A WSJ-Europe moan last Friday showed up in the US edition Monday. A blurb from that tortured progressive cri de Coeur, bemoaning the lack of government spending on “investments” is below. This is cause for optimism from my dogmatic, partisan point of view.
I see the world backwards. Every $US/€Euro/¥Yen that is spent on “investments” by governments is another $US/€Euro/¥Yen that will NOT be spent by some private corporation somewhere.
We’ve been decrying the lack of private investment spending for years … to the point in the WSJ-US of noting that corporate capital investment less cash flow since 2009 has been negative, the reverse of 50 years of experience. This is despite mountains of cash piling up on corporate balance sheets. We’ve gnashed our teeth and wrung our hands, Right and Left alike … the Right proposing investment credits and the Left cash balance penalty taxes … but refused to see what’s painfully clear. No rational CEO is going to invest seeking a profit where government spending is being directed at a loss, while governments siphon up taxes like a vacuum, print money by the bale, and borrow the state into bankruptcy.
So, lacking all but ideology and the instincts of an investor as a basis for judgment, I find this primal scream written by Matt Dalton over the horrid lack of government “investment” a wonderful bit of good news. Matt of course is in agony; the rest of the article was not worth printing out. Just more wailing.
Investigating further, BTW, I find France is spiraling ever farther toward recession even as government spending rises … see graphic in the WSJ blurb below … which is not at all odd if you metric things as I do.
PMI is a metric indicating whether business activity is rising (over 50) or falling (under 50).
Conversely (and perversely if you are mindlessly progressive) as government “investment” in Ireland has crashed … same graphic below … the Irish economy has recovered dramatically, to the point where it’s now the healthiest economy in Europe save only the UK’s. Quelle surprise!!
To underline my point, note that Germany’s “investment” spending is also up. It’s focused on energy issues since they stupidly shut down all their nuclear reactors and banned fracking at the same time. No surprise, then, to find Germany’s economy has been weakening in 2014. Another instance of the inherently brain-dead nature of “social” governmental decision making.
Then too, there’s another small WSJ article, not reprinted here, most likely ignored by most; tangential but related. US labor hours per employee in a number of key industries, particularly manufacturing and construction, are at high levels, some at records. Capital spending on productivity-creating equipment has been low. GPDI/GDP is private investment relative to the total economy. Six years after the Great Recession it has barely recovered even to the level of 70 year lows!
Ergo, either hiring is about to kick off dramatically and/or capital spending is finally about to grow significantly. This will be true even if economic growth is spare, so stretched has the labor and capital base become. I’m betting the latter given the lack of skills in this workforce, at least initially, with the follow-on of companies gearing up in-house training programs of the sort that used to be common, many of which were curtailed or dropped over the last couple decades, to create the employee skills not currently being delivered by the American education system.
Many of these newly offered jobs will not require a BA. They will be technical jobs, running and caring for the newly purchased productivity-enhancing capital equipment. In yet a third WSJ article, one learns that 8% of over 25 year olds in the US are dropouts, 30% hold a college degree, and the other 62% fall in between.
There’s a huge hole in technology-related labor demand versus skilled supply. Texas Instruments for instance has hundreds of openings it can’t fill today for software and systems programmers and engineers and technicians, many of which do not require a BS. Another great shortage is in basic industrial skills, and one of the most pressing of these is welding. The need for post-high school, non college training is acute. Jobs requiring these non-academic skills are going begging.
I’ve been pointing to a boom in the 2020s decade: a vast and deep rebirth of the economy and a stock market bull. This is where it will come from: the training of the 62%. For investors with vision and ice water in their veins this smells to me like a once-a-generation opportunity. We still have to burn off the Federal Reserve’s corrosive, massive money printing, of course. And we still have to rid ourselves of the progressive virus that’s infected our government and economy … see “Progressivism is Dying” … and both of those will take another few years and elections. But once that’s done I’m all in.
Personal note to Dano, my best friend of a long lifetime, expert welder but currently one-armed from a severe neck injury: if you find you can’t weld materials anymore, why not teach?
EU Infrastructure Cutbacks Worry Economists
Experts Say Reduced Spending on Transportation, Education, Other Areas Could Harm Economic Growth
By Matthew Dalton July 20, 2014
Before the economic crisis hit in 2008, Ireland planned to boost investment in its education infrastructure by more than a fifth to over a billion euros annually. By 2011, a deep recession and international pressure to shrink its budget deficit pushed the government to cut its capital spending plans for education to roughly half that level.
School construction as a result is struggling to match Ireland’s rapidly growing population, while plans to put broadband Internet in every Irish classroom were scaled back.
And so it has gone for government investment across the European Union over the past four years. Against the advice of many economists and the recommendations of European officials, government austerity has come at the expense of public investment in transportation, housing, education and other areas.
Economists of different stripes call the trend a troubling consequence of the drive by European governments to cut budget deficits. Even in tight times, they argue, public investment is needed to protect the economy’s long-term growth prospects, ensuring companies have the infrastructure and well-trained employees to thrive.
European Union officials charged with enforcing the bloc’s budget rules say they are worried by the trend. They have pushed governments across the region to cut deficits, mainly by trimming public spending. But they have urged national policy makers to focus these reductions on budget lines such as public-employee salaries, while sparing investment as much as possible.
That lobbying has largely gone unheeded. When governments scoured their budgets for cutbacks and additional revenue, the path of least resistance often led to canceling a project that wasn’t completed or even started, rather than to reduce government salaries, pensions or administrative costs.