Not Without My Caviar

Just saw this in The New York Times this morning:

The poll found that 70 percent of respondents were very or somewhat concerned that someone in their household would be out of work and looking for a job in the next 12 months. Forty percent said they had cut spending on luxuries, and 10 percent said they had cut back on necessities; 31 percent said they had cut both.

Depressing stuff. But just tell me this: who is this 10 percent? I get having to cut luxuries. I even get that can things get so bad you have to cut both luxuries and necessities. But just necessities? When choosing both is an option on the survey? "Honey, we have to cut back to one sheet of toilet paper per day, but I'll go to hell and back before I sell my Fabergé eggs."

Andrew Leonard is Upset at Twitter-ers

Via Andrew Leonard:

Of course the G-20 summit meeting has a Twitter feed! Who can deny our desperate hunger for 140-character-long updates from a gathering of the leaders of the twenty most influential nations on the planet? When struggling with a global recession, the breakdown of modern finance, the resurgence of protectionism and the changing balance of power between the developed and the developing world, cryptic one-line telegraphic ejaculations are obviously the best way to convey complexity and nuance.

Can Transportation Investment Reduce Income Inequality

Interesting little article from the Economic Policy Institute about a potential effect of investing in transportation and infrastructure development in the American Recovery and Reinvestment Act of 2009. Namely, that it could reduce income inequality. Ethan Pollack explains:

According to research that will be presented at an upcoming EPI event, workers in jobs created or supported by these investments are less likely to have a college degree and more likely to be union members compared to workers in the overall economy. Despite employing workers with less education on average, fewer of these jobs are low-wage jobs. Green investments—including mass transit, but also energy efficiency, electric grid, etc.—result in very similar job characteristics and are thus equally effective at reducing wage inequality.

I don't really have more details than that. It would probably be a small effect. But interesting. Here is the graph, reprinted from the EPI:

Monster Employment Index Declines in March

What a misleading headline.

Who Wants to Bet on the Recession?

Earlier, I noted that Robert Reich predicts that we should see economic recovery by the second quarter of 2010.

Now, here is a poll taken by BBC/Globescan of people's expectations on the recession:



It's pretty even between those who think the recession will last for another two to three years (28%) and those who think it will end by the end of the year (26%).

By the way, Intrade has the likelihood of the United States reaching depression (defined as GDP declining by at least 10% from its peak value between Q4 2008 and Q4 2009) as 18%. The likelihood that the US will hit at least 9% unemployment rate, however, is a stunning 80%. (The current official unemployment rate was about 8.1% in February, according to the Bureau of Labor Statistics).

So again, who wants to take bets?

Money Matters

Surprise! The recession has diminished overall employee motivation and engagement. These days, you hear a lot about the importance of employee morale to the overall success of a business. Indeed, if you were to walk into the Business section of any popular book store, you will see entire shelves of books written by employers and CEOs, outlining critical techniques to boosting employee performance, and hence the overall productivity of the business. One big theory, which has come to be widely accepted, is that the more highly valued the employee feels, the better he or she will perform for his boss. This is why business have spent much time, energy and capital into developing programs and mechanisms towards making their employees feel valuable. Yet, how important are such techniques and how well do they fare in times of recession?

According to the Economist, not so well.

To test whether efforts to boost workers’ commitment were withstanding the recession, Quantum identified 210 companies whose workforces had responded to its surveys in the autumn of both 2007 and 2008. It found that 134 of those firms, or 64% of the total, had lower engagement scores in the second period than in the first. It said this was the first significant decline it had seen for many years.

This will come as a disappointment to some advocates of employee-engagement initiatives, who were convinced such efforts would be pretty much immune to the economic cycle. Such a belief was based on the assumption that people want much more out of a job than just money and other tangible benefits—or “extrinsic” incentives, in economists’ jargon. So in workplaces where employee-motivation schemes had been successfully implanted, cutting or freezing pay and conditions ought to have only a limited impact on job satisfaction.

