Unemployment: A Lagging Indicator or the Crux of the Problem?

http://www.usatoday.com/money/economy/2009-07-02-unemployment-june_N.htm

There’s been a lot of talk in the media in the last few months about “green shoots” and the beginning of an economic recovery.  Banks have stabilized (at least from outward appearances, thanks to a thin veneer of money applied by the Federal Reserve), housing sales and home price declines are slowing, as are declines in retail spending and auto sales.  Happy days are here again!  The slow rate of decline in the economy is being accepted as the new norm.  Corporations’ profits have stabilized, thanks to cost-cutting and job eliminations.  In fact, Wall Street was ready to celebrate job losses of “only” 350,000 in June as evidence that the economy was on a roll, and investors looked forward to a nice rally.  After all, unemployment is just a lagging indicator, they say.  It’s nothing to worry about.  It’ll get better once consumers start binging again. 

Then, along comes the Labor Department on Thursday, tossing a turd into their punch bowl with the June unemployment report.  Another 467,000 jobs lost in June and another step closer to double-digit unemployment (as measured by U-3*), much worse than expected and much worse than the May figure.  Suddenly, and just for a day, everyone is reminded that the consumers we count on to drive the economy derive their spending power from their dual role as laborers and that, without income, all the talk of an economic recovery is just so much wishful thinking. 

It all comes down to basic economics – not the pretend economics in vogue with economists today – where we can pretend that population growth can be used as an engine for economic growth forever without cancerous consequences, where we can pretend that workers who lose their jobs to trade deficits can be retrained for magical new jobs in imaginary, yet-to-emerge fields – but real economics based upon the acknowledgement that consumers and laborers are one and the same, and that their purchasing power emanates from a healthy demand for labor that is at least in balance with the supply. 

Pretend economics is the product of economists who turn a blind eye to population growth, cross their fingers and, with unjustified optimism, proclaim that man is ingenious enough to overcome any obstacle to never-ending growth.  Real economics, on the other hand, is the product of people who stop to consider the full range of potential consequences of population growth – not just the finiteness of resources and potential environmental impact, but more subtle things like the effects of crowding more people into a finite space – what happens to per capita consumption and employment, and what happens when we try to trade freely with nations that are badly overpopulated.

Get this through your heads, pretend economists:  a slowing rate of decline isn’t the same thing as recovery.  It doesn’t even mean the bottom is in sight.  All it means is that we’re still in decline.  Foreclosures are still rising; home prices are still falling and will continue to fall until the median home is affordable by people earning the median income.  The problem is that the median income continues to decline as we continue to freely trade away our jobs to badly overpopulated nations and as we continue to exacerbate the situation at home with our own worsening overpopulation.  Unemployment is still rising and will continue to rise until it reaches a level consistent with the effective population density we’ve assumed by trading freely with nations five, ten and twenty times more densely populated than our own. 

With our national debt now reaching a level that even the most sanguine of economists sees as dangerous, the time is rapidly approaching when we can no longer paper over the consequences of our trade deficit with federal deficit spending.  It’s time to act.  It’s time for our president t0 take meaningful action  – meaning tariffs on manufactured products from overpopulated nations – to restore a balance of trade.  Of course they’ll react angrily, but it’s not as though they haven’t had warnings for decades that this trade imbalance can’t be sustained forever.  They’ve had ample opportunity to make good on promises to boost their economies and their imports of American products.  We can wait no longer. 

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* The official unemployment rate, U-3, rose by only 0.1% to 9.5% and the more comprehensive figure, U-6, now getting much more attention in the media, rose only 0.1% to 16.5%.  But the unemployment rate is a flaky figure, based on surveys instead of hard employment data, that may rise less than the job loss figures indicate in one month, only to be followed by a bigger-than-indicated rise the next month.  Since the labor force is approximately 150 million people, and since it grows by about 150,000 per month (due to population growth), then a flat employment report should actually yield a rise in unemployment of 0.1%, meaning that a loss of about 450,000 jobs should yield a rise in unemployment of 0.4%.  What I’m saying is that the U-3 unemployment rate is probably closer to 9.8% and, if job losses continue at the current rate, expect a big jump next month to take it over 10%.  It’s also worth noting that even the U-6 figure doesn’t measure the full extent of unemployment, since those on disability are excluded, even if they are looking for work, and the homeless are obviously not included since they can’t even be surveyed.  Include these categories and we’re approaching 20% unemployment.

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One Response to Unemployment: A Lagging Indicator or the Crux of the Problem?

  1. Pete Murphy says:

    Just as a matter of follow-up, here’s an article that makes the same point: http://www.usatoday.com/money/markets/2009-07-05-consumers-layoffs-jobs_N.htm

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