The ‘mystery’ of jobs recovery without GDP growth

“The most encouraging sign we’re seeing is that many new entrepreneurs are living in such a far-fetched, dreamlike stupor that they’re actually making significant investments in infrastructure and payroll,” Hemley said. “These entirely nonsensical investments will certainly have a positive impact on the job market, as these new ventures create thousands of new jobs for several months until these doomed companies can no longer keep their doors open and inevitably collapse into bankruptcy.”

Onion story Encouraging Economic Report Reveals More Americans Delusional Enough To Start Their Own Business

Over the last couple of years there seems to have been phases of craft/homemade items being hawked by loads of people, en masse, particularly over facebook.

There have been cards, cupcakes, personalised converse trainers and now hair bows seems to be the latest.

AIBU [Am I being unreasonable] to be sick of the sodding ‘Please like my FB selling page’ requests, stalls popping up at DD’s dance class, school fetes etc and then having people I know almost guilt tripping you into buying because you know them?

I know I don’t have to buy anything, and I mostly don’t, but have felt obliged to a couple of times. and have mainly been left disappointed

Me too. I go to a baby and toddler group each week and it used to just be a toddler group and slowly it has turned into toddlers down one end and 2 or 3 different stalls each week up the other end. Homemade dolls clothes, homemade candles, candy trees, aprons and blankets, gift cards, avon, temple spa, cupcakes and macaroons and the obligatory shabby chic twiggy shit.

Now there is no end of christmas themed stuff too. I don’t want it, and I don’t want to have to explain to people why I don’t want to buy their stuff. It starts with ‘oh you must come and look at xxxx, your would just love them’

Actually this is pretty explainable. They register as “self employed” and that way they can claim working tax credits. No need to make a profit as even if their business is rubbish they can still access WTC. This is what Universal Credit was meant to stop – those working a few hours self employed or their business being worthless but it gets them more benefits and means they don’t have to sign on for Jobseekers Allowance.

Agreed, and it gets encouraged by certain job advisors. I write, as a hobby. My job advisor told me to do exactly this. I told him I wouldn’t make enought to live off, he said it wouldn’t matter.

From a Mumsnet thread about craft and ‘mumpreneurs’.

The fear that I’ll see someone I know. Luckily I’m not from here so I don’t have to worry about high school classmates or anything but I’m deathly afraid a law school classmate will see me. I saw a guy I knew from law school yesterday who works in biglaw now but I ducked behind a counter before he saw me. I think every day about what it would be like if one of the partners at my 2l summer firm saw me. It would be humiliating but at the same time I kind of hope the partner who no offered me does see me there. I think he doesn’t realize what kind of economy he discarded me into and I want him to know that he fucked my life up majorly

Number 7 in a long list of humiliating things about being a Law Grad Working Retail, according to his blog.


sonic the hedgehog

“Do one thing, and do it well” was the recipe for success given by chewing gum godfather Mr Wrigley. It worked for him. He could have added – know what that thing is.

Microsoft do one thing and do it well. They make business software and sell it to businesses. There is a lot of money in this. Microsoft’s problem is that they don’t recognize that this is what they do well. Microsoft has a self-image as a cool company that make tools actual real people, including young people and cool people, are delighted to use and pay money for, like Apple, or Microsoft in 1985.  This delusion leads them to do things like try to sell phones to young people, try to sell weird functional PC-tablets, try to get the fictional verb ‘to Bing’ included in the Oxford English Dictionary, try to sell music players, try to stop home users pirating their software, rename Hotmail and MSN Messenger to try and promote their other ‘cool, fun’ web services. Occasionally they have some large amount of success selling something to people who aren’t purchasing managers, like Windows 95 (which due to disproportionate hype was apparently bought by people without computers who didn’t want to miss out), or the XBox. Unfortunately this kind of thing just encourages Microsoft to take all the money they make from Microsoft Excel and throw it at a bunch of dumb projects.

Ask a young, cool person who uses Microsoft products (if you can find one) what they think of Microsoft and they will tell you they hate it. Ask a small business owner and they will tell you they freaking love Microsoft, who gives them all the great, affordable, simple tools they use everyday. Microsoft needs to focus on the people who love them, there is nothing as uncool as someone trying too hard to be cool.

Osborne is not the first-time buyer’s friend

George Osborne has no interest in helping people buy their first homes. The Help To Buy scheme solves two problems, neither of which is lack of affordable housing.

The first problem is that homebuilders have kept lots of inventory on hand since the crisis. This is the reason prices didn’t fall further, especially in the less desirable parts of London. (There are other good reasons why the price of say, mansions in Kensington has held up, mainly that God is not making any more Kensingtons.) Homebuilders would like to sell some of this stockpile, so that they can get leveraged up again and start building new homes and making money. They would prefer not to dump the stuff into a falling market. George Osborne is the friend of the homebuilders, and he would like them to start building again so that the economy gets ‘better’. So he came up with the first Help To Buy, which gives money to people to help them buy new builds.

But George Osborne is also the friend of the home owners, and also the friend of the buy-to-let landlords and the other landlords and property investors in general. Giving people free money to buy only new builds when no-one can afford to bid up another property bubble, could have caused a fall in the value of all other housing. The second part of Help To Buy is an attempt to maintain property prices in the face of weak economic growth, lack of risk appetite from lenders, and a possible resurgence of new building. Clearly it didn’t take a historian of finance to figure out that a good way to do this would be to borrow large amounts of money and invest them in the mezzanine tranches of subprime mortgages.

