planning taking place to maintain pricing levels of gasoline . . . another cartel of sorts. There is no law that says they must produce balls out to lower prices.
***there’s got to be a growing supply of labor that is “working under the table” just to get by.***
Well, no there doesn’t. There could be growing supply of labor that is living on unemployment checks and whatever they can pawn. They will be moving into their car when the other revenue sources run out.
I would suspect that working off the books is not a big item. I suspect that most such jobs are in agriculture, construction and small retail — none of which is as big a deal as it used to be. I’d be a bit surprised to see big box stores, union shops of any sort, or supermarket chains employing casual labor off the books.
Some, but by no means all, of the drop in the employment to population rate may be due to the boomers starting to retire (not always voluntarily). It’s reasonable to expect that the EPR will be somewhat lower than we are used to for the next 20-30 years. But that’s clearly not the whole problem.
I have too much on today’s to do list to do the research, but are you sure that the Economist’s “Savings Rate” is the same thing that we laypeople would call the “Savings Rate”? I’m curious if it includes stuff that doesn’t look a lot like savings and/or omits some savings activity?
Yes, but after Obamacare goes into effect, the health care advantage no longer exists.
Not an economist or in any way related to the fields you all seem so informed of in your discussions, however I can tell you how this middle class American is feeling. Cynicism and mistrust. There is no one listening to us, no one who cares, that the supposed “backbone” of America has lost faith in humanity. We see politicians taking bribes from shady businessmen to create legislation that hurts the consumer and citizenry. We see wealthy people getting all the breaks and the more needy of us being marginalized and detested. We see two sets of laws, one for ordinary people and one for certain “special” people, while we honestly can’t figure out what it is that makes them so special. We see men and women in business cheating their workers at every opportunity, treating them like garbage and chattel with the threat of losing their jobs hanging over their heads. We see prices rising, wages going nowhere and we feel like we’re being squeezed out by self-serving people in positions of power they have neither earned nor served. We see waste and fraud and corruption and a lack of compassion or caring, we see religious leaders behaving like charlatans, law enforcers acting like criminals, and kids killing kids – and we wonder what has happened to the world. So we work, we go home, we sit with our loved ones and try not to think about what’s happening outside our doors. We have no desire to spend money and continue to fuel the avarice of others.
Hi Pj,
Thank you for your comment. And imagine what would happen if the government transfers (which indeed are driving personal income right now) were pulled, or at least lessened to some degree because of all this nonsensical “worry” about the budget deficit. To be sure, the government has a tendency to mis-allocate resources, which is why I am in agreement with several economists that a massive tax break is in order. At least then there would be some disposable income with which to save IF ONE SO PLEASES (which I most certainly think is the case for most of the population.
Rebecca
***We are in a world of hurt.***
Well, yes — especially in the rustbelt where reality settled in for a long stay a decade ago and in California where they haven’t had a glimpse of reality for about 40 years and are determined to borrow their way to prosperity.
The decline in gasoline demand is probably in part due to using higher mileage second cars instead of SUVs for a lot of transport. And of course, the unemployed tend to have short commutes. Cash for clunkers helped as well.
Expecting gasoline prices to vary with US demand probably is no longer realistic. Gasoline prices are largely determined by crude oil prices and crude oil prices are increasingly set by world wide demand, not just US demand. (And Saudi production levels of course. The Saudi’s are said to want crude oil prices around $80 per barrel).
The saving rate, as measured by the BEA, is personal disposable income net of consumption and nonmortgage interest payments (as a share of personal income). The saving rate, as measured by the Federal Reserve in the flow of funds, is the change in household net worth as a share of personal income. In the BEA example, it may very well “miss” some activity IF either consumption or income is mismeasured.
As for working off the books – I can think of plenty of foreclosures in California that probably need fixing up right about now. Parts of the California housing market have bottomed out, and houses are moving. Workers are needed.
The EPR, as it stands now and after tumbling precipitously, cannot be described as an “aging population story”.
