After Amazon’s pay move, improve productivity to increase wages
The Federal Reserve is not concerned about a sudden outbreak of inflation
Glenn Hubbard
Amazon’s move takes aim at structurally low wages. Over the longer run, sustained growth in average wages is not simply set by companies — it depends on higher productivity growth © Bloomberg
Amazon’s decision to raise the minimum wage for its US workers to $15 an hour promises to improve the lot of its staff and has won plaudits from left-of-centre politicians.
So, with a stronger economy and this move by Amazon, are concerns about sluggish wage growth and the labour market yesterday’s news? Not quite.
Welcome increases in wage growth reflect in large part the recent strength in the US economy.
Fear of so-called secular stagnation is misplaced. The global financial crisis led to substantial slack in productive capacity and the labour market, restraining wage growth.
As the American economy approached full capacity in late 2016, wage growth resumed and has accelerated since in the US, the eurozone and Japan.
In the US, signs of a rapidly tightening labour market can be seen in employers taking longer to fill vacant jobs, the number of companies planning to raise worker compensation and, of course, in rising average hourly earnings. Wage gains would be even greater but for the modest, but larger-than-expected, jump in the labour force participation rate for prime-aged (25-54) workers.
The US Federal Reserve has signalled that it is not concerned about a sudden outbreak of inflation. While continuing its normalisation of monetary policy, the Fed seems content to let labour market gains continue.
That stance was emphasised by Fed chair Jay Powell’s speech in Jackson Hole in August, in which he praised former chair Alan Greenspan’s decision to permit faster wage growth in the 1990s. In that period, Mr Greenspan believed that productivity gains would allow faster non-inflationary wage gains. He was right.
Amazon’s move takes aim at structurally low wages. Over the longer run, sustained growth in average wages is not simply set by companies — it depends on higher productivity growth. And higher wages for more workers require greater skills and retraining. Both productivity and skills can be influenced by public policy. For the US as a whole, non-farm productivity growth generally declined in the 1970s, rose markedly through the 1980s and 1990s, and fell again in more recent years. The good news is that these patterns do not support the pessimistic contention that the US is in the midst of an inexorable decline in productivity growth. In other words, productivity can accelerate.
And, recently, it has. Very recent improvements in productivity growth do not themselves suggest a productivity resurgence, but there are reasons to be optimistic. Business tax and regulatory reforms during 2017 and 2018 should increase investment and productivity growth — and, by extension, wage growth. The 2017 reduction of the US corporate tax rate from 35 to 21 per cent is particularly positive for investment and productivity.
Many economists have concluded that much of the burden of corporate tax falls on labour, not capital, so the rate cut should boost wages. Beyond policy, artificial intelligence promises transformation across industries and activities as a new general purpose technology. It will boost productivity over time.
The tougher task is to bolster wage gains across the board, particularly for lower-skilled workers. This is what Amazon tackled with its higher minimum wage. Businesses should be free to hire or retain the workers they need and to raise wages as they see fit — think, for instance, of Henry Ford’s decision a century ago to pay his workers enough that the best workers would reliably work for Ford. If a higher wage is in a company’s interest, it will pay it. Beyond that, a broader push for higher pay requires higher productivity and skills.
A bold agenda to give more Americans the opportunity for a pay rise would centre on skill acquisition and training. Community colleges offer a good place to start.
Imagine a successor to the 19th-century Morrill acts that established “land-grant” colleges, some of which grew into today’s great public universities. A federal block-grant programme could provide new funding to community colleges, contingent on degree completion rates and labour market outcomes. Community college support can also be linked to public partnerships for training with companies.
Amazon itself is a pioneer here with a community college partnership to create a degree programme in cloud computing. Life-long learning accounts could fund training options for more experienced workers in transition, too. And tax policy could boost human capital and wages by offering job training tax credits to employers.
