G REconomic news is the mainstay of media reporting, especially between natural disasters. Unfortunately, economic news seems only worth reporting when it is bad news. The media has had economic news generally backward over the last few years. The housing boom was reported as great news. Middle-income and low-income people were getting loans to buy their first homes, thanks to Congressional pressure on the Fed and banks. Everyday Americans were seeing their home equity increase significantly, so they could borrow money to travel and buy. This was all great news for the retail industry and new retail chains blossomed.

Home building was creating millions of jobs nationwide, and generating fast rising sales for Home Depot, Lowe's, as well as lumber, window, and appliance companies. And times were especially great in the home town of New York Times reporters, as Wall Street was generating vast fees from new mortgage-backed securities (after Congress had over-regulated business IPOs).

We now know that much of this news was misunderstood and misreported. We now know that new federal regulations and Congressional pressure on Fannie and Freddy, combined with weak oversight of mortgage brokers and NGO threats against banks to expand loans to minorities, led to way too many home loans handed out to unqualified and under-qualified home buyers and speculators.

Just as governments has unique powers to create financial crises, markets have unique powers to quickly clean up the mess. The press is again misunderstanding and misreporting the clean-up process. Government interventions throughout the US economy led to complex distortions in health care, energy, education, as well as housing and many other sectors.

In housing, the clean up process starts with redeploying millions of workers from the housing industry to other industries. If financial interventions encouraged companies to build a million too many homes, it is important for home builders to slow down and let real market demand for homes catch up. The government has also been cracking down on immigrants, shipping or scaring hundreds of thousands back to their home countries. That lowers demand for housing and for all the other goods and services they were purchasing while in the U.S.

So PBS is reporting the millions who have lost their jobs as bad news. Would it be better news if all these workers were to continue building homes, pouring concrete, taping drywall, and all the other tasks that surround the homebuilding industry?

The New York Times reports similar news of expanding factory closures and growing unemployment in China. Thousand of the factories that were producing goods for export have apparently closed as export orders from the US have stalled. Is this really bad news? Is there some reason why workers and factories in China can't be reoriented to produce goods and services for 1.3 billion Chinese people, nearly all of whom lack adequate housing and dream of the home appliances we take for granted? Markets work, and when companies lose overseas orders, they look to for other opportunities. If company owners and managers can't find profitable opportunities, they lose their claim on capital and labor. The sell their assets to other managers or return them to creditors. New managers take over, as they should. If the U.S. auto industry cannot figure out how to build cars that people what to purchase, they similarly lose their claim on auto industry capital and labor.

The great advantage the U.S. has compared to over-regulated Europe is that U.S. firms can quickly release assets and workers to new opportunities. John Stossel, in a segment from a ten years ago on outsourcing, reported that the US had lost 391 million jobs since the 1980s but had also created 411 million jobs. While European welfare states were mandating lengthy unemployment payments to laid off workers–creating strong incentives to stay unemployed–across the U.S., shrinking firms let workers go by the millions so they could retrain and staff millions of new firms in growing sectors of the economy. Stossel reported on a Levis factory in Tennessee that shut down, laying off hundreds of workers. But it was remodeled into a college, and most workers found better jobs in other industries (we have a link to this online Stossel segment here.

So job losses, reported as terrible news, and as open invitations for the next administration to massively intervene in the U.S. economy, are in fact good news. Job losses are good news in the sense that a hangover is good news. The discomfort of a hangover is our body adjusting to the abuse visited upon it the night before. It is both a warning against future abuse, and a call by the body to replenish lost liquids, salts, and generally readjust operations. Some heavy drinkers fight hangovers with Bloody Marys and other alcoholic drinks in the morning. They generally die young.


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