Getting your first job in the hell economy.

Speaking of college aged kids and the burden this recession puts on them: Obama Economic advisor Austin Goolsbee reviews the labor economics literature surrounding those who graduate college in the middle of a recession – this is from 2006, pre-collapse:

…Lost in the argument over whether young people today know how to work, however, is the mounting evidence produced by labor economists of just how important it is for current graduates to ignore the old-school advice of trying to get ahead by working one’s way up the ladder. Instead, it seems, graduates should try to do exactly the thing the older generation bemoans — aim for the top.

The recent evidence shows quite clearly that in today’s economy starting at the bottom is a recipe for being underpaid for a long time to come. Graduates’ first jobs have an inordinate impact on their career path and their “future income stream,” as economists refer to a person’s earnings over a lifetime.

The importance of that first job for future success also means that graduates remain highly dependent on the random fluctuations of the economy, which can play a crucial role in the quality of jobs available when they get out of school. That is good news for this year’s graduates, who are entering the work force with the economy growing, but rather disturbing for recent graduates who were driven by recession into taking less-than-ideal first jobs and are now aiming to work their way up….

A recent study, by the economists Philip Oreopoulos, Till Von Wachter and Andrew Heisz, “The Short- and Long-Term Career Effects of Graduating in a Recession” (National Bureau of Economic Research Working Paper 12159, April 2006., finds that the setback in earnings for college students who graduate in a recession stays with them for the next 10 years.

Kids graduating college now will not only be in a hostile job market, but the best evidence is they’ll be making less than they would have otherwise for an additional 8 to 10 years. And, as yglesias points out, that’s with a mild recession. The effects of this are going to burn for a long time. Taking a hammer to the private student loan shark industry would be a nice play.

Human Capital Depletion Worries

Someday this current economic climate will pass, and we’ll still have a country and an economy and a world here. A lot of worry gets focused on Baby Boomers, retirees, savings, banks, etc. I want some effort directed at the next generation of Americans however, those in their mid-to-late teens and early 20s. It is important that they are given the right opportunities to invest in themselves to build a long-term prosperity for America.

60 Minutes does a heartbreaking story about the massive layoffs at DHL in Wilmington, Ohio. You can watch the video through the link (wordpress doesn’t let me embed video easily).

It’s sad to watch, but I want to point out a scene at 7m15s that is devastating – a mom cries about how her son had to drop out of college because of his parents being laid off (neither of them went to college). There is absolutely no reason for this – that kid would potentially be my generation’s doctor, or engineer, or lawyer, and he left school (presumably, we don’t know of course) because his parents couldn’t chip in an extra $2000/year, or the student loan industry dried up, or he needed to work to cover Cobra. More generally, if we are losing the edge to have the best educated workforce in history because school funding is drying up, we need to combat that ASAP.

Someday the boomers will all be gone, but my generation (I’m 29) will need its executives, managers, scientists and professionals. It’ll need people to help the world globalize productively, and chemists to cure diseases and engineers to find new fuel and carbon-reducing technologies. To put it a different way, like a rail station that may or may not get ground broken in 2009, our knowledge base is a resource – infrastructure – and an incredibly important stock to keep built up for our sake and the future’s as well. I think part of what adds value for students in college is their exposure to other, like-minded, students – and the more that quality individuals have to drop out due to short-term financial crisis problems, the more that hurts the overall knowledge stock.

This is a terribly neoliberal “human capital” approach to the issue, but it is an important one – that kid who dropped out in that video could have made the carburetor that gets 150mpg or the vaccine for alzheimer’s in the year 2020. It is very likely that, now, he’ll have a lot of life opportunities lost. The late teens missing college now are unlikely to get the life chance back to put themselves on that professionalized track – and that potential brilliant mind won’t get the resources it needs.

I see, in some of my generation, a disappointment with the idea of college. (If I ever wrote a Things White People Like, it would be “Boasting about regretting going to college.”) N+1 had a pamphlet where they talked about college, and many of the writers concluded at the end that college was a waste of their artistic talents. Ok. I’m of the opinion that the Land Grant system of public universities is one of the best investments the United States has made, and that the people who go through them get more equitable access to life opportunities than would have been otherwise. Keeping that commitment to high quality low cost public education in the 21st century should be at the front of any liberal government.

Beating the corrupt private student loan industry into a bloody mess would be a good start; helping state governments not turn their flagship universities into a credit card with increased tuitions to maintain their accessibility is another. More grants would be a solid idea. I think Obama knows this, and has a handle on it. Hopefully.

Other Shoe Dropping

Do check out Ed’s post about the auto industry, and the bloodbath that is going to follow a chapter 11. I remember a lot of debate about how to amend bankruptcy for the auto industries to try and salvage something, but the best the government is probably going to do is to make it cleaner for the private equity vultures to pick the bones.

