the Wall Again (aka part 3)

We have posted on hitting the wall within the United States before.  I did find an interesting casual link the other day. Ht Brad Delong.

As our recession ends with more people going back to work, generally at lower wages, it will be important to see if consumer spending can recover without additional borrowing.

From Credit Slips Bob Lawless

Today, I am visiting my parents' home and went for a walk that included a stroll down the commercial strip on the busy street near their house. Along this commercial strip in a solid middle-class neighborhood in Peoria, Illinois, is a small red brick building that thirty years ago I remember housing an insurance agency. What is there today? A payday lender.

My stroll turned into my own personal metaphor for the change in the middle class over the past generation. In place of an institution that cushioned against risk, the neighborhood now has an institution that creates it…

The payday lender that inspired this post does not even really stand out. In that one-quarter mile stretch of that commercial strip, there are now five payday or auto title lenders.

And we add to this, information provided by one of his commenters from the Hamilton Project.

The pool of full-time workers has shrunk at the same time that the median wages of full-time workers has stagnated. Why is this important? It means that the statistics about the stagnation of wages like those above are based on a comparison of very different groups of workers. Put plainly, the story of the stagnation of wages is based on a comparison of apples to oranges.

When you compare apples to apples by looking on the experience of all men (rather than just the changing group of men able to find full-time work), the stagnation story has a different ending.

The below figure plots the median earnings based on all males aged 25-64, along with the more conventional plot that is based only on those men aged 25-64 that happen to work full-time.

This analysis suggests that earnings have not stagnated but have declined sharply. The median wage of the American male has declined by almost $13,000 after accounting for inflation in the four decades since 1969. This is a reduction of 28 percent!

The red line is the median income for full-time men.  The problem is that less men are working today than previously.  The drop out in the labor force is primarily found within the “low-skilled” portions of the workforce.   So the red line is propped up by the withdrawal of the lower end of the sampling pool. 

It is a little like when one of our school districts decided to drastically raise the entry age for student.  If you (exaggerating) have a kindergarten class full of twelve year olds, you would expect them to score very well.  But you haven’t said much about the overall education of our youngsters.  It is the same situation here.  If you have a work force made up of doctors and lawyers, but half your tradesmen are unemployed, you cannot really say that wage earning are going up in any real sense.

The blue line is thus a calculation based on the median wage for all men (not just the full-time workers).

Where do you put a Nuclear Reactor?

Relating to yesterdays posting to my earlier post about influence, this post is topical to Japan, but could take place just about anywhere where influence works through the rule of law.

There are some physical and operation limitations as to where you put a nuclear reactor.  Because they needed a lot of cooling water, and Japan is lacking in large rivers, a coastal location was always likely.  But within those bounds, how did they decide to place them?

LOCATION, LOCATION, LOCATION: SELECTING SITES FOR CONTROVERSIAL FACILITIES

DANIEL P. ALDRICH, Purdue University, Department of Political Science, Singapore Economic Review, 2008.   Ht MR

[D]emographic, political and civil society factors impact the outcomes of siting attempts. It finds that the strength of local civil society impacts the probability that a proposed project will come to fruition; the greater the concentration of local civil society, the less likely state-planned projects will be completed… state agencies choose localities judged weakest in local civil society as host communities for controversial projects. In some cases, powerful politicians deliberately seek to have facilities such as nuclear power plants, dams, and airports placed in their home constituency

Japan provides an excellent setting for testing hypotheses about the factors critical in the siting of controversial facilities because of its high population density, variety of policy instruments used in handling siting, and differing levels of success at siting across facility types. Japan continues to grapple with high population density, with 30 times as many people as the US on every square kilometer of habitable land. Urban land prices in Japan skyrocketed over the post-war period due to the shortage of available space, and even after the bursting of the “bubble economy” of the 1990s land prices in Tokyo remain among the highest in the world. Given the scarcity of available land, Japanese government officials must work doubly hard at selecting sites. If Japanese officials cannot solve these problems and “pass the buck” to future generations, the costs for siting, negotiation and compensation will only rise. Their decision-making in selecting sites for nuclear power plants, dams and airports provides broader insights into other national and institutional contexts where issues of land scarcity and higher prices are beginning to surface…

Observers have been surprised at the success that Japan, the only nation in the world to have experienced nuclear weapons, experienced in its commercial nuclear reactor program, which supplies one-third of its electricity through 54 reactors. In recent decades, however, Japan, like the US, Germany, Italy and other advanced industrial democracies, has faced rising local opposition to nuclear plant facilities. Despite increasing subsidies, lead times for reactors, including negotiations with local communities, licensing and construction, have increased threefold over the past three decades (Aldrich, 2005a,b). Government energy plans have been scaled back in a number of areas, and recent public documents acknowledge the difficulties in achieving “local understanding” over plant siting. Further, Japan has experienced many non-nuclear land use conflicts, over issues including the construction of airports and high-speed rail lines (Apter and Sawa, 1984; Groth, 1987) and the placement of US military bases (Smith, 2000). Japan’s successes and failures in facility siting must be explained, and not taken for granted. In short, as Lesbirel (1998) has argued, Japan provides an excellent window into how bureaucracies and decision makers around the world, pressed both for resources and available land, handle the problem of controversial facility siting. My underlining.

So the answer is:  They put them were people were not able to stop them, or occasionally where a powerful politician wanted them.

On the plus side, if you local area is known to be a hotbed of disent and public activism, nobody in the United States is going to have the guts to mess with you:  they will find an easier target.  So in North Carolina, a lot of people do an eye roll over Chapel Hill, NC local politics.  But you don't see anyone trying to put an unwanted waste water treatment there either.

No Growth in business

From the U.S. Federatl Reserve in Atlanta (ht MR)

The piece starts by noting that business start ups have been way down in the Great Recession.  Since I personally know of a number of start ups that were only started because people lost their "employment" job and started a small business doing what they were already doing, the number of start ups may be inflated even at that low number.  If you layoff a construction project manager, and he cannot find work, eventually he is going to start a small construction firm and start bidding on work for himself.  Why not?  He knows the subs and one-hundred percent of construction work is sub-contracted out today even on a hard bid construction project.

A disturbing trend: No growth in total business establishments in U.S.

The Quarterly Census of Employment and Wages (QCEW) data...showed that the number of business establishments with payrolls in the United States has remained stuck at around 9 million since late 2007. By comparison, in the early 1990s there were about 6.5 million establishments, a number that rose to close to 8 million in 2000 before peaking at 9 million 2007.

(enlarge)

The net creation of business establishments—that is, physical locations for conducting business such as manufacturing plants, retail stores and business offices—has in the past been a key ingredient in job growth in the United States. This growth is driven partly by demand from newly created businesses and by mature firms expanding their footprint by opening additional locations. The demand for physical space is also clearly important to the commercial real estate industry, which has been burdened by elevated vacancy rates in many markets and generally low demand for new space.

Another trend from the QCEW data is striking—the number of employees per establishment is much lower than it used to be. The average size of U.S. establishments was relatively stable during the 1990s, at around 16.5 employees per physical location. The 2001 recession was associated with a decline in the average size to about 16 workers per establishment, and the average size continued to track lower during the last decade, moving down to about 15 employees per establishment in 2007. The latest reading for the second quarter of 2010 was 14.3 workers per establishment, up from 14 workers in the first quarter.

Death on rural roads: Mexico

San Fernando Township in Northern Mexico is a dangerous place.  The slaying last August of 27 immigrants was huge news, and now there has been another mass body find.

The victims in the August slaying were immigrants trying to make it to the United States across the flat sparsely inhabited area.  Less than 60,000 people live in the area, with isolated sorghum ranches being the chief income for the rural population.

In the August massacre, the immigrants were intercepted by the Zeta drug gang.  The Zetas were in the process of forcing them to work as drug runners or assassins, but something went wrong and all of them were killed.

After the massacre, two investigators were assigned to the case.  They were killed within days.

In the months [after the] massacre, San Fernando and surrounding Tamaulipas state have become a no-man's land. Piles of bullet-ridden bodies have been found along the county's roadsides, in various states of decay. Shootouts between sport-utility vehicles—cars popular among drug traffickers—have erupted nearly on a daily basis. On most days, when twilight settles on the area, the streets of San Fernando, the county seat, empty as residents give way to the criminals who own the highways and country roads, residents say.  Nicholas Casey, Murder in Mexico, The Wall Street Journal, April 12, 2011.

The local police station with only four officers on duty has been shot up twice.

Now 116 bodies, with more possibly coming, have been found in mass graves at a secluded ranch.  The dead include Mexican locals on a bus that was stopped and all of its passengers taken.  The roads are so dangerous that the bus lines have suspended services through Tamaulipas state.

It should be noted that this not a completely lawless place, the way that the location of our recent post apocalyptic combats were.  The Mexican government does have patrols on the main highway, and if the drug dealers have to show some care on the main routes.  But the presence of the army also makes it impossible for large groups of people to go in armed convoys.   Fractional police protection often causes more problems for the honest citizens than the criminals.

It does beg the question of how safe a completely rural retreat would be…

---------------

However, in a news flash (per the following quoted article), apparently there is no specific concern for Americans.  It is comforting to know that we are not targeted.  Of course the fact that an American would be more likely to have money to pay a ransom and less acustomed to the measures needed to protect oneself is beside the point.

U.S. Rescinds Its Warning for Americans in Mexico

Nicholas Casey, Wall Street Journal, April 14, 2011

State Department Spokesman Michael Toner said, "we thought it was credible information, and then it was later deemed that it was not credible enough to warrant it remaining on the website."

The warning, the first indicating Americans were being targeted by drug traffickers, said U.S. officials had "uncorroborated information that Mexican criminal gangs may intend to attack U.S. law-enforcement officers or U.S. citizens in the near future in Tamaulipas, Nuevo León and San Luis Potosí" states. Among the cities affected by the warning was Monterrey, the country's northern business hub.

Which leads us to:

“Ah, this is obviously some strange usage of the word 'safe' that I wasn't previously aware of.”

Douglas Adams, Arthur Dent in "The Hitchhikers Guide to the Galaxy"