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Sunday, September 04, 2011

Importance of Jobs and certainty

The recent US job report had zero new additions. In that context, I would like to discuss a briefly about importance of jobs and certainty.

Time and again I have emphasized that it is the certainty rather than specific level of income that is important objective of stimulus. Any stimulus directed elsewhere is of little significance. Thus, tax breaks, cash-for-clunkers kind of programs have little meaning as tools of stimulus. Both, as the population is aware of their limits, create an incentive to save the gains rather than kick start the consumption engine.

Jobs, specifically long term permanent jobs, are indicators of certainty of income available to the population. 

It is also possible for the economy to add transient jobs in large numbers. In other words, there would be a high turnover. Such a situation will have high uncertainty and high job creation at the same time. Thus, I presume, the impact would be similar to tax-breaks or cash-for-clunkers type of program. 

The real point of improvement of the economy will be when permanent job addition bottoms out and starts rising. At such point the consumption engine will restart sustainably. This process will happen eventually if economy is left to its own devices. The objective of stimulus is to hasten the process.

A debt-ridden economy take a little longer to reach the bottom after permanent job addition has bottomed. The time lag is explained by the debt repayment that takes place subsequent to job addition. A debt restructuring program can hasten this process. HAMP and other programs can be classified in this family.

Now intelligent readers will note that unless BOTH things happen we won't see noticeable recovery in the economy. I hope the political intelligence catches on this reality.

My book "Subverting Capitalism & Democracy" is available on Amazon and Kindle.