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  Monday November 24th, 2014    

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Where and why of jobs (03/24/2004)
By Al Thomas


     
We have read about the unemployment rate being high. Really anything around six percent is pretty good and it is less than that now according to the statistics, but some politicians say it is terrible and others say it is reasonable. It depends upon which side of the isle you sit.

Our Washington geniuses claim they are working on finding more employment. We have lost 2.7 million jobs over the last 3 years. That doesn't matter if you are NOT one of them. Finger pointing by everyone in our capitol blames "the other guy", but especially China and India. The total of jobs going overseas is only 300,000 out of the 2.7 million. Where did the other 2.4 million jobs go?

As the economy slowed down in 2000 due to the increasing interest rates companies had to do something to keep profits. The work week could be shortened if you did not have a production line, but that doesn't work for service businesses. All unnecessary workers were laid off. As business contracted machines became idle and more people were chopped. But that was not enough. More production efficiencies were put in place so that fewer workers would be able to turn out the same amount of goods.

Production dropped from the 92% to about 75% of capacity today. When a company has 100 machines and only 75 of them are producing there is no incentive for management to buy more machines.

Sir Alan can try to stimulate further by lowering rates even more, but how much below 1% can you go? He could buy long-term bonds to further reduce rates to continue to stimulate the housing market, but financial stimulus does not create wealth. The banks borrow from the Fed at 1% to buy long-term government bonds that yield 4.2%. If I were a banker and could lock in 3.2% with no risk why should I make loans to businesses? And beside that I can fire all my loan officers to save more money.

But we need more employment. How? The Federal government is hiring more people every day. These are new jobs, BUT they do not contribute to the overall economy. In fact every new government worker is another tax. In a factory a worker turns out products that adds to what is called Gross Domestic Product. A government worker turns out nothing and adds zero to the GDP and even has to give back part of his salary in taxes. The IRS takes in the money, gives it to Congress which creates burocracies that hire people to recirculate the cash. Every government worker is a tax.

This makes the employment numbers look good, but adds nothing to our economic production. It is a way to keep money flowing. It puts money in peoples' pockets that keeps us marching in place. Until real productive jobs are created by business we are just fooling ourselves.

Copyright Albert W. Thomas All rights reserved. Author of "If It Doesn't Go Up, Don't Buy It!" www.mutualfudmagic.com comments to al@mutuafundmagic.com 

 

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