Category Archives: Economics

Miscellaneous economy stuff

Some Thoughts on the January Unemployment Number

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Last week some jobs data were published for January, and the headline number was an unemployment rate of 8.3%, a 0.2 per centage point drop over December’s 8.5% rate.  This seems highly encouraging, but it’s useful to look at some of the data underlying this number: those data give a clearer picture of the true employment picture for our economy.

If we look, for instance, the BLS’ participation rate—the per centage of Americans actually looking for work—some other aspects of our jobs numbers appear.  The Dec 2011 participation rate was 64% of a civilian labor force (those aged 16-65) of some 153,887,000.  Yet the participation rate of January’s civilian labor force of 154,395,000 had dropped to 63.7%—or 138,000 fewer Americans actually were working despite a larger labor force and 243,000 net jobs “created.”

Adding those missing 138 thousand Americans back into the numbers yields an unemployment rate of 9.1%%.  The participation rate in Jan 2011 was even higher: 64.2% (notice that: under the Obama policies, the participation rate keeps falling, as more and more Americans despair of getting jobs).  The civilian labor force that year ago January was 153,250,000 compared to Jan 2012’s 154,395,000.  Projecting 2011-2012 population growth rate onto 2011’s participating population gives an expected 2012 participating population of 155,539,000, or  1,144,000 more than the BLS says was participating in Jan 2012.  Adding those missing million Americans back into the unemployment equation of unemployed/(Civilian labor force) gives an unemployment rate of 9.0%.

Indeed, if the participation rate were at the level it was at the start of President Obama’s administration, as James Pethokoukis, of The Enterprise Blog, points out, the unemployment rate today would be 11.0%.  But under Obama’s policies, the jobs really aren’t there (the 243 thousand additional jobs appearing between December and January notwithstanding, coming as they do with 5 million fewer Americans actually working today than at the start of the Obama administration), and Americans, millions of whom have been out of work this entire administration, are giving up.  Moreover, a “measure of unemployment which includes both the discouraged plus part-timers who wish they had full time work” yields an unemployment rate that’s “a sky-high 15.1 percent.”

These are just some ways of looking at the true unemployment rate.  Tyler Durden, at Zero Hedge, writes of yet another way.

Using BLS data, the US civilian non-institutional population was 242,269[,000] in January, an increase of 1.7 million month over month: apply the long-term average labor force participation rate of 65.8% to this number…and you get 159.4 million: that is what the real labor force should be.  The BLS reported one?  154.4 million: a tiny 5 million difference.  Then add these people…to the 12.758 million reported unemployed by the BLS and you get 17.776 million in real unemployed workers.  What does this mean?  That using just the BLS denominator in calculating the unemployed rate of 154.4 million, the real unemployment rate actually rose in January to 11.5%.

The Wall Street Journal put it this way:

After such a long trough, the economy’s natural recuperative powers are taking hold.

Washington has also stilled some of its damaging impulses, at least temporarily, thanks to the gridlock that arrived a year ago with the Republican House.

The Coming Economic Situation

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Doug Elmendorf, the CBO Director, was talking to the House of Representatives’ Budget Committee the other day.  What he presented was a demonstration of the level of understanding of economics possessed by the present administration.

Congressman Tom McClintock (R, CA) asked Elmendorf whether more or fewer people were working today than at the start of 2009.    Elmendorf’s answer was unequivocal:

I believe the answer to that is there are fewer people, Congressman.

That was just one item.  The CBO director had lots more to say:

The pace of the recovery has been slow since the recession ended two and a half years ago.  And we project that it will continue to be slow for the next two years.

Elmendorf went on:

[E]conomic growth will be only 2 percent this year — and 1.1 percent next year. … [T]hat will leave the unemployment rate at 8.9 percent at the end of this year, well above current the current rate of 8.5 percent….  [I]n 2013, CBO estimates unemployment will be even higher — at 9.2 percent.

And

“…the fundamental fiscal challenge during this decade and beyond remains the aging of the population and rising costs for health care.  The number of people aged 65 or older will increase by one-third in the coming decade, substantially raising the costs of Social Security, Medicare and Medicaid.”

