It was a Thursday, 1 Oct 2009. The glories of fall shone resplendently, a gentle breeze stirred golden leaves into fanciful eddies and will-o-the-wisps. There are times so good, and moments so perfect that happiness appears to be the natural state of all mankind. It was just such perfect Autumnal radiance that I could imagine tasting the mulled apple cider.
Then I was stupid enough to surf the internet and read economic news….
On Friday, 2 Oct 2009 the Bureau of Labor Statistics stopped acting like a Ministry of Truth and actual told some. Joe Weisenthal offered his take on what proved to be unemployment numbers worthy of either the Weimar Republic or Spain right before Francisco Franco staged a coup.
And they're out and they're way worse than expected with the non-farm economy shedding 263,000 jobs in September. That compares to estimates of 175,000, and it's even worse than Goldman's pessimistic estimate of 250,000. So-called "real unemployment" or U-6, which also includes marginally attached and discouraged workers hit 17%, compared to 16.8% last month. And the work week fell back to a record low of 33 hours, which is inauspicious for future hiring.(HT: Clusterstock.com)
Immediately, the heavyweight economists of the day weighed in. Their initial reaction predictably lamented the lack of government intervention in the current economy. The actions taken to buy up Chrysler and GM, threaten all of their creditors, subsidize their product lines with tax breaks and raise tariff barriers against China have not assuaged in the least the howls of the statist academic mobs.
Paul Krugman tells us to expropriate more from the taxpayers. He tells us it’s the only way to fight rising unemployment. Like all good liberals, he tells us to do it for THE CHILDREN. Ungodly propaganda follows below.
But while not having another depression is a good thing, all indications are that unless the government does much more than is currently planned..., the job market ... will remain terrible for years to come. Indeed, the administration’s own economic projection ... is that the unemployment rate ... will average 9.8 percent in 2010, 8.6 percent in 2011, and 7.7 percent in 2012.
This should not be considered an acceptable outlook. For one thing, it implies an enormous amount of suffering over the next few years. ... John Irons of the Economic Policy Institute ... points out that sustained unemployment on the scale now being predicted would lead to a huge rise in child poverty — and that there’s overwhelming evidence that children who grow up in poverty are alarmingly likely to lead blighted lives.
Starting with the assumption that we can just push some Easy Button and fix all of this, Krugman reduces the argument to simplistic terms. These preempted terms are designed to deliberately obfuscate the fundamental moral issues in play. Government cannot just push a button and make money appear. They have to expropriate the funds from a source, obligate them for a recipient and then expend them in a manner of their choosing.
Robert Reich is even more rabid in his cheerleading for the expansionist state. What I like about Reich is that he says what he believes. He openly calls for putting the US economy on a single-buyer health plan.
Which brings us to the obvious question: Who’s going to buy the stuff we make or the services we provide, and therefore bring jobs back? There’s only one buyer left: The government.
Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.
Yes, I know. Our government is already deep in debt. But let me tell you something: When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt.
Another fatal conceit deluding the statists is the assumption that this single buyer will invest with greater skill than Goldman-Sachs. This is fundamentally wrong and leads us to several fundamental problems with the Krugmanian worldview.
They diagnose unemployment as a disease, not a symptom. They think a second stimulus package will cure the ills of the American economy. Prescribing Bayer Aspirin to a man with a brain tumor will make this man feel better. It won’t fix what’s wrong, and the headache will return if the cancer-sufferer doesn’t fall dead first.
Ambrose Pritchard-Evans could have told us all to expect the slam-dunking we just got handed by the BLS report. On Sept 14 he wrote about the death of the American Money Supply.
The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate. Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.
Banks attempt to flense the effluvium of bad real-estate loans off their balance sheets and rebuild reserves. They become less efficient in circulating that money after customers make deposits. This causes businesses to have increasing cash flow problems.
Employees expect cash payment. Therefore, businesses find themselves having to balance their liquidity requirements by reducing their employment rolls. The employment is thus a symptom – not the causal malady.
A dedicated Keynesian would offer me a sarcastic hand-clap, while thanking me for pointing out the non-essential. The Constant Keynesian will then demand to know why government investment wouldn’t fill these cash accounts nicely and get Tom Dick and Harry rehired at livable remuneration.
This then brings us to a more recent Ambrose Pritchard Evans piece. Here, he describes the economy of Spain, which is far closer to the Reich ideal than the US. He begins with the description of night’s shadow falling on a fallow, barren plain.
The Madrid research group RR de Acuña & Asociados said the collapse of Spain's building industry will cause the economy to contract for the next three years, with a peak to trough loss of over 11pc of GDP. The grim forecast is starkly at odds with claims by premier Jose Luis Zapatero, who still says Spain's recession will be milder than elsewhere in Europe.
RR de Acuña said the overhang of unsold properties on the market, or still being built, has reached 1,623,000 . This dwarfs annual demand of 218,000, and will take six or seven years to clear. The group said Spain's unemployment will peak at around 25pc, comparable to the worst chapter of the Great Depression.
Assuming the best about PM Zapataro would still deplete a logical man’s reserve of faith in the Reichian model for economic recovery. He stares having one-fourth of his able-bodied workforce on the dole squarely in the face, and still claims things are just not that bad. Keep putting bread in his jar, he’s here all week. Pangloss was an optimist; this man could have the IQ of a pick-axe slammed repeatedly against an unforgiving granite shelf. Reading further reassures us that anything that bad can always deviate towards the worse.
The Spanish government can do little to cushion the downturn. "The room for manouvre in fiscal policy has been exhausted," said Mr Ruiz. The rocketing cost of jobless benefits has added 3pc of GDP to the budget deficit. Mr Zapatero has ordered all ministries to cut 8pc of discretionary spending to help plug the gap left by collapsing tax revenues. The axe is likely to fall on research and big projects such as high-speed railways.
So the US economy isn’t circulating money and other countries like Spain, who are far more inclined towards massive state intervention into a market economy, are discovering that the barbell of economic stagnation is too heavy to life off their chests. That still doesn’t explain why nobody is circulating dollars or why the US government doesn’t just intervene and make in happen the way Huey Long used to suggest in sleazy days of state-centered yore.
These last two inquiries closely interlock. An economy where the government makes all big moves is an economy where outcomes are chosen as a result of a corruptible, uninformed political process. Even Statist Cheerleader, Senator Webb from Virginia took one look at the Boxer-Kerry Cap and Trade Fiasco up for debate and pointed out the obvious.
"Senator Webb is committed to finding workable solutions to address global climate change," Smith (His Spokesman) said. "At the same time, he believes that any climate legislation must protect American workers and business against undue hardship. He has some concerns about the legislation being debated in Congress. Among them, he has concerns that the vehicle of cap and trade could invite market manipulation and even create perverse incentives and cheating within the system..”
Take what Senator Webb just pointed out on Cap and Trade and extrapolate it to the stimulus package and the preponderance of Chula Vista Dog Walks contained therein. We then see why nobody in America wants to take a risk and invest money. In a Single-Buyer economy, that Buyer controls who wins and who loses.
If you can’t read President Obama’s mind, you don’t know enough to invest. Only a fool circulates his money under that sort of a regime. Only a bigger fool actively agitates that our system become more like an Aristocracy of Pull instead of less. As we become more enstupidated, we become more statist. As we become more statist, our economy falters.
In the meanwhile, the weather is cooling down nicely, and eager young men lace up cleats, don their helmets and bestride the gridiron. If that doesn’t perk up a man’s animal spirits, I suggest that he’s truly a vegetable. With the bad news of the day behind me, I am pumped that fall is upon us once again!