The number one problem for the US and for Western Europe is job creation. There is no bigger problem. The politicians can focus on all sorts of other things: taxing rich people, subsidizing pet projects, bashing China, etc. But, anyone who thinks there is a bigger problem than unemployment is missing the forest for the trees.
How do we get more jobs? That is not a tough question. It is only tough because we are talking about labor. If we asked the identical question about anything else, the answer would be painfully obvious. For some reason, politicians and many economists become completely irrational when asked how to increase the demand for labor. If the same politicians and economists were asked about how to increase the demand for anything else the answer would be immediately forthcoming.
How do you increase the demand for something?
How about making that something more expensive? Would that help?
What about substantially increasing the taxes for people that use that something? Would that help?
What about passing new regulations that would apply to using that something? Would that help?
To increase the demand for apples, why not make apples more expensive, tax folks who eat apples, and make anyone who buys apples spend one month of every year filling out paperwork to satisfy the regulations required to consume apples. Would that increase the demand for apples?
Yet, politicians and economists (like Paul Krugman) think that this is exactly the prescription necessary to get to full employment of labor. They are wrong.
To get more jobs, you need to reduce the cost of labor, increase the economic incentives for those who employ labor and reduce the regulations that surround the employment of labor. That's how you would increase the demand for anything including labor.
Sunday, October 30, 2011
Saturday, October 29, 2011
The Anger of the Entitled
Wherever you look these days, there are people demonstrating for their "rights." These "rights" are the right to take money from other people so that the demonstrators can have free this and free that. If education and health care are to be free, who pays? The demonstrators could care less.
Look at Greece. There are daily and massive demonstrations demanding that their failed welfare state continue to support the "entitled." It is always someone else that should pay for all of the things that the "entitled" want. Everything is a fundamental "right" without obligations on the part of the entitled to fund anything. There are no obligations to be imposed on the entitled. After all, they are the entitled.
What about Italy and Spain? Who pays? Their answer is the same as the OWS (Occupy Wall Street) crowd. They payers are "the rich." As if the rich had enough assets to keep all of these entitled folks going on indefinitely. The move to "get the rich" has historical precedents and none of them are very attractive for average people.
The Russian and Cuban experiments were long playing disasters for the average person living through those experiments. It's worth noting that even those "leveling" societies had their privileged. The Castro family lives in a style that America's rich would love to aspire to.
People with responsibilities, kids to take care of, old folks to support and the like don't have time to camp out in make-shift camps around the US and the world and make posters with four letter words describing their hatred for capitalism.
When winter comes, the OWS gang will retreat to the warmth of their comfortable homes or back to their "entitled" college community.
The truly disadvantaged don't have time for this stuff. But the truly "entitled" can camp out for years on end before retreating to a more comfortable lifestyle that they are "entitled" to.
The rest of us have to work for a living.
Milton Friedman noted long ago that the only societies that have ever produced for the average person were capitalist societies. Such societies also produced rich people as a by product of raising the standard of living of the average person. You can see the fruits of capitalism today in China raising the standard of living of hundreds of millions of Chinese. Capitalism is what is needed if the average person is going to have a fair shake.
But, the entitled are not interested in capitalism. They are mainly interested in getting their "rights" at the expense of others.
Look at Greece. There are daily and massive demonstrations demanding that their failed welfare state continue to support the "entitled." It is always someone else that should pay for all of the things that the "entitled" want. Everything is a fundamental "right" without obligations on the part of the entitled to fund anything. There are no obligations to be imposed on the entitled. After all, they are the entitled.
What about Italy and Spain? Who pays? Their answer is the same as the OWS (Occupy Wall Street) crowd. They payers are "the rich." As if the rich had enough assets to keep all of these entitled folks going on indefinitely. The move to "get the rich" has historical precedents and none of them are very attractive for average people.
The Russian and Cuban experiments were long playing disasters for the average person living through those experiments. It's worth noting that even those "leveling" societies had their privileged. The Castro family lives in a style that America's rich would love to aspire to.