In addition, he said, the new federal health care overhaul will significantly increase the number of non-elderly people receiving assistance through federal health care programs, such as Medicaid.

All of that is likely to balloon current levels of debt.

Despite this, though, Progressives refuse to allow Social Security, Medicare and Medicaid to be fixed, or altered in any way.  President Obama, for instance, has said through his Press Secretary Jay Carney, the Republican effort to reform Medicare contained in the House-passed budget would “end Medicare as we know it,” as if that’s a bad thing.

The CBO did forecast a shrinking budget deficit over the coming years “under existing law.”  But existing law has the Bush tax cuts ending next year—for everyone, including those of us and small businesses with incomes under $250 thousand per year.  Existing law also has the that required 30% reduction in doctor reimbursement under Medicare reimbursement schedules.

And the Progressives are attempting to spin this coming disaster with distortion.  Congressman Bill Pascrell (D, NJ) insists

…there are people here that want to destroy the government, that it has no responsibility and it can’t live up to the obligations….

Of course, this elides the destructiveness toward our individual liberties from an ever expanding, ever intruding government.  This elides the destructiveness of government’s arrogating to itself responsibilities that ought to be ours, decisions that ought to be ours.  And it ignores the fact that among those obligations that government “can’t live up to” are those Social Security, Medicare and Medicaid programs that the Progressives won’t allow to be altered.

Congressman Chris Van Hollen (D, MD) has his distortion, also.  He insists that absent Progressive policies and President Obama’s “stimulus” plan, things would have been much worse.

The Recovery Act did serve its purpose.  It’s kind of like when you’re walking up an escalator that’s going down very quickly.  If you take no action you will go down very fast[.]

This would be amusing under other circumstances.  It ignores the fact that our economy now would be much better off had it not been for Big Government’s interference with it.  Indeed, in Van Hollen’s terms, if you’re walking up the down escalator, it might actually be better to get off that one and get on the up escalator.

No wonder the Progressives are running away from their records, away from our country’s future.

Economic Growth: Tax Cuts or Taxing and Spending Increases?

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President Obama made his position clear in his State of the Union address (as if it wasn’t clear from his performance these last three years, already).  He wants more spending, and he wants to “pay” for it by increasing taxes on the hated rich.  He couldn’t find the energy to spend more than a sentence or two on spending cuts in his SOTUS; although he did find plenty of “green” energy for spending and tax hikes.

Indeed, when it comes to actually reining in government’s use of our money, Obama has been the czar of chimeras and false flags.  As the House Budget Committee Chairman, Congressman Paul Ryan (R, WI) has put it:

We have learned already that the president who’s had three years to try and propose real solutions to fix our fiscal crisis is ducking it….  He formed commissions and super committees, so he sort of outsourced the leadership only to decry their results.

Indeed.  Obama’s committees and study groups (I don’t share Ryan’s disdain for Obama’s use of them, per se; when one is ignorant of a subject, asking experts for advice is entirely appropriate) actually did generate some ideas worth serious discussion and which could have served as points of departure for real reform.  But for Obama, they were merely cynical tools of distraction; he blew off their recommendations without so much as a fare-thee-well.  And he’s been clear about how seriously he takes his own ideas.  Obama yukked it up over his “shovel ready jobs” chant:

…shovel-ready was not as shovel-ready as we expected.

Obama does have his apologists.  Third Way think tank’s Jim Kessler insists:

[W]hen you’re in the middle of a recession it’s very dangerous to stop priming the pump.  You know, you need to get escape velocity, get out of the atmospheric pull of recession, break loose and then let the economy go loose.

But what Kessler, et al., don’t understand is that that “atmospheric pull” actually is government interference in our economy.  We can’t “get escape velocity,” to mix metaphors, with the government’s enormous sea anchor dragging us back.

How has Obama’s Progressive policies of higher taxes and more spending been working out?

