The Winfield Village finance committee (everyone here interested enough in the budget to show up) met last night. The subject of interest rates came up, and I was surprised to find it a near-unanimous opinion that rates were going to stay high at least through 2024.
Thinking of myself as a contrarian, I always worry just a bit when I agree with everyone, but I think they’re right.
Apparently I was a lazy girl my whole life, and didn’t even know it.
The Wall Street Journal provided a fairly succinct summary of a lazy girl job in July: “one that can be done from home, comes with a chill boss, ends at 5 p.m. sharp and earns between $60,000 and $80,000 a year — enough to afford the basic comforts of young-adult life, yet not enough to feel compelled to work overtime.”
Source: The New York Times
Inflation and a declining standard of living are two different things. Inflation is when the money becomes less valuable, resulting in rising prices. But when a whole society becomes poorer, it can look like inflation, because prices may rise, but it’s not the same thing.
“Despite the Bank of England’s efforts so far, there is accumulating evidence that inflation will be harder to stamp out than previously expected. In the past week, data has shown that pay in Britain has increased faster than expected, inflation in the services sector has accelerated and food inflation is still near the highest level in more than 45 years.”
https://www.nytimes.com/2023/06/22/business/economy/bank-of-england-interest-rates-inflation.html?smid=url-share
To my eye, viewed from over here, that looks less like inflation and more like a falling standard of living—largely caused by Brexit. If you block immigration, of course wages are going to go up. If transporting stuff across the border takes longer and is more expensive and difficult, of course food is going to be more expensive. That’s not inflation. That’s reducing everyone’s standard of living by raising actual costs.
It looks similar, because the symptom tends to be rising prices, but they’re two different things. If the problem is inflation, then raising interest rates (by reducing the rate of growth in the money supply) will probably help. But if the problem is a declining standard of living, then it’s probably not going to help. Higher interest rates will just be yet another expense (like border controls) that flow through to making everything cost more.
All through the 1990s I was waiting for the labor market to punish employers for their (then new) strategy of laying people off as soon as there was 15 minutes with no work to do, intending to hire them back (or hire somebody else) as soon as they had work again.
Capital markets forced employers to go that route. Any company that tried to resist—keeping on employees beyond the bare minimum—would see its stock price fall so much that it would be taken over in a leveraged buyout, and then the new owner would cut staff to the bone.
As I wrote for Wise Bread back in the day (in What’s an employee to do), it made me sad to watch. Surely, I thought, eventually the labor market would tighten up, and employers who had kept their employees on through a rough patch would have an advantage over employers who had to go out and recruit, hire, and train new employees.
But it never happened. Until, according to a recent article in the New York Times, now: Companies hording workers could be good news for the economy.
It’s a pretty good article.
Employers traumatized by not being able to hire enough people may not be quite so quick to lay them off:
“When the job market slows, employers will have recent, firsthand memories of how expensive it can be to recruit, and train, workers. Many employers may enter the slowdown still severely understaffed, particularly in industries like leisure and hospitality that have struggled to hire and retain workers since the start of the pandemic. Those factors may make them less likely to institute layoffs.”
Jeanna Smialek and Sydney Ember https://www.nytimes.com/2022/10/12/business/economy/companies-hoarding-workers.html
And, if employers do keep workers on as the economy slows, it will help the U.S. economy. As Federal Reserve Board Vice Chair Lael Brainard says:
“Slowing aggregate demand will lead to a smaller increase in unemployment than we have seen in previous recessions.”
https://www.federalreserve.gov/newsevents/speech/brainard20220907a.htm
Perhaps even more important than those things, it will make me happy.
After three decades in which the market was reinforcing exactly the wrong behavior, now maybe it will encourage the right behavior.
I’m generally unimpressed with Krysten Sinema, whose failure to support Democratic initiatives has generally been harmful. However, I kinda like the tax changes she’s forced into the climate package.
Fundamentally, I like dividends and I hate stock buybacks. So a tax on stock buybacks—even a small one—makes things better.
Now, most economists would have you believe that the two are equivalent. This is false.
