1 Eurozone inflation falls to 0.5% (BBC) Inflation in the euro area fell to 0.5% in March, down from 0.7% in February and its lowest rate since November 2009. The Eurostat estimate puts the inflation rate well below the European Central Bank target of just below 2%. The figure is lower than the 0.6% rate expected by analysts. The lower-than-expected rate may reinforce concerns that the 18-nation eurozone risks a damaging period of deflation. It is the sixth consecutive month that the rate of inflation has been below 1%.
And analysts believe that the sharp drop in the inflation rate could prompt the European Central Bank (ECB) to take action this Thursday. At its last meeting, which took place earlier this month, the central bank left interest rates on hold at 0.25% and took no new measures to bolster the eurozone’s fragile recovery. Analysts have suggested the ECB could cut interest rates even further or buy bonds in a similar manner to the US Federal Reserve. On Friday, figures from Spain showed that prices in the country fell 0.2% in March compared with a year earlier.
2 Who the job creators really are (Jared Bernstein in The New York Times) If you want to protect someone in Washington, call them a “job creator.” Such wonderful, rare creatures must be insulated from taxes, regulation, and especially unfriendly rhetoric. But it’s not clear who the job creators really are. Of course they’re employers who hire people. But they’re not hiring people to save America. They’re doing so because if they didn’t, they wouldn’t be able to meet the demand for the goods or services they produce, and they’d be leaving profit on the table to be scooped up by a competitor.
In this framing, as venture capitalist Nick Hanauer stresses, the job creator is the consumer or investor. They are the ones, by dint of their extra spending, who incentivize the employer to hire someone. What about when many consumers are temporarily out of the picture, as in a sharp recession? Then the government and the Federal Reserve need to step in and boost consumer demand with fiscal and monetary stimulus, making them the job creators.
One can continue to peel the onion in revealing ways here. You know what’s been the biggest job creator over the last few decades? Financial bubbles. The labor demand created by the dot-com bubble in the 1990s and the housing bubble of the 2000s created millions of jobs and sent the unemployment rate below 5 percent in both cases.
Globalization is in play: Multinationals don’t depend on healthy American consumers. Productivity is often cited as a factor in play here, as well, suggesting that firms are squeezing more work out of fewer workers, while automation is increasingly displacing more jobs. But while productivity has increased in this expansion, it hasn’t accelerated in ways that would support this explanation; in fact, it has decelerated.
Here’s what I think is happening. Profits equal revenues minus costs, and labor is a cost. Maximizing profits means minimizing costs, and when labor’s bargaining power is as weak as it’s been in recent years, that’s not hard to do. Revenues, or companies’ earnings, haven’t been particularly strong, and this too implies that squeezing labor costs has been the key factor driving profitability.
First, we must think broadly about job creators and discount simple links between profits and jobs. If booming share prices and corporate profits lifted the poor and middle class, believe me, we’d know it by now. Second, we should be equally skeptical of arguments about the job-killing impact of taxing and regulating. We should not beggar our fiscal accounts or our environment to protect phantom job creators. Third, we must pursue policies that increase the bargaining power of those who depend on paychecks as opposed to portfolios. There is of course nothing wrong, and a lot right, with robust profits. It’s when that is all there is that we have a big problem.
3 Capitalism making way for the age of free (Jeremy Rifkin in The Guardian) In a capitalist market, governed by the invisible hand of supply and demand, sellers are constantly searching for new technologies to increase productivity, allowing them to reduce the costs of producing their goods and services so they can sell them cheaper than their competitors, win over consumers and secure sufficient profit for their investors.
Marx never asked what might happen if intense global competition in the future forced entrepreneurs to introduce ever more efficient technologies, accelerating productivity to the point where the marginal cost of production approached zero, making goods and services “priceless” and potentially free, putting an end to profit and rendering the market exchange economy obsolete. But that’s now beginning to happen.
Over the past decade millions of consumers have become prosumers, producing and sharing music, videos, news, and knowledge at near-zero marginal cost and nearly for free, shrinking revenues in the music, newspaper and book-publishing industries. Lawrence Summers, former US treasury secretary, and J Bradford DeLong, professor of economics at the University of California, Berkeley, have focused on the new communication technologies that are already reducing the marginal (per-unit) cost of producing and sending information goods to near zero.
While the notion of near-zero marginal cost raised a small flurry of attention 12 years ago, as its effects began to be felt in the music and entertainment industry and newspaper and publishing fields, the consensus was that it would likely be restricted to information goods, with limited effects on the rest of the economy. This is no longer the case.
Now the zero-marginal cost revolution is beginning to affect other commercial sectors. Summers and DeLong glimpsed that as marginal costs approach zero, “the competitive paradigm cannot be fully appropriate” for organising commercial life, but admitted “we do not yet know what the right replacement paradigm will be”. Now we know. A new economic paradigm – the collaborative commons – has leaped onto the world stage as a powerful challenger to the capitalist market.
An increasingly streamlined and savvy capitalist system will continue to operate at the edges of the new economy, finding sufficient vulnerabilities to exploit, primarily as an aggregator of network services and solutions, allowing it to flourish as a powerful niche player. But it will no longer reign. Hundreds of millions of people are already transferring bits and pieces of their lives from capitalist markets to the emerging global collaborative commons, operating on a ubiquitous internet-of-things platform. The great economic paradigm shift has begun.