His first installment, nearly a trillion dollars’ worth, failed to reduce unemployment or deliver the shovel-ready jobs he promised.  Of course he’s demonstrated how seriously he took his “shovel-ready” claim, even as he was making it.  His profligate spending, while succeeding in exploding the Federal deficit and the Federal debt—which now our grandchildren will have trouble paying down—beyond anyone’s worst nightmare at the start of the Panic of 2008, have done nothing else but hold back a normal cyclic recovery that has been struggling since the official end of that recession in the spring of 2009—nearly two years ago—just as similar Keynesian foolishness did for the Depression.

For his second try, he wanted to spend even more, and now he wants to raise taxes on a narrow group of Americans of whom he disapproves.  Ryan suggests checking the numbers.  Doing so exposes the depth of Obama’s cynicism in continuing to push for higher taxes.

All these tax increases that the president is talking about, they only cover 8 percent of his proposed spending increases. The other 92 percent of the president’s spending increases are borrowed money.

Ryan is being polite.  Those 92% are actually fantasy money—that’s the level of seriousness with which Progressives take other people’s money.

Here’s an alternative: reform our tax structure, including reducing rates, closing loopholes, and ending subsidies and credits.  To paraphrase Ryan’s argument, with Progressive tax increases hitting small businesses disproportionately (and hitting all of us—individuals and businesses of any size—too hard, simply by existing), comprehensive tax reform is far better than arbitrarily and capriciously raising taxes.

And then cut government spending to below the tax revenue generated.

One step currently under consideration, with both Republican and Demoncrat support, is the continuation of the temporary payroll tax holiday.  But this is a chimera; it will produce no effect on our economy.  It will, though, continue defunding an already dysfunctional Social Security system.  With the Progressives already having agreed that a 2 percentage point cut in taxes is good (and with Obama originally calling for a 3 percentage point cut in payroll taxes for both individuals and businesses), Republicans are blowing an excellent opportunity to begin serious reform.  The better place to put these cuts is as permanent income tax cuts for individuals and businesses, and as a first step toward larger income tax cuts and tax reform, generally.

Arthur Laffer suggests a more specific tax reform in a column in The Wall Street Journal.  As Laffer points out, and as thinking Americans have understood for a long time,

Jobs and wealth are created by those who are taxed, not by those who do the taxing. Government, by its very nature, doesn’t create resources but redistributes resources.

Laffer goes on to suggest that a flat tax is the optimum reform.  Although he uses Newt Gingrich’s version (an optional 15% flat tax for individuals, with the option being to continue paying under the present system, and a 12.5% flat tax for business) as his example for discussion, Laffer’s point is generally valid.

Laffer argues

Fairness in taxation means that people and businesses in like circumstances have similar tax burdens.  A flat tax, whether on business or individuals, achieves fairness in spades.*  A person who makes 10 times as much as another person should pay 10 times more in taxes.  It is also patently obvious that it is unfair to tax some people’s income twice, three times or more after it has been earned, as is the case with the death tax.

The current administration’s notion of fairness—taxing high-income earners at high rates and not taxing other income earners at all—is totally unfair.

Progressives—led by Obama—argue that it’s the rates that have to be progressive in a fair tax system, not just the amounts actually paid.  But concern with rates paid rather than amounts paid fails to achieve equal treatment at the start—at the point of equal opportunity; “progressive” tax rates only look to create equal outcomes, after the differing levels of ability, work ethic, and so on have been applied by the people involved, folks who behaved voluntarily according to their own imperatives.  Progressive rates punish hard work and success while subsidizing lesser effort.  There’s no fairness in this.

Finally, as Laffer points out,

[A] flat tax proposal is not revenue-neutral, nor should it be.  If there’s one truism in fiscal policy, it’s this: Wasteful spending will always rise to the level of revenues.  Whether you’re in Greece, Washington, D.C., or California, overspending is a prosperity killer of the first order. [A] flat tax…would put a quick stop to overspending and return America to fiscal soundness.

 

*I fully anticipate that Laffer will be called racist for using this term, and I’ll be similarly accused for repeating it.  Understand, though: only a racist will actively look to create racism where none exists, so he can cry, “Racist!”

On Creative Destruction in a Free Market

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Here is an example of the creative destruction that a free market, especially one free of government interference, can generate [emphasis added].