By any judicious means necessary

Now to the extent that these premia do not have to do with factors inherent to my counterparty – they come into our mandate.

The most important sentence of Mario Draghi’s 26 July 2012 speech. The most important phrase is factors inherent to my counterparty.

Of course, much of the work of saving the euro that he talked about in that speech was done just by giving the speech. If the ECB announces that it will protect periphery sovereign debt against the wicked speculators, those speculators are going to need big hearts and deep wallets before they decide to test this thesis.

But now suppose a Southern European country, say Portugal, runs into various forms of political drama and instability, and yields start to grow. The ECB can act or not act, and it has to act if the bond prices are not caused by risk that Portugal won’t pay its debts. Equally, it can’t act, if the sell off is caused by factors inherent to my counterparty, such as the genuine possibility of default (including buybacks, bailins, bailouts with PSI, etc.)

So the ECB now has the job of doing things like looking at Portugese governments and deciding if they have a chance of being stable, finding out how much Portgual (headline unemployment rate: 28%) has lied about various economic indicators, figuring out how and to what extent her banks are being encouraged to misallocate money they don’t have to people who can’t afford to pay them back… They are not supposed to hand over Finnish and German surpluses merely based on the benefit of the doubt. And the longer they wait before doing this, the more of this hard-earned money will be seen to go to reward hedge funds who bought in at the bottom. But neither do they want their statement about why they are not buying any Portugese government debt (in the immortal words of Gerald Ratner, “because it’s crap”) to be the thing that happened the day before Greece 2.

See why this is a more dangerous road to go down than LTRO. A bank that has collateral to get money with is by definition illiquid and not insolvent, unless the collateral is crappy. And crappy collateral suddenly gets a lot less crappy, if you allow the bank holding it to pretend it isn’t crappy and treat it as currency. It’s a bit like playing Monopoly when you choose to ‘forgive’ debts for as long as everyone needs to pay, rather than have them go bankrupt and spoil the party. Sooner or later everyone passes Go and collects £200 enough times.

Governments tend not to have much collateral, other than things like hospitals, and buying up government debt to lower its yield doesn’t actually give the government in question any more money to pay its deputy mayors until the next bond auction comes along.

Unlike the IMF (and the Egyptian army), the ECB doesn’t have a lot of functionaries whose job is to decide at what point it would be in everyone’s best interest to cancel democracy. This might be one of the things that has to change in the new Europe.

Self-devised employment and the hysteresis of hope

British workers are putting in the same number of hours as before the recession, but they’re not getting anywhere near the same output. The Office for National Statistics released the latest figures on GDP and the labour market May 23rd, and they show hours worked in Q1 2013 back to the level of Q1 2008 for the first time. GDP (down 3% over the last 5 years) still lags behind both hours worked and employment.
Izabella Kaminska of FT Alphaville noted this productivity gap back in January, and theorized about output hidden in the collaborative, online economy. I think I was one of many people who didn’t buy this explanation.

The other way of looking at the decoupling, is that low GDP does reflect the general poor health of the economy, and that the labour market recovery is an illusion. This is the theory of hidden unemployment, not hidden growth. One place for this unemployment to hide is in the form of entrepreneurship. There is some anecdotal evidence that especially laid-off fi nance workers (less in need of Jobseeker’s Allowance, and perhaps more stigmatized by sustained unemployment) are taking this route.

#1: Every unemployed asshole in a bathrobe with a Bloomberg free trial calls himself a hedge fund these days.

[@GSElevatorGossip on Twitter]

I dug up some Companies House data on the number of incorporations in the UK throughout the noughties. Company creation barely took a hit in the recession, with the trough in (financial year) 2008-09 no lower than 2004-05, and 2009-10 back to pre-crisis.

Break down the new companies by share capital though, and you see that something changed in 2009-10. Companies with less than GBP 100 in initial capital go from about a third to almost all of the new incorporations.


The low levels of share capital suggest that the new businesses are owned by individuals or households, and run by their owners. Since they don’t have either external shareholders or bank loans, there’s no need for the owners to put up an initial fi nancial stake rather than fund the business as it goes along.

You could see this under-capitalization as a reflection of the nature of the ‘new economy’. Today’s technology startups are not Hewlett and Packard, buying expensive hardware for their garage factories. App makers and bloggers only need a laptop and a connection. (Whether economic growth based solely on iPad games, amateur Tumblr pornography, and various forms of linkfarming is sustainable is another matter.)

On the other hand, it could be a clue as the ‘placebo’ nature of these jobs. There are social and psychological reasons why someone might launch a startup in preference to claiming unemployment benefi ts, and these combined with the sunk costs fallacy, could lead them to keep putting the hours in despite seeing little or no pro fits. This explains both the labour market recovery and the GDP stagnation.

This ‘placebo work’ mirrors that which takes place in Third World cities, where the unemployed and unskilled scrape a living guarding parked cars, fetching drinks for train passengers, and various other activities on the border between entrepreneurship and begging. My sister wrote a post about this ‘self-devised employment’ in Egypt.

If these company creations do reflect a new trend in small and unproductive businesses, then the graph also shows a huge and sustained drop in traditional startups, flat for the last three years at around 50,000 a year, a sixth of the peak, and a third of the pre-boom (2000-01) numbers.

Paul Krugman told Andrea Leadsom on Newsnight a year ago:

you know, the average young person is not going to start a business

It looks a bit like half a million Britons did just that. Whether this is really just shifted unemployment, or if these startups are about to flower into a couple of GDP points worth of smartphone apps, lifestyle blogs and asset management, remains to be seen.