Labour markets

Riding high in a workers’ world

A jobs rebound, shifting politics and technological change could bring a golden age for labour in rich countries


In the popular imagination the past four decades were wonderful for the owners of capital and miserable for labour. 

The rich world’s workers endured competition from trade, relentless technological change, more unequal wages and tepid recoveries from recessions. 

Investors and companies enjoyed expanding global markets, liberalised finance and low corporate taxes. 

Even before covid-19, this caricature of broken labour markets was mistaken. 

Today, as the economy emerges from the pandemic, a reversal of the primacy of capital over labour beckons—and it will come sooner than you think.

It might seem premature to predict a wonderful world of work only a year on from a labour-market catastrophe. 

But America is showing how rapidly jobs can come back as the virus recedes. 

In the spring of 2020 the country’s unemployment rate was nearly 15%. 

Now it is already just 6% after a year containing five of the ten best months for hiring in history. 

Public perceptions of how easy it is to find a job have already recovered to levels that it took nearly a decade to reach after the global financial crisis. 

And even in Europe, which is suffering a third wave of infections, the labour market is beating forecasts as economies adapt to virus-containment measures.

As the labour market recovers, two deeper shifts are unfolding, in politics and in technology. 

Start with the political environment, which is becoming friendlier to workers than it has been for decades. 

An early sign of change was the surge in minimum wages during the previous economic cycle. 

Relative to average wages, they rose by more than a quarter in the oecd, a club of mostly rich countries, weighted by population. 

Now governments and institutions are falling over themselves to chum up to workers. 

President Joe Biden hopes to use his planned infrastructure splurge to promote unionisation and to pay generous wages. 

Central banks are worrying ever more about jobs and less about inflation. 

It was not a prank when on April 1st the imf, once famed for its austerity, floated the idea of one-off solidarity taxes on the rich and on companies. 

In his letter to shareholders this week, Jamie Dimon, the boss of JPMorgan Chase, Wall Street’s biggest firm, called for higher wages—and he wasn’t talking about ceos.

The second big shift in the labour market is technological. 

In the pandemic doomsayers have doubled down on predictions of long-term labour-market woes. 

Robots will create armies of the idle, precarious jobs are displacing stable ones and even prosperous workers chained to emails and screens know in their hearts that their “bullshit jobs” are pointless. 

But as our special report this week explains, these ideas were never supported by evidence and do not look as if they are about to be now. 

In 2019 nearly two-thirds of Americans said they were completely satisfied with their job security, up from less than half in 1999; a lower share of German workers felt insecure than in the mid-2000s. 

Countries with the most automation, like Japan, enjoy some of the lowest unemployment.

The long-term future of work has changed for the better this year because it has become more digitised. 

Remote working is easing the bottleneck of expensive housing in thriving cities. 

Home-workers report higher levels of happiness and productivity. 

At the end of 2020 American firms spent 25% more on computers, in real terms, than a year earlier. 

Even pessimists like Robert Gordon, an economist, expect this burst of technological investment to bring about faster productivity growth, which means higher wages.

A golden age for workers is welcome. 

It is right to judge economic progress by the purchasing power of median wages, not profits or share prices. 

Jobs booms like those in most rich countries in 2019 bring huge benefits, by incentivising the training and good treatment of workers, as well as by reducing racial and gender inequalities. 

Yet governments can help determine the extent of these gains. 

Their goal should be to raise workers’ living standards through higher productivity, rather than focusing on dividing the spoils through regulation and protection.

One task is to redefine workers’ rights for an era of flexibility and service work. 

The size and novelty of the gig economy is often overstated; taxis and food deliveries existed before Uber and DoorDash. 

But service-sector employment, especially caregiving, will grow as populations age. 

There is no place for the snobbish idea that such jobs cannot be fulfilling, nor the related instinct that experimental models of work should be regulated out of existence. 

Instead governments should modernise the guardrails provided by employment law, offer a universal safety-net and ensure that the economy is strong. 

If they do, workers will have the confidence and bargaining power to experiment and negotiate for themselves.

Productivity can also be unleashed by broadening access to opportunities. 

Many rich-world labour markets are divided between the high- and low-skilled. 

That is tolerable so long as anyone can climb the ladder. 

