Crumbling Arguments of the Left - Unemployment

Democrats like to argue that extending unemployment benefits somehow benefits the economy because, well I can't even remember an argument they presented that was coherent enough to merit repeating.  The actual facts on the ground have proved difficult.  First, hooray for Federalism, North Carolina went its own way on the issue of unemployment benefits.

A year ago, North Carolina became the first state in the nation to exit the federal government's extended-benefits program for the unemployed. 

The left and the media, but I repeat myself, were of course outraged, and outrageous protests of outrage ensued.  Then, reality.

North Carolina didn't descend into the Dickensian nightmare critics predicted. For the last six months of 2013, it was the only state where jobless recipients weren't eligible for extended benefits. Yet during that period North Carolina had one of the nation's largest improvements in labor-market performance and overall economic growth. 

According to the U.S. Bureau of Labor Statistics, the number of payroll jobs in North Carolina rose by 1.5% in the second half of 2013, compared with a 0.8% rise for the nation as a whole. Total unemployment in the state dropped by 17%, compared with the national average drop of 12%. The state's official unemployment rate fell to 6.9% in December 2013 from 8.3% in June, while the nationwide rate fell by eight-tenths of a point to 6.7%.

Meanwhile on the national level we see the same scenario playing out.

Krauthammer noted that the sharp drop in unemployment has coincided with the end of emergency unemployment benefits. Obama and the Democrats, who insisted that the benefits be extended, wrongly predicted that their expiration would come as a calamity to the poor. Instead, their end has demonstrably had “precisely the opposite effect.” 

“These six months coincide with a decrease in the medium length of unemployment from 17 weeks to 13 weeks — the largest six-month decline in the length of unemployment ever measured,” he said. “Which means the real problem of long-term unemployment was a function of this anomaly of emergency-extended unemployment, which should never have happened, and whose end has contributed to this excellent result. The debate on that extension is over, and the conservatives were right.”

Thomas Sowell pretty much sums up the left's inability to see reason (although speaking about central planning):

But, by the end of the 20th century, even socialist and communist governments began abandoning central planning and allowing more market competition. Yet this quiet capitulation to inescapable realities did not end the noisy claims of the Left.

By the way, under disparate impact theory, leftism is racism.  Here's how: Unemployment disproportionately hurts minorities. Leftist policies exacerbate unemployment, therefore disparate impact, therefore racism.  See how easy that was.

What You Should Be Reading.

• The WSJ editorial pages detail even more Democrat inspired race-baiting rhetoric.  Just part of a scheme to have HUD replace your local zoning board, because, you know, racism.
• The bizarre U.S. corporate tax code is ensuring that may big, formerly U.S. firms become foreign owned.  I note that Coors, Miller and Anheuser-Busch are all foreign owned.
• KTCat sums up the so-called compassion for illegal immigrants in clear concise prose.
• Unfortunately, not Dean at Beers with Demo, who seems to have taken an unannounced hiatus from blogging.

This is Not a Recovery

Today's jobless numbers headlines (including a drop to 7.8%) are "too good to be true" according to our friends at Zerohedge.  The key quotes from that piece; first from economist David Rosenberg.

If it's too good to be true, then it probably is. 

But this is why the headline unemployment plunged, and that is what is very likely to make the front pages of the Saturday newspapers. Digging beneath the veneer, the quality of these so-called Household jobs is called into question, seeing as part-time work for 'economic reasons' dominated with a 582k run-up in September. And upon closer inspection of the actual amount of slack in the labour market, the more inclusive U6 unemployment rate that does a much better job at capturing underemployment, remained stubbornly stuck at 14.7%.

In other words, the key reason for the drop is that part-time work is now a full time job in the new survey.  Key measures of employment health that are not as volatile as the "household survey" (and therefore less manipulable, do not show the same rosy picture.  First, the labor force participation rate; a key metric of how many people are in the work force had a slight uptick, but we have seen this before and it constitutes statistical noise in a month on month basis.  Look at the data yourself.

Another measure of employment health is the percent of the population that is working. This is important because ultimately, these are the folks driving the economy, paying taxes and investing.

These numbers also had an uptick, but again, it looks like noise to me, not a trend.  I incorporate the actual data from the Federal government's Bureau of Labor Statistics, so that you can make an informed decision yourself.  On both of these measures, we see that nothing the administration has tried to do has made a difference in actually getting a recovery going.

