Just how messed up is our economy?

John Ransom says that our economy is so messed up that economists don’t even have tools to describe what is happening:

To give you an idea how bad the jobs report released on Friday is, consider this fact: The employment situation in the country is so bad that economists can’t accurately measure it with the existing tools they use to measure jobs. In other words, we have entered a period in our country not contemplated by economists. They simply don’t have the tools to measure what’s actually occurring in the jobs market.

Modern economists never imagined a scenario in which a country with as much wealth, power and innovation as United States could stretch out a jobs recession as long as the country has under Obama. . . .

We have a record amount of money in the system doing a record amount of nothing right now. And still the government policy wonks keep thinking that by injecting more money into a system already over-burdened by its money supply we will eventually get different results. . . .

The result is that investors today are still buying US Treasuries despite the fact that after calculating for the real inflation rate Treasury bonds are delivering net negative returns. In other words, investors choose to park money someplace where they are guaranteed to lose money. Because with Treasuries at least they know that their losses will be limited. If they invest in expanding businesses, they know they could lose their entire vig to the G-Men.

This phenomenon, where investors would rather have losses than any risk, has an effect on jobs.

As most of the commentariat is noting, the top-line unemployment number- the one that makes all the headlines- is going down not because of an improving jobs market, but rather because people are dropping out of the workforce at a record pace.

The 8.1 percent unemployment number is meaningless. It actually doesn’t exist. It’s like measuring an 8 foot board with a 12 inch ruler. Shortening the ruler doesn’t make the board smaller.

The rate at which Americans are participating in the jobs market is now 63.5 percent. More than one-third of Americans qualified to work have despaired of ever finding a job under Obama. That’s the highest number of Americans who have sat on the sidelines rather than look for work since 1981. For over a year the workforce participation rates have plunged, coinciding with expiring unemployment benefits.

And the problem is not that there is a lack of money in the system to sustain the economy. But there is a notable lack of demand. Demand comes from confidence that consumers and business feel about the health of the economy. Unlike politicians, those of us in the real world can’t spend what we don’t have. We have to manage our lives using the cash that we actually have at hand.

The problem here is not that businesses and banks don’t have money. Currently the money supply (MZM) stands at a record $11 trillion. Yet the velocity at which the money has moved through the system has plunged under Obama. Money is sitting in accounts, not contributing to GDP growth, but rather just chasing the price of hard assets up because people who make decisions fear that the worst in the economy is yet to come.

Obamacare, Dodd-Frank, Sarbanes-Oxley, TARP, public pensions, John Corzine, Solydnra and the UAW have done a fantastic job of muddying the waters for corporate America as well as small business owners and the self-employed.

These hostile acts taken by or on behalf of Big Government have our economy idling in place.

Economic conditions are so bad that the standard tools used by economists to explain current conditions can’t measure the depth of the peoples’- or the economy’s- depression. Jimmy Carter had the Misery Index. People, meet the President of the United States: Barack Hussien Obama.

The Obama Index is the new index for measuring our despair.

via The Obama Index: The Newest Index to Measure Our Despair – John Ransom – Townhall Finance Conservative Columnists and Financial Commentary.

College majors & unemployment

Colleges are getting blamed for turning out so many unemployable graduates with “impractical degrees” in the humanities.  Critics are saying that students should take “practical” majors like business or other job-training fields as a way to reduce unemployment.

But that’s exactly what college students, including the unemployed graduates, have already been doing!  Only 12% are humanities majors.  What we have now is a glut of unemployed business majors, computer programmers, and (especially) architecture majors.

Bloomberg’s Virginia Postrel gives the facts and the economics behind the issue (such as supply and demand:  if everyone would or could go into the “high-paying” fields, they would no longer be high-paying):

Contrary to what critics imagine, most Americans in fact go to college for what they believe to be “skill-based education.”

A quarter of them study business, by far the most popular field, and 16 percent major in one of the so-called Stem (science, technology, engineering and math) fields. Throw in economics, and you have nearly half of all graduates studying the only subjects such contemptuous pundits recognize as respectable. . . .