In 2011, auto makers sold fewer than 13 million cars and light trucks in the U.S., and this year’s sales are expected to approach 14 million, levels that once would have been considered catastrophic for the U.S. auto industry.

Instead, the industry’s major players are steaming ahead.  A much leaner Chrysler Group LLC next week is expected to report $2 billion in operating profit for 2011.

“Not too many years ago, the U.S. industry looked at [sales of] 16 million [vehicles a year] as a permanent fixture in the landscape,” Chrysler CEO Sergio Marchionne said earlier this month at a conference sponsored by Automotive News.

“We can survive at 10 million” a year, he said. “The U.S. recession provided critical impetus to address the critical issues that the industry had dragged behind it for years.”  Last year Chrysler sold 1.37 million vehicles in the U.S., 26% more than in 2010 but again well below the 2.14 million it sold in 2006.

Peter Nesvold, a financial analyst at Jeffries & Co. in New York, said the turning point for the industry was closing and downsizing plants, which took out about 30% of its production capacity and eased the pressure to keep making cars even when customers aren’t buying.

“Supply and demand are roughly equal, and that’s healthy,” he said.

Notice that.  Excess production was eliminated, and while in this case there was a net job loss, because the company is now competitive, it has a chance of surviving, and the majority of the company’s employees are able to stay in their jobs.  Furthermore, today’s Fords, GMs, and Chryslers are better cars with more gee-gaws, like GPS navigation and touch screen dashboards; hybrid versions exist today, too, that were not available before the recession forced a sorting out, and were not going to be available any time soon before that sorting.

The President’s Republican Plans

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President Obama, in his State of the Union address, spoke passionately of bringing manufacturing back to the US, of bringing in particular high-tech manufacturing back.

An America that attracts a new generation of high-tech manufacturing and high-paying jobs. … So we have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it….  It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized. … And this Congress should make sure that no foreign company has an advantage over American manufacturing when it comes to accessing finance or new markets like Russia. Our workers are the most productive on Earth, and if the playing field is level, I promise you—America will always win.

Republicans have been pushing for this—both manufacturing and dealing with economic cheaters—for quite some time.

And

…if you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making products here.

This has been a campaign theme of Senator Rick Santorum, in particular, for some time (although, let’s not forget that Obama’s tax plans aren’t entirely beneficial—he still demands to raise taxes on those groups of which he disapproves).

He also wants to boost domestic energy production.

Nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we’ve opened millions of new acres for oil and gas exploration, and tonight, I’m directing my Administration to open more than 75 percent of our potential offshore oil and gas resources. Right now, American oil production is the highest that it’s been in eight years. That’s right—eight years. Not only that—last year, we relied less on foreign oil than in any of the past sixteen years.
But with only 2 percent of the world’s oil reserves, oil isn’t enough.

This has been the push of Republicans for years.  The complaint has been about the Obama administration actively interfering with domestic energy production, from slow-walking offshore drilling permits (after an outright ban following the BP spill) to nixing the Keystone XL pipeline that would have brought Canadian oil into the US—North American, if not domestic.

I won’t go (far) into fact checking Obama’s claims in that segment (like that 2% claim, which actually refers to the amount of oil that is recoverable at current prices and under lands currently available by Federal fiat for development.  In fact, according to the Institute for Energy Research, the US has more than 1.4 trillion barrels of recoverable oil, more than the rest of the world (excluding North America) combined).  It’s enough that Obama is, apparently, embracing another Republican policy.

All this comes against the backdrop of Obama’s failed economic policies.  He chose not to address the budget disaster in his SOTUS, and he’s chosen to ignore it in his re-election campaign these last several months.  Beyond this, Obama’s Progressive Congress approved $4 trillion worth of economic stimulus via deficit spending, spending which has supported historically high unemployment rates for historically long periods, and which spending has suppressed the cyclical economic recovery that’s been struggling since spring 2009 when the present recession “ended.”  Further, in these last three years the national debt has exploded to more than $15 trillion, equal to the nation’s whole GDP.

Hmm….