Saturday, December 27, 2008

Quote of the Day: Government Can't Create New Jobs or Wealth, It Merely Redirects Resources

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value of those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.

~Peter Schiff in today's WSJ


At 12/27/2008 1:14 PM, Blogger K T Cat said...

Thanks for posting this link. I really enjoyed the article.

At 12/27/2008 3:24 PM, Anonymous Anonymous said...

Heroic! Finally you're giving some airtime to the Austrian point of view (the true free market school of economics, which doesn't believe in the central planning of the money supply). Good for you Prof!

At 12/27/2008 3:41 PM, Blogger bobble said...

"any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector."

that's true when the economy is expanding. but when business is contracting (like right now) the government can create jobs without causing jobs to be lost in the private sector.

right now, construction workers are increasingly unemployed, construction firms are shrinking, and interest rates are at zero. if the government builds a road now, does that cause jobs to be lost in the private sector? or, instead, does it 'create' construction jobs and cause cement companies to stop laying off workers so they can produce cement for roads, etc, etc?

btw, professor perry, the government created your job, and yet harvard still has mega-billions (however much is left after their hedge funds flopped) to invest in education. interestingly, harvard doesn't seem very inclined to use much of the money for that purpose. rather they are just sitting on it.

At 12/27/2008 4:39 PM, Blogger PeakTrader said...

I'm surprised you cited Peter Schiff, who has been wrong more often than even Larry Kudlow, but happened to be right in 2008 for the wrong reasons. Here's someone who was right for the right reasons:

My comment: A Gary Shilling foresaw the correction of global imbalances. It was a question whether they'd correct slowly or suddenly. However, given the huge global economic boom from 2002-08, perhaps a sudden correction was inevitable. His prediction below was before the credit market froze.

Gary Shilling: U.S. In Recession Now
July 16, 2008

The U.S. is already in a recession that’s unfolding in four stages — and it’s going to get a lot worse, investment advisor Gary Shilling says.

“We’re between the second and third stages right now,” Shilling told a Bloomberg interviewer.

“The first phase was the collapse in housing market, led by subprime slide last year;, the second phase was Wall Street, where there was a tremendous amount of over-leverage and investment in assets of questionable if not unknown value and highly illiquid.”

Shilling believes the third phase — a big nosedive in consumer spending — is about to unfold.

“Once people work through their tax rebates, they’ve run out of borrowing power,” Shilling notes. “Their home equity has disappeared. They’ve been relying on that and on income growth that isn’t happening. With high energy bills and maxed out credit cards, I think consumers are about to go off the cliff.”

“I look for the biggest decline in consumer spending since the 1930s,” Shilling says — and after that, it’s on to phase four, when recession spreads to the rest of the world.

Looking on the bright side. Shilling says that as consumers really hit the skids, concerns about inflation will fade, foreigners will once again look to the U.S. as a safe haven, and the dollar will rise.

“I’m looking for a rally in the dollar and basically selling stocks short now,” Shilling says.

For investments in this market, Shilling likes long Treasuries. “I think they’re going to rally as people look for a an alternative, a safe haven, as inflation worries turn to deflation worries as I think they will do by the end of this year and as the Fed eases further, which I think it will.”

Shilling also expects the unemployment will reach 7.2 percent at the bottom of the recession, which he thinks will be in the second quarter of next year. He disagrees with the Fed's assertion that inflation is a concern.

“To make a bold prediction, I think towards the end of the year we'd be back to worrying about deflation and not inflation,” Shilling says.

Shilling points out that in the past, housing cycles construction as a percentage of GDP normally fell from around 5.5 percent to 3.5 percent. In this super cycle, he expects a decline from the 6.3 percent peak to below 3.0 percent for a cumulative negative impact on real GDP of more than 3 percent.

According to Shilling, a 3 percent drop in GDP constitutes a major recession. He points out that only twice in the post-World War II era — the 1957-1958 slump and the 1973-1975 retreat — were there peak-to-trough declines in real GDP of over 3 percent.

“Unless strength in some other sector offsets it, the normal cyclical drop in housing is enough to register a recession, and the collapse in the current super-cycle implies a major recession,” Shilling says.

Without any follow-on effects or other negatives such as high fuel prices and falling stocks, Shilling says the 25 percent decline in house prices he foresees could slash consumer outlays by 3 percent, creating a 2 percent drop in GDP.

This, added to the 3 percent or greater drop Shilling expects will occur from slower residential construction, will result in the worst recession in the post-World War II era.

Dr. Shilling received his bachelor's degree in physics, magna cum laude, from Amherst College, where he was also elected to Phi Beta Kappa and Sigma Xi. He earned his master's degree and Ph.D in economics at Stanford University.

At 12/28/2008 1:09 AM, Blogger OBloodyHell said...

> the government can create jobs without causing jobs to be lost in the private sector.

That would be irrelevant, since it can't pay them without creating new wealth. So these "created" jobs do nothing but shift money around by theft.

> harvard doesn't seem very inclined to use much of the money for that purpose. rather they are just sitting on it.

The money isn't socked away in someone's mattress somewhere. It's in a bank or asset or other financial instrument. That means that someone ELSE is using the money to do something useful with it.

bobbie, you have had this point explained to you over and over, and you're still too dense to get it.

Just STFU and stop sounding like a fool.

At 12/29/2008 11:04 AM, Anonymous Anonymous said...

From Bobble's post:

>"“Their home equity has disappeared. They’ve been relying on that and on income growth that isn’t happening."

Uh, liberal hack alert. Meanwhile, Schiff was exactly right for the right reasons when he predicted the financial mess back in 2006. Observe:

At 12/29/2008 4:26 PM, Anonymous Anonymous said...

from 11:04 - sorry, I meant PeakTrader

At 1/04/2009 12:11 PM, Anonymous Anonymous said...

Guess what? Private investment doesn't create jobs or wealth; it merely redirects resources.

Workers create wealth. It just a question of whether they are creating a public good a private good; whether they are making everyone wealthier or just those who are already wealthy.

At 1/04/2009 7:22 PM, Anonymous Anonymous said...

What is wrong with redirecting resources? For the last thirty years everything was directed to the Corporations. People thought the Constitution was written for, of, and by the Corporation. We can send pallets of hundred dollar bills on transport planes to Iraq, send all our manufacturing work over seas, and tell the middle working class that the trickle down theory will saves us. Well it hasn't worked... its time to let the trickle up theory work for about the next thirty years. Time to redirect resources back to the dying middle class.

Every generation needs a new revolution.
Thomas Jefferson


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