Freakonomics Radio - Are you doing something new and different today ?

Today on marketplace (NPR), this bit on freakonomics radio caught my attention !

http://marketplace.publicradio.org/display/web/2010/10/19/pm-freakonomics-radio-a-government-official-in-venture-capitalists-clothing/

If you have not listened to it go listen, it is really worth 2 minutes of your time. Here is why I liked and decided to share with you today.

It will not take you long to see if your company encourages your ideas or not !

If you are struggling with concept of change or innovation, you can hear how an individual is trying to make the government work like a venture firm & encouraging new ideas. I am sure you will walk away with a feeling that your change/innovation is not that disruptive.

Last but not the least, you can also see how Organizations like xPrize foundation are making a difference in the world of innovation !

Please feel free to post your thoughts on this post !

Thanks
Nagesh,
The views represented in this blog are my personal views and are not a reflection of or opinions of any of the institutions I am associated with or have worked for.

Accountability & Liability - Are we letting our cognitive biases and decision heuristics take over ?

In US, we have or we have been experiencing two major crisis leading serious leading serious economic impacts for citizens, namely the financial crisis and now the oil spill crisis.

Let's look at how we handled the financial crisis : Primarily created by leading financial companies, taking on risky bets. Our Response was to bail them out with Tax Payer money. Even though now these banks are starting to make billions of dollars again, there is no sign of holding any single institution accountable. In simple terms, information on who exactly to blame is clearly not available to our brain, and more over the framing of the problem by our leaders was clearly in favor helping the banks out to avoid a crisis (framed in terms of minimizing losses everyone affected). This resulted in no single company or individual being accountable and the average tax payer took on the complete risk of bail out.

Fast forward to today, Let's look at how we are handling the oil crisis. It is clear, the way all these oil companies are run, this disaster could have happened at any major oil company doing deep sea drilling and none are capable to fixing it (as no one has come out said they can help ). Since the facility was BP's facility, Information is readily available to our brains who is at fault and the Framing of the problem by the government is clearly blaming BP and no one else (framed in terms maximizing gains for everyone affected). This is resulting in holding a single company accountable and liable for the disaster and not effectively putting our collective IP and Resources to work.

Does this sound right?

So what's My take#

Both these calamities have similar root cause - The worst case scenario was never modeled, allowing both financial companies and oil companies take on risks that were not logical. Both have lead to serious economic impacts to common people. Additionally, The problem with oil crisis is now way beyond BP's control and is a disaster that probably exceeds the impact of Katrina, yet, however there is no talk of pulling all the Oil companies together to putting the entire industry to task.

The only difference is that banks were in financial trouble and BP is slowly getting there.

So if I remove my biases and ignore how the our leaders have framed the problem, these two crises should be treated identically as the problems have similar root causes and similar impacts. Alas, I guess we are all human and at some level our cognitive biases rule. It is probably imperative on all of recognize this before taking sides for the greater good.

Thanks for reading, your comments are welcome and appreciated.

Thanks
Nagesh
The views represented in this blog are my personal views and are not a reflection of or opinions of any of the institutions I am associated with or have worked for.

One More Airline Merger ! Does it mean anything to anyone?

I started writing this post, the day the merger was Announced. Figured, I will complete it and post the blog today, Sept 17,2010, as the merger is formally blessed and the transition will begin.

United is Merging with Continental, Delta Merged with Northwest, US Airways Merged with AmericaWest ... List goes on

So really do these mean anything to anyone?

Let's Start with Me, as a representation of the "The flying Consumer"

Just the week before the deal was announced, I flew from DFW to SFO on American, SFO to Rochester, NY on United and finally Rochester, NY to Dallas on Delta. I pretty much concluded there is NO Difference in experience or service. All of them wanted to charge for bags, Had the same level rules for frequent travellers, treated the passengers same way, the look and feel inside the planes was no different.

