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Is the lack of hiring caused by low demand or economic uncertainty?

July 19, 2011

A recent NPR blog states that, according to a survey of economists, the current lack of hiring is due to low consumer demand and NOT economic uncertainty due to government policy.  Salon’s Andrew Leonard also blames consumer demand and cites the same survey of economists.  Both NPR and Leonard cite this WSJ piece as their source:  http://online.wsj.com/article/SB10001424052702303661904576452181063763332.html

Unfortunately, in addition to being plastered I’m also a cheap bastard.  The WSJ link is behind a pay wall and since all my extra cash goes to Night Train I can’t afford a subscription.  So we’ll just have to take the first paragraph and work with that:

“The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey. “

Well pour me a drink!  The debate is now settled and Keynes’ economic model has been proven correct.  Low consumer demand is the problem.  A WSJ survey of economists says so.  But the Plastered Bastard has a question: Did those economists consult business owners or did they simply pull their view out of their as… textbooks?  I would like to think the economists asked some actual people who do the hiring before voicing their opinion.  I mean, isn’t that their job?   But there is no indication that they did.  No, it appears they consulted their model and it says a lack of demand is the cause.  And their model is always correct isn’t it?

Well, maybe…

Luckily, a poll of actual business executives was taken by the Chamber of Commerce a few weeks prior to the above survey.  It’s called the Small Business Outlook Survey.  From CNN: http://money.cnn.com/2011/07/11/smallbusiness/small_business_outlook/

And the WSJ: http://online.wsj.com/article/SB10001424052702303812104576437853543049480.html

This time the WSJ piece is free and open for all the read.  The pull quote:

“More than half of the small-business executives in the June 27-30 survey cited economic uncertainty as the main reason for holding back on hiring. About a third blamed lack of sales, while just 7% pointed to problems getting credit.”

So lack of demand (sales) is a factor, but economic uncertainty is the main reason.

If they keep utilizing false economic models there may soon be a lack of demand for economists.  But that won’t be a problem.  Business owners can simply be compensated for every economist they hire thereby stimulating demand.  But why would a business hire an economist – even a subsidised economist – who provides incorrect information?  Businesses are already under economic uncertainty so why would they pay for even more economic uncertainty?

The economists would answer, “because it creates a job”!  It doesn’t matter if the job actually creates any wealth.  In fact, according to the Keynesian model, the government could simply pay the economist to do nothing.  This would actually be preferable because they won’t be creating even more economic uncertainty.

Regardless, the newly hired or unemployed economist will spend their subsidy thereby increasing consumer demand.  And this increased demand will eventually get the economy growing again.  When?  The economists aren’t exactly sure.  But it will happen.  It has to.  Their model says it will.

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