Tag: Justin Fox

Must-Read: Justin Fox: This Job Market Slump Started a While Ago

Posted on by Brad DeLong
This Job Market Slump Started a While Ago Bloomberg View

Must-Read: Justin Fox: This Job Market Slump Started a While Ago: “The Federal Reserve’s Labor Market Conditions Index… is a new measure… consolidates 19 different labor market indicators…

…The index has now declined for five straight months — its worst performance since the recession…. I first learned of its existence Monday when Erica Groshen, the Commissioner of the Bureau of the Labor Statistics, mentioned it at a conference for BLS data users in New York. It was a good reminder, as were a lot of the other presentations at the conference, that the headline jobs numbers that get the lion’s share of attention… aren’t always the best places to look for information…. One of the indicators included in the LMCI, for example, is employment in temporary help services, which tends to start rising and falling before overall employment does. Well, watch out: It looks like it may have peaked in December…. Though the signals coming from the U.S. labor market have been mostly negative for several months now, according to the LMCI, they’ll have to get much worse before it indicates that the economy is falling into a recession. Still, this is clearly more than just one off month.

Must-read: Justin Fox: “About That U.S. Manufacturing Renaissance…”

Posted on by Brad DeLong

Must-Read: Justin Fox: About That U.S. Manufacturing Renaissance…: “After a brutal period of downsizing and reorganizing…

…the U.S. manufacturing sector has become the most competitive in the world. Output per worker is higher than in any other major manufacturing country. Labor costs per unit of output are lower than in Brazil, Canada and Germany, and only slightly higher than in China. What’s more, writes Gregory Daco of Oxford Economics in the new report from which the above facts are taken, ‘the U.S. is ‘gifted’ with a stable regulatory framework, a flexible labor market, low energy costs and access to a large domestic market.’

So that’s great! Time for a manufacturing renaissance, right?… But… there are few signs of it actually happening yet. Yes, there are the almost 900,000 manufacturing jobs added in the U.S. since early 2010. But it’s important to see that for what it is–a modest rebound after a spectacular collapse…. Why isn’t reshoring taking off? Daco, of Oxford Economics, stressed that such shifts don’t happen overnight. ‘It takes quite a bit of time for a company to modify its supply chain,’ he said in a phone conversation. He also noted that ‘nearshoring’ to Mexico, where unit labor costs are still substantially lower than in the U.S., remains popular….

The countries of South and Southeast Asia… have labor forces that run into the hundreds of millions of workers, so the gradual shift of certain industries to other Asian low-cost countries is likely to continue…. Clothing- and furniture-making, for example, are unlikely to return to the U.S. in a big way. But in capital-goods manufacturing, labor costs matter less than technology and the existence of a local ecosystem of suppliers, consultants and skilled workers that can take a while to put together. In their rush to offshore, then, U.S. manufacturers may have permanently destroyed their ability to make certain products here. As Gary P. Pisano and Willy C. Shih wrote in a 2009 Harvard Business Review article:

In making their decisions to outsource, executives were heeding the advice du jour of business gurus and Wall Street: Focus on your core competencies, off-load your low-value-added activities, and redeploy the savings to innovation, the true source of your competitive advantage. But in reality, the outsourcing has not stopped with low-value tasks like simple assembly or circuit-board stuffing. Sophisticated engineering and manufacturing capabilities that underpin innovation in a wide range of products have been rapidly leaving too. As a result, the U.S. has lost or is in the process of losing the knowledge, skilled people, and supplier infrastructure needed to manufacture many of the cutting-edge products it invented.

This loss of capability could be what we’re seeing evidence of in the trade data. If so, a true U.S. manufacturing renaissance may be a long time coming.

Must-read: Justin Fox: “The U.S. Could Use a New Economic Strategy”

Posted on by Brad DeLong

Must-Read: Some very nice thoughts about our Concrete Economics from the extremely-sharp Justin Fox:

Justin Fox: The U.S. Could Use a New Economic Strategy: “In his four-plus years as the country’s first treasury secretary…

…Alexander Hamilton crafted an economic strategy that helped the U.S. rise from agrarian former colony to global economic power… [write] Stephen S. Cohen and J. Bradford DeLong write in their brand-new book, Concrete Economics: The Hamilton Approach to Economic Growth and Policy…. No U.S. leader since has articulated and then put in place an all-encompassing economic plan in quite the way Hamilton did. But the country has always followed some sort of economic strategy, even if it has seldom been clearly defined…. It is at least possible that this last era has come to an end…. It’s not at all clear, though, what’s going to replace it.

