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As I am traveling, I didn’t get a chance to do much more than tweet about last Friday’s July jobs report — which was not overwhelming, not underwhelming, just whelming. I think JPMorgan’s Michael Feroli offered a good summary:
Job gains were fairly widespread across industries last month. Manufacturing added 15,000 jobs, the most since January, and private service jobs were up 193,000. The average workweek ticked up to 34.6 hours, the high of the expansion, which was also seen in the months around the turn of the year. The solid 0.5% gain in hours worked likely sets Q3 up to be another quarter of very weak productivity growth. The 0.2% increase in average hourly earnings left wages up only 2.1% oya, right in the middle of the range it has been in over the past few years. Earnings growth was a little softer in the production worker measure: up only 0.1% and 1.8% oya.
The household survey of the labor market was decent, but not particularly strong. Household employment increased 101,000 last month, and the household employment measure conceptually consistent with the establishment survey measure is up 1.9 million over the past year, 1 million less than in the establishment survey. The participation rate was steady at 62.6%, and the employment-to-population ratio was unchanged at 59.3%, the same level it held at the beginning of the year.
The news from the broader categories of labor market underutilization were mixed last month. The number working part-time because they could not find full-time employment fell 180,000, a decline that was responsible for the U-6 measure of underutilization ticking down to 10.4%. However, there were increases in discouraged and other marginally attached workers, and long-term unemployment rose for the first time since January.
So official productivity growth remains anemic, a whiff of income inequality in the worker earnings data, and stasis for broad measures of work. Of course, the steady generation of 200,000 jobs a month shouldn’t be overlooked.
In a new Financial Times note, Larry Summers defends some key elements of Hillary Clinton’s “pro-worker” economic agenda: higher minimum wage, mandated family leave benefits, tax incentives to boost corporate profit sharing. Of course, since these agenda items come from a Clinton-aligned Center for American Progress report that Summers himself co-wrote, he is really just talking his own book. Not so interesting. But his counter-argument or addendum to Clinton’s “quarterly capitalism” or “short-termism” agenda is thought-provoking:
At the same time scepticism about whether all horizons should be lengthened is appropriate. A generation ago, the Japanese keiretsu system of cross ownership of corporate shares — which insulated corporate managements from share price pressure — was seen as a strength. Yet, Japan’s manifest macroeconomic difficulties aside, companies lacking market discipline have squandered leads in sectors from electronics to automobiles to IT.
Managements of companies that are dissipating the most value, such as General Motors before it was bailed out by the US government in 2009, have often been the most enthusiastic champions of long-termism. Market participants who are willingly placing high valuations on Silicon Valley start-ups that lack any profits and have little revenue may be putting too much, not too little, weight on the distant future. That, at least, is the implication of those who see the inflation of a “technology bubble”.
Corporations hoarding cash that is earning zero in the bank or in Treasury bills would be cheered not jeered by the market if they could be convinced that the companies were putting it to productive use. Many corporations are in this situation of having cash piles but often do not have productive uses for the money. Either that or they cannot convince investors of their projects’ validity. Pushing corporations without good projects to invest is wasteful. Stopping or discouraging them from distributing funds to shareholders is dangerous if it encourages mindless takeovers as an alternative.
Not sure what Summers thinks of Clinton’s plan to raise capital gains tax rates to reduce shareholder-driven short-termism. (I have explored lowering long-term tax rates on investment to achieve the same effect.) And he dances around executive pay reform. But his comments would certainly seem to argue against more interventionist policies to nudge corporate behavior toward more long-term investment. Perhaps the best path forward recommends policies that increase potential productive uses for corporate investment and a higher degree of private-sector competitive intensity where companies feel pressured to innovate and invest.
View related content: Pethokoukis
Some lunchtime links and quotes. Get ready for the weekend!
9 Hot Startup Cities That Aren’t San Francisco or New York – Entrepreneur.com – “These are the places where startup dreams come easier and cheaper, but can still pay off big. Start packing.”
Google’s Search Algorithm Could Steal the Presidency – Wired –
Google’s ranking algorithm for search results could accidentally steal the presidency. “We estimate, based on win margins in national elections around the world,” says Robert Epstein, a psychologist at the American Institute for Behavioral Research and Technology and one of the study’s authors, “that Google could determine the outcome of upwards of 25 percent of all national elections.”