So for me the choice boils down to two things

1. Which airline can save me time by given me a direct flight or better connections
2. Which airline can save me some money by offering me a lower fare

This was true before this merger, or the previous Delta/North West Merger and this will be true tomorrow as these airlines these mergers will have very little impact on how these airlines operates.

In my opinion myths that are always raised during these kinds mergers will stay myths. Some of them are

1. There will be less choice : Never turns out to be true, if this airline cuts down routes there will always be an American, Southwest, Jetblue etc eager to add those routes
2. Prices will raise : Never turns out to be true, as there will be someone trying to fill seats or trying to expand to the route if they see prices raising. Even if we assume airliness will not expand, Companies Like CISCO, Microsoft will push more telepresence and conferencing to cut travel costs. So the chances of unreasonable fare hikes is very low.
3. Service will be better as the combined airline will have more resources : Never turns out to be true, as the combined airline is immediately looking for cost savings rather than trying to be better to meet it's merger and wall stree expectation. This will come at cost of service and confusion in the short run

So for now - Just travel safe and and ignore the hype/noise around airline mergers as it probably means nothing to an average traveller.

Thanks

Nagesh

The views represented in this blog are my personal views and are not a reflection of or opinions of any of the institutions I am associated with or have worked for.

The Right Kind of Bailout. Finally heard about One Today !

I am not sure whether you are tired of hearing the word bailout, but I sure am !

Airline Industry, The Banking Industry, The Auto Industry and even countries now !

However, today as I heard Robert Reich, Professor of Public Policy at the University of California, Berkeley on Marketplace on NPR, for the first time I really felt , he talked about a bailout, that made sense, hopefully someone is listening:

The argument was simple : Robert Reich's Quote "Financial capital moves instantly around the globe to wherever it can earn the best return. Human capital -- the skills and insights of our people -- is the one resource that's uniquely American, on which our future living standards uniquely depend." UnQuote

For full commentary visit : http://marketplace.publicradio.org/display/web/2010/03/10/pm-reich-commentary/

My understanding in simple terms: We should not let the budget short falls of state and local government impact our school and universities, so we should bail them out to ensure education at all levels is affordable. This kind of bailout will create the human capital needed for a sustainable economy in the long run.

My Take: I whole heartedly agree with Robert Reich. His commentary reminded me of my first blog : Wake Up - If you did not already know you should, which was all about our ability drive value. I truly, can say today I heard about a bailout that made sense and hence decided to blog it.

Thanks
Nagesh

The views represented in this blog are my personal views and are not a reflection of or opinions of any of the institutions I am associated with or have worked for.

SPEECH MADE ON 21st DECEMBER 1972 IN LOK SABHA BY PRIME MINISTER INDIRA GANDHI

Reason for posting this blog entry: Reason for posting this blog entry: I grew up in the State of Andhra Pradesh in India, which currently going thru a period of unrest, mainly due to Greed of Few Politicians and Lack of True Statesmanship or Leadership. This uncertainty is definitely not good for anyone - Business, Personal or Social. So, as an individual who truly is a well wisher of the every individual belonging to Andhra Pradesh and India, I felt a moral responsibility to publish this Speech by Honorable Prime Minister Indira Gandhi in 1972 to remind everyone to think before they let the emotions take over.

Please feel free to forward this Post to Any One who you feel should/will read.

Thanks
Nagesh

SPEECH Below:

THE PRIME MINISTER, MINISTER OF ATOMIC ENERGY, MINISTER OF ELECTRONICS, MINISTER OF HOME AFFAIRS, MINISTER OF INFORMATION AND BROADCASTING AND MINISTER OF SPACE (SHRIMATI INDIRA GANDHI): MR. SPEAKER, SIR, THERE IS REALLY NOT MUCH NEED FOR ME TO SPEAK AS MY COLLEAGUE, SHRI CHAVAN, HAS BROUGHT A COOLER AND CALMER ATMOSPHERE TO PREVAIL IN THE HOUSE AND HAS DEALT WITH THE REALLY IMPORTANT POINTS. BUT SOME HON. MEMBERS EVEN OF THE OPPOSITION HAD EARLIER EXPRESSED THE OPINION THAT IT MIGHT BE MISUNDERSTOOD IF I DID NOT CLEARLY STATE OUR VIEWS ON SOME POINTS WHICH HAVE BEEN MENTIONED HERE BEFORE. THEY ARE NOT NEW, NEVERTHELESS, THEY THOUGHT I SHOULD DO SO AND THAT IS WHY I HAVE GOT UP.

