Fake news is not the problem. Artificial intelligence is.

By Neil Patrick

Today is a bad news day according to the news feed on my smartphone. Just like most other days then. It’s Tuesday 5th September 2017.

Like billions of other people, the news feed on my smartphone has been tailored for me by an algorithm. And my news has been written by junior hacks assembling computer generated information into ‘stories’. Doubtlessly they have been taught by their bosses that bad news and misery is the foundation of maximising readership.

These poor folk have no clue what they are writing about. They are simply painting by numbers.

I tweeted a while back in my #dearrobots series: ‘There’s a reason it’s called artificial intelligence – it’s not the same as real intelligence.’

Artificial intelligence is not just within the machines and IT that business deploys. It is penetrating the very brains of the people we need to trust for our news.

The algorithm which delivers my newsfeed has ‘learned’ what I like to read. Sort of. Because it has no ability to discern quality thought and content from junk.

And it helpfully put up the top three stories it thought would be of most interest to me.

So far so good.

The top three stories were:

Daily Telegraph: ‘Growth in UK services sector falls to 11-month low’

Reuters: ‘UK Car Sales are falling off a cliff’

Sky News: Lego sales drop: 1,400 jobs axed

Bingo! Yes these are all stories I want to know about.

But after this promising start, everything went downhill from there. Three news stories, yet every one was so ignorantly written that they not only told the wrong story, they would actually mislead 99% of readers into believing the wrong ‘facts’.

I am the last to criticise the integrity or quality of any of these three news sources, yet each one had provided me with what can only be described as fake news.

The first two ‘stories’ are not stories at all. They are simply the normal thing which happens every summer - people stop work for a couple of weeks and go on holiday.

This is why most business slumps in August

And if you work in a service business, it’s a very good idea to go on holiday in August, because unless you are a wedding photographer or ice cream vendor, chances are your clients have gone on holiday too and you might as well join them.

It’s nothing to do with Brexit, squeezed incomes, or business confidence. Yet according to the Telegraph writer, ‘This makes last month the weakest since September 2016’.

Wow. That’s almost exactly a full year…in fact the worst since the last time everyone went on their summer hols.

The Reuters writer has fallen into the same trap of not knowing about this mysterious thing called seasonality. In the UK, car sales have always bottomed out in July because new registration plates showing the vehicle registration year (half yearly since 2001) come out in August. They have done this since August 1962.

Of course new vehicle sales slump in July, because no-one in their right mind wants to buy a car which appears to be six months old when they drive it off the forecourt.

Yes the UK car retailing sector is headed for crisis as I have written about here. But sales have slumped in July every year forever for this simple and predictable reason.

This is not a story – it’s a clueless intern churning out words about a subject they care or know zilch about.

Which brings us onto the Lego story.

Everyone loves Lego, including me. So I was sorry to hear that they were in difficulty.

1,400 lay-offs is about 8% of their workforce.

Yet here’s the fascinating thing. Just six months ago, this appeared:

Lego is the world’s most powerful brand according to Forbes and Brand Finance:

https://www.forbes.com/sites/jeffkauflin/2017/02/14/the-most-powerful-brands-in-2017/#5b5375ef1f84

Viewed through this lens, this story is huge. The world’s most powerful brand is laying off almost 1 in 10 of its workers because of falling sales in the US and Europe.

When we look at Lego's profit history, the significance of this becomes even more stark:

Perversely, the magnitude of this story is diminished, whereas the non-stories about normal seasonal fluctuations in business stats are blown up to cause alarm to anyone who cannot assess the merit of what they are reading.

Yup fake news is everywhere. But it is AI and low grade journalism which is creating it not some evil masterminds intent on global domination.

The truth is much simpler and less sensational (as it usually is). Artificial intelligence has assumed command of the brains and fingers of the people who write our daily news.

Sure, robots don’t get drunk like old school journos. They don’t hack phones. And they don’t snoop into people’s private lives.

But they can’t write a reliable piece of news either.

Shock as Mark Carney spills the beans (and agrees with me)

By Neil Patrick

Bank of England Governor Mark Carney
Photo credit: World Economic Forum 

What is front page news today in the UK? Well it’s that the Governor of the Bank of England agrees with me about the jobs crisis.

Mr. Mark Carney’s speech last night in Liverpool was the first time I have ever seen one of the world’s most senior central bankers endorse the very things I have been banging on about here for the last four years.

But I am not gloating. There can be no joy in the confirmation that one’s worst fears are indeed reality. What’s tragic is that this demonstrates just how long institutions take to acknowledge that a problem exists. Let alone do anything about it.

And the Bank of England is falling back on its get out of jail free card to pass responsibility for solving the problem to the government. After all, monetary policy is a blunt instrument, as central bankers are always swift to remind us.

Anyway for fun (if such a thing is possible) on hearing this not so new ‘news’, I have taken a look at his main points and compared them to things I have said here, and when I said them.

The Daily Mail’s front page headline today read:

On 15 Sept 2015, I wrote:

“The endless rise of tech is one of what I call the “six pillars of job destruction”. The others are globalization, demographics, monetary and fiscal policy, educational lag and digital communications… “

The front page story by Hugo Duncan in the Mail went on:

‘In an alarming vision for workers, Mark Carney warned many jobs would be 'hollowed out' as huge technological advances meant roles could be automated instead.

‘The Bank has said the march of the machines in the workplace puts administrative, clerical and production staff most under threat.

On December 1 2014, I wrote:

“Whilst the whole of a job may be currently impossible for a machine to replicate, parts of that job may well be perfectly capable of being replaced or aided by technology. This fact in turn means that fewer people are needed to deliver the same amount of work.”

‘The Bank of England predicts that entire professions, such as accountancy, could be pushed to the brink of extinction as developments in computers make their roles redundant.

On 27 July 2016, I wrote in reference to the endless rise of tech:

“In the US and Europe in particular, this is why the middle class is becoming an endangered species”.

‘Mr Carney claimed that 'up to 15million of the current jobs in Britain' – almost half of the 31.8million workforce – could be replaced by robots over the coming years as livelihoods were 'mercilessly destroyed' by the technological revolution.

And in July this year I said:

“The last remaining argument for tolerance of the jobs carnage created by the tech tsunami is that the Wikipedia version of history tells us technological progress is inevitable, and has only ever resulted in greater wealth and a better society. But this assertion doesn’t bear much scrutiny if you have even a basic knowledge of economic history.”

Mark Carney again: 'The fundamental challenge is, alongside its great benefits, every technological revolution mercilessly destroys jobs and livelihoods – and therefore identities – well before the new ones emerge.

I said in 2014: 

“The jobs created by tech are totally different to the ones destroyed by it. Which means those who lose their jobs as a result of technology are largely unable to switch.”

Carney: 'This was true of the eclipse of agriculture and cottage industry by the industrial revolution, the displacement of manufacturing by the service economy, and now the hollowing out of many of those middle-class services jobs.'

In October this year I wrote:

  “We have to understand how technology is going to impact our area of professionalism and get ahead of the change curve”

‘Speaking at Liverpool John Moores University yesterday, the Governor also claimed workers had suffered '…the first lost decade since the 1860s', with living standards suffering the biggest squeeze since Dickensian times. Calling for the Government to tackle 'staggering wealth inequalities' through redistribution, he said: 'Real wages are below where they were a decade ago – something that no one alive today has experienced before.'’

‘Globally, the share of wealth held by the richest 1 per cent rose from a third in 2000 to half by 2010. In the UK, the income share of the top 1 per cent tripled from 5 per cent in the early 1980s to 15 per cent in 2009.

In September 2014 I reported how: 

“quantitative easing policies have benefited mainly the wealthy. About 40% of those gains went to the richest 5% of British households...exacerbating already extreme income inequality and the consequent social tensions that arise from it”.

