What Labour Shortage?
Under normal government statistical methods, you are only considered unemployed if you don’t have a job and are looking for one. But, if you don’t have a job and are not looking for one (either because of COVID, school closings, or no available jobs match your skills), then you are not technically ‘unemployed’. Instead, your status is captured in the LFPR (Labour Force Participation Rate). Not surprisingly, the LFPR has dropped to lows not seen since the mid-1970s. Millions are simply dropping out of the labour force.
What this means is that the ‘labour shortage’ narrative claimed by the inflation crowd is a myth. There’s plenty of labour around. The reason certain employers can’t get help is because they can’t afford to pay a market-clearing wage. They can’t pay enough to get people to apply for jobs and reappear in the labour market while still making profits. That’s not a labour shortage; it’s a market failure and a sign that disinflation is winning the battle with inflation.
After the third quarter of 2020 surge in US GDP, growth continued but at a much slower pace. Growth in Q4 2020 was only 4.3%. Growth in Q1 2021 was 6.3%, and 6.6% in Q2. The best estimate for Q3 growth as of now is 3.7%. Those numbers are not horrible, but they’re not that impressive either considering we’re coming out of the worst recession in 75 years.
Even more disturbing is the trend. Going from 6.6% to 3.7% in one quarter is not just a slowdown: it’s like slamming on the brakes. We’re not that far from the average annual growth rate of 2.2% that the economy endured from 2009–19 after the global financial crisis of 2008. This is not a recession (yet), but it’s not far from the secular stagnation rut the economy has been in since 2007. This trend does not point to inflation. It points to disinflation (at best) and possibly deflation (at worst).
If you thought the pandemic was bad, just wait for the policy
Just as the virus waves have a predictable pattern, political incompetence in public health policy is also predictable. Politicians ignore the waves in the early stages, pay attention as the wave grows, and then panic just as the wave hits its peak. The best policy at that point is to do nothing because the virus will fade on its own. Still, politicians have to do something because that’s how politicians think. So they roll out the mask mandates, the lockdowns, and the vaccine passport requirements.
None of these policies work, according to some medical evidence. Masks don’t always stop the spread of the virus because the virus is 1/5,000th the size of the mask weave and many users don’t wear them properly anyway. Lockdowns don’t always work because confining people indoors can be a way to incubate and spread the virus. The better approach is to let people get all the fresh air they need outdoors and without masks.
Vaccine passports don’t always work because vaccines don’t always stop infections (they do reduce severe symptoms). In my view, almost everything politicians and public officials do makes the spread of the virus worse. They continue to lie about all of this.
While public health policy cannot stop the virus, it can destroy the economy, and that’s what is happening again.
Global travel restrictions reduce business transactions, conferences, seminars, and tourism. In addition, governments must bear the massive costs of the vaccine programs themselves and much of the cost of hospitalisation and treatment of those suffering with COVID. There are other difficult-to-measure costs such as general business uncertainty, which tend to hurt new investment. The overall impact will result in slower growth and disinflation in the US, and on a global basis.
There’s much more to the inflation versus disinflation debate, which I’ll go into in coming editions of The Daily Reckoning Australia. For now, we can count the fifth wave of the pandemic as a powerful factor pushing the economy toward disinflation.
All the best,
Strategist, The Daily Reckoning Australia
This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.