The supply chain grinds slower.  Certain areas disrupted in the Japanese earthquake are doing better than a few months ago, but the leading indicators do not look good.  Consumer confidence is hitting all-time lows, which will wreak havoc on the supply chain.  To make matters worse, recall that the economy and GDP figures have benefitted greatly from inventory restocking since 2009.  Now we get the reverse – inventory destocking – which happens when businesses get conservative and stop buying new stuff, which is what the August and September economic data is all about.  Where do we go from here?  I’m going to run through Jobs and Europe in a flash, so stay with me.

Jobs.  It’s not about jobs; it’s about productivity growth.  Productivity growth is the key to understanding where this nation is headed over the next decade.  Right now, I know we aren’t headed in the right direction because the focus is on jobs.  This isn’t an indictment against President Obama, but rather both Democrats and Republicans are wrong for focusing on the wrong thing and it will cost us another decade unless policy changes fast.

Let’s reverse the “jobs debate” to see why it doesn’t make sense.  Do Americans want jobs?  No, not really.  Step back for a moment – Americans don’t want jobs, they want money, a home, a good-looking wife and maybe a nice pair of shoes every now and then.  How do Americans get money?  Well, by borrowing, but the only way to make money sustainably is to get a dollar out of your customer’s pocket for less than a dollar of costs – even non-profits have to do this too.  Humans are competitive, so to make money over time you have to be harder working, more efficient, or think of ways to make money that others haven’t thought of yet.  That is productivity.  Have we used the words “jobs” yet?  No.  We shouldn’t confuse jobs with making money; they are two very different things.  People making money make jobs.  People making jobs that don’t make money makes Michigan.  So until the debate and economic policies shift to productivity, all roads lead to Lansing.

That’s why Democrats are wrong for trying to create jobs with job creation tax cuts and construction programs.  Those programs will certainly create some jobs temporarily, but that is not the point.  We shouldn’t borrow from our children to boost quarterly job numbers.  We need more people working because there is a profit to be made from pulling a dollar out of a customer’s pocket without government subsidies.

Republicans are also wrong for blaming Obama for creating an unfriendly business environment and stifling job growth.  Do moneymakers wake up in the morning and say to themselves – my marginal tax rate may be 3% higher in 3 years, let me not try to make money, buy a home, get a good-looking wife or buy a nice pair of shoes every now and then?  Let’s be honest, with the money in your pocket, a postage stamp and a printer, you too can start a company in America.  But before you hire anyone, you need something and someone to sell things to, and without a long-term rise in aggregate demand due to productivity growth there is no other way that is going to happen.  With or without Obamacare.

Europe.  Imagine if the Canadians controlled the Federal Reserve and every state legislature had to vote unanimously for TARP and any other spending measure.  Would 2008 have gone down differently?  Yes.  So that’s one of two problems that can’t be solved in Europe – Europe has high coordination costs at a time when decisive action to restore confidence is necessary.  Case in point today, Germany was supposed to vote on Europe’s “TARP”, but they are pushing the vote back to next year.  That’s just one of seventeen countries.  Meanwhile, back at the ranch, Rome burns.

The other unresolvable problem is growth.  European TARP may get done, the European Central Bank may print money and the stock market could go up 20% as a result.  That may all happen in the near-term, but come next year, all sentiment will be determined by Spanish and Italian economic growth figures.  Why?  So far, everyone is assuming that these Eurozone countries will grow.  That is why austerity programs are getting pushed off to 2013/2014 – to allow for some growth before austerity reduces growth.  But if these economies start to shrink in the face of growing liabilities BEFORE austerity measures kick in, it doesn’t matter what any central bank does, there is no sustainable solution.

So will Spain and Italy grow?  That is the $1 trillion question.  Well, Spain’s plan for growth is to become more competitive.  In English, this means reducing wages (now) to boost exports (over the next 10 years).  What happens when you cut wages on a levered consumer?  They stop spending, which leads to negative GDP growth in the intermediate term.  Italy’s consumer is not levered, so the impact won’t be as dramatic there, but negative in the interim nevertheless.  If that isn’t convincing, let’s step back from the economics for a moment and just answer this question- when is the next time you’ll buy a Spanish or Italian export?

We’re going to need to buy a lot more than a nice pair of shoes every now and then.