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While Europe debates a placebo the disaster deepens

The youth are our future. The future is for our youth. Poverty used to be a problem of the aged as they left employment and entered retirement. Shorter life spans than now meant it was a relatively short-lived but deplorable state for people to end in. All that has changed. The youth are still our future but there is a much diminished future for them. Poverty risks and burdens have also shifted from the older members of the population to the younger members. From the retired to the jobless and casualised worker. And we get angry when young people get lured away by what they see as attractive, hope-filled futures, that may or may involve remaining alive in the here and now, and wield guns and bombs. Yet the policies we support close the door on any future that might be more acceptable to the rest of us. Neo-liberalism is creating a ticking bomb. The GFC was just the first act. Societies around the advanced world are undermining their own longevity as they accept that fiscal austerity is the only alternative. To what?

Last June, the OECD released a report – Income Inequality Update – which provided recent data on trends in income distributions and the demographic impacts of rising inequality.

The results are well known now although the implications of the trends exposed are less appreciated.

The OECD found that:

1. “The distribution of ‘market income’ (gross earnings and capital income) kept widening even as many countries recovered from the crisis.”

2. The largest rises in inequality “occurred in those countries hit hardest by the crisis: Spain, Ireland, Greece, Estonia and Iceland but also in France and Slovenia. In Spain and Greece, inequality of market income widened considerably in the aftermath of the crisis, and kept increasing more recently as the crisis persisted”.

3. “Lower income households either lost more during the crisis or benefited less from the recovery.”

4. “In Greece … poverty increased by almost 15 percentage points over the four years to 2011, with large increases (between 9 and 3 points) also experienced in Ireland, Spain, Iceland, Hungary and Mexico.”

5. “Over the four years since the onset of the crisis, young people (aged 18 to 25) suffered the most severe income losses, while elderly people (over 65) were largely shielded from the worse effects of the crisis.”

The OECD use the so-called relative income poverty measure, which is “the share of individuals with an equivalised disposable income below 50% of the national median”.

They also compute “income-poverty risk” for different groups, which is measured relative to the total population.

As the neo-liberal policy dominance emerged over the last 3 decades or so, the OECD has consistently found that “youth replaced the elderly as the group experiencing the greater risk of income poverty”.

The latest data shows that:

The recent crisis has accentuated this trend.

The trends since the mid-1980s are shown in the following graph (Figure 8 The risk of poverty has shifted from the elderly to the young – in the Report).

It shows different age cohorts on the horizontal axis against the poverty rate on the vertical axis. The OECD average is scaled in each year to 100 (grey horizontal line) and then relative poverty rate of the different cohorts are expressed for different years (differentiated by colours).

The clear point is that youth have experienced increased relative poverty rates as a result of the crisis and the subsequent policy response while the older workers have improved their relative position during the crisis.

OECD_relative_poverty_rates_by_age

The OECD Report decomposed the poverty rates into household types. It will be no surprise that in this neo-liberal era it is not retirement that is a dominant factor in generating poverty.

The OECD notes that:

… the risk of income-poverty was four times higher among jobless households than for the reference population (all individuals living in a household with a working age head … [and in the face of increasing job insecurity and casualisation] … One-worker households also experienced a risk of poverty around 50% higher than for the reference population .. [and] … the risk of poverty among singles and single parents remains disproportionally high.

Data from the latest – EU Employment and Social Situation – Quarterly Review – published for December 2014 on January 8, 2015, shows that the so-called NEET (Not in Education, Employment or Training) rate has been rising in most EU nations since 2008.

The following graph is drawn from the Report’s database and shows the – NEET Rate in EU Member States for 2008, 2012, 2013 – in terms of the 15-24 years cohort.

EU_NEET_2013

So there is a rising proportion of young people who are now totally alienated from the education and training process and are not working.

Where are they? Filtering around the blackmarket, selling themselves for sex, selling drugs, living of their parents, stealing, and engaging in other pathological uses of their time.

What they are not doing is gaining skills that will enable prosperous participation or incomes to manage their own risk.

As part of the – Europe 2020 – which was the “EU’s growth strategy for the coming decade”, set in place on March 3, 2010. It replaced the largely failed Lisbon Strategy, that ruled policy making between 2000-2010.

