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More Economic Stimulus to Fix Unemployment?

Economics / Employment Sep 05, 2010 - 10:55 AM GMT

By: D_Sherman_Okst

Economics

Best Financial Markets Analysis ArticleIn a recent WSJ article titled “Romer Calls for More Stimulus” Romer stated that the government has the tools to fix unemployment and that we need more stimulus.

Another article in Yahoo quoted her stating that the government must lower taxes.


Jobs: Romer is the only economic advisor in the White House that I have seen identify two of the biggest structural problems facing our economy:

JOBS and TAXES. Even if she couldn’t get the unemployment number right, I was at least impressed that she understood how important jobs were. And, she was off by a mere 120% (U3-U6 unemployment is 22%, NOT 10%) - none of this “oxymoronic” “jobless recovery” stuff for her.

The economy needs consumers. Simple.

And consumers need jobs which provide money for them to consume. Even simpler.

It is so basic that it is impossible to believe that most politicians, the talking heads on CNBS and the economists can’t wrap their minds around this. A jobless recovery - hey, I’ve mucked enough horse stalls to know what a jobless recovery is.

Taxes: “Americans Had to Work from January 1 to August 12 This Year Just to Cover Cost of Government ” explains that consumers now work 8 months of the year to pay taxes and fees to support a bloated government that is so overextended and has so much debt hidden off balance sheet that we make Enron accountants look like choir boys. Raising taxes will give the consumer less than 4 months of income to consume and prop up the economy. Lowering taxes will give them more than 4 months of money to spend. Maybe then they won’t have to go into debt and borrow money to make ends meet.

Remember, in my article “The Economic Insane Asylum” I wrote: “Average Real Weekly Earnings, (read: incomes adjusted for inflation), are below what they were in 1973. Income wise the average American family is worse off now than they were 37 years (4 decades) ago.” Also mentioned in that read is that the dollar has lost 95% of it’s value/purchasing power since its inception. That translates into consumers needing more money.

With regards to allowing politicians to borrow and over-en-debt the government, http://theburningplatform.com/blog/2010/09/01/doug-casey-unloads/ Doug Casey said it best: “...giving politicians the ability to borrow is like giving a teenager a bottle of whiskey and the keys to a Corvette. ”

For the unemployment realization, she gets a D-. It would have been an A+ if she said 22% unemployment and not 10%. When economists become politicians and try to pump the economy with rose colored glasses, they decimate the fundamental that this country was built on. Americans, by nature are hard working imaginative problem solvers. But they need to know the problems.

For understanding how important low taxes are she gets an A+.

For more stimulus she gets an F and here is why.

Stimulus: When it comes to government spending and stimulus Eric Sprott’s “A Busted Formula” says it clearly, correctly and concisely. 2.5 trillion dollars ($2,500,000,000,000.00) of stimulus gave us a hard dollar impact of 200 billion dollars ($200,000,000,000.00).

2.5 trillion borrowed dollars to get a 200 billion dollar positive bump in GDP?

.09 cents of gain for every dollar borrowed? And they are even considering doing this again????? I’d say that by definition, this defines insanity. Talking about doing another stimulus after that disaster proves that these people should be locked in a mental institution! If we cut through the manure, Romer is saying: Let us go into debt for another 2.3 trillion dollars.

The best of the worse! Doesn’t take much.

For not understanding why companies slashed jobs the way they did - she gets another F.

Romer claims that economists still don’t understand why employers made such deep cuts. I’m going to go way out on the limb of sarcasm here: Maybe it was that CPA’s like Jim Quinn who knew where consumers were getting their money from. You know that giant ATM machine called a HELOC. When the housing market bubble popped, businesses heard a giant sucking sound - it was their consumers’ disappearing access to the credit they were using to consume stupid stuff like 4 dollar coffees at Starbucks. She could have asked Jim Quinn or Starbucks why they closed 900 stores and where consumers got 9 billion dollars of money that they spent on 4 dollar coffees from.