Rebecca
Rebecca
maybe, but Buff’s point fits in too well with the general Republican comic book view of “government work.” There is plenty of low skill work that needs to be done. And plenty of higher skill work that needs to be done that big brave businessmen don’t want to pay for because, because, well, there’s a recession on, don’t you know.
any government office or manager knows how to get people to work. and in fact most people would rather work than get through the day without working.
if there is a problem with “government work” is is generally because of bad… political… management, or the work itself is the kind of thing that comes in fits and starts.
i worked in construction… for the government… there were slow times, but they couldn’t just fire us because we wold take our high skills and go work for more money (but less security) for the contractor. Bad bosses would think up busywork. The good boss I had let us do what we wanted. What we wanted was to design ways to make our work even more efficient. We did. But found it very hard to sell to HIS bosses, because they were political types who had no clue what it was we actually did for the money they paid us. Just like the taxpayers.
I even showed the biggest boss a way to use our skills during the off season to do work that perennially need to be done. He was enthusiastic, but couldn’t move the slighly smaller bosses who were convinced i was just trying to make them look bad.
So Buff is partly right, but not for the reasons he thinks.
codger
not a big point, but i used to work for a big box, and work off the clock was standard operating procedure. i imagine workers worried about finding another job are more likely to put up with it.
Rebecca
i disagree. a tax break would help the people who HAVE incomes. They are not the ones who need the help. A tax increase would give the government money to find (real) work for people, who would then spend etc. I think it is way too easy even for an economist to buy the standard reasons that may have been valid under other circumstance but don’t really match the current situation.
I am not convinced the deficit is as big a prolem as some people say, but in the first place as long as they are saying it is, then politically it is. But they are using the deficit to promote backward solutions.. like cutting “entitlements”. Use the deficit to promote raising the taxes that produced the present situation by being cut and you might see some unexpect responses.
It can’t be good that 10% (or more) of our tax money goes to pay the people who lent the government money to cover the tax cuts. And I dont mean that it is therefor a good idea to cut Social SEcuruity in order to effectively default on that part of the debt.
Typo above: both measures of saving (above) are a share of PERSONAL DISPOSABLE INCOME, not personal income. Rebecca
Let me first say that I’m glad to see so many people comment on the ELR program. It is largely based on the work by Bill Mitchell, Randy Wray (“Understanding Modern Money”), Jan Kregel, Warren Mosler, Stephanie Kelton and many others from UMKC. Secondly, when I hear references to “slave labour” I always ponder, what’s the alternative? Perpetual long term unemployment. Obviously as more people are drawn into the program, the employment markets will tighten and the private sector eventually will outbid for ELR workers (remember, ELR is seeking to create a floor on wages, not create an inflationary spiral, because the government, as the creator of the currency could always outbid the private sector for resources, if it chose to do so).
The ELR (or Job Guarantee) proposal at one level resembles workfare, which has been rejected by Congress, though some state welfare reform programs are not unlike workfare. However, unlike this ELR proposal, the state programs may be serving to create a new class of sub-minimum wage employees who are replacing regular public employees. This is not the intention of the program. It is to create a “buffer stock” of “shovel ready” labour for the private sector.
The ELR proposal also has characteristics similar to the current Federal unemployment compensation policy. There are, however, significant differences as unemployment is 1) compensation is payment for not working, 2) temporary, 3) does not cover everyone, and, 4) is less than the proposed ELR wage. It would also likely incorporate health care benefits and hopefully drive reforms from the bottom-up.
But again, we want to get rid of the scourge of long term unemployment, which creates huge and very expensive social pathologies.
Coberly
One of the things we must do is stop thinking of taxation as ‘giving” the govt money to spend. Its really not nit picking because this is crucial if we are ever going to convince people that a tax cut need not be done along with a govt spending cut.
When I read about Coburn holding out on extending unemployment benefits until we find other cuts to “pay” for it I want to choke the little bastard.
You are right that the deficit is a political problem which makes it a real problem but politics can be overcome once people realize the fallacies of the argument. There would be no one buying that BS if they understood our monetary system and what deficits and debts truly measured when talking about sovereign currency issuers.