Governments have a responsibility to ensure meritocratic access to education and sufficient opportunities for retraining. 

They should tear down barriers to entry such as needless occupational licensing rules—the legal and medical professions, for example, should not be allowed to pull up the drawbridge to outsiders. 

It should be easy to experiment with new digital and cross-border business models.

But helping workers by boosting productivity must not be confused with self-defeating attempts to protect them—as happened the last time they had the upper hand, in the 1970s. 

Repatriating supply chains, as Mr Biden would, will inhibit competition and grind down living standards. 

Cranking up corporate taxes too far will reduce the incentive for firms to invest. 

For central banks to lose their inflation-fighting credibility would be a disaster. 

Just ask the workers who bore the brunt of efforts to tame prices in the 1980s.

The wonderful world of work

People tend to be sentimental about how wonderful work used to be, grumpy about how it is and fearful of what it will become. 

In fact, working life has improved over the ages—and the promise today is as bright as it ever was. 

Time to get on the ride.

Inflation might be the way out of the debt crisis

Investors should prepare for rising prices with a shift into value stocks

Pascal Blanqué 

The central focus on inflation targeting that started with the arrival of Paul Volcker at the helm of the Fed is fading. © Bloomberg


Bond markets are firmly in the driving seat. 

Rising yields on the back of the accelerating economic recovery are signalling the revival of inflation. 

They will also spur the comeback of value investing.

For too long, inflation has disappeared from investors’ radar. 

So, it is tempting to view its recent uptick, mainly in the US, as a mere technical rebound in the price of food, oil and manufacturing inputs from their fall at the beginning of last year’s lockdowns. 

But investors would be wise to take this narrative with a pinch of salt. 

This is because various structural forces may prove hugely consequential in hindsight. 

The key ones include a hostile environment for trade and globalisation, business and labour support public programmes and the extraordinary debt burden fuelled by the pandemic. 

These are set to create a turning point in the current market regime before long.

Most importantly, inflation is now desirable as the way out of the crisis by reducing the value of the debts over time. 

A year ago, central banks and governments were forced to take unprecedented measures in real time to avert a 1929-style depression. 

The resulting skyrocketing debt will doubtless weigh on future generations, but, for now, it seems the only game in town to reboot national economies by making them even more debt addicted.

For this entire house of cards not to crumble, growth and inflation need to be restored. 

It is the only way to repay the debt legacy of the crisis. 

That is precisely why the likes of US Treasury secretary, Janet Yellen, and Federal Reserve chair, Jay Powell, are playing down the significance of the recent awakening of inflation — but not for long.

As its vaccine programme accelerates, the US economy will most likely head towards full reopening by the summer. 

The 2008 financial crisis depressed aggregate demand for a prolonged period. In this crisis, we may see the opposite. 

US personal saving rates stand at highs not seen since the mid-1970s. 

Along with large cash piles sitting in corporate balance sheets, they are awaiting a green light signalling the end of lockdowns before embarking on a spending spree. 

This, at a time when the virus has also damaged the supply side of the economy via disrupted supply chains and business closures.

If we add to this the additional multitrillion-dollar infrastructure package proposed by the Biden administration to address the slack in the labour market, to be possibly financed by hikes in carbon taxes that push up costs, inflation is primed for a resurgence.

At the outset of the crisis, the Fed’s bold action — including large-scale financing of government debt — was timely. 

Now it is hard not to see it will lead to a de-anchoring of inflation expectations and a revival of the spectre of a 1970s-style growth in prices.

A change in market regime often occurs with a change in the mandate of central banks. 

The central focus on inflation targeting that started with the arrival of Paul Volcker at the helm of the Fed in 1979 is fading. 

This much is clear from the new priorities recently adopted by two central banks: achieving full and inclusive employment by the Fed and reducing global warming by the Bank of England.

For investors, this means the rise in bond yields might not be over yet, but its speed may slow down. 

Take the 2013 taper tantrum in bond markets which followed signals of reduced Fed support. 

More than two-thirds of the correction happened in the first three months. 

We believe this might be the case again, with the rest coming after the summer, once economic data reveal the true health of the US economy and its inflation path. 

The Fed’s role in distorting asset prices is set to diminish as market forces reassert themselves.