People with responsibilities, kids to take care of, old folks to support and the like don't have time to camp out in make-shift camps around the US and the world and make posters with four letter words describing their hatred for capitalism.
When winter comes, the OWS gang will retreat to the warmth of their comfortable homes or back to their "entitled" college community.
The truly disadvantaged don't have time for this stuff. But the truly "entitled" can camp out for years on end before retreating to a more comfortable lifestyle that they are "entitled" to.
The rest of us have to work for a living.
Milton Friedman noted long ago that the only societies that have ever produced for the average person were capitalist societies. Such societies also produced rich people as a by product of raising the standard of living of the average person. You can see the fruits of capitalism today in China raising the standard of living of hundreds of millions of Chinese. Capitalism is what is needed if the average person is going to have a fair shake.
But, the entitled are not interested in capitalism. They are mainly interested in getting their "rights" at the expense of others.
Friday, October 28, 2011
Ho Hum
The European "deal" is mostly a mirage. The only "real" thing that takes place in the deal is the 50% write down of Greek sovereign debt and even that write down only applies to the 60 percent of the debt that is in "private" hands, meaning mainly in the hands of commercial banks.
Buried in this deal is the possibility that CDS (credit default swap) contracts will not be triggered. That is probably a sop to the banks who are on the hook for these contracts, which, among other things, insure Greek sovereign debt. No payoff for those who took out insurance. Who would have thought?
Europe is following the American pattern of reneging on past contracts to foster the illusion that they are solving today's problems. (America continues this pattern with debt forgiveness orchestrated by the White House, invalidating legitimate private sector contracts with the hope of securing more votes for Obama in 2012).
As for the EFSF (European Financial Stability Fund), the plan for that entity is ridiculous. Somehow, someway, someone is going to give the EFSF $ 1 Trillion and then that will be used to "insure" the first twenty percent of loss on newly issued debt, presumably debt issued by Greece, Spain and Italy. Who is going to come up with the $ 1 Trillion? The short answer is no one. The long answer involves numerous future headlines about the Chinese, the Saudis, and other targets, who will play nice, but, in the end, will donate nothing at all to this silly idea.
This "deal" now gives breathing space for a further expansion in sovereign debt by the weakest members of the EU so that a year from now, problems will be much, much worse than they are now. Meanwhile, Greece can go back to running the most inefficient economy on the planet without fearing a default (in the next few weeks).
So, why did the markets go up?
Because the US economy continues to grow, albeit slowly, and business is learning how to do without employees and still make money. So stocks will continue their upward march -- at least for a while yet. A sick Europe and an ever growing sovereign debt debacle is factored into market prices already. That's why the market is cheap (but getting less cheap).
Buried in this deal is the possibility that CDS (credit default swap) contracts will not be triggered. That is probably a sop to the banks who are on the hook for these contracts, which, among other things, insure Greek sovereign debt. No payoff for those who took out insurance. Who would have thought?
Europe is following the American pattern of reneging on past contracts to foster the illusion that they are solving today's problems. (America continues this pattern with debt forgiveness orchestrated by the White House, invalidating legitimate private sector contracts with the hope of securing more votes for Obama in 2012).
As for the EFSF (European Financial Stability Fund), the plan for that entity is ridiculous. Somehow, someway, someone is going to give the EFSF $ 1 Trillion and then that will be used to "insure" the first twenty percent of loss on newly issued debt, presumably debt issued by Greece, Spain and Italy. Who is going to come up with the $ 1 Trillion? The short answer is no one. The long answer involves numerous future headlines about the Chinese, the Saudis, and other targets, who will play nice, but, in the end, will donate nothing at all to this silly idea.
This "deal" now gives breathing space for a further expansion in sovereign debt by the weakest members of the EU so that a year from now, problems will be much, much worse than they are now. Meanwhile, Greece can go back to running the most inefficient economy on the planet without fearing a default (in the next few weeks).
