Einstein Insanity

Markets are all agog, expecting more QE from Chairman Bernanke. Not that anyone with any clue expects that QE will actually do anything for the moribund economy, but the newly printed money will juice asset values one more time. And that’s a good thing in the eyes of the markets.

Meantime, back in the real world, the labor force continues to shrink. In fact, according to David Rosenberg, labor markets are in depression. Worse than that, productivity is falling as low-paid part-time work accounts for an increasing share of jobs.

Why is this happening? Because government policy has favored consumption at the expense of investment. As Dave points out:

Even tech now is fuelled more by companies that produce nifty consumer gadgets and feed our narcissistic needs than those who focus on improving the nation’s capital stock which is the ultimate trailblazer for productivity growth and durable gains in our standard-of-living.

Employment will continue to shrink so long as government continues to manipulate capital markets to distort time preference. As employment shrinks, many debts will not be repaid because the borrowers no longer have the means to repay. Bad debts mean broken banks, because that is where debt write-offs end up – as subtractions from bank capital. Broken banks mean less lending and more bailouts. And on and on. Government’s only response to an ineffective policy action is to repeat it endlessly, in the hope that something will change. Einstein’s definition of insanity.

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