Europe 2020 had five main targets:

  • To raise the employment rate of the population aged 20–64 from the current 69% to at least 75%.
  • To achieve the target of investing 3% of GDP in R&D in particular by improving the conditions for R&D investment by the private sector, and develop a new indicator to track innovation.
  • To reduce greenhouse gas emissions by at least 20% compared to 1990 levels or by 30% if the conditions are right, increase the share of renewable energy in final energy consumption to 20%, and achieve a 20% increase in energy efficiency.
  • To reduce the share of early school leavers to 10% from the current 15% and increase the share of the population aged 30–34 having completed tertiary from 31% to at least 40%.
  • To reduce the number of Europeans living below national poverty lines by 25%, lifting 20 million people out of poverty.

Thinking about the poverty and employment targets in this blog, one would conclude that there is little chance the strategy will be even remotely successful.

The pledge to “bring at least 20 million people out of poverty and social exclusion by 2020” will fail dramatically.

In 2010, there were 118,294 thousand people living in poverty in the EU which comprised 23.8 per cent of the EU population.

By 2013 (the latest data), that number had risen to 122,649 thousand or 24.5 per cent of the EU population.. So an addition 4.4 million people entering poverty over the first three years of the plan. The situation will get worse not better unless there is a dramatic shift in policy.

Data from the latest – EU Employment and Social Situation – Quarterly Review – shows that there is little chance of achieving the employment target of achieving employment to population targets of at least 75 per cent.

See also the – Press Release – that accompanied the release of the report.

The following graph (Chart 11: Employment rate in the EU28, the euro area and in Member States, second quarter 2014 from the report) shows the deviations from that goal across the Member States.

The horizontal blue line is the EU Target under Europe 2020.

In terms of the EU as a whole, the current shortfall is around 21.5 million jobs in a base of 210.7 million jobs. Employment would have to expand by more than 10 per cent on its current value to meet the EU total goal.

EU_EPOP_2014Q2

These updated reports help us gain a quick impression of the underlying trends in Europe.

The policy arena and debate seems to be totally dislocated from the reality. European politicians show no urgency to address what is a massive crisis that will worsen as the young NEETs and unemployed move into adulthood, having never worked nor gained sufficient experience to gain work should demand increase.

What are they going to do? Well, more of what they are doing now. Festering on the – Les Banlieues – that surround the large cities in France, and are replicated throughout Europe in one form or another.

The term ‘les balieues’ is now usage for the low-income housing projects where the immigrants to France have been confined.

During the riots of 2005 (before the crisis) we saw images like the one following in the low-income area of Trappes (west of Paris). More than 220 buses were burnt as an expression of protest and hopelessness.

Most of the protesters were youth of Muslim origin of North African or black African origin (Source)

Trappes_Burnt_Buses_2005

A picture from last week’s events would suggest that things have become more serious since 2005 and the crisis and the resulting fiscal austerity has exacerbated matters.

Conclusion

A dramatic shift in policy is required. The most imaginative the Europeans appear to be at the present is cogitating about QE, a policy change that will do virtually nothing to alleviate the crisis. And even that placebo-intervention is causing incredible angst among Germans who consider the sky will fall in if the ECB acts.

Well the sky is already falling in and huge increases in fiscal deficits are required – much more than just a few billion euro of bond purchases by the ECB.

And I haven’t been swimming lately in the Nile, nor do I know any mobile phone numbers of CIA agents!

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

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    This Post Has 20 Comments
    1. Unreleated Bill but perhaps you will allow me to recommend a wonderful documentary and, in my view, a valuable historical record about the Miners strike in Britian in 1984-85. It’s called Still the enemy within.

      It looks at the strike from the miners’ perspective and that of their wives and crystalises the battle (literally) between the State and organised workers and also what was at stake, and ultimately lost.

    2. … “Poverty used to be a problem of the aged as they left employment and entered retirement. Shorter life spans than now meant it was a relatively short-lived but deplorable state for people to end in.” …

      In the UK the flat rate pension will leave people over 60 with NIL STATE PENSION FOR LIFE for huge numbers of women born fron 1953 and men born from 1951 and for bulk of rest LESS NOT MORE state pension, already lowest of all rich nations bar poor Mexico.
      https://you.38degrees.org.uk/petitions/state-pension-at-60-now

      State pension payable if remain in work or lose it under the massive austerity job cuts int he UK.

      The UK National Insurance Fund is wrongly being called in surplus since 2013, when this ring fenced money is sitting pretty and not being paid out since 2013 for the state pension.

      It is the over 60s that shop in town centres in the UK. By denying state pension payout, youth jobs are lost on the high street.