PARLIAMENT DISCUSSES MANY IMPORTANT ISSUES WHICH ARE HIGHLY EMOTIONAL, AND THE MULKI RULES HAVE BECOME ONE SUCH ISSUE. MATTERS WHICH INVOLVE REGIONAL FEELINGS QUITE OFTEN DO AROUSE THE EMOTIONS OF THE PEOPLE IN THIS COUNTRY AS IN MANY OTHER COUNTRIES, AND WE CERTAINLY CANNOT IGNORE THE EMOTIONS OF THE PEOPLE. BUT I SHOULD LIKE TO STRESS WHAT CHAVANJI HAS SAID, THAT NO SOLUTION CAN BE FOUND WHILE THE ATMOSPHERE REMAINS CHARGED WITH EMOTIONS. ANY SOLUTIONS, ANY ANSWER, HAS TO BE FOUND IN A VERY COOL, CALM AND RATIONAL MANNER.

THEREFORE, ALTHOUGH I WAS ALSO, AS WERE MANY OTHER HON. MEMBERS, TOUCHED BY THE EMOTIONS EXPRESSED BY HON. MEMBERS, BY THE DIFFICULTIES OF OUR FRIENDS FROM TELENGANA AND FRIENDS FROM OTHER PARTS OF ANDHRA PRADESH, WE WERE CERTAINLY TOUCHED BY THE DIFFICULTIES AND EMOTIONS – I SHOULD VERY RESPECTFULLY SAY TO THEM THAT ALL THESE MATTERS HAVE TO BE THOUGHT OF NOT IN TERMS OF EMOTION BUT IN TERMS OF CALM AND COLLECTIVE THOUGHT. AND NOT IN TERMS OF TODAY OR TOMORROW OR THE DAY AFTER BUT OF WHAT IT WILL MEAN TO THEM AND THE COUNTRY TEN YEARS HENCE, 20 YEARS HENCE, A HUNDRED YEARS HENCE.

NATURALLY, IF YOU PUT TO THE PEOPLE THAT A PARTICULAR DEVELOPMENT HAS AFFECTED THEIR EMPLOYMENT, IT HAS AFFECTED THEIR RIGHTS THEY WILL BECOME EMOTIONAL. ANY BODY WILL BECOME EMOTIONAL. “I DO NOT KNOW HOW MANY PEOPLE HAVE GONE TO THE PUBLIC AT LARGE AND SAID, “LET US SIT DOWN AND THINK ABOUT IT, WHAT DIFFERENCE WILL IT MAKE IN TERMS OF EMPLOYMENT IN TERMS OF THE OTHER OPPORTUNITIES FOR THE PEOPLE IN THE TELENGANA REGION, FOR THE PEOPLE IN THE OTHER DISTRICTS OF ANDHRA PRADESH”? SO, I DO NOT THINK THAT THE ISSUE HAS BEEN FULLY AND SQUARELY PUT BEFORE ALL THE PEOPLE THERE. THEREFORE, THE REACTION TODAY HAS TO BE ALSO VIEWED IN THAT LIGHT”.

