The cash question

No economic estimate is ever precise, much less if it is derived from high level accounting, yet, some “directional” data offers some substance to the ongoing “slow recovery” debate. Only two points are considered below:

1. apparently non-financial businesses are sitting on piles of cash (the story is well too known with financial institutions, with banks leading the herd w/excess reserves, etc.). Here’s a $3.7trln story from CNBC and this is somewhat reconfirmed in the latest BEA’s release.

2. impressive gains in U.S. economy’s employment numbers in recent months, in the background of still high unemployment

Re: the first one, there may be a tendency to discount all that to a “business as usual decision”, if it were not for the current macroeconomic conditions, with persistently stubborn unemployment rate as the key. Obviously, it’s a concern as potentially more spending might eventually lead to more jobs…

And now related, is the concern Chairman Bernanke of the US Fed has expressed about sustainability of the job gains in light of slower growing economy.

A recent Chicago Fed paper calls attention to increasing shifts in population age structure, pulling down labor force participation.

While the latter observation remains valid, at least to some extent, Bernanke’s view puts #1 & #2 above into one framework: key concern being gradual transformation of cyclical unemployment into structural. The latter is of the type of skills & productivity mismatch between existing / potential labor pool and demands of the “spoiled” private sector.

So, let me dare to suggest that Schumpeterian like transformation may be in place: for what it’s worth, private sector has been “spoiled” by being able to operate with significantly lower labor resources, yet generating impressive profits given overall macroeconomy (accommodating Fed to blame? in part, perhaps, but not entirely, especially in non-FI’s).

Therefore any new spending on “heads” will set “talent and skills” (but not just headcount) as the core condition.

Which in turn poses a greater challenge for public policy and somehow then becomes more than just a technical monetary policy adjustment along hypothetical Phillips curve.

Human capital matters.

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