Where has the vanishing labor force gone? Now we have a clue.

November 11, 2015


Each month I criticize the Bureau of Labor Statistics (BLS) report on employment for using the “mysterious vanishing labor force” trick to keep the government’s official unemployment rate artificially low.  Since Obama took office in January, 2008, the U.S. population has grown by 19 million.  Yet, according to the BLS, the labor force has grown by only 3 million, an employment-to-population ratio of only 16% while the same ratio for the overall population is 46%.  It seems that some six million workers have gone missing.  These are the long-term unemployed that the BLS explains away as having “given up looking for work.”

So where have they gone?  How are they supporting themselves?  Well, the above linked study published by Princeton last week gives us an inkling about what’s become of them.  They’re living in despair.  And they’re dying.  As the study found, the mortality and morbidity among middle-aged whites in America has taken a very dramatic turn for the worse since 1998.

This may be the first concrete evidence that the theory I proposed in Five Short Blasts – that the worsening unemployment driven by a rising population density and by trade with overpopulated nations will increase poverty and, ultimately, will begin to drive up death rates.

Your first reaction may be similar to mine – that when you hear of increased mortality among Americans, obesity and all of its related problems are probably the leading cause.  Americans are paying the price for living the good life.  However, this study found that that’s not the case at all.  Worsening obesity contributed only a small fraction to the death rates among this group.  The increase in the death rate is heavily driven by suicides, drug overdoses and alcoholism.  These are the afflictions of people whose dreams have been destroyed and who have lost hope.  So dramatic is the increase in mortality, that the study compares it the AIDs epidemic:

“If it (the death rate) had continued to decline at its previous (1979-1998) rate, half a million deaths would have been avoided in the period 1999-2013, comparable to lives lost in the US AIDS epidemic through mid-2015.”

Why hasn’t this trend shown up in any of the mortality data published by the Center for Disease Control (CDC)?  As the study points out, this data is lost in the “disaggregation” done by age and race in the CDC reports.

The study discusses possible causes for this trend:

“Although the epidemic of pain, suicide, and drug overdoses preceded the financial crisis, ties to economic insecurity are possible.  After the productivity slowdown in the early 1970s, and with widening income inequality, many of the baby-boom generation are the first to find, in midlife, that they will not be better off than were their parents. Growth in real median earnings has been slow for this group, especially those with only a high school education. However, the productivity slowdown is common to many rich countries, some of which have seen even slower growth in median earnings than the United States, yet none have had the same mortality experience.  The United States has moved primarily to defined-contribution pension plans with associated stock market risk, whereas, in Europe, defined-benefit pensions are still the norm. Future financial insecurity may weigh more heavily on US workers, if they perceive stock market risk harder to manage than earnings risk, or if they have contributed inadequately to defined-contribution plans (31).

So why did this begin in 1998 or soon after?  In 2000 the U.S. granted “Most Favored Nation” trading status to China, opening the door to a flood of imports that has decimated what remained of American manufacturing.

President Obama took office in 2008 on a promise of “hope and change,” and on a promise to fix the trade policies that were wreaking havoc on the middle class.  He broke that promise and even exacerbated the trade problem.  Well, it seems that for many Americans, that “hope” that he promised was their last hope.  Americans are literally paying with their lives for America’s idiotic trade policies.

October Employment Report Belies a Stalled Economy

November 6, 2015

This morning’s release of the October employment report by the Bureau of Labor Statistics (BLS) blew away expectations.  According to the BLS, the economy added 271,000 jobs in October vs. expectations for an increase of 190,000.  It even handily beat the top end of the range of expectations – 240,000.  And unemployment fell by one tenth to 5.0%.  The economy must really be on a roll!

Well, maybe not.  A little perspective is in order.  First of all, unemployment didn’t really fall.  In September it was 5.051%.  In October it fell to 5.036% – a decline of only 0.015%.  Rounding the number to two significant digits makes it look like it fell from 5.1% to 5.0%.  Secondly, at the beginning of the report, the BLS observes that:

Over the past 12 months, the unemployment rate and the number of unemployed persons were down by 0.7 percentage point and 1.1 million, respectively.

While technically true, the BLS arrived at these numbers through heavy use of its favorite employment-enhancing trick – claiming that people have dropped out of the labor force.  A true accounting reduces these numbers to 0.3% and 410,000 respectively.  And a true accounting of unemployment puts the number at 8.8%.  The BLS admits in the report that the employment to population ratio is unchanged in the past year.  That’s true.  Take a look at this chart:  Per Capita Employment.  Per capita employment has risen five times in the past twelve months and dropped seven times, for a net loss of 0.03%.  October’s rise was barely a blip.