As this occurs, expect further gains in so-called value stocks — companies that are considered undervalued compared with their assets or earnings. 

The first part of a multiyear rotation towards value happened in November in the wake of the positive vaccine news. 

This resulted in a straightforward re-rating for value stocks from their very depressed levels. 

Like the recent uptick in inflation, this is not just another blip.

In the long-awaited moment of value stock revenge, investors should pay attention to cyclical names in Europe or companies in the US that can benefit from technological transformation and the energy transition.

The return of inflation could help ease the debt burden. 

But it will be hard to swallow since it arbitrarily transfers wealth from savers to borrowers. 

Investors need to prepare themselves for this shift by seeking value stocks rather than chasing new fads.


The writer is group chief investment officer at Amundi

ARCHEGOS & CREDIT SUISSE – TIP OF THE ICEBERG

By Egon von Greyerz



Bill Hwang, the founder of the hedge fund Archegos that just lost $30 billion, probably didn’t realise when he named his company that it was predestined for big things.

Archegos is a Greek word which means leader or one who leads so that others may follow.

ARCHEGOS THE FIRST OF MANY TO COME

This, until a few days ago, unknown hedge fund is a trailblazer for what will happen to the $1.5+ quadrillion derivatives market. 

I have warned about the derivatives bubble for years. 

Archegos has just lit the fuse and soon this whole market will explode.

I know that technically Archegos was a Family Office for favourable regulatory reasons. 

But for all intents and purposes I consider it a hedge fund.

Warren Buffett called derivatives financial weapons of mass destruction and he is absolutely right.

Greedy bankers have now built derivatives to a self-destructive nuclear weapon.

Archegos shows the world that an unknown smaller hedge fund can get credit lines of $30 billion or more that quickly leads to contagion and uncontrollable losses.

And when the hedge fund’s bets go wrong, not only do the investors lose all their money, also the banks which have recklessly financed Archegos’ massively leveraged speculation will lose around $10 billion of their shareholders’ funds.

It obviously will not affect the bankers’ bonuses which will only be reduced when the bank  has gone bust. 

Remember the Lehman crisis in 2008. 

Without a massive rescue package by central banks, Morgan Stanley, Goldman Sachs, JP Morgan etc would have gone under. 

And still the bonuses that year in these banks were the same as the previous year.

Absolutely scandalous and the very worst side of capitalism. 

But as Gordon Gekko said in the film Wall Street – Greed is Good! 

Well when it all finishes, it might not be as good as they think.

DERIVATIVES – A MONEY SPINNER THAT WILL SPIN OUT OF CONTROL

Derivatives have been a money spinner for the major investment banks for decades. 

Today virtually all trading is in the form of derivatives. 

Very few portfolios are in the underlying instruments. 

Instead, anything from stock portfolios, ETFs, gold funds etc use derivatives or synthetic instruments. In addition the interest and forex markets are all derivatives. 

Archegos’ portfolio for example was in Total Return Swaps.

As we just saw, when derivatives implode, and the underlying securities are dumped by the prime broker at any price, the losses are instantaneous and irreparable.

Still, contagion was avoided this time with the banks taking all the losses. 

But that will not be the case next time when not just $30 billion of derivatives implode but multiples of that sum.

WHEN COUNTERPARTIES FAIL……… THE $1.5 QUADRILLION TIMEBOMB

Defenders of derivatives which obviously includes all the investment banks and the BIS (Bank of International Settlement) in Basel, will argue that the net derivatives position is just a fraction of the gross which is estimated to be at least $1.5 quadrillion.

Yes, of course the net position theoretically is much smaller after netting. 

But when counterparties fail, gross remains gross. 

And this is what we are likely to see within the next few years.

Archegos is a very good example of what the world will experience on a much bigger scale – $1.5 quadrillion will not disappear quietly. 

The banks managed to stop contagion this time but they won’t once it starts in earnest.

The cube below represents all the known derivatives in the world of $1.5 quadrillion. 

The real number is probably considerably higher.

The $1.5Q is 850X declared central bank gold. 

What will the gold price be after the derivatives implode? 

Probably too high to fathom!


