Doom News

From The Daily Capitalist

A private jobs survey came out Wednesday morning from ADP which said the private economy lost another 23,000 in March. This was the smallest loss of jobs since February, 2008. Jobs in construction (-43,000) and goods manufacturing (-51,000) were hard hit. Gains came from the service sector (+28,000). ADP's survey has a base of 22 million workers.

This contrasts with the Wall Street Journal's survey of economists forecast of a 50,000 job gain. Bloomberg's survey expects 184,000 jobs, including government jobs, with a big boost coming from temporary Census hiring. The Bureau of Labor Statistics report comes out Friday. Stay tuned.

This made me think about jobs--what they are and how they can be increased.

I read an excellent op-ed piece on Real Clear Markets about the failure of the American Recovery and Reinvestment Act, the $787 billion orgy of Keynesian stimulus. It was written by econ professors, George Bittlingmayer (Kansas), Arthur Havenner (UC Davis), and Thomas Hazlett (GMU--econ and law). Their point is that the bill did nothing to stimulate employment, as advertised, and the new "Jobs Bill" is an admission of their failure.

Counter to the predictions put forward a year ago by the Administration, when it claimed that "more than 90 percent of the jobs created are likely to be in the private sector," U.S. companies employed 3.9 million fewer workers in January 2010 than they did one year earlier. Public employment bucked the trend, staying constant even as governments contended with sharply reduced tax revenues. While the jobs held by those 22 million public workers helped support many families, the "stimulus" failed to trigger private sector employment growth. ...

 

This implies a price tag, at the median estimate, of about $800,000 per job. These forecast job gains are not permanent, but temporary. The Administration's January 2009 forecast was that the A.R.R.A. was needed to reduce the path of unemployment for five years, when the unemployment rate - if we did nothing - would decline to the level projected with the "stimulus." Using this five-year time horizon projects annual costs of approximately $160,000 per job.

Nice work if you can get it.

One would think that the advocates of Keynesian stimulus would admit failure, but like most fundamentalists, they are more interested in doctrine than results. We now see that they are panicking because their policies aren't working. Paul Krugman recently recommended that we erect a tariff wall against Chinese goods in order to force them to devalue to yuan and make U.S. exports more competitive in the world market. In effect, he is asking us to declare the economic equivalent of WW III. The devastation to the world's economies would be catastrophic. Wow. But that's another economic fallacy.

The bills to stimulate the economy are all based on a fundamental economic error and we, our children, and generations of grandchildren will have to pay for it.

Keynesians have a talent for giving a name to things that are often the opposite of what they mean. "Job" is a good example. To Keynes and his followers a job was something that you paid someone else to do. Simplistic and correct, until you think about it. It's more complicated than that. Keynesian stimulus actually suppresses economic activity and thus employment.

Let's say I open a coffee bar. At first I am the only barrista but my lattes are fabulous and word spreads. I figure if I hire another barrista, I can increase sales by 80%! I've been saving money from my profits as a cushion against potential losses so I have the money to pay the new guy until the profits kick in. And, lo, it happens. I pay her $12.50 an hour and still I can add another 25% to the bottom line after costs. She uses her wages to buy a new car because now she can afford the payments. Let's forget about  payroll deductions, taxes, and all that for now to keep things simple.

That is a job. I made a profit. People wanted my product and willingly parted with their money to get it. As long as things go along nicely and I keep on top of the business, the business and her job will continue.

Here's what Keynesians think is a job.

Let's say there is a recession, as in today. It seems that people are reluctant to pay $3.75 for my wonderful lattes and business drops off, sharply. In order to stay in business I fire the new barrista and go back to being a one person shop. I have contributed to unemployment because you coffee drinkers have cut back your morning lattes.

I hear about a new jobs bill. The bill says the government will pay me $7,000 to hire a new worker. If I pay my barrista $26,000, my actual cost will be only $19,000. I take the plunge. What the heck, I'm doing good for society by hiring someone. It turns out my sales are just enough to cover my costs for this person since people really aren't buying more.

That's good right? No.

First of all, the barrista is not productive. Only because the taxpayers are giving me more money does it work for me. But that doesn't make her effort economically productive. It's a losing proposition and really, just a waste of capital. Not my capital, but someone else's. It's the same to me if I just worked alone.

Which brings up my second point. Where did the money come from? This isn't supposed to be an obvious question, but we all know the money comes from taxpayers. Governments never make money, as I was doing before the recession hit. They just spend money. Your money.

No one asks you what you were going to do with your tax money I wasted on the barrista. Perhaps you were saving up to buy some equipment you saw for a sweet deal which would make you more productive. We'll never know, but the unseen consequence of this is that your capital was wasted and the potential real economic growth from your dream of expanding will never be realized. Nor will any new jobs which you would have created.

No net economic gain.

But what about the barrista? She was unemployed before isn't it good that she has a job? Won't this stimulate consumer spending because now she has more money to spend? No.

She was on unemployment, sharing an apartment with her sister, and just getting by. The car was repossessed. The unemployment funds came from state unemployment insurance. Then she got federal assistance when that ran out. Again, tax money supported her, so with a job she might be better off with the job, but she's spending someone else's money, a form of welfare.

But now she has moved out of her sister's place and has a new apartment on her own. She can't buy a new car because her credit is bad. She's spending money right? That has to be good? But is there any net gain in economic activity? No. Since she's not productive, she's just living off of stimulus money which was someone else's money, a form of welfare. Welfare is what is called a "transfer payment" from the government (giving someone tax dollars).

No net economic gain.

And, it turns out that after 6 months the stimulus money ran out and I had to let her go again.

That's what Professor Krugman believes is a job. It's what is called faith-based economics.