Unfortunately, it seems as though such "tangible" benefits -- salary, health care, benefits, etc. -- still matter the most.

One reason the Economist offers for the decline in employee engagement (aside from the obvious) is that perhaps the recession hinders employer ability to initiate these sorts of motivation techniques that they would normally in times of economic stability. This makes a lot of sense to me, and intuitively should be a large contributing factor. Motivating employees requires capital. In times of recession, capital is scarce. Hence, employers cannot motivate as they normally would, and overall morale declines.

However, I would like to see a more extensive study that controls for these sorts of variables. I wonder if such a survey could be given to business strictly that are known not to have diminished staff motivation schemes in periods of economic turbulence. This might let us know how effective such schemes really are.

Will the Public Support Nationalization? (I'm Really Asking!)

So Chrysler needs a bailout and Obama has issued an ultimatum to them, along with GM, basically requiring they get their acts together if they wish to be eligible for government aid. But Andrew Leonard asks the question:

The real question is how can Obama say this:

Year after year, decade after decade, we have seen problems papered over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we have reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer. Now is the time to confront our problems head-on and do what's necessary to solve them....

And this:

It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts.

And not understand that Congress and the American public are sure to ask why Citigroup and Bank of America are not being held to the same standard. Treasury Secretary Tim Geithner's plan to create a market price for toxic assets has been widely lambasted as a scheme to paper over banking sector insolvency. If Obama can force Wagoner to resign, based on his record, then why haven't Citigroup's Vikram Pandit and Bank of America's Ken Lewis been forced to step down? If the White House can declare that GM's bondholders must accept they will not be repaid in full what they are owed, then why aren't Citigroup and Bank of America's debtholders being told the same thing?

Leonard goes on to propose two reasons: one being that Wall Street really runs everything and Obama is doing some pandering. The other is that the Geithner Plan (see previous posts here, here and here) is really just an intermediate step towards nationalization, which is the true goal of the Obama administration. In fact, Leonard argues for the latter, somewhat loftily stating:

Which of these scenarios is more likely to be true? Recent history is on the side of those who believe that Wall Street pulls the strings. Only the course of events over the next few months will tell us whether the alternative explanation holds water. But as I watched Obama speak, I could not shake the feeling that this was a trial run, rather than a sell-out, as preparation for the application of further strong medicine, rather than avoidance of the real problem. He's too smart, and his advisers are too smart, to think that he could go before the American public and criticize the "principle of endless bailouts" without knowing that he would be held to account for those words.

And let's remember that notwithstanding the huge size of GM is and its centrality to the economy of the United States, the logistical complexities and downstream impact of a GM bankruptcy restructuring likely pale against those involved with a Citigroup or a Bank of America. Telling the nation that GM will not survive in its present form has investors selling shares and workers in Michigan and Ohio angry. Telling the world that Citigroup is toast would drop an even bigger bomb.

I would love to believe this, and in fact still have not lost my faith in Obama. However, I hesitate to assert that behind everything that's going on in public, Obama secretly has a master plan free of all hypocricy and error, and that it will all come together in a glorifying moment when the American public realizes that everything was part of the plan. That's like saying we had planned to let the aliens take out New York, Los Angeles and Washington in the film, Indpendence Day, just so we could ultimately unite and beat them. It's entirely possible that Obama makes mistakes...though it's not to say that he did.

The other question, which Ezra Klein asks, is whether nationalization will even be politically possible given the failure of the Geithner plan. Will the American public be willing to support it as a measure of last resort, having exhausted all other feasible solutions? Or will they be so disillusioned by previous attempts at restoring bank assets that they will protest at the prosect of involving more taxpayer funds?

I am not embarassed to say that I simply don't know. I sure hope it's the former, and that there's a grand plan, and that we'll all unite and kill the alien mothership on the moon...