Larry Kudlow thinks that the pickup in the market will lead to new job growth. He looks at the new spate of mergers and acquistions as a good sign that the economy is on the rebound. It’s possible, but the recovery will be tentative for a while until the economy gets on better footing.
Hopefully this will help unemployment which has now hit a 20-year high. An upturn in the market now would mean that the unemployment level would start to creep downwards until reaching normal levels in about six to eight months.
The US job market got hit by a double whammy, first as a consequence of monetary policy combatting inflation, and second as a result of the September 11 attacks. As Milton Friedman points out, one of the side effects of a successful attack against inflation is an increase in unemployment as the monetary supply eases off. If one accepts that the Fed’s monetary policy did prevent rampant inflation as Alan Greenspan says, then the consequence of that would be a slowing in job creation through 2000-2001.
It’s an open question if the economy would have picked up had the September 11 attack not occurred. At this point it is academic, as the effects of that attack had wide-ranging repercussions for the US economy. The effect it has was to decimate major sections of the US economy, especially those reliant on travel.
Even after September 11, worries about Iraq have kept the markets from coming out of their funk. Large capital investments weren’t a sound policy when there could be an oil crisis looming on the horizon. Investors were still playing their cards close to their chests, trying to hedge against an uncertain future.
Now that the situation is Iraq is more stable, although still unsettled, investors are starting to come out of their shells, even if tentatively. The world situation is slightly more stable, and the lack of any major terrorist attacks have shown that the war on terror has worked. Iraq will continue to be a problem spot, however the situation is substantially less dangerous than the status quo.
Politically, the Democrats are hoping to sock Bush with an economic slowdown and use it as leverage to attack his domestic policy. However, George W. has learned from the mistakes of George H. W. and isn’t allowing himself to be caught flatfooted on the economy. If Mr. Kudlow is right and the economy is on an upswing, employment should also begin rising – just in time for 2004.