After the S&P dropped to the 666 level in March, it bounced back in April and May to the low 900s. Since then it has been flat to down going to the high 800s right now. This pattern comes very close to the pattern we saw in the early 1970s and if that example holds the S&P will have to drop to about 825 after which it should climb to around 11-1200.
Following that example further, after it reaches that level it will consolidate there for a number of years with variations of as much as 15-20% up and down. Two things characterized that period of stagflation, excess money and high unemployment. The reason for the high unemployment then was that we were transitioning from a manufacturing based economy to a more technological and service based one. Millions of jobs in industries that had dominated the US economy in the 50s and 60s effectively went elsewhere as it was cheaper to buy foreign items then to make them here. Eventually, the rise of high tech and service industries increased employment leading to increased consumption, rise in real estate values and adjustment in valuations to the money supply.
Now, looking at the next ten years in America we face similar problems. The remnants of the old industrial jobs are under fire again but also, we are seeing a direct challenge to tech and service jobs. It is clearly cheaper to manufacture almost everything overseas but services were at least local. However, as less and less services are performed in person, there really is no reason for service jobs to be local. Also, as more and more sales go on-line, even relatively low paying jobs in retail will be reduced. If I complete an on-line purchase, there is no need to deal with a person at all. Further, I have grown quite fond of the self service checkout at places like home depot and some grocery stores. Yes they have a person monitoring these by instead of 4 people, they only need one. These are jobs that are not coming back. Considering the long term hit to construction (which at least for now still has to be locally) there are millions of jobs going away that are not going to return.
Now, even if the service jobs go on-line, they could still be performed in this country if it made economic sense. Certainly not all jobs are going away but think about this for a second. If we have 100 million people looking for work and 95 million jobs we have a 5% unemployment rate. Assuming the number of people looking for work stays the same but 5 million jobs go overseas or simply disappear because technology replaces them (only 5%) we now have 100 million job seekers for 90 million jobs we now have a 10% unemployment rate.
So are we doomed to live with high unemployment? Until the next growth industry comes along to create jobs the answer is yes. There are some things we can do to mitigate the problem, make the relative cost of employment cheaper by centralizing health insurance cost (if you are going to pay it whether you have employees or not, it stops being a deterrent to hiring), but technology is not going to stop getting better and the trend towards on-line or self-service will continue.
I believe jobs can be created by invigorating the renewable energy industry and by providing funds to fix our aging infrastructure. Further, we need to make sure the cost of doing business in this country is not higher than it should be. I believe we should switch to a tax on consumption to even the playing field. If you sell product in this country you should pay a fair amount of tax.
Currently faced with massive deficits and an increasing national debt, we see our politicians scrambling to find more things to tax. I recently saw a proposal that would take the difference between income and savings and tax it. Generally, that is a better system than what we currently have, but still requires millions of returns to be filed. It really seems simpler to tax sales and do it strictly.
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