Take the “If the Economy is Getting Better” Quiz!

The blog TheEconomicCollapse has compiled a short quiz on the subject of the media’s relentless taking point that “….the economy is getting better”. (1)

Try the "If the economy is getting better" Quiz!



　

　

　

If the economy is getting better, then why did new home sales in the United States hit a brand new all-time record low during 2011?

If the economy is getting better, then why are there 6 million less jobs in America today than there were before the recession started?

If the economy is getting better, then why is the average duration of unemployment in this country close to an all-time record high?

If the economy is getting better, then why has the number of homeless female veterans more than doubled?

If the economy is getting better, then why has the number of Americans on food stamps increased by 3 million since this time last year and by more than 14 million since Barack Obama entered the White House?

If the economy is getting better, then why has the number of children living in poverty in America risen for four years in a row?

If the economy is getting better, then why is the percentage of Americans living in "extreme poverty" at an all-time high?

If the economy is getting better, then why is the Federal Housing Administration on the verge of a financial collapse?

If the economy is getting better, then why do only 23 percent of American companies plan to hire more employees in 2012?

If the economy is getting better, then why has the number of self-employed Americans fallen by more than 2 million since 2006?

If the economy is getting better, then why did an all-time record low percentage of U.S. teens have a job last summer?

If the economy is getting better, then why does median household income keep declining? Overall, median household income in the United States has declined by a total of 6.8% since December 2007 once you account for inflation.

If the economy is getting better, then why has the number of Americans living below the poverty line increased by 10 million since 2006?

If the economy is getting better, then why is the average age of a vehicle in America now sitting at an all-time high?

If the economy is getting better, then why are 18 percent of all homes in the state of Florida currently sitting vacant?

If the economy is getting better, then why are 19 percent of all American men between the ages of 25 and 34 living with their parents?

If the economy is getting better, then why does the number of "long-term unemployed workers" stay so high? When Barack Obama first took office, the number of "long-term unemployed workers" in the United States was approximately 2.6 million. Today, that number is sitting at 5.6 million.

Notes:

(1) http://theeconomiccollapseblog.com/archives/if-the-economy-is-improving

Current Labor Participation Rates: an indicator of an increase in labor participation rates within the subterranean economy?

The subterranean economy, in a nutshell, is non-reported work which means non-reported wages meaning zero tax revenue for state. The subterranean economy is as simple as the neighborhood kid mowing lawns for cash and as sophisticated as organized crime. Keep the subterranean economy in mind for a moment.

Within the study of labor economics is the phenomena of the discouraged worker. The discouraged worker is basically that worker that has given up looking for employment as they feel its fruitless given current employment opportunities. These same discouraged workers are attracted back into the labor force due to improving headline unemployment numbers. Hence discouraged workers can make a headline unemployment rate [unemployment measurement u3] look better than it actually is by leaving the work force and hence the total work force shrinks yet employed remains constant giving the phenomena of the unemployed number shrinking. Conversely, when the discouraged worker is attracted back to the labor force the unemployment rate flattens then increases as a flood of discouraged workers perceive employment opportunity therefore the work force expands In the short run, this expanded work force is not immediately employed hence headline unemployment rises.

Therefore labor participation rates change at the margin depending on how many discouraged workers enter or leave the work force. Today the labor participation rate is historically low. What if the decrease in labor participation rates is merely an indicator of an increase in labor participation rates within the subterranean economy?

Would the failure of, or speed by which the discouraged worker is attracted back to the labor force be a function of and/or an indicator that the “labor” is in fact engaged, albeit in the subterranean economy?

Many people consider the subterranean economy as some abstract and singularly organized crime type of underworld. Nay, nay. The subterranean economy is real and comes in many forms and many levels within those forms. That is to say, it’s a real economy with real dynamics. Further, much like the phenomena of welfare, leaving subterranean employment and entering the surface economy comes with a disincentive in the form of wages after tax (as in welfare, wages in the subterranean economy may exceed employment available in the surface economy, the wages thereof, wages that after tax are below the subterranean economy non-taxed wage, hence rationally staying in the subterranean, as in rationally stay on welfare becomes the choice when the person weighs total revenue after tax: subterranean wage or welfare receipt vs. taxable employed wage after tax).

If one sees a statistical failure of the discouraged worker to be attracted back to the labor force, would that be an indicator that the “labor” is in fact engaged albeit in the subterranean economy? If in fact labor is pervasively engaged in the subterranean economy, one would expect to have some level of rigidity at the margin regarding reentering the labor force and leaving a subterranean wage position (wage rationality mentioned above). Finally, if the subterranean wage position is vacated, and given the current army of discouraged workers numbering in the millions, does another discouraged worker merely fill the vacated subterranean position before entering the surface economy labor force (like a halfway house on the way to the surface economy participation) hence the population of the group "discouraged worker" falls slower than one would otherwise anticipate?

