SGS Alternate Unemployment Rate (the measurement you rarely see)

The headline unemployment rate is the U3 measurement which current stands between 8-9%. U3 is argued by many as a political unemployment rate in that the measurement has become an unreliable measurement due to arbitrary adjustments.

U6, also known as the real unemployment rate, stands at 15%. Many people suggest that U6 is a better measurement of unemployment as it includes short-term discouraged workers, marginally-attached workers, and those workers which work part-time as full-time employment is unavailable.

However, in the current economic situation, if one is faced with 5.4 million discouraged workers, an army of discouraged workers, made up of short-term and long-term discouraged, one surely has to consider this standing army of discouraged workers. (1)

Enter the SGS alternate unemployment rate which adds in the long-term discouraged worker. We then find a measured rate of roughly 22.5%. (2)

　

Notes:

(1) http://www.headlightllc.com/avalanchebrief1/

(2)
http://www.shadowstats.com/alternate_data/unemployment-charts

Capital and Labor: distorted definitions leading to sophistical debate.

"The discussion of "the relations of labor and capital" has not hitherto been very fruitful. It has been confused by ambiguous definitions, and it has been based upon assumptions about the rights and duties of social classes which are, to say the least, open to serious question as regards their truth and justice. If, then, we correct and limit the definitions, and if we test the assumptions, we shall find out whether there is anything to discuss about the relations of "labor and capital," and, if anything, what it is.

Let us first examine the terms.

1. Labor means properly toil, irksome exertion, expenditure of productive energy.

2. The term is used, secondly, by a figure of speech, and in a collective sense, to designate the body of persons who, having neither capital nor land, come into the industrial organization offering productive services in exchange for means of subsistence. These persons are united by community of interest into a group, or class, or interest, and, when interests come to be adjusted, the interests of this group will undoubtedly be limited by those of other groups.


3. The term labor is used, thirdly, in a more restricted, very popular and current, but very ill-defined way, to designate a limited sub-group among those who live by contributing productive efforts to the work of society. Every one is a laborer who is not a person of leisure. Public men, or other workers, if any, who labor but receive no pay, might be excluded from the category, and we should immediately pass, by such a restriction, from a broad and philosophical to a technical definition of the labor class. But merchants, bankers, professional men, and all whose labor is, to an important degree, mental as well as manual, are excluded from this third use of the term labor. The result is, that the word is used, in a sense at once loosely popular and strictly technical, to designate a group of laborers who separate their interests from those of other laborers. Whether farmers are included under "labor" in this third sense or not I have not been able to determine. It seems that they are or are not, as the interest of the disputants may require.


1. Capital is any product of labor which is used to assist production.


2. This term also is used, by a figure of speech, and in a collective sense, for the persons who possess capital, and who come into the industrial organization to get their living by using capital for profit. To do this they need to exchange capital for productive services. These persons constitute an interest, group, or class, although they are not united by any such community of interest as laborers, and, in the adjustment of interests, the interests of the owners of capital must be limited by the interests of other groups.


3. Capital, however, is also used in a vague and popular sense which it is hard to define. In general it is used, and in this sense, to mean employers of laborers, but it seems to be restricted to those who are employers on a large scale. It does not seem to include those who employ only domestic servants. Those also are excluded who own capital and lend it, but do not directly employ people to use it.

It is evident that if we take for discussion "capital and labor," if each of the terms has three definitions, and if one definition of each is loose and doubtful, we have everything prepared for a discussion which shall be interminable and fruitless, which shall offer every attraction to undisciplined thinkers, and repel everybody else".  - 1883, William Graham Sumner,  What Social Classes Owe to Each Other.

Exit Zero

The Real Unemployment Rate in the US Economy currently sits at 16% according the Federal Reserve of Atlanta. (1) Further, no relief is in site for idle Human Capital. (2) Persistent high unemployment appears to be the norm with no current favorable factors contributing to the reduction in the number of unemployed.


Are Government Policies contributing to high persistent unemployment?


Government Policies

Stimulus Plan

An $800 Billion Stimulus plan was rammed through Congress in early 2009. The unread and un-debated Bill had a marquee of urgency. The urgency of passing the Stimulus Bill was to head off Unemployment. That the Unemployment Rate would not exceed 8% if the Stimulus Bill was immediately passed by legislatures and signed by President Obama.

Although the Stimulus Bill was unread and un-debated within Government, many outside the Government in the Private Sector did debate the Bill. Warning signs went up that the Stimulus Bill was Social Engineering, Financed Wealth and Income Transfers, and in the Macro Economic sense, not an engine to create Employment. That the Stimulus Plan was full of pork, ear marks, and based on a Political-Political design rather than a Political-Economy design.

