Sunday, September 29, 2013

The Fed Cannot Cureth...It Only Maketh Ill

By, Chris Rossini

Bloomberg's Justin Wolfers writes:
So, the Fed got it right. The so-called taper is off. That is, the Federal Open Market Committee decided to follow its stated policy of continuing to increase monetary stimulus while the labor market remains sick.
What a loaded comment. First with the diagnosis that the labor market is "sick," the choice of a central planning Fed as the physician, and finally the counterfeiting of money as the prescription.

This is what a bizarro world without sound money and free markets looks like. We don't get to read about it in history books (as future generations surely will). We, on the other hand, actually get to live it!

Let's bring some sanity to the situation and show how government and its octopus central bank only maketh ill.

Let's start with the fact that markets, when left alone, clear. That applies to the sale of Doritos, sneakers, iPads, and yes, even labor!

What can be preventing the labor market from clearing? Let's take a look:
  • First of all, the minimum wage right away sends the low-skilled, poor, and teenagers into unemployment if their productivity does not add up mandated minimum. This is nothing more than forced unemployment courtesy of the loving hands of government.
  • You then have countless regulations, and licensing that raise the costs of starting a business.
  • There are the goofy "equality of pay" pressures that businesses must think of before making a hire.
  • There are the "healthcare" considerations which distort decision making.
  • There are the regulations dictating who you can hire based on the person's "race," "sex," "age," and whether or not the person is capable to hopping on one leg.
  • There are regulations dictating when, or who, you can fire. Will the person come back with some obscure legal precedent and sue you into oblivion?
  • Add in zoning, and the armed EPA agents. Will they bust down the doors?
  • Let's not forget the unions, who are backed up with the State's violent arms.
Is there any doubt as to what hinders entrepreneurship and job-creation?

This creates several responses, which further make the situation tougher for the average American. First, businesses will seek greener pastures overseas, and setup shop there. Unfortunately, the "land of the free" is too much of headache. 

Second, for those that do stick it out in the U.S., many will do their best to cozy up to the State. If the State is such a meddler in even the smallest minutia, best to influence it in your direction. Lobbying and protection from competition replace customer service and entrepreneurial alertness. Crony Corporatism takes hold.

The steaming pile is not complete. We're just getting to the good part.

On top of all this, a central planning price fixer, called The Federal Reserve, is supposed to cure this "sickness" by counterfeiting money!!

I kid you not.

It should not come as a surprise that the Fed just adds to the misery.

The poor and low-skilled, thrown out of work by government regulations, now get to have what little purchasing power they have, stolen by the great counterfeiter.

Malinvestments get piled one on top of another. And liquidations are prohibited, since the Fed bails out the connected big businesses that should go bankrupt.

Ridiculous booms are created that distort the rational allocation of resources. These are followed by excruciating busts that drive so many to divorces and even suicide. If they only knew the source of their financial woes.

The combination of Fed & State keeps taking a sledgehammer to the American public. And the best that a Bloomberg columnist can come up with is: "The Fed got it right" and will continue insidious ways.

The truth is that the "system" is failing. Let's hope that when it finally does take its last breath, the ideas of sound money and free markets are ready to fill the void.

"All the forces in the world are not so powerful as an idea whose time has come." - Victor Hugo

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  1. So the regulations in place when the economy was at full employment are now keeping the economy from reaching full employment? No. The problem is lack of demand, not restrictions placed on "job creators."

    1. So then you would agree that demand for labor will decrease as its costs rise?

    2. When was the economy at "full employment"? How much money was the Federal Reserve counterfeiting per month at that time?

      I'm sure you are intelligent enough to follow the implications.

    3. Jerry, you're making a false assumption / logical fallacy on regulations and their impact on employment. The reality is, regulations are in place to benefit the companies that lobbied for them. Couple this with regulations like the "Community Reinvestment Act," and those regulations create unseen impacts on the economy. In the latter case, banks making loans to uncreditworthy applicants as mandated by the federal government.

      Because "full employment" itself is a misnomer as defined and manipulated by the government, no one really knows what that means. However, one thing is for sure, more regulations don't equal more employment. They have costs associated with them. It was only because times were "good" in the boom that the impact of those regulations were masked. They were still there, just causing malinvestment or other bad business decisions that don't show themselves until the "bust" comes and times get rough.

      Instead of being able to clear out the bad, and salvage the good, regulations hinder the economy because they require more cost at a time when that cost is the difference between profit and bankruptcy.