Perhaps the economy is a lot like the weather – if you wait long enough, it has to get better.
As we’ve noted before, income inequality is likely to improve in the US and the rest of the developed world once the postwar “Baby Boom” starts to retire. With as much as a quarter of the population removed from the labor force, there will be more jobs to go around – perhaps even too many. Wages are likely to rise and opportunities for employment will be everywhere.
If that doesn’t sound good enough, recent studies have suggested that inflation is likely to be low as the population ages, meaning interest rates will remain low and capital is likely to be plentiful. It’s starting to sound like this Depression is going to end with a golden age. Seriously.
Leadership. There has been a lot of talk about it lately, or more to the point the lack of it. In common talk it is defined as “Doing or standing for the things I like” far more often than is useful. But most people will agree that the inability for our US Government to do something about a large deficit coupled with a lack of support for genuine growth comes down to a lack of leadership.
I argue that this is to be expected, given the horrible lack of leadership everywhere in the developed world right now. Can anyone name a powerful nation with good leadership? Perhaps you can name a few businesses that have it, but not many. How about social leadership? Religious leadership? Are there more than a few people in rich nations anywhere who have a strong following that is capable of getting done what they want or need to?
Then again, the lack of leadership is hardly surprising. It is not about a charismatic figure that molds the masses to action – it’s about getting things done. That requires strategic thinking, and strategy is something horribly under-appreciated. I might chalk that up to excessive selfishness or a failure of moral character in our world, both of which are issues. But upon reflection, it seems to come down to a lack of understanding of what Strategy is and why it is important. And how we got here may well be fascinating.
Imagine you are in a space ship hurtling toward a black hole. You might try to turn the ship around and fire the engines full force. The problem is that the blast from your engines only adds mass to the black hole, making its gravitational pull even harder. What do you do? Fire the engines harder to try to hit escape velocity?
That may sound like a silly analogy for our ecnonomy, and it is definitely far from complete. But as the brilliant John Mauldin discusses in his “Thoughts From the Frontline”, the black hole of debt is posing some very unusual economic problems. This “singularity” is, simply put, a place where the normal equations that describe the universe of economics no longer apply. What can we do when everything we know no longer works?
The news was electrifying just one month before the election. Unemployment rate down to 7.8%! Decent gains in employment all around! After an August report so dismal it spurred the Fed into action with an open-ended round of mortgage buying, QE3, how could September’s come in so strong?
The answer is obvious to longtime readers of Barataria, since it was called when the August report came out. We’re seeing fluctuations caused by sketchy methods of calculating the state of jobs, a small number found by subtracting a big number from another big number. Indeed, the best part of the gain came from adjusting July and August up by 89k jobs total.
Underneath the big story is a much bigger story that is going unreported through this gradual turnaround. We are witnessing the printing of a strong bottom, a floor in the overall employment picture where we are roughly treading water. What makes this possible, and hard to report, is the net gain of jobs in unexpected places that the traditional survey is having a lot of trouble finding.
To every thing there is a season, and a time to every purpose under the heaven.
Ecclesiastes 3:1 (KJV)
Anyone who has been close to the edge knows what “survival mode” is like. Small flashes of adrenaline propel you from one day to the next. Each fitful dawn is a mix of dread and possibility, all of them taken one at a time. Next week? Worry about it when it comes. Next month? Forever away.
Many people find themselves in “survival mode” through this Depression, especially those without either work or unemployment bennies. For them it is a slowly unfolding tragedy, but in great numbers they become a society, a culture, and an economy that is unable to function. That’s because a free market only reaches equilibrium in the long run, actually running on small differences in the short term. But in the very longest term the magic of market forces become something else altogether.
Everything has its own time. When we start to understand that “The only thing we have to fear is fear itself” it helps to appreciate the short, long, and very long term that are all whipping us through each day and all of our days.
It was the best of reports, it was the worst of reports. The story of jobs in the USofA continues to wind down like a Dickens novel, crammed of details and well defined moments lush with feeling and energy but lacking a strong, driving plot. We know when it ends, of course – somewhere many pages from now in the election in November. Exactly how it goes down is entirely another question.
But for August we have two job reports. The ADP report showed a private employment gain of 200k, a wonderfully robust gain that suggests a strong economy is really turning the corner. The official household survey from the Department of Labor came in with an incredibly weak 96k jobs gained, a number that is not really treading water. Why the discrepancy? What is the real state of jobs? How will this play in the election?
Keep reading. This novel is far from done.