Keynesian Policies are giving us Great Depression Unemployment with no Hope of Economic Recovery

Posted by PITHOCRATES - September 4th, 2011

Real Unemployment is Greater than the Unemployment Rate for about half of the Great Depression 

The unemployment numbers are bad.  But few realize just how bad they are.  The real unemployment numbers.  Not the official unemployment rate released by the government (U-3).  Because that number doesn’t count a lot of people who can’t find a full time job (see Unemployed face tough competition: underemployed by Paul Wiseman and Christopher Leonard posted 9/4/2011 on the Associated Press).

America’s 14 million unemployed aren’t competing just with each other. They must also contend with 8.8 million other people not counted as unemployed – part-timers who want full-time work…

And the unemployed will face another source of competition once the economy improves: Roughly 2.6 million people who aren’t counted as unemployed because they’ve stopped looking for work. Once they start looking again, they’ll be classified as unemployed. And the unemployment rate could rise.

Combined, the 14 million officially unemployed; the “underemployed” part-timers who want full-time work; and “discouraged” people who have stopped looking make up 16.2 percent of working-age Americans…

If you look at the unemployment rate during the Great Depression (1929 to 1941), this more real rate (16.2%) is greater than the unemployment rate for about half of those years.  From 1932 until 1936, the rate was 23.53%, 24.75%, 21.60%, 19.97% and 16.80%.  After dropping down to 14.18% in 1937, it went back up to 18.91% in 1938.  It fell to 17.05% in 1939.  It was below 16.2% for only 6 years of the 13 years of the Great Depression.  So this 16.2% is bad.  Very, very bad.  And very, very real.

In a healthy economy, this broader measure of unemployment stays below 10 percent. Since the Great Recession officially ended more than two years ago, the rate has been 15 percent or more.

Even if you don’t use Great Depression standards this 16.2% is still very, very bad.

Eventually, lots of Americans…will start looking for jobs again. If those work-force dropouts had been counted as unemployed, August’s unemployment rate would have been 10.6 percent instead of 9.1 percent.

If it wasn’t for a counting gimmick to exclude long-term unemployed who gave up looking for work, the official unemployment rate would count all the unemployed.  And it would be 10.6%.  Not the ‘official’ 9.1% reported.  Of course, throw in the underemployed and it’s back up to 16.2%.

If Taxes and Regulations were Good for the Economy, we wouldn’t have Real Unemployment of 16.2%

No doubt the employment picture is far worse than the media has reported.  And that Recovery Summer was purely political propaganda.  To put a positive spin on some really wasteful ‘stimulus’ spending.  Spending that was more pork and earmarks than stimulative.  And President Obama is going to address a joint-session of Congress to tell us how he’s going to fix the economy.  No doubt urging more of the same that hasn’t worked thus far (see Cheney dismisses Obama’s jobs speech: ‘Don’t think it will get the job done’ by Vicki Needham posted 9/4/2011 on The Hill).

Former Vice President Dick Cheney suggested Sunday that the White House should adopt Reagan-era tax and regulatory policy to spur economic growth…

“The Obama administration is doing exactly the opposite, they’re loading on more regulation on the private sector in respect to how the economy functions,” he said.

They say if it ain’t broke, don’t fix it.  But if it is broke then we should probably fix it.  And based on the real unemployment numbers, the Obama policies are broke.  And need to be fixed.  And a good place to start would be to back off on all of their regulations.  And stop with the new taxes.  We know they’re bad for the economy.  For if they were good for it, we wouldn’t have a real unemployment rate of 16.2%.

President Obama will address a joint session of Congress on Thursday to outline a jobs plan likely to include a call for more infrastructure spending along with an extension of the payroll tax cuts, unemployment benefits and tax incentives for business to pick up hiring…

The president used his weekly address to push passage of an extension of the surface transportation bill to spur highway construction, bridge repair and the improvement of mass transit systems.

Haven’t we heard this message before?  Infrastructure spending?  As in ‘shovel-ready jobs’?  That was the whole point of the stimulus bill.  And being that we’re still talking about ‘infrastructure spending’, apparently it didn’t work.  So why return to a failed policy?

Infrastructure Stimulus Projects are like a Pill that Cures the Common Cold…in only 3 Weeks

Even Obama conceded there was no such thing as a ‘shovel-ready’ job.  Not with the regulatory red tape you have to go through before breaking ground.  Which costs millions of dollars.  So it’s not likely anyone spent millions of dollars over the years just in anticipation of a stimulus program.  Something unknown then that would pay for a project started without adequate funding.  Yeah, like that would ever happen.

But infrastructure work isn’t your everyday make-work kind of employment.  It takes skill.  And experience.  It’s not picking up trash along the side of the road that any unemployed person can do without extensive training (see Did the Stimulus Create Jobs? Not Always for the Unemployed by Megan McArdle posted 91/2011 on The Atlantic).

In the construction industry, there’s another wrinkle; many of the specialties in heavy construction are, at least as I understand it, not overfull with qualified applicants; finding young people who have the math skills and other academic talents necessary to be a modern skilled construction worker, and also want to skip college and apprentice with an outfit like the operating engineers, is something that a lot of the skilled trades worry about. 

