Sunday, February 23, 2014

An Employment Trend that Has Not Failed v.2

This is an update to a post I did several years ago.

September 23, 2011
An Employment Trend that Has Not Failed

I promised an exponential trend that has not failed. Here it comes!



We can get this ratio to infinity simply by continuing to shed manufacturing jobs faster than we shed financial activities jobs. It might not be as easy as it looks though.

In hindsight, it has not been easy.

The following chart shows the natural log of financial activities employment divided by manufacturing employment. When using logs, constant exponential growth is seen as a straight line.


Click to enlarge.

This trend is in serious danger of failing. We're at the very bottom of the channel again. We last saw this heading into the dotcom bust. Before that we were heading into several recessions in the late 1970s. We also saw it as we were putting a man on the moon in 1969. Have we colonized the moon yet thanks to our ever growing prosperity? Or are we planning to put that off a few more years?

Do not lose hope. When Mr. FIRE Economy was asked about his recent under-performance relative to manufacturing (relative to the long-term trend) he exclaimed, "Give me recession or give me death!" To which Mr. Manufacturing Economy laughed with great hubris, "Don't be silly! Our new and improved Fed has permanently put an end to all recessions! It's common knowledge. Everyone knows it. It really is different this time!"

In all seriousness, note that the ratio tends to rise most during recessions as manufacturing employment plummets more than financial activities employment. Being at the very bottom of the channel therefore puts us in "great" position for another legendary rise in the ratio. If the trend holds over the long-term (think fully automated manufacturing employment), then it is only a matter of time.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

12 comments:

Stagflationary Mark said...

Based on how healthy and resilient our economy is, I propose that we can safely add a modest payroll Moon Tax (just 1% of income).

We were supposed to have a base on the moon in 1999. We are already 15 years behind schedule!

Just think of the jobs it will create.

What will people do on the moon? That is so easy! I can think of all sorts of things to get this economy moving.

1. Dig moon holes.
2. Fill moon holes.

If that can't make us more prosperous, what will?

Rob Dawg said...

You do my laundry, I invest in your laundry.

Stagflationary Mark said...

Rob Dawg,

Let's count on population growth to boost your return!

Two people doing laundry, two people investing in laundry!

What's that work out to per investor? I haven't done the math, but it's gotta be better. Right?

Hey, maybe we need a 5th person to manage all these transactions? Give him a corner office in some high rise? It's important work and somebody important needs to do it.

Why stop there though?

Let's get a 6th person to act as a bank. That way we can borrow money to leverage up the profits!

And a 7th person would be nice. We could have him insure the entire operation in case bad times hit.

Now that we're really starting to grow, an 8th person could start a financial laundry news network to keep us informed about how great the laundry investments have paid off.

8 people? We better bring in some regulators to make sure all this complexity works well together and nobody tries to pull a fast one.

Gallows humor.

Troy said...

The moon is 'orribly uneconomic, yes.

wealth is that which satisfies human wants and needs, and as it stands now, anybody landing on the moon is faced with a pretty significant deficit in that department, regardless of the investment getting them there.

Breathable air for one!

We need to send robots first, making robot factories, that make the stuff we need out of the natural resources available on the moon.

Slashdot had some cockamamie PV-on-the-moon idea:

http://spaceindustrynews.com/japanese-company-proposes-to-build-solar-power-cells-on-the-moon-to-provide-clean-energy-to-earth/4187/

that would only work if they can make the PV panels on the surface.

Our economy's problem is one of simple asymmetries, one group has adequate resources -- capital -- to create new wealth, and a much larger group does not, only relying on their ability to labor, which in this globalized age is a pretty thin lever to have to rely on.

The Fed can jolt the system back into a circulatory pattern, by simply pushing more and more money into it.

It's Congress' job to legislate the fiscal side such that the asymmetries are reduced, but this is not something the current conservative power bloc is enthusiastic about. Quite the opposite, they want the crooked game to continue getting more unbalanced.

http://research.stlouisfed.org/fred2/graph/?g=spx

is QE, blue is mortgage bonds, red is treasuries.

This is $3T of new money injection, $10k per capita, but our economy is so unbalanced this money is not sticking in the paycheck economy all that long.

http://research.stlouisfed.org/fred2/graph/?g=spy

shows since 2000 MZM has almost tripled while GDP is only up 2X.

Pushing on a string!

But when all you got is a printer . . .

Jazzbumpa said...

In all seriousness, note that the ratio tends to rise most during recessions as manufacturing employment plummets more than financial activities employment.

This sounded very familiar to me.

Sure enough, finance profits as a percentage of total corporate profits also peaks during recessions. See the first graph at the link.

While the average earnings of working stiffs has been stagnant, at best, corporate profits have grown at an increasing rate. Further, the percentage of those profits going to the Finance sector has also grown at an increasing rate. Total profit growth is above exponential, and Finance Sector profit growth is super-exponential.

WASF!
JzB

Stagflationary Mark said...

Troy,

Slashdot had some cockamamie PV-on-the-moon idea:

Heat the earth using extra power from the sun. Didn't I see something like this in a James Bond movie (or two)?

I can picture the headline now.

Moon Power System Goes Rogue and Melts Polar Ice Caps

Stagflationary Mark said...

JazzBumpa,

There might be some way to justify this if it were leading to greater GDP growth or a rising tide that lifted all the boats. But the opposite has happened. GDP growth has been in decline for decades, and the tsunami of profits floating the yachts in the Finance Sector has swamped all the dinghies.

Probably didn't need those dinghies anyway, says the last person standing on the deck of the Titanic.

Troy said...

http://research.stlouisfed.org/fred2/graph/?g=soI

'SOL' indeed!

Stagflationary Mark said...

Troy,

We don't need no stinkin' lifeblood.

Troy said...

http://research.stlouisfed.org/fred2/graph/?g=srj

no worries, they found somebody else to leverage up in their stead.

just like Japan.

Stagflationary Mark said...

Troy,

just like Japan.

Sony investors must take great comfort in that. Sigh.

Troy said...

$18B market cap. Ouch.

This means that WhatApp, a company I didn't know existed until last week, has a higher value (to FB) than Sony (to the market).

cray zee