‘Mark Carney went on to say: ”…globalisation has seen 'the superstars and the lucky' thrive while others have struggled. ..Now may be the time of the famous or fortunate, but what of the frustrated and frightened?”

On 8 April 2015 I wrote: 

“…the globalization of workforces means that many jobs which used to stay firmly in the domestic market are now spreading around the world. And it’s not just a cheap labor argument. I recently had lunch with an entrepreneur friend who told me that almost his entire workforce was now composed of freelancers based the Philippines. Yes it was cheaper than a UK workforce (by about 75%), but critically this wasn’t his main reason for the choice. He was in the business of web content production and he had found that his overseas workers were more diligent, more proactive and had better written English than the people he used to employ in the UK.”

And in January this year I wrote that:

“There will be many more super rich in the world, but also a great many more who used to be comfortable, becoming very uncomfortable.”

Carney again: “One of the things that I think contributes very understandably to the level of anxiety that households feel in this economy, in other economies, is the fact that it has for them been almost a lost decade of growth.”

On 15 November 2015 I said:

 “…persistent slow growth will continue to dampen employment prospects…real wages have stagnated across many advanced G-20 nations and even fallen in some.”

Carney: 'Real incomes in this country have not grown for the last ten years. That is incredible and that shines a light on inequalities that exist in this economy and make people question what is being done to address those and what are the fundamental causes of those.'

He added: 'For free trade to benefit all requires some redistribution. We need to move towards more inclusive growth where everyone has a stake in globalisation.'

For the first and I hope not the last time, I applaud Mark Carney for not mincing his words and spelling things out to the government. Even if he is a bit late in diagnosing the problems.

We need change and we need it fast.

The destruction and degradation of jobs is something I’ve been documenting here since 2012. Now four years later, we have an acknowledgement of the problem from someone who has the influence to do something about it. But we cannot wait another four years for practical solutions to begin to be implemented.

The machines aren’t going to wait and neither can we.

Intel to join global job destruction initiative

20 April 2016

By Neil Patrick

The Wall Street Journal reported yesterday that Intel, the world’s largest computer chip maker is embarking on a swath of job cuts around the world, saying:

“Intel Corp. is planning to slash 12,000 jobs, 11% of its workforce, a consequence of the shrinking personal-computer market and the chip maker’s failure to take advantage of the industry’s transition to smartphones.

The restructuring announced along with first-quarter results on Tuesday is Intel’s largest yet in terms of the number of employees affected.”

The irony of the situation is obvious – one of the greatest creators and enablers of job destroying technologies in recent years is now having to face up to its own job loss tsunami. Champions of the job creation capabilities of the tech sector should be eating humble pie or at least turning maroon with embarrassment.

If the world’s tech giants are not going to create more jobs, who will? Intel isn’t a Facebook, an Uber, a TripAdvisor, i.e. one of the job-lite app-based giants of tech. It’s a manufacturer of the equipment that enables them and us.

We just got one step closer to a job free world.

Intel News issued a statement on 19 April confirming this:

“These changes will result in the reduction of up to 12,000 positions globally — approximately 11 percent of employees — by mid-2017 through site consolidations worldwide, a combination of voluntary and involuntary departures, and a re-evaluation of programs”

Meanwhile over on the Intel Twitter feed, despite this gloomy news, the Intel comms team were putting on a brave smiley face and were keen to tell us that they are in the world’s top six most ‘authentic’ brands and not at all a Micky Mouse company:

It’s not the end for Intel, but it does remind us how tech businesses are not immune to reality. All businesses have life cyles, some short, some long.

Intel’s troubles reflect a common challenge in the tech sector. Companies that lead one generation of computing often struggle in the next. For decades, IBM's large mainframe systems were the natural choice for the world’s biggest businesses. IBM’s business flourished across the board, yet IBM was forced to withdraw from PCs and low-price server systems as competitors sucked profits away from the business.

Intel’s troubles have been coming for a long time. After reaching a peak share price approaching $80 no doubt helped no end by the false flag of the Millennium bug (remember that?), the business share price has bounced around in the $15-$35 range ever since as investors have failed to see any significant grounds for major optimism:

What we are seeing with Intel is not the end but possibly the beginning of the end. And Intel’s own announcement reveals a dead giveaway:

"Chief Financial Officer, Stacy Smith, will transition to a new role leading sales, manufacturing and operations (my emphasis), once the company identifies a successor to Mr. Smith, a 28-year Intel veteran. The company has begun an executive search that will include internal and external candidates."

So a finance guy is being put in charge of sales, manufacturing operations.

I have nothing against finance people. In fact I like them. But they don’t know how to grow businesses. They just know how to reduce costs. When Finance is in charge of Sales and Operations, you know there will only be one outcome – short term profit gains and long term business contraction.

This is the classic life cycle of tech businesses: founded by technologists, then run by operations, followed by marketing, then sales, then finance, and finally by lawyers.

Intel appears to be just one step away from the end game…

Davos is depressed this year, and we should be too

By Neil Patrick

Welcome to an exciting brand new year. What does 2016 have in store for us? Well the world's top economic, business and government minds are all in Davos to figure it out for us.

Here in the UK, despite the government crowing about the record number of ‘jobs’ it has created (actually this is only true if we count what I call the 'self-unemployed'), there’s no sign that many normal people actually feel much better about things. In the US, a similar pattern is occurring; a slight uptick in hirings, but a persistent deterioration of incomes.

From my perspective it's all been rather obvious for a long time now: the world is trapped in a vicious circle of low growth, low interest, low inflation and low hope.

In September 2014, the World Bank finally decided the global jobs crisis was more or less ‘official’ as I reported here. According to their estimates, the global economy needs to create a further 600 million jobs by 2030, just to keep pace with population growth.

16 months later, and this topic is now one of the main themes of the World Economic Forum at Davos. This week, the world’s elite in business, government and rather weirdly IMHO, entertainment (Bono, Will.I.Am, and Leonardo DiCaprio are there too), have all gathered in this swanky ski resort in Switzerland. Not surprisingly, no-one invited me or anyone I know.

Davos in Switzerland - Where the world's elites are this week
Credit: de:Benutzer:Flyout

As the super rich engage in their own peculiar form of networking and schmoozing with their peers, the world’s stock markets are in turmoil, global investor confidence is tanking, interest rates seem to be stuck for at least another year, oil prices are in free fall and the wealth and incomes of ‘normal’ people are continuing to shrivel. Oh, and just to add insult to all this economic injury, here in Wales, it has been raining for the last 81 days…

But even the just modestly well-off are taking a hammering too as trillions have been wiped off stock values since the year began. Sir Martin Sorrel, chairman of U.K.-based advertising giant WPP was characteristically pragmatic saying:

"The new normal is a low-growth world"

Sorrell is worried that companies are not confident enough to invest in new projects that might create growth and jobs. Instead, they increasingly prefer to reward shareholders with dividend payments and share buybacks.

And consumers remain wary too; nearly eight years after the global financial crisis saw the collapse of many banking groups and triggered the deepest recession since World War II, many retailers have reported massively disappointing sales over the Christmas period.

But let’s not despair. Fortunately Swiss bankers UBS have come up with a 'keynote' report which deals with the main theme for this year’s Davos conference. It is titled excitingly, “Extreme automation and connectivity: The global, regional, and investment implications of the Fourth Industrial Revolution”.

Well I was excited by it…

I don’t expect you to read it, but if you are as nosy as I am and have some spare time, here’s the link to it.

The mainstream media is busy not reading it much either, either because they are too dazzled by the parade of rich and famous people they are itching to photograph, or because for them this is just another reporting gig and careful reading of such things takes too much time when they have tight editorial deadlines to meet.

However anoraks like me do read such things. Very carefully.

In case you are not familiar with the who’s who of global private banking, let’s just summarize UBS’s resume. UBS is the biggest bank in Switzerland, operating in more than 50 countries with about 60,000 employees globally. It’s the world's largest ‘manager’ of private wealth assets, with over CHF 2.2 trillion in invested assets. In other words, it’s the bank of choice for the world’s super rich.

Swiss banks do not care about the likes of you and me. They do care about things like making friends with the rich, powerful and influential folk at Davos. They work hard at this (aka spending lots of money). And they apply a lot of their considerable reserves of brain power too. The term ‘establishing our thought leadership’ was doubtless bandied around their offices a lot as the work was being done on this report.

Over the years, UBS has built up an extensive corporate resume of what Wikipedia rather euphemistically call ‘controversies’. These include laundering Nazi holocaust assets, tax evasion in the US, France, Germany and Belgium, LIBOR rigging, bond market rigging, currency benchmark rigging, FOREX manipulation, rogue trading, misrepresenting mortgage backed securities, and illegal arms sales money laundering.

There is a full description of all these accomplishments and more on Wikipedia here.

In the interests of balanced reporting I should point out that UBS is ranked in the US as amongst the top 100 best places for mothers with children to work and invests significant sums in the arts and cultural sponsorships. In October 2013, UBS Wealth Management was voted the Best Global Private Bank by Professional Wealth Management, while also being recognised as the Best Private Bank for Philanthropy Services, and the Best Global Brand in Private Banking.

A Thomson Reuters survey ranked UBS number one in all three of the key disciplines of research: Research ; Sales and Equity Trading and Execution. UBS was also named as the number one leading pan-European brokerage firm for economics and strategy research.

I will let you form your own views about the question, ‘If UBS was a person, who would they be?’

The UBS report sets out to forecast the impacts of current trends in technology, markets, business and politics to provide a view of the economic outlook for different countries around the globe.

The introduction proclaims:

“Previous industrial revolutions have been driven by rapid advances in automation and connectivity, starting with the technologies that launched the First Industrial Revolution in 18th century England through to the exponential increases in computing power of recent decades. The Fourth Industrial Revolution is based on the same two forces. The first is extreme automation, the product of a growing role for robotics and artificial intelligence in business, government and private life. The second, extreme connectivity, annihilates (interesting choice of verb – Ed.) distance and time as obstacles to ever deeper, faster communication between and among humans and machines.”

So far, so what? If you have been alive and awake at all in the last few years, this is as obvious as the fact that night follows day. And as anyone who has followed this blog from the beginning knows, I have being banging on about this for over three years.

They continue:

“These changes will have very different effects on nations, businesses and individuals. Automation will continue to put downward pressure on the wages of the low skilled and is starting to impinge on the employment prospects of middle skilled workers.”

It isn’t starting guys, it’s been happening for the last ten years at least (But I know, you’ve been a bit distracted).

But wait, there’s good news (sort of):

“By contrast the potential returns to highly skilled and more adaptable workers are increasing.”

Interesting that the word ‘potential’ is used here. This is a word bankers love, because it’s a get out of jail free card. “Highly skilled and adaptable” is also code for willing to move anywhere, accept work on any terms and be able to do the work at a pace and level of excellence beyond our that of our peers. Good news for all you wunderkinds. Not such good news for everyone else.

“Among corporations, a wide range of traditional businesses – especially those that act as intermediaries – can be expected to suffer. Many labor-intensive firms should be able to boost profit margins as they substitute costly workers for cheaper robots or intelligent software (my emphasis).

Now we are getting to the real problem. So called “traditional businesses” are ones that have successfully grown over many decades and employ(ed) lots of people. And yes, they are shrinking, automating and collapsing faster than ever. Those that are still alive are seeking to slash costs and boost profits through more and more deployment of technology.

But don’t worry, it’s all going to be okay because:

“… a range of entirely new companies and sectors will spring into existence. For nations, the largest gains from the Fourth Industrial Revolution are likely to be captured by those with the most flexible economies, adding a further incentive for governments to trim red tape and barriers to business.”

The key to economic success for nations and individuals alike in the future is flexibility. I agree with UBS on this point. But this is also where the whole hopeless vision falls apart. Because we can’t even keep up with the pace of tech change today, let alone tomorrow; as anyone familiar with Moore’s Law also knows, these changes are only going to accelerate.

How many Ubers, Googles, Trip Advisors, Air B’n’Bs does it take to create just a million jobs? Every single one of these ‘disruptive innovators’, (or whatever MBA style label you wish to put on them), ‘work’ - at least for a short time - because they need very few employees relative to their revenues and capital. Unlike traditional businesses, their capital is not in human assets, it is in tech assets. Robots are not paid a salary. And they don’t go shopping.

Worse, the traditional industries that they disrupt are people heavy. It’s a double whammy of the job-lite businesses destroying the job-heavy ones. This is the horrible economic reality of disruptive business models.

And neither UBS nor any commentator I can find, has any practical remedy for this cannibalization of jobs. The only glimmer of hope is that as costs of living continue to fall, the strangulation of household incomes will effectively be loosened.

The trouble is that achieving this flexibility is fraught with difficulty. And making it happen quickly enough is almost impossible when we consider the different speeds at which technology and our people, organisations and institutions are capable of moving.

UBS can see that they will do very nicely if their vision or anything like it actually materialises. There will be many more super rich in the world, but also a great many more who used to be comfortable, becoming very uncomfortable. The first group matters to UBS. The rest of us do not.

Happy New Year.

It's now official - The Global Jobs Crisis is real

By Neil Patrick

When I set up this blog, I was convinced that the subtitle – Global Jobs Crisis was appropriate and justified.

But many of my friends online and offline commented that they thought I was being rather apocalyptic. Even sensationalist. After all it does rather fit with the sort of conspiracy theory stuff which abounds in the online media world.

But I stuck with it nonetheless. Not because I wanted to be alarmist or a doom-monger. On the contrary. I wanted to raise awareness of the problem and try to find solutions that would work for people at a personal level.

It was simply the most appropriate tagline I could come up with which described the unfolding situation as I saw it. And with every week that passes I see more evidence that it remains the right subtitle.

So today I was interested to see that two years after I started this blog, none other than the World Bank has issued a report which describes the global jobs crisis in forensic detail.

I’d forgive anyone for not noticing it. It went more or less unremarked upon by the mainstream media. It’s titled in typical government speak and somewhat benignly: “G20 labour markets: outlook, key challenges and policy responses”.

The World Bank, Washington
By Shiny Things [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)] via Wikimedia

Behind the dull bureaucratic title is the starkest confirmation I've yet seen which describes in depressing detail, the true nature of the problem.

The world is facing a global jobs crisis that is killing the chances of reigniting economic growth. Worse there is no magic bullet to solve the problem.

The Study was released at a Group of 20 (G-20) Labor and Employment Ministerial Meeting in Australia in September 2014. The Bank says an extra 600 million jobs need to be created worldwide by 2030 just to cope with the expanding population.

"There's little doubt there is a global jobs crisis," says the World Bank's senior director for jobs, Nigel Twose.

"As this report makes clear, there is a shortage of jobs — and quality jobs.

"And equally disturbingly, we're also seeing wage and income inequality widening within many G-20 countries, although progress has been made in a few emerging economies, like Brazil and South Africa."

He said that overall emerging market economies had done better than advanced G-20 countries in job creation, driven primarily by countries such as China and Brazil, but the outlook was bleak.

"Current projections are dim. Challenging times loom large," said Twose.

Who says something really matters

Local mainstream media is so heavily influenced by national government spin that we cannot take anything that is said at face value. And I do my best to expose the most blatant deceptions about jobs and employment news that I come across.

Which is why this report has to be taken seriously. The World Bank isn’t beyond the influence of key stakeholders with their own agendas. Many have argued that the World Bank which has had an American as its President ever since its creation in 1946, promotes a US based world view.

And I have concerns that the World Bank still clings to a largely discredited view on monetary systems.

But critically, the World Bank isn’t controlled by politicians. And that’s the most important thing in my view. No-one at the World Bank is trying to win votes from citizens. They gain no benefit by telling people that things are better than they really are.


100 million unemployed

The report, compiled with the OECD and International Labor Organization, said more than 100 million people were unemployed in G-20 economies and 447 million were considered "working poor," living on less than US$2 a day.

It said despite a modest economic recovery in 2013-14, global growth was expected to remain below trend with downside risks in the foreseeable future, while weak labor markets were constraining consumption and investment.

The persistent slow growth will continue to dampen employment prospects, it said, and warned that real wages had stagnated across many advanced G-20 nations and even fallen in some.

"There is no magic bullet to solve this jobs crisis, in emerging markets or advanced economies," said Twose.

"We do know we need to create an extra 600 million jobs worldwide by the year 2030 just to cope with the expanding population.

"That requires not just the leadership of ministries of labor but their active collaboration with all other ministries — a whole of government approach cutting across different ministries, and of course the direct and sustained involvement of the private sector."

The Group of 20 leaders have called for each member country to develop growth strategies and employment action plans. They emphasized the need for coordinated and integrated public policies, along with resilient social protection systems, sustainable public finance and well-regulated financial systems.

"Coordinated policies in these areas are seen as the foundation for sustainable, job-creating economic growth," says the report.

So there we have it. The responsibility for solving the problem has been passed to national governments. And they are urged to adopt a cross-departmental approach to solving the problem.

Given the nature of governmental silos and the painfully slow way in which government policies are formulated and implemented, I’m not holding my breath for any big breakthroughs anytime soon.

And sadly the subtitle of this blog seems to be one thing which isn’t about to become redundant for a long while yet.

The secret saviours of jobs are small businesses

By Neil Patrick

The UK economic recovery is forging ahead with record numbers of people in work, but is this really the good news we've all been longing for?

Yesterday, I was reading a post on the Daily Telegraph website with the headline, “UK Jobs Growth Rises at Fastest Rate in 43 Years”.

It quotes the ONS which reports that UK jobs “growth between January and March rose to a 43-year high, driving down the unemployment rate to its lowest level in more than five years”.

Other headlines were:

• The number of people in work rose to 30.43m - a record high 
• The unemployment rate dipped a tenth of a percentage point to 6.8% 
• The number of people out of work in the quarter fell by 133,000 to 2.21m compared with the previous three-month period. 
• At the same point last year unemployment stood at 2.52m. 

Of course the government are reporting these numbers with glee as well. And I don’t wish to rain on the parade. We all need some good economic news and this certainly isn’t bad news.

But neither is it particularly good news when we look behind the headlines. In fact the most noticeable aspect of the data can only be described as stagnation.

“Self-employment” is the number one reason behind both the rise in the number of people in work and the lower jobless rate.

Almost one in seven people - some 4.55m - are now classed as being self-employed, the highest level since records began in 1971. The number of people working for themselves has risen by 375,000 over the past year.

But many of these people working for themselves are not able to get enough work, with 1.29m of them working part time, though for some this is a matter of choice.

Aengus Collins, UK analyst at the Economist Intelligence Unit has highlighted the real concern:

"The latest numbers confirm the rapid and continuing improvement of the headline labour market numbers, with unemployment now at a five-year low. However, just as the recession of the last few years was no ordinary recession, so the recovery is displaying some curious patterns (professional understatement? –Ed.).

“This is particularly true of labour market conditions. The UK's unemployment rate fell to 6.8%, but we have concerns about the profile of the jobs that are driving this. The increasing use of zero-hours contracts is well documented …but one of the labour-market developments that can get overlooked …is the rapid rise since the crisis of the number of self-employed people in the UK.

“The recovery of total employment since the crisis has been driven by rising self-employment. (My emphasis –Ed.) Given the backdrop, this is less likely to represent a surge in entrepreneurial dynamism than a fall-back strategy for people who lost jobs during the crisis."

He added that the forced move into self employment may be the major factor behind what he called the "shocking halt" in productivity growth that has occurred since the financial crisis hit in 2008.

And I think he is right. All is plain to see in the graph below. So what if we have a record number of people in jobs? That number means very little if productivity and incomes are not rising too.

Zero-hours contracts result in many low paid workers having completely random amounts of work and consequently pay. Many of those statistically classified “self-employed” are in reality self-unemployed.

Jeremy Cook, chief economist at World First:

"We have seen the biggest quarterly improvement in employment since records began, in 1971, over the past three months. Unfortunately this has not come with a continued rise in ‘real wages’, with average earnings only rising by 1.7pc, the same as last month.

“The disappointment surrounding real wages outweighs any positive sentiment coming from the fall in the overall rate of unemployment to 6.8pc. This lack of wage inflation will keep overall CPI lower in the short term and, more importantly, will allow the Bank of England to maintain low rate expectations into next year."

John Salt, director of jobs website totaljobs.com:

"Unemployment has now been trending downwards since late 2011. This has led to a steady supply of good news stories for the government, with job creation becoming the cornerstone the Conservative Party’s election campaign for 2015.

"However, the underlying problems in the job market endure. Yes we are seeing more people in work, but youth unemployment remains high when compared to other developed economies as nearly a quarter of a million under 25 year olds have been out of work for more than a year. The government needs to invest more to help the young find full time work and create meaningful job market growth.”

These commentators all make valid points in my view. We remain a long way from a real jobs recovery in the UK. In fact what we have is essentially more people classed as being in work, when in reality they are at best only working occasionally; low paid workers seeing falling standards of living as inflation exceeds income growth and a polarised recovery with strong growth in London and the South east and stagnation elsewhere.

But there is some genuinely good news if we look deeper still:

The number of UK micro-businesses has grown by over half a million since the Great Recession began.

Some believe that this will be short-lived, and that when the economy gets back on its feet, things will return to ‘normal’. However, this ignores the fact that self-employment and the number of micro-businesses had been increasing at a steady rate long before the recession began:

The number of micro-businesses in the UK has grown by an average of 3% a year since the start of this century. They are now very much a ‘normal’ feature of our economic system.

Studies also suggest that at an individual level, the likelihood of a business owner returning to a typical job is low. A Survey by RSA found that only 7% of micro-business owners plan to close their business in the next 3-5 years and do something else.

Governments are not really fans of micro-businesses. They are after all a great deal more difficult to manage and help than large businesses. Governments are large bureaucracies. They like big, policy-based initiatives which can be implemented universally.

A micro-business is the exact opposite. It’s local. It exists day to day on the wits and skills of often just one or a handful of people. They work to extraordinarily short time-scales. They have no time to engage with governments on governments’ terms. They are completely unable to spend their time writing business plans, compiling data and jumping through administrative hoops. They have to find new customers and serve the ones they have to the best of their ability. Every single day.

Micro-businesses are not scaled down large businesses. They require a completely different type of government support. And governments find such complexity difficult to deal with.

The UK has a growing entrepreneurial class of micro-business owners. And these businesses hold the keys to the real future of the UK economy. Not because they will all become large businesses, but because they are by their very nature entrepreneurial. They create jobs and vital experience for the young. And they foster a spirit of self-reliance.

They may not be the next Apple or Amazon but critically, they keep money within their local economy, rather than it disappearing via some complex corporate structure and accounting mechanisms into an offshore tax-haven.

Politicians of all parties need to learn what these businesses really need and start providing it in a way that they can easily absorb it. Not pandering to the wishes of large corporations. Not creating more complex bureaucracy laden ‘initiatives’, but recognising that small businesses need help much more than big businesses. And delivering it in an appropriate way.

The statistics prove the green shoots are here. And the most valuable ones are in the small business sector.

UK: Why falling unemployment numbers are a mirage

By Neil Patrick

Well, it’s Saturday again. On this day every week, I tend to draw breath after the week’s activities, fill myself with coffee and reflect on the week’s news and developments.

Naturally enough, employment news is high on my list of topics to digest. And today is no different. Except that today, I have good news to report…well sort of.

In the UK, we are being told that we’re experiencing falling unemployment and that this is a sign of an improving economy.

Unemployment peaked at around 8.5% at the end of 2011 going into 2012. It’s now around 7.7% based on the current 3 month rolling average, or just 7.1% if you look at the latest monthly figure. So it’s showing a steady fall, perhaps even speeding towards the ‘target’ of 7.0%.

Why do I say that 7.0% is a target? Because that, said new Bank of England governor, Mark Carney, in his ‘forward guidance’ in August, is the level at which the BoE will start to increase interest rates.

Merryn Somerset-Webb, Editor in Chief of MoneyWeek described this as, ‘A dim-witted policy based on a number no-one understands’. Quite.

Carney also said he expected the UK to reach this position sometime around 2016! So we are doing great - we’re already miles ahead of where the Bank of England thought we’d be. Erm…not quite.

This figure of 7% is not some sort of magical threshold at which suddenly the recession becomes history and we all return to some sort of financial nirvana. Far from it.

If the current trend continues, we’ll be at 7% sometime around the middle of 2014. And fully unprepared to bear the even greater cost of living increases this will bring, on top of the ones which have crushed most people’s spending power over the last five years.

But as I have talked about elsewhere on this blog, raw unemployment numbers do not tell the story of what is really happening. And achieving the figure of 7% means absolutely nothing.

We know that huge numbers of people - around two million - are currently under-employed, i.e. they are working, but not earning as much as they need or want to. But they are not unemployed as such, so they are not counted.

Many more have simply given up looking for work and disappeared off the radar all together. These are not counted either.

Meanwhile, hundreds of thousands of young people have decided to avoid leaving the ‘womb’ and have stayed within the education system, hoping that during their delay, the job market will improve and give them the win-win of higher qualifications and an improved jobs market. Yep you guessed it - another artificial diminution of the unemployment total.

Just about everyone who could afford to take and has been lucky enough to be offered any sort of early retirement package (senior public sector executives for the most part – no comment) has understandably jumped at the chance. So off they go too!

Once we factor in these aspects, you can see why the raw unemployment number is virtually meaningless as an indicator of the financial well-being of the nation.

Which would be okay if it were not being used by the BoE as a barometer to judge when we are all able to afford higher interest rates on our mortgages and higher inflation in the already massively overinflated and over-taxed costs of essentials like power, transport and food.

Meanwhile, these figures have caused a good deal of self-congratulation in government circles. The government knows just as well as you and I that these numbers are an illusion. But they are gambling on the belief that most of the electorate won’t spot the ruse.

And I fear their assessment about this may well be correct. Most people I think will not be interested in looking behind the numbers to see what is really happening and this blind spot will mean that many will be more inclined to accept the idea that the economy really is improving.

I’m sorry to say it’s just not true. It’s simply more lies and corrupted statistics.

Why it’s a lie that UK employment is at 'record high'

By Neil Patrick

It's spin time again folks!

UK government ministers and some parts of the press have seized upon the latest UK Office for National Statistics employment figures showing that the number of people in work in the UK has increased by 155,000 to its "highest level since records began in 1971".

Sounds good doesn't it? But sadly this isn't quite such good news as it appears. Yup, it’s a true statistic, but it’s the wrong statistic to use. In fact, it’s one of the simplest deceptions in the book of statistical trickery.

In this case, it capitalises on the fact that UK population has grown massively by over 400,000 in just the last year alone.

So when we look at the official employment rate, i.e. the percentage measure of the number of people in paid work, this is still a whopping 2% off where it was in 2008 before the recession hit, falling to 71.7% from over 73%.

Sure 2% doesn’t sound much, but in real life, it means that at least half a million more people would need to get jobs before the employment rate returns to its pre-recession peak. The number of people in work is indeed at the highest level ever - but so too is the number of people in the UK.

The absolute numbers of people in work in the UK have been pushed up by population growth and immigration. The UK's population soared by 419,900 to 63.7 million between between June 2011 and June 2012.

Martin Beck, UK economist at Capital Economics said: "The government would prefer to use employment levels rather than percentages but… the rate is still about 2% below 2008. It's mainly due to population growth and a bit of migration from the European Union."

So the ‘true’ figure, the unemployment rate, measuring the amount of people who are actively seeking work, remains at 7.7% and has not fallen below this level since mid-2009.

Graeme Leach, chief economist of the Institute for Directors, said the ‘recovery’ was "job-lite".

I’d go further; the ‘recovery’ if it can ever be called such, is currently creating mainly low paid jobs, many of which are being taken up by young immigrants to the UK.

Consequently, wage growth still remains weak - total pay for employees rose by just 0.7% in the year to August 2013. And this remained below the Consumer Price Index (CPI) rate of inflation of 2.7%, so wages are actually getting lower in real terms.

Employment minister Esther McVey apparently doesn’t agree with me, saying: "I think this is very positive news, because that's more than a million people who have got jobs since the general election." Hmmm...

So as usual, the employment figures are getting spun by the government. Once you strip away the thin façade of misused statistics, there really is no UK jobs recovery, let alone any growth in incomes. And if ministers are really looking at absolute job numbers as their key progress indicator, then they are not only misleading us, they are deceiving themselves. I’m not sure which is worse.

Why US jobs data is meaningless - well just plain wrong actually

By Matthew O’Brien

The real legacy of the Lehman collapse wasn't an economic meltdown. (That would have happened anyway.) It was three years of wrong information about the economy.

You know something is really boring when economists say it is. That's what I thought to myself when the economists at the Brookings Institution's Panel on Economic Activity said only the "serious" ones would stick around for the last paper on seasonal adjustmentzzzzzzz...

... but a funny thing happened on the way to catching up on sleep. It turns out seasonal adjustments are really interesting! They explain why, ever since Lehmangeddon, the economy has looked like it's speeding up in the winter and slowing down in the summer.

In other words, everything you've read about "Recovery Winter" the past few winters has just been a statistical artifact of naïve seasonal adjustments. Oops.

Okay, but what are seasonal adjustments, and how do they work? Well, you know the jobs number we obsess over every month? It's cooked, in a way -- but not how Jack Welch thinks. For example, the economy didn't really add 169,000 jobs in August. It added 378,000 jobs. But that 378,000 number doesn't tell us too much. See, the economy pretty predictably adds more jobs during some months more than others.

Things like warmer weather (which helps construction), summer break, and holiday shopping create these annual up-and-downs. So to give us an idea of how good or bad each month actually is, the Bureau of Labor Statistics adjusts for how many jobs we would expect at that time of year. This doesn't change how many jobs we think have gotten created over the course of the year; it changes how many jobs we think have gotten created each month of the year.

You can see how that smooths out the data in the chart below from Johns Hopkins professor Jonathan Wright's Brookings paper. It compares the adjusted (blue) and unadjusted (red) numbers for total employment going back to 1990.

But there's a problem. The BLS only looks at the past 3 years to figure out what a "typical" September (or October or November, etc.) looks like. So, if there's, say, a once-in-three-generations financial crisis in the fall, it could throw off the seasonal adjustments for quite a while. Which is, of course, exactly what happened. The BLS's model didn't know about Lehman. It only knew about the calendar. So it saw all the layoffs in late 2008 and early 2009, and interpreted them the only way it knew how: as seasonality, not a shadow banking run.

And that messed things up for years. Because the BLS's model thought the job losses from the financial crisis were just from winter, it thought those kind of job losses would happen every winter. And, like any good seasonal model, it tried to smooth them out. So it added jobs it shouldn't have to future winters to make up for what it expected would be big seasonal job losses. And it subtracted jobs it shouldn't have from the summer to do so. You can see Wright's estimate of just how much this changed the monthly jobs in the chart below, which I've annotated with when the Fed stopped and started its unconventional policies. Notice a pattern?

The Fed has stepped on the gas when seasonal adjustments have made the recovery look weaker than it actually was. And the Fed has stepped off the gas when seasonal adjustments have made the recovery look stronger than it actually was. Now, this is certainly suggestive, but it's not dispositive. As Wright points out, Fed economists are aware of Lehman's seasonal distortions: it's why they changed their seasonal adjustments for calculating industrial production.

But there is still a question how aware the policymakers on the Federal Open Market Committee are of this. Indeed, St. Louis Fed president James Bullard said one reason they didn't taper their bond purchases in September was weak data -- and that "sometimes the jobs report can change the whole contour of how the [FOMC] look at the data." (Though, to be fair, House Republicans threatening to blow up the world economy again was probably a bigger reason for the no-taper). In other words, bad data might be influencing the Fed's bad stop-start policy.

Just how bad are the data? Well, keep in mind that the jobs report's margin of error is supposed to be about 90,000. But these post-crisis seasonal errors have almost doubled it to about 170,000. That's right: the jobs report's real margin of error has been about as big as the average jobs report itself the past few years. 

Now, the one bit of good news here is this effect has already faded away for the most part. Remember, the BLS only looks back at the past 3 years of data when it comes up with its seasonal adjustments -- so the Lehman panic has fallen out of the sample.

Here are two words we should retire: Recovery Winter. It was never a thing. The economy wasn't actually accelerating when the days got shorter, nor was it decelerating when the days got longer. It was mostly growing at the same, kind-of-miserable pace. 

Of course, we journalists (myself included) scrambled to explain what turned out to be a spurious trend: it was the pentup demand for housing or cars or ... something that had the economy looking up every winter. Eventually some Wall Street firms, and journalists like Cardiff Garcia of FT Alphaville, began to suspect something was screwy with the seasonals. But in the meantime, everyone else showed off our infinite capacity for rationalization. There's always a story you can tell, and we certainly told them. After all, stories are more interesting than disclaimers about margins of error and seasonal adjustments.

Now, seasonal adjustments might not sound sexy, but there's nothing sexier than getting the jobs numbers right. They matter for the Fed. They matter for markets. And they matter for our own understanding of the economy.

The BLS can, and should, do better.

This post originally appeared here:

http://www.theatlantic.com/business/archive/2013/09/how-bad-data-warped-everything-we-thought-we-knew-about-the-jobs-recovery/279923/

The Fed keeps the insane party going and why this is bad news for (nearly) all of us

By Neil Patrick

Investors have been stressing since the spring about the autumn prospect of Ben Bernanke printing just a few dollars less than before. Whole economies, like India, have wobbled before the threat that the Fed might print ‘just’ $75bn a month instead of $85bn.

And just as they were getting used to the idea, he goes and bails out at the last minute. This astonished almost everyone.What is going on?

Is this what Bernanke wants to leave behind?

I don’t wish to sound smug, but I wasn't as surprised as some people by this latest Fed stunt.

Why? Well primarily because the U.S. economy remains so weak that there are serious risks in actually initiating this move. Of course, the time must come when the Fed will begin to reduce its dollar printing. It seemed fair to assume that with all the advance warnings, the markets had already priced it in. And so I suspected the Fed might be much less aggressive than almost everyone anticipated.

But you can easily argue that the financial markets have become so accustomed to the Fed’s easy money policy that the quantitative easing (QE) addiction is now seriously ingrained. In other words, the stock market has consumed so much booze that the hangover will be so severe that it’s really preferable (not to say easier) to stay drunk.

However, I did think they would at least do something. After all, the market has been given so long to get used to this idea.

If the Fed actually ever intends to stop printing money, now looked a good time to make at least a small gesture in that direction. Even a 'tiny' reduction of $5bn would not have upset the markets too much, and would start getting them used to a slightly more sober environment with just a little less QE.

But no. Even with US stock markets at a record high, $5bn was too much for Bernanke. The Fed will keep printing $85bn a month…for now. And there’s no obvious prospect of this changing before the end of the year.

Markets were both stunned and cheered. Hurrah…even more free money! Gold soared. Emerging markets jumped, developed markets too. Pretty much everything jumped except the US dollar.

The Fed provided a few excuses for its inaction. It doesn't like the fact that bond yields have jumped so quickly in recent months. It’s worried about the impact of this on the housing recovery. And there’s also the threat of another big crisis over government spending, as the debt ceiling hovers ever closer.

As Paul Ashworth of Capital Economics pointed out, the Fed is probably “also increasingly concerned… that Congress could trigger a Federal shutdown within the next month.”

But if Ben’s really worried about the politicians not getting their fingers out to try and agree on something, then he should take away the security blanket of less QE. As Heidi Moore noted yesterday, he should “force the economy, the markets and Congress to think for themselves.”

So it’s all a load of shabby excuses. If this proves anything, it’s that Ben Bernanke doesn’t want to be remembered as the man who pulled the plug on the recovery too early, plunging the US into the Great Depression of the 2010s.

I guess he’d rather risk being remembered as the guy who acted too late to prevent the Hyperinflationary Collapse of the 2020s…

So what can we expect to see now?

It seems reasonable to assume from this that when it eventually happens, the actual process of tapering will be slow and gradual with the goal of minimizing any potential market disruptions.

But this is exactly where the difficulty lies. After all, everyone knows that the Fed cannot continue expanding the money supply at the current rate. Therefore, the challenge is how to taper with the least amount of market disruption.

I suspect this will include an increase in market ‘signals’ from the Fed to gauge the market’s reaction to various possible Fed actions and having contingency plans in place to try to control any unforeseen reactions and consequences which arise.

Tapering will mean higher interest rates

Most believe that tapering will result in an increase in interest rates, especially at the higher risk end of the market (like your mortgage, especially if it’s large or your earnings and credit history are anything less than dazzling). So, in this scenario, the housing market recovery could be stopped dead in its tracks.

Some claim that the delay on the part of the Fed may be politically motivated as it helps the Democrats by keeping interest rates low. Only a few people actually know the truth. The rest of us are left to speculate.

So, if the Fed does eventually get around to tapering, interest rates rise, the housing market recovery stalls, and the federal government deficit and debt spike, at election time, the Republicans will surely have all fingers pointed at the Democrats.

However, since the Republicans couldn't pull off victory in the last presidential election when the unemployment rate was at 8.2%, and given that Obama was the first incumbent in the modern era to be re-elected when the unemployment rate was above 8.0%, I’m not convinced that the Republicans would automatically benefit.

But the fact remains that higher interest rates will hurt everyone. Everyone that is except investors who rely on interest income.


So what does all this mean for most of us?

Even when the Fed does eventually begin to taper, I think they will remain “highly accommodative.” In other words, they will not raise short-term interest rates sharply for quite some time. Recently, when the Fed merely hinted that they might begin to taper, stocks sold off sharply.

So when will the Fed begin to taper? Some say December, but that’s during the holiday season, a period when the economy typically sees a brief uplift. This seasonality makes it difficult to determine if the economy is really healing or just experiencing a Christmas boost. Therefore, even though it’s possible the Fed will taper later this year, I don’t believe they will until at least 2014.

Despite the fact that many U.S. stock markets are reaching record highs, investors need to have a plan in place to protect themselves against a very possible and very nasty collapse. We are a long way from being out of the woods yet. In the interim, with GDP under 2.0%, stock values are continuing with their unwarranted inflation and I think the prospect of a severe correction in equity values just keeps on getting more and more frightening.

So investors need to keep a sharp eye on their assets and protect them against the very real threat of a severe market correction. Keep in mind that at some point, the Fed must take away the punch bowl, the party will end, and the probability of a collapse in not just stock values but other asset classes too is high. Really high.



What does this mean for investments, jobs and your financial future?

If you are an investor, hold your course. If you were happy with what you were doing before the 'vapor taper', you’ll be fairly pleased this week – almost everything you own has gone up in value (for now). Cheap Eurozone stocks still look good, Japan is still doing the business, and if you still have any, you should hang on to gold, specifically as a hedge against the real risk of systemic collapse which hasn't retreated from view.

But I wouldn't expect an easy ride in the coming months. Once the delusional euphoria of ‘QE forever’ wears off, there are going to be a lot of confused investors in the markets. As Eric Green at TD Securities told the FT: “The Fed had the market precisely where it needed to be.” This delay ” “ultimately makes that first step in the tapering process harder to achieve.(My emphasis)

It also puts a lot of pressure on Mark Carney at the Bank of England. On the one hand, Mr Carney will be pleased. The Fed’s 'vapor taper' might take some of the pressure off global interest rates in the short term. On the other hand, the slump in the dollar has pushed sterling higher. Carney won’t be too happy about that.

Anyway, what does this all mean for the outlook for most of us? Not investors with big investment portfolios but people with normal jobs and normal financial commitments. You probably know what I’m going to say.

The impact of this for business and hence jobs is hardly encouraging. The outlook for federal sector employment remains bleak and only confident growth in the private sector can offset this. But whilst share prices continue to inflate, significant GDP growth and business confidence remain elusive. So while growth in earnings remains subdued, employers will remain cautious about increasing workforce overheads.

We are likely to see a continued expansion of all the things employees dread like short term contracts, outsourcing, cut backs on management and support teams, in other words, growth in low paid, short term jobs, but contraction of secure, well paid jobs.

So we can all expect our basic costs of living to keep on rising at a scary rate amidst a really tough job market. And as I've talked about previously, slashing our outgoings, reducing our borrowings and increasing our income level through the acquisition of income generating assets is now more important than ever.

The crazy Fed party will end soon hopefully with a whimper not a bang.

USA: The jobs crisis carries on and our ‘leaders’ have no solutions

By Neil Patrick

I get really cross when I read pronouncements from regulators and bankers about the recession. The members of both groups are securely cosseted from actually feeling any of the real effects themselves. And each blames the other for the crisis. Regulators blame poor bank governance, bankers cite excessive and disruptive government interventions.

I believe both are right actually. It’s not rocket science to work out that these are not mutually exclusive. One does not preclude the other.

It’s actually a rather cosy mutual support mechanism, enabling each to pass responsibility to the other, whilst happily continuing to pursue their own self-interest.

But we need to look forwards not just backwards to restore growth to the US.

On Sunday, the former Federal Reserve Vice Chair, Roger Ferguson admitted the US economy is still suffering "lingering effects" from the financial crisis. Growth he said was too "modest" to bring down unemployment or increase labor force participation at a satisfactory pace.

(Well said Roger; we hadn’t actually noticed that).


We need to remind you who the bad people are (and that’s not us).

Of course, Ferguson did not offer any monetary or fiscal policy prescriptions for accelerating economic growth as he accepted the National Association for Business Economics' annual Adam Smith Award. Instead, he focused on the need to restore public trust in the financial sector and to improve corporate governance.

(That’s right Roger, this recession has nothing to do with out of control government debt, it’s those greedy heartless bankers we need to blame).

Ferguson has been mentioned as a possible successor to Ben Bernanke. Currently president and CEO of financial services firm TIAA-CREF, Ferguson told the NABE's annual meeting "we have continued on a path of modest growth in the U.S., and while we all would wish for more, it is a far better scenario than we might have imagined five years ago today."

(That’s really great news Roger, thanks).


Of course we cannot risk upsetting the (massively overvalued) equities markets…

He also said the "still-modest growth" pace - 2.5% in the second quarter but less than 2% so far in the third quarter - should not be viewed as acceptable. He said, “it serves as a reminder that today, five years on from some of the darkest days of the financial crisis, we continue to deal with its lingering effects."

"The unemployment rate remains stubbornly high and labor force participation low. The markets have been volatile in the face of concerns about the Fed's tapering plans."


…much better to continue devaluing the dollar

Although he mentioned concerns about the Fed "tapering" its large-scale asset purchases, Ferguson did not say how he thinks the Fed should proceed in scaling back its $85 billion a month in "quantitative easing" or how monetary policy could be applied to stimulate growth.

Rather, he said "it would be wise to turn our collective energies to ensuring that we never have to endure a crisis like that again."

(That’s right Roger, we need lots more regulation to ensure we only get the right sort of growth).


And the solution is…lots more regulation

Although reams of financial service regulations have been implemented in connection with the Dodd-Franks Act, with more to come, Ferguson said "they are not enough."

(No that’s right Roger, our financial institutions need lots more government bureaucracy to make sure they cannot ever again become a burden to the government but only fill the government coffers with lots of ‘good’ money).

"It's equally important to further improve corporate governance at financial firms," he said. "We need stronger and more effective corporate governance approaches, particularly at the institutions that have been deemed systemically important.

The need for better "governance" in the financial services industry is underscored by what he called "a widespread lack of trust" in financial firms and by Americans' "angst" over their retirement prospects.

(Erm…isn’t that the same lack of trust that people have for politicians and regulators Roger?)

Ferguson said "it's vital that Americans regain trust in the financial services industry, because the industry is simply too important to our economy and our global competitiveness to be looked on so warily by so many people."

In saying "weak corporate governance" lay at the root of the financial crisis, Ferguson was referring to, among other things, commercial banks' increased "involvement in risky trading activities; growth in securitized credit; increased leverage; failure of banks to manage financial risks; inadequate capital buffers, and a misplaced reliance on complex math and credit ratings in assessing risk."

(I accept these are huge failings, but if you constantly point them out to the media, how will that help restore the much needed trust you talk about?).


We’ll tell you how to run your business

Ferguson highlighted recommendations of the Group of 30, an international forum of public- and private-sector financial leaders of which he is a member:

"First, we urge boards to take a long-term view that encourages long-term value creation in the interest of shareholders ... "Second, we urge management to model the right kind of behavior and to support a culture that promotes long-term thinking, discipline, sound risk management, and accountability ...

"Third, we urge regulators and supervisors to take a broader view of their roles, one that includes understanding the overall business, strategy, people, and culture of the firms they oversee ...

(Well said Roger…even though this is the only new and constructive thing I’ve heard you say).

"And finally, we urge long-term shareholders to use their influence to keep companies honest about performance and focused on improving governance."


I apologise for my mockery of Mr Ferguson,but…

Actually I am being hard on Mr Ferguson here. But he's more than big enough to take it I think and he's the one winning the awards not me. I think most of the things he describes are good aspirations. But great vision is one thing, effective execution is totally another. And little of the above actually helps solve the problem that is slowly killing the US every day it continues.

We need at least as much focus on driving an equitable recovery and household income growth as we do on looking backwards and learning the lessons of the past. And that means a really constructive dialogue between government and business, not just a witch hunt and lots more regulators and rules.

Why it's a LIE that olders workers are taking jobs from the young (pt2)

By Neil Patrick

This morning I was disappointed to read the article below from the Denver Post which promotes the notion that work opportunities for the young are being ‘stolen’ by older workers in Colorado.

Titled misleadingly, ‘Youths hit hard as older workers claim most new jobs’, the Denver Post article claims to show that mature workers are ‘stealing’ the job opportunities from the young. It even includes an apparently persuasive graph to 'prove' the point.

Of course this is all nonsense and I've provided the full transcript below for you to judge for yourself.

Granted, it’s a pleasingly convenient idea to grab when you look at the graph below, but as with so many news stories, it doesn’t actually tell the whole truth.

In fact it even contradicts the some of the key findings of the Report it cites, the Express Employment Professionals' white paper. This paper stated that, ‘The first Boomers turned 60 in 2006, so no one is surprised that they’re retiring. The size of this generation, which comprises 26.4 percent of the population and makes up the largest percentage of the workforce in the U.S. at 38 percent, is producing an increase in the retirement rate, impacting the labor force simultaneously”.

So it is clear that because of the large size of the baby boomer group, retirements in the US are actually increasing. If this is true, how can they also be taking jobs from the young? How can we reconcile these apparent contradictions?

Actually when we dig a little deeper, it’s not too hard to find the truth:

1. The fall in the level of workforce participation by the young can be directly attributed to increased numbers staying in education, the increase in those that have given up looking for work and the fact that many are choosing to stay at home, eased by ‘subsidies’ by their parents and others. To quote the Express Employment Report directly, “There are an estimated 1.8 million young adults who are not in the labor force because they have given up on job hunting for the time being”.
2. The article identifies two ‘outcomes’ i.e. the stable rate of labor force participation by older workers and the falling rate of employment amongst the young and assumes that the former is causing the latter. This isn't a causal relationship - one has not caused the other, so it is inaccurate to state that ‘older workers are claiming most new jobs’. 
3. The data is based on LFPR (Labor Force Participation Rate). This has absolutely nothing to do with job hirings. It is simply a measure of the proportion of people within a given group that are in paid employment. The LFPR for a group can rise or fall without anyone changing their job, simply by the number of people in that group changing for any reason e.g. retirement or emigration. 
4. Similarly, the growth in employment numbers for any given group doesn't equate to new jobs being filled; it has as much or more to do with the numbers that actually do not leave employment as it does with those that gain it. So for example if the numbers in employment increase in any given period, this number is the result of the net outcome of people joining and leaving the workforce. It does not equate to new jobs being filled.

So what is actually happening is that mature workers’ labor force participation is being stabilized by a balancing between a shrinkage of the group due to increasing numbers of retirees and others working longer and delaying retirement. Meanwhile, the LFPR by the young is falling due to low growth in the parts of economy generating jobs for which the young are qualified and a growth in those who are either staying in education or have given up looking for work.

Hardly the same story as the headline is it? And it’s the sort of sensationalist argument promoting inter-generational resentment that we don't need. Neither does it highlight the real issues which are nothing to do with age and everything to do with restoring real growth to the US economy.

Anyway, here’s the full story as it appeared in the Denver Post last weekend.

Youths hit hard as older workers claim most new jobs

By Aldo Svaldi The Denver Post


Welcome to the brave new labor force, where the young struggle to find a job, the old delay retirement and a shrinking share of the population is working.

"We have an actively disengaged portion of the population, and the implications are far reaching," said David Lewis, an executive with Express Employment Professionals, which put out a white paper on the topic last week.

Back in 2000, nearly half of 16- to 19-year-olds were employed in Colorado, and eight in 10 of those age 20 to 24 worked. But in 2012, fewer than three in 10 teenagers were employed and only 64.2 percent of those in their early 20s, according to the U.S. Bureau of Labor Statistics.

At the other end of the demographic curve, employment among 55- to 64-year-olds in the state went from 60.8 percent employment to 64.8 percent over the same period. Among those 65 and older, it went from about 12 percent to 18.8 percent in 2012.

Since employment levels bottomed out in December 2009, workers age 55 and older have claimed nearly three out of four new jobs created in the U.S., according to the Center for Economic and Policy Research.

They were claiming about 84 percent of the jobs created in the 12 months through April, the center reports.

A look at unemployment rates disproves the myth that older workers were hit hardest by the recession, said Alexandra Hall, the state's chief labor economist.

Those age 55 to 64 in Colorado had a 6.8 percent unemployment rate last year. The unemployment rate among teenagers was at 26.2 percent.

The greater participation of older workers, including those past traditional retirement age, bucks the overall trend of fewer people working or looking for work with each passing year.

"Overall labor force participation rates will continue to decline as they have since 2000, through 2040," forecasts Cindy DeGroen, the state's director of population and economic forecasting.

People on either end of the age curve have more options when it comes to not working, which is why those groups are seeing some of the biggest shifts, Hall said.

One key explanation for fewer young adults working is that more of them are going to college, which is a positive for the economy, she said.

But even those with four-year college degrees are increasingly finding themselves underemployed, said futurist Tom Frey, executive director of the DaVinci Institute in Louisville.

About half of college graduates last year are holding jobs that don't require a degree, and about 35 percent are trying to start their own businesses, he said.

Some of the decline in youth employment is tied to a lack of opportunities, as older workers take jobs that traditionally would have gone to younger workers.

Some of it is also generational. Millennials, those age 18 to 30, are more optimistic than their elders about their employability, despite the difficult economy.

About 62 percent are confident of the possibility of a career, making them much less willing to settle for a "job," according to survey released Thursday by employment search provider Monster Worldwide.

"They believe they are worth more than the market does, especially if they graduate with a liberal-arts degree," Lewis said.

Lewis said that a third of millennials were raised by single parents, and many have tight familial bonds, making them less willing to move for an opportunity and more comfortable living at home.

Hall said the labor statistics show young adults, despite getting a later start, increasingly join the ranks of the employed by age 25 and beyond. The employment rate in Colorado among those age 25 to 34 is 78.3 percent.

But delayed entry into the workforce carries a cost, especially when it comes to developing what labor experts refer to as the soft skills, things like dependability, problem solving, professionalism and the ability to communicate with co-workers.

"They are getting older, but they are not very skilled because they haven't had a chance to work," Frey said.

At the other extreme are baby boomers, those born between 1946 and 1964, who find themselves, either by choice or necessity, working far longer than previous generations.

"You need more money to support a longer life span," DeGroen said of the group that has been called the healthiest and wealthiest generation.

Two severe bear markets in equities and one in real estate, not to mention low interest rates, have prevented many baby boomers from building the nest eggs they needed to retire.

Retirees over age 65 in Colorado are replacing, on average, about 56.5 percent of their pre-retirement income instead of the 70 percent that financial advisers recommend, according to astudy from Interest.com.

And a growing number of seniors in the country, about 338,000 of those over age 60, have financial responsibility for their grandchildren, according to the U.S. Census Bureau.

Still, even at 20 percent, the share of those 65 and older employed is only a fourth of the level seen among "prime age" workers, those from age 25 to 54.

Given that they can't work forever, one unknown is whether the accelerating departure of the baby boomers from the workforce will create opportunities for young adults.

"As employers have more demand for labor and bid up what they are willing to pay, workers will come into the workforce," Hall said.

Economist Lawrence Mishel, at the Economic Policy Institute, argues that the federal government should create a temporary five-year program to allow retirement at age 60 and above.

"Get them out of the way and let younger people have jobs," he said.

Colorado, which has one of the highest concentrations of baby boomers of any state, will see the number of residents over age 65 triple between 2000 and 2030, according to the state demographer's office.

But there are those who argue that demographics aren't the key factor. Labor markets are undergoing a fundamental shift that is changing the very definition of work and a job.

"We are becoming much more a free-agent and freelance society," said Frey.

The overhead costs for a full-time employee now average $10,000 a person, and employers remain reluctant to add to their workforce, he said.

Young adults simply have no choice but to become more entrepreneurial and flexible in how they make their living, he said.



http://www.denverpost.com/business/ci_23986720/youths-hit-hard-older-workers-claim-most-new