So, why did the markets go up?
Because the US economy continues to grow, albeit slowly, and business is learning how to do without employees and still make money. So stocks will continue their upward march -- at least for a while yet. A sick Europe and an ever growing sovereign debt debacle is factored into market prices already. That's why the market is cheap (but getting less cheap).
Sunday, October 23, 2011
Side Issues and Reality
You might wonder why all the talk about greed and Wall Street. Isn't the real issue that the American economy is moribund and that unemployment is at staggeringly high levels? Why is the national debt important? Because it threatens the economic vitality of the future. These are the real issues -- the economy. They are made more real by the simple fact that opportunities for those who are less fortunate always improve with economic growth and always decline with economic stagnation.
Case in point -- today. As much as the Obama folks crow that they support the economically less fortunate, the Obama policies are devastating the poor, minorities and the less fortunate among us. Folks cannot find work. That is the real problem.
It is clear that President Obama will never focus on the economy's real problem -- stagnation and unemployment. He doesn't understand such problems because he has never experienced them and knows no one who has ever experienced these problems. His olympian view is that politics can solve all ills.
Well, politics has devastated our economy and our economic future. Government policy, regulation, and taxes have brought the American economy to its knees. Europe and the US have made promises to their citizenry that cannot be kept. So, why not change the subject? Find someone else to blame. We've seen this political tactic before many times in world history.
Case in point -- today. As much as the Obama folks crow that they support the economically less fortunate, the Obama policies are devastating the poor, minorities and the less fortunate among us. Folks cannot find work. That is the real problem.
It is clear that President Obama will never focus on the economy's real problem -- stagnation and unemployment. He doesn't understand such problems because he has never experienced them and knows no one who has ever experienced these problems. His olympian view is that politics can solve all ills.
Well, politics has devastated our economy and our economic future. Government policy, regulation, and taxes have brought the American economy to its knees. Europe and the US have made promises to their citizenry that cannot be kept. So, why not change the subject? Find someone else to blame. We've seen this political tactic before many times in world history.
Monday, October 17, 2011
If Germany Caves
There is always the possibility that Germany will agree to underwrite the sovereign debt problems of the PIIGS countries (Portugal, Italy, Ireland, Greece, Spain). How would that look? Imagine the concept of creating Eurobonds that all of the Eurozone countries stand behind (which would basically put Germany on a hook that they are not currently on) or have the ECB buy $ 2 Trillion of Sovereign debt (which would be pretty much the same thing). What happens then?
If this happens, you have the situation that will, in time, present itself to the US. There will be a massive debt that really cannot ever be paid off other than by simply printing currency and using the currency to continue to fund the debt. That means massive worldwide inflation with the purpose of destroying the "value" of the outstanding sovereign debt. If the inflation does not spiral out of control, this could work. It would be simply another way of defaulting.
Imagine a 10 percent inflation rate worldwide. In a reasonably short time, the value of outstanding sovereign debt would fall dramatically (along with all currency-denominated assets). In effect, you simply destroy the value of the sovereign bonds as you use the printing press to keep them current. If you can keep the inflation rate high but under control, this will do the trick. The danger is, of course, that inflation can have a mind of its own and might not remain under control. This could mean hyperinflation which could destroy the major economies of the world. But, it is possible that inflation could be kept under control at a high level. Who knows?
One side effect is the destruction of all of the entitlement programs. Social security and pension funds which are denominated in dollars will lose much of their value (politicians will find a way to eliminate cost of living indices that are in place to preserve the value of these funds). Health care programs are budgeted in dollars. They will become worthless as well. Public employees will find their salaries fixed and they will find themselves impoverished.
What will prosper in this environment is anything whose value is not stated and fixed in currency terms -- commodities, free market businesses, anything where prices adjust upward with inflation.
In other words, world wide inflation triggered by selling Eurobonds or some other equivalent scheme, is just a default by another name (see Rogoff and Rinehart's recent book, "This Time is Different").
