Greedy Goblin

Friday, October 9, 2009

He wouldn't buy the stuff he makes

It's Friday, the happiest day of the workday, so it's perfect time for some more doomsday prophecies! You've seen my speculations on how the otherwise great technological advancement create a deadly mixture with the high amount of morons (people who are unable to do highly skilled jobs), and the society models that cannot just dispose them.

Today let's see a funny picture:
The main chart is the employment chart of Hungary between 1980 and 2006 (the current crisis is not included intentionally). Please note that the axis is the percentage of the total population and not the available workforce. The superimposed green line with the right side scale is relative GDP.

As you can see, in the 1989-1991 period the GDP dropped by 19% (14% if 2006 is 100%). That's a nice big number. In the 1989-1994 period 15% of the total population lost his job. And more importantly, in the 1995-2006 period only 2% gained it back, despite the GDP has increased way beyond its 1989 value.

What on Earth has happened in 1989? And what happened with 13% of population?

In 1989 the communist regime in Eastern Europe, including Hungary, collapsed. Democratic elections were held. The closed markets of Eastern Europe had opened to the West, and Western goods (that could only be accessed via smuggling) became available in the shops. The naive democratic activists expected that the GDP of the liberated countries will rise quickly and reach the Western standards in 15-20 years. No one expected freefall.

The Hungarian companies were uncompetitive to the Western ones, everyone knew that, and no one expected their survival. However it was widely believed that Western companies, seeing the low wages will arrive to fill the void, they will buy and modernize the old factories or build new ones, employ the workers.

Western businessmen did arrived, but they couldn't really do much with the workforce. It was not so cheap as Far-Eastern but was much lower qualified than Western. Simply changing the name sign on a factory won't make it able to build better products. The companies, under old or new name, in Western or Hungarian ownership kept making uncompetitive products.

This would explain the lack of GDP growth but why is the big fall? Because the closed market protected these companies from Western competition. The people preferred do buy Western products. They simply wouldn't buy the stuff they made, therefore destroyed their own workplaces. Yet they couldn't join any better company, as they were unable to create products they would buy.

Of course Hungary is not a country of idiots, the people simply lacked the proper training in the communist era. The intelligent people made huge effort to adapt the higher standards. I remember that back then everyone were learning English or German, learned new professions. Soon lot of them could work in a competitive company, and the GDP started to rise.

But not all of them. From the 55% who held job at 1989 only 38% could keep/regain his job via learning new skills. 4% kept being unemployed, experts agree that most of them lacked the skills to get serious jobs. There were horror stories even after 2000 that the government lured some huge investment to the country that "will create 2-3000 jobs", just to see that the company struggles understaffed and finally recruiting from Romania, because out of the 400K registered unemployed they couldn't find 2000 who were not alcoholists, had professions (and not of farmers or kitchen-hands) been able to read a written manual, didn't steal, and were ready to move to another town away for a job. And they are those 400K who were at least ready to walk to the unemployment office every month. Imagine the rest!

The main problem with morons is not that they can only do uncompetitive jobs. It's that they still want to get the most competitive products. No matter how hard the government tries to save their jobs, they spend their salaries on the competition's stuff and while the company has them, it can't beat the competition.

Technological advancement simply elevate the moron-barrier. Being able to read, coming in time and obey the boss is no longer enough. These people will disappear from the "proper" US and EU workplaces. Some of them will do the jobs that were previously done by illegal immigrants (house-cleaner, apple-picker, streetsweep, prostitute), but most of them will go for welfare.

These morons should have lost their jobs gradually over the last 3 decades. However what communist closed market did to the Hungarian economy, the loans did to the US and EU economies. People had so much money that they consumed in great excess, they did not really cared about quality, with proper marketing you could literally sell the water coming from your kitchen tap (most "mineral waters" are simple tap water). The good times are over, those who can't do a skilled job will lose it in 2 years or already lost it: (USA data, by Annaly Capital)


Ablimoth said...

I disagree with your theories of why the time to recover is increasing, but I cannot voice why, nor my own. Not yet anyway. I cannot disagree that time to recover is increasing drastically.