“THE STATE OF HYDERABAD WAS THE LARGEST OF THE OLD PRINCELY STATES. ONE HON. MEMBER HAS SAID AND RIGHTLY THAT IN THIS STATE THERE WERE INDIVIDUALS,

THERE WERE FAMILIES OF VERY HIGH CULTURE. BUT FOR THE VAST MAJORITY OF THE PEOPLE THERE WAS POVERTY, THEY HAD NOT HAD OPPORTUNITIES OF EDUCATION OR SOCIAL WELFARE OR OF PUBLIC HEALTH OR ANY KIND OF AMELIORATION OF THEIR LIVING CONDITIONS. WHEN THE COMPOSITE ANDHRA STATE CAME INTO BEING ALL SECTIONS OF THE PEOPLE RECOGNISED THAT FOR GREATER COHESIONS CERTAIN SPECIAL MEASURES OF A TRANSITORY NATURE WERE NECESSARY. THE LEADERS OF THE PEOPLE UNANIMOUSLY ARRIVED AT A GENTLEMEN’S AGREEMENT WHICH WE ALL ACCEPTED”.

“SO, THERE WAS THIS AGREEMENT. NOW, REGARDLESS OF ANY AGREEMENT WE ALL KNOW THAT EVEN WITHIN A FAMILY THERE ARE DIFFERENCES AND DISPUTES. THERE IS NO STATE IN INDIA WHICH DOES NOT HAVE BACKWARD AREAS. RELATIVELY BACKWARD AND ADVANCED AREAS EXIST NOT ONLY IN ALL STATES BUT IN DIFFERENT REGIONS OF THE SAME STATE. IN THE ANDHRA REGION MANY MEMBERS HAVE DRAWN ATTENTION TO AREAS SUCH AS RAYALASEEMA AND SRIKAKULAM. THE TELENGANA REGION MAY BE A BACKWARD REGION BUT IT DOES HAVE BETTER-OFF AREAS”.

“MERELY BECAUSE AN AREA IS COMPARATIVELY BACKWARD IS NOT REASON ENOUGH FOR TAKING DRASTIC OR IRREVERSIBLE DECISIONS. WHERE WILL THIS PROCESS END? I AM NOT AT ALL AFRAID OF THIS BEING CATCHING; THAT IS NOT THE POINT. BUT WHERE DOES ANY ONE DRAW THE LINE ? WILL EACH DISTRICT WANT TO BE SEPARATE? SOME PEOPLE HAVE ADVISED THE DIVISION OF U.P. WHERE TO DIVIDE INTO TWO, THREE, FOUR, INTO HOW MANY AREAS DO YOU DIVIDE IT? DO YOU GO BACK TO THE OLD, VERY SMALL

STATES, PRINCELY STATES; DO YOU GO BACK TO THAT? SOMEWHERE A LINE HAS TO BE DRAWN. YOU CANNOT JUST SAY THAT BECAUSE OF BACKWARDNESS THERE SHOULD BE DIVISION. AS CHAVANJI HAS RIGHTLY POINTED OUT, ECONOMIC BACKWARDNESS CAN GO ONLY THROUGH HARD WORK AND THE EFFORT OF THE ENTIRE NATION.

WHILE THERE WILL ALWAYS BE SYMPATHY AND UNDERSTANDING FOR THE SPECIAL HARDSHIP OF THE BACKWARDNESS OF ANY SPECIAL GROUP OR ANY SPECIAL AREA. I DO NOT THINK THAT ANYONE SHOULD BE ALLOWED TO DEVELOP A VESTED INTEREST IN BACKWARDNESS”.