SOOOO nice to see Marshall commenting here!! I hope you make it a regular part of your week Marshall.
I think you are starting to make some headway with your stuff over at Yves’ place. There are whole new conversations taking place. People are questioning what they thought they knew. I’d love to see more of the same over here at AB as well.
Thanks
Buff:
The suggested ELR pays less than the std wage and Marshall suggests Minimun Wage which I believe is too low. Basic substance for an individual is approximately $21,000 and this would vary by region while the minimum wage is $7.25/hour or ~$15,000 annually. The idea of the ELR is too keep people in the work force doing something, paying taxes, and providing for their own selves in a fashion which is far betterthan letting them doze while waiting for the private sector, in which productivity gains have been skewed toward capital, to create more jobs.
Tom Walker, alias Sandwichman, argues the time of the 40+ hour work week is long gone and their are advantages to a 32 hour work week in addition to putting more people back into the Civilian Labor Force. Of which one of those advantages would be greater productivity. He has a point given the productivity gains we have seen and which Martin Ford has written about and in light of globalization. Notorious practices during recessionary periods, companies flog the remaining salaried to achieve higher output from fewer workers.
coberly,
I was specifically discussing Auerbacks article and his idea of the ELR. Its basically workfare.
Your missing my point.
run – you also missed my point. People making min wage are not paying taxes (except into SS which would be trivial). Like I pointed out this is work for welfare. The Dems have oppossed this from day 1 as do almost all unions. All for the same reason – it undercuts jobs at the bottom. Grabbing everyone out of work and having them clean the streets in jumpsuits does nothing to prepare them for the workforce. If you have them do something actually constructive then you are undercutting your normal government or private workforce who make more than min wage. Will it be open to illegal aliens?
This is pure un-adalterated work for welfare. A bad idea that should be dumped for all the reasons I mentioned above.
Islam will change
VT – I heartily agree with your points. Especially about California….and world crude prices have been setting the US pump price for awhile now.
Islam will change
MArshall,
First thanks for coming here and commenting.
Second, I think the ELR proposal is just silly. Its workfare, but with more bennies. Whattype of government make-work employment will you have these people do that will make them “shovel ready” AND not displace existing public or private jobs? Jobs erquiring a skill set would need to be paid more or you couldn’t keep them around the second they got a better offer and you jobs wouldn’t get done. If they NEED to be done then you will need permanent employees or contractors.(for example firemen or tax collectors) The rest are just unskilled labor who will remain unskilled – we have plenty of job-training programs out there, plus almost anyone with a pulse can get a loan for community college these days.
I made more points above. Please tell me how you plan to handle them…
Thanks in advance
Islam will change
For eample, the recent cuts in the Shuttle program is expected to cause the loss of 6400 NASA jobs in Titusville (from 8200). What exactly are you going to have a $85K/year NASA engineer do for minimum wage that will keep them “shovel ready”? Min wage won’t even pay for their mortgage and car & house insurance. Plus the entire local economy just went into the dumpster.
Will you find ways to allow them to move easier?
Retrain into medical technicians for Obamacare?
Or basically make them work at minimu wage cleaning trash off the interstate?
And BTW I agree with you, long term unemployment is a big problem. ELR is not a solution.
How about removing 16 million illegal aliens out of the workforce? Kill and deport the entire H1B workforce?
Would that be quicker and easier? Plus drive up wages as employers start scambling for labor
BTW – I meant kill the H1B program – not the participants!!! That did come across a little more sarcastic than expected…but if you dump the imported, non-citizen workforce you could really help the employment situation…but that is an idea way out of the mainstream.
Or ew could just wait out the business cycle without expanding the size, reach, and scope of the federal government…
Islam will change
Buff
very likely. on the other hand i agree pretty much with what you said on the doldurms thread about the levelling of living standards around the world.
