Recently by Peter Schiff: There They Go Again
This morning many on Wall Street were stunned by the big fat zero put up by the August jobs report, the worst showing in 11 months. The data convinced many previously optimistic economists that the United States will slip back into recession. I believe that we have been in one giant recession all along that was only temporarily interrupted by trillions of useless and destructive deficit and stimulus spending. Unfortunately, the August numbers will increase the talk of government efforts to stimulate the economy.
But while President Obama prepares to unveil a new plan for the Federal Government to create jobs, evidence is rapidly piling up on how his Administration is actively destroying jobs with stunning efficiency. Recent examples of this trend are enough to make anyone with even a casual respect for Americas former economic prowess hang their head in disgust.
The assault on private sector employment began in April when the democrat controlled National Labor Relations Board (NLRB) issued a complaint seeking to force Boeing aircraft to move Boeings newly opened non-union production facilities in South Carolina back to its union controlled plants in Washington State. Although Boeing simply says that it is looking to open a cost effective domestic manufacturing facility (an endangered species) to employ American workers, the NLRB alleges that the company was punishing union workers in Washington for past strikes. Despite a lack of any direct evidence that Boeing was being punitive, and the fact that the company was not laying off any union workers, the NLRB has not backed down. Against little public support and nearly universal revulsion among business leaders, the NLRB is continuing its campaign to keep Boeing from exercising its freedoms and to employ people in a manner that makes sense for its business.
The Boeing move served notice that the Obamas loyalties were firmly tied to the Union interests that were so critical to his election in 2008. This week, the anti-business tendencies of the administration came into even sharper focus.
In the telecommunications industry, service provider AT&T made the seemingly essential move in its attempt to acquire wireless specialist T-Mobile. But the Justice Department sued to block the $39 billion deal on antitrust grounds, saying that the merger between the second and fourth largest cell phone providers would unfairly restrict competition and raise prices.
In so doing, the DOJ seems to be operating under the assumption, without any direct evidence, that at least four companies are needed to provide healthy choice in the marketplace, and that three providers simply wont cut it. More broadly, competition may increasingly come from outside the telecommunications sector (in particular from cable and satellite industries). Plus, with the speed of technological change, who knows what types of competitors will arise in the years to come. The situation reminds me of the broken merger in 2004 and 2005 between Blockbuster Video and Hollywood Video. Based on antitrust concerns emanating from the Justice Department, Blockbuster backed off from the deal. Of course, just a few years later the whole sector was made obsolete by Netflix, and any advantage Blockbuster would have gained would have only been temporary.
In light of the current and future competition that is sure to change the way consumers talk with one another over great distances, AT&T and T-Mobile are much better positioned to survive as a combined entity. In any event if AT&T cant buy T-Mobile, someone else will. The companys parent, Deutsche Telecom, has stated its intention to divest itself of its American subsidiary.
So why not help American business survive in an increasingly competitive market? Most likely antitrust lawyers at the DOJ have been otherwise bored with the lack of merger deals to scrutinize (another downside to a weak economy), and this transaction just happened to be in the wrong place at the wrong time. But the legal activism will certainly cost jobs. Even the unions recognize this and have supported the merger.
But the absurdity of the current environment reached a peak when the DOJ, and agents from, get this, the U.S. Fish and Wild Life Service, raided the Nashville factory of the legendary Gibson Guitar company. The raid resulted in agents carting off more than a half million dollars of supplies and essentially shutting the company down. The take down of one of Americas commercial icons apparently resulted from Gibsons purchase of partially finished ebony and rosewood guitar fingerboards (these endangered trees are carefully managed) from an Indian supplier.
Now heres the interesting part. The Indian government had issued no complaint about the transactions and there was no evidence that the company had violated U.S. law. The DOJ acted simply on suspicion that Gibson had violated Indian law. Since when do U.S. companies have to make sure that they comply with laws of every country in the world before they produce a product?
I had the good fortune on interviewing Henry Juszkiewicz, the CEO of Gibson on my radio show this Thursday.
After speaking to him, I didnt know whether to laugh or cry at the stunning economic incompetence of our government officials, who in the cause of arbitrary regulatory nitpicking, seem willing to sacrifice the reputation and prospects of one of the few remaining American manufacturers. God help us all.
On the other side of the coin, the governments own efforts to create jobs in the private sector have met with little success. It was announced yesterday that Solyndra LLC of Fremont California, a manufacturer of solar panel has filed for bankruptcy protection and has laid off its remaining 1,100 workers. The development is notable because the company was a veritable poster child of the Obama Administration. The president himself visited their facilities in May of 2010 and touted the company as the template for Americas green technology future. As a result of its politically advantageous profile the company was able to secure $535 million in loans guaranteed by the government.
But apparently government blessing does not guarantee market success. Unfortunately, Solyndra could not sell its products profitably despite the government support and cheerleading. Instead $535 million in investment capital was diverted from potentially money making enterprises to a money losing enterprise. This is what happens when government calls the shots.
When it comes to the financial sector, the government cant seem to decide whether it wants to preserve jobs or destroy them. After bailing out the banks three years ago (and making some of them too big to fail), it was reported today that the government is preparing to launch a multi-billion dollar lawsuit to recoup losses that Fannie Mae and Freddie Mac suffered on mortgage backed bonds (loans that the government itself encouraged the banks to make). If the government were to prevail, job losses would surely emerge in the sector, and the government may need to bail out the banks once again!
So as we wait with eager anticipation as to what the President may reveal in his jobs speech next week, you can be sure that its not going to help America regain its competitive edge. The sooner we regard the government as a job killer rather than a job creator, the sooner we can all get back to work.
Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse. His latest book is How an Economy Grows and Why It Crashes.