Colleges sell Kids Unmarketable Degrees, making them Unemployable and Deep in Debt

Posted by PITHOCRATES - September 8th, 2013

Week in Review

The economy is horrible.  Youth unemployment is soaring.  As is student loan debt.  Which is a big problem when you can’t get a job in a horrible economy.  Or the only job you can get you could have gotten without that costly degree.  And your student loan payment consumes a quarter of your income.  This is not the American dream these kids went to college for.  So why is it so bad for college graduates today?  And why are we looking at a student loan crisis?  Democrats.  In particular, liberal Democrats (see A quarter of recent college graduates lack jobs by John Carney posted 9/6/2013 on CNBC).

At the turn of the century, recent college graduates had an average debt of $15,100. Last year the average debt of graduates was $27,253. This increase in the debt burden has not been matched by economic gains for college graduates. According to the Consumer Finance Protection Bureau, 10 percent of recent graduates of four-year colleges have monthly student loan payments that exceed of 25% of their income. The Bureau of Labor Statistics, which only recently began looking specifically at the employment situation of people in their first few years out of college, says that as of 2011 25.5 percent of recent college graduates were jobless. (Unfortunately, more recent data about recent grads isn’t yet available.)

Seven million borrowers are in default on private or federal loans, according to the CFPB. An additional 8.9 million have deferred payments or have their loans in forbearance. These aren’t signs of a healthy contingent of borrowers.

At the turn of the century more college graduates had jobs and carried less student loan debt.  Back then there were no gender studies.  No minority studies.  No information systems.  People were getting degrees that the jobs of the day demanded.  And because they did they got hired out of college.  Into good jobs.  That allowed them to repay their student loans.  And helped make America the number one economic power in the world.  Today people with degrees that have no market value end up as baristas at Starbucks.  Which they could have done without going $27,253 into debt.

But it’s not their fault.  Colleges told them about the great wealth that awaited them with their degrees in women studies, minority studies, information systems, sociology, French literature, philosophy, etc.,  even though our high-tech economy was demanding people with math and science degrees.  Which is why we have to hand out visas to get foreigners with those degrees to work at US companies.  Because our liberal colleges are getting rich selling ‘easy’ degrees to kids more interested in having a good time while at college.  Which is easier to do when you don’t have a lot of math and science courses weighing you down.

This is why college graduates can’t get jobs and are drowning in debt.  The left’s incessant attacks on capitalism pushed these kids away from the corporate world into more noble pursuits.  By getting degrees that have no market value.  But show that they are not money-grubbing capitalists.  Though they do tend to complain that their degrees (and student loan debt) didn’t bring them the riches the colleges promised them.

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President Obama’s Policies are Destroying the Economy and Transforming the Country in a Bad Way

Posted by PITHOCRATES - September 7th, 2013

Week in Review

Is President Obama the worst president ever?  Perhaps.  Based on what he has done to the economy.  FDR and LBJ caused great damage and destroyed families by putting us on the path President Obama has taken us further down than any other president.  Towards European socialism.  It’s all there in history.  And the economic numbers.  How activist governments destroy everything that made capitalist countries great.  Thrift.  Frugalness.  Working hard to save for your future.  Which created a strong banking system.  Where people deposited their money.  Creating investment capital.  And bankers practiced sound lending practices.  And suffered the consequences of making risky loans.  Unlike today.  Thanks to Keynesian economics.  And a monetary policy that controls and plays with interest rates to create artificial demand that causes great bubbles.  And prolonged recessions.  Ever since governments took control of interest rates and began printing money to finance the growth of their activist governments they have set countries everywhere on the path to financial ruin.  And bankruptcy.  As government spending outgrew the ability of taxes to pay for it.  And then the debt grew so great they struggled to finance it.

But it doesn’t deter the Keynesians from trying the same failed policies of the past.  They continue to intervene into the private sector economy.  And when they cause great economic damage they just report bad economic news as good (see Employment Situation Summary by the Bureau of Labor Statistics posted 9/6/2013).

Total nonfarm payroll employment increased by 169,000 in August, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today.  Employment rose in retail trade and health care but declined in information.

Sounds good.  Things are good.  The economy added new jobs.  Fans of the Obama administration are trumpeting this as good news.  And proof that the Obama economic policies are working.  But if you take a close look at the jobs data you find that the economy is horrible.  Because of President Obama.  And his awful, job-killing economic policies.  Such as Obamacare.  Greater regulatory policies.  And higher taxes.  President Obama has advanced (or tried to advance in the case of cap and trade) every policy that he could think of that causes great harm to the economy.  Is he doing this on purpose because he hates capitalism?  Or is he just another Keynesian who thinks that government is smarter than the people going about their business in the private sector economy?  Or both?

The unemployment rate (the official U-3 rate that counts about the fewest of the actual unemployed) has fallen from a high of 10% since he’s been president.  But it’s not because he’s creating jobs.  It’s because these people just gave up and left the labor force.  Because there are no jobs.  As the falling labor force participation rate clearly shows.

U-3 Unemployment Rate and Labor Force participation Rate Jan 2009- Aug 2013

Ever since President Obama took office the labor force participation rate has steadily declined.  Showing a steady trend of destroying jobs.  Not creating them.  If you want to know exactly how many jobs his policies have destroyed you can get that from the Bureau of Labor Statistics, too.  By subtracting the number of people NOT in the labor force when he took office in January 2009 (80,507,000) from the number of people NOT in the labor force from the August Jobs report (90,473,000).  And when you subtract 80,507,000 from 90,473,000 you get 9,966,000 jobs that President Obama and his economic policies have destroyed.  Just under 10 million people have left the labor force while President Obama has been president.  And yet they celebrate the creation of 169,000 jobs in August.

The economy is not good.  It’s not improving.  It will only improve when we finally abandon the failed Keynesian policies of the past.  And get the government out of the private sector economy. The way it was when America became the number one economic power in the world.  Before the progressives/liberals transformed the country into what it is today.  A dying European social democracy.  Where governments tried to give the people everything.  Only to bankrupt their countries.  And caused their people to riot when they couldn’t borrow enough money to keep giving the people what they had been giving them.  Which is usually what happens when you take stuff away from people who have gotten used to having that stuff.  Which is why Obamacare is so insidious.  And important to the left.  Once they make Obamacare a ‘third-rail’ program like Social Security and Medicare they know it will never go away.  No matter what economic damage it does.  Or how much it destroys the quality of health care.

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Unemployed Immigrants plunge Progressive and Socialist Sweden in Riots

Posted by PITHOCRATES - May 25th, 2013

Week in Review

According to the American left all of America’s problems come from a disparity in incomes.  Which a progressive government tries to fix with a progressive tax code to redistribute wealth.   To make up for that income disparity.  So unskilled people have nice things just like highly skilled workers who can demand a high income.  But the Republicans are mean.  And try to stop the left from making the country a better place.  Something a little more like, say, Sweden (see Swedish police try to restore order in Stockholm after week of rioting by Anthony Lane in Stockholm and agencies posted 5/24/2013 on the guardian).

The riots have served as a sharp reminder that despite regular praise for its ‘Nordic model’ of progressive politics, relatively low unemployment and a generous social safety net, Sweden is not immune to the tension that festers in deprived communities…

Although the smashed windows of shops, two schools and the local library had yet to be replaced, locals of the 12,000-strong neighbourhood, which has an 80% immigrant population, said there had been no problems since 20 members of the local Islamic centre went around Husby to talk to the youths involved in the original disturbances.

“They told them that it had to stop and that they were scaring people,” said Abdul, a nurse in the local hospital after Friday prayers at the mosque.