Notes:

(1)Measuring the Non-Observed Economy. http://www.oecd.org/dataoecd/9/20/1963116.pdf

(2)The "underground economy"and BLS statistical data.
http://www.bls.gov/opub/mlr/1984/01/art1exc.htm

(3) What is the Labor Force Participation Rate? http://economics.about.com/od/unemploymentrate/f/labor_force.htm

(4) Santelli: 1.2 Million Fall Out Of Labor Force As Participation Rate Hits 20-Year Low, Real Clear Politics. http://www.realclearpolitics.com/video/2012/02/03/santelli_12_million_fall_out_of_labor_force_as_participation_rate_hits_20-year_low.html










　

And About that Labor Participation Rate and The Supposed Headline Unemployment Rate

"CNBC's Rick Santelli: You know what I said at 8:30 Eastern? We want a million jobs an hour. That's what we want. What we got looked like a good report. I said, 'Let's get the calculator out,' and I did. And so did a boatload of my sources and big blogs that many people read like Zero Hedge. The labor force participation rate, if you look at non-seasonally adjusted, a fresh low going back to April of '83. If you look at seasonally adjusted, a fresh low participation rate going back to December of '81. What does that mean in English? Shrinkage. Shrinkage. 1.2 million people are now not considered unemployed anymore. They just have left the system. So, we need to concentrate on the internals, and eventually we want to watch the fixed income market to see if some of this sets in as people do their ciphering." - Real Clear Politics, 02/03/2012

"A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement." -ZeroHedge, 02/03/2012

The entire articles, Real Clear Politics and ZeroHedge, appear in the links below. Be sure to note the charts in the ZeroHedge article:

http://www.realclearpolitics.com/video/2012/02/03/santelli_12_million_fall_out_of_labor_force_as_participation_rate_hits_20-year_low.html

http://www.zerohedge.com/news/record-12-million-people-fall-out-labor-force-one-month-labor-force-participation-rate-tumbles-

Spirit Airlines “Unintended Consequences Fee": Pricing the Negative Externalities of Government Failure?

‘Spirit Airlines announced this week that it would add a $2 "unintended consequences fee" to all tickets due to new federal regulation aimed at protecting consumers.

The "Department of Transportation Unintended Consequences Fee" was added to each ticket effective immediately and is a direct response to new DOT rules put in place Jan. 26 to offer travelers better "passenger protections."

The most visible of the new rules was a law that required airlines to include mandatory government taxes and fees in all advertised fares. Other rules pertained to ticket cancellation policies and baggage fees. Spirit says it's the DOT regulation allowing passengers to change flights within 24 hours of booking without paying a penalty that's forced them to add the fee.

"Spirit believes that consumers have a right to know that this misguided regulation is expensive and is hitting consumers directly in their pocket books," the company stated on its website.

"People love the idea of not having to commit to a reservation, but this regulation, like most, imposes costs on consumers," CEO Ben Baldanza added in the airline's statement. "Wouldn't we all like to eat all we want and not get fat? Regulators like to try to sell the idea of this rule, but have ignored the cost impact to consumers. You simply can't eat all you want without consequences." ‘ - Internation Business Times, Mark Lohanso, 02/02/2012

Link to the entire article apprears below:

http://www.ibtimes.com/articles/292054/20120202/spirit-airlines-dot-unintended-consequences-fee-2.htm

Obama Mortgage Refinance Plan [White House market intervention-distortion #1,621]

‘President Barack Obama announced a package of proposals designed to jolt the housing market, his latest effort to reignite the economy after four years of foreclosures and falling home prices.

“This housing crisis struck right at the heart of what it means to be middle class in America: our homes,” Obama said in a speech in the Washington suburb of Falls Church, Virginia. “We need to do everything in our power to repair the damage and make responsible families whole.”

The president said his plan would make it easier for homeowners to refinance their mortgages into current low interest rates, which are now below 4 percent. Borrowers, even those who owe more than their homes are worth, would be able to refinance into loans guaranteed by the Federal Housing Administration.

To pay for the program, Obama will ask Congress for a tax on financial companies with more than $50 billion in assets. Congress has refused to act on similar requests twice in the last two years.

“No more red tape, no more runaround from the banks,” Obama said. “A small fee on the largest financial institutions will make sure that it doesn’t add to the deficit.” ’ (1)


Upon further review, the implicit underlying argument of the semi-bailout described above is that the market failed. However, if markets fail, then governments fail too.

Taking the if markets fail, then governments fail too argument to the externality phase, then both markets and government generate externalities. However, the negative externalities [neighborhood effects] associated with markets are often vilified (without regard to positive externalities) ending in a tax and/or regulation. How about government externalities?

Government, more succinctly politicos through the mechanism of government, and public policy, more succinctly politico policy, are always politically framed as only exhibiting positive externalities. Yet once notional politico policy becomes effective, several years hence, cascading unintended consequences occur which are in effect the externalities of politico policy aka government failure e.g. Medicaid, Medicare, social security, the multitude of other Great Society programs, public education K-12 etc., etc.

One needs to examine government failure and associated externalities and the response. Rather than scrapping policy that fails, more policy is instituted to supposedly correct the root policy failure which merely continues to fail.