      Over half of the over 60s are within the working poor, they have a 50 per cent and more unemployment rate, and the main reason for unemployment is being disabled and/or chronic sick. The over 60s are equally liable to benefit sanctions, losses of disabled / chronic sick benefit and Bedroom Tax.

      Poverty in the young in the UK as hope in a future job, whereas the TUC agree that someone 55 and over who is disabled and/or chronic sick is unlikely to be re-employed.

      Without benefit and without state pension, the old cannot access Winter Fuel Allowance.

      The over 60s just like the young pay a 90 per cent tax rate the poorer they are, from the 75 per cent of all tax from people to government that comes from stealth taxes and VAT.

      The poor have had over 50 per cent more inflation on energy bills and food prices as a percentage of their money, than any other income level.

      We are all indeed in this together.

      Just not the UK MPs going to a general election, while leaving people to starve from yet born babies, young mothers with new baby, the young, the all ages, the grannies, and MPs all getting a 11 per cent pay rise whilst sharing £100 million in expeses each year.

    3. I frankly have been watching this slow motion train wreck of the EU over the last few years and I just don’t understand why no one is listening to Krugman or yourself!? I kept thinking it must be a language barrier but it seems uk group think may be the most likely culprit. The people stuck in this group think are leading war to Europe again. The similarities of tensions with Muslims in France certainly has to make you think of how it could play out. Scary stuff. Mass unemployment and dissolutionment needs an outlet!

      I often do think who are these overlords of money that may be guiding things in the background with the trillions stuck in various tax havens simply trying to avoid debasement of their currency of Choice and or inflationary loss rather than actually making money from it by investing in the world and its human capital customers! But sadly nothing makes sense. I can only assume its mass stupidity of selfish humans looking for a lot of >1% monied interests. A lot of this being the new super Salary ceo class that only thinks short term and raising its own income without actually adding value long term for shareholders. It’s the most plausible option from where I sit.

      We need to change the whole damn system! Practically rebuild it with an emphasis on humans and the earth.

      Thanks for the blog as always bill.

    4. Thanks Andy. This all ties together rather simply. The major difficulty is orienting so many people to the nuance of emerging context. Organizing & re-organizing on this scale is a novel recruitment task. The herding cats metaphor applies as never before.

      What Was At Stake, And Ultimately Lost … From Within. Are We Seeing The Demise Of CONTEXT NOMADS?
      http://mikenormaneconomics.blogspot.com/2015/01/what-was-at-stake-and-ultimately-lost.html

    5. “the low-income housing projects where the immigrants to France have been confined”

      These people were not compelled to come to France but their governments have been silly enough to let them in. I believe that there is freedom of movement in France so they are not “confined” in certain areas any more than the French.
      Birds of a feather flock together – by choice.

      Unfortunately, MMT is a controversial matter. The above quoted statement is one of many made on this blog which distract from and disparage MMT by association. When one of the leading exponents of MMT uses his ostensibly economics blog to carry on like a pork chop about unrelated matters then we (MMT supporters) all have a problem.

      To simply summarise the French problem I will paraphrase another fool in the economics field – It’s the religion,stupid.

    6. Dear Podargus (at 2015/01/13 at 5:11)

      You are correct to note this is an “economics blog”. You are incorrect to assert that my involvement in economics is limited to the development of MMT. I am well-known as a urban and regional economist and a development economist.

      In fact, I get most of my research funding from those areas of my research and I am well published in them. I have just completed a study on the impacts of austerity on European regions and cities, which informs the statements about immigration and urban disadvantage.

      Further, your rather absurd claim about immigrants being free to go where they like reflects significant ignorance about urban dynamics. You should read some of the research literature to become better informed. Further, the major problems are not with the parents who perhaps chose to venture to France in search of a better life but with their children and are French born and had no choice in the matter and are being prevented from developing hope by policy settings that condemn them to high rates of unemployment and poverty. That is what the blog was about.

      Merely categorising the problem as “religion” also reflects massive ignorance. The breakdown of social stability in some of the American large cities has nothing to do with Islam! The common themes are poverty brought about by unemployment, poor education (underfunded schools) and a sense of hopelessness in a society where income and wealth inequalities are rising. Same in Europe.

      best wishes
      bill

    7. Dear Bill,

      As a Bulgarian myself, I am sad to see that people of so called NEET group is the largest in my native country.

      I am pretty sure poverty rates are the highest in Bulgaria as well. During the last 2-3 years there were 7-8 young, desperate Bulgarians, who committed suicide burning themselves in public. I see these tragic deaths as a result of the work of our currency board, which was established in 1997, fixing our national currency to the euro.