Buff
true enough, but when the problem is that private employers are afraid to hire because of the recession, do you think we are smart enough for the government to hire temporary help at lowish wages to help the economy pick up and encourage those hired to look for better jobs as it does?
greg
if i understand you, you advocate just printing the money. i’m okay with that up to a point.
but my point was and remains that 90% of the population still has jobs, and some of them have a lot of money. it would do no harm to tax those people and use the money to hire unemployed people to do rea work that needs to be done. and lend money to real businesses with a real business plan.
i don’t know at what point just printing the money runs into problems, but i suspect it will.
Buff
I think you contradicted yourself. If the jobs are “underpaid” then the skilled workers will go to the private sector as the economy picks up. Which is what you want to happen.
Buff
as a person who was “underemployed” most of my life, i’d say that it’s better to get a job picking apples even if you are a rocket scientist than it is to starve waiting for the business cycle to pick up while you are learning chinese. weren’t you the one who said we were on the way to global leveling?
Greg
if i understand you from previous posts you advocate the government just printing the money. i am okay with that up to a point.
but my point is that 90% of the people still have jobs, and some of them have a lot of money. It would not hurt the economy to tax them and use the money to put people to work in needed jobs, at a higher level than buff thinks possible.
and i agree about Coburn.
the point about a recession is that employers are afraid to hire, afraid to invest. you are not going to hurt the economy by taking their idle money and putting it to work.
coberly – Yep and I really don’t have te answer. I just know putting people to wor for the Governemnt under basically slave labor terms is not a good idea. Better free education re-training etc…
Islam will change
Coberly
Im not sure about 90% of people having jobs. First off 10% is the ‘official” unemployment rate which drops you off once you are no longer seeking benefits. Many economists feel the true unemployment rate (people who want a job and cant have one or have part time work only) is closer to 20%.
I agree that there is existing money and that taxing it to create jobs is “possible” and probably a good thing since most of those peoples savings are not going to productive investment but simply sitting in a casino account making bets on price moves of the already existing stock of financial assets. This taxation would also be politically hard since too many people who might benefit from it have been convinced we will be hurt form it and are willing to march with a shotgun to prevent it if necessary.
Why not simply “debase” our currency ( I use quotes because I dont really think debasement is even a true operative term any more.. see here http://bilbo.economicoutlook.net/blog/?p=9013 ) and ignore the whole taxation must = spending argument. Especially since it is untrue.
buffpilot
I agree with the idea of educating/training people but how do we know that when they finish their training that that knowledge wont be obsolete in the new world two yrs later. Things are moving fast and to think that off the job training can keep up with OTJ training might be a mistake. People need to be working doing something, anything, that provides them with the means to be a consumer so there is a customer for the producers.
Some things like health care we know will always be needed but in what form? Many things are being done radiographically and remotely via robotics today that many 80s trained physicians are becoming dinosaurs.
It is no less a fallacy to think that everyone can have the necessary training to succeed than it is to think that everyone can make a million dollars.
We must speak honestly about the fallacies of the American capitalist dream. Its not JUST a matter of working hard, studying hard and doing the right thing to be successful. If everyone finished highschool went to college/ tradeschool and avoided drug/alcohol abuse there would be no more guarantee of universal success than if we tried to “give” everyone the same salary in a command economy system.
Our saving rate/hard work cannot save us. No matter how much money we’ve saved at some point we will run low on some things that everyone wants…….. then what?
buffpilot,
If you read any of the lieterature regarding the ELR program, then you would know that education/training, if needed, IS A PART OF THE ELR proposition.
If one requires a skill-set to be hired into the ELR program, then they will receive the training for it. The idea is, that once they receive the training and start working in the ELR program, the private sector may capitalize on these skills as the competitive market reasserts itself out of recession.
Wray’s book is definitely worth the read.
Rebecca
buffpilot,
If you read any of the literature regarding the ELR program, then you would know that education/training, if needed, IS A PART OF THE ELR proposition.
If one requires a skill-set to be hired into the ELR program, then they will receive the training for it. The idea is, that once they receive the training and start working in the ELR program, the private sector may capitalize on these skills as the competitive market reasserts itself out of recession.