[According to Epstein…]: “If executives at Google had decided to study the things we’re studying, they could easily have been flipping elections to their liking with no one having any idea.”
In GOP Debate, Cyber Security Is The New National Security- Wired – “No matter where the candidates stood, one thing was clear: cyber security is the new national security.”
Coffee Disconnect Is Brewing – WSJ – “The rise in demand for specialty coffee… has upended the coffee market as producers are choosing to invest directly with farmers and take the investment risk alone rather than experience the sharp price volatility in the futures markets—traditionally used as a hedging tool against price fluctuations. […] Over the past three years, coffee has been the second-most-volatile commodity on the Bloomberg Commodity Index behind only natural gas.”
Face to face with Ford’s self-driving Fusion Hybrid research vehicles – ArsTechnica – “… the data generated by these autonomous automobiles in the coming months and years will refine the logic and decision-making routines that we’ll need to safely share our roads with robots.”
Terrible Week for TV. Great Week for the Future of TV – Re/code – “Wall Street appears to have decided that the TV Industrial Complex, which looked impenetrable for years, is finally crumbling under the weight of declining viewership, ad dollars and, most crucially, subscribers.”
Tilt Co-Founders James Beshara And Khaled Hussein Talk International Expansion And Preserving Culture – TechCrunch –
Tilt earlier this year raised $30 million at a $400 million valuation. It’s not the only crowdfunding company that raised at a huge valuation, with GoFundMe’s founders exiting the company in a round that valued the crowdfunding site at $600 million. But it is, at the very least, a proof point for the market for crowdfunding and the potential the technology has.
[…] “If the economics make sense for an independent or first time entrepreneur on something like Tilt open or Kickstarter, the economics are gonna make sense for Nike, Sony, Lululemon, and other innovative brands that want to tap into the power of their community,” Beshara said.
Part of that challenge is that Tilt has to not only be a crowdfunding company, but also treat itself platform company, Hussein said. Here’s what that means: the service has to not only be centered around crowdfunding, but also the social connectivity surrounding that, and also have the ability to be openly modified for other use cases either internally or as part of the company’s Tilt Open platform.
Jenny Lee, Mike McNamara Assess Innovation in China – WSJ – “The rap often heard against China, particularly in the telecommunications and Internet sectors, is that it is a copycat nation. Its critics say China is a place where many things are manufactured, and copied, but where very little fundamental innovation takes place. … Investors and executives who know China well say they see increasing evidence that the old criticism no longer applies.”
View related content: Pethokoukis
On Friday morning, James Pethokoukis appeared alongside John Raines, US political analyst at IHS Country, on Worldwide Exchange to discuss the first GOP presidential debate. As he said, “Republicans wanted this [election] to wrap up early, and that is not going to happen.” Watch below for more of his commentary on Jeb Bush, Marco Rubio, John Kasich, and the other contenders:
On Tuesday August 4, AEI’s James Pethokoukis appeared on the John Batchelor Show alongside CNBC’s Larry Kudlow. They discussed Pethokoukis’s recent take on the middle class and income inequality, as well as Donald Trump, the 2016 election, the presidential candidates’ economic policies, and much more.
Click here to hear the discussion.
View related content: Pethokoukis
On July 28th, AEI and the Georgia Center for Opportunity cosponsored an event on improving prisoner reentry and reducing recidivism. The event’s first panel brought together nonprofit leaders, while the second comprised state leaders in prosecution and corrections. The key takeaway: human dignity, employment, and community support are integral to successful prisoner reentry.
When asked what sort of jobs best suit newly-released inmates, panelists responded that – if at all possible – they should be reincorporated into the mainstream labor force. Unfortunately, former prisoners often face obstacles because of stigma and employer reluctance.
To break down barriers to employment, the Prison Entrepreneurship Program (PEP), represented by panelist Bryan Kelley, trains inmates to start their own businesses. Through PEP, said Kelley, inmates develop marketable skills and create their own employment.
The value of employment is also at the heart of the Doe Fund, founded by panelist Harriet McDonald and her husband. Their Ready, Willing & Able program uses paid work to promote self-sufficiency. Participants work hard, but also receive holistic education and skills training. When they graduate, the program helps them find jobs with any of its 450 employer partners. The success of alumni testifies to every person’s potential to become a productive citizen, said McDonald.
