Economic & Business News

[Samson]

Should we tax ecommerce?

It appears that the WTO took the view that it should not be up to voters to choose what to tax. India and South Africa seem to disagree, and it seems reasonable to me. Why should buying an electronic copy of a game be exempt from the tax I would pay if I bought the CD version?

Concern is growing that a World Trade Organization (WTO) moratorium on cross-border tariffs covering data may not be extended, which would hit e-commerce if countries decide to introduce such tariffs.

The current moratorium covering e-commerce tariffs was introduced in 1998, and so far the WTO has extended it at such meetings, which typically take place every two years.

The 1998 declaration stated that "members will continue their current practice of not imposing customs duties on electronic transmission."

However, it appears that some countries are now threatening to block another extension to the moratorium, with India and South Africa named as being among those that believe the growth of the internet and digital services means that a rethink is called for.

In other words, some countries are eyeing the potential revenue they could make from taxing e-commerce the same way that tariffs are imposed on physical goods traded internationally.​

 

[EnglishEdward]

Should we tax ecommerce?

Answer = Yes

 

[Samson]

Answer = Yes

It kind of seems a no brainer answer, or at least democratic states should be able to tax ecommerce if their public want it. To block it at the WTO level seems "odd".

 

[EnglishEdward]

There is a distinction between (i) taxing all ecommerce services provided to peoples
and businesses in a country either from internal platforms or external platforms the
same, and (ii) applying tariffs to ecommerce services provided from another country.

The WTO is right to have a view on the latter (ii).

However I do not believe that ecommerce should be tariff free
because that has two undesirable impacts:

(a) tariff free disproportionately benefits the larger US corporates, their scale
de facto closing down markets to new entrants from smaller countries;

and

(b) it benefits tax avoidance, as operations, corporate ownership are located where
accounting rules are opaque, ownership is obscured and/or the tax rate is lowest.

 

[Birdjaguar]

MyPillow Pulled Off Walmart Shelves
BY OMAR ABDEL-BAQUI

Walmart Inc. is the latest retailer to say it is no longer carrying MyPillow Inc. products in stores. MyPillow’s chief executive, Mike Lindell, faces litigation over his unproven claims of fraud in the 2020 election. A Walmart spokeswoman said MyPillow products remain available online. She declined to elaborate on the decision. Mr. Lindell, in a phone interview, said he believes Walmart pulled MyPillow products from shelves because of his advocacy against electronic voting machines. But he said Walmart executives told him MyPillow products didn’t meet the retailer’s internal rating criteria, and for that reason, it was removing his product from shelves.

MyPillow sales have increased recently, Mr. Lindell said. He said he offered a lower price on his products, which Walmart refused. Dominion Voting Systems sued Mr. Lindell and MyPillow for more than $1.3 billion in damages last year. The suit asserts Mr. Lindell made false accusations that Dominion had rigged the 2020 election for President Biden. Mr. Lindell countersued; a judge in May dismissed the countersuit.

No court or election authority has found widespread fraud in the 2020 election.

Mr. Lindell said he expects MyPillow will lose around $20 million a year, adding that Walmart is the largest seller of his company’s flagship product. In addition to pillows, MyPillow sells towels, sheets and mattresses. Other retailers have also stopped selling MyPillow products since Mr. Lindell began promoting the election-fraud claims. Twitter Inc. permanently suspended Mr. Lindell last year for repeatedly violating its civic-integrity policy, Twitter has said.

 

[Birdjaguar]

WORD ON THE STREET
[Bear Market]

From Cautionary Proverb to Finance Lingo

ON MONDAY, THE benchmark S& P 500 stock index entered bear-market territory for the first time since the beginning of the coronavirus pandemic. As traditionally defined, a “bear market” occurs when a major index sinks 20% or more from its recent high. Conversely, a “ bull market” typically means an index has risen 20% from its recent low.

Market-watchers have embraced the 20% benchmark since at least 1990. On Oct. 12 of that year, the Dow Jones In- dustrial Average fell to an 18-month low, and a Wall Street Journal report declared, “It’s official. The bear has displaced the bull as Wall Street’s resident mascot.” As the article explained, “the Dow meets the Street’s commonest definition of a bear market—a 20% decline lasting two months or more from its previous high.”

While the exact percentage of the drop in an “official” bear market is of relatively recent vintage, the term itself has a history going back centuries, to an old proverb warning against acting prematurely. “Don’t sell the bearskin before you’ve caught the bear” is a 16th-century saying in the same proverbial family as “Don’t count your chickens before they hatch.” The featured animal varied early on—William Shakespeare, in “Henry V,” wrote of “the man that once did sell the lion’s skin while the beast lived,” and who ends up getting killed by the lion.

It was another famous English writer who brought the “ bearskin” proverb to the financial world. Daniel Defoe, author of such novels as “Robinson Crusoe” and “Moll Flanders,” spent many years writing satirically about the rush for profits on the London Stock Exchange. (Sometimes Defoe wrote under pen names. As “Anti Bubble,” he helped popularize the term “bubble” for an intense or irrational period of market speculation.)

In 1704, in a newspaper he founded called The Review, Defoe wrote allusively about “the Society of the Bear-Skin Men” among the sketchy denizens of London’s Exchange Alley. These “bearskin men” were counting on prices falling and sold stock to buy back later at a lower price. They might sell shares they didn’t even hold, hoping to buy them cheaply before delivery of the stock was due (what traders would now call “short selling”). “Whenever they call in their money the stockjobbers must sell; the Bear-skin Men must commute, and pay difference money,” Defoe wrote in “The Anatomy of Exchange Alley” in 1719.

In the chatter around the London Stock Exchange, “ bearskin” got shortened to “ bear” to refer to a stock that a trader sells with the expectation of buying it back more cheaply, and such traders were swiftly called “bears” themselves. Optimistic “ bulls” soon joined pessimistic “bears,” though the origins of the “bull market” are less obvious, with many competing etymological theories. (The bull may have been seen as a fitting counterpart for the bear because both were involved in blood sports pitting animals against each other.)

By the 19th century, speculators on Wall Street and elsewhere who banked on falling stock prices were routinely called “bearish,” a term that also got applied to downward market movements. Bearish types might profit from a “bear raid” (forcing stock prices to fall) or get caught up in a “bear trap” (a price plummet that lures in bears before a sudden upward reversal). And investors who inaccurately predict a market fall may end up in a “bear squeeze” when they are forced to buy at higher prices to avoid further losses.



JAMES YANG

The ursine metaphor has proved remarkably resilient since Defoe’s time, as seen in this week’s concerns that “Wall Street is back in the claws of a bear market,” as the Associated Press put it. Let’s hope those claws don’t dig too deeply.

 

[Birdjaguar]

Running The Tortuous ‘Idea Maze’

Build

By Tony Fadell Harper Business, 394 pages, $32.50
BY STEVEN SINOFSKY

CONVENTIONAL WISDOM states that innovation in technology-product creation comes in two stages. First, the aha! moment, when a visionary engineer stumbles upon a billion-dollar idea —the entrepreneurial version of Hollywood’s meet-cute. Second, the moment when the tech-firm CEO draws up the plans, lines up the materials and creates the crowd-pleasing, epoch-making product. Tech innovation almost never happens that way. Rather, before a great gadget comes to market there are usually years, sometimes decades, of failed projects and false starts. Then there are still more years spent grinding away to get the gadget to customers.

Rarely do books give a full account of that tortuous “idea maze” (a phrase coined by entrepreneur and serial tech-founder Balaji Srinivasan). Tony Fadell, the author of more than 300 patents, has made a career of navigating such challenges: His credits include the Apple iPod, the Apple iPhone and the Nest Learning Thermostat. In “Build: An Unorthodox Guide to Making Things Worth Making,” Mr. Fadell, who is now mentoring the next generation of startups at his Florida firm Future Shape, recounts his life in the idea maze.

“Build,” which is less a memoir than an “advice encyclopedia,” imparts nuggets of wisdom in six sections: Build Yourself, Your Career, Your Product, Your Business, Your Team— and Be CEO. An engineer’s engineer, Mr. Fadell presents a series of bullet-pointed chapters, numbered like a software product for easy cross-referencing (e.g., Chapter 5.4: “A Method to the Marketing”). Each chapter is eminently digestible on its own but also works as part of the overall narrative. Mr. Fadell details problems encountered over the course of his 30-year career, how he tried to solve them, what he did when his initial ideas failed, and what ultimately worked.

Tony Fadell began his Silicon Valley career in 1991 at General Magic, which he calls “the most influential startup nobody has ever heard of.” He sketches his early persona as the all-too-typical engineering nerd dutifully donning an interview suit only to be told to ditch the jacket and tie before the meeting begins. He started at the bottom, building tools to check the work of others, many of whom just happened to be established legends from the original Apple Macintosh team.

General Magic failed at its ambitious goal: to create demand for its ingenious hand-held computer at a time when most people didn’t know they needed a computer at all. In other words, though the company had a great product, the product didn’t solve a pressing problem for consumers. Mr. Fadell offers candid reasons why such a smart group of people could have overlooked this basic market reality. Relaying the “gut punch of our failure,” he describes what it’s like “when you think you know everything then suddenly realize you have no idea what you’re doing.”

Four years later, Mr. Fadell landed as chief technology officer at Philips, the 300,000-employee Dutch electronics company, where he had a big title, a new team, a budget and a mission: The company was going to make a hand-held computer for now-seasoned desktop users who were beginning to see the need for a mobile device. Using Microsoft Windows CE as the operating system, it launched the Philips Velo in 1997. This was a $599.99 “personal digital assistant”—keyboard, email, docs, calendar, the works—in a friendly 14-ounce package. All the pieces were there, the author writes, except “a real sales and retail partnership.” No one—not Best Buy, not Circuit City, not Philips itself—knew how to sell the product, or whom to sell it to. So here was another “lesson learned via gut punch”: There is a lot more to a successful product than a good gadget, even an excellent one.

Many readers will come to this book specifically for the iPod and iPhone chapters. If you follow from the beginning, however, instead of skipping ahead to 2001, you’ll see how Mr. Fadell had been building up to these Apple innovations by trying and failing for years—not just as a designer of software and hardware but as a manager putting together teams, a business leader developing sales and marketing plans, and a founder building a company. Writers of business books are often short on humility; failures are recounted simply to provide a sense of drama or settle old scores. Mr. Fadell presents his flops and false starts as integral to the story—of both his career and his breakthrough products —without belaboring them and with a wry sense of perspective.

The magic of the iPod as a product is well-known. Mr. Fadell treats us to the origin story with a firsthand account of what it took to create a product that singularly revolutionized music and then video, all but saving Apple along the way. Not one but 18 generations of iPods were released during his tenure as product manager, which ended in 2006.

Perhaps the secret to the iPod was not how much it did, but how well it did the few things that were revolutionary. Chapter 3.3, “Evolution Versus Disruption Versus Execution,” details how easy it can be, when building a new product, to get too ambitious and “try to disrupt everything at once,” as General Magic so fatally did. The first iPod, as you probably don’t recall, came before the launch of the iTunes music store. Owners of the sleek white boxes were expected to transfer music not from the web but from their own CDs. Mr. Fadell and his colleagues understood the idea and value of a music marketplace, but they didn’t have the time to execute it yet and had already “disrupted enough.” (A counterexample, which proves that even Jeff Bezos makes mistakes, is Amazon’s Fire Phone, released in 2014: As Mr. Fadell explains, it introduced innovative features—the Firefly music-recognition function, for example —and did everything Mr.





Bezos promised, but “none of it well.”) The author’s journey at Apple continued with the next project he tackled, the iPhone, where, in 2007-10, he led the hardware team and helped develop the phone’s foundational software. Mr. Fadell recounts the deep divisions on the team about features like the keyboard. (At the time, the BlackBerry, with its physical rather than touch-screen keyboard, reigned supreme.) He describes the challenges of making decisions that are mostly data-driven. You can focus-test and focus-test in search of data, as Philips tried to do with their early device for “mobile professionals,” only to find out that customers “will always be more comfortable with what already exists, even if it’s terrible.” (“You can’t push people too far outside their mental model,” he remarks. “Not at first.”) The creation of the iPhone proved to be an idea maze of its own. Starting from the idea of “iPod + phone” (of course), the team thought: Why not keep the iPod’s iconic click-wheel interface but just change everything around it? The “rotary cell-phone” concept didn’t work. Throw everything out, restart. Second attempt: Begin with the shape and hand-feel of the iPod Mini. But that concept ran into engineering problems due to the small size. Finally, in the third attempt, the Apple team “understood all the pieces well enough to create the right V1 [version one] device,” what Apple CEO Steve Jobs called a combination iPod, phone and “internet communicator.” Jobs stuck to this vision, and Mr. Fadell stuck to using data to prove that the vision could work. As a result, we all type on glass keys with emoji characters now.

After Mr. Fadell left Apple, he took time off for travel with his young family. In every rented room or house they stayed in, he wondered: Why are thermostats so difficult to use? With an engineer’s curiosity, he recounts what he learned about a deeply entrenched, archaic and boring object. He uses his problem-solution-failure style to share stories about how he built the Nest thermostat and the Nest Labs company—from fundraising, building a retail channel and navigating patent litigation to marketing, packaging and customer support.

The best moments in this section, and perhaps the most difficult for Mr. Fadell to write, are about the acquisition of Nest by Google. He pulls no punches in describing what an outsider might call a botched venture integration. Google paid $3.2 billion for Nest in 2014 but within two years began to consider selling. “In utter frustration,” Mr. Fadell walked away. The lessons in these pages are as much for big companies acquiring startups as they are for the startups being acquired.

“Build” is a treasure box of anecdotes. It includes many illustrations of wonderful artifacts from the original iPod and iPhone projects, and a great reading list is provided as well. Mr. Fadell says the book is unorthodox because it is “old school.”

So is he. When he recounts his early days at General Magic, he writes of working “ninety, 100, 120 hours a week,” during which he “learned and screwed up and worked and worked and worked.” He eventually “physically and mentally fell apart,” he admits, because “humans cannot survive on stress and Diet Coke alone.” Yet he believes that, early in your career, “if you want to prove yourself, to learn as much as you can and do as much as you can, you need to put in the time.”

That Mr. Fadell still holds this view in today’s corporate climate, in which some companies lavish employees with perks from their first day on the job, even before the company is successful, says much about the honesty of the author, as well as about what he believes it takes to excel at the craft of building. In a chapter called “F— Massages,” we learn what every cash-strapped founder knows, which is just how problematic it can be to spoil employees. Mr. Fadell was baffled that Google employees complained when a preferred yogurt flavor suddenly disappeared from the company pantry, or—worse—when they had to walk more than 200 feet for snacks. This account of Silicon Valley is as real and as candid as it gets.

But don’t let Tony Fadell’s admittedly “old school” grumbling about human nature get in the way of a wonderful read. His book is rich in unorthodox wisdom that could be put to good use today to build the new things of tomorrow.

Mr. Sinofsky, the former president of Windows at Microsoft, is a mentor and investor and the author of “Hardcore Software,” available on Substack.

Engineers make breakthroughs via long hours of trial and error, focus groups and solitude. But the method takes its toll.

MUSIC BOX

Fadell’s model for the iPod, ca. 2001.

 

[Birdjaguar]

Buffett’s Charity Lunch Auction Draws Record Bid

BY AKANE OTANI

An anonymous bidder has bid a record $19 million to have the opportunity to eat lunch with Warren Buffett. The individual, who made the winning bid in a charitable auction on eBay, will meet the Berkshire Hathaway Inc. chief executive at New York City steakhouse Smith & Wollensky in the coming months. This year marks the final time Mr. Buffett, 91 years old, will participate in the lunch. Since kicking off the annual event in 2000, Mr. Buffett has helped raise more than $53 million for Glide, a San Francisco charity that provides meals, healthcare and legal aid to homeless and other vulnerable individuals in the city. Glide was a favorite cause of Mr. Buffett’s first wife, Susie Buffett, who died in 2004.

“It’s been nothing but good,” Mr. Buffett said of the lunch in a news release. “I’ve met a lot of interesting people from all over the world. The one universal characteristic is that they feel the money is going to be put to very good uses.”
This year’s winning bid more than quadruples the last winning bid, which was made by a cryptocurrency entrepreneur in the 2019 auction.



This year marks the final time for the Buffett lunch. SCOTT MORGAN/ REUTERS

Previous winners have included former hedge-fund manager Ted Weschler, who is now one of Berkshire’s portfolio managers; Greenlight Capital President David Einhorn; and a Chinese gaming company, which placed a winning bid of $2,345,678.

 

[Samson]

If you ask accountants to pass an ethics exam, who's ethics are in question when they cheat because they have no ethics?

Seriously, you have a private company that is legally obliged to put the profit of its shareholders before anything, how can you be surprised when they have no ethics? Why would you ever expect them to do the governments work without cheating?

Accounting giant Ernst & Young admits its employees cheated on ethics exams

Ernst & Young, one of the top accounting firms in the world, is being fined $100 million by federal regulators after admitting its employees cheated on their ethics exams.

For years, the firm's auditors had cheated to pass key exams that are needed for certified public accountant licenses, the Securities and Exchange Commission found. Ernst & Young also had internal reports about the cheating but didn't disclose the wrongdoing to regulators during the investigation.

The CPA, or certified public accountant, licenses are needed by auditors to evaluate the financial statements of companies and ensure they are complying with laws.

Many of the employees interviewed during the federal investigation said they knew cheating was a violation of the company's code of conduct but did it anyway because of work commitments or the fact that they couldn't pass training exams after multiple tries.

The cheating scandal comes just a couple of weeks after the Financial Times reported that Ernst & Young is planning to split its auditing and consulting arms, a huge shakeup in the accounting world that would award its partners up to $8 million in shares each.​

 

[Samson]

There is an article predicting armageddon because of high levels of debt. I am not convinced, but it has some interesting stats:

Global debt – of households, private firms and governments – reached a staggering $305tn (£254tn) in 2021, up from $83tn in 2000.

Furthermore, global debt now equals 355% of global GDP, up from 120% in 1980 and 230% in 2000.

In 2021, debtors of all types handed $10.2trn – 12% of global GDP – in interest payments to their creditors. In comparison, the annual income of the poorest 50% of humanity is just 8.5% of GDP.

Global debt has grown twice as fast as global GDP since 1980 and is accelerating, while global GDP growth is slowing and threatening to go into reverse.

While global debt has rocketed, global interest rates have been in almost continual decline since 1980. So low have interest rates fallen since the global financial crisis of 2008 that, by 2021, $17trn of bonds were trading at negative interest rates, even before inflation is taken into account. That’s $7trn more than the figure that astounded Bill Gross in 2016, referenced at the beginning of this article.

As a result, interest on debt, as a share of GDP, is well below its peak at the beginning of the neoliberal era. The Economist calculates, for instance, that 27% of US GDP was swallowed by interest payments in 1989, but ‘only’ 12% of it in 2021, despite the massive growth in US debt.

Any rise in interest rates means a huge shift of purchasing power from indebted households, firms and governments to their creditors. The Economist calculates that a 2% increase in US interest rates in 2021 would, by 2026, double the share of global GDP absorbed by interest payments.

Then it gets a bit poetic:

“Global yields lowest in 500 years of recorded history. $10 trillion of negative rate bonds. This is a supernova that will explode one day,” — tweet from Bill Gross, the ‘bond king’, in 2016.

Are we heading towards a capitalist supernova?

Why did Bill Gross liken global bond markets to a star about to explode? What are the chances that his prediction may come to pass? What would such a cataclysmic event actually mean in practice?

A star is a production process, in which heavier elements are fused out of lighter elements, releasing huge amounts of energy. When the energy released by the fusion of lighter elements is insufficient to counter the gravity exerted by the growing mass of heavier elements, the star dies.

It either ends its life as a burned-out cinder or, if it is big enough, in a supernova, an extremely violent implosion that incinerates anything in its vicinity and scatters debris throughout space.

Capitalism is also a production process, and the energy that fires it is living labour, performed by workers and farmers who produce more wealth than they consume. The surplus is converted into capital – that is, self-expanding wealth, wealth that must either make profits or shrivel and die. Capital, whether in the form of stocks and shares, bonds, real estate or fine wines, is, in the words of Karl Marx, “dead labour which, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks”.

As with a star, when the mass of accumulated capital exceeds the capacity of living labour to breathe life into it, the moment of crisis has arrived, and swathes of capital are destroyed in a financial crash.

With the interest rate hikes, our moment of crisis has arrived. But will the coming crash take the form of a brief recession, or a long and deep depression (as in the 1930s), or something many magnitudes worse – a capitalist supernova?

To understand why this is a real question, we need to introduce a crucial feature of capitalism that has no solar analogy. The accumulated mass of capitalist wealth is an enormous dead weight that long ago exceeded the capacity of current living labour to breathe life into it.

It has avoided meltdown until now thanks to the exponential growth of debt, which is nothing else than borrowing from the future, or more precisely, using the promise of future flows of surplus value to convert today’s dead labour into capital. In contrast, our dumb sun lives entirely in the present.

 

[Birdjaguar]

If the U.S. Is in a Recession, It’s a Very Strange One

Economic output is down, but the job market is strong
BY JON HILSENRATH

The U.S. economy has experienced 12 recessions since World War II, and each one included two features: Economic output contracted and unemployment rose. Today, something highly unusual is happening. Economic output fell in the first quarter and signs suggest it did so again in the second. Yet the job market showed little sign of faltering during the first half of the year. The jobless rate fell from 4% last December to 3.6% in May. It is the latest strange twist in the odd trajectory of the pandemic economy, and a riddle for those contemplating a recession. If the U.S. is in or near one, it doesn’t yet look like any other on record.

Analysts sometimes talked about “jobless recoveries” after past recessions, in which economic output rose but employers kept shedding workers. The first half of 2022 was the mirror image—a “jobful” downturn, in which output fell and companies kept hiring. Whether it will spiral into a fuller and deeper recession isn’t known, though a growing number of economists believe it will. Some companies, especially in the tech sector, have given indications that they’re pulling back on hiring, though across the broad economy the job market has rarely looked stronger.

At the end of June, 1.3 million Americans were collecting federal unemployment checks, substantially fewer than the 1.7 million people collecting them on average each week during the three years before the pandemic, when the economy was considered to be exceptionally strong. The number of people receiving such benefits topped 6.5 million during the 2007-09 recession and exceeded 3 million during the two earlier downturns. “I would be surprised if there were a recession without much job loss,” said Gregory Mankiw, a Harvard University economics professor. He said if one is coming, it would likely be provoked by Federal Reserve interest rate increases. A “small downturn” could be needed to bring inflation under control, he said.

Recession indicators

The official arbiter of U.S. recessions is the National Bureau of Economic Research, a collection of mostly academic economists who place dates on when recessions begin and end, going back to 1857, the first U.S. recession on record. Mr. Mankiw served on the committee during the 1990s. One popular rule of thumb is that the economy is in recession when gross domestic product—a measure of the nation’s output of goods and services— contracts for two consecutive quarters, but that’s not the way the NBER sees it. Its eight-member business cycle dating committee looks at a range of monthly and quarterly indicators, including output, income, manufacturing activity, business sales and, perhaps most important, employment levels. Then it makes a judgment call.

“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators,” the committee says. The indicators don’t always move in sync. In 2001, output didn’t decline much, and GDP didn’t contract for two consecutive quarters, but the NBER called it a recession, anyway. In 1960, inflation-adjusted household income rose, and that was a recession, too. One common denominator has been jobs. The unemployment rate has increased every time, by as little as 1.9 percentage points in 1960 and 1961 and as much as 11.2 percentage points in 2020. The median increase in the jobless rate among all 12 post-World War II recessions was 3.5 percentage points. The U.S. didn’t escape any of those recessions with a jobless rate below 6.1%.

Monthly business payrolls, watched closely by the NBER, also have fallen in every recession, by about 3% in a typical one. Yet between December and May, payrolls rose 2.4million, or 1.6%. They are a coincident indicator, meaning they tend to rise and fall in sync with broad economic activity.

On Friday the Labor Department will report nationwide figures for payrolls and unemployment for June, a potentially critical moment in the recession debate. Economists surveyed by The Wall Street Journal in advance of the report said they expected the Labor Department to report that the jobless rate held steady at 3.6% last month and payrolls kept expanding.

The backdrop to U.S. jobs is now unusual. The U.S. has recorded more than 11 million unfilled job openings in six of the past seven months, four million more monthly openings than was typical before Covid-19 hit the economy in early 2020. In other words, demand for workers is abundant. At the same time, labor is scarce—in part because baby boomers are retiring—making firms reluctant to fire the workers they have. The size of the labor force, at 164.4 million in May, was still slightly smaller than the 164.6 million people who were working or looking for work right before the pandemic, so even when people do lose work, there have been many unfilled positions available.

Robert Gordon, a North-western University economics professor and member of the NBER’s business cycle dating committee, said this might be a situation in which other indicators point to recession but the job market doesn’t, or it lags behind atypically for several months. “We are going to have a very unusual conflict between the employment numbers and the output numbers for a while,” he said. Some other meaningful indicators, such as manufacturing and wholesaler sales, have also weakened, he added, making him wary that a recession is near. He noted he wasn’t speaking for the committee or any decisions it might make.

Looking ahead

Even the most pessimistic economists see a modest jobs downturn in the months ahead. About two in five economists surveyed by the Journal in June said they saw at least a 50-50 chance that the U.S. enters recession in the coming year, but among them, few saw a big increase in the jobless rate. They forecast a 3.9% unemployment rate at the end of this year and a 4.6% unemployment rate at the end of 2023. The U.S. has never had a recession in the post-World War II era with a jobless rate that low.

“The U.S. is in, or on the precipice, of a shallow but yearlong recession. This will assist the Fed in its inflation fighting efforts,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, in the Journal’s survey. He sees the jobless rate rising to 6% by the end of 2023, the only person in the survey who saw the rate reaching that level in the next 18 months.



A help wanted sign in New York City, above. The job market has showed little sign of faltering during the first half of the year. SPENCER PLATT/ GETTY IMAGES



History shows that recessions come in many forms.

Some downturns have been long and deep, such as the downturn of 2007-09 that sent the unemployment rate to 10%; others short and shallow, such as the 2001 recession that lasted eight months. Others were part of serial downturns, as happened in the 1950s and 1980s, when recessions came in succession, a short time apart. “Each recession seems to have a different driving force and different duration and impact on jobs and output,” said Peter Klenow, a Stanford University economics professor. “I think of the 1980 recession as Carter credit controls, 1981-1982 as the Volcker recession, 1990-1991 as a credit crunch, 2001 the bursting of the dot-com bubble, 2008-2009 the global financial crisis, and 2020 the pandemic recession.”

The 2020 recession, in particular, was unlike anything recorded in U.S. history, exceptionally short at just two months, and exceptionally severe. Companies cut 22 million jobs in those two months, 14 times more than they had ever cut in a two-month period during the post-Depression era. This was a precursor to the turbulence still hitting the economy more than two years later.

Officials reacted to the Covid shock by flooding the economy with stimulus and boosting demand. Supply chains broke down, in part because of Covid-related business closures. The surge of demand and collapse of supply then bred higher inflation. The Fed is now trying to slow it by raising short-term interest rates to restrain demand for interest-sensitive spending, such as on cars, homes and business projects.

What happened in the first part of the year in part reflected volatility in the economy that followed Covid, compounded by Russia’s invasion of Ukraine. Businesses drew down inventories in the first quarter after building them up in 2021, according to Commerce Department data. The U.S. trade position also deteriorated, meaning fewer exports and more imports. The inventory reductions were central to a contraction in gross domestic product at a 1.6% annual rate in the first quarter. Rather than build new cars or computer chips, companies took them off their own shelves.

A Federal Reserve Bank of Atlanta model closely watched on Wall Street estimates that economic output contracted again in the second quarter, at a 2.1% annual rate. The model puts inventory reductions as the biggest downward weight on output. Inventories are a business buffer for surprises, and cycles of inventory building and destocking have been common ingredients in the early stages of past recessions. Firms at times produce too much in anticipation of demand and then have to pull back when the demand doesn’t materialize. In past cycles, production declines associated with inventory reductions set off a series of events that caused recessions, including layoffs, household income loss and then slowing consumer spending.

New risks

One risk now is that inventory cutting leads to wider business retrenchment that feeds on itself, as happened in some past recessions. Another uncertainty is the outlook for home building, which is highly interest rate sensitive and has been another leading indicator during past downturns. New-home construction dropped 14% in May from a month earlier, seasonally adjusted, a drag that could persist as the Fed raises short-term interest rates.

Most post-World War II recessions have been associated with declines in residential home construction, though the hit this time may not be severe because building wasn’t as overheated in recent years as it had been in the past. In the first quarter, total U.S. spending on home-building was still 22% below the pace of building at the peak of the housing boom of the early 2000s, according to Commerce Department data. Bruce Kasman, chief economist at J.P. Morgan, predicts a “bend-but-don’t-break” scenario for the economy, meaning a sharp slowdown in activity that doesn’t crack the job market. However, he adds that he doesn’t have great conviction about that prediction, given the unusual backdrop and the shocks that keep hitting the economy.

Though corporate profits are slowing, he said, corporate profit margins are exceptionally high, historically. At around 18% of sales during the past year, after-tax profits have rarely been higher in post-World War II history. Heading into recessions in 1991 and 2001, firm profit margins had fallen to single digit levels. Firms cut back on spending to build profits, and dragged the economy down in the process.

Mr. Kasman said firms now have a large cushion to the growing profit slowdown. Businesses are also swimming in nearly $4 trillion of cash, a record, he said. Slow growth and continued hiring would add up to productivity and profit pressures for many businesses. That would be bad news for stocks, he said. But a recession? He’s not counting on it.

Households are flush with cash, too. At the end of the first quarter, they had $18.5 trillion in checking accounts, savings accounts and money market mutual funds, according to Fed data. That was up from $13.3 trillion before the pandemic, boosted in part by several rounds of relief checks sent to households in the past two years. —Anthony DeBarros contributed to this article.

 

[Samson]

If the U.S. Is in a Recession, It’s a Very Strange One

Economic output is down, but the job market is strong
BY JON HILSENRATH

I suspect this only looks strange if you are not living in the current world where wages have gone down in real terms for decades, job security is a fantasy for most people and essentials of life, particularly shelter but also healthy food, are effectively luxuries enjoyed by the people who write for the WSJ and those richer. Personally I am more surprised it has not happened years ago.

This is really exemplified by "across the broad economy the job market has rarely looked stronger". While he does not detail exactly what he means, I suspect it is one of two things:

• Fewer people are claiming unemployment benefits
  • It is much harder to get unemployment benefits than it was in the past, so few people get them. Anyone who looks at this and thinks it is proof the economy is good does not know what they are talking about.
• It is easy to get either high tech and low paid jobs
  • The economy needs more people who can do "high tech". This has been going on for all of my working life, and probably longer
  • Low paid jobs are at best marginally survivable, and are not enough to raise a family. Saying that there are a lot of them is more like evidence of a broken economy than a good one.

 

[Farm Boy]

So in the past- you lost your job and it was a recession. Now it's a recession and you keep going to work. Progress!

 

[Birdjaguar]

I suspect this only looks strange if you are not living in the current world where wages have gone down in real terms for decades, job security is a fantasy for most people and essentials of life, particularly shelter but also healthy food, are effectively luxuries enjoyed by the people who write for the WSJ and those richer. Personally I am more surprised it has not happened years ago.

This is really exemplified by "across the broad economy the job market has rarely looked stronger". While he does not detail exactly what he means, I suspect it is one of two things:

• Fewer people are claiming unemployment benefits
  • It is much harder to get unemployment benefits than it was in the past, so few people get them. Anyone who looks at this and thinks it is proof the economy is good does not know what they are talking about.
• It is easy to get either high tech and low paid jobs
  • The economy needs more people who can do "high tech". This has been going on for all of my working life, and probably longer
  • Low paid jobs are at best marginally survivable, and are not enough to raise a family. Saying that there are a lot of them is more like evidence of a broken economy than a good one.

The rules for unemployment claims haven't changed. It has always been easier to collect if you are fired or laid off. If you quit, it is more difficult or you have to wait. Recently, there have been fewer firings and more quitting. In addition, if you quit for a better job, unemployment doesn't come into play.

Low paying jobs are hard on single people, but can be a good complement as a second income. We do not know how the 11 million open jobs break out as far as what they are, do we?

 

[Samson]

The rules for unemployment claims haven't changed. It has always been easier to collect if you are fired or laid off. If you quit, it is more difficult or you have to wait. Recently, there have been fewer firings and more quitting. In addition, if you quit for a better job, unemployment doesn't come into play.

Low paying jobs are hard on single people, but can be a good complement as a second income. We do not know how the 11 million open jobs break out as far as what they are, do we?

In the UK they are always reducing the availability of unemployment benefit, it is good the US has not. I would guess someone knows the distribution of jobs? In the media it is low paid jobs that are highlighted, but I certainly do not know how they break down.

 

[Lexicus]

The U.S. caused nearly $2 trillion of climate harm to poorer nations, study finds

"It's the countries that have emitted the least that are also the ones that tend to be harmed," says co-author.

www.cbsnews.com

First study I've seen attempting to quantify the effects of climate pollution in this way. Turns out by the authors' estimate the US has inflicted nearly $2 trillion in damages on other countries in exchange for gaining $183 billion of benefit from carbon pollution.

So what's the value proposition for global capitalism again? Are we actually growing the pie or are we just making some rich at the expense of everyone else? This damage figure is very likely to be an underestimate wrt to climate-related damages, and those aren't the only kind of damages the US (and rich countries more generally) inflict on the world via pollution.

 

[El_Machinae]

So, honestly, I didn't know China was so high on the list of 'causing damage' as well. Those analyses are only up to 2014. I'd thought that for sure that because they started bringing up the carbon 'later' along that timeline, they would just be significantly lower. The two countries are roughly similar in land size, and I guess the pressure for China to step up its game is more warranted than I'd thought.


I'm not surprised that the total damage is 'so low' (between 1990 and 2014). The entire risk is along an exponential curve.

 

[Birdjaguar]

Did the study also include the local cost to the US? We have experienced increased climate change damage from storms, drought, etc. Those numbers would decrease the US benefit.

 

[Lexicus]

Did the study also include the local cost to the US? We have experienced increased climate change damage from storms, drought, etc. Those numbers would decrease the US benefit.

True - and I'd like to see a more granular breakdown of this than country-by-country. It would sure be funny to find that US carbon emissions have benefitted a tiny handful of rich people at the expense of all other Americans.

 

[Naskra]

the study

The "study" is quantified alternate history - junk science from beyond the 5th dimension.