Recovery Without Employment

[Bruce551]

Growth and unemployment

Paul Krugman

A few commenters have asked how it?s possible to have a recovery with rising unemployment; also there seems to be some confusion about what I meant by saying that the unemployment rate isn?t much out of line. So I thought I?d offer a chart ? and I learned something in the process.

So here?s what economists mean when they talk about ?Okun?s law? (which, like almost everything in economics, is a rough rule of thumb rather than a true law.) On the horizontal axis is the annual rate of growth in real GDP, on the vertical the change in the rate of unemployment (so that if unemployment goes from 5 to 6 percent, that?s a +1). I start with 1995 because that?s about when there seems to have been a pickup in underlying US productivity growth, making comparisons with earlier years problematic.

What you see is that unemployment tends to fall when growth is high, fall rise when it?s low or negative. You also see that growth has to be fairly fast ? more than 2 percent ? just to keep the unemployment rate from rising.

Why? Well, productivity is rising, so that you can produce any given level of output with fewer workers; so output has to rise to keep employment from falling. And the working-age population is growing, so you need positive employment growth just to keep unemployment from rising.

That?s how you can have a technical recovery that feels like a recession: real GDP may be rising, but if it doesn?t rise at a sufficiently high rate, unemployment keeps going up.

Now, notice the red dot at the upper left. That represents what happened from 2008II to 2009II: a huge fall in real GDP, a huge rise in unemployment.

Has the rise in unemployment been more than we should have expected, given the slump in GDP? Looking at the data, I don?t think there?s a strong case ? not so much because of the numerical exercise I did in the earlier post, but because this recession is just completely on a different scale from anything we?ve seen for a long, long time. It?s hard to know what we should have expected.

And one last point: when I say that the rise in unemployment makes sense, I mean that it makes sense given the depth of the recession. It is, of course, completely crazy and disastrous from a larger point of view.

Another point, the consumer savings rate has increased from minus column to plus 5 percent in the U.S.. Which is probably good in the long term, but no help for unemployment now.

:arrow:

[Bruce551]

Renewable Energy, Energy Efficiency, and Smart Universal Grid is the way out of the recession.

Despite all the optimistic talk about green jobs in the advanced energy economy of the future, many manufacturers from the industrial heartland are deathly afraid of the potential passage of climate change legislation, concerned that cap-and-trade will increase their electricity costs and thereby make their operations less profitable.

A poster-child of the heavy industry here in the Midwest is The Timken Company (NYSE: TKR) of Canton, Ohio. Timken is arguably the world's leading manufacturer of bearings, for a wide range of applications and industries. Last week, Timken reported its second-quarter 2009 financials: a loss of $64.5 million.

The article in The Plain-Dealer reporting on Timken's results painted a very bleak picture -- right up until the very last paragraph, in which a Timken spokesperson noted that the wind industry represented a "bright spot" for the company. Across town, Crain's Cleveland Business was profiling Timken's $200 million in recent investments to more aggressively pursue the "fast-moving" wind industry.

Of course, the "bright spot" afforded to Timken by the "fast-moving" wind sector will only remain attractive if it maintains momentum -- something that is far more likely to occur if climate legislation is passed. On the other hand, it is all the other pieces of Timken's business -- the ones that are currently in the dumps -- that many of those who oppose climate legislation are trying to protect.

It may be a leap of faith for a company to make a bold manufacturing commitment away from mature (in many cases, dying) industries of the past towards high-growth industries of the future -- such as renewable energy.

But the results of Timken suggest that those who try to make this shift at least have a chance at pockets of profitability even in these trying times, while those who avoid or defer this transition may face a lingering period of weak and declining prospects.

The U.S. has already installed 8 Gigawatt of wind power in 09.

[Hobbes]

On an admittedly much smaller scale, my dad does sub-contracting work for a company that makes parts from all sorts of plastics, GRP and composite materials for all sort of industries. For almost a year now, all the usual parts he did for automotive, machine tools etc. have completely gone, the one that still keeps his head above water are sliding discs he does that go into wind turbines. Needless to say he loves re-newables and wind power in particular now. 8)

[digitalcat]

i wonder y they just dont cover the saharah in wind turbines and solar panels... are the sandstorms that devastating?

[eagle]

i wonder y they just dont cover the saharah in wind turbines and solar panels... are the sandstorms that devastating?

It might happen in the future. Saudi Arabia is on the solar road. If Solar wasn't repressed from the main stream it could be on every roof top today. It is being developed in mass today anyway.

[digitalcat]

i wonder y they just dont cover the saharah in wind turbines and solar panels... are the sandstorms that devastating?

It might happen in the future. Saudi Arabia is on the solar road. If Solar wasn't repressed from the main stream it could be on every roof top today. It is being developed in mass today anyway.

I just watched the discovery channel show on the Saharah... i mean read a book.

Very interesting history and global effect.

I cant believe it was once lush and full of life, filled with water another time and part of the original Pangaea super desert... some of the oldest rocks on earth are found there.

The things I learn while programming!

[eagle]

i wonder y they just dont cover the saharah in wind turbines and solar panels... are the sandstorms that devastating?

It might happen in the future. Saudi Arabia is on the solar road. If Solar wasn't repressed from the main stream it could be on every roof top today. It is being developed in mass today anyway.

I just watched the discovery channel show on the Saharah... i mean read a book.

Very interesting history and global effect.

I cant believe it was once lush and full of life, filled with water another time and part of the original Pangaea super desert... some of the oldest rocks on earth are found there.

The things I learn while programming!

All that enlightenment and dire need give me hope man will reprogram beyond massive profit.

[Hobbes]

i wonder y they just dont cover the saharah in wind turbines and solar panels... are the sandstorms that devastating?

Well, young padawan this is exactly what these folks had in mind too. :wink:

8)

[robbie36]

Bruce,

When you consider Okuns law and compare it with say GDP it is at best a 'rule of thumb'. Bernanke's work on it generally reduced the ratio from 3% to 2% but that is the least of the problems.

The real problem is working out potential GDP. Even the CBO/Fed/Commerce department cant agree with that. For instance the output gap looks very different if you look at it from the commerce department than say the CBO.

In my view (which isnt worth anything) there is none. There was no growth without MEW between 2000 and 2006 so why expect exceptional growth now? How can you grow without savings (keynes).

With a currency pegged to the yuan the possibility of employment returning to NAIRU can fairly accurately be predicted to be between zero and none in the next 10 years.

[toma]

i wonder y they just dont cover the saharah in wind turbines and solar panels... are the sandstorms that devastating?

Well, young padawan this is exactly what these folks had in mind too. :wink:

8)

Great link hobbes!

Solar thermal plants are at the moment the most promising alternative in energy production. With a thermal storage system a plant can run day and night. Four times more cost-effective than ordinary solar panel systems... even with a consequential loss of 10% capacity because of the distance between North Africa and Europe.

[Bruce551]

Some comparisons, PV, Concentrator Solar Plant, Concentrator PV, and Bio-mass

Solar Power: A Gift from Space

by Thomas Blakeslee, Clearlight Foundation

At noon on the equator our sun gives us one kilowatt of free energy per square meter! This gift from space is ultimately the basis of all of our power sources except nuclear and geothermal. Wind, hydro, biomass and all fossil fuels ultimately derive from solar energy. All of these economical sources of energy benefit from concentration and storage of the sun's energy.

But the dream of capturing the sun's energy directly has been elusive. The problem is that energy needs are unevenly distributed and usually peak at night. Fuels and reservoirs provide inexpensive storage of the sun's energy making it available when and where we need it.

Though the solar industry is making rapid progress, it is still by far the most expensive form of alternative energy. A recent NYU study found the following actual 2005 costs in cents/kWh:

Geothermal                         3.1  ?  4.3  

Concentrating Solar Power    11   ?  15   

Photovoltaic                         18.8 ? 31  

Wind                                    4.3 ?  5.5  

Coal                                     1.2  

Natural Gas                          3.5  

Of course these costs will come down some day but for now solar is basically a subsidized research project.  The new CSP plants with heat storage can keep the power flowing when clouds pass over and in the evening but that doesn?t help costs. The problem is that the sun only shines part of the time. Capacity factor even in the California desert is still only 25%, which means that a 4 MW solar plant only delivers an annual average of 1 MW. 

Unfortunately the custom of rating solar plants based on their peak output on a clear summer day at noon leads to some dangerous misconceptions.  Cost per Watt, for example, understates the actual cost by a factor of 4 even in the desert. Growth figures and land use in acres/MW are similarly grossly misstated.

If we look at land use of some real projects now on the drawing boards we find that the latest photovoltaic, parabolic and tower projects all use about 5-6 acres per peak MW. The Saguaro 1 MW parabolic trough plant near Phoenix for example, generates 2000 MWh of electricity annually, using 15.8 acres.

It?s interesting to compare this sun-capturing performance to a field of biomass. Miscanthus is perennial grass that yields 15-20 tons/acre on marginal land.  That?s about 250 million Btu/acre which is 73 MWh/acre. If you use a 85% efficient combined heat and power (CHP) plant to convert the biomass to power, it would take only 2000/(73X.85) = 32 acres to grow the same amount of power. I?d rather mow and haul 32 acres of grass over the year than keep all those shiny troughs clean and working. And the one-time grass planting is a lot cheaper! 

So the race is on and only time will tell whether nature?s storage of the sun?s energy in plants can keep up with man?s best mechanical efforts. The nice thing about the biomass is that you can keep it around until you need it. The hot-oil thermal storage at Saguaro is only good for 6 hours.

The specifications for the Saguaro solar plant illustrate another messy thing about the specifications on solar power. The spec shows a capacity factor of 23% now, but with the 6-hour storage added the capacity factor jumps to 40%. This seems to be common practice. When storage is added the capacity factor spec goes up apparently to indicate the % of time that power is available. Power is sold by the kilowatt-hour, so perhaps it would be better if we stopped talking about Watts and used GWh/yr instead. 

Our comparison to biomass was a little unfair because we used an 85% efficient CHP plant for the biomass and Saguaro throws their waste heat away using an evaporation pond.  By locating solar thermal plants in places where heat is needed, they can be efficient too. The waste heat is simply sold or put to use near the plant running a cold storage warehouse, a kiln, etc. Hotels, industrial parks and apartments should have their own solar thermal CHP plants for hot water, air conditioning and pool heating. We have to break the ?giant power plant? habit.

Solar thermal is often supplemented by natural gas at night. The boiler is simply kept going as needed with gas. Since heat loads are often variable, CHP plants lose efficiency if the waste heat must be disposed of. A good approach is to size the solar collectors for minimum heat needs so that efficiency is always high, and then use natural gas to make up the difference. This minimizes the investment and maximizes efficiency.  In fact, just one collector to preheat boiler water can cut gas consumption and CO2 emissions significantly.

A mass-produced solar thermal-CHP system sized for large homes or apartments could be much more cost effective than the typical overpriced home photovoltaic installation we often see. Most homes and buildings use more energy for hot water, heating and cooling than for electricity. Instead of electric air conditioning, waste heat can power the heating and cooling. With decentralized small CHP plants scattered all over the map, power transmission losses are almost eliminated and we don?t need to spend billions adding transmission corridors.

In places that often have cloud cover, thin film photovoltaic power works much better than polycrystalline because the clouds scatter the light in all directions more than actually blocking it. Thin film panels usually have 3 layers to cover a wider spectrum of light. Evacuated tube solar collectors also work well with clouds. (This is good for Thailand)

Concentrating PV needs a sharp sun image to be efficient. It is best done in deserts where there are no clouds or haze. Concentrating PV lenses and mirrors work by focusing an image of the sun?s disk onto the solar cell. When haze scatters that image, efficiency plummets. Deserts in the US Southwest, Mexico and in North Africa have the potential to supply less sunny northern areas if we make the investment in massive HVDC transmission lines. Since solar panels produce DC naturally there may be a savings in electronics. Also the significant amount of waste heat can be used for energy intensive industries and to make fresh water from the ocean.

But don?t bet against solar as a long-term winner. Silicon development for computer technology fooled everyone with their ?Moore?s law? doubling capability every couple of years.  This has gone on for decades and will probably continue. For example, proton plasma beams can now cut wafers as thin as 20 micrometers thick. This cuts material costs to 1/3 and the wafer flexes like thin sheet metal. 

Another group at University of Delaware just announced a cell/concentrator combo with 42.8% efficiency. Clearly exciting developments will make this a fascinating race with many winners. We must pursue all ideas and let the winners be chosen by the marketplace.

Lots of opinions about solar power

[PM]

FYI we are doing for the second year a survey on HR practices of 125+ companies in Thailand.

We are at the last stage of data collection but the analysis we did 2 months ago on completed questionnaire already showed that the untimely resignation rate has actually increased by 20% on average from 2008 to 2009!

Large recruitment campaigns have been announced in the last 6 weeks by at least 10 manufacturing companies looking for 1000+ new employees each... Many other companies have recently unfrozen recruitment and have restarted to interview candidates for key vacancies...

In many industrial estates the % of candidates showing up for recruitment interviews has fallen from 90 to only 50%

The war for talents in Thailand seems to be back...