Beyond Austerity
In my column this week for Defining Ideas, I argue that the key to economic recovery is liberalizing labor markets, not relying on macroeconomic “fixes.”
Grim is the right word to describe the latest economic news from both the European Union and the United States. Throughout the European Union, austerity programs have failed both politically and economically. In Spain, unemployment rates have soared above 24 percent. The Dutch government is on the edge of collapse because of the popular and political unwillingness to accept the austerity program proposed by its conservative government. Romania is not far behind. Greece, Italy, and Portugal remain in perilous condition. France faces a presidential run-off election between President Nicholas Sarkozy, who is moving rightward on immigration issues, and the free-spending socialist candidate Franciose Hollande. On the American front, the decline of GDP growth to 2.2 percent rightly raises fears that our sputtering domestic recovery is just about over.
It is no surprise, therefore, that leading columnists like Paul Krugman have taken this opportunity to announce triumphantly that austerity is a “fairy tale” that shatters the social confidence that it is designed to shore up. It is futile to invoke fiscal austerity, he argues, when economically beleaguered countries really need to be “spending more to offset falling private demand.” The cure is supposed to be increased government spending, but that solution has its own serious problems. Krugman assumes that the declines in private demand and private investment are attributable to mysterious external forces that are beyond the power of government to control.
But both macroeconomic programs are doomed to failure. Only by changing our microeconomic policy—reforming the labor market, specifically—will we start seeing economic growth. The calcification of labor markets with regulation upon regulation is the primary impediment to economic recovery today, as I explain further over at Defining Ideas.
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Dec '11
Re: Beyond Austerity
So krugman is seriously arguing that because people dont like the idea that resources are limited, that governments should behave as if they arent?
To me the idea of austerity is not allowing the present to destroy the future. Its not that its going to suddenly make the economy improve, its just about making it so that the economy can improve. Especially when the event horizon of going bankrupt is in the very near future, and not just a notion.
To the notion that government spending will kick start a recession back into normal growth, is kind of like saying that fully-leaded sudafed will cure your cold, so if some keeps the sniffles at bay, lots of it is awesome, so lets go nuts and hope a blood vessel in our brain doesnt explode.
Edited on May 1, 2012 at 2:58pmApr '11
Re: Beyond Austerity
I agree with the premise of free labor markets but I don't see that as the key problem in the United States. Labor market regulation tends to effect the employer not the employee. I would argue that the housing market is having a large effect on the free movement of labor. If you are tied to an underwater mortgage moving to a new town/state to take a new job is very difficult. I would also look at education. Most applicants that I see don't come with enough to perform nontechnical labor consistently. I don't know how some of the applicants I see could have finished school. Lastly I would argue that the false floor put down by high minimum wage and exorbitant welfare benefits inhibit productive. It plainly isn't worth it to seek entry level employment when you can be paid not to. The drugs are free too!
Mar '11
Re: Beyond Austerity
This is fallacious.
I run a small, but very dynamic and exciting company. We could, in theory, employ a few dozen people. But we don't want to face the constraints, and so we ONLY have contract labor and consultants. My intention is that we will grow to hundreds of millions in sales - and still not have a SINGLE employee.
Having employees is more trouble than it is worth.
Nov '11
Re: Beyond Austerity
Regulation upon regulation on everything.
May '11
Re: Beyond Austerity
iWc
I run a small, but very dynamic and exciting company. We could, in theory, employ a few dozen people. But we don't want to face the constraints, and so we ONLY have contract labor and consultants. My intention is that we will grow to hundreds of millions in sales - and still not have a SINGLE employee.
Having employees is more trouble than it is worth. · 19 minutes ago
I want to give you a little heads up here. (As a labor lawyer, I have a bit of cred on this.) If you think that calling someone an "independent contractor" or a "consultant" gets you out of the problems with employees, you have a nasty shock in store for you down the road. I have a simple rule for when an individual worker meets the legal test to qualify as an independent contractor -- never.
Apr '11
Re: Beyond Austerity
iWc
This is fallacious.
I run a small, but very dynamic and exciting company. We could, in theory, employ a few dozen people. But we don't want to face the constraints, and so we ONLY have contract labor and consultants. My intention is that we will grow to hundreds of millions in sales - and still not have a SINGLE employee.
