Is there a job skills gap?

Paul Krugman says no and he has some careful studies to back him up. He does not mention -- it's only a short column, he cannot get to everything -- what's missing in the areas of highest unemployment, namely the deep rural areas and the core of the cities. What's missing is jobs.

 Where would you find them? China, Paraguay, places like that. We shipped off tens of millions of jobs, and they weren't just jobs, they were jobs in places. Manhattan, for example, used to be full of garment making work. Some of that still exists, mostly in Los Angeles; but most of it is gone.

Krugman links to another Times story about an American firm that claims it has garment-making jobs going unfilled for lack of trained seamsters. The factory is in Minneapolis. Duh. If you want to hire trained seamsters, you do not place your factory in Minneapolis. If you do, plan to train seamsters yourself and stop bitching.

 Even after two generations spent reporting on American business, the stupidity and incompetence of American business managers, taken as a whole, still amazes me.

Brother, can you spare me a dime?

It took over 50 years to depopulate the rural South. Americans are, individually, mobile people but whole communities are not. Nor should we wish them to be.

 Now the core cities are slowly being depopulated (and repopulated, which is also happening, very slowly, in parts of the South). I guarantee you that the rightwingers do not wish that the left-behinds in the core cities suddenly show up in their suburbs and new towns competing with their kids for jobs. Nor, probably, do many of the leftwingers, but I make the distinction because it is rightwingers who blame the remnants of the old industrial workforces for being jobless.

 It is not the son of the machine-minder in Brooklyn (I am thinking of a neighborhood near the Aviation High School that used to be filled with small machine shops) who is responsible for the structural changes in the distribution of jobs.

It is not hard to see why kids in decayed areas do not see much hope for themselves or much point in working hard in school. Some will. Many will not.

 The voodoo economists who cheered the export of America's industrial jobs thought that the magic of the marketplace would fill in after, and they (that is, government) did not need to do anything. To a degree, new jobs were created. But not where they had been.

 If you want to be disgusted just read the comments under any news story about an inner city episode that makes the news.

 But it is not only the lumpenproletariat who have learned that creative destruction means destruction. I am reminded of a highly educated woman on Maui with two even more highly educated sons. Back during the Reagan recession, she was moaning that her boys, despite their combined 6 diplomas in scientific disciplines, were both unable to find work. When Krugman claims

Above all, we should see workers with the right skills doing well, while only those without those skills are doing badly. We don’t.

he is right. And his summation is correct, too:

Unfortunately, the skills myth — like the myth of a looming debt crisis — is having dire effects on real-world policy. Instead of focusing on the way disastrously wrongheaded fiscal policy and inadequate action by the Federal Reserve have crippled the economy and demanding action, important people piously wring their hands about the failings of American workers. Moreover, by blaming workers for their own plight, the skills myth shifts attention away from the spectacle of soaring profits and bonuses even as employment and wages stagnate.

Book Review 318: All the Devils Are Here

ALL THE DEVILS ARE HERE: The Hidden History of the Financial Crisis, by Bethany McLean and Joe Nocera. 380 pages, illustrated. Portfolio

 On page 48 of “All the Devils Are Here,” the Community Reinvestment Act is mentioned (it gets less than a sentence) and then never again. This is important because the rightwingers, desperate to excuse the failure of Reaganomics, have adopted the CRA as THE cause of the crash.

Business reporters Bethany McLean and Joe Nocera correctly attribute no weight to it at all. There were plenty of causes and in this rollicking toboggan ride ending in the Bush Crash, McLean and Nocera tell the tales through personalities. There is not a graph in sight, nor a chart, only selected statistics.

 One is that in the last, desperate months of the credit bubble, 35% of residential loans made were for second homes or speculation -- it ought to be (but is not) needless to say, those loans were not scored for bank CRA compliance. Nor were any of the loans made by Countrywide, the biggest issuer. Nor for refinancings, which were the majority of all residential loans.

 But enough, if it wasn’t the CRA, what was it? There is a single and simple answer, that the people running the lenders did not understand risk. And while this is true, it is unsatisfactory. Why didn’t they? Wasn’t that their job?

A cynic might say, no, it wasn’t. Their job was to sucker investors without regard to eventual repayment, and devil take the hindmost. McLean and Nocera come close to this position, while not quite understanding it.

