Those talking heads annoy the hell out of me. It’s not the sound-bite silliness. It’s not their staunch support of dogma at the expense of basic math. It’s not even their hyperbolic hyperventilation over insignificant data points. It’s their inability to simply frame the debate properly, to get the big picture right, so that we can even understand the problem. I must assume they are hired for their ability to look good on camera and not their intellectual capacity. Either that, or they have been ordered to dumb it down so much that they sound ignorant of the issues.
Take the confidence shortage theme of last week on Bubblevision, CNBC. It seems as if all types of talking heads came on and talk about the confidence shortfall as the reason for a poor global economy and choppy stock market. As if confidence were all that was required to fix the economy and markets. The pols and the book talkers, the investment pretenders and the handsome/pretty faces, all talked up the confidence shortage and how that’s our biggest economic problem. Unfortunately, that’s not close to the solution.
Confidence (and demand for you Keynesians) don’t just exist in a vacuum. Confidence and demand are conditions that relate to many other factors, economic and non-economic, individual and community. The biggest factors impinging on confidence today are two issues the financial press mostly ignores. One is employment and the other is debt. Until these two issues are resolved/ rebalanced, and that could take a decade or more, confidence and economic growth will be less than what we have come to believe is normal.
Now, many heads do talk employment as a gating factor to economic growth, but not from the proper perspective. Global corporations, with their ability to place technology, and source labor anywhere on the planet, as well as their penchant for ever rising profit margins to appease shareholders, have cut compensation share of the economy to record low levels. Naturally, this places serious stress on employment opportunities and real income growth. Small businesses, who products/services support large corporations and households have been depressed by capital constraints and pricing pressures from stressed budgets of individuals and other companies.
Despite the severe jobs shortage, there is no Grand Plan to incentivize employment. Some politicians claim all would be fixed with lower taxes and less regulation. Simply wrong. Less regulation would help, but taxes are too low a share of the economy to pay for our government/social system as configured. We need thoughtful, actionable programs/incentives focused on developing jobs here, including repatriating jobs from abroad. We need more STEM related education and training; science, technology, engineering, and math in order to lead the world in emerging technologies. We need the hundreds of thousands of jobs a program to create energy self sufficiency would create. We need stronger efforts to export products abroad, and to level the playing field on trade, even if it’s the simple act of sourcing more things locally.
We need some Grand Plan to thoroughly understand the forces at work in the global economy and harness a focused effort to create domestic employment opportunities ,even at the expense of lower cost foreign labor. I don’t have all of the solutions, but I think we need to take the problem more seriously than cut taxes/regs and let the free markets take care of it. That hasn’t delivered. And the QE3 from the Bernank doesn’t create jobs either, no matter how silly Fed officials pretend in public they do. Printing money isn’t the solution, though you will no doubt here that story from many Fed doves in the near future. A phony, easy money inflation of asset prices, Illusionomics, isn’t the solution.
The other 800 lb gorilla ignored or underappreciated by the popular financial press is the massive debt bubble. All of the job development in the universe can’t overcome the depressing economics effects of a significant deleveraging. Quite simply, the developing economies assumed too much debt, for too long a period and destroyed their collective balance sheets. They did this for many reasons, to maintain unsustainable standards of living, to get politicians reelected, to support financial asset speculation, to smooth the business cycle, and more. And now the global economy is beset with tens of trillions of dollars of excess debt, borrowings which can’t be serviced from the incomes/cash flows of that economy.
Here we need massive debt restructurings. We need debt forbearance for household mortgages in some fair manner. We need massive restructuring of the major entitlement programs, including the evisceration of the $20 Trillion present value liability, Prescription Drug program, instituted a few years ago by that moron George Bush in order to get AARP support for reelection. We need bankruptcies and depositor protected unwinding of financial institutions whose unsound lending practices provided such stupid levels of leverage. In many nations, we need significant sovereign debt haircuts, including the USA if we don’t soon balance our budget.
The impact on asset prices will be profound and the shared sacrifice unpleasant. But the amount of debt must be reduced by tens of trillions of dollars in order for the global economy to rebalance. I call it a Coordinated Global Boot Camp Compromise where every entity takes a buzz haircut, stock and bond holders, managements and governments, pensioners and even labor. It won’t be easy, and it won’t be painless, but it’s better than the alternative. For if we let the politicians and Central Bankers attempt to borrow, print, and inflate our way out of too much debt, a global hyper-inflationary depression becomes a real possibility. And with that, economic and social chaos. See, I believe fixing the problem of excess debt means cutting the leverage down, not creating more to postpone the effects of a delivering, which is the current “plan” if you can call lurching debt crisis to debt crisis a plan.
Most importantly, we need some political leaders and some apolitical media source to educate the American population, heck the entire developed world population for that matter about the magnitude of the structural imbalances in the global economy from decades of debt financing and deficit spending. We need for everyone to truly understand how the financial economy has captured the real economy and the perversions running the real economy to support financial assets creates. Look, both Democrats and the Republicans, liberals and conservatives, interventionalists and free-market hypocrites are responsible for the Great Debt Bubble. Everyone is guilty. No one wants to live within their means. And no group has the political will to admit the magnitude of the problem. Especially the talking heads who bemoan the lack of confidence as the root of all our economic evils.
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