I think a lot of people assumed that doing infrastructure construction projects would be a great way to soak up excess labor from the homebuilding industry, but there’s not actually that much overlap; knowing how to install drywall or do framing work does not qualify you for a job that requires sandhogs and specialty welders.  And it can take a long time to make journeyman in many of these professions.  This is also true of certain kinds of civil engineers and so forth. 

Cleary infrastructure projects are not the panacea the Obama administration thinks they are.  They are not ‘shovel-ready’ for the unemployed.  After years of regulatory compliance expenditures, highly skilled and highly specialized workers will break ground.  Which won’t employ a single person outside these specialties.  At least, not without years of training.  And working as an apprentice.  Which will be years down the road.  Which won’t stimulate anything in the here and now. 

This is like a pill that cures the common cold.  In only 3 weeks.  They have no effect.  And their ‘cure’ is purely illusionary.

The Era of Keynesian Big Government came to an End in 1980…for Awhile 

So we know what doesn’t work.  We know what policies are wrong.  Almost 3 years of Obama policies have told us that.  But it’s easy to point to failure.  To identify problems.  It’s a little more difficult to fix problems.  But the amazing thing is we don’t have to fix them.  We just have to stop causing them (see Free The Market by Peter Boettke posted 9/2/2011 on The European).

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design”, F.A. Hayk once wrote. We would we well-served to heed his call and reinvigorate the ideology of the free market.

There are a few schools of economics.  There’s the Keynesian school.  The majority of mainstream economists adhere to this.  As well as the Obama administration.  And then there is the Austrian school.  Which is more in keeping with economists like F.A. Hayek and Adam Smith

The Keynesians want hands-on government control and spending.  The Austrian school doesn’t.  Because they don’t think they are better and smarter than the average consumer.

The past thirty years proved the validity of Adam Smith’s assertion, “The natural effort of every individual to better his own condition…is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.”

During “the age of Milton Friedman”, as Andrei Shleifer dubed it, key developments in economic freedom—deregulation in the US and UK, the collapse of communism in East and Central Europe, and the opening up of the economies of China and India—allowed individuals to surmount government meddling in the economy. From 1980 to 2005, there were marked, world-wide improvements in life expectancy, education, democracy, and living standards as integration into a world economy delivered billions of individuals from poverty, ignorance and squalor.

From 1980?  You know what happened at that time?  The era of Keynesian Big Government came to an end.  For awhile.  With the rise of Margaret Thatcher in the UK.  And the rise of Ronald Reagan in the USA.  Both were adherents to the Austrian school.  And because of that their nations exploded with prosperity.  Thanks to tax cuts.  And deregulation. 

Unfortunately, this began to reverse course around 2005.  Big Government began to return.  And it’s becoming bigger than it ever was.  We see this in declining Western economies.  And financial crises in these same Western economies (in Europe and the United States).  As they are imploding under excessive government spending.  And debt.

A setting of private property rights, free pricing, and accurate profit and loss accounting aligns incentives and communicates information so that individuals realize the mutual gains from trade with one another. Efficient markets are an outcome of a process of discovery, learning, and adjustment, not an assumption going into the analysis. That process, however, operates within political, legal, and social institutions. Those institutions can promulgate policies that block discovery, inhibit learning, and prevent adjustment, causing the market to operate poorly.

So rather than free market ideology being obsolete, what is needed is a reinvigorated ideological vision of the free market economy: a society of free and responsible individuals who have the opportunity to prosper in a market economy based on profit and loss and to live in caring communities. Yes, caring communities. The Adam Smith that wrote The Wealth of Nations also wrote The Theory of Moral Sentiments, and the F. A. Hayek that wrote Individualism and Economic Order also wrote about the corruption of morals in The Fatal Conceit. Our challenge today is to embrace the full scope of free market ideology so as to understand the preconditions under which we can live better together in a world of peace, prosperity, and progress.

Get government out of the private sector.  Let the private sector respond freely to market forces.  Be responsible.  And be kind to others.  Like they told us in kindergarten.

Keynesians don’t like the Masses, they just want to Rule over Them

Anyone looking objectively at the economy can see where the problem lies.  With government.  Their policies didn’t work in the Seventies.  And they’re not working now.  So why are they returning to failed policies of the past?  Because Keynesian policies grow government.  And those in government want to grow government.  For the money and the power.  And to stroke their egos. 

Keynesians are academics.  They have little real-life experience.  They didn’t run businesses.  Make payrolls.  They didn’t sell.  Or live on the other side of regulatory compliance.  Why?  Because they aren’t entrepreneurs.  They don’t have the ability to be creative.  So they elevate themselves above those who are.  To compensate for their inadequacies. 

They prefer privilege.  Entitlement.  Like the aristocracy in the Old World.  Where a good last name was all you needed for wealth and power. 

Just listen to them talk.  Their very words drip with condescension.  They don’t like the masses.  They don’t live with them.  They don’t vacation with them.  They don’t want to have anything to do with them.  Except to rule over them.  The way it should be.  In their world of privilege.

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