“I SHOULD LIKE TO RE-ASSURE HIM THAT THIS IS NOT AT ALL THE CASE I DO NOT WANT TO GO INTO THE DETAILS OF THIS”. BUT I THINK HIS FEARS ARE UNFOUNDED. WE HAD ALSO TO COUNTER THE PAST ASSURANCES GIVEN TO THE PEOPLE OF TELENGANA AREA WITH REGARD TO PUBLIC EMPLOYMENT AND ALSO THEIR PRESENT NEEDS. WE HAVE NOT AT ALL GONE BACK ON ANY ASSURANCE GIVEN AND I SHOULD LIKE TO RE-ASSURE THE HON. MEMBERS THAT WE ARE DEEPLY CONCERNED WITH THEIR PROBLEMS. BUT WE FEEL THAT THIS IS NOT THE WAY OF SOLVING THEM. “IN FACT, AS I SAID ON AN EARLIER OCCASION, MERELY TALKING OF SEPARATION IS NOT AN END OF THE PROBLEM. IT IS THE BEGINNING OF ANOTHER VERY BIG PROBLEM, NOT FOR OTHER STATES BUT ALSO FOR THAT AREA; THAT STATE ITSELF”. THE DECISIONS WHICH WE ANNOUNCED ON THE 27TH NOVEMBER, 1972 WERE IN THE RESPONSE TO THE REQUEST BY THE LEADERS OF THE STATE; THEY THEMSELVES HAVE SAID THAT WE SHOULD DO SOMETHING.

“I STAND VERY FIRMILY FOR AN INTEGRATED STATE, BUT I SHOULD LIKE TO SAY THAT SO FAR AS THIS MATTER IS CONCERNED, EVEN HAD THERE BEEN TWO STATES, IT WOULD HAVE MADE NO DIFFERENCE TO THIS BILL BECAUSE IT DEALS MAINLY WITH THE PROBLEM OF THE TWIN CITIES AND ALSO THE REST OF TELENGANA. THAT PROBLEM WOULD REMAIN NO MATTER WHAT OTHER THINGS YOU DO BECAUSE A LARGE NUMBER OF NON-MULK IS THERE. UNFORTUNATELY, EVEN IN THE SPEECHES HAVE SOME LITTLE BITTERNESS CREPT IN. IT DOES NOT MATTER HOW MANY STATES WE HAVE, YOU STILL WILL BE NEIGHBOURS AND YOU STILL WILL HAVE TO DEAL WITH ONE ANOTHER IN A HUNDRED AND ONE THINGS. THINKING THAT JUST BECAUSE YOU ARE SEPARATED, YOU CAN GET RID OF THESE PEOPLE OR WE HAVE GOT RID THIS PROBLEM IS A VERY FACILE WAY OF THINKING. OUR EXPERIENCE HAS NOT SHOWN THAT THIS COMES TRUE”.

“RECOGNIZING THE FACT THAT THE CAPITAL BELONGS TO BOTH REGIONS, THE CENTRAL GOVERNMENT HAS DECIDED TO REPEAL THE MULKI RULES IN THE TWIN CITIES THREE YEARS EARLIER THAN IN THE REMAINING TELANGANA REGION. EVEN DURING THE INTERVENING PERIOD, EMPLOYMENT OPPORTUNITIES IN THE CAPITAL ARE BEING EXTENDED AND EDUCATIONAL FACILITIES EXPANDED FOR THE CITIZENS OF THE OTHER REGIONS OF ANDHRA PRADESH ALSO”.

“A THIRD POINT WAS THAT TELENGANA IS NOT THE ONLY BACKWARD AREA IN THE STATE”.

“SIR, PARLIAMENT REPRESENTS THE WILL OF THE WHOLE NATION. ITS DUTY IS NOT MERELY TO GO INTO THE RIGHTS AND WRONGS OF A SITUATION BUT ALSO TO VIEW PROBLEMS FROM THE NATIONAL POINT OF VIEW, SHRI CHAVAN HAS STRESSED THIS POINT. BUT I WOULD LIKE TO REPEAT IT. WHILE ALL OF US HERE ARE ELECTED FROM PARTICULAR CONSTITUENCIES, ONCE WE ARE HERE IN THIS HALL. I THINK WE SHOULD CONSIDER OURSELVES NOT AS MERELY THE REPRESENTATIVES OF ONE LITTLE AREA BUT AS THE REPRESENTATIVES OF THE WHOLE COUNTRY AND THE ENTIRE PEOPLE OF INDIA. AND EACH PROBLEM HAS TO BE VIEWED FROM THAT ANGLE”.