Just plain defaulting would be much simpler, but may not suit the politicians as well as massive inflation.
If this happens, you have the situation that will, in time, present itself to the US. There will be a massive debt that really cannot ever be paid off other than by simply printing currency and using the currency to continue to fund the debt. That means massive worldwide inflation with the purpose of destroying the "value" of the outstanding sovereign debt. If the inflation does not spiral out of control, this could work. It would be simply another way of defaulting.
Imagine a 10 percent inflation rate worldwide. In a reasonably short time, the value of outstanding sovereign debt would fall dramatically (along with all currency-denominated assets). In effect, you simply destroy the value of the sovereign bonds as you use the printing press to keep them current. If you can keep the inflation rate high but under control, this will do the trick. The danger is, of course, that inflation can have a mind of its own and might not remain under control. This could mean hyperinflation which could destroy the major economies of the world. But, it is possible that inflation could be kept under control at a high level. Who knows?
One side effect is the destruction of all of the entitlement programs. Social security and pension funds which are denominated in dollars will lose much of their value (politicians will find a way to eliminate cost of living indices that are in place to preserve the value of these funds). Health care programs are budgeted in dollars. They will become worthless as well. Public employees will find their salaries fixed and they will find themselves impoverished.
What will prosper in this environment is anything whose value is not stated and fixed in currency terms -- commodities, free market businesses, anything where prices adjust upward with inflation.
In other words, world wide inflation triggered by selling Eurobonds or some other equivalent scheme, is just a default by another name (see Rogoff and Rinehart's recent book, "This Time is Different").
Just plain defaulting would be much simpler, but may not suit the politicians as well as massive inflation.
Saturday, October 15, 2011
The Blame Game
If you buy a residence in the US and live in it, you are in a remarkable situation, especially if you finance the home with a large mortgage. If the value of your home rises, you can sell it tax free (in more than 98 percent of actual home sale situations) and if the value of your home falls, you can, in most states, simply move away and owe nothing. Even better, the government subsidizes the interest expense that you pay on the mortgage by permitting tax deductions for mortgage interest paid.
If you decide to pay off your mortgage early (to take advantage of lower mortgage rates), the government insists that all "conformable" mortgage loans (comformable to GNMA standards, which accounts for more than 90 percent of all US mortgages) provide for no penalty whatsoever to homeowners choosing to refinance their homes (a luxury unheard of in the mortgage market for commercial real estate).
As if that isn't enough, Congress has created two "quasi" government agencies, Federal National Mortgage Association (Fannie Mae) and Federal Mortgage Corporation (Freddie Mac) who currently own or guarantee more than half of the mortgages in the US. The effect of this taxpayer largess to home buyers is to lower the interest rates paid on home mortgages by providing massive amounts of taxpayer dollars for the mortgage market.
Is there a wonder that there was a housing bubble? Does it really require predatory lenders to get this rocket-fueled housing bubble going?
If virtually all capital gains on common stock were tax free, we would see a massive bubble in US stocks, especially if the interest on stock loans were tax deductible and if the government provided taxpayer money to loan money to potential stock holders.
So, why the deal with housing?
The government (both political parties) made the decision to favor home ownership over renting for the average American.
Note that none of the legislation introduced by either President Obama or Republicans does anything to change the current government favoritism of residential housing. So, guess what? We are absolutely assured to repeat the housing bubble and bust in the future. Nothing in Dodd-Frank or the other sledgehammer attacks on capitalism initiated by President Obama and his Democratic Congress do anything to change government's policies that guarantee another housing disaster at some future date.
What about Canada? Canada does not have tax-free sales of residential homes. Canada does not permit tax deductions for interest expense. Canada does not have a Fannie Mae or Freddie Mac? Guess what? Canada had no housing bubble either. Are Canadians that different from Americans? Nope. They just have different government policies regarding housing.