The panelists also agreed on the importance of preparing communities to welcome and support released inmates. For instance, Harold Dean Trulear, director of Healing Communities Prison Ministry, devotes himself to eliminating stigma around former inmates. He prepares congregations to treat former prisoners as family, and to do what they do best – love unconditionally and engender values.
Panelists also pointed out a connection between human dignity and the punishments administered through the criminal justice system. For example, panelist Craig DeRoche’s organization, Justice Fellowship, advocates “proportional punishment,” the idea that courts should deliver sentences aligned with crimes committed. The alternatives – complete forgiveness on one hand and excessively-long sentences on the other – dehumanize wrongdoers.
Throughout, panelists repeated that US prisons fail nearly half of the time – approximately 50% of inmates return to prison within three years of their release. Nevertheless, the second panel demonstrated state leaders’ commitment to improving upon this statistic.
For example, Gary Mohr, director of the Ohio Department of Rehabilitation and Correction, has led substantial improvements in prisoner reentry. Since his appointment by Governor John Kasich in 2011, Mohr’s educational and vocational programs have enabled inmates to work productively during incarceration and to prepare for reentry.
On a broader level, state leaders can combat recidivism by breaking down interagency silos, said panelist Jay Neal of the Georgia Governor’s Office of Transition, Support, and Reentry. He lauded the efforts of Georgia Governor Nathan Deal, who has undertaken bold administrative changes in the interest of reducing recidivism.
To ensure appropriate sentences and maximal public safety, city and state agencies must commit to data-driven decision-making, asserted panelist Chauncey Parker of the New York County District Attorney’s Office. Exact measurements are required to efficiently reduce crime while minimizing wrongdoers’ jail time, he said. Law enforcement needs a broader vision and innovative strategies that stop crime before it happens, said Parker.
The US must refocus on its commitment to justice and human dignity by helping former inmates reenter society wholly-prepared, said the panelists. Significant change will require collaboration between government, nonprofits, communities, and prisoners themselves, but the panelists’ successes suggest that positive changes are possible.
Natalie Runkle is an AEIdeas intern.
In my new The Week column, I explore“What Democrats Get Wrong About the Middle Class.” Here is a bit:
The problem is that Census data paints an incomplete picture. A University of Chicago poll of top economists earlier this year found that 70 percent agreed that the Census conclusion “substantially understates how much better off people in the median American household are now economically, compared with 35 years ago.” How far off are those numbers? Maybe quite a bit. Feldstein argues that they fail to take into account shrinking household size, the rise in government benefit transfers, and changes in tax policy. They also measure inflation in a way some experts thinks overstates the true rise in living costs. He notes that when the Congressional Budget Office took all those factors into account, it found median household income had risen by 53 percent since 1980, five times as much as the narrower Census figures.
And it could be even higher. A lot higher. A growing number of economists are questioning whether our existing measures of economic growth and inflation are suited to the digital economy. A recent Goldman Sachs analysis suggests we may be understating annual economic growth by nearly a third due to our inability to accurately measure how vastly improved software and hardware are boosting productivity. Likewise, government data ignores the consumer value of free internet services like Facebook, Google, and Twitter. Put it all together, and Feldstein thinks real median household income may have risen by 2.5 percent a year over the past 30 years, not 0.3 percent. That would suggest a doubling of living standards over the past generation. And even those figures ignore welfare gains from rising life expectancy, which economists Charles Jones and Peter Klenow think could equal a full percentage point a year.
If you’re still not convinced, consider this simple thought experiment from Washington Post reporter Matt O’Brien: “Adjusted for inflation, would you rather make $50,000 in today’s world or $100,000 in 1980’s?” Is that added dough enough for you to give up your flat-screen television, smartphone, and internet access? If it isn’t, or if the answer isn’t obvious, that would suggest living standards aren’t stagnant or anything close to it.
Now, none of this is to suggest that the 2000s have been a boom time, much less the Not-So-Great Recovery. Nor were the 1980s and 1990s a golden age. For one thing, the 2000s were years that marked the beginning of our Too-Big-To-Fail banking system. And I think we need to take seriously polls that suggest two-thirds of Americans think the nation is on the wrong track. People have legitimate fears about the evolving IT economy and their place — and that of their children — in it. (Though pols may be exacerbating those worries with scare stories, such as this one about the “gig economy.”) Concerns about whether a rising tide will adequately lift all boats should be on the mind of policymakers. But on the other side, American innovation and productivity could be stronger than we think and what the official stats say. Policymakers should remember that, too.