Having employees is more trouble than it is worth. · 30 minutes ago
I think you've enhanced my point rather than rebutted it but I will reiterate and try to enhance. Labor regulations are written to restrict employers never the employees. I was not attempting to use regulate as a word with any sort of positive connotation whatsoever as I do not believe there is much in the way of positive regulation.
As an aside: don't you just love when some gormless applicant starts an interview or tries to monopolize with discussion of their putative benefits and completely ignores duties and responsibilities?
Sep '10
Re: Beyond Austerity
We refer constantly to tight and easy monetary policy... the currrent steriod-enhanced ease notwithstanding...and yet nobody talks about fiscal tightness especially regarding regulatory burden. Too hard to measure I suppose but we are certainly in the equivalent of double-digit-volkerized-tightness when it comes to the regulatory regime.
Jun '10
Re: Beyond Austerity
Dignity doesn't come from the quality of your dinner. Dignity comes from being able to earn that dinner, rather than having to beg for it.
Mar '11
Re: Beyond Austerity
Larry3435
iWc
I run a small, but very dynamic and exciting company. We could, in theory, employ a few dozen people. But we don't want to face the constraints, and so we ONLY have contract labor and consultants. My intention is that we will grow to hundreds of millions in sales - and still not have a SINGLE employee.
Having employees is more trouble than it is worth. · 19 minutes ago
I want to give you a little heads up here. (As a labor lawyer, I have a bit of cred on this.) If you think that calling someone an "independent contractor" or a "consultant" gets you out of the problems with employees, you have a nasty shock in store for you down the road. I have a simple rule for when an individual worker meets the legal test to qualify as an independent contractor -- never. · 1 hour agoY
I'll bite: As a labor lawyer, are you an employee of your clients?
Jun '10
Re: Beyond Austerity
Europe's financial problems are secondary. The Europeans are facing problems at the root level that are ethical and moral. The populace has been lulled into complacency by the promise of easy living. When the government threatens to take away their candy, they throw a tantrum like spoiled children.
What happens next when the candy jar goes empty? I suppose it will be time to grow up. Good luck with that. Trust fund babies who exhaust the accumulated capital of previous generations are notoriously bad at making the transition to meaningful lives. They become pathetic losers.
We can save time and write the epitaph now: "They had it all, and they threw it all away." And the next stop is tyranny. It will take all the police powers of a coercive state to re-establish law and order. Say goodbye to personal liberty (which you won't have time to think about anyway as you shiver and grumble in the cold). You'll get used to the heavy boot on your collective necks. Or so I'm told.
Edited on May 1, 2012 at 4:31pmMar '11
Re: Beyond Austerity
Crab bait
iWc
Having employees is more trouble than it is worth. · 30 minutes ago
Labor regulations are written to restrict employers never the employees.
But the outcome is clearly to disincentivize employment - which means employees pay the price just as surely as do employers.
Nov '11
Re: Beyond Austerity
iWc
Crab bait
iWc
Having employees is more trouble than it is worth. · 30 minutes ago
Labor regulations are written to restrict employers never the employees.
But the outcome is clearly to disincentivize employment - which means employees pay the price just as surely as do employers. · 1 hour ago
Some of the best employees figure this out and go to work for themselves.
Re: independent contractors, I would imagine that it depends on the nature of one's business whether they are in fact a better deal than employees. In the service business that I own, the standard procedure is to hire "independent contractors" who, as Larry3435 points out, do not meet the legal standard (but hardly anyone gets caught). Since a trained employee is valuable, and employees are much more likely to stick around than contractors, I much prefer to follow the law. There is a little something to be said, too, for building a company that takes care of the people who helped you build it. But too, for me it's critical that I'm in Virginia, where we can fire at will.
Mar '11
Re: Beyond Austerity
Sandy
There is a little something to be said, too, for building a company that takes care of the people who helped you build it.
I never understood this. I pay for a service, which means I have "taken care of" the people who provided the service.
My obligation is to the owners (shareholders), to create value for their investment. My obligation to everyone else is to act in an upright manner, to honor my commitments and be an overall gentleman.
But devotion to the people who have already been paid for their services? Not one bit.
Aug '10
Re: Beyond Austerity
The left doesn't seem to understand that most labor laws have the effect of hurting the poor, minorities, the disenfranchised, and small businesses - all group they claim to support.
