A business friend says he's hopeful he's seeing some signs of economic improvement... I tell him I wish I could agree. There are definitely up and down spots as you travel around. Some areas look like they're on their last legs, others are relatively thriving. In Northern California the contrasts can come within 20 miles or so - the Social Media Center that is eastern San Francisco vs. the bankrupt Vallejo.
In business, too, there are up and down spots. Traditional businesses are suffering. Niches in software, biotech, health informatics (ok, lots of federal subsidy action going on there to distort things) are making it. Businesses that can make it by tuning their operating costs and efficiencies are doing alright. But this in itself is one of the structural headwinds ripping at the economy.
Of the Two Terrible Headwinds, Headwind #1 is Debt. Crushing, suffocating, likely to never be repaid. But staying and staying hidden (securitized, rehypothecated, derivitivized...) on the books from individual households to the too-big-too-fail financial behemoths, in almost every corner of the world economy. The Federal Reserve is busy sopping up government debt like some bizarre zen-inspired carbon-sequestration program.... "if we buy up and bury the debt, and pay zero interest on it, is it really there?" The debt-driven growth of the last 30 years has choked itself off. Like Scotty said, "the engines just can't take it anymore!" No sustainable economic growth will occur as long as the enormous overhang of bad debt remains. The only question is who gets to be the fall guy? Our crony capitalist government would like to be sure that taxpayers and especially savers foot the bill. As one of those saving taxpayers, I want to see banks take their fair share of the pain. This is our generational political battle royale. Suffice it to say, you would have to have a double-rose tint on your glasses to think that the debt serfs once known as consumers will pull the world economy out of its dumps, and so doing, recreate all those lost jobs. Forget it. The tide has turned and perhaps in a silver lining way, people are realizing they just don't need so much junk in their lives.
Well then, won't business reinvest, say, when it feels the political climate is more "pro-business", perhaps with a change of occupancy at the White House? Won't all the business reinvestment drive a glorious new age of prosperity? Stop and think like a business. Topline growth except in disruptive niches is hard to come by. The way to increase shareholder value is to reduce operating costs. And if that comes from increasing capital investment, where is the payback? Um, lower labor costs? So how is this efficiency-driven survival directive going to increase employment and household spending?
Short answer - it can't.
The last option is so ludicrous I hate to even rhetorically pose it... yes, the government will hire that growing tidal basin full of people "no longer in the workforce" (note, not "unemployed", because that is a
bad statistic. As the number of employed stagnates and drops, our government statisticians must do their job and do what they can to
reduce unemployment - hey, we'll just drop more people out of the labor force. Suggestion - pay attention to the Labor Participation rate.)
Just what kind of jobs will the government create to save the economy? The recent past may offer a hint. The last big labor absorption initiative was creating and staffing up the Department of Homeland Security. I know that I personally feel ever so much more secure with all the TSA folks standing around at the airports I visit, and I get a palpable sense of well-being that they are the solution to our economic malaise. Yes, it's the miracle cure. Just have everyone work for government. It's worked so well everywhere else... what are we waiting for? More regulation, the engine of economic growth. The only 'good' thing about this non-option is that it will be funded by.... more government debt, which the Federal Reserve will sop up and bury... end of problem, right?
