Wednesday, June 29, 2011

The economy

Oh, the state of the economy. Apparently we have been out of the recession for a while but are experiencing a sluggish growth rate. Most recoveries involve a boom, but apparently this one hasn't boomed yet.

As of May, 2011 unemployment is much higher then before the recession. Though it has come down some and is under the double digit mark, it has not dropped below 9%. Why is unemployment so high.
The most important factor for employers is certainty. The more uncertain the future is, the less willing firms will be to try to expand.

A major cause of uncertainty is the ironically named Patient Protection and Affordable Care Act. Many firms are requesting and being granted waivers because of how big a failure this act is. But there is uncertainty in how much compliance will cost because government bureaucrats get to determine how much coverage the firms have to pay for.

More uncertainty is being caused by our debt fiasco. The officials in power feel like making token spending cuts is sufficient to fixing the problem. Others have proposed serious spending cuts but few have proposed eliminating the deficit. Some even claim that we don't need to eliminate the deficit. But if you have a deficit year in and year out, eventually the interest payments on the debt will grow out of hand. Regardless of how small the deficit is, eventually it will catch up on us. Deficits might be useful for times of recession, but should be eliminated during good time. When you run constant deficits, when a recession hits, that is when things go to hell and some states and localities are facing that very situation.

Inflation is another cause for uncertainty. A producer cannot tell if the rising prices are due to increased consumer demand or just rising inflation and since QE1 and QE2 were such colossal failures, the Federal Reserve has decided that the third times the charm with QE3. What can we expect from more money circulating? Higher inflation. Since increasing the money supply has no actual effect on productivity, it cannot increase output.

It is easy to see with all the uncertainty that we have raining down from those on high that we are unlikely to get out of this slump any time soon.

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