So, why are Wall Streeters blamed for the housing bubble, but government policies get a free ride? Because politicans have no clue as to what happened from 2006 to the present. Today's Obama tirades are simply a knee-jerk, anti-capitalism reflex to a downturn that their very own political allies put in motion generations earlier.
Wall Streeters did not cause the housing bubble or its subsequent collapse. Wall Streeters did not put in place the Obama policies that have stifled any hopes of a vigorous economic recovery.
The real blame for the housing bubble and collapse belongs to current government policies regarding residential housing. Until those policies end, we are doomed to repeat the housing bubbles and busts.
If you decide to pay off your mortgage early (to take advantage of lower mortgage rates), the government insists that all "conformable" mortgage loans (comformable to GNMA standards, which accounts for more than 90 percent of all US mortgages) provide for no penalty whatsoever to homeowners choosing to refinance their homes (a luxury unheard of in the mortgage market for commercial real estate).
As if that isn't enough, Congress has created two "quasi" government agencies, Federal National Mortgage Association (Fannie Mae) and Federal Mortgage Corporation (Freddie Mac) who currently own or guarantee more than half of the mortgages in the US. The effect of this taxpayer largess to home buyers is to lower the interest rates paid on home mortgages by providing massive amounts of taxpayer dollars for the mortgage market.
Is there a wonder that there was a housing bubble? Does it really require predatory lenders to get this rocket-fueled housing bubble going?
If virtually all capital gains on common stock were tax free, we would see a massive bubble in US stocks, especially if the interest on stock loans were tax deductible and if the government provided taxpayer money to loan money to potential stock holders.
So, why the deal with housing?
The government (both political parties) made the decision to favor home ownership over renting for the average American.
Note that none of the legislation introduced by either President Obama or Republicans does anything to change the current government favoritism of residential housing. So, guess what? We are absolutely assured to repeat the housing bubble and bust in the future. Nothing in Dodd-Frank or the other sledgehammer attacks on capitalism initiated by President Obama and his Democratic Congress do anything to change government's policies that guarantee another housing disaster at some future date.
What about Canada? Canada does not have tax-free sales of residential homes. Canada does not permit tax deductions for interest expense. Canada does not have a Fannie Mae or Freddie Mac? Guess what? Canada had no housing bubble either. Are Canadians that different from Americans? Nope. They just have different government policies regarding housing.
So, why are Wall Streeters blamed for the housing bubble, but government policies get a free ride? Because politicans have no clue as to what happened from 2006 to the present. Today's Obama tirades are simply a knee-jerk, anti-capitalism reflex to a downturn that their very own political allies put in motion generations earlier.
Wall Streeters did not cause the housing bubble or its subsequent collapse. Wall Streeters did not put in place the Obama policies that have stifled any hopes of a vigorous economic recovery.
The real blame for the housing bubble and collapse belongs to current government policies regarding residential housing. Until those policies end, we are doomed to repeat the housing bubbles and busts.
Thursday, October 13, 2011
Background Noise
Occupy Wall Street (OWS) and the President's "jobs plan" have become background noise to the faltering US economy. Far more interesting are the political shenanigans in Europe attempting mission impossible -- trying to keep most of Europe from defaulting. This steady drumbeat of irrelevance beats on as the Western economies slide into the mud.
Capitalism is now so hamstrung in the Western economies that we will soon be trumpeting 8 % unemployment as full employment. Europe is pretty much used to that already. European countries haven't seen four percent unemployment since Queen Victoria's days and they are not likely to see it again in the future. The US is a tag along.
All of our troubles in the Western world stem from one simple consideration: many people have an insatiable desire to be appear to be "good" people. Appearance is the key here. Really helping people is not the plan.
Look at Buffett. He is complaining that people like him don't pay enough taxes. That problem is easily solved. He can send in more money with his tax return. Then he can pay what he deems his fair share. You think he would do that? Are you kidding? Buffett is just trying to prove that he is a "good" guy. This is all about appearances. Buffett has no intention of paying more in taxes. If he did, he would do it. Nothing prevents Buffett from paying more in taxes right now, except that he doesn't want to pay them. But, he sure wants to BS about how he wants to pay more. Interesting!
