Less Manufacturing = Less Recession Job Losses?
February 02, 2008
– Comments (9)
I am reading John Mauldin and he points out there would be less job losses from recession because of how much smaller the manufacturing sector is and how those jobs tend to be cyclic, increasing and declining with the business cycle, which is part of what he claims led to the 9-10% unemployment of the 70s and 80s. He says today a 10% decline in manufacturing would only be a 2% increase in unemployment.
Well, a few posts back I linked to a post with a picture which showed the difference in employment with lending. It used to be pretty much just the bank involved, but it evolved into more "make work, do nothing except skim wealth for no added value what-so-ever." The extra work came with the mortgage brokers, a middleman, and then there was the people that packed the loans into the mortgage backed investments, another middle man. And that created more work for the fraudulent rating agencies, and then there were those creating the incompetent risk assessment programs, and then there were the investment sales people, and so on...
All these new people were skimming from home equity and other than pushing paper around, they added absolutely nothing substantial of value to the economy. Instead of making the system more cost effective, well, look at how many layers of different wages were added to the mortgage sector. And my impression is that these weren't low paying jobs, but jobs with wages that would be the envy of many people. And yet in the big picture they added absolutely nothing material to the economy, except that they had money to spend in the economy on other goods so there was a trickle down effect of this massive over paid incompetence.
Somewhere in the last year or two I read that the financial sector had increased from a low of 12% of the market to 28% of the market, or perhaps it was the earnings. It doesn't matter if it was earnings, the stock market or the economy, nothing changed in the financial sector to suggest they increased their value to economy by 133%. Indeed, with online banking and automation, their percentage probably should have declined... Anyway, when I read that, it was about when I started suggesting to all of my friends they exit their bank stocks and I am pleased that most did prior to last summer.
Mauldin is probably right that the economy will not take the same hit from a loss of manufacturing jobs, however I would tend to think the hit and trickle down effect from the financial sector could dwarf the historical hit to the manufacturing sector. At least the manufacturing sector produced real goods and never got into an unsustainable loop dependent on indefinite exponential fiat growth.
And that's the thing as well, the financial system was creating money through credit which was financing their insanity. They simply don't have the ability to create money like that anymore. With the billions of write-offs that we are seeing in the financial markets we are seeing that money they created wasn't real, although they packaged it up with the appearance that it was real. The scam is up and I predict they go back to their lows...
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