Category: Economy

Unemployment 101

Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: “There are three kinds of lies: lies, damned lies and statistics.”

Mark Twain

When you see a cheery report like this …

… what they’re talking about is the official unemployment rate for the United States.  Economists identify that particular statistic with the dry title of “U3.”

Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.

U.S. Bureau of Labor Statistics

Unfortunately, that U3 number can be misleading.

Here’s a simplified way to visualize the economy when it’s as close as it ever gets to “full employment.”  The best America can typically do is when that U3 number drops to around 5% — five out of every hundred people in the workforce have no jobs.  Even when the economy’s booming that statistic never drops to zero because there are inevitably at least a few people who find themselves between jobs.  It’s not always the same people, and sometimes they’re between jobs for good reasons (on vacation between jobs, going to school, on sabbatical, just sold their business, etc.), so it’s silly to get upset if the U3 number hovers in the neighborhood of 5%.  Also remember that this doesn’t represent the whole population of America; we’re only looking at the workforce.  We’re leaving out retirees, the disabled, illegal aliens, children too young to work, and the like.

5% unemployment
5% unemployment

Now let’s say a big recession hits.  Ten out of every hundred people of working age find themselves out of work, so unemployment rises to 10%.

10% unemployment
10% unemployment

After a long time passes, the federal government announces that unemployment has dropped to 8%, and the TV talking heads eagerly parrot that latest U3 number.  Good news, right?

Not necessarily.  True, it could mean that now only eight of every hundred workers is out of a job, which is easy to assume when you hear that happy “news” report:

8% unemployment
8% unemployment

On the other hand, it could mean that the government designated a large chunk of the working age population (in our example, 37½%) as “discouraged workers” who have left the workforce.  Such sleight-of-hand leaves eight of every hundred people still in the workforce counted as “unemployed” according to the definition of that well-known U3 statistic, but it hides the full story.

8% unemployment (technically)
8% unemployment

Discouraged workers might be working part time, or they’ve stopped looking for work, or they might still be looking but they’ve been unemployed for so long that the government number-crunchers simply treat them as if they don’t exist anymore. Whatever the mix may be at any given time, those people are still of working age and they’re able-bodied, but they don’t show up in the U3 number reported as the official unemployment rate on the nightly news.  This situation is worse than the reports would have you believe.

bullshit detectorTo get an accurate picture of how big a chunk of the workforce is actually working, you have to flip things around and consider employment instead of just U3 unemployment and the raw “XXX jobs created this month” announcements.

You have to look at different government figures if you want the whole story.

The next time you hear a happy jobs report in the news, turn on your B.S. detector and compare our current situation to other recessions and recoveries in American history.

Or at least ask whoever’s sprinkling fistfuls of U3 sunshine to explain this double standard:

Bush's jobless recovery

The rich, the poor, and the middle class are treated unequally

As you watch President Obama’s class-warfare-soaked State of The Union address tonight, keep two things in mind.

  1. He’s a liar and a demagogue.
  2. Taxation is only half of the story at best.

You have to watch spending too. The poorest Americans got back $8.21 for each $1.00 paid in taxes. The middle class got back $1.30 for every $1.00 paid in taxes. The rich got back $0.41 for every $1.00 paid in taxes. Yes, really.

We do do not have a revenue problem. We have a spending problem.

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The bigger the government, the crappier the economy

Veronique de Rugy points out a study just released by economists at the European Central Bank:

Basically, an increase in government spending (whether financed by taxes or by borrowing) reduces economic growth. This is consistent with a paper from a few years ago by Harvard Business School’s Lauren Cohen, Joshua Coval, and Christopher Malloy. To their surprise, those authors found that federal spending in states caused local businesses to cut back rather than grow.

But … but … what about the multiplier effect of government stimulus spending?
Keynesian economics
Bummer, dude.

Rick Perry’s answer to 9-9-9

A preview just went up at the WSJ:

On Tuesday I will announce my “Cut, Balance and Grow” plan to scrap the current tax code, lower and simplify tax rates, cut spending and balance the federal budget, reform entitlements, and grow jobs and economic opportunity.
The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.

e will lower the corporate tax rate to 20%–dropping it from the second highest in the developed world to a rate on par with our global competitors.

I guess you could call it the 20-20-0 Plan. Unlike Herman Cain’s somewhat fuzzy 9-9-9 Plan, this one will supposedly target spending too (which is critical). Unlike Mitt Romney’s 87-page snoozer, people will presumably read this one.
It’ll be impossible to score, though, because of that “choose your own tax system” feature. It’ll be impossible to predict how many people (and which people) will pick this new option if it’s made available. All anyone can do is score it as if 100% of taxpayers choose to switch, which won’t happen.

We have a spending problem

This visualization helps explain things so well that I’m republishing an old post to drive the point home.
The current national debt is 14.8 trillion dollars. That’s a big number, but when the talking heads on TV start talking about billions and trillions, the shock value wears off. They might as well be discussing “gazillions.”
Time for a reality check. If you counted out fifteen trillion dollars in $100 bills, this is what the stack would look like:
15 trillion dollars
That’s the current national debt. We’re already on the hook for all of it. But what about our future commitments to pay for Medicare (both the old familiar program and the new prescription drug benefit) and Social Security? Unless we cut federal spending to sane levels, the best guess so far is $114 trillion. What does that look like if you count it all out in $100 bills?

