Jobs, Pay Caps. Topics from Money for Breakfast Show

Jobs, Pay Caps. Topics from Money for Breakfast Show

(May 16, 2009) Yesterday I woke up a lot earlier than I like (that would be noon) to do the Fox Business 8AM Money for Breakfast show with Alexis Glick. Our assignment was to review the impact of recent government policies on the economy. It was set up as a debate with me squaring off against Christie Hefner (yes, that Hefner). Fun stuff. Here are a couple of the things we discussed.

JOBS- Government policies are destroying jobs, not creating them. The Treasury alphabet programs (TARP, TARF, BARF, TALF, ALPO, WALDO, DILDO,…) should have been titled the Hedge Fund Relief Act. They have set up a situation where banks can make tons of money by selling bales of certain kinds of paper to hedge funds who will make 30% returns on the paper. Banks have responded by ordering their troops to shut down all other activities, including small business loans, personal credit lines, home equity lines and jumbo mortgages.

Memo to Geithner (the Doogie Howser of finance): ALL JOBS come from small businesses. The shutdown of business credit lines is forcing small businesses to fire people. We get heart-breaking calls from these people every Saturday noon-2PM on our FBN entrepreneur show. You can measure the impact of the working capital shutdown in the weekly new unemployment claims reports (+637,000 last week) and the monthly job reports (-539,000 in April). You can also measure the loan activity directly in the chart below.

Change in Business Loans From One Year Earlier

Change in Business Loans From One Year Earlier

DUMB.
MARKET REG/PAY CAPS– Watch out folks; here come the price controls. Regulating derivatives and hedge funds is like trying to herd bullfrogs into a wheelbarrow. They will simply register in a different jurisdiction (CAYMAN,…).
Most dangerous, though, is Obama’s recent venturing into price controls. There is no surer way to screw up job growth than to have the government set prices. First it was executive salaries of companies feeding at the government trough, then compensation systems for the entire financial sector. Then, last week, the entire healthcare industry at a White House photo opp to announce ‘voluntary restraint.’ I have seen that movie before, first under Ford, then under Carter. It is a bad movie.
PRICE CONTROLS DO NOT WORK, they destroy jobs and reduce output. The reason is simple. The economy is a vast, parallel processing information network that transmits information about what is scarce and what is plentiful, what people want and what they don’t want, to the people who need the information to make decisions. Market economies use a symbol we call price to carry that information to the right people, solving the problem that von Mises and Hayek referred to as the division of knowledge. No person is smart enough or well-informed enough to make those decisions from the top.
JR

John Rutledge

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