THE VERY FIRST ARTICLE OF OUR CONSTITUTION DECLARES THAT INDIA IS A UNION OF STATES. EACH STATE HAS HAD A LONG CULTURAL AND HISTORICAL TRADITION AND EACH STATE HAS BECOME A POLITICAL ENTITY IN ITS OWN SPECIAL WAY. ANDHRA PRADESH HAS BEEN A DISTINCTIVE CULTURAL UNIT FOR THOUSANDS OF YEARS. THE NAME HAS BEEN FOUND IN THE EARLIEST BUDHIST WRITINGS. ALL THE PARTS WHICH NOW CONSTITUTE ANDHRA PRADESH HAVE BEEN UNDER ONE UMBRELLA FOR LONG PERIODS OF HISTORY. LET US NOT LOOK AT JUST THE IMMEDIATE PERIOD OF HISTORY.

PERHAPS, IT WAS THIS LONG HISTORY WHICH INSPIRED THE TELUGU SPEAKING PEOPLE WHEN THEY YEARNED AND STRUGGLED FOR SEVERAL DECADES TO FORM A UNIFIED ANDHRA PRADESH. MAY I CITE A LITTLE BIT OF MY PERSONAL EXPERIENCE? I HAPPENED TO BE TOURING PARTS OF THE SOUTH JUST BEFORE THE REPORT

OF THE STATES REORGANIZATION COMMISSION WAS MADE PUBLIC AND MY EARS ARE STILL REVERBERATING WITH THE FUL-THROATED CRIES OF VISHAL ANDHRA.………… (INTERRUPTIONS). IT WAS REALLY THE WILL OF THE TELUGU-SPECKING PEOPLE WHICH PREVAILED OVER THE PROPOSAL OF SOME PEOPLE TO RETAIN THE OLD HYDERABAD STATE”.

“THERE ARE SOME THINGS WHICH ARE PART OF OUR NATIONAL LIFE. IT IS TRUE THAT THE QUESTION OF LINGUISTIC STATES WAS VERY MUCH A PART OF THE NATIONAL MOVEMENT. THERE WAS NO GETTING AWAY FROM IT. THE UNITS OF EVERY PARTY WHICH WAS IN EXISTENCE AT A TIME, WERE FORMED ON THE BASIS OF LANGUAGE IN SPITE OF THE BRITISH PROVINCES HAVING DIFFERENT AREAS. THERE IS AN OVERALL RATIONALITY IN THE FORMATION OF OUR VARIOUS STATES AND WE SHOULD BE VERY CAREFUL NOT TO BREAK THIS FOUNDATION OF RATIONALITY IN MOMENTARY PASSIONS. AS I SAID AT THE BEGINNING WE SHOULD CONSIDER THE FEELINGS OF PEOPLE BUT IT WOULD BE VERY WRONG FOR THE GOVERNMENT TO BE SWEPT AWAY BY FEELINGS. WE MUST SEE WHAT IS IN THE LARGER INTEREST OF THE PEOPLE THEMSELVES. WE ARE NOT SAYING THAT THE INTEREST OF THE PEOPLE OF TELENGANA SHOULD BE SACRIFICED FOR OUR INTEREST OR FOR THE INTEREST OF OTHER PARTS OF INDIA. BUT THE GOVERNMENT MUST THINK IN A VERY CALM MANNER ABOUT THE INTEREST OF THE PEOPLE OF THAT VERY REGION AND SEE WHAT WILL SERVE THEIR INTEREST BEST”.