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A simple question for progressives (#20)

According to the Obama Administration, this is how federal government spending works miracles (emphasis mine):

Keynesian economicsWell, obviously, it’s putting people to work. Which is why we’re going to have some interesting things in the course of the forum this morning. Later this morning, we’re going have a press conference with Secretary Mavis and Secretary Chu to announce something that’s never happened in this country — something that we think is exciting in terms of job growth. I should point out, when you talk about the SNAP program or the [food] stamp program, you have to recognize that it’s also an economic stimulus. Every dollar of SNAP benefits generates $1.84 in the economy in terms of economic activity. If people are able to buy a little more in the grocery store, someone has to stock it, package it, shelve it, process it, ship it. All of those are jobs. It’s the most direct stimulus you can get in the economy during these tough times.

If this is true, shouldn’t the federal government immediately hand out a trillion dollars’ worth of food stamps, thus generating 1.84 trillion dollars of economic activity? In fact, shouldn’t they hand out a billion trillion?

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More on the S&P 500’s moving average (Updated)

Remember this chart from Monday? I updated it to show the farthest the Standard & Poor’s 500 Index dropped below its 365-day simple moving average during the two “close calls” marked by green arrows.
365-day moving average for S&P 500
On Monday the S&P 500 closed at 7.74% below its 365-day SMA. Yesterday it rebounded a bit, but still closed at 1172.53 — 3.37% below the Red Line of Doom™. As of right now, it’s down another 34.64 points.
Since 1995, whenever the index has closed at 4% or more below the 365-day SMA, it has experienced a major drop.
11:30 PM Update: Today’s close was 1120.76, which is almost exactly where we were after Monday’s slide. How does a nice, fat 7.64% under the SMA grab you? Unless something fundamental has changed since the 2008 crash, I think we’re going to see blood on the trading floor.
Thanks again, politicians!

Watch the S&P 500’s moving average

A moving average can tell you a lot.
Don’t just look at the Dow Jones Industrial Average. It’s the best-known financial statistic, but it doesn’t tell the whole story. The Standard & Poor’s 500 Index tracks a much larger and much more diverse group of stocks than the DJIA’s mere 30 industrial companies. It’s regarded as a pretty good bellwether for the entire United States economy.
If you go to Yahoo! Finance and mess around a bit with the chart for the S&P 500 by adding a simple moving average for the last 365 days (the red line), here’s what you’ll see for the period from 1995 to now:
365-day moving average for S&P 500
The purple arrows that I Photoshopped into the chart mark the points when the S&P 500 dropped significantly below its 365-day SMA. The green arrows mark the points when the closing price only briefly dipped below it. As of today, the closing price is a little bit more than 1% under the Red Line of Doom™. Watch closely this week, because I think this chart’s going to get another purple arrow.
Way to go, Washington.

America’s debt now exceeds 100% of GDP

Great news, everyone. Remember how we were assured that the debt ceiling increase was absolutely essential to preserve the United States of America’s AAA credit rating? It turns out the politicians lied again.

US debt shot up $238 billion to reach 100 percent of gross domestic project after the government’s debt ceiling was lifted, Treasury figures showed Wednesday.

Ratings agencies have warned the country to reduce its debt-to-GDP ratio quickly or facing losing its coveted AAA debt rating. Moody’s said Tuesday that the government needed to stabilize the ratio at 73 percent by 2015 “to ensure that the long-run fiscal trajectory remains compatible with a AAA rating.”

For you non-economists out there, the Gross Domestic Product is the dollar value of all goods and services produced in America in one year. For calendar year 2010 our GDP was $14,530,000,000,000. That’s just a shade under fifteen trillion dollars, admittedly a hard number to comprehend. Since enacting the most recent debt ceiling increase agreed upon by the geniuses in Washington, our government promptly borrowed enough to push our debt to $14,580,000,000,000. That number is bigger than our GDP, making our Debt-to-GDP ratio larger than 1.
This is what’s known among rational human beings as A Very Bad Thing™.
Here’s the data that the Federal Reserve currently has publicly posted for our debt-to-GDP ratio, which is only current through January 1, 2010:
Debt-to-GDP ratio
The last time our debt exceeded our GDP was in 1947, when we were winding down from World War II, but at least it was headed in the right direction. If you think the Tea Party is “extreme” in their views, how would you describe the behavior of the politicians and bureaucrats in Washington since the beginning of 2007 when Nancy Pelosi, Barack Obama, and Harry Reid took over and began spraying rivers of tax money across the fruited plains?
We do not have a revenue problem. We have a spending problem.

Written by Comments Off on America’s debt now exceeds 100% of GDP Posted in Economy

We The Stupid

burning cashI understand Ann Barnhardt’s frustration.
This debt ceiling increase was no victory. Giving the federal government a new $2.4 trillion slush fund makes about as much sense as giving whiskey and car keys to teenage boys. Time to swap out more Congressmen and Senators for less corrupt replacements.
There are no cuts, and we all know it. There are reductions in the rate of increase of spending. We’re just gulping slightly less fiscal poison, so we’re dying slightly less quickly than before. Until inflation kicks in. And assuming future Congresses choose to abide by this Congress’ promises. And if we don’t get involved in another war.
But hey, we only control 1/2 of 1/3 of the gubmint. It’s not like Cut Cap & Balance was popular or anything. And the media will be mean to us unless we compromise, and they’ll be nice if we do. It’s still 1995, and Teh Interwebz have no effect. Tea Parry? What Tea party? Best we could do. Even though “next time” has never come yet, our GOP betters will really & truly make actual cuts after we win in 2012. Pinky swear.
Eat your peas, drink your poison and smile!