August 21, 2010 05:07 PM UTC

Jobs update - still poor with bursts of suckiness

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• by: DavidThi808

Update: from Paul Krugman

Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth.

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This was a strange argument even a few months ago, when the U.S. government could borrow for 10 years at less than 4 percent interest. We were being told that it was necessary to give up on job creation, to inflict suffering on millions of workers, in order to satisfy demands that investors were not, in fact, actually making, but which austerians claimed they would make in the future.

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But, in America, we do have a choice. The markets aren’t demanding that we give up on job creation. On the contrary, they seem worried about the lack of action – about the fact that, as Bill Gross of the giant bond fund Pimco put it earlier this week, we’re “approaching a cul-de-sac of stimulus,” which he warns “will slow to a snail’s pace, incapable of providing sufficient job growth going forward.”

from The Washington Post

They blame their profound caution on their view that U.S. consumers are destined to disappoint for many years. As a result, they say, the economy is unlikely to see the kind of almost unbroken prosperity of the quarter-century that preceded the financial crisis.

Across the industrial parks and office towers of the Chicago region, in a more than a dozen interviews, senior executives said they see Americans for years ahead paying down debts incurred during the now-ended credit boom and adjusting spending to match their often-reduced incomes.

This speaks to the fundamental issue, if people aren’t spending then business won’t invest – it would be stupid to do so. Things aren’t getting worse, but neither are they getting better.

And the emphasis on investment now is additional bad news for most (it’s actually good for my company):

And like the corporate sector as a whole, when Crawford gives the green light to an investment, it’s usually designed to lower the need for labor. Instead of expanding capacity, such as building a bigger distribution center and having to hire more workers to fill it, he is looking to serve existing customers more efficiently.

So can we fix it with tax policy? No.

But when Speer and other executives were pressed on the role that tax and regulatory policies play in hiring, they drew only vague connections. Speer said his decision whether to hire is driven primarily by demand for his products. Orders are coming in strong enough that he is running about 20 hours a week of overtime. So he is weighing whether to hire two or three additional manufacturing workers.

Can we fix it with capital construction (stimulus)? No.

He said an additional burst of fiscal stimulus from Washington might help boost economic growth for a period of months. But that is unlikely to affect his decisions about hiring and expansion, which Speer said are based on expectations for sales over years to come, not just the immediate future. As long as U.S. consumers remain deeply strained, he is unlikely to undertake aggressive expansion.

Can we fix it by making more credit available? No.

For large companies such as Illinois Tool Works, the price of borrowed money isn’t the problem. The company had $1.3 billion in cash on its balance sheet at the end of June, up from $743 million at the end of 2008. Lower interest rates wouldn’t make much of a difference, either.

“I could borrow $2 billion tomorrow for 3 1/2 percent,” said Speer. “But what am I going to do with it?”

I’m not saying that any of the proposals out there are of no utility, everything can help some. But it’s not a game changer.

We use WWII as the example of how to get out of a depression. But one giant thing WWII provided was certainty that there was going to be massive purchasing for years. Not just 50,000 bombers but 100,00 next year and the year after.

So what to do?

Got me. But one thing FDR did very well is he tried many different things, kept those that worked and fixed or ended those that didn’t. Each of the effective measures helped, and the process of ongoing attempts gave people faith in the future.

In Washington now it takes immense effort to start any new program. That effort not only adds a lot of delay but each proposal is both watered down and loaded up with pork to get it through. And forget killing any new program no matter how ineffective it turns out to be.

So, any brilliant ideas???