Still... Happy that I'm educated, skilled and intelligent.

Chris said...

Agree or disagree, the ideas are at least interesting and worth thinking about.

Chris said...


... this post IS gevlon backing up his statement. There are a few holes in it comparing soviet hungary with the insanely large economy of the US, but there it is. Also, the fact that the world craves american product, just not necessarily manufactured product.

Anyways, excellent post Gevlon, far more insightful than im sure any comments will be.

Techless said...

Nicely put. It does make me wonder though what makes you say that it will take "2-years" for the rest to lose their jobs?

Gevlon, have you ever seen the Zeitgeist documentaries? Because they have some additional ideas on why some jobs can not be saved.

Gevlon said...

@All, please don't reply to trolls, that feeds them.

@Chris: it's not just Hungary. It was true for the whole Eastern-European block and the former Soviet Union countries too. That's a large market.

Anonymous said...


What purpose does the large graph serve? How does it enhance the argument you are making? This was very unclear to me.

Gevlon said...

@Last anonymous: first picture that the crisis, in terms of GDP loss ended, however the lost jobs never recovered.

Last picture: see as the jobs just keep falling with no signs of recovery.

Anonymous said...

Not sure about education in Hungary, but in Soviet Union it was way above that of the American Education for instance and about the same level as the rest of Europe. Education was encouraged it was free so anyone could get it and getting into school as well as graduating was not a matter of paying expensive tuition, but rather a matter of actually passing some pretty rigorous tests. (learning a second and often third language was a requirement starting with Junior High, it is the major reason why population of former soviet block had such a grand time learning more languages. They already had a good headstart)

The problem with collapse of economy was not in lower quality product as much as in the fact that republics no longer wished to depend on each other and buy from each other as well as supply each other which was basically a backbone of soviet economy. Enter cheaper Chinese produced goods and all those Gorbachev supporters with their fish tasting chicken etc and you have yourself a problem.

Other then that - amusing analysis.

Anonymous said...

Hi Gevlon,

good article, keep them coming.

Always nice to see another Hungarian writing things which make you think at least even if you don't completely agree all the time.

I myself like these topics of yours where it is not necessarily about WOW.

Csak így tovább :)


MetaManu said...

like the GDP has any sense. It could be ONE hungarian pillaging all the ressources, and all the other people exploding, it'd still rise :)

Lilywhite said...

So how do we minimize the number of people on wellfare? It is simple really. As they can not or do not want to learn, they have to get jobs within their skill level. Currently, two things that almost all states have directly prevent that.

1. Wellfare check size. If the amount on the wellfare check is larger or the same as the pay check for the job you are able to do, you will not take the job.

Action 1: Reduce the wellfare pay check.

2. If the minimum wage is higher then the value that a job produces, that job will not be done in almost all cases. Minimum wages are possibly the most evil things there are in the modern economy as they are effectively preventing the poor and unskilled workers from getting a job within their skill level.

Action 2: Remove the mimimum wage.

Preemptive counterargument: If the minimum wage is contrary to what i have said good for the unskilled workers, why not double it?

MetaManu said...

That's a bit easy. Apart from the shitty ethics of that proposition, you can project that people already struggling (minimum wages) will not be able to give decent education to their childrens with even less money, thus "producing" even more unskilled ressources to the country. Go down, lift. But where's the point of the billet anyway?

Nils said...

One solution is this:

If it seems to you like a very 'left' idea, think about it in terms of incentives to take up work.

In Germany you pay about 80% of all income you gain to lower your welfare (if you do receive welfare).

No wonder those people do not want to work. Earn 600€ welfare, take alow payed job that earns you 400€, but only gain 80€ from the 400€. I wouldn't take a job that makes 80€ difference the month, but requires 60h work the week.

If you do not want to eliminate welfare, the solution with the best financial incentives to do low paid work is basic income.

MetaManu said...

it is also experimented in france with some good results (RSA). Finding back a job doesn't cut ALL the welfare under certain circonstances.

Anonymous said...