More succinctly, fellow SLOB sent me this picture, which sums up the current situation.

Labor Participation Rate Hits Historic Low

Not since 1981 has the national labor participation rate been this low. Tyler Durden at ZeroHedge put up this graph:


Despite a few upticks, there has been a steady plummeting of the labor participation rate, to a 30 year low of 64.3%. The Obama administration has done nothing to reverse this trend. This is the key indicator of economic health, because this indicates the number of people working in the economy. No matter how the Administration spins it, they are failing to provide jobs for Americans. The number of people not working is at an all time record high as well. I don't think the economy will turn around until Obama is no longer the President. His administration presents too much of a risk of uncertainty to business. Have overseas profits? Don't repatriate with high marginal tax rates. Want to hire more workers? Will you get a nasty surprise that your health plan doesn't qualify or maybe there is a minimum wage hike around the corner. In a politically incorrect industry, like oil or gas exploration? Are you up for regulatory crucifixion?

The list goes on, but the uncertainty of future hostility and regulatory change are the main reasons we claim that the administration is engaging in a #WarOnJobs.

UPDATE

Even DailyKos is publishing this graph and bemoaning the jobs picture. Will wonders never cease?

Unemployment Report - Some Good News

This month's jobs news from the administration is that unemployment remained steady at 8.3%. Of course this isn't being trumpeted as good news the way last month's numbers were. However, the news is actually good for the first time in a long time. I have stopped believing the official unemployment numbers and concentrated instead on labor force participation. The participation rate is easier to calculate, harder to manipulate and is a better picture of economic health. No matter how you slice it, the people who are working have to produce the goods and services for those who are not. Even if those who aren't working are living off of their savings or government checks, the equation doesn't change. (Calivancouver might help me with the nuances of imports in this equation, but the theory is correct in the aggregate.)

US Labor Force Participation Rate Chart by YCharts

We had a slight uptick in participation rate last month, but as you can see the overall trend is quite grim. It will take many months of improvement before we can say that the economy is really healthier from a jobs perspective. What saved GDP growth in 2009 and 2010 was the increase in productivity. Even as workers lost jobs, businesses made huge leaps in productivity per worker, probably by shedding the least productive workers. (That is not an indictment of those laid off, they may have been the least productive because they were stuck in a factory that lacked modern tooling or had energy inefficient equipment.) Now, the productivity gains have tapered off, and total employment is not increasing. Hard to see how the economy can return to normal growth of 2.5% under those conditions.

Today's Jobs Numbers - Fewer People are Working

The President said that the economic recovery is speeding up, based on the reported jump in jobs created and a dropping unemployment rate. “The recovery is speeding up,” he said, and to keep it going, he argued, Congress must pass a package that would extend the payroll tax cut and continue unemployment benefits. As if those are really the causes of economic growth.

However, looking at the detailed BLS data and tax data reveals a less flattering picture. First and foremost, the labor participation rate dropped again, from 64.0% to 63.7%. I stopped trusting the official unemployment figures some time ago, but I have started to think the statistic is irrelevant. No matter how you slice it, there are fewer people working to produce goods and services to support the entire economy. Here is a ten year snapshot.




Some of the trend may come from retiring boomers, but I submit that they wouldn't be leaving the work force so quickly we had recovered more quickly from the recession. The youngest boomer is only 66, so retiring boomers can't really explain this graph.

My other reason for unease despite the cheery news is that I don't trust the seasonal adjustment, which appears to account for all of the good news. If you read the BLS press release closely, look at how they use the term. From the TrimTabs Money Blog:

The BLS each month reports two data series, but only one jobs number is reported by the media. Actual jobs outstanding, not seasonally adjusted, are down 2.9 million over the past two months. It is only after seasonal adjustments – made at the sole discretion of the Bureau of Labor Statistics economists that 2.9 million less jobs gets translated into 446,000 new seasonally adjusted jobs for January and December.

Looking at Table B-1 of today's release reveals that total employment, without adjustment, declined from 132,952,000 to 130,263,000. If seasonal adjustment is overstated because of the mild winter then the touted job creation could be very misleading.