From an industry think tank’s study, a worst-case estimate is that there will be around 3 million jobs lost, with a medium-bad case estimate being around 2.5 million jobs lost. (The cases depend on how much the auto companies keep running during bankruptcy. Ed makes a strong case they won’t, so 100% loss – or the worst case scenario, and I agree with him).

Scenario 1: Employment Impact [100% reduction]
YEAR 2009 2010 2011
DETROIT 3 REDUCTION 100% 100% 100%
Direct Employment -239,341 -239,341 -205,611
Indirect Employment -973,969 -795,223 -544,598
Spinoff Employment -1,738,034 -1,427,452 -1,021,354
Total Employment -2,951,344 -2,462,016 -1,771,563

Scenario 2: Employment Impact [50% reduction]
YEAR 2009 2010 2011
DETROIT 3 REDUCTION 100% 50% 50%
Direct Employment -239,341 -119,671 -119,671
Indirect Employment -795,371 -491,719 -311,488
Spinoff Employment -1,427,663 -886,345 -574,434
Total Employment -2,462,375 -1,497,734 -1,005,594

Given that the current labor force is around 150 million people, this would add around 2% to the unemployment rate, from 7.2% to around 9%, within weeks. That will be in additional to the terrible jobs numbers we are going to see in the next months. This does not make me optimistic.

Digging around the BLS’s webpage data. U3 Unemployment rate for college graduates versus just high school / no college:

2008 2.1 2.1 2.1 2.1 2.3 2.4 2.5 2.7 2.6 3.1 3.2 3.7
2008 4.6 4.7 5.1 5.0 5.2 5.2 5.3 5.8 6.3 6.5 6.9 7.7

That high number for high-school educated workers reflects a lot of construction workers from housing being moved back to more productive enterprises – if that group suddenly had to take in another million plus people from the dealer networks and the factory lines, I could see the entire process going to shit.

Two Economic Issues

Since they are the big issues these days.

Real Capitalists Nationalize

Interfluidity:

The reason to nationalize a bank is because the bank has failed and its former owners have no legitimate claim to its assets. The government has been forced to offer support with public money, thereby purchasing the corpse fair and square. We take the bank into public ownership because taxpayers who have been conscripted to accept extraordinary losses are entitled to whatever gains follow the reorganization they finance.

I highly recommend reading interfluidity these days – his opinions are well reasoned and presented during the difficult financial times (his post about the new Fed balance sheet is a good read). He has a post together summarizing a lot of the links of the current nationalization debate.

This will happen sooner or later – that the government has to create a S&L type structure, perhaps modeled on Sweden’s efforts in the early 1990s, to pick up the pieces after wiping out the equity holders. I think it would be better to go ahead on a timetable of our choosing, using the capable minds at FDIC to determine what banks can stay afloat. Creating “zombie banks” was always a worry during the financial recovery mess, and that is what is likely to happen if we redo what was accomplished under the previous TARP moves. Like I did about a potential GM/Ford bankruptcy, I worry about finding buyers for good pieces that could be hauled to the selling block.

For whatever it is worth, TARP appears to be making an annualized 16% profit. So when we say we are bailing out $X, we aren’t actually losing $X.

Stimulus Counter Arguments

There’s a lot of odd dialogue about why the stimulus is a bad idea – ranting about the government, questionable metaphors about farms and tractors or Robinson Crusoe and net building. Kevin Murphy’s slides here are pretty sharp as a counter-stimulus package argument. He at least has the decency to math it up, so he can be clear about what assumptions he is relying on, with what metrics, and we can see the backbones of the Treasury View and the “crowding out effects.”

If you are against the stimulus package, and especially if you are for it, thinking in terms of: “f(1-λ) > α+d” can clarify quite a bit. The slides aren’t that bad to pick it up.

Counter-Counter arguments are Brad Delong and the commenters here. I don’t believe people unemployed during the current crisis are choosing to stay unemployed, I don’t believe the first wave of spending will be that inefficient, I don’t see the government crowding out productive resources during the next 2 years, I don’t think Ricardian Equivalence will kick in (if anything, the past 8 years seem to be a slap in Ricardian Equivalence’s face). I think there will be a financial multiplier with the investment spending. Those put together lead me to believe the stimulus is both necessary (it would be immoral not to do it, if we can) and a good idea.

My President is Black

One more piece of Inaugural music. It’s very likely you’ve already seen this, but I must post Jay-Z killing a remix of an otherwise ho-hum song by Young Jeezy “My President is Black” at a concert of volunteers for Barack Obama:

Starting ~2m30s.