Links and Quotes: Facebook does live-streaming, Google and privacy laws, data-driven farming, and more
View related content: Pethokoukis
Some lunchtime reading:
Facebook Live Events Could Command A Truly Global Audience – Wired – “With its massive reach, Facebook could attract a truly global live audience that it could serve up to advertisers seeking to connect with the whole world.”
You Don’t Have to ‘Like’ the News to Respect It – Bloomberg View –
The website Real Clear Science did something remarkable this week: It disclosed the political biases of its regular contributors. The effort did not involve self-identification. Instead, each contributor took a “political quiz,” and the site posted the results…
What’s interesting about the disclosure isn’t where the biases lie. (Unsurprisingly for a tech site, the contributors skew libertarian.) What’s interesting is that the editors felt a need to come up with a creative response to the growing perception that news and analysis are always slanted.
Google and the “Right to be forgotten: Swiss cheese internet, or database of ruin?” – The Guardian and TechDirt – “Last week, Techdirt wrote about Google’s refusal to comply with France’s order to apply the “right to be forgotten” — actually, a right to be removed from search results — globally. Perhaps because the issue seems easy to understand, many have offered their opinions on the rights and wrongs of Google’s move, both for and against.”
The Internet of Things and the Future of Farming – New York Times – “In the United States, major agriculture companies are making sizable investments to position themselves for data-driven farming. …Yet the most intriguing use of the technology may well be outside the United States. … To close the food gap, worldwide farm productivity will have to increase from 1.5 tons of grain per acre to 2.5 tons by 2050.”
Google-Style Office Perks Go Mainstream – WSJ – “As companies try to put themselves on a path to faster growth, some are mimicking the workplace practices—and lavish perks—at technology behemoths like Google Inc. and Facebook Inc.”
Science vs science: Is modern science broken? – RealClearScience/ABC – “… results not getting reproduced isn’t a sign that science is broken. This is the process in action. It does highlight, however, that science does not abide by a 24 hour media cycle.”
Homeland Security: Hobbyist-sized drones are the latest terrorism threats – ArsTechnica
The Dawning of High Mobility- RealClearTechnology via TechPinions – “…the time spent, in hours, on smartphones is continuing to increase while the time spent with PCs is either flat or in some cases declining.1. This emphasizes another observation being floated that the PC is increasingly becoming just a work/productivity device. The follow-up comment to this one is how the number of people who need a PC to do work is significantly smaller than those who don’t.”
NY Fines on Small Businesses Drop Sharply – WSJ – “New York City slashed the total amount of fines to small businesses by more than half in fiscal 2015…”
Sarah Gustafson is the Editorial Assistant and a blogger at the AEIdeas blog.
Written a few posts recently (including here and here) comparing US vs. Europe in terms of generating high-impact startups, or “unicorns.” No large advanced economy does high-impact entrepreneurship like America (see above chart). Along those lines, Business Insider’s Mike Bird looks at US-Europe cultural attitudes about entrepreneurship and innovation, by way of a European Commission study on the subject (h/t to Andrew McAfee):
American tech companies have been attacked for favourable tax treatment (European governments aren’t happy to lose out on any tax revenues, especially with economies that have been in recession or stagnation for the past seven years) and US President Barack Obama says European opposition is a commercial, protectionist issue. But neither of these get to the real heart of the issue.
Europe’s perceived hatred toward dominant American tech companies, like Google or Apple, is more cultural than anything. By nature, Europe has a less positive attitude toward innovation and entrepreneurship than America. … The EU also has a very noticeably higher degree of uncertainty avoidance than the US. In this way, Europeans are more naturally conservative:
— In Spain, 65.1% of people who haven’t set up their own business agree with the statement “entrepreneurs think only about their own wallet.” It’s not that high across the whole of Europe, but the US figure for the same question posed to the same group of people is just 26.7%.
— Similarly, when asked to agree or disagree with the statement “entrepreneurs exploit other people’s work,” only 27.9% of American people who’ve never set up a business agree. It’s not that low anywhere in the European Union. It’s over 40% in France, 50% in the Netherlands and over 70% in parts of southern and eastern Europe. These are not small differences. It’s easy to assume that because both the EU and the United States have European legal systems and relatively capitalist economies, they’re more similar than they are. But on these sorts of cultural issues, the divide is clear and pretty huge.
And one of the charts from Bird pulls from the study: