Today Spain has reached a record number of unemployed. Although we do not like the current state of things, no one seems to know against whom to direct their anger.
Actually, we are under a dictatorship perhaps worse than the Portuguese or Spanish forty years ago because it is more subtle and works almost invisibly. And we can embody it too, not in an institution or a person, but with a symbol: the euro.
There are many reasons to believe that Spain would not be as bad off out of the single currency. To explore this question we must look at least three things: First, what is the profile of the countries that have left monetary unions? Second, what does empirical evidence tells us regarding effectiveness of countries have left currency unions? Third, what are the economic and social conditions that need to be taken into account in making such a decision?
Spain fits he profile of the countries that have tended to get out of currency unions: large countries economically developed with well-established democracies.
Second, what empirical evidence tell us? According to the IMF, no countries have been able to make needed fiscal consolidation without a mixture of structural reforms and monetary policy changes. Spain compares favorably in this respect to Argentina and Korean cases. Argentina went off the dollar peg in 2002. Although initially the Argentina economy suffered a severe recession, the year of the return to the country was growing weight (and in fact has grown at an average rate of over 7% from that year until 2011).
Third, we must take into account, the real exchange rate, the financing capacity of a country, and the behavior of its exports. In relation to the three aspects, Spain has bad fundamentals including a competitiveness problem that comes largely from an overvalued euro and a long-term funding problem with interest rates far higher than other countries in the eurozone.
To all this we must add the "social" setting: in addition to more than six million unemployed, Spain has become the second most unequal country in the eurozone and in the fourth of the entire European Union in terms of income distribution.
It is difficult to plan in advance what would be the results of a euro exit for the Spanish economy. Initially this would mean an impoverishment of the population, but classical theory tells us is that the recovery of monetary sovereignty coupled with the devaluation of our new currency push exports and thus growth so that the country would create jobs. Job creation would without doubt have a positive impact on the reduction of our current levels of inequality.
The shackles of yesterday's dictatorships are different than today. Or are they? It depends on how you look at things. Will we also be free of these shackles?
The author of the above article is Antonio Estella, Professor of European Union Law and Professor of Administrative Law at the University Carlos III of Madrid. He holds a PhD in law from the European University Institute and holds a Master in European Law from the Free University of Brussels.
The important point is not agreement or disagreement with the author, but rather that a eurozone exit is now openly presented as a viable option in a mainstream Spanish newspaper.
Expect such sentiment to grow along with rising unemployment and a sinking Spanish economy.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Reminder: Those in the greater Chicago area should plan on attending the Chicago Natural Resources Expo on April 26 for a discussion about gold, silver, hard assets, inflation, currencies (or whatever else is on your mind). You also have the opportunity to meet with various natural resource company executives.
Venue change: Previously this was a Friday evening-Saturday Afternoon event. This year, the event is Noon-11:00 PM Friday only.
Once again, I am pleased to announce the magic words: "It's free".
Originally known as the Chicago Natural Resource Conference and Exhibition, this is one of the oldest natural resource conferences in the United States. The conference is a semi-annual event and offers opportunities to learn about new and undervalued companies in the natural resource industry.
The event is directed by Rich Radez, who started the conference back in 1977. Rich, and his son Eric, created the unique format which focuses on resource companies and provides maximum exposure to both investors and sponsors.
There is no cost for those who pre-register to attend the conference. The Expo is held at the Rolling Meadows Holiday Inn and Convention Center in Rolling Meadows, IL. The Holiday Inn is located at 3405 Algonquin Road, Rolling Meadows, IL 60008. The hotel can be contacted at 847-259-5000.
I will be on a panel Friday evening taking questions taken from the audience on gold, silver, Europe, inflation, or any aspect of the global economy that is on your mind.
The panel runs from 7:00-9:00 PM. If you enjoy the panel, you can buy me a drink afterwards (If you don't, I will graciously accept a free drink anyway).
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Spain's budget deficits are out of control, home prices are still falling, GDP is down 2% annualized in the first quarter, production is down, the unemployment rate soared a full percentage point to 27.16%, and a record 6.2 million are out of work.
Here are some stats from Spain's National Statistics Office as noted in the Financial Times.
Almost 240,000 people lost their jobs in the first three months of the year.
The overall number of jobless is 6.2 million.
The unemployment rate rose by more than 1 point to 27.16%
2 million out of 17.4 million Spanish households are without a single person holding a job.
Job losses were particularly heavy in the services sector, but also in industry and farming.
Construction has shed more than 1.6 million jobs since 2008 as a result of the bursting of Spain's housing bubble.
These numbers are an indication of a freefall, not a bottom. Yet, Rajoy says the Spanish economy has bottomed and Spain will return to growth this year. Such talk is ridiculous.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Noodle peelers should probably start looking for other things to do around the kitchen – there's just no competing with these robots.
Runguan's robots peel noodle strips from a firm piece of dough and tosses them directly into boiling water "before diners' eyes can follow the whole process." While a cook doing the same job would make about 40,000 yuan ($6,400) per year, the robot cost just 10,000 yuan ($1,600). And no human chef can work so tirelessly.
Price is already down from $2,000 this past August, which is no doubt a big reason why more than 3,000 restaurants that have already relegated their noodle-making to the robot.
That humans can be replaced by robots that do the job faster and cheaper is an idea that now pervades Chinese employers. "Chinese companies usually start considering robots when the payment for a skilled worker exceeds 50,000 yuan ($8,060) a year."
In Japan robots are already being used to make sushi, and a robot in San Francisco can serve up 340 hamburgers an hour. But while robotic cooks provide restaurants a novelty for customers and savings for owners, other robots are invading China's workplace on a much grander scale. Most notably is Foxconn who, last November, began replacing 1 million jobs performed by humans with robotic automation. The metamorphosis is advancing quickly. In late February the company announced it put a freeze on hiring new entry-level workers. This was due in part to a high worker retention rate following pay increases, but it's also a conscious decision to accelerate the automation of their factories.
Robot Chefs Take Over
Who to Blame for "Robotic Outsourcing"
It's easy to see what is happening. But who is to blame, and what can be done about it?
The simple fact of the matter is technology marches on and we all eventually benefit from it. To the extent it appears we do not, let me point out a six facts.
The Fed (central banks in general) have made the cost of capital so cheap that it encourages employers to replace workers with cheaper alternatives.
The Fed (central banks in general) can enhance trends, but cannot change them. Thus, I am not stating the Fed is the cause of "Robotic Outsourcing". Rather, I am stating that cheap money has accelerated that trend.
Minimum wage laws, protectionism, unions in general, and inane government policies also encourage "Robotic Outsourcing".
Long-term, everyone benefits from productivity improvements and associated cheaper prices.
Unfortunately, Keynesian clowns as well as the clowns at the Fed (central banks in general) see cheaper prices as the enemy.
In their effort to prevent falling prices, the Fed has lowered the cost of money so much that it is a no-brainer to replace human workers with technology at an increasing pace.
Outsourcing Progression
Increasing the minimum wage encourages more outsourcing. Obamacare and other mandated benefits also encourages outsourcing.
Outsourcing went first to Mexico, then to China, and now to robots. Manufacturing is returning to the US, but human jobs have not.
Central Thesis
The Fed (central banks in general) can enhance trends, but cannot change them. The Fed is not the cause of "Robotic Outsourcing" but cheap money has certainly accelerated that trend.
With the Fed hell-bent on causing price inflation, Obama on causing wage inflation, and unions on keeping an unsustainable trend in wages and benefits, look for an accelerated trend towards elimination of human jobs.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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