Most are studying things that sound like job preparation, including all sorts of subjects related to health and education. Even the degree with the highest rate of unemployment — architecture, whose 13.9 percent jobless rate reflects the current construction bust — is a pre-professional major.

The students who come out of school without jobs aren’t, for the most part, starry-eyed liberal arts majors but rather people who thought a degree in business, graphic design or nursing was a practical, job-oriented credential. Even the latest target of Internet mockery, a young woman the New York Times recently described as studying for a master’s in communication with hopes of doing public relations for a nonprofit, is in what she perceives as a job-training program.

The higher-education system does have real problems, including rising tuition prices that may not pay off in higher earnings. But those problems won’t be solved by assuming that if American students would just stop studying stupid subjects like philosophy and art history and buckle down and major in petroleum engineering (the highest-paid major), the economy would flourish and everyone would have lucrative careers.

That message not only ignores what students actually study. It also disregards the diversity and dynamism of the economy, in good times as well as bad.

Those who tout Stem fields as a cure-all confuse correlation with causality. It’s true that people who major in those subjects generally make more than, say, psychology majors. But they’re also people who have the aptitudes, attitudes, values and interests that draw them to those fields (which themselves vary greatly in content and current job prospects). The psychology and social work majors currently enjoying relatively low rates of unemployment — 7.7 percent and 6.6 percent respectively — probably wouldn’t be very good at computer science, which offers higher salaries but, at least at the moment, slightly lower chances of a job.

Whether they’re pushing plumbing or programming, the would- be vocational planners rarely consider whether any additional warm body with the right credentials would really enhance national productivity. Nor do they think much about what would happen to wages in a given field if the supply of workers increased dramatically. If everyone suddenly flooded into “practical” fields, we’d be overwhelmed with mediocre accountants and incompetent engineers, making lower and lower salaries as they swamped the demand for these services. Something like that seems to have already happened with lawyers.

Not everyone is the same. One virtue of a developed economy is that it provides niches for people with many different personalities and talents, making it more likely that any given individual can find a job that offers satisfaction.

As any good economist will remind you, income is just a means to utility, not a goal in itself. Some jobs pay well not only because few people have the right qualifications but also because few people want to do them in the first place. In a culture where many people hate oil companies, petroleum engineers probably enjoy such a premium. Plumbers — the touchstone example for critics who think too many people go to college — certainly do.

The critics miss the enormous diversity of both sides of the labor market. They tend to be grim materialists, who equate economic value with functional practicality. In reality, however, a tremendous amount of economic value arises from pleasure and meaning — the stuff of art, literature, psychology and anthropology. These qualities, built into goods and services, increasingly provide the work for all those computer programmers. And there are many categories of jobs, from public relations to interaction design to retailing, where insights and skills from these supposedly frivolous fields can be quite valuable. The critics seem to have never heard of marketing or video games, Starbucks or Nike, or that company in Cupertino, California, the rest of us are always going on about. Technical skills are valuable in part because of the “soft” professions that complement them.

via Business: Washington Post Business Page, Business News.

I think the real problem is the academic collapse that has been documented in virtually all subjects that has taken place in most of today’s colleges and universities.  (Not at Patrick Henry College where I serve, I am happy to say, where our graduates with their classical liberal arts foundation are even doing well in today’s job market.)

Provisions of Obama’s jobs plan

The president unveiled his jobs package last night to a joint session of Congress.  Here are the main provisions of the $447 billion plan:

-EMPLOYEE TAX CUTS. A deeper payroll tax cut for all workers. Congress in December cut the payroll tax, which raises money for Social Security, from 6.2 percent for every worker to 4.2 percent, for all of 2011. Obama’s proposals would cut that tax even further – to 3.1 percent – for all workers in 2012. The tax applies to earnings up to $106,800. The estimated cost is $175 billion.

