The Ugly Truth About Our Economy

Of course there’s State of the Union reaction and Rubio-mania in the Morning Jolt, but also an examination of the economic truths you didn’t hear last night, and probably won’t hear from an elected official for a while:

The Ugly Truths About the American Economy Since 2009

Okay, forget what the president said. Why has hiring been so sluggish since the Great Recession began?

I’m going to look at a post from Zero Hedge, an economics-minded blog that is always interesting and sometimes understandable. Charles Hugh-Smith argues:

Those who have spent their careers in government or academia have little idea what it takes to hire more people. Number one is a business with strong demand for one’s products or services. In a developed world with too much of everything except energy, that is no small challenge: the world is awash in over-capacity in every field except niche industries such as deepwater oil rigs.

Second, you need a process that generates so much value (specifically surplus value) that you will generate immediate profits by hiring more people.

If the value added by additional labor is low, then you have no reason to hire more employees, even if Ben Bernanke personally knocked on your door begging you to borrow a couple million dollars at low rates of interest.

If an additional unskilled worker will cost $10 an hour and might generate $100 a day in additional gross revenues, that is $20 in gross profit. But the overhead costs of operating a business are rising faster than inflation: junk fees imposed by cities, counties and states, workers compensation and disability premiums, healthcare costs (if you hire full-time workers), energy costs, and so on.

For most businesses, overhead costs 50% to 100% of total employee compensation–wages plus benefits and payroll taxes. So adding another employee to gross 20% more doesn’t make it worthwhile–it actually generates a loss once overhead costs are paid.

The only time it makes sense to hire another worker is if that worker will create 100% or more surplus value from their labor. For example, a worker paid $200 a day in total compensation generates $400 more in gross revenues–enough to not only support the added overhead but net the business a profit.

In short, the unemployed, the departed-the-workforce, the just-entered-the-workforce and soon-to-enter-the-workforce cannot be sufficiently productive to justify the expense of hiring them. And we know this pretty much has to be true, because corporations are sitting on roughly $1.7 trillion in cash right now. It’s not that they don’t have the money to hire people. They just don’t think that hiring people would generate more money than having it just sit there in their accounts, which is a phenomenally depressing conclusion.

Speaking of those about to enter the workforce, isn’t perhaps one of the fundamental problems facing our economy that we have a lot of English majors and not enough folks who can or are willing to work in fracking? What I mean is, how many of our economic doldrums stem from a fundamental mismatch between the skills of the soon-to-be-working and new workers and the actual work that needs to be done?

Allow me to set your blood to simmer, by pointing to this November Salon article:

In the John Waters-esque sector of northwest Baltimore — equal parts kitschy, sketchy, artsy and weird — Gerry Mak and Sarah Magida sauntered through a small ethnic market stocked with Japanese eggplant, mint chutney and fresh turmeric. After gathering ingredients for that evening’s dinner, they walked to the cash register and awaited their moments of truth.

“I have $80 bucks left!” Magida said. “I’m so happy!”

“I have $12,” Mak said with a frown.

The two friends weren’t tabulating the cash in their wallets but what remained of the monthly allotment on their Supplemental Nutrition Assistance Program debit cards, the official new term for what are still known colloquially as food stamps.

Magida, a 30-year-old art school graduate, had been installing museum exhibits for a living until the recession caused arts funding — and her usual gigs — to dry up. She applied for food stamps last summer, and since then she’s used her $150 in monthly benefits for things like fresh produce, raw honey and fresh-squeezed juices from markets near her house in the neighborhood of Hampden, and soy meat alternatives and gourmet ice cream from a Whole Foods a few miles away.

“I’m eating better than I ever have before,” she told me. “Even with food stamps, it’s not like I’m living large, but it helps.”

Mak, 31, grew up in Westchester, graduated from the University of Chicago and toiled in publishing in New York during his 20s before moving to Baltimore last year with a meager part-time blogging job and prospects for little else. About half of his friends in Baltimore have been getting food stamps since the economy toppled, so he decided to give it a try; to his delight, he qualified for $200 a month.

Title of that article? “Hipsters on Food Stamps.”

Folks, the art world and publishing world are fiercely competitive even in the very best of times, so you’re going to need a backup career just in case things don’t work out. This also applies to those who aspire to fame and fortune in journalism, professional athletics, the music industry, most of the entertainment industry, and most of the jobs that the world covets. You’ve got to be really talented, and really hard-working. And yes, lucky. I realize I’m very, very, very, very lucky to have a job that I (usually) enjoy and that allows me to make a living. Of course, I suspect those outside those fields overestimate the role of luck. My buddy Cam — now on the Sportsman Channel — will periodically hear from someone, “boy, you’re really lucky to find a job where you get to host a radio show!” and he has to bite his tongue and refrain from mentioning all the years he worked as reporter and assistant news director, driving all over the state of Oklahoma on any assignment he could get, long hours, lousy pay, and so on.

Nobody just hands you a plum job in journalism. Okay, unless you’re Chelsea Clinton, nobody just hands you a plum job in journalism.

Perhaps most unnervingly, perhaps a significant chunk of our younger workforce isn’t really well-prepared to do much of anything. As the intriguing, rarely updated blog The Last Psychiatrist suggested:

It’s hard to accept that the University of Chicago grad described in the article isn’t employable, that the economy doesn’t need him, but it is absolutely true, but my point here is that not only is he not contributing, the economy doesn’t need him to contribute. Which is good, because there’s nothing he can do for it. 1. Anything requiring science is out. 2. “He can work manual labor!” I love how people assume economics doesn’t apply to construction. The demand for those jobs is very high AND hipsters suck at them. At any wage, Gerry the hipster will always be outworked by Vinnie the son of a longshoreman, who will always be outworked by a Mexican illegal, i.e. the system will always be able to find someone who can do the job better AND with lower labor costs . . . 3. Hipsters are not good at retail or sales unless detached irony is required, which it is not, which is why they’re on food stamps.

Of course, we won’t hear many comments in this vein from our policymakers, because it would be perceived as blaming the unemployed for their grim circumstances.

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