      Anyway, I’ve just wanted to tell you I published your today’s article in my blog in Bulgarian language linking, of course, to the source. I believe you don’t mind? :-)

      Regards!
      Ryan

      http://bulgaria-mmt.blogspot.com/2015/01/blog-post_12.html

      PS: Something more optimistic: In October 2014, in Bulgaria, we established a formal nongovernment organization called: Movement of Full Employment and Price Stability, which will be transformed into political party when it gains more support.

    8. Roger
      I may not be receiving your meaning but I don’t think I can agree. At least not in the context I was referring to.
      Even if this was a case of ‘the aggregate’, which in this case would be the wider trade union movement, saying we can do without the miners’ negotiating power with the British government then the result of the lost battle has been a disaster, not only for the miners and the coal industry in Britain but also for Trade Unions and British workers generally in terms of national income share, working conditions etc.

      More specifically the failure of the Trade Union movement to back the miners was not only responsible for the lost battle but for their own demise.

      However if this failure of the Trade Union movement to see what really was in their long-term interest at the time is exactly what you are referring to then fair dinkum.

    9. Ryan,

      I can’t speak for Bill, and I don’t understand a word, but your translation looks marvellous!

      It would be good if we could get translations into other languages too. Google translate does a fair job but you can’t beat the human factor when it comes to doing a coherent translation.

      Peter

    10. Working for cash today.
      In my experience a much less stressful and natural experience rather then working in the lower bowels of a american corporate.
      It works until those nice collection agents of those central banks come calling.

      The post Tudor corporate state is inherently evil and there is simply no getting around that plain fact.

    11. Bill —

      I am well-known as a urban and regional economist and a development economist.
      In fact, I get most of my research funding from those areas of my research and I am well published in them.

      Then why do those topics seldom get a mention here? Having myself studied urban economics as part of my civil engineering degree, I’d very much like to see how it interacts with MMT. And development economics is the one field that MMT has the potential to truly revolutionize, but on this site you’ve been virtually ignoring it!

    12. I get the feeling that we are headed for major crises and severe unrest(s) of some kind. The current trends in Continental Europe and the Anglophone countries are not sustainable (to say nothing of trends elsewhere). I mean in particular the trends of large classes (NEETs, elderly, minimum and average wage workers) getting poorer and poorer, initially in relative terms, but now more and more in absolute terms. There has to be an end point to this impoverishment. The absolute endpoint is death. The endpoint for masses still able to move about and act is civil disorder, rebellion or revolution.

      It is patently clear that current policies are failing and have been failing for decades. It is patently clear that the current “powers that be” cannot or will not change these policies. It is very clear in fact that they could change these policies but they will not. They refuse to do so. The “powers that be” are the capitalist oligarchs and their enablers, namely post-democratic governments and elite advisers, managers, adminstrators, technocrats and “securocrats” of the system.

      It is very clear that the French elected a socialist government. Yet this government enacts no policies which one could really call socialist. Australian electers keep trying to reject the ideology and process of selling government assets and privatising public natural monopolies. Yet the parties of the duopoly (LNP and Lab) each follow these policies unremittingly. In this post-democratic age where government is bought and suborned by oligarchic capital the people cannot initiate, develop or vote for the policies they really want.

      This is a rigid and unresponsive system which has lost the ability to adapt. It will not adapt to the real needs of the people and it will not adapt to the real needs of the environment (environmental care, renewability and sustainability). Unresponsive, unadaptive entities or systems go extinct. This current system is headed for extinction. The question is which kind of extinction and do we take pre-emptive and effective actions to send the current system extinct or do we allow it to send us (homo sapiens) to extinction?

      The time and the era for reform are over. Capitalism is unreformable. This latest reaction from the rise of the monetarist period, circa 1970s, through to the full blown neocon era today proves this case beyond doubt. Capitalism is the antithesis of democracy. The more you strengthen capitalism the more you weaken democracy. The more you strengthen democracy the more you weaken capitalism. Capitalism has a natural tendency to oligopoly and concentration of wealth. Both orthodox (Piketty) and heterodox (Marxian) study and analysis demonstrate this point theoretically and empirically.

      The need for systemic state redistribution spending (as welfare) beyond necessary national infrastructure spending demonstrates the inherent bias of capitalism towards wealth concentration. Instead of constantly re-steering or correcting a biased system, the correct approach would be to design a new system which did not suffer the initial inherent bias. Thus, the large amounts of churn (concentration of wealth, taxing of wealth then redirection of wealth) would not need to occur. It must be noted that now taxation of great wealth is highly inadequate so the redirection of national wealth to the needy occurs less and less.

