Time and again the mainstream press puts the cart before the horse.
They aren’t alone of course. After all, much of the time the mainstream press only writes what it does because it is fed with drivel by mainstream Keynesian economists.
The headline in yesterday’s Australian Financial Review (AFR) was a perfect example of the press getting things round the wrong way.
The headline was, “Strong jobs growth to fuel recovery.”
No, no, no, no, no. Wrong again.
It’s not a growth in jobs that fuels a recovery. It is an improving economy that fuels job growth.
We’re not talking some abstract chicken and egg scenario here. This one is simple. In order for there to be a growth in jobs, there either has to be an actual improvement in the economy, or the belief that the economy will improve.
The very act of hiring someone does not lead to economic growth.
Think about it, employment is a cost to a business. A business doesn’t hire someone because the act of hiring them causes the business to grow. The business hires new staff because they believe their business will grow.
It’s just the same as claiming that if you spend more money you’ll become richer. The illogicality of these claims is mindblowing.
The growth or the perception of growth must come before the hiring can begin.
In fact, it’s equally possible that strong jobs growth will harm the economy. How so?
Well, if the economic recovery isn’t genuine then businesses will increase their costs without increasing their revenues and profits.
The economy is currently being propped up by government stimulus spending. Not just here but overseas too. You’ve heard all the talk by the likes of the Fairy Ruddfather and others claiming that stimulus spending shouldn’t be withdrawn too quickly.
There’s a simple reason they’re saying that. Because they know the recovery is a fraud.
Without the billions of dollars of taxpayer money and borrowings being spent, economies worldwide would still be in a hole. All this money has to be paid back at some point. And when that starts that’s when the economic growth will be seen as a charade.
Of course, they’ll make the argument that if a business hires a salesperson then that will increase the sales to the business and the business will therefore make more money.
That, they will tell you, is an example of increased employment fuelling economic growth.
It’s a nice neat little story isn’t it?
It’s just a shame that it’s completely and utterly wrong. Utterly wrong.
Such an analysis no more indicates growth in the economy than you buying a hotdog at a football game indicates a growth in the economy.
Let me explain what I mean…
If you take the mainstream analysis to this example, then buying a hotdog at the football is proof of economic growth. But it isn’t is it. All it means is that you’ve chosen to buy the hotdog at the football rather than buying food at the supermarket to prepare your own meal.
The same goes with the hiring of a salesperson. Sure the salesperson may have increased sales for that particular company, but perhaps this has been the result of a sale lost by another company.
In that case there is no economic growth at all.
The cost to businesses has increased – one extra salesperson – but the total size of the economy has remained the same. And unless the businesses are able to reduce costs or actually increase sales, then the economy will be worse off.
But it’s typical of the way the mainstream press reports on the economy. They look at everything at face value and are too lazy or ignorant to look below the surface.
Then again, we now expect nothing more from them.
Cheers.
Kris.
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“”"”"”"Why Jobs Growth Does Not Fuel an Economic Recovery”"”"”"”"”
so does that mean house prices WILL FALL?????????????????
Kris – we buy pies at football games – you didn’t even get that right.
Dunno about the job growth v house price falls etch but do have a look at the article in the SMH business section today titled ‘A land of easy gains and loads of losers’ by Peter Martin. Really explains just what a bunch of gullible, greedy idiots Australians seemed to became in the 1990′s led of course by the cunningest political rodent “We never had it so good” Howard. According to the story you would reckon that Mr. Henry may be making some little adjustment that could make all those canny property investors think it was about time to be putting up the For Sale signs. Now if prospective purchasers who just want a house as a home rather than a negatively geared investment vehicle could only take a big deep breath and tell the agent to stick his head up his arse and walk away when he tells them that their first offer is not high enough there just may be an inertia shift. That’s how the dynamics of the market work. As long as the greek chorus of the property sector keeps whispering ‘Don’t wait’ ‘Prices will only rise’ ‘Borrow a bit more’ etc.etc. enough fools will listen to make this an accurate and self fulfilling prophecy. But if the dynamics were to change such as with the current steady march of interest rates making loan sums smaller and a tax disincentive for residential property investment we might (possibly) just see a change for the better in terms of home affordability in Australia.
plenty of jobs going as santa claus ,,
but problem is not many new houses being built with chimmenys these days