Most good ideas that people want to foist on others, such as minimum wage laws, don't affect anyone but poor people. Minimum wage laws simply outlaw certain contractual arrangements because one is poor. That's it....nothing more. Heaven help you if your skill set doesn't merit some liberal's idea of a living wage. You are just flat out of lack. Let them eat cake, one supposes.
And so it goes. Laws passed to help workers invariably end up creating reasons for employers to not have workers. Anytime government favors a group, it makes them toxic to other people and especially toxic to people who make hiring decisions.
Good ideas designed to help people become anchors that prevent people from the having the opportunity to improve their lot. That's why inequality has grown so dramatically in the past several decades. Liberal help has created a situation where the poorest among us have no real upside anymore.
The rich are comfortable which is why virtually every wealthy suburb in America is now represented by some arrogant white liberal. Nancy Pelosi's district isn't full of poor people and Nancy Pelosi is herself among the 1/100 of 1 percent of the richest people in America. Let them eat cake. Thanks Nancy!
These folks bask in self adulation thinking that they are doing good, but what they are really doing is preserving their dominance over folks less fortunate. The welfare state is like a boot on the neck of poor people. They just don't have a chance in this kind of environment.
What the less fortunate among us need is for the government to get out of the way and give them a chance. Asia is giving their citizens a shot. That's why Asia will supplant the West as the dominant economic power within another two generations.
Capitalism is now so hamstrung in the Western economies that we will soon be trumpeting 8 % unemployment as full employment. Europe is pretty much used to that already. European countries haven't seen four percent unemployment since Queen Victoria's days and they are not likely to see it again in the future. The US is a tag along.
All of our troubles in the Western world stem from one simple consideration: many people have an insatiable desire to be appear to be "good" people. Appearance is the key here. Really helping people is not the plan.
Look at Buffett. He is complaining that people like him don't pay enough taxes. That problem is easily solved. He can send in more money with his tax return. Then he can pay what he deems his fair share. You think he would do that? Are you kidding? Buffett is just trying to prove that he is a "good" guy. This is all about appearances. Buffett has no intention of paying more in taxes. If he did, he would do it. Nothing prevents Buffett from paying more in taxes right now, except that he doesn't want to pay them. But, he sure wants to BS about how he wants to pay more. Interesting!
Most good ideas that people want to foist on others, such as minimum wage laws, don't affect anyone but poor people. Minimum wage laws simply outlaw certain contractual arrangements because one is poor. That's it....nothing more. Heaven help you if your skill set doesn't merit some liberal's idea of a living wage. You are just flat out of lack. Let them eat cake, one supposes.
And so it goes. Laws passed to help workers invariably end up creating reasons for employers to not have workers. Anytime government favors a group, it makes them toxic to other people and especially toxic to people who make hiring decisions.
Good ideas designed to help people become anchors that prevent people from the having the opportunity to improve their lot. That's why inequality has grown so dramatically in the past several decades. Liberal help has created a situation where the poorest among us have no real upside anymore.
The rich are comfortable which is why virtually every wealthy suburb in America is now represented by some arrogant white liberal. Nancy Pelosi's district isn't full of poor people and Nancy Pelosi is herself among the 1/100 of 1 percent of the richest people in America. Let them eat cake. Thanks Nancy!
These folks bask in self adulation thinking that they are doing good, but what they are really doing is preserving their dominance over folks less fortunate. The welfare state is like a boot on the neck of poor people. They just don't have a chance in this kind of environment.
What the less fortunate among us need is for the government to get out of the way and give them a chance. Asia is giving their citizens a shot. That's why Asia will supplant the West as the dominant economic power within another two generations.
