Wednesday, April 28, 2010

The Macro-Managed Economic Recovery

Mish has written a follow-up post to his previous discussion of the existence of "crowd-sourcing" as evidence of deflationary tendencies within the US economy. One of Mish's readers writes:
I’m currently working at Intel and was responsible for outsourcing my test team over the past decade. I’m personally being let go next Monday after 13 years and have experienced what you mentioned about crowd sourcing. I’m currently trying to get an interview with an international company that has a job offering exactly what I’ve done, but as a contractor with no benefits. You would never find this level of experience and knowledge about a job being offered as a contractor ten years ago. This is very clearly deflationary as you mention and will only increase at least for the larger companies involved with manufacturing.

I believe the jobs that can be outsourced either have or will be which means almost everything including all levels of skill and technical acumen. The only reason for keeping someone, a group or a type of job such as accounting locally in the US is because these employees have information that is not easily electronically stored or have information that is needed immediately and can’t wait for one day to receive it from Asia. I don’t believe that the reason for keeping accountants is due to fear that data will fall into the wrong hands as this information can easily be kept away of from any group of employees as necessary.
Your typical perma-bull jingoist Amerifan stock investor is probably going to react to this news in the following manner-- "America is a dynamic country with a robust economy built on a highly educated and innovative workforce. We will create new industries and new wealth faster than older technologies can be outsourced to cheaper countries in the emerging markets."

And that very well could be true. But what happens when the dynamism is crowded out by stultifying new government regulations?

Like the Great Depression before it, so far the early stages of this Greater Depression have been exemplified mostly by a massive collapse and nearly equally massive rebound in the price of various financial instruments. Fortunes have been lost and gained in the process of this financial readjustment as illusion-wealth has first disappeared and now reappeared following the bailout and stimulus efforts. Unemployment has steadily risen but has not yet exploded (at least according to official statistics) into the range of the Great Depression itself.

I think that's because, so far, the federal government's attempts to micro-manage the economy and working conditions have been minimal to non-existent. What we've witnessed is macro-managing of key capital and financial markets and businesses. Your average business owner may be having a harder time paying his bills right now, but so far he hasn't had to deal with anyone telling him how to run his business anymore than he had to deal with such things before the crisis.

When FDR expanded upon the precedent set by Hoover with his micro-managing of the economy by launching the New Deal, and specifically the industrial coordination bureau of the National Recovery Administration, the Great Depression went from bad to truly "great" in scope.

My prediction is that as this recovery is increasingly exposed as a fraud and the depression continues to drag on for another year, especially past November of this year when a crowd of newly-elected politicians will be fresh off the high of their "mandate to govern", there will be renewed political pressure for a New New Deal (let's call it the Big Deal) and a neo-NRA.

As BHO is quite fond of fascism as I outlined in my recent post, and as these kinds of industrial cooperation legislation always have been about restricting competition, centralizing power and propping up profits for the connected insider businessmen, look for the PEU outfits like Carlyle to offer their expertise in helping BHO's administration to set-up and manage this neo-NRA. If you've been following the headlines around the globe, you'll know that public-private partnerships are back in fashion and all the rage within the global private equity and public policy circles, with Carlyle and the Obama administration teaming up with the likes of Egypt, China, Saudi Arabia and more as of late.

The point is, when the micro-managing begins, so too will the next phase of this Greater Depression and that's when you're really going to see unemployment take off to the upside. Standards of living will noticeably deteriorate for the average American at the same time as economic calculation becomes increasingly haphazard within each sector of the economy that ends up being exposed to the arbitrary decision-making of fascist central planners.

As Robert Wenzel might say, buckle up-- it's going to be a bumpy ride!

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