And the number of unemployed Americans is actually worse than it was ten months ago.  Here’s the chart:  Unemployed Americans.  Again, October’s decline is a barely-noticeable blip in the longer trend.

Earlier this week, Donald Trump took heat for claiming that the Federal Reserve helped the Obama administration with low interest rates and three rounds of quantitative easing.  The implication was that the Federal Reserve did some sort of political favor.  Probably not true, but the end result is the same – it definitely helped Obama with the economy.

A couple of days ago, Janet Yellen, chairperson of the Fed, made clear that an interest rate rise was definitely in the cards in December, leaving analysts scratching their heads over why.  Most of the economic data has been pointing to a slowing economy.  But, I believe, the Federal Reserve is getting desperate to get back in the game, since some are beginning to question its relevance in affecting the economy.  Interest rates at zero and $4.5 trillion of monetary easing have yielded nothing but the weakest economic recovery of the post-war era.  Is the October employment report a quirk, or does Trump have it backwards in this case and perhaps the BLS just threw the Federal Reserve a bone to help it justify its case?

Europe’s Migrant Crisis

October 28, 2015


Much has been made of the migration of asylum-seekers and economic refugees to Europe from conflicts and poverty in the Middle East and Africa.  The above link takes you to a site that maps the flow of people.  It’s pretty interesting and certainly looks alarming, especially to Europeans.  The media has virtually run out of superlatives to describe the scale of this crisis.  “Historic.”  “Unprecedented.”  “Staggering.”  This linked article says that “… it’s hard to grasp the magnitude …”  It’s a serious situation, to be sure, but I thought some perspective might be interesting.

Europe is a continent of approximately 585 million people, not counting Russia.  (After all, none of these people are seeking to migrate to Russia.)  It has a surface area of about 2.3 million square miles – about 2/3 the size of the U.S.  This gives it a population density of about 255 people per square mile, about three times as densely populated as the U.S.

As the article points out, approximately 680,000 people have arrived in Europe so far this year.  That’s an annualized rate of about 750,000.  So that rate would grow Europe’s population by about 0.13%.  Now, let’s compare that to the United States, which admits approximately one million legal immigrants per year and is also invaded by a roughly equal number of illegal immigrants, many of whom are deported, but roughly half remain and are eventually granted amnesty.  That’s an annual influx of approximately 1.5 million migrants each year, growing the U.S. population by 0.5% (more than three times the rate being experienced by Europe).

Put in that perspective, Europe’s migrant crisis pales in comparison to what the U.S. has been experiencing year-in and year-out for many decades.  The scenes of border crossings in Europe are no different than the situation at our own southern border.  Yet somehow it’s a crisis of historical proportions in Europe, worthy of constant global media attention, while America’s migrant crisis is completely shrugged off.  It’s become routine.  It’s become our duty to suck it up and take them all in.

Still, this is a serious situation, cause for major concern for Europeans and even for Americans.  Consider:

  • Europe is already very densely populated.  Take away Russia and the Scandinavian countries, and the rest of Europe is as densely populated as China.  Many European nations, especially Germany, are already heavily dependent on manufacturing for export to sustain their economies and avoid high unemployment.  The very last thing Europe needs is more population growth.
  • Americans should also be concerned by a surge in population growth in Europe.  It will exacerbate our large trade deficit with Europe as its market is further eroded by over-crowding and as its exporters become more desperate to increase foreign market share.
  • The days when the western world could serve as a relief valve for overpopulation are long since past.  Our ability to absorb immigrants without doing economic harm to our own people has been exhausted.  The inability of western economies to sustain economic growth or even maintain their present levels of consumption is becoming more evident every day.

The sad fact is that as long as the world’s population continues to grow exponentially, driven primarily by explosive growth among third world nations, we are rapidly reaching the point where all we can do is stand by helplessly and watch as more and more crises unfold.


The Volkswagen Debacle

October 17, 2015


The above-linked article appeared on CNBC a few days ago, and I can’t let it pass without comment.  In case you’ve been living under a rock and haven’t heard the news, the U.S. EPA (Environmental Protection Agency) discovered that VW diesel engine-equipped cars are also equipped with software that cheats on emissions tests, making them appear to meet emissions requirements when, in fact, they don’t.  VW is facing fines that potentially could reach tens of billions of dollars.  And sales of these models have been halted.  The city of Wolfsburg, home to VW, is bracing for the worst.