“I AM SURE THAT NO TELUGU-SPEAKING PERSON WHETHER HE LIVES IN THE COASTAL REGION OR IN RAYALSEEMA OR IN TELENGANA WILL EVER DO ANYTHING EVEN IN ANGER OR IN DESPERATION WHICH IS NOT IN THE LARGER INTEREST OF THEIR ENTIRE STATE AND ALSO IN THE INTEREST OF THE COUNTRY AS A WHOLE. I CAN UNDERSTAND THE EMOTIONS OF OUR FRIENDS HERE. THIS HAS BEEN A PERIOD OF GREAT AGONY FOR US ALL TO WATCH THE DEVELOPMENTS IN ANDHRA PRADESH AND THE TRAGEDIES THAT ARE TAKING PLACE. I ALSO SHOULD LIKE TO EXPRESS MY DEEP SYMPATHY WITH THE PARENTS AND FAMILIES OF THOSE WHO HAVE LOST THEIR LIVES. BUT WE MUST LOOK AT THIS MATTER IN THE LARGER PERSPECTIVE”.

Economic Crisis - Have we even defined the problem right?

Early on during the current and ongoing economic crisis, I had asked the question whether we had even defined the problem right as I strongly believed to find the right solution we have to have defined the problem right. Find below the links to the two earlier posts

Follow up Post# My Views on Business and Technology: Economic Crisis - Have we even defined the problem right?

Original Post# http://kunamneni.blogspot.com/2009/03/economic-crisis-have-we-even-defined.html

Yesterday, I heard this commentary on Marketplace, asking the same question with regards to fixing the banking crisis and avoiding a future meltdown like we the one we had recently: The question again is have we defined the problem right?

To read click on this link:
http://marketplace.publicradio.org/display/web/2009/09/30/pm-banking-crisis/

To listen click on this link:
http://marketplace.publicradio.org/www_publicradio/tools/media_player/popup.php?name=marketplace/pm/2009/09/30/marketplace_cast1_20090930_64&starttime=00:07:58.500&endtime=00:10:47.0
Listen / Read / Think before accepting solutions on their face value !

I welcome your comments.

Thanks
Nagesh

Jobless Recovery: Is it a fact or fiction?

Every time employment report gets published and given we are still losing jobs, albeit fewer than the previous report, Now we are hearing more and more from the pundits about the notion of a jobless recovery!

I guess, I do not need to post links to the articles on "Jobless Recovery", you can just Google It or Bing It, and you will find many articles.

In simple terms, the term recovery is being used to state that the economic size, which is measured as GDP, will or is growing again, and since we are still losing jobs, the pundits are calling this a "Jobless Recovery". The assumption is that that productivity gains far exceed growth being experienced, hence no job growth. This slideshow in business-week, august,2009 issue, titled "Welcome to a flat productivity world",raises doubts on whether productivity assumptions are really true.

Hence my concern whether; this notion of “Jobless Recovery” in the current situation a reality or a myth? OR a fact or a fiction?

The rest of this post is my attempt to find an answer to the above doubt/question.

I am an Engineer first, so I wanted do a 50,000 foot view of this concept of “Jobless Recovery” from an analytical perspective. So

First, let's look at how GDP is measured:
The most common approach to measuring and quantifying GDP is the expenditure method: (Source: Wikipedia)
GDP = C + I + G + (X − M)
or
GDP = private consumption + gross investment + government spending + (exports − imports)

