Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Does Anyone in Washington Know What Needs to Be Done to Create Jobs?

Economics / Employment Feb 04, 2010 - 01:11 AM GMT

By: Paul_L_Kasriel


Best Financial Markets Analysis ArticleThis is a question that I often get as I speak to groups around the country. Based on the ADP monthly survey of employment, small- and medium-sized firms (less than 500 employees each) are the fount (or black hole, as of recent months) of jobs in the U.S. economy (see Chart 1).So, rather than asking Washington career politicians what it takes to create more jobs, why don't we poll small businessmen and businesswomen?

Chart 1

In a sense, this is what the National Federation of Independent Business (NFIB) does every month. It surveys independent businesses each month about, among many things, what is the single most important problem they face. Presumably, if this problem were solved, these independent businesses would thrive and would be increasing their staffs. So, according to the "troops on the ground," what is the number one impediment to better business conditions and increased jobs in the economy? Too high taxes? Increased regulation? Too little credit? All of these problems have increased in recent months. But, by an order of magnitude, independent businesses report that their biggest problem today is poor sales (see Chart 2)! Can you imagine that? After a collapse in aggregate demand emanating from the longest and deepest recession in the post-war era, independent businesses need more demand for their products and services in order for them to step up their hiring. Why did not those career politicians in Washington think of this?

Chart 2

Some economists, of all people, actually did understand this problem years ago. Both J.M. Keynes, the founder of the school of economics named after him, and F.A. Hayek, an icon of the ultra-free-market Austrian school, both said that when the financial market is unable to create credit because of capital constraints and when private aggregate demand collapses, there is a role for increased government spending and central bank financing of that spending. Neither Keynes nor Hayek recommended such policies in "normal" times. In fact, Hayek argued that excessive central bank credit creation in normal times would ultimately lead to a depression.

But if, what he called a "secondary depression" was imminent or upon us, it should be avoided or mitigated by an increase in government spending and central bank credit creation to help finance the government spending. (For a discussion of Hayek's views on secondary depressions, see my July 30, 2009 Econtrarian "I Come Neither to Praise Nor Bury Bernanke." Neither Hayek nor Keynes believed that any good could be served by the deflation and unemployment that would accompany a secondary depression. In the early 1930s, it could reasonably be argued that the U.S. experienced a secondary depression. I believe that the U.S. was on the brink of secondary depression in late 2008.

So, maybe a combined program of increased government spending and abnormally-large increases in the Fed's balance sheet is just what these doctors of economics might have prescribed. For you see, aggregate demand is unambiguously increased when the federal government spends (or transfers spending power to other entities) and that federal spending is financed by credit created by the Fed. Increased aggregate demand for goods and services will trickle down to increased sales for small, medium and large businesses.

But some career politicians in Washington are arguing that the 2009 fiscal stimulus package, (The American Recovery and Reinvestment Act or ARRA) has been a failure. Others argue that the fiscal stimulus was too small, and another one is needed. Before we declare the fiscal stimulus a failure or enact yet another one, why don't we hold judgment until the ARRA has been fully implemented. You see, according to ProPublica, as of January 25, only approximately 30% of the $580 billion allocated spending in the 2009 fiscal stimulus program has actually been disbursed to date.

This is reflected in the latest GDP data. As shown in Chart 3, nominal federal government nondefense infrastructure spending contracted by 5.3% on a year-over-year basis in Q4:2009. Although nominal state & local government infrastructure spending was up 2.7%, this looks to be more of a business-as-usual-spending increase than anything out of the ordinary. Of course, had it not been for "Build America Bonds," an element of the fiscal stimulus program whereby state & local government issuers of taxable bonds to fund infrastructure projects receive an interest-cost rebate from the Treasury, this modest growth in local government infrastructure spending would have been less. The point is that there is approximately 70% of spending fiscal stimulus and approximately 56% of tax-cut fiscal stimulus still in the pipeline.

Chart 3

In sum, if what small- and medium-sized businesses need to increase their hiring is increased sales, then it would seem that fiscal stimulus coupled with Fed-created credit is the right medicine. In total, only about 33% of the combined tax-cut and spending in the ARRA has been allowed to stimulate. So, before we decree that the ARRA has been a failure or before we enact a supplemental program, let's see how the current one plays out when more of the funds have been dispersed. Come to think of it, perhaps some career politicians in Washington do know something about helping small businesses to create jobs when faced with the prospects of a secondary recession.

Note: For an interesting read on Keynes, Hayek, Friedman and other luminaries of economic philosophy, pick up a copy of Bruce Bartlett's new book, The New American Economy. Rather than accentuating the differences among these luminaries, he discusses some important common ground among them, which is relevant in the current economic environment. Regrettably, I have no monetary interest in the sale of this book.

Paul Kasriel is the recipient of the 2006 Lawrence R. Klein Award for Blue Chip Forecasting Accuracy

by Paul Kasriel and Asha Bangalore
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2010 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Paul L. Kasriel Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


04 Feb 10, 10:25
Only one way to create jobs at this point

Last week Obama announced the planned infusion of $30 billion in taxpayer money to small banks to jumpstart lending to small business. Imagine that. Giving more interest-free money to banks so they can in turn fatten their bellies by lending it out at usurious rates to struggling businesses. Sadly, the only alternative at this late juncture is to bring back the New Deal tactics of FDR with massive government investments in infrastructure projects. It would not only put millions to work, but it would begin to fix our badly deteriorating roads and bridges in this country and help abate our dependance on oil. Sure beats handing out more welfare to banks, right?

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules