In several cities, the real estate market is about to drop even more. Home values in many of those cities, such as Las Vegas, have already collapsed as unemployment has shot higher. And with no hope of quick recovery, housing prices are expected to continue to fall. 24/7 Wall St. identified ten housing markets that are expected to drop by at least another 10 percent by 2012.

Methodology: We used data from the Fiserv Case-Shiller Indexes, which track real estate activity in 380 cities. We selected those that are forecast to have the largest percent price drop between the first quarter of this year and the first quarter of next. We added several other pieces of information to our city-by-city information, including June unemployment levels, median household income, and when home prices are expected to reach their troughs in each market.

Median household income in these cities tended to be near the U.S. median, and in some cases well below. We expected to find high unemployment in these cities. This turned out to be the case. In all but one of the cities we examined, unemployment was well above the national average. The rate was over 18 percent in two of the cities. This link between unemployment and expected future drop in home prices shows again how insidious the housing price problem is.

Home prices fell from all-time highs in 2006. Home equity tapped by second mortgages had been a tremendous source of income then for families who used it for retirement saving, education, and simple consumer purchases. Three years later, many of those homes were worth less than their mortgages. A large population of homeowners still owed a second mortgage. The burden of those two home loans happened to come at a time when national unemployment rose from 4 percent in the mid-2000s to 10 percent. The mix of unemployment and high mortgage payments ripped the home market apart.

The ten markets on the 24/7 Wall St. list of “Housing Markets That Will Collapse This Year,” and several other like them, may not see a full recovery in home prices for years. Inventories in these markets tend to be large. Demand tends to be low as the unemployed cannot be buyers.

Finally, fear of further price drops all exacerbate the problem. No person or organization, including the federal government, has been able to help support the housing market, although the administration has tried. Not a single plan has built even a thin net under home values, despite the best efforts of the best economic minds in the world.

10. Fort Lauderdale, Fla.

Expected price drop: -11.1 percent

Median family income: $58,800 (194th highest)

Unemployment rate: 11.8 percent

Median home price: $196,000 (55th highest)

Projected to hit lowest level: Q2 2013

Since 2006, home prices in Fort Lauderdale have dropped by nearly 50 percent. A full 28 percent of that drop occurred in 2009 alone. As was the case throughout most of Florida, the collapse of the housing bubble decimated the construction-based economy. The unemployment rate of nearly 12 percent is evident of the construction sector’s disastrous decline. The value of the 686,000 homes in the Fort Lauderdale area is expected to get even worse through at least the second quarter of 2013. Between Q1 2011 and Q1 2012, the median home price is projected to decline an additional 11.1 percent. Between 2012 and 2013, that number will further decrease by 8.7 percent.

9. Bethesda, Md.

Expected price drop: -11.5 percent

Median family income: $114,100 (the highest)

Unemployment rate: 5.1 percent

Median home price: $417,000 (5th highest)

Projected to hit lowest level: Q3 2012

Bethesda, the extremely wealthy D.C. suburb, has the highest median family income in the country — $114,100. It also has the fifth highest median home price, at $417,000. That position may change, however, as Case-Shiller projects home values will drop by more than $60,000 by next year.

8. Salinas, Calif.

Expected price drop: -11.8 percent

Median family income: $62,100 (145th highest)

Unemployment rate: 12.8 percent

Median home price: $240,000 (34th highest)

Projected to hit lowest level: Q2 2012

Salinas is a small coastal city located 25 miles south of San Jose. Since 2006, the median value of the of the 125,000 houses there decreased in value by more than 61 percent. This is the fourth biggest decline from peak home value among all major American cities. More than 40 percent of this drop occurred in 2009, the year after the housing bubble burst. Unemployment in the city is at 12.8 percent, well above the national average of 9.2 percent. Several companies in the area, including food processing company Romco, expect to continue to lay off workers in the coming months, which should serve to further depress home values.

7. El Centro, Calif.

Expected price drop: -12.1 percent

Median family income: $43,300 (10th lowest)

Unemployment rate: 28.6 percent

Median home price: $130,000 (70th lowest)

Projected to hit lowest level: Q1 2012

El Centro is located five miles from the Mexican border, and is one of the poorest cities in the country. Median income is just $43,300 per family, the tenth-lowest in the U.S. Unemployment is at a staggering 28.6 percent. Between 2006 and 2011, home prices decreased by more than 50 percent. According to a report in the Imperial Valley press, one home was sold in the El Centro area before the recession for $390,000. In 2009, that home was listed at $200,000. Prices are expected to drop an additional 12.1 percent by the first quarter of 2012.

6. Miami, Fla.

Expected price drop: -13 percent

Median family income: $47,800 (32nd lowest)

Unemployment rate: 13.4 percent

Median home price: $175,000 (76th highest)

Projected to hit lowest level: Q2 2013

At 13.4 percent, Miami has one of the highest unemployment rates of any major American city. Home values are above average, but are down by more than 50 percent since 2006. Partially as a result of the staggering unemployment rate, the value of the city’s homes are projected to decrease by another 13 percent by the first quarter of 2013. What’s more disturbing, prices will then likely fall an additional 10.1 percent. If this second drop occurs, it will be by far the greatest depreciation of property values in the country in an area already decimated by current low prices.

5. Merced, Calif.

Expected price drop: -13.2 percent

Median family income: $42,900 (8th lowest)

Unemployment rate: 18.6 percent

Median home price: $112,000 (38th lowest)

Projected to hit lowest level: Q2 2012

Merced has a median family income of just $42,900, placing it among the ten poorest major cities in the country. In 2008, the city’s property lost 46.1 percent of its value. This was the second-greatest depreciation in home value for a city since at least 1980. The city’s median home prices are expected to drop an additional 13.2 percent by the beginning of next year.

4. Detroit, Mich,

Expected price drop: -13.4 percent

Median family income: $49,000 (47th lowest)

Unemployment rate: 12.7 percent

Median home price: $42,000 (the lowest median home price)

Projected to hit lowest level: Q2 2012

Since the recession began, Detroit has been the horror story for plummeting home values, foreclosures, vacancies, and unemployment. To date, Detroit’s median home price of $42,000 is the lowest among all 385 major metropolitan areas. While the motor city has been languishing for some time before the recession, the drop in home value has been more steady, as opposed to the rapid drop-offs seen in cities in Florida, Nevada, and California. Detroit’s already record-low values are expected to drop an additional 13.4 percent by the first quarter of 2012.

3. Las Vegas, Nev.

Expected price drop: -13.9 percent

Median family income: $58,900 (196th lowest)

Unemployment rate: 12.4 percent

Median home price: $140,000 (90th lowest)

Projected to hit lowest level: Q4 2012

Las Vegas was one of the center points of the meteoric growth in the first half of the 2000s, only to be followed by a catastrophic fall in the second half. Between 2008 and 2011, home prices in the city dropped by 42.3 percent, the second greatest decline in the country. Although home values in the city are already more than 58 percent off their peak, they are projected by Case-Shiller to drop an additional 13.9 percent by Q1 2012, and then 6.3 percent more by Q1 2013.

2. Riverside-San Bernardino, Calif.

Expected price drop: -15.6 percent

Median family income: $59,700 (190th highest)

Unemployment rate: 13.7 percent

Median home price: $181,000 (70th highest)

Projected to hit lowest level: Q1 2012

Like so many industrial cities in California, Riverside-San Bernadino is being affected by the recession and housing crisis more than most other parts of the U.S. Unemployment has hit 13.7 percent, home vacancy and rental vacancy rates are high, and home values are plummeting. Median home prices are down more than 55 percent from their peak in 2006. By the beginning of next year, prices are expected to drop an additional 15.6 percent, or nearly $30,000.

1. Naples, Fla.

Expected price drop: -16.6 percent

Median family income: $62,800 (137th highest)

Unemployment rate: 10.5 percent

Median home price: $225,000 (40th highest)

Projected to hit lowest level: Q4 2012

Like much of southwest Florida, Naples was one of the fastest-growing communities in the country as it prepared for the millions of baby boomers on the cusp of retirement. When the housing bubble burst, however, the thousands of construction projects for condominiums and retirement communities were halted or lost money, and home values plummeted. From peak home value in 2006, prices dropped by 55 percent. They are expected to keep falling through next year more than any major city in the country. By Q1 2012, home values will drop an additional 16.6 percent, or nearly $40,000.

Regards,

Michael B. Sauter, Douglas A. McIntyre

Michael B. Sauter is research editor of 24/7 Wall Street.

Douglas A. McIntyre is the former Chairman and Chief Executive Officer of On2 Technlologies, a leading video compression company. He was chosen to be one of the members of the inaugural Streaming Media All-Star team, the 25 people who had the most impact on streaming media over the last 10 years. He was also the Publisher of Financial World Magazine from 1983 to 1995. McIntyre has also been President and Chief Executive officer of FutureSource, LLC and President of Switchboard.com, which was, at the time, the 10th most visited website in the US. McIntyre is a magna cum laude graduate from Harvard.

10 Housing Markets That Will Collapse This Year was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Despite the understandable human tendency to help others, government spending cannot be a net creator of jobs. Indeed many efforts currently under consideration by the Administration and Congress will actively destroy jobs. These initiatives must stop. While it is easy to see how a deficit-financed government program can lead to the creation of a specific job, it is much harder to see how other jobs are destroyed by the diversion of capital and resources. It is also difficult to see how the bigger budget deficits sap the economy of vitality, destroying jobs in the process.

In a free market jobs are created by profit seeking businesses with access to capital. Unfortunately Government taxes and regulation diminish profits, and deficit spending and artificially low interest rates inhibit capital formation. As a result unemployment remains high, and will likely continue to rise until policies are reversed.

It is my belief that a dollar of deficit spending does more damage to job creation than a dollar of taxes. That is because taxes (particularly those targeting the middle or lower income groups) have their greatest impact on spending, while deficits more directly impact savings and investment. Contrary to the beliefs held by many professional economists spending does not make an economy grow. Savings and investment are far more determinative. Any program that diverts capital into consumption and away from savings and investment will diminish future economic growth and job creation.

Creating jobs is easy for government, but all jobs are not equal. Paying people to dig ditches and fill them up does society no good. On balance these “jobs” diminish the economy by wasting scarce land, labor and capital. We do not want jobs for the sake of work, but for the goods and services they produce.

As it has a printing press, the government could mandate employment for all, as did the Soviet Union. But if these jobs are not productive, and government jobs rarely are, society is no better for it.

This is also true of the much vaunted “infrastructure spending.” Any funds directed toward infrastructure deprive the economy of resources that might otherwise have funded projects that the market determines have greater economic value. Infrastructure can improve an economy in the log-run, but only if the investments succeeds in raising productivity more than the cost of the project itself. In the interim, infrastructure costs are burdens that an economy must bear, not a means in themselves.

Unfortunately our economy is so weak and indebted that we simply cannot currently afford many of these projects. The labor and other resources that would be diverted to finance them are badly needed elsewhere.

Although it was labeled and hyped as a “jobs plan,” the new $447 billion initiative announced last night by President Obama is merely another government stimulus program in disguise. Like all previous stimuli that have been injected into the economy over the past three years, this round of borrowing and spending will act as an economic sedative rather than a stimulant. I am convinced that a year from now there will be even more unemployed Americans than there are today, likely resulting in additional deficit financed stimulus that will again make the situation worse.

The President asserted that the spending in the plan will be “paid for” and will not add to the deficit. Conveniently, he offered no details about how this will be achieved. Most likely he will make non-binding suggestions that future congresses “pay” for this spending by cutting budgets five to ten years in the future. In the meantime money to fund the stimulus has to come from someplace. Either the government will borrow it legitimately from private sources, or the Federal Reserve will print. Either way, the adverse consequences will damage economic growth and job creation, and lower the living standards of Americans.

There can be no doubt that some jobs will in fact be created by this plan. However, it is much more difficult to identify the jobs that it destroys or prevents from coming into existence. Here’s a case in point: the $4,000 tax credit for hiring new workers who have been unemployed for six months or more. The subsidy may make little difference in effecting the high end of the job market, but it really could make an impact on minimum wage jobs where rather than expanding employment it will merely increase turnover.

Since an employer need only hire a worker for 6 months to get the credit, for a full time employee, the credit effectively reduces the $7.25 minimum wage (from the employer’s perspective) to only $3.40 per hour for a six-month hire. While minimum wage jobs would certainly offer no enticement to those collecting unemployment benefits, the lower effective rate may create some opportunities for teenagers and some low skilled individuals whose unemployment benefits have expired. However, most of these jobs will end after six months so employers can replace those workers with others to get an additional tax credit.

Of course the numbers get even more compelling for employers to provide returning veterans with temporary minimum wage jobs, as the higher $5,600 tax credit effectively reduces the minimum wage to only $1.87 per hour. If an employer hires a “wounded warrior”, the tax credit is $9,600 which effectively reduces the six-month minimum wage by $9.23 to negative $1.98 per hour. This will encourage employers to hire a “wounded warrior” even if there is nothing for the employee to do. Such an incentive may encourage such individuals to acquire multiple no-show jobs form numerous employers. As absurd as this sounds, history has shown that when government created incentives, the public will twist themselves into pretzels to qualify for the benefit.

The plan creates incentives for employers to replace current minimum wage workers with new workers just to get the tax credit. Low skill workers are the easiest to replace as training costs are minimal. The laid off workers can collect unemployment for six months and then be hired back in a manner that allows the employer to claim the credit. The only problem is that the former worker may prefer collecting extended unemployment benefits to working for the minimum wage!

The $4,000 credit for hiring the unemployed as well as the explicit penalties for discriminating against the long-term unemployed will result in a situation where employers will be far more likely to interview and hire applicants who have been unemployed for just under six months. Under the law, employers would be wise to refuse to interview anyone who has been unemployed for more than six months, as any subsequent decision not to hire could be met with a lawsuit. However, to get the tax credit they would be incentivized to interview applicants who have been unemployed for just under six months. If they are never hired there can be no risk of a lawsuit, but if they are hired, the start date can be planned to qualify for the credit.

The result will simply create classes of winners (those unemployed for four or five months) and losers (the newly unemployed and the long term unemployed). Ironically, the law banning discrimination against long-term unemployed will make it much harder for such individuals to find jobs.

At present, I am beginning to feel that over regulation of business and employment, and an overly complex and punitive tax code is currently a bigger impediment to job growth than is our horrific fiscal and monetary policies. As a business owner I know that reckless government policy can cause no end of unintended consequences.

As I see it, here are the biggest obstacles preventing job growth:

1. Monetary policy

Interest rates are much too low. Cheap money produced both the stock market and real estate bubbles, and is currently facilitating a bubble in government debt. When this bubble bursts the repercussions will dwarf the shock produced by the financial crisis of 2008. Interest rates must be raised to bring on a badly needed restructuring of our economy. No doubt an environment of higher rates will cause short-term pain. But we need to move from a “borrow and spend” economy to a “save and produce” economy. This cannot be done with ultra-low interest rates. In the short-term GNP will need to contract. There will be a pickup in transitory unemployment. Real estate and stock prices will fall. Many banks will fail. There will be more foreclosures. Government spending will have to be slashed. Entitlements will have to be cut. Many voters will be angry. But such an environment will lay the foundation upon which a real recovery can be built.

The government must allow our bubble economy to fully deflate. Asset prices, wages, and spending must fall, interest rates, production, and savings must rise. Resources, including labor, must be reallocated away from certain sectors, such as government, services, finance, health care, and educations, and be allowed to into manufacturing, mining, oil and gas, agriculture, and other goods producing fields. We will never borrow and spend our way out of a crisis caused by too much borrowing and spending. The only way out is to reverse course.

2. Fiscal policy

To create conditions that foster growth, the government should balance the budget with major cuts in government spending, severely reform and simplify the tax code. It would be preferable if all corporate and personal taxes could be replaces by a national sales tax.

Our current tax system discourages the activities that we need most: hard work, production, savings, investment, and risk taking. Instead it incentivizes consumption and debt. We should tax people when they spend their wealth, not when they create it.

High marginal income tax rates inflict major damage to job creation, as the tax is generally paid out of money that otherwise would have been used to finance capital investment and job creation.

3. Regulation

Regulations have substantially increased the costs and risks associated with job creation. Employers are subjected to all sorts of onerous regulations, taxes, and legal liability. The act of becoming an employer should be made as easy as possible. Instead we have made it more difficult. In fact, among small business owners, limiting the number of employees is generally a goal.

This is not a consequence of the market, but of a rational desire on the part of business owners to limit their cost and legal liabilities. They would prefer to hire workers, but these added burdens make it preferable to seek out alternatives.

In my own business, securities regulations have prohibited me from hiring brokers for more than three years. I was even fined fifteen thousand dollar expressly for hiring too many brokers in 2008. In the process I incurred more than $500,000 in legal bills to mitigate a more severe regulatory outcome as a result of hiring too many workers. I have also been prohibited from opening up additional offices. I had a major expansion plan that would have resulted in my creating hundreds of additional jobs. Regulations have forced me to put those jobs on hold.

In addition, the added cost of security regulations have forced me to create an offshore brokerage firm to handle foreign accounts that are now too expensive to handle from the United States. Revenue and jobs that would have been created in the U.S. are now being created abroad instead. In addition, I am moving several asset management jobs from Newport Beach, California to Singapore.

As Congress turns up the heat, more of my capital will continue to be diverted to my foreign companies, creating jobs and tax revenues abroad rather than in the United States.

To encourage real and lasting job growth the best thing the government can do is to make it as easy as possible for business to hire and employ people. This means cutting down on workplace regulations. It also means eliminating the punitive aspects of employment law that cause employers to think twice about hiring. To be blunt, the easier employees are to fire, the higher the likelihood they will be hired. Some steps Congress could take now include:

a. Abolish the Federal Minimum Wage

Minimum wages have never raised the wages of anyone and simply draw an arbitrary line that separates the employable from the unemployable. Just like prices, wages are determined by supply and demand. The demand for workers is a function of how much productivity a worker can produce. Setting the wage at $7.25 simply means that only those workers who can produce goods and services that create more than $7.25 (plus all additional payroll associated costs) per hour are eligible for jobs. Those who can’t, become permanently unemployable. The artificial limits encourage employers to look to minimize hires and to automate wherever possible.

By putting many low skill workers (such as teenagers) below the line, the minimum wage prevents crucial on the job training, which could provide workers with the experience and skills needed to earn higher wages.

b. Repeal all Federal workplace anti-discrimination Laws

One of the reasons unemployment is so high among minorities is that business owners (particularly small business) are wary of legal liability associated with various categories of protected minorities. The fear of litigation, and the costly judgments that can ensue, are real.

Given that it is nearly impossible for an employer to control all the aspects of the workplace environment, litigation risk is a tangible consideration. Given all the legal avenues afforded by legislation, minority employees are much more likely to sue employers.

To avoid this, some employers simply look to avoid this outcome by sticking with less risky employee categories. It is not racism that causes this discrimination, but a rational desire to mitigate liability. The reality is that a true free market would punish employers that discriminate based on race or other criteria irrelevant to job performance. That is because businesses that hire based strictly on merit would have a competitive advantage. Anti-discrimination laws titled the advantage to those who discriminate.

c. Repeal all laws mandating employment terms such as work place conditions, over-time, benefits, leave, medical benefits, etc.

Employment is a voluntary relationship between two parties. The more room the parties have to negotiate and agree on their own terms, the more likely a job will be created. Rules imposed from the top create inefficiencies that limit employment opportunities. Employee benefits are a cost of employment, and high value employees have all the bargaining power they need to extract benefits from employers. They are free to search for the best benefits they can get just as they search for the best wages.

Companies that do not offer benefits will lose employees to companies that do. Just as employees are free to leave companies at will, so too should employers be free to terminate an employee without fear of costly repercussions. Individuals should not gain rights because they are employees, and individuals should not lose rights because they become employers.

d. Abolish extended unemployment benefits

In addition to being a source of emergency funds, unemployment benefits over time become more of a disincentive to employment than anything else (although the disincentive diminishes with the worker’s skill level — i.e. high wage workers are unlikely to forego a high wage job opportunity to preserve unemployment benefits). For marginally skilled workers unemployment insurance is a major factor in determining if a job should be taken or not.

Even if unemployment pays a significant fraction of the wage a worker would get with a full time job, the money may be enough to convince the worker to stay home. After all, there are costs associated with having a job. Not only does a worker pay payroll and income taxes on any wages he earns, the loss of unemployment benefits itself acts as a tax. Plus workers must pay for such job related expenses as transportation, clothing, restaurant meals, dry cleaning and childcare, and they must forgo other work that they could do in their free time (providing care for loved ones, home improvement, etc.).

Understandably, most people also find leisure time preferable to work. As a result, any job that does not offer a major monetary advantage to unemployment benefits will likely be turned down. This entrenches unemployment insurance recipients into a class of permanently unemployed workers.

It is no accident that employment increases immediately after unemployment insurance expires for many categories of workers. In fact, many individual will seek to max out their benefits, and remain unemployed until those benefits expire. If they work at all, it will be for cash under-the-table, so as not to leave any money on the table.

Regards,

Peter Schiff

How the Government Can Create Jobs was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

His claim was that people will no longer buy actual books and everything will be downloaded onto e-readers. This is supposed to destroy the publishing industry and the insinuation is that the federal government should do something to stop this atrocity. I believe that this is another instance of a politician not staying awake in their economics class while they were in college.

In Chapter 7 of Henry Hazlitt’s book, Economics in One Lesson, titled the “Curse of Machinery”, Hazlitt gives examples how machinery has actually increased jobs not cause the unemployment plague many politicians claim. Hazlitt’s gives the example of Arkright’s invention of cotton spinning machinery in 1760. It was predicted the machinery would put English textile workers out of work. What really happened was that the textile industry grew exponentially over the next two and a half decades moving from 7,900 to 320,000 cotton spinners and weavers. From my and Hazilett’s calculations, that is an increase of 4,200% over the 27-year period. How is this possible you ask?

Technology helps reduce or even eliminate the barriers of entry for new businesses. Creating more competitive economies of scale and increasing competition. The increase in competition breeds efficiency and reduces prices for the end user. The solution isn’t the government pumping money into the paper industry or even the publishing industry. The government’s job is to let the free market alone and let it run its course.

If an industry is dying, there’s probably a good reason for it. So let it die. As Danny DeVito’s character, Larry the Liquidator, said in the 1991 film Other People’s Money, “I bet you there was a time where dozens of companies were making buggy whips and I bet the last company that was around was the one that made the best ***damn buggy whip you ever saw”.

The problem with Congressman Jackson’s view of the iPad and technology in general is that he is looking very narrowly at a very big picture. He only sees the displacement of book publishers and paper manufactures. The problem with the “old technology” of books is that it’s becoming obsolete. However, if publishers are moving from paper to electronic media, this will create new jobs. The need for graphic designers, web managers and web security people become crucial in the ever complex world of electronic publishing.

Congressman Jackson isn’t seeing that the production of iPads means the potential opportunity to create new jobs and sustain existing ones. Apple employs about 35,000 people. Many of those people work in Apple’s retail stores. There are many other companies that are in business to create the cool apps that the iPad offers. Not to mention that with such apps like the credit card processing app that allows businesses to be more mobile and reach and conduct business with their customers.

(If you have the opportunity, come the Agora Financial Investment Symposium and you will see Laissez Faire Books process your book purchases — yep you guessed it — with an iPad and a credit card app.)

One of the arguments is that we need to employee American manufacture workers in order to build what we create. My question is simple: Why?

Manufacturing labor is cheaper overseas and companies like Apple want to keep costs down. In order to keep the cost down they need to work oversees. Why not produce in the U.S. you ask. Well one reason is that labor unions have made it too expensive for businesses to do business in the U.S. for example the steel and automotive industry.

Unless, the automotive industry is from overseas that find right to work states like Tennessee and Kentucky. These states are benefiting from the Japanese car manufacturers setting up their non-union plants and employing a large amount of automobile workers. I wonder if Japanese say we need to bring our jobs back to Japan.

In the early 1990s Agora Publishing sent publications via print and the then cutting edge technology of facsimile (faxing). The company was about 40 people strong at that time.

In the mid-‘90s came the realization that the internet was going to have a huge and negative impact on the newsletter business if the new technology wasn’t embraced. Bill Bonner reached out to our customers and asked them what they thought about getting their newsletters via the internet. The response was resounding yes.

Now Agora and all her affiliates employee close to 1,000 people. That is a 2,500% increase over the last 15-years. A big reason for the increase is that we need web teams and information technology people to ensure that your e-letters get to you. Now that we don’t have to spend as much on print we can now employee additional editors that bring you more content more quickly.

Does technology make some jobs obsolete? The answer is an obvious yes. So let us have a moment of silence for the milkman, the cobbler, and the town crier but let us celebrate the grocer, the staff at Footlocker, and the talking heads like those on Fox News and MSNBC.

More often than not technology actually increases jobs. You want manufacturing jobs to come back to America, then talk to the unions and let them know that $70 an hour may be a bit high for someone to put tires on the new Camaros.

Regards,
Shawn Lyttle
for Whiskey & Gunpowder

P.S.: Oh yeah, one last thing. Before we start playing taps for the paper industry let us realize that in this writer’s opinion we will find the lost city of Atlantis before we move to a completely paperless society. I know first hand that there are many bibliomaniacs that still walk amongst us and that despite whatever cool e-reader you give them, it will still not replace that feel of a good book.

You want to check out some good books, then go to LFB.org.

April 20, 2011

The Economics of Technological Advances was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

That is the bad news. Now the worse news: Not only are those jobs not coming back, but the construction industry will continue to diminish for the foreseeable future. The real estate glut is not on hold; it is over. Waiting for its return is similar to waiting for next the big surge in typewriters, 35mm cameras, and home phones.

Why are the construction jobs not coming back? There are three main reasons, the first of which is inflation. Decades of credit expansion and the recent printing of money (quantitative easing) have increased the overall volume of our fiat currency: dollars. Therefore, the value of each dollar unit has been reduced, causing prices to rise. This results in increased costs in construction of new homes. Higher new construction costs make staying in and repairing older structures, or renting, more attractive.

The second reason is fuel costs. Living rurally and working in urban areas is becoming very expensive. Reasons one and two will keep an increasing number of younger workers and couples living and renting closer to work. Why take the financial and mobility risks associated with homeownership?

The third reason is we are broke. Who are “we”? Western civilization, comprised mainly of the U.S. and Europe. Consider this…there are gold and silver coins and bullion: actual wealth storage vehicles. There are paper dollars: temporary wealth storage vehicles. And there are also trillions of “dollars” represented as pixels on screens in accounting software programs.

When I say that we are broke it is because I don’t believe those pixel dollars represent anything. All of the wealth supposedly held in those pixels does not exist. It is a classic Ponzi scheme. If you go today and convert your pixels to actual dollars, everything is just fine. But if 10% of us go today and try to convert our pixels into dollars, the banks will shut down…Why? Because the money doesn’t exist. There is no actual wealth stored in any of those pixels.

Spain and Portugal may require financial bailouts in 2011. Part of the fallout from the Greek financial crisis last year was the creation of a eurozone bailout fund of $1.01 trillion. That fund could be used to assist Spain and Portugal if necessary. Where did that $1.01 trillion come from? Was it removed from another sector of Europe’s economy? Supplied in gold bullion to EU headquarters in The Hague? Removed from the savings accounts of earnest Europeans?

No, none of those could supply that amount of wealth. It was simply created by banking and government officials in pixel dollars (euros). It has no actual, tangible value, because it was created out of thin air. One trillion dollars set aside after a series of business meetings, and no individual, company, or government had to contribute one dollar of actual wealth. The pixels in the spreadsheets represent nothing. They serve only to continue the illusion that everything is fine. Everything is not fine. We don’t have the wealth we’ve been lead to believe we have…we are broke.

What does that have to do with construction? Everything. Cities and counties are broke. They cannot afford to borrow more money, and they cannot continue to raise taxes. States cannot afford the programs and pensions that they’ve promised, nor can they raise taxes. Companies cannot afford the pensions and benefits they have promised. They cannot raise prices either, as their customer base is already shrinking due to cost. Families and individuals are struggling to both get out from under mountains of debt and to mesh sharply rising prices into their budgets.

The federal government spent $3.5 billion more per day than it brought in for fiscal year 2010. It is having trouble borrowing money by selling bonds to foreign entities because our current debt makes those bonds much riskier. The Federal Reserve is administering a program of quantitative easing (printing money or just adding pixel dollars) to keep up the appearance that everything is shipshape. What ship? I’ll get back to that. Point being we are broke. There will be no excess income or wealth to support a large-scale residential construction industry in the near future.

The ship, of course, is the Titanic. Imagine that we’ve already hit the iceberg. But…everything seems to be roughly the same, and the ship’s intercom is continually telling us that everything is just fine. Remember the bailouts and the stimulus packages of hundreds of billions, even trillions, of dollars? That was the crew and the first-class passengers casually heading past you to get into the lifeboats. This current financial system will be on the bottom within a decade. And no, there is not going to be a lot of new residential construction during that decade.

We are already well into a global wealth realignment. How is wealth created? Not obtained, but created? Manufacturing is the application of labor to raw materials to make products. The exchange of those products for tangible assets creates wealth. A nation that manufactures and sells abroad is creating and accumulating wealth. The lower, middle, and upper classes of those nations, whether participating directly in manufacturing or not, benefit from that creation of wealth.

Western civilization in general, and the United States in particular, no longer creates wealth; we simply move it back and forth. Usually to the benefit of those who have the capacity to slowly, without causing concern, convert pixels into actual assets (think lifeboats).

But…the curtain is slowly falling away. The sad state of our current financial situation has become too large, and too smelly, to hide. We are broke. No real wealth means no real money and no real credit, and, therefore, no large force of construction workers will be needed. Take a deep breath and figure out what you want to do next. And yes, I am saying that as much to myself as anyone….

My guess is that it will take at least a generation to recover from this financial predicament. All our debts will have to be paid…the debts that your governments have incurred in your name will be paid by you. Believe it. We will have no choice but to live within our reduced means. The options you have today, the programs and support you have today, the retirement that you think you will have tomorrow no longer exist.

China is not going to be a superpower; they already are the superpower. The Chinese are testing a stealth fighter technologically superior to our best fighter, of which we have scant few. When they move to production, they will be able to produce as many as they think they need. We will not keep pace…we are broke. We will lose air superiority in a wide arc around China, including the Koreas, Japan, Taiwan, and the Philippines within five–10 years. The discussion of whether or not we should be the world’s policeman is moot; we can’t be.

We have to pay our debts, live within our means, roll up our sleeves, and get back to turning raw materials into products with efficient labor. Government’s restrictions and regulations concerning manufacturing will begin to ease…they will have no choice. We as a nation will eventually emerge stronger and more compact. We as individuals will be greatly challenged, but we will be fine, if not finer.

There is no need for panic or despair, no matter what the news brings in the near future. Take this period of relative calm to sharpen your tools, mend your work clothes, and trim the fat out of your budget. We’ll all be back to work shortly, and no doubt working our butts off at something we’d never expect today…

Regards,
Jim Kearns
Rustic Structures
Whiskey & Gunpowder

February 9, 2011

A Self-Employed Carpenter’s Thoughts on the Future was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Housing is probably going down. Remember, Mr. Market has to destroy the idea that “housing always goes up.” When he’s finished people will think that “housing never goes up.”

Unemployment? People are gradually beginning to realize that the last ten years were the worst for creating new jobs in America’s history. If they keep thinking about it they will realize that it is not just the bust that is destroying jobs; there was something very wrong with the boom too.

Meanwhile, the markets are still calculating, figuring, deciding what things are worth. In the last couple of days, they’ve been thinking that maybe stocks and gold got a little too uppity.

From all we can tell, the Great Correction continues. And here’s a report from The New York Times that tells us where it leads:

OSAKA, Japan – Like many members of Japan’s middle class, Masato Y. enjoyed a level of affluence two decades ago that was the envy of the world. Masato, a small-business owner, bought a $500,000 condominium, vacationed in Hawaii and drove a late-model Mercedes.

But his living standards slowly crumbled along with Japan’s overall economy. First, he was forced to reduce trips abroad and then eliminate them. Then he traded the Mercedes for a cheaper domestic model. Last year, he sold his condo – for a third of what he paid for it, and for less than what he still owed on the mortgage he took out 17 years ago.

“Japan used to be so flashy and upbeat, but now everyone must live in a dark and subdued way,” said Masato, 49, who asked that his full name not be used because he still cannot repay the $110,000 that he owes on the mortgage.

…For nearly a generation now, [Japan] has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.

“The US, the UK, Spain, Ireland, they all are going through what Japan went through a decade or so ago,” said Richard Koo, chief economist at Nomura Securities who recently wrote a book about Japan’s lessons for the world. “Millions of individuals and companies see their balance sheets going underwater, so they are using their cash to pay down debt instead of borrowing and spending.”

Regards,
Bill Bonner
Whiskey & Gunpowder

October 27, 2010

Slow Growth or Contraction was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Trouble is, things are not going to “normalize.” Not for the Panhandle of Florida, and probably not for the rest of the state, either.

Projections suggest that Florida can expect oil all along its west coast, and possibly throughout the Keys and up the east coast as well. Yet even before BP’s well began spewing crude, pressures within the state’s economy were building. It was an explosive situation awaiting a match.

Oily beaches and dying wildlife are likely that match.

Take unemployment. Statewide, it ballooned from 3% in 2006 to a peak of 12.3% in February 2010. Though it’s backed off, it remains in double-digit territory at 11.2%. “Officially” – though official numbers understate the problem. Illegal immigrants, some 4.5% of Florida’s population, aren’t counted; the long-term unemployed and aging workers are regularly purged, even if they’re still looking for work.

This in a state already confronted with the worst of the coming healthcare/taxation crunch. It has the second oldest population in the nation, and as its citizens retire, their earnings fall off, causing tax revenues to drop. At the same time, healthcare bills rise, stressing social service budgets.

Florida is ground zero for Baby Boomer demographics. With 600 seniors for every 1,000 workers now, and the number trending inexorably higher, soon every employed person in the state will essentially have to adopt one senior to care for out of his or her paycheck.

Housing? Naturally, rising unemployment amplifies the difficulties of maintaining homeownership. With further negative effects from the oil, we can only expect the situation to worsen. A tsunami of defaults and foreclosures – and bank failures – would not be a surprise.

Florida is mortgaged to the hilt. It ranks second only to California in total securitized non-agency mortgage loans, 10% of the national total. Of those, half are 60 days or more delinquent, or 16% of all such mortgage delinquencies in the country, the highest ratio anywhere.

The state is full of retirees trying to live on modest incomes while hanging on to their homes. Unsurprisingly, this has led to a disproportionate amount of at-risk loans. 85% of the statewide pool is rated Alt-A or Subprime.

Nor has the crash in prices bypassed the Sunshine State. Nationally, fewer than 30% of houses sold for a loss in the past year, compared to nearly 50% in Miami and 65% in Orlando.

Many would-be sellers are clinging to the cliff edge by their fingernails. Overall, 81% of all Florida loans are under water, with the average mark-to-market loan-to-value ratio standing at 138%. Almost 40% of borrowers are crushed beneath debt of more than 150% of the value of their homes.

State government is no better off.

As the oil cuts into employment prospects, tax revenues will nosedive – and even before the blowout, the state was broke. The projected budget shortfall for fiscal year 2011 was $4.7 billion. What it will actually be is anyone’s guess – a bigger number is baked in the cake – but at $4.7 billion, it already represented more than 22% of the FY10 budget.

Both tax hikes and service cuts are political suicide. And desperately raising taxes in a depressed economy tends to decrease revenue, anyway. Yet a balanced budget is mandated by law. Where will the additional money and/or savings come from?

Then there’s Florida’s $113.8 billion public pension fund. It must generate earnings of 7.75% per year to meet its commitments to the nearly one million public employees and retirees who depend on it.

What investment safely yields 7.75% today? Nothing. So the fund’s administrators are asking for permission to try some “riskier” investments. Maybe they’ll succeed. Or maybe they’ll wind up staring down the barrel of a pensioners riot.

Florida’s coming problems are intractable, at best; the least bit of bad luck and they may become utterly irresolvable.

Expect bailouts. Washington will not be able to ignore what happens to this beleaguered state. The federal government will be forced to spend yet more vast sums of money that it doesn’t have, on a recovery that will take years, if it ever happens.

And that makes Florida’s plight a looming horror for us all.

Regards,
Doug Hornig
Whiskey & Gunpowder

August 18, 2010

Oil Spill Just the Beginning of Florida’s Troubles was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I’m just a simple arithmetician but I understand the sort of figures we’re talking here and it is no use for the government to tell me there is no inflation — it has been at least 3% by the most stringent definition for the last three years — and that national unemployment averages 9.7% if we just don’t count everyone without a job. Laughter…my husband was a genuine mathematical genius who had a passion for statistics and understood numbers the way I understand words. I would love to hear John’s answer on what the unemployment rate is.

One reason we’re doing better in Texas is in the diversification of interests and in the tightly closed systems in our many small towns. Those are not totally immune, and in Hamilton the little, more expensive grocery store “down town” (that being the four blocks which surround the Courthouse square) has gone out of business. David’s, a small local chain, no doubt smiled, and stopped running so many loss leaders. What else? When it is twenty-five to forty miles to the next grocery store of any sort, pretty much you have a captaive audience. I imagine the newest restaurant in town will go under, but pretty much nothing much will change. It can be frustrating that kids who aren’t going to inherit a family business have to go elsewhere to find jobs in “normal” times, but it is quite comforting to know not many jobs will be shed in your town because there weren’t any superfluous jobs in the first place. Each business has a place in the local economy that isn’t going to go away, from the two drug store (neither chain) to Ace is the Place, to the feed stores. In the cities and industrial parks many areas are humming along nicely turning out machinery, computers, chemicals, and electronic devices. No, we’re not just about beef and oil. We’re making things they want in BRIC. The first quarter — first two months, actually — exports rose 24.3% over 2009, close to thirty billion dollars’ worth. Patrick Jankowski, Vice President of research for the Greater Houston Partnership, commented that there are over 700,000 jobs in Texas geared to manufacturing goods for export, probably not counting mounted steer horns and armadillo ashtrays. We account for about ten per cent. of the entire export output of the USA, a scary thought, in some ways. Bell Helicopter is gearing up for a big, new project in Amarillo, hiring now, starting at over twenty dollars an hour to assemble widgety things.

Sure unemployment is high in the barrio. When isn’t it? Teens in general are having a harder time finding summer jobs because there are those with more work experience and better motivation willing to take what they can find. Life is tough in some sectors of the oil business, thanks to the power of the Greenies and Mr. Obama outlawing the most promising drilling areas under the guise of expanding exploration. One of the articles I read posited that Texas began adding jobs again last fall, “thanks mostly to its great position in the largely recesion-proof energy industry.” Well…sort of. Maybe. Out in Odessa and Midland things are stalled because there is no way to get that sweet, light Texas crude over to the refineries, and for sure it’s too far to build a pipeline. Mr. Obama has decreed that no new refineries may be built (just which section of the Constitution would that be?) and if you can’t refine oil and can’t move it, once your storage facilities are full the best you can do is hope for a better future. One landman I know has cut her price from $450 to $200 a day because there isn’t a whole lot of leasing going on. Last November Texas crude production was down to 1.08 million barrels per day, on the order of half the amount pumped in the Reagan years. Natural gas is doing well — up about a third between 2004 and 2008 — which is cheering both because I expect the coal industry to be destroyed by fake science and a great deal of money put into that campaign by the LNG folks who stand to take over coal-fired plants. Seems to me, as a long-time Texan that we’ve got a bunch of capped wells that were shut down over the years because they produced “too much” gas and not enough oil to suit demands of the time.

