Tag Archives: economics

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Why this recession is different and unemployment won’t get better soon

December 23, 2011 – 11:48 am

This isn’t a very festive post, being the holiday season and all. But being the holiday season, I actually have a few minutes to write it. The topic has been on my mind a lot lately.

Yesterday, I reviewed a number of the year’s “best graphs,” published by The Atlantic. One of the most striking, further inciting this post, was a graph showing how US GDP has effectively recovered from the recession. Shocking, right? Because jobs haven’t. In fact, the US is pumping out a pre-recession GDP with 6.6 million fewer jobs.

That chart supports another that I reviewed recently in The Lean Startup by Eric Ries, showing how manufacturing output in the US actually hasn’t diminished the way some pundits claim. Nor have the jobs all been sent offshore. Rather, factories are outputting more product with fewer people thanks largely to productivity improvements and, critically, automation. In fact, I’ve read that Foxconn, maker or Apple products, plans to start further automating its factories, eliminating jobs from its massive workforce. Capital flows downhill, and eventually flows into computers and robots whose labor is effectively more profitable than even slave labor.

Economists would argue that’s okay, because you need people to make, service and program the computers and robots. But (a) it takes far fewer people to program an iPhone app than manufacture an iPhone and (b) those people need a higher level of education than someone working on a repetitive assembly-line task.

Just compare “new economy” companies like Apple and Google with “old economy” companies like Ford and GM. The former make up to 10 times the profit per employee of the latter, despite having high-priced engineers on their payroll. Put another way, it takes these companies up to 10 times fewer people to produce every dollar of profit. Looking at those numbers, it’s no surprise you have a pre-recession GDP with 6.6 million fewer jobs.

Old economy versus new: "New economy" companies like Apple and Google make up to 10 times more profit per employee than "old economy" companies like GM and Ford (all data from Wolfram|Alpha)

And that trend will only continue. As Marc Andreessen has pointed out, an increasing amount of stuff is becoming software. Everyone from dedicated hardware manufacturers to toy companies are seeing the trend, with do-it-all gadgets like the iPad eating into their physical product business. When 3D printing goes mainstream (I guesstimate around 2013), that trend will only hasten the decline of traditional manufacturing. Combine that with the trend of collaborative consumption, with services like Zip car and AutoShare, and the number of factories and manufacturing jobs will only plummet further.

I’m not sure what this means for the economy and employment, but I’m pretty sure that business-as-usual and government-as-usual is not the answer. The fruits of productivity gains need to be shared more broadly, and more people engaged in the new economy in some capacity, or things like Occupy Wall Street will seem quaint and cute in comparison to the more violent protests of hungry, bored young people (particularly unemployed young men) who have nothing to lose.

Fundamentally, this isn’t your grandparents’ recession. There is a structural change going on here, and 1920s solutions won’t cut it. The cloud of political rhetoric around tax breaks and spending cuts is mostly a distraction. The economy is shifting beneath our feet. The signs are there for anyone to see if they’d simply look.

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Why sharing is the future of ownership

November 8, 2009 – 9:00 pm
Ownership is overrated; sharing can improve your wealth, improve the environment and increase happiness-inducing social connections (credit: ryancr)

Ownership is overrated; sharing can improve your wealth, improve the environment and increase happiness-inducing social connections (credit: ryancr)

A few days ago I read about Rent the Runway, a New York business that lets members share rather than buy expensive designer dresses. Which makes sense, because Bag, Borrow and Steal already lets them share accessories, and they can get to their fancy shindig in transportation shared through Zip, AutoShare, “ écurie25 (for supercar fans) or—if they need to fly—NetJets.

And why not? As an AutoShare member, I can attest to sharing’s benefits. I used to own a sports car. While it was fun to drive, it returned too little value for time and money. So I unloaded it a few months ago and now save nearly $1,000 a month in lease, gas, insurance, parking, registration and maintenance costs, while simultaneously reducing my carbon footprint and increasing my productivity by using laptop-friendly public transit. And when I need a car? There are six AutoShare vehicles within a two block radius.

Having reaped sharing’s rewards, I can only think the trend will continue. And few segments of the economy are immune. From a financial and environmental perspective, sharing makes sense. Why pay for a car 365 days a year, 24 hours a day when you’re only driving it a fraction of that time? Why produce a car (or two) for every person when several people can share one? Fractional ownership can reduce our financial burdens and environmental impacts. And as Rent the Runway shows, we can still live like queens—with better wardrobes.

