Justin here. Professor Jeremy Seigel recently pointed out the difference between the fear of unemployment vs the reality of unemployment here:
"The June unemployment rate touched 9.5%, and it is quite possible that that rate will eventually exceed the 10.8% rate reached in November 1982. But even if it does, unemployment will rise, at most, 2 percentage points, far less than the reported 30% to 40% of workers who fear they will be laid off. And as the economy mends, the fear of being unemployed will subside, and consumption will rise."
Professor Seigel has forgotten more than I'll ever know about economics, but I have to (very respectfully) disagree. I think it’s unrealistic to think that Joe Consumer could have 10-20% more friends, family, and co-workers lose their jobs and then somehow he'll then breathe a sign of relief and start spending because some economists think that unemployment is already far above normal. I think Joe is going to pretty scared for a pretty good while.
It’s like being in a pit of lions that, on average, will eat no more than one human in a sitting. I don’t know about you, but if I’m stuck in there and two of my buddies were just eaten (mind you that's 100% above the average), mean reversion and bell curves won’t make me any less likely to need a clean pair of underwear.
Monday, August 03, 2009
I Probably Won't Be Dessert . . .
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There are some very stark differences between 1982 and now, such as the federal deficit as a higher percentage of GDP, http://www.usgovernmentspending.com/federal_deficit_chart.html
ReplyDeleteor US treasury Securities held by foreign countries accounted for 13% of all treasury securities while in 2007 it had risen to 25%,
or unfunded future entitlements (which by the way doomed GM),or millions of illegal aliens stressing the government services infrastructure.
Yeah we're in the lion’s den and our legs are being gnawed off as we speak. The only reason we haven't suffered a higher rate of erosion of our currency is that most of the rest of the world has had lower productivity than the US, and higher marginal tax rates. That's also about to change in this Congress and Administration. What good are cheap foreign imports when people can't find a job. Central economic planning has been a dismal failure throughout the world, and as Milton Friedman has stated in the past, fiddling with money supply and interest rates is at best an inexact science, and at worst counter-productive.
I think Professor Siegel will be shown to have missed the mark by a mile. In this economy and in to the near future, profit margins have been and will continue to be squeezed, and employers and potential employers will continue to minimize their work force, as the imbeciles in Washington mandate more taxes for ill advised programs. The economic growth since 1989 has been the result of:
1. Historically low interest rates (per Warren Buffet)
2. A huge productivity boost due to the advent of the microprocessor.
3. Lower Capital Gains Taxes.
Where will the next necessary productivity boost come from?
Rest assured that any and all attempts by the Feds to further distort the natural efficiencies of the free market vis-a-vis "social engineering" will be self defeating, and as always have negative consequences.