One pill makes you larger, and one pill makes you small, and the ones that mother gives you, don't do anything at all, go ask Alice, when she's ten feet tall - Jefferson Airplane, White Rabbit
Watching the Presidential debates when you know the data, and you are a student of economic dynamics, brings a different perspective to the political and media spin heard following the debate. It is obvious to me that the politicos play to the weaknesses of human nature:
- if something is wrong, it can be immediately fixed.
The Presidential candidates offered their economic "pills," which they suggested would solve the economic woes. What struck me was that neither candidate displayed any vision of economic dynamics. Both used their parties' "litmus" tests in the way they described what it would take to get the economy going:
- protect the little guy
- unleash greed to help the little guy
- grow small business to expand employment opportunities
- energy independence
- bring back jobs from overseas
- reduce taxes on business
- reduce taxes on the middle class
- reduce deficit
Come on - these elements are a mixture of economic headwinds and tailwinds. It depends on the way they are implemented whether it could be economically positive, and neither candidate is exposing enough detail to make any determination. Most know I tend to gravitate towards employment / unemployment analysis - and that I feel that if the USA could magically create jobs, it would be the economic magic pill. The real economy is about people working and creating.
It seems economists and politicos believe money is the economy (and not one of the many measures of the economy). It appears to be true that small business is the jobs driver, which is easily seen by using ADP's employment data (the BLS does not issue data series on employment by company size). Fewer and fewer jobs exist in the USA in companies with 500 or more employees, and this trend has been in play since 2000.
(click to enlarge)
Both candidates must believe the dynamics of the above graph, as both want to energize small business. The magic pill both candidates offered was increased profit potential so small businesses could hire more. Higher profits are not an incentive to small businesses to hire - an expanding economy is an incentive to hire. An expanding economy creates jobs - and jobs create more jobs (jobs multiplier).
And likely, the poor employment dynamics today is in itself creating the headwinds for economic expansion. The USA is in a real Catch-22. Is there a Catch-22 pill? Likely it is a series of pills that will be very, very slow acting. And neither candidate exposed any real pills. In fact, there is little difference between the candidates economically - or the economic approach of the previous President Bush.
Two countries jump to my mind as needing to import workers (employment demand above the population supply) - Germany and Singapore. Both countries are:
- very Austrian in their approach to their respective economies;
- resource poor;
- significantly better social safety nets than the USA (including universal healthcare)
Maybe the problem is the current Keynesian approach which has built up a permanent toxicity into the private sector from uncorrected government intervention errors causing imbalance -and now this is an economic headwind. I am not suggesting that pure Austrian economics is the way out of poor employment dynamics at this point.
But the magic pill will not come from maintaining the economic doctrine, which has been applied since World War II. And neither candidate is offering any more than a color change of the same pills.
My normal review of the economic releases of this past week is in my instablog.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
