Further Thoughts on Economic Up Is Down
Even the mainstream media, this time the Associated Press, is beginning to find the familiar economic narrative peculiar:
“It’s very unusual,” said Mark Zandi, chief economist at Moody’s Economy.com. “At this point in the business cycle, we should be seeing some sort of labor force growth. Layoffs have abated, but there really has been no pickup in hiring.”
Job creation was stronger early in previous recoveries. And jobless people responded by streaming back into the labor force. Some workers are concluding it’s more practical to return to school, start a business or care at home for their kids until the job market improves. In some cases, it even makes financial sense to stop looking for work.
As I’ve been saying for some months, the wealth to fund a recovery must come from somewhere, whether an innovative technology creates a new market, geopolitical changes open up existing markets, changes in taxation and regulation free up wealth or productivity that had previously lain fallow, or money is borrowed from the future. It would be fair to summarize, I think, that the housing boom essentially borrowed money from the future, and the bust erupted when it turned out that the future money didn’t actually exist.
What economic growth is currently occurring may be based entirely on the the resources that the federal government is pumping from the future into the economy, propping up public sector workers and favored industries, even favored businesses. In this scenario, jobs might not be increasing because the market isn’t really expanding. There’s no need to hire people when the uptick in profits derives from a government handout; there’s really not much work to be done in claiming it.
Meanwhile, people are rearranging their lifestyles, effectively taking themselves — and the wealth and productivity that they represent — out of the economy, and businesses are responding to necessity by finding ways to increase productivity without new workers. That means jobs and workers that aren’t coming back… at least until people begin to believe in “must have” goods and services again.
The contraction that the government borrowing seeks to disguise will continue, and eventually people will realize that the future wealth is not what everybody has been pretending it would be.
What disturbs me is that our savings rate even when people ‘aren’t spending’ is only about 5%… We only had full employment when the savings rate was zero. People need to be saving about 15% to retire comfortably. a 15% personal savings rate is the minimum, on average, to fully fund ‘the future’.
Obviously the model of trying to build an economy out of selling each other trinkets made overseas is not sustainable in the long-term.
Unless we fix some serious structural problems, the mantra of ‘open up your wallets and spend’ equates, roughly, with ‘borrowing from the future’, and it appears more each day that ‘the future’ is already grossly underfunded.
If you were a business decision-maker, whether large or small company, would you hire anyone given the current administration?
Barack Obama’s drips disdain for the private sector — the “stimulus bill” (that was merely a financial lifeline to state and local public sector employees); the (arguably unlawful) favoritism shown to the UAW with the government auto bailouts / takeovers; the attempt to socialize medicine (on top of banks, automakers); Fannie / Freddie. His call in his state of the union to forgive college loans for people who go to work for the government (and quasi-government like ACORN a/k/a “public service”?).
And “green jobs” as a cover for both “crony capitalism” (Chicago style) and a fascist-like industrial policy of taking over businesses through regulation and government coercion.
And of course higher taxes and regulations as far as the eye can see.
What would we expect from someone who has been suckled by Marxists since he was a child, and in adulthood has associated with same? He’s been raised to loathe free market capitalism, and usurp it if he has the means.
Viewing this, any sane business decision-maker is going to hunker down and not make capital investments or hire anyone.
Obama’s four years are going to make the Jimmy Carter years look like relative boom times.
I feel somewhat at a loss for predictions, I think this is the first sizable recession we have had since we became “post industrial”.
When we once again begin purchasing “goods and services”, most of those “goods” will be foreign. I think that is a first for us.