Corporate profits are in good shape, so we might actually get a recovery going soon. But to think today's statistics are really good news is a mistake. By the way corporate tax receipts are way down, despite profits being up, because of a tax break for investment. Corporations were given the opportunity to accelerate depreciation on capital investments. Just one more loophole that forces us to keep the base rate high, but we still end up with insufficient revenue. Closing question, did corporations spend big on labor saving equipment that in turn kept unemployment high due to this loophole?

Unemployment Falls to 8.6%, Employment Falls to 64.0%

This morning's headlines, before Herman Cain* dropped out of the Presidential race, was that unemployment had declined to 8.6%. I was immediately skeptical about the numbers, because a shift that big is not normal, in my experience. Sure enough, digging into the numbers we find this factoid.

The decline in the participation rate to 64.0% from 64.2%, was driven by a drop of 315,000 in the labor force which contributed to the 594k decline in unemployment.

Clearly, the news is not as good as news as the headlines would lead us to believe. New job creation was pegged at 120,000, but it is only about the number of new entrants in the labor force. It's good that there are new private sector jobs, but I have read various sources that peg the required number of jobs needing to be created per month between 200,000 and 250,000. In my opinion, the continued fall in labor participation rate is the key story here. This means we have a shrinking percentage of people working to support the overall economic output that we all rely upon. I will admit that a portion of the fall is not due to anything the administration could have done, because there are demographic trends, i.e. aging baby-boomers, contributing to a fall in labor force participation. The very long term trends can be viewed below from Calculated Risk.


Calculated Risk also points out that "U-6, an alternate measure of labor underutilization that includes part time workers and marginally attached workers, declined to 15.6% - this remains very high. U-6 was in the 8% range in 2007."

The other bad news is that the number of long term unemployed stayed stuck. From the government's BLS.

The number of long-term unemployed (those jobless for 27 weeks and over) was little changed at 5.7 million and accounted for 43.0 percent of the unemployed.

This is a big problem for the long term, as these folks start to see themselves, and employers see them as unemployable. We have some serious problems with entitlements starting to be a huge drain on the federal budget. One way to alleviate part of the problem is for people to work longer into retirement. But the large number of long term unemployed and the declining labor force participation rate makes that outcome less likely.




*A quick note on Herman Cain. Without taking a position on whether he is guilty of anything he is accused of, I can safely say that he has displayed very poor judgement, by his own admission. Giving another woman money over the course of many years, without telling your wife, and not being prepared to discuss the issue during a Presidential campaign is too much to accept in a candidate.

A Real Jobs Program

With Obama set to address the nation Thursday, we can hopefully have the excuse of the NFL season opener to avoid his joint address to Congress. He'll probably schedule around it, but maybe I won't watch. We know what he'll say already, more temporary tax cuts and bridges. Maybe some more high speed choo-choos and some training programs thrown in. Then he'll demand that we the people force Congress to "do its job" and pass this legislation. Which is really rich, considering that there is no actual legislation and that Obama never does his job of leading. Here is part of an email the President sent me:

Friend --
Today I asked for a joint session of Congress where I will lay out a clear plan to get Americans back to work. Next week, I will deliver the details of the plan and call on lawmakers to pass it.
Whether they will do the job they were elected to do is ultimately up to them.
But both you and I can pressure them to do the right thing. We can send the message that the American people are playing by the rules and meeting their responsibilities -- and it's time for our leaders in Congress to meet theirs.
And we must hold them accountable if they don't.

Of course the right thing is always to pass something, anything so that Obama can claim victory.

We already know that temporary changes to the tax code aren't very productive. People and businesses want to plan for the long term. The reduction in social security taxes has been a disaster, as no one is hiring more people, because they know their long term costs will go up when the tax reprieve is lifted. It has increased the deficit at the same time.

Here's what a real jobs program looks like, and I caveat that any tax code changes have to be permanent. Most of this proposal comes from Jon Huntsman, of all people. Mr. Huntsman is unlikely to ever be a Tea Party favorite, but this is why having a lot of candidates in the race is good for the nation. Looking at his plan from the Tea Party perspective shows a lot to like.

• Streamline the individual tax rates to three brackets — 8%, 14% and 23%.
• Reduce the top corporate tax rate to 25% from 35%.
• Get rid of taxes on capital gains and dividends and eliminating the alternative minimum tax.
• To pay for changes, scrap all the tax breaks, even mortgage interest and municipal bonds.
• Repeal Obamacare.
• Repeal Dodd-Frank. (Codifies "too big to fail.")
  
