As good as it gets?

There's a good possibility that economic recovery has already taken place, and we have wonder, as Jack Nicholson proposed -- "What if this is as good as it gets?" A better way of putting it is that maybe the American economy has adjusted downwards -- that it's not so much about recession and recovery as it is a matter of the economy finding its true level based on our economic reality, welfare state and post-housing bubble situation. The housing bubble inflated the economy with phony wealth and now we're adjusting. Employment might have adjusted also to it's real level based on demand for labor after you factor out the phony housing wealth and all the economic activity that created. It might also be a delayed adjustment after the previous hi-tech/internet bubble -- between the phony wealth of technology and the housing bubbles, we might be where we are supposed to be economically. Companies are doing okay profit-wise at this level of unemployment.

However, the money flowing out of government to support the welfare state can't continue at this rate. Plus the Fed has about a trillion dollars worth of subprime loans. What if we can't generate enough new wealth to pay for the welfare state? Then government will have to take more from the 90% who are working, and the 10% unemployed will simply be on the dole. Can 90% support 10%? I'm sure they can -- whether they want to or not is another question, but, the government no longer needs permission to take what it needs from those who have it -- what can we do? At this point, there's nothing we can do if government decides to take more money.

The only reason producers have to expand their businesses and hire more workers is if there's a large increase in demand, but where is this demand going to come from? Will population growth be enough to create the type of demand needed to put the 10% unemployed to work, or just enough to take care of increase -- but what if productivity enhancements are such that not even population growth creates a demand for labor to hire all the new workers coming of age? Could unemployment rise to around 20%? Can 80% support 20%?

We're running out of bubbles, and government has run out of money, so where does the new wealth come from? If this is the adjustment and the new starting place, then it's useless to sit around wondering when the recovery will come as government gets everything back like it was -- this might be as good as it is until we can figure out how to create new wealth. But if "we" could figure it out, "we" would have aleady made it happen. That's the problem, depending on plans to pump up the economy. There's a good chance that there is no plan and the plan being implemented has made it worse by misdirecting and wasting money.

If I was being paid and had the time, I would like to research this to determine how much automation and a steady supply of low wage workers from Mexico play a part, and how much our education system contributes to possible long-term unemployment. We need start-ups if we are to lower unemployment, but the environment right now is not friendly to start-ups. But even if the tech sector creates new companies, they require workers with special knowledge, and I don't know how many of these wokers are being generated in the US -- perhaps in Asian countries, but I don't know about the US.

It goes back to the principles of a free market and spontaneous order -- the obstacles need to be removed and then new ideas and companies will develope and we'll become globally competitive, but we're going in the opposite direction doing everything possible to create a situation of dependence for up to 20% of the population. In order to support the unemployed, taxes will have to go much higher, which will hurt businesses and work against real solutions to the problem of unemployment. It does not good to blame Obama, or Bush, or Clinton before -- we have systemic problems related to statism.

Unless there are drastic changes and statism is squashed, it's very likely this is as good as it gets, but it can get a lot worse. When you get past David Frum's Obama-apologetics (Obama's not a socialist, he's just cleaning up the conservatives' mess) he makes some good points in his latest post -- however, he gets his conclusion wrong to the extent he thinks the private sector can just step in and solve social problems while the State has all the power. First, there has to be a national acceptance that statism has failed and government needs to be strictly limited, then the government has to concede defeat and turn responsibilities over to the private market -- once this is done, we'll see results. Insurance/savings plans in the private sector are the first step toward saving the welfare state from itself -- the rest is a matter of allowing people to keep their money and spend it as they see fit. Charity will take care of the needy. This, of course, is a simplification, but until it's accepted that the private sector can do what the government has failed to accomplish, there's no way solve the problems.

Rationalizations from the left regarding taxes

http://www.taxfoundation.org/publications/show/26384.html

One of the popular criticisms of the Tea Party is that taxes are at historical lows, so, they think, the Tea Party's main complaint is bogus. Well, that is you don't count business taxes, dividends, capital gains -- and you don't count the new healthcare taxes.

American businesses are hampered competively by taxes which are extraordinarily high among industrialized nations. This hurts everyone, and it helps keep unemployment high. Now, the administration wants to increase taxes on those making over $200,000 -- plus increase energy costs through energy legislation. The adminsitration has also admitted the healthcare mandate is a tax.