We Texans are proud of having our own electric grid — bearing in mind that a hamlet about thirty miles from me went without power for over three weeks after Ike. Their juice came from a different plant in Houston. I’m not a big fan of wind power, myself, between the cost of the enormous three-bladed devices (about a quarter of a million dollars, which doesn’t include shipping and handling and perhaps not even installation) and the difficulty of “storing” electricity; it is commonplace to see a lot of those pricy units turned off when there is ample wind to spin them merrily. There are those who hope to begin exporting electricity to the rest of the US, such as Paul Sadler of Wind Coalition. That might be fine for wind power operators, but it would almost certainly raise prices locally, judging from what happened a decade or so ago when Washington started selling power to Oregon and California, which was in a bind because of foolhardy insistance in flushing away water needed for irrigation and hydroelectric facilities in the name of dear little fishies. There isn’t a person reading this who can’t come up immediately with “Same amount of product sought by more people equals higher prices.” I don’t think anyone has come up with “Keep Texas for Texans,” but it sounds reasonable to me. It may be too late since we have already gotten the attention of Denmark, Spain, and Queen Beatrix. Fortunately, one reason we could construct our grid fairly easily is that we weren’t tied down with federal regulations or coordinating with other states. With luck, trying to connect to Boston, Kansas City, and San Diego (just for examples) would turn out to be as frustrating and time-consuming as attempting to build a nuclear plant. I noted that Texas can now put out 10,000 megawatts which was stated as being sufficient for three million homes, and I thought, immediately not “NIMBY” but “KIIMBY” for Keep It In My Back Yard. Sure, I can handle Vestas and Iberdrola coming over to play, but retaining control of our power strikes me as “prepping” on a national level. T-Bone Pickens considered putting what even he thought was a bundle into wind power and decided there were faster, better ways to make a good ROI.

Our housing market remains far more stable for several reasons. Turnover has always been slow in rural areas, and we had a hefty influx of dazzled Californians early in the century. They may have been buying while the bubble was bursting, but compared to prices in the Golden State our housing was considered ludicrously under-priced. Dallas has been especially fortunate over the years, and prices there are only 7% off the 2007 highs, Case-Shiller indicates. That’s okay, there’s no point in coming to Texas if you’re going to live in Houston, Austin, San Antonio, D/FW, or El Paso. You seen one big city, you seen ‘em all. Sure, the River Walk is pretty (if you like tourist attractions), but other than that SAT is five million people, two freeway rings, and traffic that would scare anyone other than a Los Angeles cab driver. We’re doing better in terms of lower delinquency rates on mortgages. In particular, those three or more months behind average 5.78% here and 8.78% nationwide. (Do you suppose someone makes these figures up? With 99 other choices, yet the terminal two digits are the same?) It should also be noted that Texas law limited taking out secondary loans that amounted to more then eighty per cent. of the value of the property. People were protected somewhat from their own greed and the myth that “Real estate will always increase in value!”

I bridled somewhat when I read, ‘Once a separate nation, Texas has recently been behaving more like an independent economic republic than a regular state. While it hasn’t been immune to the problems plaguing the nation, the Texas housing market, employment rate, and overall economic growth are relatively strong. Chalk some of this up to accidents of geology and geography. But Texan prosperity also reflects the conscious efforts of a once-parochial place to embrace globalization.” and “Texas today is more suburban engineer than urban cowboy, more Michael Dell than J.R. Ewing. Austin, home to the University of Texas, the state government, and Dell Computer, has a 7 percent unemployment rate…ExxonMobil is based in Irving. But the state’s energy complex is increasingly focused more on services and technology than on intuition and wildcatting. And it is selling those services into the global oil patch. Russian, Persian Gulf, and African oil developers now come to Houston for equipment, engineering, and software. While its political leaders may occasionally flirt with secession, Texas thrives on connection… “

I couldn’t help feeling that this was a little condescending and I was reminded of an ancient expression, “Poor boy, he must be tetched in th’ head.” We may enjoy wheelin’ and dealin’ but at heart we’re still Texans, with our own unique culture that we’ve done a lot better hanging on to than the USA has of agreeing on how to define an American. Businesses come and businesses go, like a li’l ol’ company that had a base here on my stomping grounds long ago, name of Texas Instruments, but cattle and corn fields are forever. We aren’t going to get over feeling that an Aggie ring (signifying graduation from Texas A&M, not 20 minutes from me) is worth two degrees from Harvard and Yale any day. Besides, Dell’s in Roundrock. Laughing at myself. This is like only Aggies being allowed to tell Aggie jokes (non-Aggies can tell ‘em if they make the dunce a Polack, a perfectly respectable term ’round here.)

The important part isn’t what I interpreted as a slur on my own, my native land, but that we’re doing some things right here the rest of the country isn’t.

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

April 28, 2010

P.S.: The new figures on inflation are out, and I relish telling you about them soon. NO inflation? Ho, ho, ho!

Recession, Texas Style was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In that article, I pointed out that as the government-required minimum wage increases, fewer and fewer new jobs become available and existing jobs disappear. Feeling the ‘heat,’ the Feds are now contemplating still another “stimulus” to create the very jobs they destroyed last summer. I predict their current efforts will be another abject failure.

Step back for a moment and view the overall economic conditions now faced by Americans. Well-documented economic shenanigans by banks and brokerage firms caused a major melt-down in our economy. In their attempt to survive, many businesses cut back on expenses including labor. Simply put, jobs were lost. The official rate of unemployment nation-wide skyrocketed to over 10%. The true rate of unemployment is now at 20% when you include all the folks who have simply given-up looking for a job or are reduced to part-time work. And this is now the point at which the unintended consequences begin.

Still another government program (pogrom?) has been in effect for decades: Unemployment Insurance. The benevolent intention was to provide a “helping hand” to folks who’d lost their jobs during that period in which they looked-for and obtained other employment. In our current malaise, those benefits have been extended and extended. Benefits can now be collected for up to 40 weeks and an extension to that “limit” is also being considered by Congress. So let me ask you: If you can be paid for not-working, do you really have a sincere desire to look for new employment? Are you not more inclined to relax, bide your time and hope that you can ultimately find that high-paying replacement job? Moral hazard anyone?  (Editor’s note: a splendid young former marine–two tours–I’ve known all his life is using his $870 after withholding every two weeks to finance college this semester, which I suppose to be an unintended consequence, indeed!)

Want to know how to very quickly reduce unemployment to near-zero? Eliminate unemployment benefits all together. Heartless as that may sound, consider what is now going on behind the scene.

You’ve been laid-off. You had what passed for a good job at a good rate of pay. Now you can’t find another job that you 1) Like, and 2) Pays you what you want to be paid. So you remain unemployed. You’re unemployed NOT because you can’t find work, but because you can’t find a job that meets your unrealistic (in today’s economic circumstances) requirements. Since Uncle Sugar is willing to pay you unemployment benefits for up to 40 weeks, no big rush to take just-any-job, is there? This is yet another moral hazard created by our government.

Do you suppose the folks in Washington don’t know this? Since they do know, the question remains: Why do they pursue what they know won’t work? Ah, again, we simply follow-the-money.