      So far, what I have said is not excessively controversial on this blog with respect to MMT nor with respect to the general tenor of Bill Mitchell’s political views. This is true except for the possible exception that he might not agree with my judgement that capitalism is unreformable. The final step of my argument is that a radically new system that is non-capitalist system is required. However, I am not sure at this point that I have the right to continually use this dedicated MMT blog as a soapbox for my political recommendations on where to proceed from here. Suffice it to say, I recommend readers of this blog to explore the site of Professor Richard D. Wolff. Keep reading this blog but also read, watch and listen on Professor Richard D. Wolff’s site. I have no connection to Professor Wolff or sites he is connected to. My recommendation is that of a citizen of the world wanting to find and see implemented a better system for the world.

      In a nutshell my position is that of support for worker co-operative socialism. I want to see this implemented in a peaceful, democratic, gradualist and modular manner. Over time, perhaps as long as over a generation (20 to 30 years or even longer) capitalism could be modularly changed out, new modules implemented, and the entire system changed. For example, firstly MMT macroeconomics and then the MMT Job Guarantee, would be important early modules in such a process. But a great change in public understandings of economics and political economy would needed to carry forward such a process peacefully and democratically.

    13. All efforts no matter how noble they may seem to naive ears are various attempts at concentration for the sake of concentration.

      The greenhouse / energy policy thingy in Europe is a classic example.

      “To reduce greenhouse gas emissions by at least 20% compared to 1990 levels or by 30% if the conditions are right, increase the share of renewable energy in final energy consumption to 20%, and achieve a 20% increase in energy efficiency.”

      Ireland has higher co2 emissions both nationally and holistically ( increased external trade so as to access scarce currency) then 1990 despite
      1. A near total and forced abandonment of coal and peat in residential heating.
      2.A unprecedented increase in the use of low emission gas turbines for electricity production
      3.A decline of the agricultural herd and consequent reduction of agri co 2
      4.A implosion of the domestic fishing fleet.
      5 A static contribution to industrial energy emission.

      All of the increase is a result of over a doubling of transport emission on a economy which is now little more then a scarce money racetrack.
      Much of the electricity production / consumption goes to lighting up the night sky on soulless motorways and empty estates.
      The energy used effectively and on the person is in reality much less then 1990 and consequently the life style in my opinion is far inferior to the poorhouse days pre Maastricht.
      Much of the energy expenditure is sheer industrial inertia and serves no purpose other then to maintain rents and usury.
      For example a reduction of street lights in half would likely bankrupt the dash for gas infrastructure in ireland as the present system needs. Epic amount of wastage so as to maintain its complexity.

    14. Ikonoclast,

      I agree that the current capitalist model has failed, and that we need to start again with redesigning a new economic order. And as much as I applaud the idea of cooperative enterprises (as exemplified by Mondragon in Spain, and by the existence of credit unions, building societies and public banking), I do not wish to entirely remove private enterprise from the mix. Bureaucratic misrule and an absence of innovation has always been a problem with truly socialist economies. What we need is a shift back to the sort of healthy mix which prevailed in the 1950s, where the public and private sectors each contributed their respective strengths. The economic pendulum needs to swing back, with the re-nationalisation of essential utilities. In particular we need to bring back public banking, and a national bank along the lines of the original Commonwealth Bank (as advocated by US banking reformer Ellen Brown).

    15. John Hermann, I used to think that way but the last 15 years have pushed me further left. I now feel I have zero expectation, zero empricial evidence and zero theoretical justification for saying that late stage capitalism is reformable. The more I analyse the capitalist system, the more I realise its inherent bias to concentration of wealth and destruction of the environment is profoundly systemic and unreformable. The system is so bad and has such a bad bias that steering it back to equity is becoming bext to impossible. The analogy I use is a car with such a bad steering bias it can only go straight for a while or turn right. It can never turn left. To continue the analogy even little bumps on the road would make you drift right each time. And factor out the road camber (welfare) taking you left anymore. The road is a “level playing field” now with a machine that only drifts and turns right.

    16. sam, you’ll notice I said “seldom” not “never”. Those publications are few and far between.

      Conspicuously absent from the “Just Transition” document is a focus on how renewable energy could be made cheaper! There are a few mentions of the need for more research, and the need to remove financial barriers was acknowledged, but the elephant apparently went undetected.

      Have you seen it yet Bill?

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