- EMPLOYER TAX CUTS. A payroll tax cuts for all business with payrolls up to $5 million. Obama’s proposal would cut the current 6.2 percent share of the payroll tax that employers pay to 3.1 percent. As with employees, that tax applies to annual employee earnings of $106,800. The White House says 98 percent of businesses have payrolls below the $5 million threshold. In addition, Obama proposes that businesses get a full payroll tax holiday for additional wages resulting from new hires or increased payrolls. The estimated cost is $65 billion.

- PUBLIC WORKS. The president proposes spending $30 billion to modernize schools and $50 billion on road and bridge projects. He also calls for an “infrastructure bank” to help raise private sector money to pay for infrastructure improvements and for a program to rehabilitate vacant properties as part of a neighborhood stabilization plan. The estimated total cost of all those programs is $105 billion.

-UNEMPLOYMENT BENEFITS. If approved by Congress, the proposal would continue assistance to millions of people who are receiving extended benefits under emergency unemployment insurance set up during the recession. That program expired in November but Congress renewed it for 2011. If not renewed again, it would expire at the end of this year, leaving about 6 million jobless people at risk of losing benefits. The president also wants to spend extra money on states that help long-term unemployed workers though training programs. One model cited is a Georgia program that lets people receiving unemployment benefits obtain job training at a company at no cost to the employer. The estimated cost is $49 billion.

-LOCAL GOVERNMENT AID. The ailing economy has forced state and local governments to lay off workers. Money that states and municipalities received in the 2009 stimulus package has been running out. Obama proposes spending to guard against layoffs of emergency personnel and teachers. The estimated cost is $35 billion.

-EMPLOYER TAX CREDITS. The president proposes a tax credit of up to $4,000 for businesses that hire workers who have been looking for a job for more than six months. The estimated cost is $8 billion.

-EQUIPMENT DEDUCTION. Wary of imposing a burden on business, Obama wants to continue for one year a tax break for businesses, allowing them to deduct the full value of new equipment. Previously, companies could only deduct 50 percent of the value. The president and Congress in December negotiated that provision into law for 2011, but it is set to expire at the end of this year. The estimated cost is $5 billion.

via Highlights of Obama’s jobs plan – Sacramento News – Local and Breaking Sacramento News | Sacramento Bee.

Lots of reliance on tax cuts.  I thought that was a Republican tactic that  Democrats scorn in their crusade for new revenue.  Isn’t all this help for business  what Democrats usually mock as “trickle down economics” and help for the rich?  There is, of course, lots of government spending of money that we do not have.

Do you think this will get Americans working again?

Zero job growth

Economists expected SOME job growth in August, but the numbers came in worse than expected:  ZERO job growth in non-farm occupations.

WebMonk alerted me to this, urged me to post it while the information is hot off the wires, and was helpful enough to link to the actual Department of Labor report.  It’s fascinating, though depressing, to read the details.  A sample, but you can read more with the link below.

Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today.

Employment in most major industries changed little over the month. Healthcare continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota.

via Employment Situation Summary.

To relate this to the above topic of conversation, this might be evidence that the economy will be so bad that the public will vote for a new president.  But do you think the vast numbers of the unemployed are more likely to vote for a “limited government” message or for a “spend even more to get the economy moving again” message?

Stimulus jobs are just about over

An illustration of the futility of creating jobs by just spending government money for construction projects.  Once the projects are finished, we are back to unemployment.  And all of those “shovel-ready” construction jobs are just about finished.  From The Washington Post:

The stimulus was here.

Those words should be embossed on a stretch of Route 29 outside of Charlottesville, where paver operator Clifford Carter poured hot asphalt one year ago.

The $885,000 project, funded by federal stimulus dollars, took two days in November 2009. A few weeks later, he was laid off – temporarily, he thought, until paving season resumed in the spring. But in April, he received his first permanent layoff notice. Without a job, he couldn’t afford to keep paying for life or health insurance, so he let both lapse.

“When they kicked me out the door, I lost everything,” he said.