Washington is comprised of politicians. Politicians spend their entire careers primping (pimping?) for their next election. Virtually everything they do and consider doing is predicated on getting themselves re-elected. Nothing that might be in second place even comes close. How they approach that objective varies from person to person, but one thing is common among all. They try to win points with potential voters who will support their re-election. Enter you as an out-of-work voter. What can I, the politician, do for you to convince you to help re-elect me in my next run for re-election? Why, I can pay you to do nothing. I can pretend to be on your side against the “greedy employers” who are only looking out for themselves. I can pretend to help you buy time while you look for that elusive job that pays you far more than the current market will bear. I can help make you feel special. I can pretend that I care about your welfare. Just remember my name when it becomes your turn to vote. That’s all I ask.

The game called politics simply pits the “ins” vs the “outs.” Those that are in do everything they can think of to stay in, and those that are out do everything they can think of to get in. That’s the entire game. Period. If something positive gets accomplished in the process, well that’s an unexpected side benefit. Unfortunately, under normal circumstances, far more goes wrong than goes right. This, then, is the result of the law of unintended consequences.

Sound cynical? You know it’s true. But since it’s not your ox that’s being gored, why should you care? After all, you’re the one getting the free unemployment ride.

Human nature demands that you look-out for number one. That’s natural. That’s rational. What is not rational is to ignore the fallout that occurs when you try for a free lunch at someone else’s expense. Not smart. That’s the action that comes back to bite you when you’re not looking and least expect it.

In a recent article, Chris Mayer of Agora Financial’s Capital and Crisis newsletter wrote about what he called the Yellowstone Booms and Busts. He noted that “In the late 1800s, Yellowstone National Park’s game population — its elk, bison, antelope and deer — began to disappear. So in 1886, the U.S. Cavalry took over management of the park. And its first order of business was to help bring back the game population.”

Well, you can already guess what happened. “The surging elk and deer populations ate a lot more. This caused the plant life to diminish. Aspen trees, for instance, started to disappear, eaten by the numerous elks. This hurt the beaver population, which depended on the aspen tree. The beavers built fewer dams. The beaver dams were important in helping prevent soil erosion by slowing the flow of water from the spring melt. Now the trout population took a hit, because it didn’t spawn in the increasingly silted water. And so on and so on…”

I referenced this brief account because it is usually easier to understand the concept when it is presented in a detached manner. Yet the identical domino effect occurs every time some artificial interference prevents a natural occurrence from taking place. When government steps in and tries to do something that would not otherwise take place, far-flung consequences also occur. We never know in advance what those might include. We can, however, make an educated guess.

In this case, no jobs will result from government efforts to create jobs. It is also reasonable to expect that the opposite will occur. Fewer jobs will be available because of government interference with the free market. Government efforts will utilize funds that might otherwise have been available for businesses to use as capital with which to create jobs. Governments simply do not create jobs. Private industry creates jobs. Governments create interference with job creation. But government job creation “sounds good!” Too bad it simply just doesn’t work.

What does work? You’ve heard the answer many, many times. Have government just get out of the way and let private industry do their thing in a free market environment. Period.

That statement doesn’t set well with the political class, however. Henry Blodget, of all people, posted a short article by Joseph Stiglitz on February 17, 2010 entitled We Need a Second Stimulus Now, Says Nobel Laureate Stiglitz, or Americans Will Be Unemployed for Years. No, Mr. Stiglitz and Mr. Blodget. That is exactly what we DON’T need. A second Stimulus will simply prolong the high unemployment for years. Government getting out of the way and allowing private industry to correct the government-created problems is the only way the unemployment problem can be solved quickly. Fortunately, the reader responses to this article were overwhelmingly critical of Stiglitz’s position, too. That tells me the American Public is no longer easily bamboozled by the political solution.

As I’ve been considering this no-jobs problem, a Broom Hilda cartoon from perhaps 30 years ago came to mind. To paraphrase from memory, Broom Hilda is sitting in her rocking chair while a friend is reading to her from that day’s newspaper. “The government announced today that a massive new government spending program will be established. It will employ hundreds of new government workers at a cost of millions of dollars. ‘We don’t really expect the program to accomplish anything, said a spokesman, but what the heck, it’s not our money.’ Broom Hilda then gulps and her friend responds “I made-up that last part just to see if you were listening.” In the final frame, Broom Hilda remarks “Now tell me you made-up the first part, too!” I’ve always been impressed that a clever political cartoonist can present in just one to perhaps four frames a concept that otherwise takes 1500 words of prose to develop. If we adjust that cartoon for the intervening inflation over the past 30 years, that cartoon today would read “thousands of new government workers costing billions of dollars.” Scary indeed.

Yet, isn’t that exactly what Washington is doing these days? The cartoon would be funny if it were not so true. Just throw more money at each and every problem. Don’t give any thought as to whether or not additional money is the solution. Just make it look to the public as though we’re doing something.

The year 2010 is what is called a mid-term election. You can already see the “I want to be re-elected” class starting to scramble. Several notable politicians have announced they will not run for re-election. I guess they no longer wish to expose themselves to the embarrassment of being defeated at the polls. Wouldn’t it be interesting if most of the so-called incumbents were simply defeated in their bid for re-election? That’s not a permanent solution, but it sure sounds like a good start.

Cheers,
Tex Norton

February 22, 2010

Next Up: The No-Jobs Bill was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Justice Little, Editor of Taipan Daily, also out of the AF stable, says that 26 M jobs have been lost.

The Federal Government says that the unemployment rate is 9.8%.  Traditional methods of accounting make the answer right at twice that much, recognizing that people are still jobless even though they have exhausted (expanded) unemployment compensation or been on the rolls more than six months.

Another source claims one million jobs were lost last month, as opposed to the government reports which will fluctuate for a while and finally show up on the back pages as 475,000 again, at a good guess.

Rocket scientists used slipsticks and Cray computers which have been replaced by fancier models, while split second “trades” are executed algorithmically on the floor of the stock exchange to garner half a cent a share, but let’s get back to good old tried and true methods which don’t even require an abacus.

If there are 130 M jobs, net, in the USA (rounding slightly to keep the arithmetic simple), and 25,000,000 have been lost (again, rounding to keep matters simple) then we can either say that the job market has shrunk on the close order of twenty per cent. (a ploy the government should have thought of but didn’t, and if we go with 26 M that is precisely 20% of 130M), or we can say that the jobless rate is approximately twenty per cent., which is exactly the same result I got when I told you in the second paragraph what the true rate probably is.  Inconvenient truths do not really disappear just because someone mumbles mystical new accounting parameters.

It is possible that the wizards were trying to tell us that there are currently 131M jobs in the USA, down from a previous high of 157M.  In that case, the job loss is 26/157 which is an awkward number to reduce by division while typing, so let’s multiply, instead.  The figure is one-sixth, almost exactly.  (6 x 26 = 120 + 36 = 156.  That is definitely close enough for government work.)

By that view, 15% + 1.66% (a quick way to deduce 1/6, since multiplication is far simpler than its upside down view, division.  Perhaps no one ever told you that, or that addition is only backwards subtraction.)  = 15.66 % total destruction of the portion of the economy known as employment.  That is even worse news than that 20% of those who need jobs can’t get them.  It means that a sixth of our economy has disappeared to foreign lands or been destroyed by the fall of the stock market, banking instutions, and real estate.

Even a large factory starting up isn’t going to produce more than a few thousand jobs (and it is not guaranteed to succeed, particularly with such horrors as cap and tax, more regulation, and the guarantee of many other new taxes ahead of us), and who has the capital for such an undertaking, other than foreigners with a surfeit of falling dollars?  Do we really want an economy dependent upon the good will of those chortling over the demise of the dollar as the reserve currency?  I guess assorted governments in Washington this century shouldn’t have borrowed so much money from them.  They did, though, and in some ways the best thing that could happen is for the whole sleazy fraud of fiat currency and the Fed to crash around their deserving ears.

It is possible to jigger figures in any number of entertaining ways, but that won’t change the facts.  All it does is disguise them and lead to more palatable annual corporate reports and soothing statements from Bernanke, Geithner, and Obama.  If our measure of “recovery” is getting back to the slippery ground we were on five years ago–not a pleasant place to stand, as events have revealed–then it follows that 25,000,000 jobs must be created, one or a few at a time.  These cannot be temporary jobs, such as census workers or seasonal workers; that is the equivalent of putting a bandaid on a ruptured appendix and saying that time will heal it.  Time is going to cause us to bleed out and die of septicemia if we don’t do some surgery, here.

Mind, all creating twenty-five million real jobs in manufacturing, construction, agriculture, and education would do is restore the status quo ante.  As daunting a task as that would be, it would not solve the problem; it would merely stanch the bleeding.  Until we work our way through the devastation of all the bubbles there is no way to clear the decks for rebuilding.

I don’t think it can be done.  I’m feeling nautical, so let’s say that we have been hulled between wind and water.  Our masts are down in a tangle of rigging, the sheets are snapped and tangled, and our lower decks are awash in blood and loose cannons rolling over the wounded.  All the surgeon has in his chest is salt and rough canvas.  In this case, Geithner and Bernanke are terrified of using the bone saw.

Oh, occasionally the Captain and senior officers will throw a bank overboard, but pretty much the fix is in for those who are connected.  We are witnessing the greatest transfer of wealth in the last two hundred and 233 years, and it is all going to special interest groups.  Other than what they dole out on luxury goods and buying more power that money is not going back into the economy to create new businesses or expand old ones which is the only way that genuine, long-lasting, productive jobs come into being.

Can there be a recovery without jobs?  Of all the idiotic suppositions that only Keynesians would promulgate!  Of course not, any more than those who are not employed can pay bills, eat, and provide tax recovery.

Jobs are not an intangible, save in one increasingly dangerous sense.  Jobs must produce something.  By its very definition, a job is labor which produces something the employer wants more than he wants or needs his money.  It always seems to surprise Statists, but the purpose of business is to create profits, not to create products, and certainly not to create jobs; indeed, technology is reducing the need for human workers, to the understandable delight of entrepreneurs.  Creating profits involves risk, forethought, knowledge (or hired experience), and it isn’t something just anyone can do.  In particular, it is not something which can be done under shackling regulations, increased taxes and cost, insecurity over fuel availability, and capricious governments dedicated to non-science and paying off themselves and open-handed constituents.

The biggest problem I see is not fiat money (which is collapsing from its own lack of substance), or the purported “global” economy, which is composed of numerous countries none of whom are doing well.  (Prosperity in China?  Oh, my, tell me another one.)  The big problem, which is being exacerbated, is that something like 40% of all “jobs” are in government.  Yup.  Four out of every ten “workers” are paid lavishly (in general, twice what counterparts in business make for similar tasks) are engaged primarily in the business of making our lives more difficult, our businesses less profitable, and our ability to plan for the future almost impossible.  This country has grown bureaucracy and chased manufacturing jobs off shore.  It has increased regulation and deleterious “services” at the expense of freedom and capital to create real business which include real jobs and genuine products which can be sold instead of buying shoddy merchandise from China.  We’ve seen the cycle…from Taiwan to Japan to Sri Lanka, and now to China.  We have sent our money overseas for many decades rather than fight to reduce regulation, reduce taxes, and reduce costs.  A fork lift operator simply isn’t worth $86,000 a year, even if he works for the ci devant “Big Three.”  Not many of them do any more, and it serves them right.  Greed at all levels of the unions  made American products too expensive to buy.  Manufacturers–whom, I will remind you again, are not in business to employ “workers,” but to make profits–picked up their blueprints and went elsewhere.  We cannot blame them.  We would do the same if we were able.

No, friends, there will be no “jobless” recovery.  There will be no recovery at all until we are so much farther down that October of 2009 looks like “the good old days.”  The “green shoots” are the slime growing up the North wall of government, the bacteria of corruption, and of parasites such as governmental Spanish Moss and Pharma and Agribiz mistletoe.

What is to be done?  You’ve got your choice.  Destroy Carthage, or opt out.  Pull back into your own perimeter.  Produce nothing that can be taxed or regulated.

That’s what we have come to.  State revenues are down 17%, which looks like a pretty close correlation of 1:1 for enterprise destruction and joblessness both.  Every job destroyed is another blow at the Nanny State which cannot survive without continuous economic growth, because such as they never curtail their own spending and urge to shackle and harry those who produce the funds upon which Statists thrive.  Perhaps you are not in a position to do so, but if you are…just quit.  This isn’t new advice; Ayn Rand gave it to you sixty years ago.  Do not lend credence to your oppressors and do not support them…and do not look for any genuine green shoots representing real growth any time soon.

Regards,
Linda Brady Traynham

October 19, 2009

The Jobless Recovery, So Called was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

According to USA Today — I know, not the most hard-hitting rag out there — contestants on shows like America’s Got Talent and Deal or No Deal have undergone a dramatic change in the past year.

Instead of dreaming of building a mansion or retiring early, the poor saps that go on those shows are now just hoping to win some kind of money to keep afloat. On Deal or No Deal, the percentage of unemployed prospective players jumped from just 5% of its total applicants to 20%.

Who Wants to be a Millionaire’s host, Meredith Vieira, claims that her contestants no long play for big prizes. They’re there to collect a few mortgage payments or to help pay off credit cards.

Apparently, the market’s recent fake recovery hasn’t ended this game show contestant trend. Vieira notes, “There’s still a sense of need, as opposed to want.”

This could spell disaster for marketing these shows. No one wants to watch desperate people cashing out early so they don’t have to move.

“Mustn’t Watch TV” aside, you shouldn’t be surprised by the still-pathetic situation out there. After all, one of the favorite buzz phrases on CNBC is “lagging indicator.” Forget that the phrase is an oxymoron for a moment. It’s applied to – more than anything else – unemployment numbers.

We have seen a slow down in job losses, which is to say that we aren’t losing jobs in this country as fast as we were. July even saw a slight increase in employment. I suspect a portion of that tiny bump is due to people giving up. If you aren’t applying for jobs, you no longer count.

We like to think of unemployment as a percentage. But it’s important to put the actual number of would-be-workers into perspective.

We have about 14.5 million unemployed people in the U.S. — at least 14.5 million reported unemployed people. Of those, we have a significant amount that has been in that situation for more than half a year.

As this chart shows, that’s the most people on the dole since the Second World War:

This begs the question: if we do ever recover, where will these new jobs come from?

Where’s Our Next Bubble?

Speculating about which industries will provide future jobs is still damned near impossible. Could Obama’s “green tech” jobs ever come to fruition? Possibly, but it won’t be in the near future. Right now, no one can even afford those kinds of products.

Even with amazing developments in turbine technology over the past few years, it still costs about 67% more for wind power than it does for coal or nuclear power. So for electrical engineers, there might be jobs in the R&D stage of this “green revolution.” For the majority of the 14.5 million unemployed, however, that’s of no help.

It’s doubtful that we’ll see a real recovery in manufacturing jobs. That’s one segment in serious trouble. We didn’t even see it recover during the boom from its 2001 lows.

Technology is one area with some potential. Americans’ need for the latest digital toy hasn’t dissipated in this rough economy. Sure, no one can afford new plasma TVs, but just take a look at AT&T’s iPhone 3G sales this summer. Pretty impressive.

We aren’t going to stash our life savings into Apple, but we are keeping our eyes peeled to see what comes next.

The energy sector, of course, needs a recovering economy to be of importance. It’s certainly not going to lead us out of our recession. Once we do recover, however, drills will once again meet the dirt and create some jobs. But right now, we’re seeing a lot of abandoned wells across our country.

We could always just pile back into the financial services industry and pretend the past two years were a dream. Unfortunately, that’s quite possible knowing how forgetful that crew is.

Wherever new jobs come from – if they come at all – and no matter which industry leads the way, we need to keep a careful watch over every sector. As you can see in one of our favorite charts, if you know which sectors are heading in which direction, you stand to make a lot of money:

There’s no doubt we’ll replace the financial bubble with another one – just like we did with the tech bubble in the 90s. So…where’s our next bubble?

Regards,
Jim Nelson

September 7, 2009

Recovery and Jobs; Where’s the Next Bubble? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.