The current economic downturn has been called a housing crisis, a financial crisis and a debt crisis, but now, according to nearly everyone running for office, we are in a jobs crisis. Politicians currently talk of vague jobs plans, filled with serious-sounding phrases and little real meaning.
Think about it, when has a corporate CEO ever been rewarded for hiring people who aren’t absolutely required. Most companies hire only when its workforce can no longer keep up with the demand for its products.
The government’s ability to create jobs is pretty disappointing and that’s ok. The most popular types of jobs programs involve state tax breaks or subsidies that seek to move a company from one state to another. These policies don’t add to overall employment so much as they just shuffle jobs around.
John Maynard Keynes’s view is that government can create jobs by spending a lot of money. The stimulus, however, has to be borrowed, and it has to be huge — probably something close to $2 trillion — to fill the gap between where the economy is and where it would be if everyone was spending at pre-recession levels.
Many Republicans follow the more fiscally conservative University of Chicago School, which argues that Keynesian stimulus can’t heal a sick economy — only time can. Chicagoans believe that economies can only truly recover on their own and that policy interventions only slow the recovery.
Of course, Republicans can’t say, “wait this thing out while we cut taxes and regulation.” These policies may make the economy healthier in 5 to 10 years, but the immediate impact would require firing a large number government workers.
The U.K., as part of its austerity measures, is in the process of firing about 500,000 government workers under the notion that the private sector would expand (lower taxes and regulation) and employ all those laid-off. But this isn’t happening. The British economy continues to grow slowly, if at all and few government workers have found new jobs in the private sector.
The second area of agreement is the most important: an economy is truly healthy only when its people know how to make and do things that others will pay them a decent amount for. Jobs are not the cause of a healthy economy, they’re the product.
The economy that emerges from this recession is going to be different. Without the distortion of a credit bubble, it is clear that far too many Americans don’t know how to do anything that the world is willing to pay them a living wage for (Kardashians excepted).For confirmation, look to the aptly named rustbelt and also look at the negative correlation between education and unemployment.
An economic downturn is the time to learn new skills – move forward and learn about something that can help produce a paycheck. Those who can’t find a job where they live should consider moving to places where there are more jobs than applicants.
With Europe plugging the nearly insolvent country dyke that seems to spring a new leak every six months and until the U.S. economy, somewhat mired in mud, gets unstuck, emerging economies will be a beacon to investors.
Take for instance, The Matthews Asian Growth and Income Fund, the Fund invests in dividend-paying common stock, preferred stock and other equity and convertible securities of companies located in Asia – it’s paying a 3.4 percent current dividend. Investors are becoming increasingly aware of the attractive demographics and strong economic growth that exist in the region.
Over the last 15 years the Fund has delivered risk adjusted performance (alpha) of 7.24 percent ABOVE the index. And during this period of economic volatility, the Fund was able to accomplish one of its main aims—to offer a degree of downside protection—and cushion shareholders from the worst of the sell-off.
To index is smart when the market is terribly efficient. Managers cannot consistently outperform in highly efficient markets as prices instantly change to reflect new public information. This is true of the Treasury market and may be true of the domestic large cap stock market. In inefficient markets a good manager can exploit this to the shareholders advantage. Small cap stocks and emerging markets currently fall into this category. Indexing in these markets may not be as profitable over the long-term.
CBlakely CFP®. CTFA 11/2011
Sources: PlanetMoney – Adam Davidson, Bill Gross-PIMCO, Matthews Asia