The part about jobs that no one wants to do /can do is interesting, here in the UK we have a lot of Eastern European immigrants (they are LEGAL migrants), mostly doing unskilled / labouring jobs. Often the newspapers cry out 'they're taking all our jobs' (you know the type of thing) but the thing is, these are the jobs that unskilled / semiskilled British people used to do, but now they feel they shouldn't have to sweep floors / clean toilets / empty bins. So for the moment, all these jobs are still getting done - but my guess is that at some point, immigrants will stop wanting to do those jobs too?

The employment situation reminds me of the US and Mexico, except that Mexico has such a large population that the timescale is much longer, and they do not have a relationship which is tending towards equality like Western and Eastern Europe. So we will run into problems much sooner than the US / Mexico relationship.

Just thought it was an interesting semi-related point.

Tony Kurrajong said...

I can say one thing Gevlon, right now in the US people still don't understand the situation we're in. People think were bottoming out, not true at all, at least in the real estate business I can tell you this. I work in the foreclosure industry, and we just got hit big with a bunch of new foreclosures. People are still losing houses en mass, the only reason the housing industry seemed to be slowing down was due to foreclosure moratorium. Now that the law is "expired" the houses are now all being foreclosed. Now for disclosure, I'm not sure how coherent that statement was I just came home from a 9 hour shift (Like i said it's been busy), and it's 3am. I just put this here to maybe give you some information(not concrete since i don't have exact numbers on hand), that you could use.

Anonymous said...

Comparing the 2001 recession to the current in explaining permanent job loss due to technology change isn't a fair comparison.
It is clear that the current recession is far larger in magnitude, and despite large scale intervention not recovering anytime soon

Anonymous said...

Hey Gevlon, I disagree to some extend with your last graph. It is missing , in the idea, that its missing the total population. The ressesion of 2001 hit US 2001, with that population. Your graph shows todays resession in relation with the one in 2001, when you should add another factor in the graph plotting, the total population. If 2 million jobs were lost in a total of 100 million jobs, its bad, but its worse if 2 million jobs were lost in a total of 20 million jobs. You get where I'm going

Anonymous said...

"the society models that cannot just dispose them"

Your word choice is disgusting.

"Technological advancement simply elevate the moron-barrier"

No. Technology is not a barrier it is an enabler. Technology tends to increase productivity of everyone who uses it, not just the people who understand how it works. One simple example are the millions of unskilled people that enter information into databases which greatly increases productivity of corporations all over the globe. Technology on assembly lines, medical technology that makes people live longer/healthier lives. Technology increases productivity, period.

MetaManu said...

strange, a clever comment ...

guess you lost yourself on the internet and ended here :)

Anonymous said...

@Last anonymous

Technology does increase productivity. It doesn't increase intelligence or a person's capacity to learn. It can assist in learning I'll admit, but nothing beyond that. A moron can be productive if put to the right task with the right equipment.

Anonymous said...

Do you have any data to support that jobs lost are lost forever and those ppl never found another job? That's a pretty big assumption and if true then the impact would be tremendous. Personally, I know many ppl that lost their job and collect unemployment while contracting or are self-employed, thus somewhat double dipping. As you can see this skews the statistics.

Chris said...


True, but nobody in the world wanted anything made in ex soviet countries, for exactly the reason you described. Not only did their own people not want the goods, but nobody anywhere did. Thats not true for the states. They still make software, music, movies, fast food, and weapons better than anyone in the world, and thats a huge portion of their economy. If they begin to focus on what they do best and enough people can learn new skills then they wont last in the recession that long.

I live in Canada, and culturally we are identical to the US. We are a little more educated but our economy is geared even more to labour jobs than they are, and the recession is basically over here. The only people still talking about the economic crisis are our politicians, because everyone else is busy working. And since we are a resource centered economy that deals primarily with the states, that means that they are starting to pick up to.

The reality of the situation is that the economy collapsed because a good portion of the money that existed was backed by the promises of the poor, and when that didnt pan out that money disappeared and the global economy adjusted. Now its mostly done that and things will go back to normal.

Nick S. said...

@Anonymous - "in Soviet Union it was way above that of the American Education"

This statement is patently ridiculous. While the USSR existed, unprecedented numbers of Eastern Europeans emigrated to the US and other Western countries for university education. Access does not dictate quality, and in fact tends to be inversely related when it comes to education.

