Employment Insecurity

In a recent article in The Denver Post, author Aldo Svaldi wrote about how the employment situation is deteriorating in the Greater Metropolitcan area. People are losing jobs and the people who haven't lost their jobs yet face increased competition and insecurity in their jobs. I thought this would be a good place to talk about unemployment rates and what an acceptable rate should be. Many economists agree that a certain level of unemployment is desirable for the proper functioning of an economy because it allows employers the chance to select the most productive people for their enterprises. In addition, Marx, that champion of free markets, would argue that the ranks of the unemployed provide the basis for discontent in capitalist economies. Those who are unemployd find that their desires are not being met because they have no means of providing for their needs. In socialist countries, the unemployed make up a significant portion of the population, but their needs are provided.

I have met a few acquaintances who described what it is like to live in a quasi-socialist country such as France or Germany. Pretty much the thing that stands out most is that when one is in the ranks of the unemployed in a socialist country, your needs are provided for, but that wants over and above that are left unmet. In order to get a job, one must jump through a lot of hoops and perform at an above average level to prove your worth and even then if the economy falters the chopping block has more to do with seniority than talent. As a result, coupled with more regulations that are enforced to ensure safety, the quality of delivery of services many times exceeds levels that are seen in more open economies, but again the opportunities for advancement and true wealth creation are much less.

So that leaves us with a great question. What level of unemployment is acceptable for the functioning of an industrialized democracy? For many economies, the general answer to that question is around five percent. The reason behind this being that a country still has a pool of people who desire employment and are willing to bid wages down to an affordable level for businesses, but there is not so much unemployment that people start to feel disillusioned with their financial situation and turn to more destructive activities. It also accounts for changes cause by people who change careers, locations, and companies.

On a microeconomic level, job creation is a matter of specifics about locations and spin-off jobs. (A spin-off job would be a job in any kind of supportive industry to more primary sector jobs such as manufacturing and construction) On a general level, most industrial jobs rely on bigger markets for the creation of quantities of scale in order to justify higher levels of productivity. Therefore, for a specific location, producing more than that location can consume is generally good if a market exists for those products elsewhere. For example, a company that produces corn has two options when they are at a level of production too high for their given geographic region. Their options are to expand their market to greater geographic distances and market segments or reduce their production to meet the level of consumption.

Lastly, there are several main points we can glean from this information. The unemployment rate that is politically acceptable and economically justified will vary based off of how much of a social safety net there is in a given geographic jurisdiction. Market forces affect unemployment with ebbs and flows in every market economy, but the level at which they affect them primarily is determined by the competitive pressures of businesses on each other and artificial caps on supply made by government.

Fix & Flip Strategies That May or May Not Work

Fix & Flips were very popular in the 2000's and provided ample entertainment on numerous tv shows that glorified this incredibly risky business. Most people don't realize this but fix & flips really are quite risky investments compared to the stability of fortune 500 companies and numerous other investment strategies that are not quite as fun. For those of you not yet in the know, a fix and flip is where a person buys a home that requires a lot of work to be done to it and they buy it at deep discounts because of the massive amount of work required. By fixing the property in a short period of time, they then turn around and sell the home in a matter of a few weeks, (hopefully), and turn a profit of whatever the difference is between the total cost and what they sell it for. There are numerous ways to finance fix & flips, or at least there were before the meltdown that occurred in 2008. Before then, credit was relatively easy to get and home prices were going through the roof. Some might say that home flippers had something to do with the out of control home appreciations that occurred. That is not something I am willing to speculate on at this point, but I am sure it would make a great topic in the future.

So, we come to the question, do home flipping strategies actually work. According to the television they really do and work well. A little deeper digging reveals that many people have actually lost their shirt in the real estate market because of such a risky investment. I personally have met two people who lost more than everything they owned in real estate. I have not met anyone who has made it big in real estate. Anecdotally, the odds are not good that I will be very favorable towards fix & flip strategies. For the most part, I really enjoy shows like Flip This House or Flipping Out, but I find their production to somewhat show only the positive side of flipping and not how many people fail using these strategies. I can't tell you how relieved I am when they get to the end of the show and say, “Congratulations, your house is now worth $50k more than what you put into it.” I am a little incredulous that they pulled such a wonderful stunt, but then I turn to myself and remember those are numbers that are just thrown out by a real estate agent and do not reflect what the house actually sells for. Maybe I'm just a little hard on this, but I just have real trouble seeing how a house can be worth so much more after so little time. Personally, I'm used to investments that take several years or at least months to pan out. The idea that I can buy a house and sell it for more in less than two months just doesn't seem really realistic to me. In any case, I am still going to try and figure this out.

One of my favorite websites is DIYnetwork.com. It is a great place to go for home improvement ideas, which would be wonderful if one is lucky enough to be able to afford a house. Home improvement is one of those things that can be enjoyable if you can get the end result you want. Oftentimes it is just better to leave it to the professionals. But then again, if you left everything to the professionals, where would the profit be? In their pocket. Exactly.