Tageconomy

Small Town Values – Taking Cold Showers

Photo by @randyolson – Garden City, Kansas – Beef Empire Days – This photo is about small town values on parade but also about the railroad tracks under these children’s feet. Those railroad tracks used to take corn out for sale all over the world… now it’s bringing corn into Garden City for the feedlots that ring the area. Which means they are also importing water from other parts of the world in the form of feed corn. If America's appetite for beef waned or even switched to bison we would save water on the plains and enhance our own food security. Scarcity of water, fragile infrastructure, small dust bowls, the family farm crisis, Big Ag, and global urbanization leave some behind with few options. Small towns are disintegrating around their residents. There is rampant meth and opioid addiction in some of these places. If your hot water heater breaks, there isn’t anyone in your entire county that can fix it. I am from the Midwest, and the pain rural folks have gone through showed up this election. I saw this frustration first-hand working on the Ogallala aquifer story that ran in the August 2016 issue of National Geographic, but I never thought the level of frustration of these communities would manifest itself in this way. @natgeocreative @thephotosociety

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Small towns are disintegrating around their residents. There is rampant meth and opioid addiction in some of these places. If your hot water heater breaks, there isn’t anyone in your entire county that can fix it. I am from the Midwest, and the pain rural folks have gone through showed up this election.

I saw this photo and its caption just before the November election. I bookmarked it hoping to write about it someday. Today is that day. As 45 unveils his Executive Order on H1-Bs today, I bring your attention to the highlighted line in the above excerpt. Just imagine the potential of the market demand in the area of water heater repair. Why isn’t anyone in the entire county trained to fix it? It’s not a job that needs a graduate school education. In fact, it is one of those jobs that trade schools specialize in and these jobs cannot be outsourced. So why aren’t “native-born Americans” fixing water heaters? Is that the pain that the author refers to in the next line? People bathing in cold water turning up to the election booths to vote for Trump.

It’s easy to blame immigrants who often play an important role in the economy i.e. doing the jobs the native population isn’t willing to do much less qualified to do. There are job-training and re-training programs for citizens but the current administration is even slashing funding for those.

Ideally, native-born Americans would be setting up water heater repair businesses and competing to fix them in a county where no such repairperson currently exists. If the native-born aren’t interested in those jobs, maybe some immigrant from a neighboring poorer country will move there and do that job. But what you have now is reluctance to do that job yourself plus resentment for newcomers based on factors that few in the media will dare to speak out aloud. These folks in Garden City, Kansas with “small town values” finding joy in children’s parades while suffering from meth & opioid addiction and apparently cold showers. I wonder what those “small town values” really are about? *thinking face emoji*

Motivations behind Brexit

The United Kingdom decisively voted (52-48) to leave the EU and has now caused massive economic uncertainity at the least. However, the underlying sentiment that drove natives to vote for ‘Leave’ was immigration. Like in America, they “wanted their country back” whatever that meant. In fact, it was nothing but approaching the tipping point of hetrogentity.

Europe has often prided itself on its liberal culture and attitude but just a whiff of immigration in recent years from the so-called undesiable parts of the world shatters that fragile image. Given its colonial past, Europe has never been friendly to other cultures and been accepted in some circles due to its economic benefits. A slight downtick in economic fortunes and like in the U.S., the native rush to blame immigration when in fact, it’s the one of the successes of globalization. Several dog whistles such as “cultural identity” have been used to justify tempering free mobility of people but that’s just a facade of shifting blame for declining economic fortunes on to people you know won’t fight back.

Heck, some people even thought when they’re voting for ‘Leave’, it meant that immigrants would’ve to leave UK. Naturally, the vote has led to several public displays of bigotry and prejudice. The sentiments always existed on the underbelly but it can only be manifested when the bigots feel empowered by people in power to freely express their racism.

It has happened in the U.S. for generations and its an on-going battle every year but so far saner heads have prevailed. UK just let the crazies take control and underestimated the power of hate to get the vote out. People point to the Scandanavian countries as places of bliss in terms of tolerance. I say, give it a few years, let in a few brown people, and then we’ll talk.

[image source: Freestocks at Flickr]

Turning the Corner?

The December jobs report is good news. Very good news. Payrolls increased by 200,000 — and the growth was spread relatively evenly across the economy. Retail added 28,000 jobs. Manufacturing added 23,000 jobs. Transportation and warehousing added 50,000 jobs — 43,000 of them in the “couriers and messenging” subcategory, which suggests some of those gains are temporary holiday hires. Health care added 23,000 jobs. Food services added 24,000. Mining added 7,000 jobs. The only payrolls that shrunk in December were government payrolls: we lost another 12,000 public-sector jobs.

The December numbers also give us an opportunity to step back and look at 2011 as a whole. The economy gained 1.9 million private-sector jobs and lost 280,000 public-sector jobs. The unemployment rate dropped from 9 percent to 8.5 percent.

[Source: The Washington Post]

This news definitely comes as a relief to all of us; even the ones without a job yet as it gives them hope that the U.S. economy might be turning a corner. Obviously, do not underestimate the GOP’s resolve to screw things up or to dampen the spirits because a lousy economy is their best chance at regaining the presidency. I hope the American public is at least smart enough to see past this charade and obvious attempts to halt all efforts that might seem to be helping the economy. The chart below [source: The Washington Post] is a friendly reminder to efforts at painting this president as a big government socialist when in fact on his watch nearly quarter million public-sector jobs were cut.

Jobs public private 2011

However, if you step back a little and plot this chart over the past four years to include the final Bush year, we gain a little more perspective. The bottom of the barrel in this graph is December-January 2009 where things were looking desperate. George Bush in spite of his conservative leanings still offered the biggest bailout in history but this current crop of conservatives are to the right of Bush so imagine the plight if one of them takes office. We just might see a classic sine curve. By then, things might be too late.

Jobs growth in last four years

[source; red are the Bush years and blue are the Obama years]. I hope every American sees these two graphs before they vote in November. Ultimately, they’ll get the government they deserve.

Update: For even a better perspective on the lag in recovery, check out the following graph that shows the severity of the recession we are/were in. The improvement is steady but slow. However, as Jim Tankersley at the Atlantic warns, this growth can be disrupted due to any tumultuous news such as an U.S.-Iran confrontation. However, 2011 has been quite a rocky year and that did not stem the improvement so we can hope.

Recoverygraph banner CR

Triggering a Recession

You may have heard the conservatives’ favorite complaint – government interference not only exacerbates an economic downturn but also creates it. Without getting into Keynesian or Miltonian economics, I would like to say I agree. At least on an anecdotal level. Hear me out.

Not too long ago when the country was reeling under the threat of one of the most severe recessions since the Depression, Rick Perry, Governor of Texas made a bold statement. When asked about the economic condition of Texas, he replied:

Why is Texas kind of recession-proof, if you will? As a matter of fact, just today I think, Michael, you said someone had put a report out that the first state that’s coming out of the recession is going to be the State of Texas. I told him, I said, ‘We’re in one?’

As arrogant as that may have seemed not to mention the 95,000-odd jobs Texas had lost by then leading to 8% rate of unemployment, I kinda agreed with his basic premise. Compared to California, Florida, and other states, Texas given its size was not as badly hit because the housing crisis that had primarily caused the economic recession hadn’t hit Texas as bad. Ironically, some aspects of the State of Texas Constitution that limited “cash-out” refinancing and home-equity lending which if introduced at the federal level would be decried as socialism had helped. So Texas looked in great shape, right? Even if parts of Texas suffered, towns like College Station that relied on education and research industry at the university seemed immune.

Unfortunately Rick Perry bought into the hype of his other Republican colleagues and among crazy talk of secession, he announced an across-the-board 10% budget cut for state agencies; one of which also happened to be Texas A&M University. Located in College Station, Texas A&M University is the primary employer of the town’s 70-80,000 population; not including the people living in the twin city of Bryan. This directive from the Governor’s Office led to much debate and consternation at the university where even tenured faculty jobs were not considered safe.