DeLong… and Cohen… simply recommend that discussion of economic policy focus on the concrete–what works…. Still, it’s not easy to figure out what the U.S. should do next. Nations playing catch-up… have concrete examples…. But the U.S. of 2016 is the biggest economy on the planet…. In the latest World Economic Forum global competitiveness rankings, for example, it trailed only Switzerland and Singapore. There is surely much we can learn… but… the U.S. remains largely sui generis. I’m almost certain that more infrastructure investment would be a smart part of any new U.S. economic strategy. But I’m not so sure what should be built and where, or what else…. Got any suggestions?…

I would say that our book has two big lessons to teach. The first is that, in America, economic policy has been successful when it has been pragmatic. Hamilton is our first example. But “Hamiltonianism” is not the right economic policy configuration for the ages. The United States did not stay with Hamilton’s policy configuration. The post-Civil War Gilded Age’s focus on homesteading, truly massive infrastructure subsidies, and mass immigration had little to do with Hamilton’s debt, finance, bank, tariff, and manufacturing focus. The Progressive Era had different concerns and policies. As did the other Roosevelt’s New Deal. As did Eisenhower. And our recent age–which Justin Fox calls “financialization”, but which we might as well call “neoliberalism” (it’s what everyone else calls it)—has been broadly unsuccessful not because it has deviated from Hamiltonianism but because it has been ideological.

Must-read: Justin Fox: “The U.S. Could Use a New Economic Strategy”

Posted on by Brad DeLong

Must-Read: Justin Fox: The U.S. Could Use a New Economic Strategy: “In his four-plus years as the country’s first treasury secretary…

…Alexander Hamilton crafted an economic strategy that helped the U.S. rise from agrarian former colony to global economic power… [write] Stephen S. Cohen and J. Bradford DeLong write in their brand-new book, Concrete Economics: The Hamilton Approach to Economic Growth and Policy…. No U.S. leader since has articulated and then put in place an all-encompassing economic plan in quite the way Hamilton did. But the country has always followed some sort of economic strategy, even if it has seldom been clearly defined… a succession of strategies–culled from Cohen and DeLong’s book, but given titles by me–that went something like this: The era of free stuff…. The era of intervention…. The era of investment…. The era of financialization…. It is at least possible that this last era has come to an end, with the beginning of financial re-regulation in the U.S. and a halt to the long upward trend in global trade that accompanied the rise of the East Asian export economies. It’s not at all clear, though, what’s going to replace it.

DeLong… and Cohen… don’t offer a plan. They simply recommend that discussion of economic policy focus on the concrete–what works–rather than theory and ideology. How’s that been going lately? Donald Trump’s economic platform, however muddled and unrealistic, is at least a break from the narrow ideological orthodoxy on economics that has held the national Republican Party in thrall for the past couple decades. On the Democratic side, Bernie Sanders and Elizabeth Warren have offered a challenge to the financial-sector-friendly approach that the party’s mainstream settled on in the 1990s. Some in that mainstream have been reconsidering their stance as well…. The economics profession’s turn away from theory and toward empirical work, which I wrote about in January, will presumably offer pragmatically inclined policy makers more material to work with in the coming years.

Still, it’s not easy to figure out what the U.S. should do next. Nations playing catch-up… have concrete examples…. But the U.S. of 2016 is the biggest economy on the planet…. In the latest World Economic Forum global competitiveness rankings, for example, it trailed only Switzerland and Singapore. There is surely much we can learn… but… the U.S. remains largely sui generis.

I’m almost certain that more infrastructure investment would be a smart part of any new U.S. economic strategy. But I’m not so sure what should be built and where, or what else…. Got any suggestions?…

For an explanation of this, I recommend ‘Cabinet Battle #1’ from the musical ‘Hamilton.’

Must-read: Justin Fox: “Vanguard’s Low Blow”

Posted on by Brad DeLong

Justin Fox: Vanguard’s Low Blow: “Vanguard tax lawyer turned whistle-blower David Danon and his hired expert, University of Michigan law professor Reuven S. Avi-Yonah…

… are… reasoning… [that] Vanguard is cheating state and federal tax authorities by charging its customers much less than other fund companies do. Which is exactly as bonkers as it sounds…. My Bloomberg View colleague Matt Levine has dubbed this ‘the faked moon landing of financial news stories, except that it might be true.’ Danon collected a $117,000 whistle-blower bounty in Texas in November, meaning that Vanguard paid the state at least $2.3 million. It’s possible that Vanguard’s payment had nothing to do with the fee issue–a company spokesman told Bloomberg’s Jesse Drucker that Danon’s arguments didn’t come up in the company’s discussions with state tax authorities…. At almost every mutual-fund group other than Vanguard, the management company is out to make a profit, so charging too-low fees isn’t really an issue. But at Vanguard, the funds… own the management company, and expect it to keep fees as low as possible. Why the difference? A little history is in order, in part because it shows that Vanguard isn’t so much a weird outlier as a worthy carrier of the mutual-fund tradition….

Vanguard is run on behalf of its customers, who also happen to be its owners. It has revolutionized the money-management business, putting pressure on competitors to lower fees…. It’s a virtuous cycle that has both changed investing for the better and brought the mutual-fund industry back closer to its roots. If the IRS or the courts decide to go after Vanguard for its frugality, it would amount to throwing all this into reverse…. Saying that competition on the basis of price shouldn’t be allowed… sounds awfully un-American.