The end of the stimulus – the $787 billion that Washington approved last year in an effort to forestall another Great Depression – is more than a year away. But for Carter and thousands of other workers in the road construction industry, it has already arrived.

Road construction workers were among the first to benefit from the 2009 American Reinvestment and Recovery Act, which pumped hundreds of millions of dollars into “shovel-ready” road resurfacing projects in order to save or create millions of jobs.

The bulk of highway-related work will be done within a year and more than half of the funds for it have been paid out, said Ken Simonson, chief economist for the Associated General Contractors of America, an Arlington County-based trade group.

But with the economy continuing to lag, private-sector work has all but disappeared, and many states have cut back on road work in an effort to plug gaping deficits.

Without the stimulus, thousands of workers who build and maintain America’s roadways could soon join the 1.6 million construction workers who are unemployed. The construction industry lost an additional 5,000 jobs in November, the latest U.S. Labor Department data show, bringing the sector’s unemployment rate to 18.8 percent.

via After stimulus, construction industry seeing private-sector and state projects drying up.

The unemployment conundrum

Steven Pearlman offers a sobering analysis of why just tinkering with government spending–whether increasing it or decreasing it–will not bring the uneployment rate down significantly:

The reason there were 8 million additional jobs back in 2007 is that demand for goods and services was artificially – and unsustainably – inflated by cheap, plentiful credit. Between 2002 and 2007, household debt was increasing at the torrid pace of more than 10 percent annually, while business debt and the debt of state and local governments was growing at an average of 9 percent. Much of that money was used to finance present consumption.

Now all that has reversed. Household debt is shrinking at a rate of 2.4 percent per year as the savings rate has risen from nearly zero to more than 5 percent. Meanwhile, business debt declined 2.5 percent last year and is now flat, as is the case for state and local governments.

All that deleveraging and living within our means is obviously a good thing in the long run. But what it means for the economy in the short run is that neither the excess consumption nor the jobs it supported are coming back. During the past two years, the federal government has been actively trying to take up some of the slack by going on a borrowing-and-spending binge of its own. But continuing on that path is also unsustainable – certainly politically, and probably economically as well. And once federal deficits begin to decline next year, we’ll have yet another drag on economic growth and employment.

At this point, there is only one clear path out of the unemployment box we have created for ourselves.

Right now, the United States is running a trade deficit that is likely to reach $450 billion this year. That’s down considerably from the $750 billion at the height of the economic bubble, but still more than a wealthy advanced economy should have. Bringing it down – either by producing more of what we consume (fewer imports) or more of what other countries consume (more exports) – represents the path toward sustainable, long-term job creation.

The problem with that strategy is that for the past two decades we have allowed our industrial and technological base to deteriorate as talent and capital were grossly misallocated toward other sectors of the economy, even as other countries were able to attract the investment, the technology and the know-how to serve the U.S. and global markets.

For a time, none of this seemed to matter because we were consuming so much that we were able to support job creation at home as well as overseas. But now that the debt-fueled consumption binge is over, we find that we don’t have the companies, the workers or the competitive products to replace the stuff we now import or expand our share of export markets. Even when we do, our companies are disadvantaged by an overvalued currency or unfair trading practices.

via Steven Pearlstein – The bleak truth about unemployment.

So the previous decades of spending beyond our means cannot be made up for by the government spending beyond its means.  Prediction:  Someone will propose policies of protectionism.  It may be a Democrat or it may be a Republican, since both labor and big business tend to want government protection for their industries.  The thinking may be that America cannot compete in a global economy as it used to. Instead of the current bipartisan commitment to free trade, we will start putting tariffs on foreign imports to give an advantage to American-made products.  Prices will go up for consumers, but more of them will have jobs.  Do you think this is likely, a good idea, or a potential disaster?  Meanwhile, what policies might help create jobs?  Or do we just need to hunker down until our new thrifty lifestyles create an economic equilibrium?


CLOSE | X

HIDE | X