Some might argue that there are downsides. One that comes to mind is the tragedy of the commons, in which common goods get destroyed by individuals acting in their own best interest. But that tragedy doesn’t apply when businesses control the resource being shared, because their interest is maintaining the common good—and canceling memberships can halt others from exploiting them. Furthermore, as a member of a car-sharing service, I can say that members will protect common goods they rely on. And since you always know who had an item before it got damaged, a bit of social pressure helps keep people honest.

What about “pride of ownership?” It can be replaced by pride of membership. And since ownership of material goods brings little happiness, buying stuff is a bad investment in well-being (although our psychological predispositions and sociological influences tend to make us think otherwise). On the other hand, social connections do bring happiness. So sharing services leave us with more money to pursue happiness-inducing experiences, while simultaneously connecting us to other people. It’s a win-win for happiness.

No doubt our modern, internet-soaked world contributes as well. “Share this” has grown from a link beneath people’s blogs to an ethos. Whereas individuality and privacy once reigned supreme, we now crave social connectedness and openness. The thought of sharing clothes with strangers doesn’t seem so bizarre after you’ve posted half-naked pictures of yourself on Facebook and followed them up with a status describing today’s lunch. And what are crowdsourced common-goods like Wikipedia if not monuments to sharing, in this case of time and expertise?

So where might this be going? I’ve begun thinking of businesses that can work on the sharing model, and I believe that many will be tried. Why buy clothes for fast-growing children, for example, when you could visit a local clothes share? Why buy a scooter when you can grab a Vespa from the lot across the road?  Certainly, there are some things we’ll want to own. (I imagine underwear sharing might not work so well.) But I’ll bet that for everything people would share, someone will create a (likely profitable) business to facilitate it. And your wallet and the planet will probably thank them.

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The growing gap between GDP and reality

October 27, 2009 – 5:03 pm
Money doesn't grow on trees, but GDP says so (image credit: waɪ.ti)

Money doesn't grow on trees, but GDP says so (image credit: waɪ.ti)

Recently, I signed up for Jigsaw. If you’ve never used it, but do any sales for business, you should start. Jigsaw provides often hard-to-find business contact information—think vice-presidents at Fortune 500 companies—to subscribers. This in itself wouldn’t be interesting; other companies provide such a service. What makes Jigsaw different is the model.

The model is a wonderful example of the emerging freeconomy, as described so well in Chris Anderson‘s recent book Free. Sure, you can pay for access to Jigsaw contacts if you have the money. But if you have less money than time, you can contribute to the Jigsaw community by adding or updating contacts from your own database. That earns you points you can use to download contacts. It also helps Jigsaw rapidly grow one of the largest, most accurate and regularly updated business contact databases in the world. It’s the Wikipedia of Rolodexes.

That alone is a marvel of modern technology and network effects, what the pundits these days like to call “social media” (an arbitrary and ambiguous term, as I recently ranted in this Commune post on marketing with “social media” feeds). But what struck me as I began using this service, given my focus these days on happiness and economics, is how poorly our existing economic indicators capture this value.

The primary economic indicator in most industrialized nations is gross domestic product, which is essentially a measure of how much money changes hands. Chop down a tree and sell the wood, GDP goes up. Process the wood and sell paper, GDP goes up. That’s an over-simplification, but even in this simplified model, it’s easy to see what gets missed. Didn’t the tree, for example, which gives shade and cleans the air for no monetary value, still have some nonmonetary value? Is that value more or less than the value of the paper we made from it? Such issues are driving attention in alternative indicators of progress, such as Bhutan’s Gross National Happiness.

With the freeconomy, GDP gets even more detached from reality. Sets of encyclopedias used to sell for thousands of dollars. Today, Wikipedia offers millions of articles free, articles that were freely created. Did the value of an encyclopedia disappear because nobody’s paying? Did the value of contributing to an encyclopedia suddenly drop to zero? Did it shift to the cost of accessing the internet through ISPs? If so, what happens when we use free internet access, becoming increasingly prevalent at coffee shops and even some cities?

Strictly measuring GDP, we can’t put a value on things without price. But that doesn’t mean they’re not valuable. Tools like Wikipedia and Jigsaw add tremendous value and measurably improve people’s lives. But we’ll never realize how much until we change what we’re measuring.