Second, let's analyze what each represent

1. (X-M) or Exports – Imports: The june report, published at http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm), shows US deficit at $27B (i.e 27 Billion). This is has been the trend for a while and I have not come across a credible report that will change this from a deficit to surplus. As of News release on "GROSS DOMESTIC PRODUCT: SECOND QUARTER 2009 (SECOND ESTIMATE)" this deficiency was a staggering -707.8B, or about 5% of GDP. Changing this to surplus would either require us to export more, consume less or combination of the two. As you will see later consuming less will not be encouraged as that is biggest chunk of GDP, although that may be the right medicine.
2. Private Investment: The GDP Second quarter report has this at 2,136.1B of 14,441.4B, about 14.8% of GDP. To impact this, will require lots of additional investment from private sector. However given the uncertain economic times. Keeping this at this at the current levels will be a challenge. Even if we go optimistic and estimate that business will grow this by 50%, the impact to GDP will be about 7.35%. Personally, my most optimistic estimate is to hold this at the current levels.
3. Government Spending: The GDP report on second quarter has Government Spending at 2883.2B; this is about 20% of GDP. Of the 2883.2B, 37.5% was federal and 62.5 was State and Local Government Spending. If you look at this more closely, State and Local Governments spending across the country is being squeezed and cut, and they are the lion's share of government spending. So for every 1% cut in State and local spending, an additional 2% will have to be spent at Federal Level. This gets even more complicated if we take a deeper look at the breakdown of federal spending. It shows that Non - Defense Spending is only 344.7B of 1082.6B, about 31.8%. So in reality of all the government spending, Federal Non-Defense Spending is only meager 2.4% of the GDP. Assuming we hold the Defense budget constant, this means for every 1% cut at state and local, Federal Non-defense Spending has to go up by 6%, just to hold the GDP component of federal spending at current levels (no growth). Given what we see in California and other states with regards to local budget cuts, we can quickly get to a point where we can question whether the current federal stimulus money is big enough.
4. Private Consumption: Second quarter GDP Report shows Personal Consumption Expenditures is a whopping 10,129,1B of the 14,441.4B, i.e 70% of the GDP. Now you can see why our leaders quickly come up with Programs like “Cash for Clunkers”. Programs like these make us Spend Money. i.e. Consume, which then lowers inventories, which then makes manufacturer start-up their factories, which then leads to Jobs/Wage growth, which then leads to more consumption – the cycle finally resulting in growth, and ending recession. However, this logic has had a negative impact on the average citizen, who is now saddled with debt he cannot repay.

Finally, so what is my take#

This simple analysis says that if our government is targeting increasing private consumption, then it better result in Job Growth or else we are just converting tax payer money into corporate profits, which in the short run may show +ve impact on stock markets but will eventually fail to compensate for the loss of consumption due lack of job growth. Hence – Jobless recovery in the current situation is a Myth and is not something that is sustainable. Additionally, Jobless Recovery has the potential to make things worse as poverty will raise, reliance government benefits will increase and Private Investments will fall as it will become tougher to sustain lower taxes.

So what should be done! In my humble opinion:

1. We should encourage people to save as our debt burden at all levels (individuals to government) is out of control; in the short run this may be painful but today’s saving will eventually become tomorrow’s capital-leading to innovation and job growth. My original thought was that, this will eventually lead to reducing trade deficit. However a lecturer of mine was kind enough to point out that I was only thinking in absolute terms and not relative terms. Based on the feedback, I now have changed my opinion to: reduction in consumption due to savings may or may not reduce our trade deficit on relative terms as the cut in consumption will cut both domestic and import consumption. I still feel encouraging individuals to save is the right move, given our individual debt condition.
   
2. We should target some stimulus to businesses that promote investments/R&D in US. Just giving businesses tax breaks will not cut it and does not guarentee that it will increase investment in the US. A targetted stimulus for investing by business into US will help in increasing Private Investments contributions to GDP which eventually will help drive-up consumption as these investments will potentially lead to job growth.
   
3. Personal Consumption as % of GDP has gone from 61% in the 50's and 60's to more than 70% now. This change on hind sight has come from Unsustainable increase in personal debt and decrease in personal savings. Sticking my neck out as I am not an expert economist I suggest, Economists should take a hard look at this data. It looks like governments are relying more and more on private consumption at the detriment of the long-term health of the economy and citizens. There is probably a metric that can identify when consumption is changing to unsustainable over consumption, which could then become a leading indicator to make effective policy decisions?

Thanks for reading. Please free to post your comments as I would love to learn from your thoughts too!

Thanks

Nagesh

The views represented in this blog are my personal views and are not a "reflection of" or "opinions of" any of the institutions I am associated with or have worked for.