Charles H. Smith: Scrape Away the Noise and Hype, and What Remains?

05-11-2010 • Oftwominds.com/blog

If we subtract the bogus phantom jobs created by the "birth-death model" and the temporary Census Bureau jobs, the U.S. economy is staggering along the zero line, neither creating jobs nor losing them. If that is the best that stupendous stimulation via Federal spending and zero-interest rates can do to "stimulate" organic (non-government created) growth in employment, it certainly suggests that any reduction in Federal stimulus-spending and flagrant pumping of money via the Federal Reserve "monetary easing" will result in a renewed decline in employment. It doesn't take much of a crystal ball to foresee massive layoffs as state and local governments are finally forced to face the music of reduced tax revenues and higher employee pension costs. As usual, the media is touting a 3% rise in tax revenues as "proof" the recession is over--yet few note that tax revenues have dropped by 20% or 30% in many locales. A 3% rise is not enough to repair the damage done by two years of recession, and all the accounting tricks and gimmicks which the California Legislature and other states' leaders have deployed to mask the true depth of their deficits are wearing thin. An eerie silence has descended over Sacramento, as if the politicos and their media lackeys are hoping that keeping quiet will allow a $20 billion deficit to magically vanish without the public (and voters) becoming alarmed before the November elections. Good luck, politicos; sadly, you cannot print money nor force the Federal government to bail you out. With costs of employment rising by the day--healthcare, employment taxes, etc.--very few private businesses have high enough gross margins to justify hiring anyone permanently. Contract/temp workers are the solution, and any increase in free-lance headcounts does not presage a surge in permanent hiring. If there is an army of unemployed willing to work for far less than a permanent employee costs, why bother increasing permanent headcount? Global companies are still pursuing the savings of global wage arbitrage, and every increase in structural costs here in the U.S. (healthcare goes up 7-15% every year, taxes are going up, etc.) only increases the attractiveness of overseas employees and contract/free-lance workers in the U.S.