Why can’t everyone who wants a job, or a better job, just find one? In a perfect world, this would be the case. Sadly, the recently released employment figures for June indicate that the world in which we live is still far from perfect.
Nationally, unemployment still lingers in the low nines, with job growth clocking in at a meager 18,000 — a figure that will surely be revised downward. What’s more, we are told that we had better get used to much higher unemployment levels because they reflect a “new normal“ natural rate of unemployment.1 Such is the job market following QE2 and an even more ambitious QE1, to say nothing of the various other unprecedented extramarket interventions, both fiscal and monetary, that were supposed to bring the economy to something that looked like sustainable growth by now.
This is discouraging, especially to the market interventionists themselves, many of whom were confident in rosier economic data some 12 quarters since the Troubled Assets Relief Program was forced, good and hard, on the American people, all to socialize the losses of politically well-connected firms and industries. New York Times’ economics writer (Catherine Rampell) tweeted, “HORRIBLE jobs report today. Job growth essentially stopped entirely in both May and June.” Meanwhile, Berkeley’s Laura Tyson invoked the definition of insanity when she wrote (on the Financial Times’ A-List), “Only further stimulus can tackle America’s jobless, wage-less recovery.” Slate’s John Dickerson’s take was metaphorical: “Today’s jobs report was delivered to the White House in a brown paper bag and on fire.”
Ironically, around the same time the jobs data were released, the MSM’s best and brightest also bemoaned the end of NASA’s space-shuttle program, which University of Colorado at Boulder scientist Roger Pielke Jr. estimates to cost more than $200 billion over its lifespan. Pielke noted that this translates to a cost of $1.5 billion per mission — 100 times greater than the $15-million-per-mission price tag promised by planners when the program was being sold to Congress in the 1970s.2 We can be assured that the projected costs justifying BushCare, ObamaCare, and undeclared wars in Iraq and Afghanistan were equally duplicitous.
What the best and brightest miss is the connection between jobs and such government boondoggles. On a basic level, a job is the result of the mixing of capital and labor, and while the labor force grows with population, capital has been forcibly funneled to places such as Iraq, Afghanistan, Wall Street, and Detroit. As former BusinessWeek chief economist Michael Mandel has pointed out repeatedly in recent years, the expansion of the public sector since 9/11 to promote the mushrooming welfare and warfare states has left very little capital for small business, where 70 percent of job creation occurs. The result: the US economy has had virtually zero private-sector job growth since 4Q 2001, well before the Great Recession. The situation is hardly improved today.
Reasons for Optimism (Sort of)
Who’s to say that circumstances will improve? One argument for optimism is that the US economy has faced end-of-the-world scenarios in the past — think of the late 1970s — only to move on and flourish again. Another argument can be gleaned from the job figures themselves.
Job recoveries are lagging indicators in the business cycle. While this recovery has lagged longer than it otherwise would have, much of which is due to uncertainty manufactured at the federal level, we may look back at the employment reports for the summer of 2011 as representing their nadir. Breaking them down, we find significant job losses in the government sector on the federal, state, and local level, while private-sector job growth was low but positive. One hopes this marks a trend in job-market characteristics that favors the private sector where wealth is created in the first place. It would renew a trend last seen in the 1990s.
The question is, will it last? It depends on whether the money financing a private-sector expansion results from real saving (resulting in sustainable growth) or money creation (resulting in unsustainable growth). Notwithstanding real government-manufactured phenomena such as eurozone- or real-estate-related disruptions, either form of financing can result in a decent looking recovery by the first half of 2012, with job creation at least near the 150,000 jobs per month necessary to keep pace with population growth.
Consider the above graph depicting commercial and industrial loans over time. The marked upswing in consumer debt starting around the beginning of this year suggests that a portion of the trillions of dollars created by the Fed over the last two years, much of which is held by depository institutions in interest-bearing accounts at the Fed, has been leaking into the real economy. Such data suggest that the Fed may finally be successful in creating positive economic growth through money creation.
Rational-expectations theorists may wonder about the degree to which the current recession has lasted longer due to the acceptance of some elements of Austrian macroeconomics by rational agents who now recognize that growth based on money creation is not sustainable, therefore causing them to react differently to money creation today than they have in the past. If so, then they expect that when the economy does recover, firms will eventually realize sluggish demand for their output because consumers have not been saving in order to purchase it. This, in a nutshell, is how monetary policy creates and exacerbates the business cycle (expansion-recession, expansion-recession, forever and ever), pushing inevitable market corrections into the future, making them worse, and requiring new rounds of interventions.
But this will come sometime after the 2012 election cycle, which is the likely goal of economic policy in the first place.
An Addendum
It is instructive to recall what made America an economic engine in the first place. The Industrial Revolution did not cross the Atlantic in the 19th century because of superior central-banking policies, well-timed “internal improvements” by Whig politicians, progressive taxation, or government stimulus aimed at politically important industries. In fact, we saw quite the opposite: a constitutionally restrained central government, a money supply set to a strict commodity standard, and the development of property-rights institutions that both encouraged capital formation and attracted capital from all over the world.
The resulting capital stock meant there were jobs at some wage available to anyone who wanted to work. Indeed, unemployment as a social problem is a 20th-century invention resulting from Progressive Era policies that increased the cost of capital and labor.
Perhaps the Progressive Era never ended, but since the beginning of the Progressives’ Great War in 1914, the capital stock of the United States has benefited from being less threatened by government relative to the capital stocks in other countries. While the United States (for instance) eventually adopted progressive taxation (bad) and rejected the taxation of wealth (good), many European countries embraced both. As a result, productive people and capital still flowed into the United States through most of the 20th century.
“Unemployment as a social problem is a 20th-century invention resulting from Progressive Era policies.”“What is called the American way of life,” wrote the classical-liberal economist Ludwig von Mises in 1958, “is the result of the fact that the United States has put fewer obstacles in the way of saving and capital accumulation than in other nations.”3
One wonders if the massive growth of government that started following 9/11 and the desire to maintain it today have affected the capital stock such that European-style unemployment rates will become the “new normal” in the United States. Such is the tradeoff if wealth transfers to the welfare and warfare states are to be maintained at their current levels, causing capital to be siphoned away from productive, wealth-creating uses.
American workers — at least those who create wealth — deserve better.
- 1Ed Savela, the president of SSC Group (a Birmingham-based consulting company) recently told the Birmingham News, “I believe we will never see the unemployment rate in the 4 percent range that used to be considered normal. There will be a ‘new normal’ out there; maybe 7 to 8 percent or even higher.” See Williams, Roy, “Alabama’s Pre-Recession 4% Jobless Levels May Lock In at about 8% by 2015.” The Birmingham News, July 31, 2011.
- 2See Pielke, R.A., Space Policy, Vol. 10, pp. 78-80 (1994). I would add that the scientific benefit of the shuttle program in particular, as well as NASA in general, is practically nonexistent, as astrophysicist Neil DeGrasse Tyson recently argued. Unless one considers the militarization of space a net benefit to mankind (as opposed to its commercialization), NASA is simply one small area of federal spending that has diverted resources from more highly valued private uses to wasteful efforts that reward special interests while socializing their costs. The $160 billion space station, which is scheduled to be dismantled in 2016, represents another diversion of capital that otherwise could have been mixed with labor to promote real wealth and job creation.
- 3Mises, Ludwig von, “Wages, Unemployment, and Inflation.” Christian Economics, Vol. 10, no. 5, (March 4, 1958).
