Christmas Madness

As the Christmas season comes to a head, we look back at the things that brought us to such a successful Christmas season. Retail sales look to be heading to their best year since 1999 according to CNBC. And I think we all can reminisce about how terrible for retail sales 2009 was. This brings us to a good point to remember in the midst of a recession.



While the years of a recession may seem harder than a block of steel wrapped inside concrete with the remains of last year's fruit cake all over the side of it, it is an interesting point to remember that the years following a recession tend to be some of the best years up to that point. Despite those who say that anything following a recession is better than what the recession was, the fact still remains that post-recession years average higher returns than any other bull market. Why? My answer is pent up demand. During a recession one of the main effects of the recession is reduced spending by individuals and businesses. It's not as if the demand goes away. Unfortunately, the demand that people have for goods and services goes unfulfilled until people can again increase their spending. As a result of this pent up demand, spending after recessions often reaches record levels.



Unfulfilled demands abound in any society and that is what entrepreneurs call opportunity. America as the land of opportunity, I would argue, has some of the most underutilized resources of any country in the industrialized world. This is not a result of less productivity, as any economist can attest, we are some of the most productive societies on the planet. The simple reason is, not enough people. Our population is still considerably small relative to our productive capacity as a country. We have entire swaths of productive land in our country that goes unused not because it is useless for anything, but primarily because there are not enough people to work that land. While there is a significant conservation movement in the US, our resources more than outpace our productive capacity.

So, in conclusion, those of you out there in the Grand Valley and around the country, always be looking for new opportunities because that next idea may be your ticket out of the rat race and pent up demand is something that will eventually be realized. Grab your piece.

Employment Insecurity

In a recent article in The Denver Post, author Aldo Svaldi wrote about how the employment situation is deteriorating in the Greater Metropolitcan area. People are losing jobs and the people who haven't lost their jobs yet face increased competition and insecurity in their jobs. I thought this would be a good place to talk about unemployment rates and what an acceptable rate should be. Many economists agree that a certain level of unemployment is desirable for the proper functioning of an economy because it allows employers the chance to select the most productive people for their enterprises. In addition, Marx, that champion of free markets, would argue that the ranks of the unemployed provide the basis for discontent in capitalist economies. Those who are unemployd find that their desires are not being met because they have no means of providing for their needs. In socialist countries, the unemployed make up a significant portion of the population, but their needs are provided.

I have met a few acquaintances who described what it is like to live in a quasi-socialist country such as France or Germany. Pretty much the thing that stands out most is that when one is in the ranks of the unemployed in a socialist country, your needs are provided for, but that wants over and above that are left unmet. In order to get a job, one must jump through a lot of hoops and perform at an above average level to prove your worth and even then if the economy falters the chopping block has more to do with seniority than talent. As a result, coupled with more regulations that are enforced to ensure safety, the quality of delivery of services many times exceeds levels that are seen in more open economies, but again the opportunities for advancement and true wealth creation are much less.

So that leaves us with a great question. What level of unemployment is acceptable for the functioning of an industrialized democracy? For many economies, the general answer to that question is around five percent. The reason behind this being that a country still has a pool of people who desire employment and are willing to bid wages down to an affordable level for businesses, but there is not so much unemployment that people start to feel disillusioned with their financial situation and turn to more destructive activities. It also accounts for changes cause by people who change careers, locations, and companies.

On a microeconomic level, job creation is a matter of specifics about locations and spin-off jobs. (A spin-off job would be a job in any kind of supportive industry to more primary sector jobs such as manufacturing and construction) On a general level, most industrial jobs rely on bigger markets for the creation of quantities of scale in order to justify higher levels of productivity. Therefore, for a specific location, producing more than that location can consume is generally good if a market exists for those products elsewhere. For example, a company that produces corn has two options when they are at a level of production too high for their given geographic region. Their options are to expand their market to greater geographic distances and market segments or reduce their production to meet the level of consumption.

Lastly, there are several main points we can glean from this information. The unemployment rate that is politically acceptable and economically justified will vary based off of how much of a social safety net there is in a given geographic jurisdiction. Market forces affect unemployment with ebbs and flows in every market economy, but the level at which they affect them primarily is determined by the competitive pressures of businesses on each other and artificial caps on supply made by government.