Wednesday, October 5, 2011
The Wall Street Protestors
You just knew that it couldn't be confined to Greece. The US has more than its share of folks that feel entitled and now they are congregating daily on Wall Street. Students, having spent four years boozing it up and studying sociology, now wonder where are the jobs?
Corporate greed, huh? Who owns corporations? Workers mainly...in their pension funds. So, if you can destroy corporations, you are basically destroying the savings and the economic future of the average worker -- union worker, state and local public employee worker, anyone with an IRA. There isn't some rich guy out there that owns Big Oil. The average worker owns Big Oil in his pension fund.
So, we come full circle. The attack on greed is really an attack on the retirement hopes and dreams of the average American. They have been so greedy as to plan for retirement or to work for an employer that provides a pension fund. By all means, lets destroy it in a war on "corporate greed."
We are no longer debating policies; we are now debating "sharing burdens." "Sharing" means I want what is yours. That is sharing. The idea is that we no longer intend to see the pie grow, so let's start cutting the pie up and sharing it. Forget about the idea that America can be a properous and growing country. That's so....Reagan-like.
This is what happens when the highest levels of government no longer have any policy prescriptions other than demonizing rich people. It catches on. Pretty soon rich people are really the middle class and the working classes. They are all greedy when compared to a bunch of students used to cutting classes (which they are doing now), and wondering why the world isn't beating a path to their door.
There isn't much of a labor market for empty political rhetoric. These protestors are going to be out there for a long time. They represent the new normal in the Obama economy.
Corporate greed, huh? Who owns corporations? Workers mainly...in their pension funds. So, if you can destroy corporations, you are basically destroying the savings and the economic future of the average worker -- union worker, state and local public employee worker, anyone with an IRA. There isn't some rich guy out there that owns Big Oil. The average worker owns Big Oil in his pension fund.
So, we come full circle. The attack on greed is really an attack on the retirement hopes and dreams of the average American. They have been so greedy as to plan for retirement or to work for an employer that provides a pension fund. By all means, lets destroy it in a war on "corporate greed."
We are no longer debating policies; we are now debating "sharing burdens." "Sharing" means I want what is yours. That is sharing. The idea is that we no longer intend to see the pie grow, so let's start cutting the pie up and sharing it. Forget about the idea that America can be a properous and growing country. That's so....Reagan-like.
This is what happens when the highest levels of government no longer have any policy prescriptions other than demonizing rich people. It catches on. Pretty soon rich people are really the middle class and the working classes. They are all greedy when compared to a bunch of students used to cutting classes (which they are doing now), and wondering why the world isn't beating a path to their door.
There isn't much of a labor market for empty political rhetoric. These protestors are going to be out there for a long time. They represent the new normal in the Obama economy.
Sunday, October 2, 2011
Growing Slowly
The US economy is not going to get much worse. It will improve. But, it won't be like the economy in past years. Why?
Unemployment is here to stay and especially for those in the bottom half of the skill pool. The future will have a permanent unemployed part of the American population. The unemployed will survive by various "safety nets" funded by government. It is hard to see how they will ever be legally employable again in any great numbers.
The absence of work opportunities for the unemployed suggests that their children will be disadvantaged as well, since useful employment will not be a day-to-day feature of these households. The US will have a perpetual underclass, basically created by government fiat.
For the upper middle income and the rich, the "new economy" will seem much as before. Using "outsourcing" and technology, the wealthiest part of America will find a way to get by without the unskilled labor force that once had a home in this economy.
The rags to riches stories will be things of the past. Just as in modern day Europe, economic and social classes will be frozen, economic growth will move along at a snail's pace, and social and economic mobility will come to an end.
This unfortunate future is the result of pricing the low income part of the labor force out of the market. Business just cannot afford them anymore thanks to the blithering array of taxes, mandates, litigation fears. All of these things that government has decided to do to "help" workers, simply makes them toxic to employers. We've gone past the tipping point.
These obstacles that shackle poor folks are not that formidable for high income, highly skilled folks. Their incomes are high enough and their skill sets are high enough that they can still be employed -- at least for now.