I don’t teach economics at Berkeley but I’d imagine that these four structural problems had everything to do with the answer to her question:

  1. Consumers can’t live off of 1973 wage levels.
  2. The government is taking 8 months of the consumers’ wages to pay for decades of government over borrowing, over spending and inefficiency.
  3. This and the Fed have slashed the purchasing value of the consumers’ dollar. It takes more worth less dollars to buy goods and services.
  4. The consumer was hanging on a thread called HELOC credit to make up for 1-3 above.
  5. That disappeared the second house prices collapsed.

Dunno, just a really, really wild off the wall wacko guess.

Oil Prices and Cost of Goods and Services: And what did the best of the worst recommend we spend that money on? Infrastructure (read: roads). One mile of road paving takes 5,500 gallons of liquid asphalt. One barrel of oil produces 19.5 gallons of gas, 9.2 gallons of distillate (diesel or home heating oil) 1.3 gallons of asphalt and road oil - or 4,231 barrels of oil.

There are about 4 million miles of roads in the United States.

Right now, the world, during this downturn is using 86.6 million barrels of oil per day. It produces 87.2 million barrels per day and there is a lot of doubt we can produce more.

If you think we can easily produce more oil I’d invite you to consider the following paragraph.

Chris Martenson of the creator of the “Crash Course” wrote this about Peak Oil: “The fact that Deepwater Horizon was drilling a field containing an estimated 12 hours of global oil consumption under a mile of water and an additional 3 miles of rock tells us everything we need to know about the state of depletion we are in. It’s getting desperate.” Link.

If you have more time this documentary on Peak Oil is also very good. "A Crude Awakening."

“Economists” like Romer fail to take into account that the world is pushing 6.5 billion people and that emerging nations have citizens who want cars. China has outpaced us on oil import and car sales. We have about 310,000,000 people, they have about 1,300,000,000 people.

Just wait.

But whether you believe in peak oil or not, whether you have heard of peak oil or not isn’t necessarily relevant. The bottom line still boils down to global supply verses global demand.

Romer’s infrastructure idea was oil intensive. It would create a MASSIVE demand for oil. A certain way to increase fuel prices. Oil is an integral part of everything. From our petrochemical intensive farming to transportation and manufacturing. More demand equates to higher oil prices, which would translate into higher prices for goods and services.

When prices spiked to $147.00 a barrel in 2008 wages did not go up. Buying 4 dollar gas with 1973 wages while giving the government 8 months of your pay - flat out- does not work.

Higher oil prices have done nothing for the economy besides squeeze the consumer. And the consumer is the lifeblood of the economy - despite what they tell us on CNBS about “jobless recoveries”.

So in short: Romer’s idea to fix infrastructure appears to have been as ill thought out as our government’s bright idea to borrow 2.5 trillion dollars from us, our children and their unborn children all to inject a paltry 200 billion into our GDP’s bottom line.

Heck, they could have added 200 billion to GDP with Hedonics and imputations (read: Enron Accounting). As much as I detest that sort of crap it is better than the immoral alternative of en-debting our unborn.

Too bad the best of the worst is leaving. Personally I’d have preferred to have seen the imbecile who sleeps through economic meetings leave.

I’m sure he was dreaming of how he muzzled Brooksley Borne for Greenspan and then economic adviser Rubin. “Agh, if only I didn’t muzzle her, then the derivatives wouldn’t have blown up the economy, she’d have regulated them. And then I wouldn’t be so bored with all these tiring economic meetings... ”Video: "Warning"

By D. Sherman Okst

Bernardston MA USA
davossherman @ gmail.com

I'm an ex-airline captain with about 15,000 hours and am amazed at all the BS we are taught. Most of my friends still in the business were also taught the wrong aerodynamic principles with respect to what makes planes fly. Aviation or economics, Keynes to Austrian - Bernulli to Newton we've been sold bad goods. It's amazing anything works as backwards as we do things.

© 2010 Copyright  D. Sherman Okst - Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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