Unpopular Cures for Unemployment and Economic Depression

So far, so good.

Things keep happening, more or less as they should.

That is, the US and European economies keep falling apart. And the fixers keep failing to put them back together again.

Just as we expected.

Trying to fix a depression it is not only expensive…. The US government spends $1.60 for every $1 it receives in taxes. This is a recipe for a disaster, not for a recovery.

Worse. It actually prevents a real recovery from happening, by blocking the market’s natural self-healing system

Let us ask you this, dear reader: what’s the cure for a depression?

Answer: a depression!

A depression reduces asset prices, consumer prices, and interest rates. This makes it possible for investors and business people to redirect their efforts on projects that will work. A car wash, for example, may not be a good investment at $100,000. But at $50,000 it might produce good cash-flow.

An investment may not make sense if you have to borrow money at 6% interest. But at 3%…the numbers work.

In an ideal world the price of labor falls too. You may not be willing or able to hire extra workers at $10 an hour. But how about at $5?

Trouble is, the feds interfere with these self-healing trends. Minimum wage laws prevent employers from taking advantage of low-quality labor at low prices. Unemployment compensation keeps workers from discounting their own labor. Zero interest rates and bailouts keep the zombies on their feet. Even in the best of circumstances — that is, in a free market — labor rates tend to be “sticky.” They don’t adjust quickly. With the feds applying so much glue, it’s amazing if they can move at all.

But eventually, a depression works its magic. Prices fall. Investors are wiped out. Businesses go bust. The ‘destruction’ of the capital stock frees up both money and labor for new applications. The ‘creative’ part can begin.

Not this time. The feds have created a darkness without a dawn. The glass is 100% empty. There are plenty of clouds. But no silver linings.

There are now more than 6 Americans competing for every job. A normal recovery would see the US economy adding about 500,000 new jobs a month. Instead, last month it added 120,000 and economists hailed it as a major victory. Of course, it needs to create 150,000 jobs just to stay even with population growth. As it is there are 7 million fewer jobs today than there were in 2007…and the number of unemployed people is growing.

In 2007, just 10% of the unemployed had been jobless for 6 months or more. Today, the total is 40%. And with so little growth in the job market, many of these unemployed people will never work again.

What’s the problem?

Truth is, no one really knows. The simple explanation is that there’s a Great Correction going on. But even before the Great Correction, decent jobs were disappearing. The recession of 2001 was followed by the first “jobless recovery.” But every recession since the 1970s has been succeeded by a weaker and weaker recovery.

The feds don’t really have any idea why this is. Every politician and policy wonk suggests the usual remedies — more education, retraining and infrastructure investment. But there is no evidence that any of these things would really make the job picture much better.

As we explained earlier this year, the education industry has been a money pit. Huge amounts of money have been “invested” both by parents and the feds. It doesn’t seem to have helped the economy very much. True, a college grad is more likely to have a job…but only because he’s taking it away from someone without one.

The unemployment problem is a “tough nut to crack,” says The Financial Times.

Of course, we could fix the jobless problem overnight. But people wouldn’t appreciate it. We would simply remove all subsidies for unemployed people…and all restraints on hiring. Labor prices would fall fast. Within days, we’d have full employment again.

Bill Bonner
for The Daily Reckoning