“At the moment it’s very hard to get jobs – not just here but for everyone in Sweden,” said the Moroccan immigrant who had lived in Husby for 11 years. Having registered growth of 6.1% and 3.9% in 2010 and 2011 respectively, the Swedish economy slowed to just 0.8% last year, largely as a result of faltering exports to the eurozone. Residents born outside Sweden represent 15% of the country’s 9.5 million population, but account for 35% of those registered as unemployed…

Sweden’s relaxed immigration policy and generous asylum system has resulted in exceptionally high immigration levels over the last decade. In 2012, 82,000 non-Swedes migrated to the country – 44,000 of them were asylum-seekers. The country’s migration board expects to receive 54,000 asylum seekers in 2013, including around 20,000 Somalis.

Interesting.  Sweden was the perfect model of a progressive utopia.  Now the place is burning in riots.  What happened?  What changed?  Well, the biggest change appears to be “exceptionally high immigration levels over the last decade.”  Who although they make up only 15% of the country account for 35% of the unemployed.  Interesting.

If this was America the go-to response would be it’s because of racist employers who don’t want to hire immigrants.  Preferring to hire those illegally in the country so they can overwork and underpay them.  But this is Sweden.  So you can’t use the go-to response.  Because Sweden isn’t full of bigoted homophobes.  America has those.  And they’re called conservatives.  According to those on the left.  So what’s going on in Sweden?

It would appear a large percentage of those immigrants aren’t doctors, engineers, chemists, etc.  Instead they are largely uneducated young people with few appreciable job skills.  And can only perform menial labor.  Which doesn’t exactly thrill them.  And a lot of them have come from primarily Muslim countries.  Which tend to be male-centric.  Further angering them that they may only qualify for a job they feel someone beneath them should be doing.  Making them less eager to assimilate.  Preferring the company and the traditions of the country they fled.  And when they can’t even get those menial jobs you get mobs of angry young unemployed men roaming the streets.  Which rarely ends well.

The Americans should study closely what’s happening in Sweden before throwing open their borders.  Because it can happen here.  And already has.  The Boston Marathon bombers, for example, got to the U.S. as asylum seekers.  And let’s not forget how France burned in 2005.  Which was pretty much the same thing that just happened in Sweden.  The root of both of these riots was excessive immigration of low-skilled workers who suffered high unemployment in a jobless economy.  And a lack of assimilation.  Put these together and you get what happened in France in 2005.  And what happened in Sweden in 2013.  And what will happen in countries wherever they have large populations of low-skilled immigrants who feel alienated and don’t wish to assimilate.  Or can’t because they can’t find a job in a jobless economy.

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The Obama Administration was lying about the Success of the Stimulus Bill

Posted by PITHOCRATES - April 20th, 2013

Week in Review

President Obama promised us that if Congress passed his stimulus bill the unemployment rate wouldn’t rise above 8%.  Because million of people would go back to work immediately thanks to all of those shovel-ready jobs.  Well, the president signed it into law on February 17, 2009.  In October of that year the unemployment rate topped out at 10%.  And the president joked that those shovel-ready jobs weren’t as shovel-ready as they thought.  Still, they claimed it was a success.  And bragged about the millions of jobs they created or saved.  All the while the economy remained mired in one of the worst economic recoveries of all time (see Did Obama’s stimulus bill really work? Not even the gov’t knows by Sean Higgins posted 4/15/2013 on The Examiner).

Reason magazine’s Peter Suderman has a lengthy but eye-opening examination of President Obama’s 2009 American Recovery and Reinvestment Act — aka the stimulus bill — and why even after spending $833 million through it the economy continues to suck.

The article is a top-to-bottom dissection that exposes the many layers of folly involved. Several passages stand out but this one in particular is worth noting because it points out the central flaw in reports that argue the stimulus was a success: There is literally no way to measure those claims.