Wray’s book is definitely worth the read.
buffpilot,
If you read any of the literature regarding the ELR program, then you would know that education/training, if needed, IS A PART OF THE ELR proposition.
If one requires a skill-set to be hired into the ELR program, then they will receive the training for it. If on the job training is what is needed, they get that, too. The idea is, that once they receive the training and start working in the ELR program, the private sector may capitalize on these skills as the competitive market reasserts itself out of recession.
Wray’s book is definitely worth the read.
buffpilot,
Education/training, if needed, IS A PART OF THE ELR proposition.
If one requires a skill-set to be hired into the ELR program, then they will receive the training for it. If on the job training is what is needed, they get that, too. The idea is, that once they receive the training and start working in the ELR program, the private sector may capitalize on these skills as the competitive market reasserts itself out of recession.
Also, only the people that are willing and able to work in the ELR will – this is not slave labor, just a buffer during downturns. Coberly’s right – what’s the alternative? Mass unemployment like we’ve got here? Oh, and a Congress that may or may not extend unemployment benefits?
Wray’s book is definitely worth the read.
coberly – I know late to reply. I was very busy this weekend and the one time I did get on my comments got eatan (a rare occurance).
Anyway, the reason I point this out as workfare is basically you are not doing anything except for the unskilled (who would get min wage anyway). For the rest $15-21K won’t cover the bills. But you take the person out of the job hunt doing busy-work. Better to send them to some kind of training. Having one of these busy-work Gov jobs would be no different than getting your welfare check and you wouldn’t be employed from anyone’s perspective. This is not the 1930’s where large chunks of the US labor force is male and used to hard physical labor (and in some cases dangerous) in less than OSHA compliant work areas. And we build things using machines these days not shovels.
Better to give them welfare and retraining. Putting 40 year old, overweight engineers out cleaning streets is just not going to help anyone.
Islam will change
Rebecca and Greg – But your STILL paying minimum wage. What’s the different, other than a higher rate, than welfare? And ELR, as discussed in the article, does NOT require any skillsets. Thats the point – they take anyone and put them on government “make-work” jobs. My point is that these make-work jobs are either pure workfare (like my proverbail picking up trash on the highways) or they actually require some skills, in which case you displace actually needed gov workers WHO WOULD BE PAID MORE! (Firemen, tax collectors etc). So by using your ELR people you end up either with workfare and no skills or displacing higher paid personel with ELR ‘slave-labor’ firemen (for example).
Better to just pay for them to get the skill-sets direct or have the government pay employers to keep them on the payroll (with all the downsides that would entail).
And BTW, we don’t have mass unemployment. And ELR would be no different for the participants than picking up their welfare checks – being unemployed. And you could never fire anyone out of ELR!
We are in a global arbitrage of standards of living. Our (western) poor live way, way better than most even “middle class” in some countries. Poor used to be defined as starving. Now in the US its defined as not having a cell phone. I think that is a great compliment to the US that we define ‘poor’ at such a high level. We are rich enough to do that.
But how do we avoid that standard decreasing in a world were there are literally 10s of thousands willing to scrape sludge out of and chop up old ships in India for $3K a year with a decent chance of dieing from it?
I wish I had an answer but workfare is not even part of that solution.
Islam will change
One other thing I’d like to point out, is that the number of employed Americans was only about 155 million BEFORE the current economic crisis. If the true rate of unemployment is nearly 20%, that would mean that there are only about 125 million people working to sustain nearly 350 million people in total. With wages going down and prices going up.
Why do you assume that all “workfare would be physical labor requiring a shovel or street cleaning. There is a lot more imagination out there and there is no reason why much of the workfare couldnt be subsidized labor through the private sector. A lot of work could be done within the health care industry. Hospitals are getting crowded and many people could have personal care assistants that would allow them to stay in their homes and recover. A lot of people cant work as much as they like because of childcare issues.
We really just have to use our imaginations and get people thinking about what they would like to see done in their communities that isnt currently being done. These people would not be made useless to the private sector. On the contrary they would become more employable than if they just sat at home collecting a check.