One merely needs to look at the results to see the warning signs were correct.


Reasons for the Failure of the Stimulus Plan


Why is the American Recovery Act such a Spruce Goose? Why is the American Recovery and Reinvestment Act the Spruce Goose of all stimulus plans ever concocted? Surely $800 Billion of borrowed money will create jobs?

First of all, Keynesian Government Deficit Spending (Fiscal Stimulus) is suspect at best with very mixed results/track record. However, if one is to deploy Keynesian Government Deficit Spending the best results of past stimulus plans of this label are based on Infrastructure Spending. Building and repairing Social Overhead Capital does in fact create temporary employment and a public asset is either created or repaired.

However, only a small portion of the Stimulus Plan was based on Social Overhead Capital ($80 Billion of the $800 Billion). Why? It has to do with the designers of the Stimulus Plan. Who designed the Stimulus Plan? Very good question. Many parts of the design were concocted by the Tides Foundation in association with The Center for American Progress.(3) You mean to say Congress in association with Public and Private Sector Economists didn't design the entire plan? Correct.

The Warning Flags were real.

The Tides Foundation and The Center for American Progress influenced the Stimulus Plan? Who are they? These two organizations label themselves as liberals or "progressives". Others label them as Socialists as many of the members of these two groups are Socialists. (4) Many past members of the Tides Foundation and The Center for American Progress now hold positions in the White House.

Socialists have a grand track record in Social Engineering aka wealth and income transfers. Socialists on the other hand have no track record regarding income, wealth, and job creation. Beginning to ring a bell?


Hence we have transfers of borrowed Stimulus Funds arriving at the Public Sector that produces virtually nothing. Those transfers go to pet projects (pork barrel spending) that are dubious job creators. More transfers go to Social Welfare Programs. Meanwhile, on the Federal Level employment is expanding based on borrowed Stimulus Funds. Expanding a sector that produces little.



Liberal Economists believe that transfers of funds to Private Welfare Programs create a situation where the transferred funds will immediately be spent (a component of Social Engineering). The theory is based on the notion that low income or no income recipients will spend 100% of their funds and save zero. That 100% of the transferred funds will be spent hence creating a multiplier effect thus stimulating the economy. However the theory has a major flaw: low income recipients generally spend their funds on "staples". Low income earners do not buy new vehicles, contract for a home to be built, invest in new business ventures, and other dynamic economic activities that truly have multiplier effects.



The tax cuts associated with the Stimulus Plan are doomed to fail. Why? Any positive economic effect associated with Tax Reductions is closely associated with "expectations". That is, temporary tax cuts have basically no effect as consumers and businesses realize the short term duration on any additional disposable income and hence make short term type purchases that match the short duration of additional disposable income. Whereas long term tax cuts (e.g. reducing Marginal Income Tax rates for the next 10 years) causes consumers and businesses to make long term purchases such as home, vehicles, and capital investment in business as the consumer or business matches long term purchases to the long term increase in disposable income.



Meanwhile, tax revenues at all levels of government are plummeting at historical rates. The answer to plummeting tax revenue? Taxes are increasing on the State and Local levels to support the bloated size and scope of these governments. The increased taxes then reduce disposable income of consumers and businesses which consequently reduces Private Sector Demand for goods and services.



On the Federal Level tax revenues are plummeting as well. However, the Federal Government continues to spend at unprecedented levels (spending increasing at an increasing rate). Spending and tax revenues are on a course of complete divergence. The result is a swollen deficit.



Enter the non-renewal of the Bush Administration across the board tax cuts. Soon all tax payers will face an across the board tax increase. This creates the expectation of long term higher taxes and consequently changes consumer and business consumption behavior (the opposite behavior of long term tax cuts mentioned above).



However, the specter of even more tax increases are affecting consumer and business behavior. The spending increases by the Federal Government, the constant need to borrow funds by the federal government for financed spending such as the Stimulus Plan and general revenue needs, the specter of higher energy taxes through Cap and Trade legislation, talk of a Value Added Tax as an additional tax, and finally the increased tax burden of Socialized Medicine are causing consumer and business long term spending behavior to be paired back.



Oddly the Consequences are Known



The consequences of the above mentioned Government Behavior is well known. Huh? The lessons of the Great Depression have been enumerated by economists through empirical study. Thousands of empirical studies have concluded the errors of the Great Depression:

(1) Keynesian Government Deficit Spending (fiscal stimulus) creates temporary jobs creating temporary stimulus. When the deficit spending ends, the temporary jobs end as well as the temporary stimulus,

(2) rising taxes, rising regulation, and increased government debt reduces Private Capital Formation which is directly related to Private Sector Job Creation,

(3) rising taxes reduce Private Sector consumption,

(4) repeating 1-3 above, over and over again, as was done in the Great Depression, yields the same result: continued recession.