One way to see what has happened is to imagine that the minimum wage has been raised to $ 50 per hour. Who then will get a job? Those with the skills that are worth more than $ 50 per hour to the employer. Everybody else is flat out of luck.
This doesn't mean that the economy can't grow. It can and will. Europe has grown and gotten used to the idea of double digit unemployment and a permanent underclass with no social and economic mobility. (Europe arrived at this situation by the simple expedient of passing laws that forbid companies to fire anyone). It has taken the US a bit longer to get to the "creeping stagnation" economy, but we're there now.
As the West slowly trudges along, Asia, Eastern Europe, Africa, Latin America and perhaps even the Arab world have a real chance to take over center stage in the world economy. The West has abdicated. It remains to be seen who will supplant the West -- most likely China and the countries on China's periphery.
All of this is why stocks are probably a pretty good bet. Some companies, indeed many oompanies, will do fine in the world that is coming. There will be growing demand from China, Brazil, India, and the rest of the world for products that the West has long taken for granted. This doesn't mean that stocks won't stumble a bit when the inevitable European sovereign defaults begin. But, the defaults are inevitable and everybody but Tim Geithner knows it. The real stock market bottom has probably already passed, but if hasn't, then wait until Greece, Spain, and Italy default and the German and French banks are nationalized and then buy stocks with a reckless abandon.
Unemployment is here to stay and especially for those in the bottom half of the skill pool. The future will have a permanent unemployed part of the American population. The unemployed will survive by various "safety nets" funded by government. It is hard to see how they will ever be legally employable again in any great numbers.
The absence of work opportunities for the unemployed suggests that their children will be disadvantaged as well, since useful employment will not be a day-to-day feature of these households. The US will have a perpetual underclass, basically created by government fiat.
For the upper middle income and the rich, the "new economy" will seem much as before. Using "outsourcing" and technology, the wealthiest part of America will find a way to get by without the unskilled labor force that once had a home in this economy.
The rags to riches stories will be things of the past. Just as in modern day Europe, economic and social classes will be frozen, economic growth will move along at a snail's pace, and social and economic mobility will come to an end.
This unfortunate future is the result of pricing the low income part of the labor force out of the market. Business just cannot afford them anymore thanks to the blithering array of taxes, mandates, litigation fears. All of these things that government has decided to do to "help" workers, simply makes them toxic to employers. We've gone past the tipping point.
These obstacles that shackle poor folks are not that formidable for high income, highly skilled folks. Their incomes are high enough and their skill sets are high enough that they can still be employed -- at least for now.
One way to see what has happened is to imagine that the minimum wage has been raised to $ 50 per hour. Who then will get a job? Those with the skills that are worth more than $ 50 per hour to the employer. Everybody else is flat out of luck.
This doesn't mean that the economy can't grow. It can and will. Europe has grown and gotten used to the idea of double digit unemployment and a permanent underclass with no social and economic mobility. (Europe arrived at this situation by the simple expedient of passing laws that forbid companies to fire anyone). It has taken the US a bit longer to get to the "creeping stagnation" economy, but we're there now.
As the West slowly trudges along, Asia, Eastern Europe, Africa, Latin America and perhaps even the Arab world have a real chance to take over center stage in the world economy. The West has abdicated. It remains to be seen who will supplant the West -- most likely China and the countries on China's periphery.
All of this is why stocks are probably a pretty good bet. Some companies, indeed many oompanies, will do fine in the world that is coming. There will be growing demand from China, Brazil, India, and the rest of the world for products that the West has long taken for granted. This doesn't mean that stocks won't stumble a bit when the inevitable European sovereign defaults begin. But, the defaults are inevitable and everybody but Tim Geithner knows it. The real stock market bottom has probably already passed, but if hasn't, then wait until Greece, Spain, and Italy default and the German and French banks are nationalized and then buy stocks with a reckless abandon.
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