Following initial rounds of layoffs mostly among lower levels of staff like at the physical plant and other related departments, it led to a feeling of apprehension and unease in the town. Although the university will end up slashing less than 1% jobs, almost everyone was afraid that they too might lose their job. Other measures like hiring freezes, pay hike freezes, and reduction in other benefits although health insurance premiums rose, were also enforced. This in spite of the fact that student enrollment has significantly risen as it always does during an economic downturn and for some strange albeit political reason, tuitions and other fees have been frozen for two years too.

After an uncertain summer, the housing report for July for Bryan-College Station came out last week. It turned out that housing sales had fallen by 56%, the steepest drop in years. The expiration of the homebuyer tax credit hadn’t helped either. Realtors in the region were frustrated that due to the uncertainty in the employment market, even those who were still employed did not want to step into the housing market although July is historically the busiest month for real estate since school year begins in August. Now we know that downturn in the housing market is often the harbinger for downturn in other aspects of the economy like home services, home improvement, food & dining, electronics and appliances, etc triggering a slowing down of an economy that was otherwise quite robust and thriving. The 10% cut that the university was forced to implement while freezing tuition and fees that started all this might not even make much of a difference in the state’s finances. Obviously, this does not even scratch the surface of the effect on the quality of education and research for Texas A&M.

So yes, anecdotally, I’ve seen how the government can trigger a potential recession where previously none existed. Or it has just been a strange coincidence. You decide.

Worsening Unemployment Map

Although the Dow might be creeping up, the rate unemployment is getting worse indicating the much-talked about gap between Wall Street and Main Street. This time-lapse map showing the worsening conditions across the nation is scary. Although joblessness claims are declining, that may indicate people giving up on looking for a job and trying to ride out the recession incurring debt in the process. No ideas yet on the turnaround mark.

The Demand for McMansions

Balloon Juice blames HGTV for the housing crisis:

How many episodes of House Hunters or Property Virgins or whatever the show du jour was at the time did they have with twenty-somethings, just out of college, touring houses and turning them down because they only had two bathrooms or there was only one sink in the guest bathroom or because there was not enough light in the dining room or because the cabinets were not nice enough in the 400 square foot kitchen or, well, you get the point.

Although the post is made in a lighter vein, I can’t say I completely disagree. If anything can be blamed for this housing crisis, it is this relentless push not only for homeownership but also for large-sized homes that belied any rationality in terms of use. HGTV merely fed into the fad of more is less. Housing size has ballooned in the past decade and 2000+ square-foot homes on even larger-sized lots were now considered passe. Even when you had only a kid or two. People justify larger homes for kids needing space but anyway they carry half their belongings for their two-year-old in the family mini-van when they travel. In any good, more is always better but then so is declining marginal benefit. There exists a platuea beyond which additional square footage is simply not required for optimal living and merely counts as luxury. Of course,billionaires like Ambani cannot be chastised on their 55-story home but if overconsumption becomes the norm, you invoke tragedy of the commons which leaves everyone worse off.

In a climate of oversized homes, builders naturally obliged to satisfy this demand of McMansions especially when adding a bedroom or two didn’t add much to their construction cost but allowed them to hike up their price just high enough not to deter buyers. Do we need a fifth bedroom, but it’s only $10,000 more…hmmm, let me have it and then we can think what we put in there. Even when Mr. and Mrs. John Doe did not need that extra bedroom, all of their friends (peer-pressure) had a five-bedroom house so why not them especially when it isn’t going to cost all that more. Also, you must remember the housing boom was fueled by easy access to loans without proportionate collateral so piling on debt wasn’t an issue especially when your home prices are expected to rise exponentially just as they had in the past few years. Why wouldn’t any ‘rational’ homebuyer get that oversized house especially when you had access to loans to buy it for slightly more? Want trumped need and most weren’t so tough when the going got tough.

No wonder the suburbs are suffering far more disproportionately than central cities. People especially those fresh out of college may finally discover that they indeed can live comfortably in 1200 sq.ft homes. Or probably less, ask your average Mumbaikar.

Update: It took a housing crisis but the markets are adjusting. Average home size for a single-family detached home is declining from 2,626 to 2,343 square feet. The average home size was 1,710 in 1982 but the average family size has in fact decreased over the years thus providing no rational reason for increased home size.