Milton Friedman's Fourth Category of Spending


Milton Friedman basically said when you spend someone else's money, you have no rational interest in either value or quality. (5) (6) In other words, when the government taxes you, brings in the revenue, when the time comes to spend that tax revenue, value and quality are Job 57. Hence Keynesian Government Deficit Spending (Stimulus) has inherent value and quality problems.



Enter "Jobs Saved"

In the field of Manpower Economics and Labor Economics you are either employed or unemployed. Yes, you either have a job or you don't have a job. Sure, you can be underemployed, structurally unemployed, part-time employed and a multitude of sub-categories of employment and unemployment. However, at the end of the day, you either are employed or unemployed.


Heard the phrase "Jobs Saved"? (7) Guess what? No such term or statistic or measurement exists within the field of Economics. Huh?

When the Spruce Goose of all stimulus plan fell on its fat little porker , income transfer, wealth transfer face, the Obama Administration, through the Council of Economic Advisers, created the ultimate Political Speak Phrase "Jobs Saved".

Jobs Saved is a non-statistic statistic. Its unmeasurable, un-comparable, and basically fantasy. Why did they create "Jobs Saved"? One must remember that the $800 Billion stimulus plan, if passed immediately, would then cause unemployment to top-off at 8%. When the 8% target was unmanageable, enter "Jobs Saved". (8)

Jobs Claim

The employment picture created by the stimulus plan is so bleak that the Obama Administration has begun to grab at straws. "30,000 jobs created" was the reported headline and the Obama Administration lauded the report (9). Unfortunately 30,000 is an anemic number of jobs and better yet the report was refuted, called "way off the mark" a week later. (10)



Subsequently the White House announces the Stimulus Plan saved 650,000 jobs (jobs saved non-statistic statistic yet again). (11) Somehow borrowed money, sent to the States on a temporary basis, has saved jobs? Or has borrowed money been used by State Governments to subsidize budgets that were already out of control?



Please remember, no jobs were saved. You are either employed or unemployed. However, take a closer look at the report and what jobs are referred to within the report? Public Sector jobs. (11) Hence Government Workers remained employed based on unsustainable State Budgets temporarily funded by borrowed money. One might also point to Government Workers, unionized in many states, are predominantly supports of the Obama Administration.

Meanwhile Back in the Unemployment Line

Creating the phase "Jobs Saved" and lauding a phony job report or pointing to borrowed money propping up unsustainable State budgets funding Government Jobs doesn't really help the unemployed.

What is the Jobs outlook for the Unemployed? Not too bright. (2) (8) (12)

With the average work week at 33.2 hours the average employer has plenty of room to expand the utilization of current employees before any expansion of total employment. (8)

If demand does expand, and employers do increase the average work weeks to 40 hours, an employer will opt for over time for the current work force rather than expand the number of workers. Why? The employer wants to be certain that any increase in demand is sustainable and not a false signal. (13)

An employer also realizes that the laid off workers were the most marginal workers. In other words, employment was reduced at the margin, leaving the most productive workers retained. It can be argued some workers laid off were in marginally profitable lines of business while other workers were laid off from core profit business. The marginally profitable line of business would have to show even more robust sustainable growth before human capital is added back in comparison to employment in a core profit business.


Gross Domestic Product (GDP) can Rise and High Unemployment can Persist?

GDP can grow, however, if human capital is under utilized (current 33.2 hour average work week) a slack or lag occurs in labor markets and persistent high unemployment can exist. The slack or lag is elongated by the determination of employers, as mentioned above, regarding GDP growth and the ability of GDP growth to be robust and sustained. Hence GDP can show positive results while unemployment can remain persistently high.

What if Demand grows in an anemic fashion? That is referred to as a Jobless Recovery.

Exit Zero

If you are currently unemployed, you have reached Exit Zero on the unemployment highway. Exit Zero is the last exit before unemployment Armageddon.


Discouraged workers are increasing at an increasing rate (those giving up on finding a job). The average length of time unemployed workers have been drawing unemployment benefits is at an all time high (week after week after week these workers can not locate a job).

The Stimulus Plan is a bust accompanied by made up statistics and made up economic criteria. Private Capital Formation leading to private sector job creation is anemic. Rising taxes are depressing consumption dynamics.

The average work week at 33.2 hours means employer will utilize current workers before hiring new workers.

