The Unappeasable Financial Markets

Looking back at Franklin Roosevelt’s first inaugural address, perhaps the most insightful thing he says is to offer a diagnosis of what hadn’t gone wrong in the early 1930s. “Only a foolish optimist can deny the dark realities of the moment,” he conceded, “yet our distress comes from no failure of substance. We are stricken by no plague of locusts.”

This seems to me to be the beginning of wisdom about the current economic crisis. Forget what I know or think I know about Standard & Poors or bond rating agencies or financial markets or debt and credit and all the rest. Let’s know this instead. Currently, of the Americans who say they’re looking for work, 9.1 percent of them say they can’t find jobs. It also seems very reasonable to assume that were the unemployment rate not so high, a larger share of our population would be seeking work. For the UK, the number is 7.7 percent. For the Eurozone, it’s 9.9 percent. Even for Canada, which is “doing well,” it’s a pretty high 7.2 percent. And yet we are stricken by no plague of locusts. These people haven’t been maimed. The vast majority of them are capable of producing some kind of good or service. Nor is it the case that the entire world is entirely satiated with goods and services and there’s nothing useful left to do.

It seems to me that the whole conversation in policy circles has gotten kind of derailed from this main point. Derailed, even, from thinking about it in a hard-headed efficiency-minded way. If 5 percent of the workforce suddenly transitioned from high-productivity jobs to low-productivity jobs, everyone would be panicking. But the unemployed sector is just about the lowest productivity line of work you can imagine. All across the world we have countries saddled by explicit or implicit debts that they won’t be able to pay off unless they increase their level of real output. And for a country in “normal” conditions, boosting growth rates is very difficult. Nobody really knows, for example, how Brazil might accelerate its growth. But if you have nearly 10 percent of your able-bodied workers doing nothing, then it’s pretty easy. What you need is for them to do something. Anything. Once you’re running low of people doing nothing, then it’s time to worry about other possible drags on growth.

Instead, everyone seems obsessed by the fluctuations of the financial markets. These are, I guess, interesting indicators. But that’s what they are at very best — aggregators of guesses about the likely future state of things. Problems don’t arise because markets are down. Markets go down, perhaps, because it seems likely that bad things are happening. In particular, if your economy grows slowly, it’s hard for financial markets to go up. But rather than watching the stock ticker and obsessing about the numbers, you have to think about the proximate cause of low output. In our country at our time, it looks like in the future output will be relatively low because a relatively large number of people won’t be producing any goods or services whatsoever. They won’t be mopping floors and they won’t be building washer/dryers and they won’t be driving cabs and they won’t be running day care centers and they won’t be installing granite countertops and they won’t be processing hospital paperwork and they won’t be making tacos and they won’t be doing tax prep for tacquerias and they won’t be cleaning people’s teeth or cutting people’s hair or running ad campaigns for the Hair Cuttery. They’re doing nothing. And they’re forecast to continue doing nothing. And to be joined by a new generation of young people entering a market where nobody wants to train them to do anything.

So of course the stock market is down. Of course people wonder if governments will pay what they owe. In the long run, we’ll all be broke if we just accept an endless period of elevated idleness.