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Why Can't Politicians Understand What is Really Happening?

Every time I hear a politician or economist call for more stimuli to create jobs I just shake my head and wonder, do these people really not understand what is happening in the jobs market? Do they really not understand that government can't legislate prosperity? All governments can do is steal from...errr I mean tax its citizens and then throw their funds away on nonproductive 'make work' jobs.

Seriously how does it help the country to tax a productive citizen and then use that money to pay another citizen to dig a hole? And if you think that is ridiculous the government will then pay someone else to fill the hole in.

How in the world is this a rational use of capital?

Let me lay out the series of events that led to the mess we are now in.

From 1982 to 2000 we had two completely new industries created. The personal computer and Internet. These two technologies drove an incredible productive phase in history. They created millions and millions of jobs.

But as always happens when a new technology hits the market there is over expansion. By 2000 there were too many tech companies. Many of them had no earnings and never had any realistic chance of ever earning a dime. As always happens when expansion reaches over saturation the market will act to clean out the unhealthy companies. That cleansing process was the bear market from 2000 to 2002. Millions of jobs were lost as the tech sector contracted.

That was unacceptable to politicians and the Fed, so Greenspan slashed interest rates and printed billions in a vain attempt to side step the natural economic forces. The Fed created the conditions and end result that led to the real estate and credit bubbles.

Those twin bubbles temporarily created millions of jobs in the construction and finance industries to replace the jobs lost when the tech bubble collapsed. Unfortunately we now know this was a phony economy built on a massive credit expansion and not a sustainable economic expansion.

As expected the bubble imploded. When it did we again lost all those jobs that were created in the bubble sectors. We also lost a lot of marginal businesses that were only surviving because of the false economic expansion.

So instead of halting the bear market in 2002 Greenspan just created a much bigger mess.

Now politicians are trying to create jobs by taxing and spending. That's not going to fix the problem. In order to fix the unemployment problem we need the next "new" industry to come online. The computer and Internet drove the economic expansion in the 80's & 90's. Electronics and plastics drove the expansion from 45 to 66. The automobile and mass production drove the bull from 1920 to 29.

We are never going to get out of this mess by taking money from productive members of society and giving it to unproductive members to dig holes. We need the next "new thing" to come online. My best guess is that it will come out of the biotech sector.

If politicians really want to create jobs they should direct funds into research and development in the biotech industry and speed up the process of finding and bringing online the next new industry.

 

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