Welcome to mile marker Zero. The zero job creation mile marker on the employment highway. Welcome to Exit Zero.














(1) http://www.breitbart.com/article.php?id=CNG.4452bed82adf3124e5884678e236d7fb.361&show_article=1


(2) http://www.politico.com/politico44/perm/1009/leveling_off_b1e35f37-54bc-4c12-91df-0c9e48cf6403.html


(3) http://www.foxnews.com/story/0,2933,535284,00.html

(4) http://www.foxnews.com/story/0,2933,554680,00.html

http://seekingalpha.com/article/169983-the-lagging-indicator-how-unemployment-and-gdp-can-rise-simultaneously?source=commenter

(5)http://bartsblogg.blogspot.com/2008/10/milton-friedman-4-ways-money-is-spent.html

(6)http://www.reddit.com/r/Economics/comments/9lldr/milton_friedmans_classic_4_ways_to_spend_money/

(7) http://online.wsj.com/article/SB124451592762396883.html

(8) http://www.ft.com/cms/s/0/b3565084-bc02-11de-9426-00144feab49a.html?catid=171&SID=google

(9)http://www.usatoday.com/money/economy/2009-10-15-stimulus-jobs_N.htm

(10) http://today.msnbc.msn.com/id/33522856/ns/business-stocks_and_economy/

(11) http://www.msnbc.msn.com/id/33548535/ns/business-stocks_and_economy/

(12) http://scottgrannis.blogspot.com/2009/10/state-of-union-is-bleak-but-there-is.html


(13) http://seekingalpha.com/article/169983-the-lagging-indicator-how-unemployment-and-gdp-can-rise-simultaneously?source=commenter

Unemployment Part 4: Federal Tax Revenue, Unemployment and the Laffer Curve

Below are two links to stories regarding the unprecedented drop in Federal Tax Revenue (down 18%). Be prepared to see a second story soon regarding the same decline in State Tax Revenues.


http://news.yahoo.com/s/ap/us_plummeting_taxes


http://www.nola.com/newsflash/index.ssf?/base/business-28/1249318885149790.xml&storylist=business#continue


Here are some observations:

(1) the published unemployment rate is 9.5%. The 9.5% rate is highly suspect. The published rate of 9.5% does not count the Self Employed or Contract Labor beyond the other suspect assumptions made within the 9.5% published unemployment rate,

(2) many economists say the real unemployment rate is north of 15%,

(3) An 18% drop in tax revenues correlates with a 15% unemployment rate not a 9.5% unemployment rate.

Upon further review, take a look at the graph in the first link above. Click the graph for a larger view. Look closely at 1984-1989. Note the tax revenue increase. Then think about Art Laffer and Ronald Reagan tax cuts.

To review the Laffer Curve please see the following links for information:

http://en.wikipedia.org/wiki/Laffer_curve

http://spectator.org/archives/2009/07/29/a-laffer-curve-breakthrough


Here is the question you need to ask yourself: Is the Federal Government's proposals to raise taxes going to further reduce revenue? Further increase unemployment?

Consider these points:

(1) the Laffer Curve clearly exists (taxation/revenue equilibrium). Reduced tax rates in the Reagan administration, counter intuitively, increased tax revenues as the "economic effect" of lower taxes trumps the "mathematics" of lower taxes. In other words, the tax reductions were actually a movement toward tax/revenue equilibrium,

(2) with the Federal Government currently experiencing an 18% reduction in tax revenues while chalking up record spending leading to record deficits, the reaction of Government will be to raise taxes,

(3) the increased taxes will create movement on the Laffer Curve,

(4) the prediction of the Laffer Curve, given increasing taxes in the current environment, would be to create a tax rate completely out of equilibrium. Meaning the tax revenue will decrease further (the economic effect will trump the mathematics of a higher tax rate).

(5) higher tax rates reduce consumption by businesses and consumers (less disposable income) leading to further unemployment,

(6) higher tax rates are a disincentive to Private Capital Formation which leads to the creation of Private Sector Jobs.

Unemployment: The Sequel to Peanut Butter and Jelly (the Stale Bread)

In the post Unemployment: Peanut Butter and Jelly the premise is that Unemployment will remain high and persistent which will lead to a high and persistent "Political Anger Factor".

http://thelastembassy.blogspot.com/2009/07/unemployment-peanut-butter-and-jelly.html

Looking into the prediction of persistent and high unemployment, the following 07/14/2009 Op'ed by Mortimer Zuckerman from the Wall Street Journal is likely worth your attention:

http://online.wsj.com/article/SB124753066246235811.html

After reading Zuckerman's Op'ed, the 33 hour average work week and 65% capacity utilization likely means that any increased demand for goods and services would result (on the average) in the average work week increasing for the employed labor force rather than new hires.

