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Can Jobs Erosion Be Stopped?

In the 1960's, major companies were run by management who came up through the ranks. They would walk the production floor, and spot problems – and request specific corrective actions. Chief Officers usually were highly trained in the company's prime money making activity.

There has been a metamorphosis away from this type of Chief Officer . In 2010, Chief Officers are given dog and pony shows on the production floor on the few occasions they visited.

The facts showed higher profitability when cost and risk control dominate operational decisions. Chief Officers today literally all have business pedigrees – and companies being run using data printouts of control elements far from the actual production of the product.

I am not only talking about large manufacturers. The same is true of large companies in all sectors – transport, finance, services, retail, construction, warehousing

The belief is that if you can successfully run Home Depot, then you will be able to successfully run Caterpillar.

The new breed of management has no direct sensitivity to the product it produces. Their understanding comes from talking to those who can, and the numbers which appear on the printouts. All companies are run on the same basis including funding methodologies, cost control, and human resources.

In our age of globalization, business loses its nationality. Points of manufacture are disassociated from points of sale. I could argue that business just sets up a series of free standing cells and then figures out mechanisms to drain the profits. Business simply optimizes its model to maximize profits. It is a cold and rational process.

The USA economy is controlled by the laws passed by Congress, administered by the Presidency, with the monetary environment controlled by the Federal Reserve.

Few involved in controlling the economy has worked in an element of the economy except as a consumer. The FOMC are academics, economists, financial or law. The Obama team has under 10% business experience. Congress is a pigs breakfast of backgrounds with the majority with a law background – however the leadership are career politicians.

So what the economic controllers rely on is the advice of a group of individuals who are trained to understand economic matters – the economists. Economists know how to read the data printouts to predict economic direction, and have a series of “proven” and theoretical solutions to keep the economy steady. I use “proven” loosely – as the solutions are only proven to economists themselves as it does not meet the standard of proof to a scientist or engineer. What is worse is that the economists themselves are torn on what is “proven”, and the theoretical solutions.

It should be obvious this type of economic control would lead to major policy failures.

America emerged in the twentieth century as an economic powerhouse on a platform of capitalism. In theory a capitalist system is self regulating outside of having general ground rules for behavior of the participants. Like all pure systems, if left to run free creates many negative consequences. As each negative consequence was identified, a regulation or law was created to prevent this negative.

Capitalism became more and more regulated. The Federal Reserve came more and more active in controlling the business cycles with monetary policy. Meanwhile business became more and more globalized. And beginning in the 90's, with free trade we threw the borders open.

It is my position that the economic system is now out of balance and needs to be re-optimized. I have read that if you are taking more then three or more medications (pills), it is likely that the medications will start interfering with each other.. We have created a hodgepodge of laws, regulations and policies. At this point it is likely many are doing the opposite of their original intent.

These problems are solvable. Anyone who studies economies knows a healthy economy creates jobs equal to the population growth rate. Conversely, an economy in trouble contracts jobs. We have been in trouble for 10 years – there is no end in sight.


This graph above has nothing to do with the unemployment rate. The graph shows the relationship between what the BLS has determined is the size of the workforce and the size of population. The workforce includes employed and unemployed people. The BLS states the civilian population in June 2010 is 237,690,000, while the number of unemployed is 14,623,000. It should be obvious that the BLS is attempting to correlate the workforce size to what they envision is the jobs potential. Unemployment to the BLS is simply the difference between market potential and the actual employment.

Over 6 million jobs disappeared since 2000 which is an average of over 500,000 jobs per year. The jury is still out on jobs permanently lost in this Great Recession – however it is easily more than an additional 6 million. The point is you cannot forever consider somebody unemployed when there is no job available in the foreseeable future.

Expanding the time scale of the workforce – population ratio, on the chart below you will note that the BLS began adjusting the workforce – population ratios down in every recession after 1990. Again, It has nothing to do with the workforce – but it is done to correspond to the amount of jobs lost and to adjust the unemployment rate by removing long term unemployed from the workforce.


To put the employment situation into perspective, we will have one of the lowest jobs to population ratios since the 1970's. This is a socioeconomic issue as the two wage earner per family is under siege.

The employment trend lines are very negative and have been so since 2000. It is obvious jobs are a problem, and the recent economic cycle either exasperated this problem or was caused by this problem. Yet not one peep is heard from the economic controllers. They have no answers as the problem is unrelated to monetary policy. And lawmakers and regulators cannot issue a rule to create jobs – and do not realize that their own rules and regulations are significant factors in this problem.

Knowing jobs are disappearing, why are we even discussing even more free trade agreements this week? Would not any reasonable person suspect free trade has a role in the loss of jobs since the deterioration began shortly after the first free trade agreement came into force? I am for free trade – but I am for jobs growth more.

For jobs to stop contracting in the USA, it will take an all out review of every law, regulation, ordinance, and tax that raises the cost of production. This is a large task with so many conflicting special interests including labor and environmental.

The paradox is the laws meant to protect workers are doing the opposite. Much like the Jones Act which was intended to protect American jobs aboard American flag vessels not only made American shipping non-competitive, but it has almost wiped out American flag ships on international routes.

And that is the way it is.


Rebuttal to Krugman

Friday, the NYT published an Op-Ed piece by Paul Krugman entitled Pity the Poor C.E.O.’s. The sarcastic title speaks for itself. While the article contains no facts which are disputable, the article was written around a premise and simply leaves out the other side of the argument.

All the buzz lately is that the Obama administration is “antibusiness.” And there are widespread claims that fears about taxes, regulation and budget deficits are holding down business spending and blocking economic recovery.

How much truth is there to these claims? None. Business spending is indeed low, but no lower than one would have expected given widespread overcapacity and weak consumer spending. Business leaders are feeling unloved, but giving them a group hug won’t cure what ails the economy.


Dr. Krugman totally ignores globalization – and does not mention that the investments are occurring overseas. Industry now has choices where to invest, and it does not have to be in the good 'ole USA. Business will always optimize when conditions change.

The Nobel Laureate has decided being a political advocate is more important than advancing the readers understanding of the issue of the relationships between legislation / regulation and business.



Economic Data This Week:

Initial unemployment claims decreased slightly for the week ending 03July. The four week moving average trend is a flat line.


The Institute of Supply Management (ISM) released their June 2010 surveys for manufacturing last week & non-manufacturing this week. The significant take away from the data is that in both surveys, new orders were less good – but still increasing MoM.


The changes in backlog were insignificant and completely contrary to the M3 business data released by US Census which shows backlog contracting. Expanding backlog validates the economy is expanding. Remember this is a survey, and one month is not a trend.

Wholesale Sales and Inventory data has been released for May 2010 which shows sales down slightly and inventories up slightly according to their adjusted data – all statistically insignificant. I will review this data with the manufacturing and retail Census data when it is released next week.

The Federal Reserve released the May 2010 consumer credit data showing the downward trend intact. The question is how much of the contraction is attributable to Joe Sixpack not using credit, and how much is due to the banks recognizing bad debt.


ECRI's WLI growth continues its trip to the dark side falling from -7.6 to -8.3. As Lakshman Achuthan, ECRI's Managing Director, is taking a well deserved vacation from the interviews – there is no quote this week. In the WSJ article this week Double Dip Fears Are Overdone, Lakshman has the following comment:

This article is factually incorrect in suggesting that 5 of 7 inputs to our Weekly Leading Index (WLI) are financial indicators.


Major Bankruptcies This Week: Medical Staffing Network Holdings,


Banks Failed this Week:



Disclosure: GDX and various puts and calls not exceeding 3% of portfolio value