How the Stimulus Destroyed 77,000 Manufacturing Jobs

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If it was possible for a market to whistle without a care in the world that’s exactly what it would be doing right now…

Greece on the verge of default – [whistle].

China trying to engineer a soft economic landing – [whistle].

US Federal Reserve increasing interest rates – [whistle].

Australian property bubble bubbling – [whistle].

Millions of your taxpayer dollars wasted on home insulation stimulus – [whistle].

But funnily enough, it’s the mainstream response to the last one that baffles us the most.

After four insulation installers have been killed – and doubtless tens or hundreds of others have been injured – and at least 87 fires have resulted from the installations, Environment Minister Peter Garrett has abandoned the scheme.

Of course, already, billions of taxpayer dollars have been spent on this monumental waste of money.

But here’s the thing we don’t get. At the time all these whacky schemes were announced, the mainstream told you that it was necessary to spend money because spending money was good for the economy.

You remember that don’t you?

Well, if spending money is good for the economy, then surely the disastrous outcome of the housing insulation scheme is an unexpected boost for the economy.

Because if simply spending money is good, then surely spending more money is even better.

The government now has to fork out hundreds of millions of dollars more to arrange for inspectors to make sure the work on at least 48,000 properties has been done properly.

Doubtless it hasn’t – hence the four deaths – so those inspectors will need to arrange for the work to be fixed up. That will cost more money.

Then we’re sure that just to be on the safe side, the government will send inspectors out again to make sure the fix-ups are safe – there’s even more taxpayer dollars spent.

According to the lame thinking of the mainstream that should all equal a boost to the economy, as more taxpayers dollars are spent.

Not surprisingly, the mainstream press haven’t mentioned any of this. Either because they’re too thick to work it out, or because they realise how illogical the idea of stimulus spending is, but they don’t want to admit it. After all, spending other people’s money is fun!

Aside from the wasteful spending, the 6,000 job losses suffered in the home insulation sector is another perfect example of how the misallocation of resources can permanently damage the economy.

As Paul Howes, national secretary of the Australian Workers Union points out, “77,000 jobs went in manufacturing, and the knock-on of that will be felt for years and decades ahead as factories were shut that will never re-open.”

Of course, what Mr. Howes fails to point out is that it’s the unions that help to ensure there are job losses. Their push for higher minimum wages guarantees that Australian businesses will either go bust or have to ship the work offshore.

And he doesn’t mention the millions of other manufacturing jobs that have vanished over the years thanks to the trade union movement.

But here’s the bigger problem. All the excitement about the stimulus programmes ‘creating’ new jobs masks the fact that those jobs which didn’t benefit from direct stimulus spending – such as manufacturing – lost jobs.

Not only that, but once a factory has closed down, as Mr. Howes correctly points out, they “will never re-open.”

If it was uneconomical to maintain a manufacturing business, it will be ten-times more uneconomical to try and re-start one from scratch.

Yet, all those jobs that were ‘created’ by the government to install insulation, what’s happened to them? Oh, that’s right, the programme has been cancelled. So the billions of dollars spent on ‘creating’ jobs have not only destroyed 77,000 manufacturing jobs, but it’s not even benefited the industries that were supposed to gain.

As we wrote a year ago on 4th February 2009:

“The government economic stimulus package will have no positive impact on the broader economy whatsoever. None.”

Yet again we’ve been proved right, and the mainstream press proved wrong.

At the time we also quoted some of the shrill headlines from the mainstream press:

“Rudd throws $42bn at economy” – Australian Financial Review

“Schoolyard blitz to avoid recession” – AFR

“We’re all in this together: except Turnbull” – AFR

“Rudd and the Reserve free up billions to beat recession” – The Age

“Rudd splashes the cash” – The Age

Every last one of them cheering for the government to spend your money to save the economy. Not a single journo was capable of expending one brain cell to figure out what the terrible consequences for the Australian economy would be.

An economy that believes the best solution to national wealth is to build, and then buy and sell houses between each other.

But there’s the consequence for you. One industry gets a bunch of stolen taxpayer money to keep prices sky-high and the credit bubble growing. The other industry gets swamped and ravaged by trade unions and minimum wage legislation which forces it to close down forever.

The upshot is the Australian economy hasn’t benefited one jot from the billions spent in the stimulus programme. All it’s done is allocated resources to prevent a bubble from popping – for now – and ensure thousands of people have received training for an industry that can’t possibly sustain them without the presence of taxpayer money.

Because if it could, then they wouldn’t need the stimulus to begin with – it’s not rocket science.

Despite the complete failure of stimulus spending we’ve little doubt the spin doctors will continue to call for more taxpayer dollars to be thrown at the economy – especially the housing sector.

And as long as that happens then we’ll continue to see headlines such as this:

“Housing debt in overdrive”News Ltd

According to journalist Anthony Keane, “Total housing debt is set to reach $1 trillion within a year. The figure itself is not a worry, but there is concern the pace of borrowing is exceeding household income growth.”

“Not a worry”! Is he mad?

Nearly $1 trillion isn’t a worry? Oh Lordy. We’ve heard it all now.

But anyway, we’ll end today on that note. As we’ll get stuck into housing again tomorrow.

Cheers.
Kris.

Kris Sayce

Kris Sayce

Publisher and Investment Director at Money Morning Australia

Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Tactical Wealth — where he reveals ‘special situations’ he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It’s where he shares investment insight, commentary and ideas that he can’t always fit into his regular Money Morning essays.

Kris Sayce is the Publisher and Investment Director of Australia’s biggest circulation daily financial email, Money Morning Australia.

Kris is a fully accredited advisor in shares, options, warrants and foreign-exchange investments.

Kris has close to twenty years’ experience in analysing stocks. He began his career in the biggest wasp’s nest in the financial world — the city of London — as a finance broker back in 1995.

It’s there where he got his ‘baptism of fire’ into the financial markets, specialising in small-cap stock analysis on London’s Alternative Investment Market. This covered everything from Kazakhstani gold miners to toy train companies.

After moving to Australia, Kris spent several years at a leading Australian wealth-management company. However he began to realise the finance and brokerage industry was more interested in lining its own pockets with fat fees, commissions and perks —rather than genuinely helping out the private investors they were supposed to be ‘working’ for.

So in 2005 Kris started writing for Port Phillip Publishing — a company which was more attuned to his investment outlook.

Initially he began writing for the Daily Reckoning Australia— but eventually, took over Money Morning. It’s now read by over 55,000 subscribers each day.

Kris will take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money! Whether you agree with him or not, you’ll find his common-sense, thought-provoking arguments well worth a read.

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54 Responses to “How the Stimulus Destroyed 77,000 Manufacturing Jobs”

  1. etch

    chinnees r buying all props up with their cheap money 1% loan

    people in oz saying “r those suckers working for 50 cents an hour”
    we got it so good here ”

    now the they r snapping 1.5mill$ houses up,

    its gone full circle

  2. etch

    When a chinese sells an asset they buy a more expensive asset.
    ALSO We sell china heaps of raw commodoties as well as services such as tourism / education. we use the proceeds of this to buy t.v’s /toys / and junk that is made in china.
    When China sells finished goods to us, they use the money to buy aus assets e.g. YOUR HOUSE. they do not buy aus junk.
    Have a look at that before you complain. oh and buy more junk please, the chinese want more of your assets

  3. cb

    etch – but if we are going to have a housing crash, then they are going to be burned and will lose their shirts to us, who will buy our houses back from them, right? Sounds like a way to make money: Sell high, Buy low. But I wonder how many of the bears here believe enough in this story to take that gamble.

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