Today’s strong labour market and solid wage gains are a good thing. The bold wage increase offered by multibillionaire Jeff Bezos has taken the spotlight. But in the next act in the drama, policymakers need to be on stage, too. Sustained wage gains require them to play more than a supporting role.
The writer is dean of Columbia Business School and was chairman of the US Council of Economic Advisers in 2001-03
AFTER AMAZON´S PAY MOVE, IMPROVE PRODUCTIVITY TO INCREASE WAGES / THE FINANCIAL TIMES
ONE HUNDRED YEARS OF INEPTITUDE / PROJECT SYNDICATE
One Hundred Years of Ineptitude
Helmut K. Anheier
BERLIN – The global financial and economic crisis that began in 2008 was the greatest economic stress-test since the Great Depression, and the greatest challenge to social and political systems since World War II. It not only put financial markets and currencies at risk; it also exposed serious regulatory and governance shortcomings that have yet to be fully addressed.
In fact, the 2008 crisis will most likely be remembered as a watershed moment, but not because it led to reforms that strengthened economic resilience and removed vulnerabilities. On the contrary, leaders’ failure to discern, much less act on, the lessons of the Great Recession may open the way for a series of fresh crises, economic and otherwise, in the coming decades.
However serious those crises turn out to be, historians a century from now will likely despair at our shortsightedness. They will note that analysts and regulators were narrowly focused on fixing the financial system by strengthening national oversight regimes. While this was a worthy goal, historians will point out, it was far from the only imperative.
To prepare the world to confront the challenges posed by globalization and technological development in a way that supports sustainable and equitable growth, governance institutions and regulations at both the national and international levels must be drastically improved. Yet not nearly enough has been invested in this effort. Beyond regional bodies like the European Union, international financial governance has remained largely untouched.
Worse, because the partial fixes to the financial system will enable even more globalization, they will end up making matters worse, as strain on already-inadequate governance and regulatory frameworks increases, not only in finance, but also in other economic and technological fields. Meanwhile, enormous financial investments focused on securing a higher rate of return are likely to fuel technological innovation, further stressing regulatory systems in finance and beyond.
Major technological advances fueled by cheap money can cause markets to change so fast that policy and institutional change cannot keep up. And new markets can emerge that offer huge payoffs for early adopters or investors, who benefit from remaining several steps ahead of national and international regulators.
This is what happened in the run-up to the 2008 crisis. New technology-enabled financial instruments created opportunities for some to make huge amounts of money. But regulators were unable to keep up with the innovations, which ended up generating risks that affected the entire economy.
This points to a fundamental difference between global crises of the twenty-first century and, say, the Great Depression in the 1930s or, indeed, any past stock-market crashes. Because of the financial sector’s growth, more actors benefit from under-regulation and weak governance in the short term, making today’s crises more difficult to prevent.
Complicating matters further, the systems affected by today’s crises extend well beyond any one regulatory body’s jurisdiction. That makes crises far unrulier, and their consequences – including their long-term influence on societies and politics – more difficult to predict.
The next crises – made more likely by rising nationalism and a growing disregard for science and fact-based policymaking – may be financial, but they could also implicate realms as varied as migration, trade, cyberspace, pollution, and climate change. In all of these areas, national and international governance institutions are weak or incomplete, and there are few independent actors, such as watchdog groups, demanding transparency and accountability.
This makes it harder not only to prevent crises – not least because it creates opportunities for actors to game the system and shirk responsibility – but also to respond to them. The 2008 crisis cast a harsh spotlight on just how bad we are at responding quickly to disasters, especially those fueled by fragmented governance.
To be sure, as the Hertie School’s 2018 Governance Report shows, there have been some improvements in preparing for and managing crises. But we must become more alert to how developments in a wide range of fields – from finance to digital technologies and climate change – can elude the governance capacities of national and international institutions. We should be running crisis scenarios and preparing emergency plans for upheaval in all of these fields, and taking stronger steps to mitigate risks, including by managing debt levels, which today remain much higher in the advanced economies than they were before the 2008 crisis.