Anonymous said...

I love reading Gevlon, he has a tone that I enjoy.

While we could bicker and debate over all the factors involved in geopolitical crises, his base statement is no less true.... "He wouldn't buy the stuff he makes"

Any product has to be competitive to survive. This applies to both manufactured goods, foodstuffs, tendered services, etc. The competition is not just for price, but for quality, ease of use, and many other factors. Gevlon pointed out one of these, as an example.

My experience working with people in several nations has shown me that you can find intelligent educated people in any country, though the quality or availability of higher education in some nations is varied. I hold little value of the worth of any statement about average education levels of any nation where a standard definition is not included.

With education you must specify quality as well as level. An Oxford graduate in my mind is typically more intelligent than a graduate with the same degree from a community college.

Bristal said...

I have two problems with assumptions made here. I agree with above poster about education. The reason education appears to be superior in Eastern countries is the pool of people evaluated.

Anonymous said about the Soviet Union "Education was encouraged it was free so anyone could get it and getting into school as well as graduating was not a matter of paying expensive tuition, but rather a matter of actually passing some pretty rigorous tests."

So, it's free, anyone can get it; BUT you have to pass rigorous tests to get in. So it excludes all but the best test-takers.

The american education system is much more inclusive and values creativity and critical thinking. Nearly anybody can get in to some type of college, and completing a degree can be more about work and time invested than innate "intelligence" and test-taking ability.

Didn't the Soviet Union also sweep the country for the best little gymnasts and move them to central training programs?

The other problem is with blaming welfare programs for lowering worker's motivation.

When people criticize welfare programs, they typically do not realize that the vast number of people receiving welfare are in the program briefly, then out again. The number on suport may be fairly stable based on conditions, but it often succeeds at helping people get back into the job market.

Those relatively few that are in the welfare system long term for it's great benefits would not likely be influenced by any restrictions on either minimum wage or their welfare check. They will find other means to get food and shelter, or die on the street.

Interested said...

most "mineral waters" are simple tap water

Please post proof of this statement with examples.

Anonymous said...


All bottled water lists its source on the label. Some come from springs, but a lot will list its source as "Public Water Source" or "Municipal Source" or the name of the specific facility that they got the water from.

That doesn't mean that the bottled water is necessarily the same as tap water since tap still needs to flow through a long series of pipes to get to your faucet, and at least in the area I live in, the pipes are not well maintained and the water has a certain brown color to it occasionally. Some areas do have damn good tap water pipes though.

Probably the most popular examples would be Aquafina and Dasani (made by Pepsi and Coke respectively). They both use "tap water". Evian and Poland Springs are two examples of bottled water that get their water from springs.

Anonymous said...

Your chart seems to show 0 unemployment in Hungary prior to 1989. Obviously that's impossible in a capitalist economy. In a communist economy either (1) the stats are fake; or (2) the people are "employed" but not actually doing anything of value.

In other words, employment rates prior to 89 are not comparable to employment rates after 89. Your whole analysis assumes that they are, but they're not, because they don't measure the same thing.

Lilywhite said...


You are making a classical error (and also forgetting the point) here. You seem to think that if there was no mimimum wage laws, everyone doing a MW job would be payed something like 1$/day. This is of course not so. A job will payed basically what it is worth getting it done. You can't make a law saying that a certain job is worth X$. That is price/wage control and we should all know by now where that leads.

While you are worrying about the current MW workers, I on the other hand focus on those who do not even qualify for a MW job. Those whose productivity is so low it is not worth the current MW. They are by the MW laws doomed to always be unemployed. By raising the MW, you are of course only increasing their numbers.

The minimum wage laws simplified: "You have to be at least this good to get a job in this country".

Anonymous said...

I was born and raised in East Germany. 1989 I was 15 still going to school.

One reason why the work-force in Eastern countries was less skilled was, that it wasn't really necessary to be the samrtest person to get/keep a job.

It was government policy that everyone had to have a job, even when there wasn't enough work to do. So being able to read, come in time and obey the boss was really all you needed to get a paycheck at the end of the month.