• Repeal Sarbanes-Oxley.
  
• Reign in excessive regulation at NLRB, FDA, and the EPA.
• Open Alaska and Gulf of Mexico for oil exploration.

This shows why almost any Republican President would be preferable to Obama, Huntsman is certainly not the most conservative or libertarian candidate in the race, but has released a pretty bold proposal.

B-Daddy would add the following

• Liquidate Fannie Mae and Freddie Mac, divest the federal government of responsibility and spin them off into smaller corporations. This would rapidly return the housing market to equilibrium and bring investors.
• Make serious progress on entitlement reform. (Block funding Medicare, raising retirement age, means testing SS and Medicare, etc.) This will let the markets know we are serious about tackling long term issues and restore investor confidence.
  

The picture at the top is a screen capture of the Obama Clock app, available for iPhone. Explanation of the indicators is found here. I am really disappointed it is not on the Android yet.

You Lie!

Government statistical data that is. The government's official measure of unemployment fell to 9.0% last month. Meanwhile, Gallup reported its own survey showed unemployment at 9.8%. Who are you going to believe. Further, as HotAir points out, only 36,000 jobs were added. These facts do not indicate economic health. I have come to the conclusion that the official unemployment rate is almost meaningless, because it only counts those actively seeking work, a self identification that might be highly subjective. Meanwhile, the underemployment index, U-6 increased from 16.6% to 17.3%.
(U6 = Official unemployment + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently. + Part time workers who want to work full time, but cannot due to economic reasons.)
This is hardly an economy in recovery. At least the administration was smart enough not to trumpet the unemployment data as a major triumph.

Economy Gaining Speed - Unemployment Up

Or so says the Reuters headline. I know everyone is on the Egypt situation 24/7, but with unemployment again rising, despite economic output increasing, I want to keep the focus on the economy. Unemployment is again at 9.8%. The Administration itself has never addressed the unemployment issue other than to make things worse through deficit spending. Meanwhile, Paul Krugman continues to call for deficit spending and loose money.

Krugman also takes conservatives and Paul Ryan to task for misreading the situation in England and Ireland.

On the eve of the financial crisis, conservatives had nothing but praise for Ireland, a low-tax, low-spending country by European standards. The Heritage Foundation’s Index of Economic Freedom ranked it above every other Western nation. In 2006, George Osborne, now Britain’s chancellor of the Exchequer, declared Ireland “a shining example of the art of the possible in long-term economic policy making.” And the truth was that in 2006-2007 Ireland was running a budget surplus, and had one of the lowest debt levels in the advanced world.

Krugman is in fact correct. Here is what Paul Ryan had said:

Just take a look at what's happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn't act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.

Krugman lays the blame on Irish banks.

So what went wrong? The answer is: out-of-control banks; Irish banks ran wild during the good years, creating a huge property bubble. When the bubble burst, revenue collapsed, causing the deficit to surge, while public debt exploded because the government ended up taking over bank debts. And harsh spending cuts, while they have led to huge job losses, have failed to restore confidence.

I agree that the Irish went through a property bubble that collapsed. But he fails to account for the government policy that was significantly to blame. At exactly the wrong moment, the government stepped in to save the banks by guaranteeing bank deposits. From a U.K. Telegraph article in September 2008:

Ireland's government said it will guarantee Irish banks' deposits and debts for two years, seeking to calm investor concern after banking shares fell 26pc in Dublin.

The government said it will safeguard all deposits at six financial institutions in response to turmoil in financial markets.

Predictably the bad debts of the banks were offloaded on to the Irish government, wrecking its finances.

So the real lesson is that the government needs to distance itself from guarantees to banks and exposing itself to the risk in property bubbles. Time to unwind and privatize Fannie Mae, whose purpose was to lift home ownership to above market percentages. Property bubbles driven by bad government policy seem to be at the root of both Irish and U.S. economic hard times.

More Pictures - Stimulus Prevents Unemployment from Exceeding 8%

Chart from the Bureau of Labor Statistics.

Another scary graph regarding economic performance. Even worse, I think it understates the actual unemployment. The latest economic headlines tout an unemployment rate of 9.8%.

The chart below is also pretty scary, showing the duration of unemployment compared to previous recessions.

Image courtesy of calculatedriskblog.com.

If there is a greater indictment of the administration's policies, I can't think of it.