Bond Guru Condemns Bi-Partisan Slide to Anti-Keynesianism

Southpaw

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Jan 12, 2005
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The July Investment Outlook from PIMCO founder Bill Gross:

It is becoming obvious that the 2012 election will be fought on a battlefield of job creation. A 9.1% official unemployment rate, and a number nearly double that when discouraged and part-time workers are included in the rolls, portend an angry and disillusioned electorate, which will include millions of jobless college graduates ill-trained to compete in the global marketplace. Over the past 10 years under both Democratic and Republican administrations, only 1.8 million jobs have been created while the available labor force has grown by over 15 million. It is clear, however, that neither party has an awareness of the why or the wherefores of how to put America back to work again. Few economic advisors from either party ever mention structural long-term disconnects in employment – a recognition that cyclical influences will no longer dominate the U.S. labor market. Manufacturing and goods exports have ceded enormous ground to China and other developing labor markets, as America’s reliance on services and high tech innovation has exposed gaping holes in an historically successful model. Almost any industry dominated or significantly connected to finance and financial leverage has hit the canvas and stayed down in the aftermath of Lehman 2008. Housing construction, real estate brokerage, banking and consumer retail employment will likely never come back to levels dominated by our prior decade’s excessive leverage and its abuse leading to overconsumption. Because of that focus, a “shovel-ready,” vigorous manufacturing sector is not there to pick up the slack.

Similarly, the high tech paragons of the 21st century – Apple, Microsoft, Google, Facebook et al. – never were employers of high school or B.A. college graduates in significant numbers. Production of hardware, to the extent that any was needed, quickly gravitated to foreign ports of call where workers were willing to produce an excellent product for 1/10th of the U.S. wage. The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets. Now, as that road approaches a dead-end cul-de-sac via interest rates that can go no lower, we are left untrained, underinvested and overindebted relative to our global competitors. The precipitating cause of our structural employment break is both internal neglect and external competition. Blame us. Blame them. There’s plenty of blame to go around.

Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea. While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama’s long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans’ extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years.

Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, “they will come.” It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate. Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.

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Additionally and immediately, however, government must take a leading role in job creation. Conservative or even liberal agendas that cede responsibility for job creation to the private sector over the next few years are simply dazed or perhaps crazed. The private sector is the source of long-term job creation but in the short term, no rational observer can believe that global or even small businesses will invest here when the labor over there is so much cheaper. That is why trillions of dollars of corporate cash rest impotently on balance sheets awaiting global – non-U.S. – investment opportunities. Our labor force is too expensive and poorly educated for today’s marketplace.

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In the end, I hearken back to revered economist Hyman Minsky – a modern-day economic godfather who predicted the subprime crisis. “Big Government,” he wrote, should become the “employer of last resort” in a crisis, offering a job to anyone who wants one – for health care, street cleaning, or slum renovation. FDR had a program for it – the CCC, Civilian Conservation Corps, and Barack Obama can do the same. Economist David Rosenberg of Gluskin Sheff sums up my feelings rather well. “I’d have a shovel in the hands of the long-term unemployed from 8am to noon, and from 1pm to 5pm I’d have them studying algebra, physics, and geometry.” Deficits are important, but their immediate reduction can wait for a stronger economy and lower unemployment. Jobs are today’s and tomorrow’s immediate problem.

Those who advocate that job creation rests on corporate tax reform (lower taxes) or a return to deregulation of the private economy always fail to address dominant structural headwinds which cannot be dismissed: 1) Labor is much more attractively priced over there than here, and 2) U.S. employment based on asset price appreciation/finance as opposed to manufacturing can no longer be sustained. The “golden” days are over, and it’s time our school and jobs “daze” comes to an end to be replaced by programs that do more than mimic failed establishment policies favoring Wall as opposed to Main Street.
Just another communist agitator...
 

Don the Radio Guy

G-Bb-A-D
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Mar 30, 2006
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#3
Conservative or even liberal agendas that cede responsibility for job creation to the private sector over the next few years are simply dazed or perhaps crazed.
Fuck this guy. Government turns everything it touches to shit. On one hand he's saying we're undereducated, and then he turns around and wants to give people makework jobs like digging ditches. What the fuck do you need a Ph.D for to dig ditches? Anyone who buys into this shit is a fucking moron.

Oh, wait. I forgot who posted this for a second.
 

Southpaw

Registered User
Jan 12, 2005
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#4
On one hand he's saying we're undereducated, and then he turns around and wants to give people makework jobs like digging ditches.
Unsurprisingly, you believe you've found an inconsistency but it's really just your poor reading comprehension:

Economist David Rosenberg of Gluskin Sheff sums up my feelings rather well. “I’d have a shovel in the hands of the long-term unemployed from 8am to noon, and from 1pm to 5pm I’d have them studying algebra, physics, and geometry.
 

BIV

I'm Biv Dick Black, the Over Poster.
Apr 22, 2002
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#5
 

BIV

I'm Biv Dick Black, the Over Poster.
Apr 22, 2002
79,201
27,690
898
Seattle
#7
Yeah, it's just the first pic I found and I was lazy.