“Government is the only enterprise on earth that when it fails, it merely does the same thing over again, just bigger.” -Don Luskin, TrendMacro

“I think the government solution to a problem is usually as bad as the problem and very often makes the problem worse.” - Milton Friedman


John B. Taylor, Stanford University economist, wrote a book entitled Getting Off Track, how government actions and interventions caused, prolonged, and worsened the financial crisis. Within this very short book [82 pages] Taylor makes a very convincing argument that government actions, became government failure and set the stage for financial shenanigans [externalities]. No government intervention, then no government failure, and hence no stage set for shenanigans. (2)

The negative externalities being mortgage loan brokers and other mortgage loan access points that engaged in shenanigans as the stage had been set by government through constant and prolonged interventions into the mortgage loan market. Consequentially, mortgages ended up resulting in ownership of homes, at the margin, by buyers who did not qualify. However, the negative externalities could have never occurred had not the environment been created for such negative externalities by government [politicos through the mechanism of government].

In a nutshell, beginning with the market intervention of the community reinvestment act, the promotion of ownership above historical standards by manipulation of GSE’s [Fannie, Freddie, etc.], government directed lowered loan standards, coupled with the Federal Reserve (government) creating a cheap money bubble 2002-2004 created the stage for shenanigans. That the cascading market interventions cause cascading market distortions.

Coming half full circle, we have politicos through the mechanism of government creating market intervention-distortion, creating government failure, causing negative externalities. No doubt mortgage lenders where involved as they took advantage of the environment created for shenanigans. However, rather than reversing course and ending market intervention-distortion policy, the politico, on queue, advocates more market intervention-distortion - or - “Government is the only enterprise on earth that when it fails, it merely does the same thing over again, just bigger.” -Don Luskin, TrendMacro

Now coming three fourth circle, one must examine the proposition that Markets never clear perfectly. Why? Serially uncorrelated errors. Hence no perfection can occur. The market clearing proposition is that quantity demanded will be in equilibrium with quantity supplied with price as the equaling agent. (3)

Closing the loop, paradoxically, intervention-distortion merely creates an environment that magnifies serially uncorrelated errors. That "imperfection" is the argument for intervention-distortion.... when in fact perfection becomes additional imperfection. (4)

In summary, a market never perfectly clears, but it clears in the most part as price changes to bring quantity demanded into equilibrium with quantity supplied. Hence constant distortions impede equilibrium therefore the market distorts and quantity demanded or quantity supplied, given no perfection, can not come into a dynamic equilibrium. In the case of the current housing market, constant and continuous market intervention distortion will leave the market out of equilibrium and delay market clearing, albeit imperfect.

Notes:

(1) Obama Plans Assistance for Rentals, Mortgage Refinancing, Bloomberg/Newsweek, 02/01/2012

http://www.businessweek.com/news/2012-02-01/obama-plans-assistance-for-rentals-mortgage-refinancing.html

(2) Getting Off Track, how government actions and interventions caused, prolonged, and worsened the financial crisis, John B. Taylor, 2009.

(3) After Keynesian Macroeconomics, Robert E. Lucas and Thomas J. Sargent.

http://www.bos.frb.org/economic/conf/conf19/conf19d.pdf

(4) Ibid

Indiana: the newest right-to-work state

Regardless of your politics of right-to-work or required unionization, one has to consider “voting” preference in regards to revealed preference.

Ponder this: if one can vote in an election, if one can vote with one's dollars, if one can vote with one's feet…..then certainly one can vote with his/her human capital. Since 90% of the private sector is non-union, then 90% of human capital has voted right-to-work.

Economic Malaise: simultaneously deploying Keynesian deficit spending and QE in an environment of high public and high private debt

An item that receives little attention is that Keynesian deficit spending and quantitative easing [QE] were both economic theories developed during a period of very low public and private debt. Deploying the theories, simultaneously, in an environment of high public and high private debt within an advanced economy was first tried in the early 2000’s in Japan. The result? Economic malaise.


Fast forward to February 2012 in an advanced economy of the US. What results can one find of simultaneously deploying Keynesian deficit spending and QE in an environment of high public and high private debt?

(1) an 8.5% u3 measurement of unemployment with an army of discouraged workers,

(2) falling home prices which continue to fall,

(3) high public debt morphing into hyper-debt,

(4) a trailing annual GDP growth rate of 1.7%. (1) (2) (3) (4)


The missing element is growth. More importantly growth was attempted by simultaneously deploying Keynesian deficit spending and QE in an environment of high public and high private debt. One can quickly conclude that growth does not occur [Japan and the US now as prime examples] by simultaneously deploying Keynesian deficit spending and QE in an environment of high public and high private debt. The result merely being economic malaise with debt morphing into hyper-debt.

Notes:

(1)
http://www.bls.gov/news.release/empsit.nr0.htm

(2) http://www.propertycommunity.com/forum/north-america-real-estate/21772-nationwide-prices-still-falling-us-analysts-predict-further-decline.html

(3)http://www.denverpost.com/breakingnews/ci_19858627?source=rss

(4) http://articles.businessinsider.com/2012-01-27/markets/30669494_1_gdp-report-private-inventory-investment-real-gdp