When the biggest financial bubble in history unravels the massively over-leveraged financial system, led by the implosions of the $1.5 quadrillion derivatives monster, will be paralysed as stock, bond and property values just evaporate in a cloud of smoke.

WHEN ASSET VALUES DIE

The world will then realise that all the printed money and all credit which backed these assets had ZERO value which some of us have been clear about for years.

Despite the pipe dreams of the Keynesians and the MMT rubbish theories, money created out of thin air must always have ZERO value.

And when the world discovers that the debt has ZERO value, they will wake up from their sweet dreams and realise that the artificial wealth they have built up was all based on a lie.

Starting with the closing of the gold window in 1971, the world has built up an edifice of grossly overvalued assets that will soon find their intrinsic value of nearer ZERO.

Many will argue that many of these assets will still have a value whether it is a sound business or a high quality commercial building with good tenants.

That argument is valid as long as the business has no debt and/or can service its debts from revenue.

Same with leveraged commercial property. 

Bricks and mortar have little value if it is not income producing. 

When tenants can’t pay the rent, the bank will call in the loans and foreclose on the building.

In a world with $300 trillion of debt, most assets are heavily leveraged. 

Debtors with no profits or income will quickly become insolvent and the bank will become holders of major assets that collapse in value. 

The banks cannot afford to hold on to these assets and will sell them in ongoing fire sales.

Very few people will have liquid and marketable assets at that point. And the debt financing will become non-existent.

HOLDERS OF REAL MONEY OR GOLD & SILVER WILL FIND BARGAINS

As in every period of crisis in history holders of liquid real assets like gold and silver will be able to pick assets for 5 cents on the dollar. 

This sounds impossible today but people familiar with for example the Weimar Republic will know that this actually happened then and also in other times in periods of major crises.

That will be the time when a property that is today worth say $1.1 million or 20 kilos of gold can be acquired for $1 kilo which is a 95% discount, measured in gold.

This obviously sounds totally unrealistic today but history proves that it happens time and time again.

FIRST TIME IN HISTORY A DEBT COLLAPSE IS GLOBAL

This time the debt bubble is bigger than any time in history. 

But not only that, this is the first time ever that a debt collapse is global.

Every corner of the world is in the same situation – North America, South America, Europe, Africa, China, Japan and even Russia. 

Some countries like China might be able to deal with their debt internally but every single country in the world will suffer as the financial system implodes and world trade collapses.

THE DARK AGES

The biggest economic collapse in history so far is probably the fall of the Roman Empire which happened gradually but the final fall of Rome was in 476 AD when the Germanic leader Odoacer disposed of Romulus Augustulus. 

From then on no Roman emperor would ever rule from Rome.

The late 5th century is considered the start of the Dark Ages that lasted 900 years until the Renaissance or late 14th century. 

Other historians define it as a 500 year period. 

The Dark Ages was a period of cultural and economic decline. But there was clearly not a 900 year solid decline. 

Many areas prospered much earlier.

So whether we will get an extended period of decline after the current economic and financial bubbles, only future historians will know. 

What is certain though is that a debt and asset implosion of the magnitude that the world is now facing will have devastating effects for our children and grandchildren. 

But whether it will last 50 years or 500 years, only history will tell us.

CREDIT SUISSE AND THE WILD BUNCH OF PRIME BROKERS

Hedge fund leverage can only happen with the total cooperation and backing of major banks. 

Archegos had Prime Brokerage relationships with Goldman Sachs, Morgan Stanley, Nomura and Credit Suisse.

These foolhardy banks extend trading lines of billions of dollars so that hedge funds can leverage themselves to a level which will not just jeopardise the hedge funds but also the banks themselves and eventually the financial system.

Swiss banks used to be a bastion of prudence and conservatism. 

But as I have written about before they are now at the very top of risk taking banks.

Switzerland has a major problem due to the size of its banking system which is 5X Swiss GDP. 

Thus in case of a major contagion the Swiss financial system is too big to save.

SWISS NATIONAL BANK – THE WORLD’S BIGGEST HEDGE FUND

The additional problem is of course the Swiss National Bank – SNB – which is the largest hedge fund in the world with assets of CHF 1 trillion (USD 1.1trillion) which is 145% of  Swiss GDP. 