“… news of VW’s diesel emissions scandal has hit the city hard, sparking anger and dismay as well as worries of the financial and employment consequences for both the carmaker and Wolfsburg. Some are even invoking the decline of another motor city — Detroit in the US.

“I am worried. It’s not good for Wolfsburg. Detroit stands as a negative example for what can happen: the city has collapsed. The same here is also thinkable,” says Uwe Bendorf, who was born and raised in Wolfsburg and now works at a health insurer.”

The decline of Detroit is due entirely to trade policy that fails to recognize the role of population density in driving global trade imbalances.  A massive trade deficit in manufactured goods – autos in particular – is the inescapable consequence of attempting to trade freely with a nation like Germany, more than six times as densely populated as the U.S. – a nation that comes to the trading table with a bloated labor force, hungry for work making cars for export, and nothing to offer in return but a diminished market stunted by over-crowding.  Detroit’s misery is due in no small part to VW and the prosperity that Wolfsburg’s citizens have enjoyed at Detroit’s expense.

“VW’s sprawling factory employs about 72,000 in a city with just 120,000 inhabitants.”

Anyone who doubts the importance of manufacturing to our economy:  take note.  That’s a per capita employment rate of 60%, and doesn’t even include the additional employment in Wolfsburg by companies that provide products and services to VW and its workers.  Compare that to 46.3% per capita employment in the entire U.S. economy – a figure that the Obama administration would like you to believe represents low unemployment.

“A worker at Autostadt, a kind of theme park to VW that was built at great cost at the start of the century, says: “Who is polluting the air in the world? It’s not just cars, it’s airlines, big trucks, container ships. There is lots of pollution in the US and they don’t seem to care about that.” “

You’ve got to be kidding me!  The U.S. EPA raised this issue because the US does care about pollution – pollution caused by German engineers who obviously don’t give a crap about it!

“Referring to General Motors‘ ignition switch scandal last year that was responsible for more than a dozen deaths, he adds pointedly: “At least we didn’t kill anybody.” “

Not directly in this case, at least.  But he seems to forget some of the junk that’s been foisted on the American public by VW, like “The Thing” and the VW Fox – a car famous for starting up and driving off by itself with no one inside.

The German auto brands owe much of their success to a perception among the American auto-buying public that “German engineering” is somehow superior.  That notion continues to thrive in spite of the poor quality rankings of Mercedes Benz and chronic electronic problems with BMWs.  This cheating scandal is just another crack in that myth.  One can only hope that it will lead to the deserved demise of VW and a boost to domestic manufacturers in the U.S.  If it does, then just suck it up, crybabies in Wolfsburg, and enjoy a taste of your own medicine.





Obama’s Trade Failure Grows Worse

October 9, 2015


A week ago, the Bureau of Labor Statistics released the jobs report for September – a report that was the worst in four years.  The same thing could be said for the trade report released earlier this week.  Manufactured exports, which the president had vowed to double – a cornerstone of his economic policy, fell to a level that was actually less than July, 2011.  The trade deficit in manufactured goods worsened to $60.6 billion, the second worst reading ever.  (The record was $63.7 billion, set only five months ago.)  Here’s the chart:  Manf’d Goods Balance of Trade.

In 2012, the president hailed a new trade deal with South Korea as a “big win for American workers.”  The trade deficit with South Korea, which was $13.2 billion in 2011, nearly doubled to $25.0 billion in 2014 and is on track to reach nearly $30 billion this year.

Our trade deficit with China was $268 billion in 2008, the year the president was elected.  This year our deficit with China is on track to easily surpass $350 billion.

The president’s mistake on trade policy is the same mistake made for decades by the presidents who preceded him – putting blind faith in “free” trade, taking no account of the role of population density in driving trade imbalances.  He fails to understand that, when dealing with nations far more densely populated than our own, “free” trade is a worse policy than no trade at all.  That’s not to say that we shouldn’t trade with nations like China, Japan, Germany, South Korea and others who are totally dependent on manufacturing for export to sustain their bloated labor forces.  It simply means that some mechanism for assuring a balance of trade – tariffs, quotas or whatever – is essential to prevent a crippling of our own economy.

The Trans Pacific Partnership trade deal that Obama has recently concluded again blindly applies “free” trade policy to each nation regardless of their population density.  Based on the long track record we have with that approach, it’s easy to predict the results if Congress is foolish enough to enact it.



September Jobs Report Worst in Over Four Years

October 6, 2015


The September jobs report (link provided above), released on Friday by the Bureau of Labor Statistics (BLS), was just about as bad as it could be for an economy not officially in recession.  The headline numbers – 142,000 jobs created and an unemployment rate that held steady at 5.1% – weren’t great.  Expectations had been for an increase of 203,000 jobs.  But those headline numbers mask just how horrible this report was.

For beginners, the tally for July and August was also cut by 59,000 jobs.  Also, the average work week declined and average hourly earnings actually fell by one cent.  But here’s where it gets really bad:  the employment level – the number of Americans working – the numerator in the calculation of the unemployment rate – actually fell by 236,000.  That’s, the biggest decline since June, 2011, when the economy was struggling to claw its way out of recession.

So if the employment level actually fell by 236,000 in September, then how did unemployment remain unchanged?  You guessed it – the same old trick the Obama administration has used throughout – the magically disappearing work force.  According to the BLS, the civilian labor force actually declined yet again by 350,000.  That’s the second consecutive monthly decline and the sixth in the last twelve months.  Year-to-date, according to the BLS, the civilian labor force has actually declined by 465,000 in spite of the fact that the U.S. population has grown by over a million people.

Truth be told, unemployment actually rose slightly in September to 8.8%.  Per capita employment remains stuck at 46.3% (more than two percentage points below its pre-recession level), where it has been all year.  Here’ the chart:  Per Capita Employment.  And the number of unemployed Americans rose by 62,000 to 14,395,000.  Here’s the chart:  Unemployed Americans.

Finally, thanks to the BLS chicanery with the labor force statistics, the Detachment from Reality Index – the difference between the official unemployment rate and real unemployment rate – rose to a record level of 3.77 points in September.

This jobs report paints a picture of an economy that’s slipping back into recession, something that we won’t know for sure until GDP data for the 3rd quarter is released later this month.

Americans Growing Poorer

September 19, 2015


The above-linked report – “Income and Poverty in the United States:  2014” – was published by the Census Bureau a couple of days ago.  The news isn’t good.  In spite of the supposed decline in unemployment and all the talk of economic recovery, the median household income fell once again and the poverty rate remained at or near the highest level in fifty years.

There’s tons of data to sift through in the report, so I’ll simply quote a few of the key findings of the report:

“Median household income was $53,657 in 2014, not statistically different in real terms from the 2013 median of $54,462 (Figure 1 and Table 1). This is the third consecutive year that the annual change was not statistically significant, following two consecutive years of annual declines in median household income.”

“Median household income … in 2014 … 6.5 percent lower than the 2007 (the year before the most recent recession) median ($57,357), and 7.2 percent lower than the median household income peak ($57,843) that occurred in 1999.”

“In 2014, the official poverty rate was 14.8 percent. There were 46.7 million people in poverty.”

“The 2014 poverty rate was 2.3 percentage points higher than in 2007, the year before the most recent recession (Figure 4).”

Median household income has declined every year since 2007, and even the median income in 2007 was less than the median income in 1999.  This is the longest period of decline since the Census Bureau began tracking the data in 1967.  From 1967 to 1999, the median household income (for all races) rose from approximately $42,000 to $57,843 – a increase of 38%.  Since 1999, however, it has declined by 7.2%.

This is exactly what the inverse relationship between population density and per capita consumption would predict – that as our population density (including our “effective” population density) rises beyond a critical level, worsening unemployment and poverty is inescapable.

So what was it that happened after 1999 that threw median incomes into what increasingly appears to be a permanent state of decline?  Our population density has been rising by about 1% a year for decades but our “effective” population density – the population density that we take upon ourselves when we combine with another nation through “free” trade – skyrocketed in 2000.  That was the year that the Clinton administration granted China “permanent normal trade relations” satus, opening the door to “free” trade with China.

Look back at Chapter 7 of Five Short Blasts (especially Figure 7-5 on page 130), where we examined what happened to our effective population density as we combined our economy with other nations through “free” trade.  The effect of trading with Ireland – the nation with whom we have the largest per capita trade deficit in the world – is negligible.  They’re so small that it makes no change to our effective (combined) population density.  Add Mexico to the list, and our density rises from 85 people per square mile to 118.  Add Germany and it rises to 132.  But, when China, with one fifth of the world’s population, is added to the mix, our effective population density rockets to 242!  The downward pressure on our labor market and incomes suddenly becomes overwhelming.

As long as we continue to blindly apply “free” trade policy to all nations with no consideration of the effect of population density, the resulting downward spiral in our economy is inescapable.  With each passing year, the data on incomes and poverty in America bears this out.







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