Moreover, we should ensure that we provide international institutions with the needed resources and responsibilities. And by punishing those who exacerbate risks for the sake of their own interests, we would strengthen the legitimacy of global governance and the institutions that are meant to conduct it.
As it stands, inadequate cross-border coordination and enforcement of international agreements is a major impediment to crisis prevention and management. Yet, far from addressing this weakness, the world is reviving an outdated model of national sovereignty that makes crises of various kinds more likely. Unless we change course soon, the world of 2118 will have much reason to regard us with scorn.
Helmut K. Anheier is Professor of Sociology at the Hertie School of Governance in Berlin.
IS THE FED STILL IN CONTROL OF THE MARKET? / SEEKING ALPHA
Is The Fed Still In Control Of The Market?
- There are many fallacies being propagated within the stock market.
- The Fed's ability to control the market is one such fallacy.
- The stock market acting as a leading indicator for the economy does not mean the market is omniscient.
As mentioned on numerous occasions, if nothing else, if investors only understand and appreciate the following, they will always be on the right side of the market and will never be influenced by others' opinions or news headlines:
Investors must understand the role of the U.S. central bank (the Fed). The U.S. Federal Reserve System was created in 1913 to perform all roles monetary, but one of their key statutory (written in law) mandates is to "To maintain orderly economic growth and price stability." This agency has more and better information on the economy than anyone in the world. It was not created to promote hyperinflation or to create depressions. The Fed's key mandate must be clearly understood and appreciated.
The stock market is a leading economic indicator. The economy does not lead the stock market. Hence, once these two points are clearly understood and remembered, the market's logic becomes apparent. Hence, when the economy slows and heads into a recession, the Fed will ease and will keep easing until the economy responds (remember, that's their mandate). The stock market, being a leading economic indicator, will have bottomed 6-9 months before the recovery begins, not after. For example, "the market" bottomed in October, 2008 and the recession ended at the end of June, 2009 and a [market] recovery commenced, eight months ahead of the [economic] recovery.
Conversely, when the economy overheats; inflation surges; and speculation is rampant, the Fed will tighten by draining liquidity from the system and raise interest rates in an attempt to cool the economy. The stock market, being a leading economic indicator, will head south long before the onset of a slowdown or recession, not after.
This chain of logic is so simple that anyone with an IQ slightly above room temperature would understand it. Yet, most on Wall Street with umpteen degrees and decades of experience can't figure it out.
When the Fed began to change course on its quantitative easing process, almost any market participant and analyst you spoke with expected it to have a dramatically negative impact upon the stock market. I mean, since it is “clear” to everyone that the market rallied due to the Fed, then it was equally clear that the market would now react in the opposite manner when the Fed began reversing course.
However, the fact is that the stock market has gained 1100 points, which is a 61% rally, from the point at which the Fed began to change course. Yes, you heard me right.
So, I will ask you again: Do you think everyone’s expectations about the Fed’s reversal of course causing a similar impact upon the stock market was correct? And, if not, shouldn’t we then question whether the Fed is really controlling the stock market and was the true cause of the rally to begin with?
As another example of this perspective, many believe that there is something called the Plunge Protection Team, created as a response to the 1987 crash, which supposedly prevents the market from crashing anymore. And, again, analysts . . . point to this "Team" as the reason they are wrong when they expect a major drop in the markets which does not occur.
If there really is such a team hard at work, with their ever-present finger on the "buy" trigger, then we should not have had any stock market "plunges" since 1987. Rather, the stock market should have only experienced "orderly" declines since that time, and not plunges of 10%, and certainly not over 20%, within a period of a day to a couple of weeks in the same manner as that experienced in 1987. So, the question we now have to look at is if the facts within our markets actually support the existence of such a "Plunge Protection Team" actively at work in protecting us from significant stock market "plunges."