Economists can gin up a model that suggests that owning a slightly larger share of a slightly smaller company is “equivalent” to getting paid a share of the company’s profits. Or that getting cashed out completely (by taking the buyback), and then finding a place to invest almost all of that cash in some new company is somehow equivalent. I don’t think either of those things is true even in an economic sense, but I think both are clearly false in a larger societal sense.
The way things used to work was that a company earned a profit, reinvested an appropriate amount of that profit in growing the business, and then paid out the balance to shareholders to do with as they pleased. (They could reinvest the money by buying more stock, they could spend it on luxuries—or necessities, they could invest it in some other company, they could donate it to charity—the possibilities are literally endless.)
This situation produces a sort of virtuous circle. A company that earns a reliable profit—and shares it with its stockholders—becomes more valuable, because people will pay more for a company that pays a reliable dividend. It’s good for the owners (their stock is worth more), it’s good for the employees (both line workers and managers), it’s good for the community (a profitable company pays taxes, their employees have money to spend, their shareholders have money to spend, etc.).
The non-dividend situation lacks all these dynamics. Instead of wanting to produce a profit, the company has all sorts of weird incentives—to maximize “growth” or “revenue” or “earnings” according to whatever weird metric appeals to Wall Street that week. Owners don’t get cash that they can spend. Instead they get the option to cash out at random intervals. The weird incentive structure encourages companies to make weird decisions regarding investing in growth (or dumping cash into buybacks). Shareholders who would otherwise be living on dividends are constantly having to make difficult decisions about selling small amounts of shares in this or that company for money to live on.
Maybe there’s some technical economic sense in which buybacks and dividends are equivalent, but they are very much not equivalent in a societal sense, producing very different results for ordinary investors and their communities.
The only reason any ordinary person would think a stock buyback was even close to equivalent is because capital gains have been tax-advantaged over dividends. So, something that reduces that tax advantage is all to the good.
Details: Krysten Sinema Agrees to Climate and Tax Deal – The New York Times
To this day, this one of my Wise Bread posts remains the one that I think provides the most useful, actionable suggestion, and yet nobody else seemed to appreciate it: https://www.wisebread.com/and-did-you-do-it-with-respect.
“Individuals Living In Rural Areas More Likely To Have Lower Incomes & Assets Than Urban Residents”
Breaking news from the demographics journal “Duh!”
A long tedious pdf from those Davos guys. Only of interest because the topic is near to my heart. I may yet manage to plow through the whole thing, looking for the good bits. Via @bruces.
“The report also sets out how public and private urban leaders can utilise nature to both reduce the impact of their cities on biodiversity, increase their climate resilience, and secure significant economic benefits.”
Source: BiodiverCities by 2030: Transforming cities’ relationship with nature | World Economic Forum
Some decades back I read a pretty good book that advocated for a “guaranteed job” for anyone who wanted one as a better solution to poverty than a “citizen wage” (or any sort of welfare assistance). I don’t remember all the details in the book, but the advantages primarily had to do with preserving the existing social structures around employment.
One question I always struggled with had to do with the strength of the guarantee. Suppose a few percent of the people with such jobs have (as I do) seasonal depression such that they cannot be productive during the winter months. Would the job guarantee permit them to simply show up and get paid, even though they can’t get any work done until spring?
This particular for-instance matters to me, as one who suffers from SAD, but it’s a broader problem—lots of people have some sort of condition, medical or otherwise, that makes them unproductive for long stretches of time. Do they get to keep their guaranteed job? How can you tell them from malingerers? Does it matter? How do you deal with workplace tensions when many perceive their coworkers as not doing their fair share of the work?
These sorts of issues are why I’ve always come down on the side of a universal basic income as a better way to reduce both poverty and the abuses that come along with having a few rich people and a vast class of precarious workers. But I’m willing to give alternatives serious consideration, as long as they work for people like me.
In the latest issue of the agricultural-economics journal “Duh!”
Climate change is a known long-term risk to crops like coffee, chocolate and wine grapes that require specific conditions to thrive.
Source: Coffee bean price spike just a taste of what’s to come with climate change | Coffee | The Guardian
