Beware the Government's Handiwork

Dave Rosenberg says the unemployment rate is headed to 12-13%. And then, it’s going to stick at more than 10% for a long time.

“Think about it. We haven’t yet hit bottom on employment but that will happen at some point. Employment is not going to zero, of that we can assure you. But when we do start to see the economic clouds part in a more decisive fashion, what are employers likely to do first? Well, naturally they will begin to boost the workweek and just getting back to pre-recession levels would be the same as hiring more than two million people. Then there are the record number of people who got furloughed into part-time work and again, they total over nine million, and these folks are not counted as unemployed even if they are working considerably fewer days than they were before the credit crunch began.

“So the business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed or the typical 100,000-125,000 new entrants into the labour force when the economy turns the corner. Hence the unemployment rate is going to very likely be making new highs long after the recession is over – perhaps even years.”

Like we keep saying…get ready for a long, Japan-like slump.

But here’s a headline that offers hope for a brighter future:

“Unions prod Obama to fix ailing airline industry”

On the surface of it, the idea is absurd. What does Obama know about airplanes? Who would want to fly in an airplane with Obama in the pilot seat? But the headline reveals today’s most popular delusion – that the government can fix everything.

In fact, there is no evidence that government can fix anything other than the problems it has caused itself. And then only in rare, accidental moments of lucidity.

But that doesn’t stop people from hallucinating. They think Obama can fix the auto industry, by paying people to buy a new car. And they think he can fix the housing industry too – by extending the new buyer tax credit.

It doesn’t occur to them that the problems in the housing industry are almost exclusively the fault of the federal government in the first place. The feds subsidized mortgages, encouraged mortgage lending to people who should have been renting, and lowered interest rates. These fixes created a bubble in the housing sector. No bubble expands forever. Eventually, they all blow up…which is what happened.

But let’s go back to flying machines. The gist of the AP article is that unions want more regulation. The deregulation that began in the Carter Administration produced lower fares, they admit. But it also increased capacity. And now that the economy is in a slump, the extra capacity is a heavy burden to the entire industry.

“Airlines are offering the fewest seats to passengers, measured by available seats and distance traveled, in more than a decade. They have shed more than 158,000 full-time jobs since employment peaked in 2001 and lost an estimated $33 billion over the past decade. Thirteen airlines have filed for bankruptcy in the past two years.”

Airlines are cutting back and laying off workers. Someone – O! Bama! – should put a stop to it!

Seems to us that the fly-boys are doing what they ought to do. Any interference by the feds will, once again, only make things worse.

The Daily Reckoning