Obama Stimulus Check

By Gerard Jackson

The economic news is indeed grim and getting grimmer, with rising unemployment flagging the bad news. Nearly 600,000 jobs went in the third quarter with more than 250,000 jobs going in September, which totalled 1.37 million job losses for the year, even though the unofficial unemployment rate stayed at 4.9 per cent. This can be explained by discouraged workers leaving the workforce, something that the U-6 unemployment measure confirmed when it rose to 8.3 per cent.

Regrettably, none of this is real news to me. I have been warning for yonks of the recession and the form it would take. I don’t doubt readers will easily recall that I predicted the recession would emerge in manufacturing and work its way down the production structure. It was in manufacturing, I stressed, that employment would first appear but whose existence would be masked by the unsustainable increase in demand for labour at the lower stages of production. Well, that’s exactly what happened.

September was the 12th consecutive month in which US industrial production fell. And despite the steady and very visible decline in industrial production the great majority of economic commentators ignored it, preferring to prattle on about consumer spending boosting the economy. Consumption without production was what these dimwits were preaching but they were to dumb to see it. But now the results can no longer be ignored, especially considering that manufacturing has laid off more than one million in less than a year and now the rot of unemployment is spreading with dole claims accelerating.

A telling effect of the slowdown has been the fall in commodity prices which appears to be quickening. This is interesting because it’s in commodity prices that one can usually see the first effects of a developing recession, though I believe that the most visible effects always appear in the higher stages of production, which has certainly happened in the US, what some are now calling a “classical recession”.

Now what is of particular interest with respect to commodities and the higher stages of production is that if the Keynesian fallacies were indeed true then any impending recession would first be felt at the consumption stages of production and then work it’s way up the production structure. This is a fact that Keynesians appear unable to come to terms with. To do so would eventually lead them to abandon Keynes.

The refusal to face economic reality is already being seen in demands for increased government spending and lower rates to stimulate economic activity. That manipulating interest rates is what created the current economic mess is an argument that only a few are prepared, or even able, to make. (At least in America the argument is being made. In Australia this argument isn’t even allowed a hearing, unless you run your own media outlet. Three cheers, make that four, for the net).

That many suspect that the old Keynesian nostrums may not work this time is clear from commentaries making dark references to the liquidity trap, the state of Japan and the hopelessness of “pushing on a piece of string”. The prattling of these commentators only serves to highlight their own hopelessness in the area of sound economic theory.

I don’t doubt America’s capacity to make a rapid recovery without the need for Keynesian snake oil. What I fear is the capacity of politicians and those who influence them to inadvertently sabotage that capacity.