Monday, October 17, 2011


Three years after the beginning of the Great Recession, the US unemployment rate remains at 9%, double its pre-crisis level. This column suggests the credit crunch may be behind this high number. It argues this is not because lower debt impairs the hiring ability of firms, but because it places firms in a less favourable bargaining position, allowing workers to negotiate higher wages, and thus reducing employment.
Firms’ deleverage and the persistence of unemployment by Tommaso Monacelli, Vincenzo Quadrini, Antonella Trigari at

Dumb, dumb, and dumber.

It's the demand, stupid.


googleheim said...


googleheim said...


are they saying "debt" as in corporate debt ? or debt of the worker / personnel ?

Broll The American said...

I see the point of unions grabbing for everything they could get in boon times and employers capitulating. Now during down-turns the unions still have their contract guarantees and employers have limited options. This may only account for a portion of what is going on and not indicative of the employment situation in general.

Tom Hickey said...

As I understand it, they are arguing that because firms have lower debt and more surplus cash now, prospective hires negotiate to get a bigger piece of the pie and firms are reluctant to hire people on this basis because they would be "overpaying" and this would cost them in the future.

The authors admit that this is a micro-based analysis and that they have not looked at the marco implications.

Ignoring the macro, they don't get that the problem is lagging effective demand from lower wages and increased consumer saving.

beowulf said...

Wow, so they don't take into account the current job market's effect on bargaining power of prospective hire vs employer?

Tom, TPM linked to an interesting Peter Frase post this morning. I figured it was up your (philosophical) alley.

Tom Hickey said...

Thanks, Beowulf,

I think that people like Frase impute at lot more intellectualism than is warranted this point. Intellectual analysis of situations, like legal analysis of a case, is after the fact. Intellectual analysis attempts to discover invariant principles that can be named and defined as a matter of explanation. These explanations do not directly affect the situation any more than investigation of a case affects the cime that had been committed.

The reason is that people protesting aren't "rational," anymore than crimes of passion. The brain is not a reasoning machine. Brain functioning is a complex organization of sensing, feeling, imagining, conceptualizing, reasoning, etc. So trying to say what caused a situation involves addressing this complexity.

I don't see the OWS protests as "political," "partisan," "ideological," etc., although intellectuals will impute these influences and spinmeisters will attempt to influence the framing by using labels to their advantage.

The power of protest lies in its complexity. Someone whom I recently quoted said that that of course the protestors don't have demands, because this is a rebellion and rebellions don't have demands. They are a call for institutional change to something better.

A rebellion is a cry — or a cacophony of cries — pain, outrage, ultimatum, and a flurry of demands from all conceivable angles. It sends a message that gets heeded and met with change, or not, in which case revolt ensues.

We are still a long way from understanding intellectually what this is, was, and will be all about. But one thing is sure, it will change the course of history and already has to a degree. Leaders are singing a different tune this month than last, or better, a variety of tunes as they jockey for position in reaction to the force they feel hitting them.

All we can feel clearly now is the force. It is powerful and gathering. Like all uncontrolled explosions, it is careening and ricocheting in many directions. I would not even characterize it as political. It is cultural, and it's global nature is an indication of a the birth pangs of a global culture.

GLH said...

Herman Cain can now add another 9 to his formula:
9% sales tax
9% income tax
9% business tax
9% unemployment

Septeus7 said...

"Herman Cain can now add another 9 to his formula:
9% sales tax
9% income tax
9% business tax
9% unemployment"

It's more like 29% unemployment if he gets this stupid video game nonsense through Congress.

We should be cutting sales and incomes taxes not increasing them.

How does Cain's plan compare to Ron Paul's eliminate all private savings by 2015 plan.

Republicans/TBaggers "taking America back" (to the 18th century).

wh10 said...

Tom and other philosophizing MMTers-

This is OT, but I am curious to hear how you and other MMTers would respond to this article , aside from the portions, both implicit and explicit, 'out of paradigm.'

Tom Hickey said...

@ wh10

Well, for starters, Thiel is an avowed Libertarian who supports Ron Paul. So we know more or less what to expect from his philosophizing.

But he brings up a lot of interesting points from an intellectual point of view regarding where we have come and where we go from here.

In my view, history does not unfold rationally but dialectically, in much the same way that other evolutionary processes unfold. That is, all iterations are questions, or experiments. It is through the complex interaction of these questions or experiments that history proceeds.

History is not linear, nor is the direction always forward. Many questions are answered incorrectly, and many experiments fail. Individual and groups are casualties and species become extinct. There are no guarantees.

As an entrepreneur that proceeds on the basis of an open-ended approach to innovation, which is the positive aspect of libertarianism, Thiel is a person who is always asking big questions and now has the wherewithal to undertake large experiments, like his Libertarian artificial islands to test the theory in a stateless environment.

I applaud his method and his success, but I think his article is is a bit too much localized in the head. Humanity is feeling its way through its changing environment as a species, and it is now at the critical point of influencing the environment in ways that could even result in extinction, if not severe pruning.

Naturally, concerned people ask what can be done to do better. That is good, but the fact is that we are going to bumble our way along as we always have, at least until humanity becomes mature enough as a species to realize that it has the ability to increase its adaptive rate by increasing its coordination and using a great portion of its inherent potential.

This involves raising the collective consciousness and the general level of education. All problems are ultimately the result of ignorance and self-interest. Because of this individuals, groups, and whole societies work against their own interests as well as against the interest of the species.

On the other hand, Thiel thinks that the problem is that we are not paying enough attention to technology. Well, that's only a part of the problem. Moreover, he seems to think that this the result of lack of affordability and the resulting failure to spend limited public funds on what will return the biggest bang. which MMT shows to be nonsense. So I would say that Thiel is out of balance, way too heavy on the side of technology so that he is unaware of other important aspects of major issues. One pony circus.

wh10 said...

Tom thanks! I'd agree with a lot of what you say (too one-sided/extremist, but interesting questions posed). I wish I could sit down, think, and discuss more. Perhaps later but no time now. Part of the reason I asked you to do some thinking for me :).