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The looming economic crisis nobody’s talking about

October 14, 2009 – 1:21 pm

Yesterday, I attended an investor presentation for a client in health care. As support for growth potential in the industry, the presentation looked at demographic trends. One of the most important is the rapid growth of the over-65 and over-85 segments of the population relative to their younger counterparts.

The forecasts are staggering. Thanks to improving health care and public health, people are living longer than ever, and the trend will likely only increase, perhaps at exponential rates, with new technological developments. Granted, people are living healthier as they age, but as I learned yesterday, delivering quality care that prevents disease itself comes at a high cost. It’s hard to see how developments in the near future will reverse that (truly radical life extension medicine might, but likely not within a decade).

And it gets worse. As the population ages, we’re also having fewer children. Economic growth is predicated in part on growing numbers of young people who can produce and consume goods and services. Those numbers are shrinking, and the balance shifting to retirees who now must plan for an increasingly long retirement while someone (them, through insurance, or the government, through taxes primarily on young workers) pays their medical costs.

Immigration? Might help a bit. But with a growing middle class in places like India and China, will young people there really leave for less fertile pastures? Already, China graduates far more young, talented engineers than the US. As businesses grow in industrializing nations to meet local market demand, while businesses in industrialized nations shrink with diminishing labor pools and smaller markets of purchasing young people, the balance of power in the world will shift accordingly.

So the real economic crisis is on the horizon. Certainly, in every challenge, this included, there is opportunity. But if you thought the latest economic hiccup was bad, wait for the belch building in the aging belly of economies built on a rapidly decreasing commodity: youth.

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Can Shopping Really Be the Solution?

November 28, 2008 – 10:18 pm

Strange day full of statistics. Maybe 200 people killed in Mumbai. One Wal-Mart employee killed on duty defending his store against Black Friday bargain hunters. And stock markets up for a fifth day in a row.

If we needed any further proof that stock markets don’t reflect real human values and needs, this might be it. It’s a dark day not only for the fog of uncertainty spreading from India, but also for the clouds of anger no doubt gathering around one Wal-Mart employee’s friends and family in New York.

“He was bum-rushed by 200 people,” coworker Jimmy Overby, 43, told the Daily News. “They took the doors off the hinges. He was trampled and killed in front of me. They took me down too. … I literally had to fight people off my back.”

Symptoms of a Sick Society

But what can you expect?

After all, “shop!” is literally a rallying cry in North America.

After 9/11, it was part of W’s solution to fight back against terrorism. And now it’s the solution not only to our “global economic crisis,” but also to our global environmental crisis.

If consumer confidence falters, people stop buying and jobs disappear. If people stop spending, the economy grinds to a halt. So responsible spending be damned; let’s get more money, and more debt, into the economy.

And how about that green economy? It’s not just about alternative energy. It’s about green cars, green clothes and eco-friendly everything. And that means buying more stuff. Green or not, more stuff means more environmental degradation.

Yes, less degradation than non-green stuff.

But more degradation than simply buying less.

Hey, I’m Guilty Too (But Enough Is Enough)

It’s not like I’m not a consumer.

And I’m not anti-shopping or anti-capitalism. Hell, I work in marketing.

But I believe in personal responsibility, ethical action and an admittedly optimistic existential humanism that holds we can be more than just the sum of our desires and the output of our labor. Surely we can achieve meaningful goals, have meaningful relationships, live meaningful days and create meaningful societies without raising shopping and economic stimulation above human life.

I increasingly sense a disconnect between the rich and most government leaders on one hand, and the everyday people I meet on the other. Maybe it’s wishful thinking, but it’s as if the stock market meltdown revealed the rickety, clanking, outdated gears of our economy, and the people who used to feed the machine decided to pack up, head home and find something more stable.

And real. I’m not sure who’s driving the mini market-recovery we’ve seen over the past week, but I’m quite sure it’s nobody I’ve spoken with. Even wealthy people I know (almost all of whom, interestingly, play the stock market for fun, lose more than they win, and make most of their money in real estate) are staying well away from stocks.

Granted, I’m no economist. But I don’t think you need to crunch numbers to know they’re more abstract than human lives. Something’s amiss when our consumer culture’s consuming us.

When people have a meltdown, they need soul-searching and therapy to get back on their feet. I think the same should go for economies.

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