The Continuing Delusion of Economic Recovery

“The people will be crushed under the burden of taxes,
loan after loan will be floated; after having drained the
present, the State will devour the future.”

– Frédéric Bastiat, French libertarian economist, 1850

Stocks managed to eek out a bit of a rally yesterday. The Dow was up nearly 100 points by the session’s close. (Approximately equal to the amount it gave back within the first sixty seconds of trading today.) Gold, meanwhile, is up $8 over the past 24 hours. An ounce this morning goes for just over $1,540. And bitcoins…they’re back to $14.50 a piece. Hmmm…

Thursday’s investors were apparently nonplussed by the previous day’s job news. Two separate reports revealed what Fellow Reckoners have long suspected; that the job market is in the toilet. According to the reports, another 418,000 out-of-workers lined up to file jobless claims last week. That makes 13 straight weeks that claims have remained above 400,000. Not good, in other words. Of course, statistics are born to be spun. Look hard enough, and you can read in them whatever you so wish. For instance, the total number of weekly jobless claims actually dropped 11,000 from the previous week, more than analysts had expected…although, as one report put it, “distortions associated with the holiday weekend and a government shutdown in one state [Minnesota] made it difficult to get a clear view of the labor market.”

Let’s see…a cruisey long weekend and a shuttered state government. What do you make of that, Fellow Reckoner? The kind of stuff “recovery” is made of?

Meanwhile, the private sector continued to chug along, adding 157,000 jobs from May to June…though the vast majority of jobs (130,000) were created in the “service,” or tertiary, sector, leaving just 27,000 for the primary and secondary sectors, the economy’s “engine rooms,” to share between them. Still, that sounds pretty good…except for the fact that an economy the size of America’s needs to add between 125,000-150,000 jobs monthly just to keep pace with population growth. Oops.

Still, these kinds of squishy, vague, “less terrible” readings seem to be stoking confidence in the recovery crowd. Or at least helping to maintain their collective state of denial. Of course, we all know the recovery is a farce. All in, Uncle Sam doles out unemployment checks to some 7.5 million people each week. Forty-four million – give or take – collect food stamps. How many plates can one state fill?

In cities like Tucson, Fresno and Austin, more than one in five jobs belongs to a government employee. In Sacramento, Bakersfield, Ca. and Madison, Wi., one in four jobs is a government job. That’s a lot of dead weight on the payroll. A lot of meddlers, interveners and nosey buggers writing and enforcing laws designed to protect us from the unthinkable horror of having to make our own choices. And to what end?

It goes without saying that not all jobs are created equal. A profitable business owner, for example, might be worth a thousand head-counting census workers. (Maybe more…but certainly not less). A half-decent hairdresser might be worth a hundred busybody town mayors…and an enterprising Honduran tree-trimmer must be worth at least a few dozen senators. Alas, the “public” job sector need not squint under the unforgiving light of market reality.

At least not immediately…

That’s because state funded occupations are “para market;” external to the self-correcting forces of the free market. You don’t get to choose, for instance, whether you want to give the special assistant to the president for economic policy a $59,000, 82% raise (as was last year awarded to Matthew Vogel), or whether you believe the Administration’s current director of African American media is deserved of his $36,000, 86% pay hike (as was awarded to Kevin Lewis). You don’t get to choose. You just get to pay. And if you opt not to pay, well, you go to jail. That, they say, is the law. But what kind of law is this? Is this not precisely what Frédéric Bastiat so astutely identified as “legal plunder”? Wrote the French libertarian philosopher in his 1850 classic, The Law:

“See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.”

The obvious – and fallacious – rebuttal here is that Wall Street fat cats earn tens, hundreds, maybe even thousands of times the salary of government employees. And that’s true. But you don’t have to pay it. If you don’t agree with excessive executive compensation, don’t buy that company’s products. Don’t invest in its stock. Simple. Of course, that won’t stop the government gifting your tax dollars to its Wall Street buddies…but you can hardly blame the grafters on The Street for taking what’s offered. Call it corporatism. Call it crony capitalism. Call it whatever you like. Just don’t call it the free market.

But just because the state can avoid consequences in the short term, that doesn’t mean it can avoid them indefinitely. “Imperial suicide,” as Bill calls it, is nothing new. In 1917, the year of Russia’s October Revolution, Vladimir Ilyich Lenin offered a few predictions for the century ahead:

“Germany will militarize herself out of existence,
England will expand herself out of existence,
and America will spend herself out of existence.”

Had he known the inherent shortcomings of his own political ideology, Bolshevism’s bad boy might also have added, “And Russia…she will plan herself out of existence.”

As for the United States, it seems she is not content with simply spending more than she produces, foisting the unfunded obligations onto future generations; instead, she militarizes, expands, spends AND plans toward her own demise…as all once great empires eventually do.

Joel Bowman
for The Daily Reckoning