Desis to blame for the ban on foreign workers amendment?

In response to this post on decision of the government to ban foreign workers from bailed out companies, a reader writes:

The biggest problem [regarding H1-B visas] with big companies, is that they are just too big and these things just pass under the radar. Most of people working here are desis, and desis won’t complain against their own managers / colleagues for practicing this, simply because it doesnt affect them. The biggest problem with big companies like (insert big tech company name here) is that there is just way too much power with managers. Once the chain of desi managers is built from VP – Director – Senior Manager – Manager, then its almost impossible to break the chain.

What’s worse is the amount of regional groupism that exists in these companies beyond these H1 issues; we have teams of 14-20 people where in every single member of the team is from one region (Read: Chennai, or Hyderabad). Team meetings are sometimes conducted in regional languages; I fail to understand how is it possible that an entire team of managers and his reportees manage to be from one geographical area from India.

Desi politics and bureaucracy rule in this part of the world – just like working in desh. If you don’t lick up to your boss, however good you may perform, you are always an underachiever – on the other hand if you are boss’s best buddy, you can sail through. Your promotion depends on “visibility” and “impressions” on other managers, not your performance. Staying late is a good sign, but not getting your work done before time.

For an average American, all this comes across as really dubious and shameful. There’s a reason why there is a developing sense of anger against Indians, especially amongst educated & qualified Americans. It has been years of such lousy behavior that has engulfed at least the Bay area, and dangers to take over the IT sector completely that is making Americans treat Indians with contempt and anger. I sometimes don’t blame them. If I were in their shoes and had to watch this kind of charade everyday at workplace, I’d ask my senator and government to stop hiring foreigners too.

I believe that this is a technology industry experience. Do any of you also working in the industry have similar experiences? What about other industries? If you think commenting can be dangerous to your employment, write to me and I will exclude all personal details, like I have done with the above email, before I share.

Nationalizing the American Banks

“As free-market economists teaching at a business school in the heart of the world’s financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system” – Matthew Richardson and Nouriel Roubini. Ah! Isn’t it surprising to see how much the debate regarding the role of the government in large private financial businesses has changed.

Kappi at Starbucks

Are things for Starbucks so bad that they are going the kaapi way? Next up, a Starbucks vending machine at the airport.

The Beg 3 and Politics

It is raining bailouts and after the $700 billion largesse for the financial industry almost every industry is knocking on the Capitol doors asking for a similar handout. Turn on the TV and you seen countless arguments for or against the bailout for the auto companies or as they are/were popularly know, the Big 3 – GM, Ford, and Chrysler. Honestly, it should be 2.25 or even less because honestly Chrysler is not in the same league. There are sound reasons for rejecting this blatant beg and allowing the industry to declare bankruptcy but then again, it is the context that matters. We are in one of the worst economic downturns so much so that another shock to the system will send the Dow plunging and unemployment and inflation sky high. It is indeed a difficult choice.

Although it makes perfect economic sense to let Detroit go bankrupt allowing it to restructure, the reality is that the 2-3 million job loss, pensions wipe out, and consequential effects on other ancillary industries and indicators. If the rest of the economy was strong and rising, I would be dead against the bailout. Now I’m merely conflicted. Theoretically I approve of rejecting the bailout but I don’t believe that bankruptcy is going to rescue Detroit; restructuring or otherwise. So it all comes down to biting the bullet and learning to deal with not only the economic avalanche but also the political fallout.

Don’t be swayed by the arguments on TV because if you look beyond the faces and their arguments, their motivations are completely different from what they state. All the supporters of the bailout are from the Michigan delegation e.g. Senator Levin who offers economic reasons and doomsday predictions in the wake of a bailout rejection. On the other hand, those against the bailout citing lessons from the free market are from non-Midwest states such as Senator Shelby whose state Alabama is home to ‘foreign’ car assembly plants. It is all politics yet no one seems to admit it. For once, I would like to see a non-Michigan Congressional member support the bailout and a Michigan member speak against it. I’m sure you’ll be hard pressed to find such a member. This election stripped Michigan of its swing state status and the Democrats would like to keep it that way and the only way they can is by refusing to acknowledge a dying industry.

Pandering to the constituents is the elephant in the room and no one on TV even talks about it. All the economics and free market lessons from the politicians are bunkum because if the car industry was in Birmingham (Alabama), you would see roles reversed. Politicians, I can understand but what stops the TV pundits from confronting this obvious truth? Let us not pretend that loyalty to an economic ideology dictates our actions because if that were true, we wouldn’t have seen any bailouts. As Carville would say it, it is the politics, stupid.

Education is not free

Although it has nothing to do with my professional life, I am deeply interested in education. Perhaps it is because I have essayed the role of a student for a long time now although in a broader sense of the word, we all never stop learning. Or perhaps it is because of the role of formal education in our lives. As with any Indian family, education has been given top priority and it takes precedence over almost everything after you learn to talk and at least until you are old enough to drink. And rightly so too because education has been the greatest enabler and often distinguishes the haves from the have-nots. I have briefly flirted with the idea of returning to India and setting up a school of a different kind; I am also heartened by the fact that my family shares a similar sentiment. And perhaps someday I will.

Atanu Dey, the resident expert on exploring innovative trends in education has been writing an excellent series on the topic on his blog. His last two posts have been particularly enlightening.

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Answer this question, Mr. Kamal Nath

Via Gaurav’s Vantage Point, I came across this excellent snippet of CNBC India wherein the reporter grilled the Indian commerce minister, Kamal Nath. As Gaurav mentioned, the reporter is well aware of common (yet uncommon) economic principles and uses them to grill Kamal Nath. The minister is an educated man too and probably is letting his ideological leanings color his economic policies but it is rare in Indian media that a cabinet-level minister would be subjected to such intense grilling.

You can sense the minister’s irritation and obvious denial in his voice when asked about his role of banning exports in the sugar sector that led to almost killing it off. Many manufacturers are reporting losses and this is as factual as it can get. Instead, Kamal Nath chooses to use words like ‘profiteering’ and ‘excessive’ profits and deflect attention on the farmer’s plight (completely unrelated.) Kamal Nath’s policies reek of a time when profit was considered a bad word and the reporter was smart to ask the minister, when is profit considered excessive and probably he should have sneaked in, who decides if that profit is excessive. Upon faced with a similar question on potential losses, Kamal Nath chose to hang up.

Politicians in India display a particular brand of arrogance that lets them assume that they are above questioning. The license raj made us almost servile and we dare not risk pissing off their fickle temperaments. But even after this control was taken away via liberalization, they continue to expect that we treat them with respect that they never deserved. The demand for respect leaves me with no choice but to treat them with contempt. Sadly, the media has often obliged their requests for irrational influence so it is a refreshing sight to see someone like this CNBC reporter take on a cabinet minister head on and grill him based purely on sound economic knowledge especially when the minister feigns ignorance and resorts to the populist tactics that got them elected. If you know the name of the reporter, please let me know via the comments [Update: the reporter’s name is Udayan Mukerjee; thanks to Sqrl for Googling]

India Poised?

Via Amit’s India Uncut, I found this new feel-good movie on India i.e. the Bharat Bala kinds. Although Amit rants on the cliches galore in the advertisement, I found it decent. But then again, Amitabh might say “chickenshit” and yet it may sound impressive. At least, the short movie tries to put into words the conflict of two Indias that the Congress used so effectively to dampen BJP’s India Shining campaign. Heck, according to John Edwards there are even two Americas.

As a matter of fact, there will be alway two of anything as disparities are a reality of our existence. In fact, one of my fiscally conservative colleagues mentioned that such disparities are important in order to motivate individuals on one side to move to the other through sheer hard work. I may not completely agree on such simplistic justification because of sheer lack of opportunities but that is a whole different post.

Leash distinctions apart, did anyone notice that Amitabh was standing on the Worli-Mahim sea link that has been lying incomplete for years. Was that backdrop used deliberately to underline the dilemma of two Indias? Or which India does that unfortunate project belong to? Or do both Indias swear off it?

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