Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market could linger for years. That could add up to a "new normal" of higher joblessness and lower standards of living for many Americans, some economists are suggesting. The words "it's different this time" are always suspect. But economists and policy makers say the job-creating dynamics of previous recoveries can't be counted on now. Here's why:
• The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit's automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these two industries will be engines of growth anytime soon.
• The job market is caught in a vicious circle: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.
• Many small and midsize businesses are still struggling to obtain bank loans, impeding their expansion plans and constraining overall economic growth.
• Higher-income households are spending less because of big losses on their homes, retirement plans and other investments. Lower-income households are cutting back because they can't borrow like they once did. – AP
Dominant Social Theme: Tough times?
Free-Market Analysis: This article, excerpted above, is a good example of how economic analysis can be confusing in the era of central banking.
When money was asset-backed, everyone who used the stuff had a fairly good idea of what money was, actually, and how inflation worked. If there was too much money-stuff in the economy, then money stuff itself was devalued (inflation). Too little money stuff was called deflation.
But try talking to someone in today's world and they will inevitably confuse the ups and downs of the money supply with prices, informing you that if prices go up, that's inflation. And if prices go down, that's deflation.
People have also been taught to be afraid of deflation because that is a signal, they believe that the consumer is not buying and that the economy will therefore suffer.
In fact, economies always go through various cycles and prices always fluctuate. This is healthy. To have prices of goods constantly move up is neither natural nor practical. During a downturn, prices should also go down so that people can buy more goods and services, thus eventually stimulating economic recovery. If prices go UP during a downturn, then there is less buying power to go around.
There are so many misconceptions about money in this Keynesian day and age. And the above AP article is filled with them, from our perspective as hard-money proponents. Let's take the four points listed above in the article one by one.
• The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit's automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these two industries will be engines of growth anytime soon.
There is no reason why one industrial sector or another should lead the way out of recession. An economic downturn is not a procession, it is inevitably a monetary phenomenon. When there is too much money in the economy for too long, the economy tends toward euphoria and then the inevitable bust as the market discovers that resources have been misdirected. Only once this mal-investment is squeezed out of the economy does the economy rebound. There are no leaders necessarily in this process because it is essentially a monetary one.
• The job market is caught in a vicious circle: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.
The job market is NOT caught in a vicious cycle. Spending will increase when the mal-investment is wrung out of the economy and capital is redirected toward enterprises that are provided needed services. Whatever "vicious cycle" there is has to do with Western bureaucracies' continued insistence on bailing out large enterprises that need to go belly up. This waste of resources definitely prolongs the downturn by depriving worthy businesses of capital they need to grow. And jobs are thus affected. Anyone who predicts a "jobless" recovery, is actually predicting that the mal-investment, under which Western economies now suffer, will continue long-term. This may be the case, but joblessness is a result of these specific policies, not merely a reaction to a mysterious economic affliction that is destined to continue because no one is capable of halting it.
• Many small and midsize businesses are still struggling to obtain bank loans, impeding their expansion plans and constraining overall economic growth.
This is not an inevitable outcome of an economic downturn. It is presented as a statement of fact. But if the economy were allowed to grow along natural, free-market lines the banks would not have nearly so much clout. In a normal free-market environment, entities have numerous places to go for capital, including private investments, family investment, partners, etc. But in the current highly regulated and formalized economic situations of the West, the banks are in many cases the only game in town. The central banks provide the money and these banks are far more interested, therefore, in hoarding cash during a downturn than in funding ventures. The money to be made comes from central banking in such eras and the banks know it. Again, the distortions are the outcome of central bank money stimulation and retard recovery.
• Higher-income households are spending less because of big losses on their homes, retirement plans and other investments. Lower-income households are cutting back because they can't borrow like they once did. – AP
It is NOT spending that digs one out of an economic downturn but the redirection of capital to worthy ventures. The idea that the consumer simply has to "spend more" to get the economy moving again is a typically Keynesian formulation and has nothing to do with the ways economies really work, whether fiat or asset-backed.
This little AP story, as we can see above, is filled with questionable assumptions about money and finance – from a hard money point of view anyway. Of course, the points are well-made if you happen to be a Keynesian, socialist economist. But we would argue that Keynesian economics explains little about the world and has little to recommend it practically.
Spending does NOT drive economic recovery in a fundamental sense. It may "stimulate" economies in the short run, but the mal-investment remains and sooner or later there will be another bust of even greater proportions.
From our point of view, Keynesian economic practices lead inevitably to "serial" booms and busts. The only way to short-circuit these difficulties is to allow an economy to grow naturally and to let capital find its own way. For this reason we recommend a private gold and silver money standard – one that occurs naturally as it has in the past. Such a standard is not easily tampered with and would greatly alleviate the distortions, price inflation and volatility from which Western economies now greatly suffer.