The left's narrative is being challenged and disputed at every turn, yet they continue with talking points as if the facts don't exist.

Unemployment benefits

What number will be set on the number of unemployeed which justifies extensions? If unemployment goes to 8% will we let benefits expire? What if we have high unemployment for another two years?

Congress has never cut off benefits when unemployment has been over 7.2%, but we could be in an economic situation with high umemployment, greater than 7.2%, for years to come.

If anyone wonders why economic issues are so important, they shouldn't.

The overhead walks in the front door on two feet

I worked in NC for 5 years under a man who was once vice-president of overseas operations for Ford Motor co. -- he had a saying -- "Your overhead walks in the front door on two feet, everything else is marginal". It was sort of a blunt way of getting the point across, but he was a businessman concerned with costs.

Every action the government has taken lately has, or will, increase the cost of doing business. Murray Rothbard disspelled the myth that companies simply pass along costs to the consumers -- it's not that simple -- if they could have been getting more for their services or products they would have already raised prices.

Likely what will happen is overhead will be cut, which basically means people will be fired or layed off. If the energy plans go into effect it will increase the cost of energy leaving less spending money for even those who have jobs, which means that companies will be selling less -- plus, business energy costs will be higher, which all means higher unemployment.

Add to this the likelihood that the Bush tax cuts will not be extended for the rich, and you have a recipe for more small and medium size businesses cutting more jobs. What is it about politicians that they don't see how their actions are killing the economy and oppressing employment? Many Democrats argue that all their spending has kept the economy from getting worse, but when it comes to Bush tax cuts, that argument isn't made -- no, the tax cuts, of course, made the economy worse. All the pressure in government is toward more government spending.

This morning on Morning Joe, Joe Scarborough and company were on the stump talking about the need for more moderates, compromise and bi-partisanhip, but what are the magic compromises which will rejuvenate the economy and prevent a government financial collapse? If Republicans compromise with Democrats, it would still mean more spending, just maybe less, but what are the Democrats willing to give up? The financial and energy bills are on the table -- will moderates join together to get them passed -- this simply means the government intervention and central planning that got us in this mess will be continued. Will the Democats compromise and join the Republicans in cutting spending -- they all say that now is not the time to cut spending. The Democrats laugh at tax cuts as a plan for economic growth -- then point to the Bush tax cuts. It goes in a circle, but govenment keeps growing and spending increases and regulations pile up.

In the midst of all this confusion and change, businesses wait, cut back on employees, increase productivity and hold onto cash.

Nancy Pelosi says unemployment benefits create jobs

So far it appears that the economy has adjusted to the unemployed. There's no increase in demand which requires businesses to expand and hire more workers, so how will the continuance of unemployment checks create jobs? I'm not an economist, but it appears to me that you would have to give people more than the present amount of the unemployment checks in order to increase buying power which would then require more workers. We have approximately 15% out of work and there are enough goods and services -- I don't know of any shortages. Theoretically we could go on like this until no one will loan us any more money or the dollar becomes worthless, but I don't see how continuing the unemployment checks is going to increase demand, just keep it at the present level or reduce it as people become more afraid to spend what they have.

How can you decrease a nation's buying power, unemployment benefits being lower than the lost wages, and at the same time increase the demand for workers?

I suppose if you extend the unemployment checks long enough, eventually you will have more demand than supply in some areas since the unemployed are consuming but not producing -- and if the unemployed adjust their budgets to the unemployment amount and feel comfortable it will continue indefinitely, they might start spending more. But, with these reduced incomes the unemployed will not be buying high dollar items, so, many workers in industries making high dollar items will become unemployed or take lower paying jobs in agriculture, or some other industry that produces basic goods. But why work in lower paying industries, if you can draw unemployment indefinitely -- oh hell, now I know why I'm not an economist -- it hurts my head.

Update on Friday, July 2, 2010 at 07:42PM by M. Farmer

http://article.nationalreview.com/437555/business-power-neglect/larry-kudlow

Larry Kudlow has a good article on this subject. Every American needs to understand this and ignore the mendacious spin campaign coming from the White House. It ought to be an impeachable offense for the President to mislead the public like Obama is misleading the public regarding the economy. 

Update on Friday, July 2, 2010 at 08:12PM by M. Farmer

Another good article by Daniel Mitchell at Cato.

More proof that Pelosi is economically ignorant and dangerous.