Sunday, August 14, 2011

LA Times Inadvertantly Discovers Why Keynesian Economics Don't Work

Today, the LA Times offers this profile of South Coast Shingle Co., a small roofing supply business in Long Beach. Though they have more business than they can handle these days, and LA County's 12% unemployment rate would suggest that qualified help is out there, the company nonetheless remains reluctant to hire. What gives?

Basically, South Coast's president, Ross Riddle, is putting off adding employees for two reasons: he still believes the economy is shaky, and the price of supplies keeps climbing. Riddle recalls the desperate days of 2009, when the end of the housing bubble almost killed his business and his salesmen spent most of their days making cold calls or teaching themselves Spanish using Rosetta Stone books. Those days appear to be behind South Coast, but significant uncertainty remains in the housing sector, and Riddle remains skeptical that the flood of new business will last. As he puts it, "We're making money now, but we still have five months left in the year. Who knows what's going to happen?" Moreover, with the prices of housing supplies jumping between 7% and 9% this year, it's getting harder to offer customers good deals. Riddle is also putting off purchases of new trucks and forklifts this year, even though he usually replaces them every year.

These kinds of situations are, of course, exactly what one should expect after the American government blew through almost a trillion dollars of "stimulus" to, effectively, delay local government layoffs, and printed $600 billion into the money supply. Naturally, the Times misses that conclusion entirely: for them, it's about the return of "consumer demand", which would enable people like Riddle to hire again. Yet this is an entirely backward way to think about the problem: demand for a product is inherently individual and subjective, and can only be suppressed externally, not encouraged; the only thing the government can do is make it as easy as possible for producers to supply these products to willing consumers. Which it's abjectly failing to do by pushing the prices of capital goods north and piling on new regulations.


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