Full Employment is Easy

First up, the market noise…

Stocks worldwide were up big time yesterday, mostly buoyed by news that the politicos in Europe had “renewed their commitment to talk about trying to eventually come to an agreement” about how to fix a problem they themselves caused and did not see coming. Or something like that. Bravo.

We’ll stick to our storyline on this one: “Bankrupt entities tend to go bankrupt,” as Eric Fry pointed out while in Europe last week. “Greece will default…eventually.” And with it, we would add, will follow a few other chain-linked lemmings. Maybe that list will “only” include an assortment of other PIIGS’ rinds. Maybe it will include the euro itself. Time will tell.

Back in the US, there was also “less bad” news on the jobs front to pluck investors’ strings. The economy added 103,000 jobs for the month of September…barely enough to keep up with population growth.

“That is not a lot of jobs,” noted Bill Bonner in these pages yesterday. “There are about 150 million people who make up the labor force. This number increases — by immigration and population growth — by about 1.2 million per year. So, 100,000 new jobs doesn’t do much to restore full employment.”

Let’s see, there are roughly 14 million unemployed souls in the United States…depending on where you get your figures. If, as some economists reckon, it takes 100,000 jobs per month just to keep up with population growth (others say it’s more like 150,000), that leaves 3,000 “surplus” jobs created in September. At this rate, the US will be back to full employment in…wait for it…388 years! It’s all part of Obama’s Jobs Act…for the year 2399.

But wait. That’s assuming those 3,000 jobs are even worth creating anyway. In his classic work, Economics in One Lesson, Henry Hazlitt correctly calls out society’s obsession with jobs as the “fetish of full employment.”

Allow us to take a step back for a second here. Why are we so concerned with incurring the cost of labor anyway? Hasn’t our entire evolution as a species depended on our gaining more production with the same labor input, or the same production with less labor? There’s even a fancy word for this equation: efficiency. But if full employment, in and of itself, is the holy grail of a healthy economy, why not just ban factory machines? Bang. Problem solved. Think of all the people it would take to assemble an inhabitable lodging and to farm for our daily crust.

“Primitive tribes are naked, and wretchedly fed and housed, but they do not suffer from unemployment,” observed Hazlitt. See? It’s simple.

Following the politicos’ warped logic, a breakthrough medical technology that instantly cured every illness on the planet would be a terrible thing. Just imagine all those newly unemployed folk, formerly laboring in the healthcare industry!

“Nothing is easier to achieve than full employment,” continued Hazlitt, “once it is divorced from the goal of full production and taken as an end in itself. Hitler provided full employment with a huge armament program. The war provided full employment for every nation involved. The slave labor in Germany had full employment. Prisons and chain gangs have full employment. Coercion can always provide full employment.”

In point of fact, we should be cheering increases in productivity, not in the cost input of labor. Still, in a world where less bad news (based on tortured statistics and skewed realities) is celebrated as outright triumph, spinning one’s wheels in the mud of ignorance is as good as a victory lap. Ergo, investors took Friday’s job figures and the eurocure lip service at face value, donned their rally caps and bid up the Dow some 250 points (or nearabouts).

If one were to gauge the broader market’s health on yesterday’s activity alone, they would conclude that all is well on the continent and that the US is, as the saying goes, “kicking ass and taking names.” The opposite is true, of course, except that the US really IS taking names…but not for the purpose you might think. (Wait…is that a knock at the door?)

Why, we are left to wonder, do people rally behind such asinine ideas? Why are we so very prone to temporary delusions and groupthink nonsense? Perhaps there is no good answer. Maybe some things in life are simply beyond our knowing. Why, for example, do people pay $10 for a bookmark when a $1 bill holds a page just as well? Why do the people at the Chinese takeout store down the street bind their Chao Fan con Carne Tuesday Special meal in so much bloody wrapping? It’s a two-block delivery route! (But still the meal is irresistible. Damn you, flavor enhancer 621!) More germane to the theme of these pages, why do people routinely believe that productivity and solvency can be commanded by wave of a politician’s magic wand?

Ahh…for these mobthink peccadilloes we should be grateful. They create opportunities for anyone actually paying attention.

Joel Bowman
for The Daily Reckoning

The Daily Reckoning