Thursday, October 24, 2013

Job creation? We actually need to start talking 'wealth creation'

"Job creation" has been the mantra in overdrive since the great bank heist of 2008. It sounded reasonable since the resulting unemployment rates were sky high and for many demographics and in many regions still are. This isn't just spewed out of the mouths of politicians and bankers, but the people too. Often you'll hear "politician x needs to do more for job creation", etc, etc.

But much of the jobs that have been created since 2008 are service jobs, part time jobs, temporary jobs, and perhaps most importantly most of them revolve around the consumption and not the creation of wealth. We tell ourselves that jobs unto themselves and the jobless rate provide insight into the level of economic health. "There are no bad jobs".

This focus on job creation over wealth creation is part of the illusion of economic recovery. It's what allows the likes of Mitt Romney to say that money should be cheap and corporate taxes should be low so that the wealthy can employ people. The focus is on empowering the wealthy to meagerly employ the people rather than empower the people to become the wealthy.

Today I came across a great piece about the 'boom and bust cycle'. It's nothing I didn't already know but it sums up an important companion to my blog post here which I have been wanting to write for a long time about the difference in job creation and wealth creation to follow up my post on inflation vs. devaluation. You really should read the entire piece on boom and bust but I will quote the relevant section here.
As always, they will overexploit the power. They will manufacture money and give it to the masters that coercively secure the continuation of the power. The masters will obviously spend the money, creating a transaction in which nothing is payment for something. These transactions are by definition unsustainable because they violates Say`s law. We call them “bubbles”

In a free market supply is used to create its own demand. When people spend fiat money they exercise demand without providing supply. Said in other words, spending fiat money is tantamount to capital consumption and makes society poorer.

While the boom that follows money spending feels good, it must inevitably come to an end because the economic system cannot maintain the constellation that was induced by the money printing in the first place. Within the boom lays the seed for the necessary bust.

We have made a metric that sums up fiat money in its purest sense and compared that to the underlying trend growth of nominal GDC.

Our hypothesis is simple: if money growth exceeds the GDC metric a deflationary busts will inevitably come. If authorities refuse to accept reality and print more fiat money at the first sign of bust, they may “save the day” but they will “ruin tomorrow”!
Why are central banks keeping rates so low? To spur lending which is supposedly supposed to lead to hiring. Hiring into what though? If you look at Greece the most available job is to become enrolled into their ever growing police force used to suppress the many, many, riots and protests they've had over their failing economy. The police positions are "jobs" paid out of government debt which produce absolutely nothing and provide next to nothing except to slow the inevitable degradation of Greek society. The Greek government is actually "creating jobs" as a direct result of depleting wealth. This is to say that they are expanding their currency base without proportionate increases in the wealth being created and this can only lead to devaluation of the currency (which is diluted across the Eurozone).

Jobs for the sake of jobs will not propel a real economic recovery. All it does is distribute an ever-diminishing amount of buying power across the population as a whole. Every transaction is an exchange of energy and in every transaction someone is getting ripped off or there wouldn't be profit at all. Profit when no new wealth is being created is simply an excessive transfer of energy from one party to another one of which who afterwards will have less energy to their name than the other guy did before the transaction. With a monetary supply expanding faster than new wealth can be generated at the bottom, the wealth that currency represents is future - yet to be produced (and no guarantee it will ever be produced) - wealth.

If profit is being made at the top, with "job creation" focusing on service to facilitate the consumption and transference of that wealth on the assumption that someday, somehow, there will be new replacement wealth in the future then guess what happens to all the jobs created when inevitably our flawed assumption of future wealth proves false?

My guess is a severe shortage in buying power to consume with which of course is going to put a damper on the demand for service and consumption. As the boom and bust post closed with...

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."

- Ludwig von Mises

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

1 comment:

  1. This is exactly what this young generation requires so badly. Young people simply lack motivation. Just imagine: why would they need to spend sleepless nights by writing their essays and others papers (MyEssayService: website which sells college papers ) when there are no prospects, when there is zero guarantee for them to quickly find a good job once they graduate the college. Am I correct? Of course, I am. That is why let's hope for the best only!