When it becomes very hard to fire someone, who are you going to hire? The kid from the immigrant family with no job history? Or the nice boy in the suit and tie who comes from a solid, upright family? Which one represents a bigger risk to your company?
In France, where it can be nearly impossible to fire someone, the unemployment rate for young people and especially young immigrants is outrageous.
Large corporations don't mind strict labor laws. They have HR departments, and they hire so many people that they can afford to play the law of large numbers, knowing that in the end a few bad apples won't make a dent in their bottom line. But a small businessman who makes a bad hiring choice can be destroyed by it if he can't let the person go.
Minimum wage laws which prevent wages from being reduced when productivity drops result instead in massive layoffs among people at the bottom end of the income ladder.
May '10
Re: Beyond Austerity
Your essay makes eminent good sense. How does it feel to be shoveling sand against the tide? You are exactly right but I despair of ever getting a populace or a legislature with the sense to tear down the woeful mess that has been erected.
May '10
Re: Beyond Austerity
iWc
Sandy
There is a little something to be said, too, for building a company that takes care of the people who helped you build it.
I never understood this. I pay for a service, which means I have "taken care of" the people who provided the service.
My obligation is to the owners (shareholders), to create value for their investment. My obligation to everyone else is to act in an upright manner, to honor my commitments and be an overall gentleman.
But devotion to the people who have already been paid for their services? Not one bit.
"The employer generally gets the employees he deserves." -- Sir Walter Bilbey
There are many employers who feel just as you appear to. And that attitude is one that is sufficient if your employees are engaged in doing the lowest and least skilled sorts of labor; where employees are a mere commodity. A ditch digger is an example. There is no shortage of people with a dull mind and a strong back who can dig a ditch where ever you tell them.
But if you desire to employ persons who can do higher level skills, that mindset will only produce turnover.
May '10
Re: Beyond Austerity
That is really the problem with liberalism generally. The government "helps" you by shouldering your responsibility to do ____ (Fill in the blank -- provide retirement security, arrange your terms of employment, pay for your medical care, etc.) for you. But the result is that you, therefore, no longer have to take responsibility for yourself in that arena. Failure to take responsibility for oneself is the root of immorality and unethical behavior.
Mar '11
Re: Beyond Austerity
Tom Lindholtz
There are many employers who feel just as you appear to. And that attitude is one that is sufficient if your employees are engaged in doing the lowest and least skilled sorts of labor; where employees are a mere commodity. A ditch digger is an example. There is no shortage of people with a dull mind and a strong back who can dig a ditch where ever you tell them.
Not in our case. We have almost no turnover, and we don't lose people whom we want to keep. What we do is *very* exciting, and feathers many caps. Our team is absolutely world class - the best of the very best.
Yet I make it very clear that my cash obligations are met in full the instant the bill is paid.
We do cheat, though: we partner a lot, and almost everyone involved has an equity stake of some kind. That makes them shareholders, with residual interest in long term wealth generation. They know full well that I work for them inasmuch as they are shareholders.
Edited on May 2, 2012 at 4:17amNov '11
Re: Beyond Austerity
iWc
Yet I make it very clear that my cash obligations are met in full the instant the bill is paid.
We docheat, though: we partner a lot, and almost everyone involved has an equity stake of some kind. That makes them shareholders, with residual interest in long term wealth generation. They know full well that Iwork for theminasmuch as they are shareholders. · 4 minutes ago
Edited 0 minutes ago
Well that does make a big difference, and I think that it's brilliant on your part to so remove some of the worst aspects of the employer-employee relationship.
With regard to your "cash obligations," I take you to mean that all your obligations are met when the bill is paid, and with that I would disagree. Even from the fairly narrow point of view of self-interest, it seems to me that both sides are dependent upon certain old-fashioned virtues such as loyalty and pride that need to be nurtured and acknowledged beyond the paid bill. But perhaps that is a subject for another time.
May '11
Re: Beyond Austerity
iWc
I'll bite: As a labor lawyer, are you an employee of your clients? · 19 hours ago
No, but I'm not an individual worker either. I am a partner in my law firm. I am not hired by my clients; my law firm is hired. A company can be an independent contractor; an individual almost never qualifies. If you want another way to phrase the test, ask yourself this question: Is somebody paying for workers' compensation insurance and withholding taxes? Could be you. Could be someone else. But if nobody is doing these things, you're going to have a problem.