Quantitative Easing Makes Unemployment Worse Not Better

It’s hard to make sense of all the headlines, reports and analysis on the subject of US September employment figures.  The private sector is creating a few jobs, but not as many as are being shed by the public sector.  The numbers being created are not even enough to keep pace with the growing numbers of people of working age coming into the marketplace, caused by population growth, let alone start helping the 7 million back to work, who lost their jobs in the 2008 recession.

The picture is far more bleak than the headlines suggest.

The figures are, of course, reported in the financial media, who always want to keep a positive spin to keep asset values nice and high, where politicians also want them.  If a realistic report  about the real employment picture was allowed out, the President, facing his mid-terms next month would not be happy.

The current optimism in the markets is courageous given the huge problem that’s growing in the employment field.  The bulls imagine that another large quantitative easing will boost the economy, and are keeping faith with the growth story based on the continuing idea of the Fed acting as Deus Ex Machina.  But as is apparent from the first quantitative easing, the money doesn’t make any jobs.  It simply gets sucked into investment markets, temporarily driving up share markets and commodity markets, which will eventually crash again once the money feed dries up.  Nothing changes at street level, where the problems are.

If anything, QE adds to the employment problem by driving up the prices of vital commodities such as energy.  If commodity prices were able to fall, and if the minimum wage were reduced, this would do far more to get employers hiring once more than throwing yet more trillions of dollars into asset markets.

It’s a bit like a doctor treating the symptoms and not the underlying causes.  If workers rights were removed, and minimum wage was reduced to a sensible level, employers might dare to hire once more.  Most have been burned with claims from lawyers backing up incompetent or dishonest staff who they’ve had to fire in the past, and have seen their costs rise with the minimum wage rising from $5 to $7 in 2007, driving up the level of all wages.  The employment market needs employment market measures, not more financial ones such as the much-hyped QE2.

If prices could come back down, of labor, of commodities, and the legal risks of employing people removed, then employers might start the process of investing once more.  By delaying the inevitable, and throwing yet more cash into the pool, there will arguably be even fewer jobs after more QE than before.  It’s change that’s needed, not more and more money, which merely inflates asset prices, which otherwise could fall back to more realistic levels.

The real world is waiting for those who imagine financial fixes can override political errors, to give up their games.

These are the measures which will get Americans (and others) back to work –

1. Cut the minimum wage.
2.  Stop inflating asset prices with excess cash.
3.  Allow commodity and real estate markets to fall and find their floor.
4.  Get rid of the masses of so-called workers rights which merely act as a disincentive to employ, and raise costs.

That means, to get more jobs, cancel all thoughts of quantitative easing, and deal with the real problem, the relationship between employers and employees.  Allow the market to adjust, which it will do if it’s given a chance.  It may be painful but a lot less painful than the even bigger financial crisis that is being created every time the Fed turns on the taps, enabling the current power-holders to maintain the status quo just a little bit longer.

The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.
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5 Responses to “Quantitative Easing Makes Unemployment Worse Not Better”

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  2. the doctor says:

    I normally enjoy your analysis of events , however when I read statements such as ” If workers rights were removed, and minimum wage was reduced to a sensible level, employers might dare to hire once more. Most have been burned with claims from lawyers backing up incompetent or dishonest staff who they’ve had to fire in the past, and have seen their costs rise with the minimum wage rising from $5 to $7 in 2007, driving up the level of all wages.”
    Why not go the whole hog and return to the days of company housing and the company store ; the workforce being held in check by gangs of hired thugs . A return to the ways of the 1880’s seems to be a great , a brilliant idea ; after all the lower classes must be kept in their place .

  3. Tapestry says:

    I am sorry to offend but the pint needs making. And thinking about.

    Markets will recover if they are allowed to find their low points. Employment sadly is a market.

    I know that offends many people. But ignoring the facts of economic life don’t help. Employers are sick of carrying the load, while lawyers crawl all over the workplace.

    You can wait until unemployment is 30% before removing obstacles to employment or act now. Sometimes the choices get pretty stark in depressions.

    A job at $200 a week is better than nothing to eat. It’s not my preferred choice. Wealth is far better, but it was not my decisions which caused the massive debts in the first place. I am just suggesting that the way out of the current impasse requires a phase of relative hardship, of which the preferred path is the one I outline.

    Do I enjoy recessions and depressions? Not at all. I’m sure that wars are not much fun either, but someone has to decide who to kill and what losses to take. We are approaching just such a situation where good choices are disappearing from the menu.

    I hope people appreciate that. Only once we get where we actually are can we plan our next moves out of the economic hell hole that has been presented to us.

  4. Twig says:

    @Tapestry
    Exactly. You took the words right out of my mouth.

    I could really do with some extra pairs of hands, but I’m reluctant to take on anyone else due to previous experiences, hence we’re coping with what we have.

    The red tape and various workers rights (esp. maternity) are making employment law a minefield for employers, and we’ve now got the prospect of compulsory pension provision looming.

    When are employees going to take some responsibilty for themselves?

  5. Tapestry says:

    At least the whole raft of employment rights should be suspended until full employment is achieved. That is assuming there is a consensus that 10 million people idle at home is problemo numero uno.

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