Saturday, July 18, 2009

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".

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:

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:

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

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?

No comments:

Post a Comment