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Bizarro World Finance

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This last week, the yield on a 2-year Irish Government bond turned negative, garnering a rate of -0.007%. That means that if you want to loan the Irish government some of your money, you have to pay for the privilege of doing so. Negative interest rates are not exactly new, but in the case of Ireland it’s particularly bizarre. Just three years ago, amid a potential default crisis, the same bonds were yielding 23%.

What changed? The short answer is no one knows. Shiela Kinsella, an Economics Professor at the University of Limerick, was exasperated. “The market is still in an irrational stage. It’s telling me that markets are lumping the same countries in again, and it’s just proof that nothing is ever learnt.”

Why did this happen? Investors in the Eurozone still can’t find anything to invest in as the European Central Bank (ECB) started a weak bond-buying program to goose investment. It’s a last ditch attempt to goose the economy and produce much needed jobs. But all it has created so far is a Bizarro World in finance.

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Skills Gap?

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Is there a “skills gap”? Many economists and policy wonks have debated whether or not persistent unemployment is related to a lack of workers with just the right training to fill today’s jobs. JP Morgan’s Jamie Dimon famously wrote an argument in favor of a lack of skills as the major problem, which Paul Krugman then proceeded to tear apart. The arguments continue back and forth with little resolution.

So is there such a problem? The short answer is “no”, but the long answer is “yes”. An excellent piece by James Besson in Harvard Business Review (HBR) un-asks the question neatly and shows that there is indeed a problem developing the right skills in a changing economy – but it’s not something we can fix simply by changing what kids learn in college. It’s much more endemic to a dynamic, open economy all around.

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Labor Creates All Wealth

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As Democrats contemplate the possibility of losing the Senate, there are many ways we can handle it.  We could all sit in the back and throw stuff, much as the Republicans did for the last few years.  We could turn on each other and rip our own guts out in a festival of shame and blame.  Or, if we’re intent on really standing up to our principles, we can use this time away from being the responsible ones and understand what it is that we, as a party really stand for.

We have a lot to offer if we can only get it together for once.  But I, for one, think it’s going to take a much deeper understanding of our core values and what is really happening around us before we can make it happen.

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Player Piano

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Kurt Vonnegut’s 1952 novel “Player Piano” was more than his first. It was arguably the first “dystopian utopia” novel of a world carefully described and proscribed for everyone involved. Those with technical degrees were the masters of the carefully planned world, and the rest either joined the army or worked for the “Reconstruction and Reclamation Corps” building infrastructure. Government took care of everyone, but not all were happy. Rebellion steeped under the calm surface in both the working class and the unchallenged rulers.

It’s hard to not think of such a world when reading “AI, Robotics, and the Future of Jobs” from the Pew Research Center and Elon University. A survey of 1,896 experts in technical areas were asked what they thought the future world of employment might look like – how much automation might displace workers and how many jobs it might create. The results read something like Vonnegut imagined – enough so that a little anxiety about the next economy is justified.

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Labor in a (Jackson) Hole

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The Federal Reserve of Kansas City puts on the big event every year – and why not throw a big party when your territory includes Jackson Hole, Wyoming? This year’s production concluded after presentations and official pronouncements from all the top central bankers of the world – Mario Drahgi of the European Central Bank (ECB), Haruhiko Kuroda of the Bank of Japan (BOJ), and our own Janet Yellen. It’s a must-see event if you want a front row seat for the big show of policy changes among the most powerful people in the world.

This year, the theme was “Re-Evaluating Labor Market Dynamics”, and the power players from around the world made it clear that nothing is going to change in the near future. If that sounds like the biggest let-down for a big show ever, you’re right. The Fed never intended for this to be a huge theatrical spectacular. It’s a place for central bankers to get together and agree on things. And what they agreed on, more than anything, is that in the developed world there is nothing more important than figuring out just how much “slack” there is in labor markets and how to take it up.

But it’s more exciting than it seems if you want to predict what will happen in the next year.

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