Jobs? (No, not Steve)



Jobs? Jobs. Jobs. And more Jobs. Where are the jobs? Always the wrong answer to the wrong question. Do we have to wait upon big employers or the government for deliverance? Why not foster entrepreneurship and broaden capital accumulation to promote wealth creation? Instead we try to make the planet turn in the opposite direction. Maybe the French are finally starting to get it (if they listen to this banker). No such luck on this side of the pond.

From the WSJ:

The Emperor Creates No Jobs

France’s top central banker speaks some blunt economic truths.

French and German ministers met Tuesday in Paris to discuss the euro zone’s stagnant economy and rising unemployment. We hope they took with them the recent annual reportfrom French central bank chief Christian Noyer, who offers as clear an assessment as you’re likely to find in Europe of what ails the euro zone.

“The underlying objective,” Mr. Noyer writes, “is growth. Not just a temporary spurt, sustained artificially by public spending, but strong and lasting growth that creates jobs and is based on the development of modern and competitive production capacity. This kind of growth cannot just be summoned up. It requires a profound change in public policy.”

Consider France’s inflexible labor market. Mr. Noyer says France “is one of the biggest spenders on employment policies in the developed world, but it still has one of the highest levels of unemployment.” The central banker argues that France’s various programs and incentives to boost employment are undermined by their sheer complexity.

He also asks a fundamental question: “Do these subsidies not serve to offset market rigidities that could in fact be addressed directly at a lower cost and with more effective results?” In almost any other country, the question would answer itself. But to argue for “flexibility” in France is to risk the barricades. Maybe it takes a central banker to say that the emperor creates no jobs.

German GDP, Mr. Noyer notes, “contracted almost twice as much as in France in 2009.” But Germany’s greater labor-market flexibility allowed for a much faster rebound. France lost 500,000 jobs in that period, while German unemployment “remained stable,” in part because businesses could cut working hours when growth slowed. [Note: this is called market flexibility in the face of inevitable change.]

With French President François Hollande pushing older workers into retirement to “make room” for the jobless young, we hope he pays attention to Mr. Noyer’s words on jobs: “Public policies are often overly concerned with preserving the jobs of the past, at times to the detriment of future job creation.” He adds: “Today’s jobs are not the same as those of yesterday and, likewise, those of tomorrow will be different from the jobs that exist today.” [And nobody in government or the private sector really knows what tomorrow will bring. I doubt it will be a Tesla in every garage.]

Mr. Noyer’s third truth concerns government spending, which is 55% of GDP. “For the past ten years,” he writes, “France has had one of the highest levels of public spending in the world. Over a certain threshold, which our country has probably crossed, any increase in public spending and debt has extremely negative effects on confidence” (our emphasis). For this reason, trying to stimulate growth through a spending binge is bound to be counterproductive. Businesses and households, anticipating higher future taxes to pay for the binge, will cut back, offsetting any boost from deficit spending.

Mr. Hollande has in recent months led the charge for new German-financed spending to bring Europe out of recession. Mr. Noyer has hit on a better cure: less government spending, more flexible labor markets, and more competitive private firms able to create the jobs of the future. If only the President would listen.

Middle Class and Houseless


From Dr. Housing Bubble (link here):

The bailout of the banking industry was under the pretense that it would help the average homeowner.  What is interesting is that we are now subsidizing the foreclosure process for many of these homes to be sold to investors.  In California, roughly one-third of home sales for the last couple of years have gone to investors.  HAFA (Home Affordable Alternative Program) has made the process of selling distressed homes much easier via short-sales and deed-in-lieu of foreclosure.  Take a look at where most of this has occurred:


42 percent of all HAFA activity has occurred in California.  This has not come at a low price:

hafa amount

What is troubling about this is that many regular homeowners would like to buy these homes if they were actually on the market.  In fact, many would pay fair market value if these homes made it to inventory in a more normal fashion instead of going through the labyrinth of government programs and bank alternative-accounting standards.  Instead, these large cuts in balances are feeding into the investor frenzy.  The end result is a dragged out foreclosure process and the market suffers with a lack of inventory.

Going to any open house in Southern California during a sunny weekend will make you think that the entire housing market is on fire and that the homeownership rate must be going up.  Obviously with all these buyers, the rate must be going up.  Right?  Well, it isn’t because a large number of these buyers will be absentee buyers or will flip the house shortly.  Another bigger reason comes from the lack of supply.  The maddening crowds are simply hungry investors and regular buyers trying to out-bid each other for the limited supply of homes on the market.  Low rates are adding fuel to this mania but the homeownership rate continues to decline.

What higher housing prices and lower ownership rates means is that the benefits are going to fewer and fewer of those who merely want to exploit housing as a speculative asset market rather than a place to live. These are the folks who have benefited directly from bank bailouts and easy monetary policy from the Federal Reserve. The upshot is that the wealth gap between the haves and the have-nots is widening as a direct result of government policy. Is this what we voted for?

(Note: I should add that there is nothing wrong with investors making their bets in a free housing market, but the government shouldn’t be tipping the scales in their favor. The price volatility of an asset market increases its attraction for speculators by creating a greater potential for quick profits. This is the mistake we’ve made with an asset so essential as homes. Instead of secure homeowners to support a growing economy, we’ve created lots of winners and losers, all leveraged with unsustainable debt.)