For comparison, the Fed’s balance sheet is 27% of US GDP.

The majority of the balance sheet is in foreign exchange speculation and held in dollars and euros. 

The SNB also has major positions in US tech stocks – $8.5 billion in Apple,  $6.b in Microsoft, $5.2 in Amazon plus a lot more.

So not only is the Swiss banking system too big for the country but the Swiss national bank is extremely vulnerable to a decline in the dollar and euro plus US  tech stocks.

None of this could have happened in the late 1960s and 1970s when I was in Swiss banking. 

But when both the Swiss National Bank and the commercial banks leverage their positions to the hilt in derivatives and currency speculation, the whole Swiss financial system is at risk.

Nobody should hold major assets in a national banking system which is as exposed as the Swiss one.

CREDIT SUISSE – IS IT INCOMPETENCE OR JUST BAD LUCK

So let’s look how Credit Suisse (CS) which is Switzerland’s second biggest bank has fared lately.

CS has gone from bad to worse, both in risk management and losses. 

In Q4 2015 they lost CHF 6 billion in write offs and trading losses. 

In late 2016 CS agrees to pay $5.3b to resolve a probe by the US Department of Justice for mis-selling mortgages.

In 2020 CS faces another $680m in relation to US mortgage securities. 

In 2021 CS has so far taken a $450m write down on investment in the hedge fund York Capital. 

A massive $3 billion is expected to be lost on the collapsed Greensill Capital. 

That sum is equal to Credit Suisse’s net income in 2020.

And the next disaster for Credit Suisse is Archegos. 

The losses are likely to exceed $6 billion.

The amount of losses that CS has had is clearly not just bad luck. 

It is based on incompetence combined with a level of greed which rewards success for individuals whilst at the same time jeopardising the bank and the system.

Although Credit Suisse has already lost over $20 billion in recent years, there is probably a lot more hidden in this once venerable Swiss bank. 

Whatever the management declares has little validity since they don’t seem to have a clue of the real risk picture of the bank.

So is Credit Suisse a real disaster waiting to happen?  

Time will tell.

What is fairly certain is that the Archegos & Credit Suisse disasters are just the tip of the iceberg.

CS is just one of the banks losing unacceptable amounts of money. 

Nomura, Morgan Stanley, Goldman Sachs and several more gamblers.

So Credit Suisse is clearly not the only bank taking these shameless bets. 

The whole banking world is in the same predicament. 

And due to the total interdependence of the financial system, even sound banks will not survive. 

BANKS FACE SHOCKWAVES OF LOSSES

All these casinos that are called banks are every day making bets that put the bank at risk. 

In an orderly and controlled market, they make enormous amounts of money for themselves. 

But when the tide turns and they no longer can manipulate the market to their advantage, there will be shockwaves of losses.

When stock and bond markets fall at the same time, the collateral of the banks will not even reach fire sale levels. 

And that will be the way that the derivatives market disappears for good or at least for many, many years.

Anyone who believes that their assets held within a bank will be safe should think again. 

I am not just talking about money but also all the securities held by the bank as custodian. 

Under pressure the bank will use these assets as collateral for their trading loans. 

This has happened many times before like in 2007-8.

When you put your assets in the financial system, it is like putting them in a timebomb which has already been lit. 

It is only a matter of time before it all explodes. 

And you will have a hard time finding anything of value among the rubble.

RISK NOW GREATER THAN ANY TIME IN HISTORY

As I have spelt out many times, I am not a pessimist, nor a prophet of doom and gloom. 

I just analyse risk and then look at the potential consequences if/when things go wrong. 

I consider risk greater now than in any time in history. 

And please don’t believe that more worthless debt in the form of MMT, QE etc will solve the problem. 

It will just make the explosion bigger.

In every crisis in history, physical gold and silver has been the best form of insurance. 

Don’t believe it will be different this time.

The Roots of the EU’s Vaccine Debacle

Europe's slow COVID-19 vaccination rollout highlights, yet again, that it is not institutionally suited to nimble executive action, and that its complicated decision-making mechanisms are an obstacle to accountability. As long as this remains true, crises will continue to get the better of Europe.

Daniel Gros


BRUSSELS – When it comes to COVID-19 vaccinations, Europe is lagging far behind its peers. 

So far, less than 15% of the European Union’s population has received at least one dose, compared to 31% in the United States and 45% in the United Kingdom. 

The EU’s failure is so profound that the normally placid World Health Organization recently felt compelled to reiterate the obvious: the slow vaccine rollout will prolong the pandemic, with high human and economic costs.

In March 2020, the EU seemed to be on the right track. 

With the pandemic picking up, it was agreed that the European Commission would negotiate advance-purchase agreements for a portfolio of vaccine candidates on behalf of member states. 

That way, when a candidate proved safe and effective, enough doses would be made available to Europeans.

At the end of last year, the Commission proudly announced that it had concluded contracts for over two billion vaccine doses – more than enough for the EU’s total population of 440 million. 

As doses arrived, they would be distributed on a per capita basis, thereby avoiding unseemly tensions like those that emerged in the early months of the pandemic, when a rush to claim limited supplies of personal protection equipment pitted member states against one another.

With a large and diversified portfolio of vaccine doses on order and a clear distribution schedule, the EU seemed to have proven its worth. But it turned out that the contracts had been concluded late and were not binding.

As is so often the case with the EU, too many actors were involved in decision-making, so it was virtually impossible to pinpoint who was responsible for what. 

The Commission conducted the negotiations with the producers, but under the control of a committee of representatives from the member states, thus recreating the coordination problems that centralized procurement was meant to avoid.

Moreover, EU negotiators wasted precious time resisting pharmaceutical companies’ understandable request that they could not be held liable for any problems that might arise from new vaccines, which were being developed, tested, and approved on a dramatically accelerated timeline. 

Every day the EU refused to agree to this condition was another day when the companies were not committing to the production capacity required to secure adequate supplies.

A curious inconsistency pervaded the negotiations. 

On the one hand, vaccine development and production were left entirely in the hand of private actors. 

On the other, the EU made no attempt to use economic incentives to accelerate production.

Nor did the EU ensure that legally binding delivery schedules were included in its contracts with vaccine developers. 

The Commission’s claims to billions of doses refer only to the year 2021, sometimes even including 2022.

The EU’s contracts with vaccine producers do include “estimated” delivery schedules for different quarters of 2020, but companies face no penalties if they fail to adhere to them. 

AstraZeneca, for example, has agreed only to make its “best efforts” to deliver doses, and its contract includes little information about what remedial action could be taken if it runs late.

This is not surprising for AstraZeneca, which has agreed to provide the vaccine to Europe “at cost.” 

How much effort can one expect from a company that has promised not to “profit” from production?

But even for companies that are supposed to make a profit, there are no penalties for missing deadlines; they simply must explain the reasons for the delay and submit a revised delivery schedule. 

So, revenues will not change, regardless of when they deliver.

Costs, however, would change. Economists studying investment usually assume that the costs of ramping up production increase more than proportionally. This is why firms generally increase production capacity gradually. 

The more elastic their delivery schedules are, the slower this process will be. 

In a pandemic that has killed more than 600,000 Europeans and is necessitating economically devastating lockdowns, this has dire implications.

And yet, when it comes to vaccine production, the EU may be roughly on par with the US. 

The difference is that the US – which has administered roughly 153 million doses so far – has not exported any of its output. The EU, by contrast, has administered 75 million doses, and exported 77 million.

Israel’s admirably quick vaccine campaign was made possible by over ten million doses from EU producers. 

About half of the 36 million doses administered in the UK – which has also not exported a single dose – came from EU production. Even the US has imported vaccine doses from Belgium and the Netherlands.

This is not to say that the EU should follow the example set by the US and the UK and bar vaccine exports – not least because EU production relies on imported ingredients. 

For now, the European Commission has called for a Transparency and Authorization Mechanism to ensure more reciprocity.

Clearly, Europe still has a strong base for groundbreaking scientific research and the capacity to produce new high-tech medical products rapidly and at scale. 

But the EU’s structure is not suited to nimble executive action, and its overly complicated decision-making mechanisms are an obstacle to accountability. As long as this remains true, crises will continue to get the better of Europe.


Daniel Gros is a member of the board and a distinguished fellow at the Centre for European Policy Studies.