Forget “Keynesians” Versus “Deficit Hawks” … The Real Fight is Between Economic Policy Which WORKS and Policy Which DOESN’T WORK

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Unemployment is rising again.

This updated chart from Calculated Risk tells the story:

Mish provides the following summary of the new job numbers:

Check out these Grim Job Details courtesy of Bloomberg.

  • Payrolls increased 39,000, less than the most pessimistic projection of economists surveyed by Bloomberg News, after a revised 172,000 increase the prior month, Labor Department figures showed today in Washington.
  • The jobless rate rose to 9.8 percent, the highest since April, while hours worked and earnings stagnated.
  • The unemployment rate was forecast to hold at 9.6 percent, according to the median prediction of 83 economists surveyed by Bloomberg. Estimates ranged from 9.4 percent to 9.7 percent.
  • Overall payrolls were forecast to climb by 150,000, according to the survey median, with estimates ranging from 75,000 to 200,000.
  • Manufacturing payrolls dropped by 13,000 in November, the most in three months. Economists had projected an increase of 5,000.
  • The report also showed an increase in the number of long- term unemployed Americans. The number of people unemployed for 27 weeks or more increased as a percentage of all jobless, to 41.9 percent, the highest since August.

Mish’s view of the economy is gloomy:

The stock market is higher, but things are not improving, at least in the real economy. The stock market is up, because profits are up. Profits are up because of unsustainable stimulus spending, and because corporations are not hiring.

Moreover, China and India are overheating, and Europe is in shambles.

Looking ahead, there is no driver for jobs. States are in forced cutback mode on account of shrinking revenues and unfunded pension obligations. Shrinking government jobs and benefits at the state and local level is a much needed adjustment. However, those state and local government cutbacks will weigh on employment and consumer spending for quite some time.


Last month I said “Retail hiring is not sustainable. Nor is the rise in manufacturing. We might see a few more months of this (or not), but this is highly unlikely to be the start of something big or sustainable. I still expect to see the unemployment rate back up above 10% in this cycle. While today’s report may not be as good as it gets, it certainly is close to as good as it gets on a sustainable basis.”


Sticking with a message I said on August 18, 2009 “Expect to see the unemployment rate structurally high for a decade.”

Karl Denninger writes:

On the annualized basis the employment trends data has now turned downward again.


What’s worse, the employment rate is now threatening the lows:

That’s the important number as it comprises the tax base.

Our government has squandered the opportunity to do the right thing by forcing the bad debts into the open and closing the institutions responsible. Instead they have chosen to lard up more than $4 trillion in additional debt on the Federal Balance sheet on the backs of the American People with the claim that we can and will “grow out of it.”

No we can’t, no we’re not, and this BS dog and pony show crap along with the embedded lies in corporate and bank balance sheets must stop as the employment base has failed to turn around.

We’re playing Japan but do not have the buffering to do it and we no longer have the margin to add more debt in order to try to “stimulate” our way out.

That path was taken and now we know for a fact it has failed.

Mish and Denninger – who I both respect enormously – are against Keynesian stimulus. I am not really pro- or anti- any school of economics … I am simply for doing what will work and against doing what won’t work.

As I pointed out on August 11th:

“Deficit doves” – i.e. Keynesians like Paul Krugman – say that unless we spend much more on stimulus, we’ll slide into a depression. And yet the government isn’t spending money on the types of stimulus that will have the most bang for the buck: like giving money to the states, extending unemployment benefits or buying more food stamps – let alone rebuilding America’s manufacturing base. See this, this and this. [Indeed, as Steve Keen demonstrated last year, it is the American citizen who needs stimulus, not the big banks.]


Keynes implemented his New Deal stimulus at the same time that Glass-Steagall and many other measures were implemented to plug the holes in a corrupt financial system. The gaming of the financial system was decreased somewhat, the amount of funny business which the powers-that-be could engage in was reined in to some extent.

As such, the economy had a chance to recover (even with the massive stimulus of World War II, unless some basic level of trust had been restored in the economy, the economy would not have recovered).

Today, however, Bernanke, Summers, Dodd, Frank and the rest of the boys haven’t fixed any of the major structural defects in the economy. So even if Keynesianism were the answer, it cannot work without the implementation of structural reforms to the financial system.

A little extra water in the plumbing can’t fix pipes that have been corroded and are thoroughly rotten. The government hasn’t even tried to replace the leaking sections of pipe in our economy.

In truth and in fact, the government’s policies are not only not working to stem the rising tide of unemployment, they are making it worse.

Forget the whole “Keynesian” versus “deficit hawk” debate. The real debate is between good and bad policy.

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