Since 1987, I don't think that anyone can fool themselves into believing that we have not experienced periods of significant volatility. In fact, the following instances are just some of the highlights of volatility since the supposed inception of the Plunge Protection Team:
•February of 2001: Equity markets declined of 22% within seven weeks;
•September of 2001: Equity markets declined 17% within three weeks;
•July of 2002: Equity markets declined 22% within three weeks;
•September of 2008: Equity markets declined 12% within one week;
•October of 2008: Equity markets declined 30% within two weeks;
•November of 2008: Equity markets declined 25% within three weeks;
•February of 2009: Equity markets declined 23% within three weeks.
•May of 2010: Equity markets experienced a "Flash Crash." Specifically, the market started out the day down over 30 points in the S&P500 and proceeded to lose another 70 points within minutes. That is a loss of 9% in one day, but the market did manage to close down only 3.1% in one day!
•July of 2011: Equity markets declined 18% within two weeks
•August 2015: Equity markets decline 11% within one week
•January 2016: Equity markets decline 13% within three weeks
Based upon these facts, you can even argue that significant stock market "plunges" have become more common events since the advent of the Plunge Protection Team, especially since we have experienced more significant "plunges" within the 20 years after the supposed creation of the "Team" than in the 20 year period before.
During his tenure as chairman of the Federal Reserve, Alan Greenspan testified many times before various committees of Congress. In front of the Joint Economic Committee, Greenspan noted that markets are driven by "human psychology" and "waves of optimism and pessimism." Ultimately, as Greenspan correctly recognized, it is social mood and sentiment that moves markets. I believe this makes much more sense when deriving the causality chain.
During a negative sentiment trend, the market declines, and the news seems to get worse and worse. Once the negative sentiment has run its course after reaching an extreme level, and it's time for sentiment to change direction, the general public then becomes subconsciously more positive. You see, once you hit a wall, it becomes clear it is time to look in another direction. Some may question how sentiment simply turns on its own at an extreme, and I will explain to you that many studies have been published to explain how it occurs naturally within the limbic system within our brains.
When people begin to turn positive about their future, they are willing to take risks.
What is the most immediate way that the public can act on this return to positive sentiment? The easiest is to buy stocks. For this reason, we see the stock market lead in the opposite direction before the economy and fundamentals have turned. In fact, historically, we know that the stock market is a leading indicator for the economy, as the market has always turned well before the economy does. This is why R.N. Elliott, whose work led to Elliott Wave theory, believed that the stock market is the best barometer of public sentiment.
Let's look at the same change in positive sentiment and what it takes to have an effect on the fundamentals. When the general public's sentiment turns positive, this is the point at which they are willing to take more risks based on their positive feelings about the future. Whereas investors immediately place money to work in the stock market, thereby having an immediate effect upon stock prices, business owners and entrepreneurs seek loans to build or expand a business, which takes time to secure.
They then place the newly acquired funds to work in their business by hiring more people or buying additional equipment, and this takes more time. With this new capacity, they are then able to provide more goods and services to the public, and, ultimately, profits and earnings begin to grow - after more time has passed.
When the news of such improved earnings finally hits the market, most market participants have already seen the stock of the company move up strongly because investors effectuated their positive sentiment by buying stock well before evidence of positive fundamentals are evident within the market. This is why so many believe that stock prices present a discounted valuation of future earnings.
Clearly, there is a significant lag between a positive turn in public sentiment and the resulting positive change in the underlying fundamentals of a stock or the economy, especially relative to the more immediate stock-buying activity that comes from the same causative underlying sentiment change.
A SOBER LOOK AT HOUSING IN THE MIDDLE OF ALL THE CHAOS / SEEKING ALPHA
A Sober Look At Housing In The Middle Of All The Chaos
- Housing stocks are the worst-performing sector in the US equity market.
- The residential housing market is typically the first sector to decline in an economic cycle.
Is this a blip or something bigger?
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
Paulo Coelho

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