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The Economic Recovery That Isn't

jobless recovery
By Peter Schiff on Howestreet


For those market boosters who are prattling on about the possibility of a “jobless recovery,” I offer an invitation to join me for a breakfast of “fat-free bacon,” “eggless omelets,” and “no-carb bread.” As unappetizing as such a meal may sound, it would nevertheless offer more substance than the oxymoronic concept of an economic resurgence without job creation.

Those who do cling to the absurd belief that, absent exponential productivity gains, the economy can expand while workers are being laid off will undergo a massive test of their convictions now that it’s clear the employment picture is bleak. Friday’s weaker-than-expected report on non-farm payrolls revealed that employers shed 263,000 jobs in September. The losses propelled the headline unemployment rate to a 26-year high of 9.8%. U6, the Bureau of Labor Statistics’ most complete measure of unemployment, has risen to a dismal 17%.

This figure includes those people who want to work full time, but have simply given up looking, or who have accepted part-time work in the interim. As it is similar to the methodology used during the Great Depression, U6 offers better historical perspective on the severity of our current crisis.

Taken together with Thursday’s larger-than-expected pickup in unemployment claims (first time claims rose by 17,000 to 551,000), Friday’s report makes it certain that the job market is still contracting, even while some indicators like GDP and consumer confidence are moving in the opposite direction.

There is no question that the sense of panic has temporarily subsided. In recent interviews, Treasury Secretary Geithner has been almost giddy in his descriptions of the recovery – all the while crediting his own policies for averting disaster. Americans are once again taking the government’s bait by spending money they don’t have to buy things they can’t afford. Evidence of this trend was contained in data released earlier this week which showed that even while income growth was largely stagnant, U.S. consumers showed the biggest month-over-month increase in personal spending in ten years! With the same report showing a 25% drop in the savings rate, the source of the spending money is clear. But depleting savings and increasing borrowing does not a recovery make.

To really recuperate, the government must allow market forces to restructure our economy. The government and individuals must rein in their spending; we must replenish our stock of savings, allow interest rates to rise, asset prices to adjust to economic reality, insolvent businesses to fail, and wages to reflect productivity. To accomplish these goals, subsidies that distort market forces must be removed and regulations that undermine our competitiveness must be repealed.

None of this can be accomplished without a degree of short-term economic pain. However, if we endure it, the payback will be a real recovery with plenty of new jobs that don’t rely on government stimulus money. If we refuse to allow the economy to experience a real recession, we will never have the benefit of a real recovery. Instead, we get the “jobless recovery,” a veneer of apparently positive indicators that merely obscures the underlying rot.

Over the last few decades, our industrial job market has atrophied while service- and public-sector jobs have grown unsustainably. We must restore balance. New jobs will have to come from areas that produce goods; bloated service and government sectors must be allowed to shrink. By propping up the sectors that need to contract, and running staggering budget deficits, the government cuts off the capital necessary to fund sectors that need to expand.

In truth, many of the service-sector jobs that exist today, such as real estate sales, mortgage finance, home improvement, and auto sales, were created in an environment of ever-increasing home equity, rising stock prices, and almost unlimited access to cheap consumer credit. With home equity gone, stock markets flat, and credit depleted, Americans find themselves needing to save rather than spend. But Washington has put through policies that have counteracted our good instincts.

While we were focusing our economy on consumer spending, much of the rest of the world was saving for the future. As such, we must begin to produce more for export, so that we can sell goods to those who have the savings to pay for them. That is the only way we can repay our debts, replenish our savings, repair our infrastructure, and rebuild our industrial base.

Another prerequisite to any real economic expansion is the potential for business owners to earn profits. With increased regulation and higher taxes on the way, these incentives are being diminished. In fact, via a phenomenon called ‘regime uncertainty,’ our current policy path is actually encouraging businesses to contract in order to prepare for a more hostile business environment.

You can view this entire article By Peter Schiff on Howestreet

One Comment

  1. David Jeremiah David Jeremiah June 16, 2010

    America cannot support a Worth-while Economic Model. The Country is trying to spend its way out of debts, hoping its Fiat currency will be bought, its Fiat Lifestyle will be adopted, its crooked schemes will be sold and its stocks will be bought by a new sucker born everyday or unleash the Military on a “profitable” war.

    Yes, America succeeded with its Nincompoop Economics in the last 30 years. The World bought it. But the chickens have returned home to roost and Americans are being roasted by their own Fiat System alive. What type of system is it if – Father and Mother has to hold two jobs each to support two children? What type of System is it if – 5% of the People of the World, hold 50% of the Wealth of the World and create 30% of the Pollution in the World while the unemployed is 20%? That is what American Capitalism is Modeling.

    Would you buy such a System? Yet, Americans don’t get it. Congressmen can’t understand it and the President is acting like a stooge of some Shady Super Rich Elite Oligopoly which has mastered the art of corrupting world leaders or terminating them!!! America, wake up.

    To save America, Americans must emulate some of the productive basic aspects of China like working hard, working cheap, selling tangible needed products and saving before investing and spending on a pie in the sky ! What happened to true American Entrepreneurship of the 1920s and the 1960s? Life is about learning from each other not trying to dominate and control the world.

    Oh Yes,Corporates are bigger than nations, aren’t they? Then it is about time people learnt about the Tower of Babel and the Roman Empire and that Bigger is not always better and that there is no such thing as “too big to Fail.”

    The first step to halt an addiction is to admit it. If America is addicted to Money instead of principles and values, then America is inviting the world to distrust them. When trust is lost, people don’t have to wait for nuclear war to kiss their ass good-bye!

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