If one assumes a 40 hour work week is full employment of one unit of Human Capital, then a 33 hour average work week means Human Capital is only at 82.5% of capacity. If Demand for goods and services substantially increased, the result would be that one unit of Human Capital would be further utilized until the 40 hour threshold is reached.

Hence a sustained and robust increase in demand would, on the average, merely increase the average work week of the cuurently employed rather than solve the plight of the currently unemployed.

Note: an article was recently published that indicated you would need 20 straight quarters of 4% GDP growth in order to reduce the published unemployment rate from 9.5% to 6%. There has never been a recorded period of 20 straight quarters of 4% GDP growth!

What about the published 9.5% Unemployment rate and what really is the true Unemployment rate?

Main Street Media recites 9.5% over and over as that is the Government published statistic. However, most economists say the rate is well north of 9.5%. Why? Because at least 40% of the US Workforce is made up of the Self Employed and Contract Labor. Guess what? The Department of Labor does not use the Self Employed and Contract Labor in calculating the 9.5% statistic. Hence a vast section of the US Workforce is Unemployed yet not counted in the 9.5% statistic.

When you add in the Self Employed and Contract Labor the Unemployment rate is likely 15%. Yikes!

However, is there an outside indicator that would confirm 15% Unemployment rater than 9.5% Unemployment? Oh yes! Tax revenues of the Federal Government and State Governments is an indicator. Please see the following article that confirms tax revenues are falling like a rock:

http://seekingalpha.com/article/149944-tax-revenues-plunge-again?source=commenter

Which is related to, and confirms an earlier post of :

http://thelastembassy.blogspot.com/2009/06/state-and-local-government-debt.html

One can clearly point to the unprecedented drop in Tax Revenue as being related to an unprecedented drop in Taxable Income generated, which then points to a much higher Unemployment rate than 9.5%. In other words, the current tax revenue collected is more correlated with a 15% Unemployment rate than a 9.5% Unemployment rate.

Another indicator of the severity of Unemployment is the ridiculous notion of "Jobs Saved". Heard that phrase? "Jobs Saved", as a statistical measurement, does not exist. It’s a concocted “political phrase”/"political speak".

The phrase came out of the White House and likely originated in the Council of Economic Advisers. When Romer and Bernstein’s projections of the impact of the Quasi-Stimulus Plan immediately went South (no higher than a 8% Unemployment rate with the Stimulus Plan), they concocted the “Jobs Saved” phrase as CYA.

Any Economist would tell you that “Jobs Saved” does not exist. That Employment is a statistical measurement and Unemployment is a statistical measurement. “Jobs Saved” does not exist as a statistical measurement.

If you further think about the ridiculous notion of “Jobs Saved”, one would conclude if the idea existed, it would be the exact same number as "Employment" and not a separate stand alone statistic. That is, All Employed Jobs are All Saved Jobs. The extension is: all Unemployed Jobs are all Lost Jobs.

Here we are, the stage is set for high persistent unemployment in the 15% range. Going back to Unemployment: Peanut Butter and Jelly, the "Political Anger Factor" and the "Me Next Factor" are sitting atop a Saturn Booster Rocket, well on their way off the charts.

Wait a minute, the Calvary is coming in the form of the Quasi-Stimulus Plan. Wrong. The Stimulus Plan was based on Political-Political rather than Political-Economy. What ever short term employment it generates will fade to black once the spending runs out.

What is even more onerous is that the authors of the Stimulus Plan are using Keynesian Deficit Government Spending, based on Political-Political, and forgot to read what Keynes said about Deficit Spending: That Deficit Spending is temporary until the Private Sector Recovers.

The Private Sector needs incentives to recover. That is, Private Capital Formation leads to Private Sector jobs. The same authors of the Stimulus Plan forgot part of Keynes theory of Deficit Government Spending, namely ....until the Private Sector Recovers.

There are no incentives for Private Capital formation ! The authors of the Stimulus Plan have simultaneously erected Disincentives to Private Capital Formation leading to Private Sector jobs: Cap and Trade (energy tax), Socialized Medicine (tax), Over Regulation (cost), and of course the specter of higher business and personal taxes (tax, tax, and more tax).

Maybe this sums up the situation: in the words of Slim Pickens from Blazing Saddles: What in the Wide, Wide, World of Sports does Carbon, the Health Care Industry, and Higher Taxes have to do with how we got into the current recession and how we get the Economy back on track?