My president is black, in fact he’s half-white
So even in a racist mind, he’s half right
If you have a racist mind it’s aight
my President is black but his house is all white!
….
No more War
No more Iraq
No more white lies
my President is Black

Brilliant.

(Evidently this is already full of ‘hate’ from opinion at Fox News. What thin skins, those guys.)

As I go walking that freedom highway

I got really choked up watching this:

It’s really fun to note the three additional lefty verses that have been scrubbed out of what we normally hear. Because they are awesome, full of New Deal solidarity, hope, optimism and humor. Cue at 2m12s:

In the squares of the city, by the shadow of the steeple,
By the relief office, I saw my people,
As they stood there hungry, I stood there whispering,
This land was made for you and me.

“A great high wall there that tried to stop me;
A great big sign there said private property;
But on the other side it didn’t say nothing;
That side was made for you and me.

Nobody living can ever stop me,
As I go walking that freedom highway;
Nobody living can ever make me turn back
This land was made for you and me.”

I love the impish grin on the 89-year-old Peter Seeger’s* face, who must not be able to believe he gets to sing these amazing lyrics in front of 700,000 fans celebrating the election of an African-American who is also the most culturally liberal candidate of his lifetime in the biggest non-incumbent landslide since Eisenhower. What a fucking crazy 89 years.

I like Ross Douthat’s formulation:

this was an impressive celebration of left-wing patriotism, the sort of thing this country hasn’t seen on such a scale in years or even decades. In an essay for Time last year, Peter Beinart observed, with some accuracy, that “conservatives tend to see patriotism as an inheritance from a glorious past,” while “liberals often see it as the promise of a future that redeems the past.” The inaugural concert was all about the latter sort

Indeed it is. Happy America, folks.

(* Bonus points: Seeger’s dad created the department that employs ms.** rortybomb.)
(** that’s ms. like ms. pac-man.)

the date is expired; the time will come, and he will fetch me.

I know it is terrible to make fun of someone in a wheelchair, but.

There have already been observations that Cobra Commander doesn’t hurt his back moving his own stuff, so why should Cheney? Have even his minions jumped ship?

But my sneaking suspicion is, and this may be a bit out there, that the pact Cheney has signed with Satan during the Ford Administration in 1974, exchanging his soul for 34 years of (unitary) power, has run out – and now Cheney will age a year every hour until Satan claims his dark heart.

I imagine tonight looks something like this in the Cheney household (replace Scholars with Neocon Policy Analysts):

FAUSTUS. Ah, gentlemen!

FIRST SCHOLAR. What ails Faustus?

FAUSTUS. Ah, my sweet chamber-fellow, had I lived with thee,
then had I lived still! but now I die eternally. Look, comes
he not? comes he not?

SECOND SCHOLAR. What means Faustus?

THIRD SCHOLAR. Belike he is grown into some sickness by being
over-solitary.

FIRST SCHOLAR. If it be so, we’ll have physicians to cure him.
–’Tis but a surfeit; never fear, man.

FAUSTUS. A surfeit of deadly sin, that hath damned both body
and soul.

SECOND SCHOLAR. Yet, Faustus, look up to heaven; remember God’s
mercies are infinite.

FAUSTUS. But Faustus’ offence can ne’er be pardoned: the serpent
that tempted Eve may be saved, but not Faustus. Ah, gentlemen,
hear me with patience, and tremble not at my speeches! Though
my heart pants and quivers to remember that I have been a student
here these thirty years, O, would I had never seen Wertenberg,
never read book! and what wonders I have done, all Germany can
witness, yea, all the world; for which Faustus hath lost both
Germany and the world, yea, heaven itself, heaven, the seat of
God, the throne of the blessed, the kingdom of joy; and must
remain in hell for ever, hell, ah, hell, for ever! Sweet friends,
what shall become of Faustus, being in hell for ever?

THIRD SCHOLAR. Yet, Faustus, call on God.

FAUSTUS. On God, whom Faustus hath abjured! on God, whom Faustus
hath blasphemed! Ah, my God, I would weep! but the devil draws in
my tears. Gush forth blood, instead of tears! yea, life and soul!
O, he stays my tongue! I would lift up my hands; but see, they
hold them, they hold them!

ALL. Who, Faustus?

FAUSTUS. Lucifer and Mephistophilis. Ah, gentlemen, I gave them
my soul for my cunning!

ALL. God forbid!

FAUSTUS. God forbade it, indeed; but Faustus hath done it: for
vain pleasure of twenty-four years hath Faustus lost eternal joy
and felicity. I writ them a bill with mine own blood: the date
is expired; the time will come, and he will fetch me.

Cheer up Dick. Faustus only got 24 years; you had 34 to leave your mark for History.