A good part of the book is devoted to those now infamous smarties like John Paulson and Goldman Sachs, who did foresee a crash and shorted or otherwise manipulated the paper to make money for themselves, all in best Adam Smithian fashion. But, and this is the part McLean/Nocera don’t get, those vultures did not understand risk either.

 They could detect risk in a portfolio but not in a system. (Janet Tavakoli, who did understand the big-picture risk and spoke out, all unheard, gets no more attention than the CRA.) They, and by them I mean the top managers of the biggest institutions, all regarded the national and world financial system as a game of musical chairs.

 Some (but not all, and especially not people like Alan Greenspan and Larry Summers, two very stupid men who had reputations for being extra smart) did get that a crash would come. But each knew that he was smarter than all the rest, and had the best sources of information, so that his institution could circle the chairs until the last moment, being certain to grab one for itself.

They did not understand that most of the chairs, not just one, would be taken away at once. In other words, they gambled the entire financial system against a few billion dollars for themselves. Had it not been for the lessons of the New Deal, not entirely forgotten, and the gigantic resources of the government, the system would have been destroyed, to come back who knows when.

 There are hardly any heroes in Nocera and McLean’s telling but Treasury Secretary Hank Paulson comes closest.

In the end, Nocera and McLean finger unregulated markets, saying that those who blame Fannie Mae and Freddie Mac have the story upside down.

 I have a few problems with this generally persuasive book. Foremost is the attention to the inner demons of the key players. I agree that personal motives are hugely important in the working of management (one reason why Reaganomics is too inhuman to work), but an awful lot of the demons are inferred or attributed to unsourced informants. It makes for a lively book but also makes it hard to assess its reliability.

 Second, it is irritating to be told that bigger down payments would have helped cushion or even forestall the Bush Crash. For one thing, in the hard hit areas price declines were so big that even a 20% or 30% equity would still have been wiped out. For another, there is nothing to show that a big down makes for a more reliable borrower.

 Tens of millions of 5%, 3% and 0 down mortgages were successfully written for the FHA and the VA over generations and repaid. It wasn’t until private, market-oriented lenders got involved that the system went haywire.

Another responsible gun owner

I followed the link to the sad saga of Israel Rondon thinking it was about the "sovereign citizen" who was squatting in people's houses when they went on vacation, but no, this was a different sovereign citizen.

Rondon seems to have been treated gently by the Ohio courts, getting only probation for a collection of offenses including assaulting a cop, poaching deer and carrying a pistol in his car. (Just that last one would almost certainly have gotten him hard time in Maui.) Perhaps the judges were affected by Rondon's obvious mental problems.

 This may have been false sympathy since it looks like Rondon was on a downward trajectory. I am guessing he wouldn't have received mental health treatment gracefully even if it had been offered. So he got shot in the head.

People like Rondon are very difficult to know what to do with. Shooting them in the head seems both inevitable and less than optimal. Not all sovereign citizens are dangerous, but the publicists who feed their fantasies are. Whatever, easy access to firearms made everything about Israel Rondon worse than it had to be. The gun nuts have a lot to answer for.

Book Review 317: Odd Tom Coryate

ODD TOM CORYATE: The English Marco Polo, by R.E. Pritchard. 272 pages, illustrated. Sutton

If you were to walk today -- as Tom Coryate did between 1608 and 1616 -- from England to India, the chief difference would be that you would not see gallows and corpses hanging on poles every few miles.

Odd Tom was a quirky, amusing travel writer, and he has found a quirky, amusing biographer in R.E.Pritchard. (Pritchard has recently taken on the scandalous Earl of Rochester, which I have not read but who should fit his snarky style even better than the somewhat prissy Coryate.)

Another big change from then to now: Coryate was able to “put out” 100 marks in a kind of reverse travelers’ life insurance. If he returned alive, as he did once, he would collect twice or thrice the premium. He had to sue for it, but apparently the gain financed the self-publication of his book “Coryate’s Crudites,” another modern-sounding aspect of Odd Tom’s life.

 As he traveled, he encountered other Englishmen, but they were all merchants, diplomats or young grandees on the Grand Tour. Coryate was among the first to travel for the pleasure of it. His book introduced the story of William Tell to England, and for us today it has its own revelations.

 For example, the Muslim practice of daily prayer had its Christian analogue in Venice, where everyone dropped to his knees, wherever he was, twice a day on a bell signal to worship the Virgin Mary.

 His tramp across Iraq -- Pritchard says he was the first European since Alexander to walk from the Mediterranean to India (though Alexander himself likely rode) -- also sounds very modern. It was suicidal for a Christian (or anybody for that matter) to travel without protection.

Coryate was a solitary traveler although he joined groups when it was convenient or prudent. When traveling to Jerusalem, even a caravan of several thousand was not big enough to deter attacks from Bedouin. But the violence and insecurity of the Koran Belt, still familiar today, was unusual when Coryate walked. He went alone and unarmed most of the time.

In Europe, the only really dangerous patch was along the Rhine, an armed camp during the Twelve Years’ Truce between the Netherlands and Spain.

Coryate was thrice lucky. Had he walked a little earlier, he would have been blocked by the wars of religion in France, a little later by the wars of religion in Germany. And at all times he was in danger from his big mouth.

A decided Protestant, of apparently conventional Anglican views, he liked to harangue Catholics, Jews and Hindus. Once, in Venice, he was lucky to escape without a drubbing, and it appears he was wise enough to curb his tongue while in the Ottoman territory. In India, he was tolerated because he was judged to be mad.

 Among fellow Englishmen, he was likable enough, a bit ridiculous, as he still seems today.

Book Review 316: The Nazi Economic Recovery 1932-1938

THE NAZI ECONOMIC RECOVERY 1932-1938 (second edition), R.J. Overy. 77 pages. Cambridge University paperback There are two common views of Germany’s economic rebound after the Great Crash: that it was propelled by spending on warlike industries and a big army and air force; or that the Nazis were a sort of proto-Keynesians before Keynes. A later wrinkle on the second view -- because 21st c. rightwingers are desperate to find exculpations for the spectacular failure of their ideology in the Bush Crash -- is that because German economic moves were similar to those of the United States, that makes the New Deal fascist. None of this stands up to analysis, as R.J. Overy shows in what is virtually a review article on the economic history of Germany in the ‘20s and ‘30s. (The essay is intended as a scene setter for students, one of a long series sponsored by the Economic History Association.) The first common notion is easily disposed of: German recovery had gotten under way before military spending became important in 1936. In fact, current opinion is that the second Four Year Plan and rearmament retarded expansion by directing effort into unproductive areas. The second notion requires some sophistication to rebut. There is more to Keynesianism than government deficits. And as Overy shows in a long list, the Nazis adopted none of that. Germany was in a worse state than any other advanced state by 1931-32, but there are only a few broad areas in which economic policy can operate. Thus, if taxes are kept very high (as they were in Germany) then consumption must fall. And it did. By 1938, German workers enjoyed full employment (not all of it paid, though), but their pay was held low in both nominal and real terms. A German worker drank less than half as much beer in 1938 as he had in 1927. This was opposite from the situation in the United States, where real wages (for those employed) were higher. Overy does not mention that almost all of the 500,000 Germans who had emigrated to America to find work in the ‘20s returned to Germany after 1933. This makes the full employment regime achieved by the Nazis that much more impressive. Yet not all that impressive. Hitler saw to it that Germany looked busy, but economic expansion rates were considerably lower than in Germany before 1913 or after 1945, or in most of Europe in the ‘30s. Overy considers that politics trumped economics in the Nazi government. “Reemployment and trade revival he (Hitler) regarded as a precondition for further political ambitions.” Also, he had a mystical vision of German peasantry expanding into the east, but German agriculture was very inefficient, so that would have retarded expansion. As many historians have concluded, Nazism in practice was incoherent, with state and party agencies working at cross purposes and all of them imjecting bureaucratic sclerosis into an economic system that was already far behind Britain or the U.S. when it came to efficiency or innovation. The Four Year plans “never quite amounted to a central economic plan.” So much for the idea that because the movement’s name was National Socialist German Workers Party, it was socialist. It is a fair judgment on the depth of understanding of American rightwingers today that they can believe such nonsense. Nor was it, as noted above, pro-worker (though it was certainly national). But neither was it a party beholden to big business. The Nazis promised everything to every faction but in the end kept it all for the party.

(It has nothing to do with Overy’s text, but the cover illustration chosen by some Cambridge University Press designer for the paperback edition is a screamingly funny example, by one Kettler, of Nazi gay porn. Tom of Hanover got nothin’ on Herr Kettler.) CORRECTION (April 14): Sorry, Tom of Finland, not Tom of Hanover. Slate.com reminds me of the right guy: http://www.slate.com/blogs/outward/2014/04/14/finland_s_graphic_gay_bondage_stamps_are_amazing.html

Compounding woes

The New York Times has a short, alarming but http://dealbook.nytimes.com/2014/03/26/pitfalls-of-reverse-mortgages-may-pass-to-borrowers-heirs/?_php=true&_type=blogs&hp&_r=0 about reverse mortgages. It alleges lenders deceive and jerk around the borrowers or their heirs. This is news? No, but this was news to me:

Already, the combined debt of Americans from the ages of 65 to 74 is rising faster than that of any other age group, according to the Federal Reserve.

I suppose it shouldn't have been, considering the well known fact that most Americans do not have sufficient assets to survive once they quit working. I had sort of implicitly assumed that whatever these people were doing (starving, probably) they were not borrowing, because who would lend money to someone with small income and no longer any labor value? Silly me. These are lenders. They are reckless. I have never paid close attention to reverse mortgages, though I have heard enough horror stories that I would have been leery of them. What the Times story leaves out is the clinker in the scheme: the magic of compounding works just as magically when the money is coming in as when it is going out. That is, if you put your money out in savings, compounding helps multiply the total (or it will again if the Fed ever leaves off its low-interest strategy). If you bring money in via a reverse mortgage, the balance balloons quickly (despite Fed policy this time) because since the borrower is not paying interest or principal, he is paying interest on interest. In other words, a reverse mortgage is an Alt-A mortgage, the most toxic of all mortgage scams. Worse really, since it doesn't even offer a "teaser rate" period. Triply worse, even, since an Alt-A mortgage can work to the borrower's advantage in a rising market. In a reverse mortgage everything is, well, reversed, and a rising market adds to the misery of the borrower (or heirs). Some of the deficiencies of the Times story are made good in the comments. This is the kind of story that elicits a lot of personal experience replies, one of the nifty but dangerous features of Internet journalism. Not all the comments are well-informed or honest, but some are.

Kicking Kickstarter

RtO has 0 interest in Kickstarter as a method, but it does value high-quality comments on the Innertubes. Here you get 'em in spades. Good reading, even if you have no interest in Virtual Reality technology. Close to 20 years ago now, I was invited to a VR presentation at the Maui High Performance Computing Center, one of very few places at that time with the digital muscle to drive a VR program. The presenter, who was from the U. of Illinois though I have forgotten his name, had a mantra: With VR you would soon be able to interact "without bringing the meat." I didn't buy it then and I don't buy it now. A little story will explain why. In the early, early days of the Internet a few forward-looking Maui companies were getting Webfeet. They were badgering me to write stories about them in The Maui News, and in several cases I did. At that time, my son was finishing up his degree at SUNY-Purchase, which is next door to Armonk, where IBM has its headquarters. Hal was working with one of his professors on alpha testing of VRML, the first program that could reliably make Internet screens look 3-D. IBM was promoting Big Blue, its chess-playing software, by staging a match with Kasparov. Each move, as it was made, was published on the Internet. (Later on, when Hal was telling me the story that is the point of this story, I asked him how many hits Big Blue was getting and he said, "Two million a day." I was being pestered by local businesses who were getting 20 hits, so I said, "That's my new standard for getting a feature in The Maui News, two million hits a day." But that is not the point of this post.) IBM was spending freely, commissioning a custom set of chess pieces etc., but the moves were just being put on the 'Net on 2-D. Late in the match, someone who knew Hal mentioned to someone at IBM Armonk, "You know, there's a kid down at Purchase who can put those moves in 3-D." So IBM called Hal, and he put the match into 3-D overnight for them. And that's the point of this story. I thought then and still think that face-to-face and personal contact is the way people work best, and that includes learning in and out of school, finding work and customers and mating. I spend a good deal of my time as a "social media director" trying to fool the algorithms into thinking I'm "real." You don't hear much about "virtual corporations" any more, do you? They don't work very well. (A friend who tried to start one told me, "You REALLY have to trust your partners." That's true of other businesses, too, but on the Internet "nobody knows you are a dog.") Hal's introduction to IBM -- the result of an accidental encounter on the sidewalks of Armonk -- eventually sent him to Japan and Russia, and helped him create the career he is pursuing 20 years later. This has large implications for efforts to get America's underclass on the road to the middle class, but that's a topic for another day. For now, I'll just say that Barack Obama's "you didn't build that" line was exactly right and the howls from the rightwingers proved how out of touch with real people they are.