Also... to get a really good job with a big paycheck you didn't need to be super qualified at the work you do but be a super qualified state party member.

It began in school, everyone got 10 years of school education, if you wanted to get 12 years or study you had to promise becoming a party member at 18.

Imagine 40 years of this practise and it's clear that most people (who just wanted to live a normal life not being too much bothered with communist politics) didn't care much about education, didn't do much all day but also didn't have to fear losing their jobs.

MetaManu said...

@lillywhite : I never said it would go down to 1€. The fact is, it WOULD go down, when it is already not enough to "buy stuff". There is a economical reason minimal wage exists. (btw MW means what?) the only negative side of it i see is that it tends to compress salaries at that point (becoming the new "standard" rate)

Lilywhite said...

MW means Minimum wage, the by law stipulated least amount you can pay an adult for a job.

The reason that MW exists is entirely political. It is not an economical phenomenon in the same way that supply and demand is. It is also in my mind inherently evil. Since i have already tried to tell you why I can only complement with an example.

Person XX is young, unskilled, does not want to go back to school and also has a kid to take care of. He is not what you would call very productive but can do some small tasks if instructed how to do them. His productivity level (marginal revenue product) is 10€/h.

Person YY would like a job done, let us say it is picking up litter from his company's entrance and car park and greeting visitors. He thinks this job is worth 10€/hour to him.

Now, the mimimum wage is 11€/hour.

1. Will YY hire XX? Of course not since he has to pay more then the job is worth to him

2. Will XX ever get a job? No, since his productivity level is 10€/h. As he does not generate as much value as the MW, he will never get a job, because of the minimum wage.

Do you still think that the minimum wage is in any way goog or humane or whatever? I see it as the embodiment of evil in politics. The MW is in fact saying that "by law, people like XX must never have a job".

MetaManu said...

it is interesting, but real life doesnt work like that. XX would work 9 hours and get paid 8, problem solved. It all depends if XX got a choice. Now, especially elder people, don't often get one.

But to the point, i fail to see how you prove that MW is evil. In your exemple, it is there to ensure that YY will not force people to do his crap for 3€, so XX children's can be feed.

I never saw any proven stats saying MW has destroyed jobs, flawed example imo. Below MW, it is the black market anyway.

Anonymous said...

lol. the main problem with your whole argument is: those that have resources are not moochers, or idiots.

Its not socialism that's causing this slump. The US doesn't really have socialism for those that don't have a ton of money. Its the socialized loss and profit for the rich.

For instance Wellpoint insists that they must have 3% profit institutionalized by the state, and is suing because they weren't allowed.

Its really silly you see this crap happen in warcraft and you post them on the morons of the week. But if it happens in the real world its the socialist slackers that are the problem not the companies that beg for money so they can keep their 30 mi/year salaries.

Lilywhite said...


But it does work exactly like that. Either the MW is defined as an amount per hour (as in the USA) or there is a limit on how many hours one employer can squeeze out of the employee (or both).

An employer does not force people to do anything. That is called slavery and is something completely different. The only forcing here is being done by the law that says that a job that is worth less then for example 3€(=MW in this example) will never be done. Why would you pay someone 3€ for doing a job that is only worth 2€?

Let me take another example then. Lets assume that we raise the mimimum wage from 3€ to 30€. What will happend to the jobs that before was done at 3-29€/hour? Most of the people having those jobs will be fired. Their jobs are no longer worth doing as you as the employer would have to pay them more than the marginal revenue product of what they are producing.

MetaManu said...

I see your point. But i contest MW is destroying jobs :)

There is a heavy pressure for it to stay low, so it progresses very slowly. Supressing MW would just raise profit (exploitation), but not create any jobs imo.

ANd we already have the possibility to pay people under MW. I pay people to take care of my childrens, i pay them MW, and i get tax reduction. Essentially the state is subventioning me so that that job is costing me less than MW, while still paying XX her MW :)

CthulhuDreams said...

You should supoerimpose the current line over the 1948 recession - it would seem that they are actually pretty similar except offset considerably.