“According to the non-partisan Congressional Budget Office,” says Recovery.gov, the Obama administration’s stimulus website, “the Recovery Act supported as many as 3.5 million jobs across the country.” As the stimulus ran its course over roughly three years, the capital’s top newspapers kept printing similar, supportive-sounding figures from the budget office. “CBO Says Stimulus May Have Added 3.3 Million Jobs,” a Washington Post headline trumpeted in 2010. “CBO: Stimulus Added Up to 3.3 million Jobs,” declared a Politico headline in 2011. Senate Democrats touted the estimates as proof of ARRA’s success. So did the vice president…

The CBO estimated that the stimulus created or saved up to 3.6 million jobs. But CBO Director Douglas Elmendorf has also noted that if the real-world results were different — if the law created 5 million jobs, or if it created none at all — the agency wouldn’t know. At a March 2010 presentation, Elmendorf characterized the CBO’s follow-up reports as “repeating the same exercises we did rather than an independent check.” At the same event, Elmendorf was asked, “If the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis?” His response: “That’s right. That’s right.” (Emphasis added.)

You may not be able to measure how many jobs you saved but you sure can measure one thing.  The labor force participation rate.  The percentage of those who could be working who are actually working.  Which shows the true economic picture unlike the official unemployment rate.  Which just doesn’t count people if they leave the labor force.  Because they can’t find a job.  You see, for them to count you in the unemployment rate you have to be looking for work.  And if you gave up looking for work after a year or so of not finding work they don’t count you.  Which lowers the unemployment rate.  Even though more people are unemployed.

So how did the labor force participation rate respond to the stimulus bill?  Not good.  It suffered its steepest decline the year they passed the stimulus.  And continued in the longest and steepest free-fall during the Obama presidency.  These numbers show the stimulus was an abject failure.  And any talk contrary to this was nothing but wishful thinking.  Or outright lies.

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GDP Growth, Recession, Depression and Recovery

Posted by PITHOCRATES - March 18th, 2013

Economics 101

Gross Domestic Product is basically Consumer Spending and Government Spending

In the 1980 presidential campaign Ronald Reagan said, “A recession is when your neighbor loses his job.  A depression is when you lose yours.  And a recovery is when Jimmy Carter loses his.”  A powerful statement.  And one that proved to be pretty much true.  But don’t look for these definitions in an economics textbook.  For though they connect well to us the actual definitions are a little more complex.  And a bit abstract.

There is a natural ebb and flow to the economy.  We call it the business cycle.  There are good economic times with unemployment falling.  And there are bad economic times with unemployment rising.  The economy expands.  And the economy contracts.  The contraction side of the business cycle is a recession.  And it runs from the peak of the expansion to the trough of the contraction.  A depression is basically a recession that is really, really bad.

But even these definitions are vague.  Because getting an accurate measurement on economic growth isn’t that easy.  There’s gross domestic product (GDP).  Which is the sum total of final goods and services.  Basically consumer spending and government spending.  Which is why the government’s economists (Keynesians) and those in the Democrat Party always say cutting government spending will hurt the economy.  By reducing GDP.  But GDP is not the best measurement of economic activity.

Even though Retail Sales may be Doing Well everyone up the Production Chain may not be Expanding Production

One problem with GDP is that the government is constantly revising the numbers.  So GDP doesn’t really provide real-time feedback on economic activity.  The organization that defines the start and end points of recessions is the National Bureau of Economic Research (NBER).  And they often do so AFTER the end of a recession.  One metric they use is GDP growth.  If it’s negative for two consecutive quarters they call it a recession.  But if there is a significant decline in economic activity that lasts a few months or more they may call that a recession, too.  Even if there aren’t two consecutive quarters of negative GDP growth.  If GDP falls by 10% they’ll call that a depression.

There’s another problem with using GDP data.  It’s incomplete.  It only looks at consumer spending.  It doesn’t count any of the upper stages of
production.  The wholesale stage.  The manufacturing stage.  And the raw commodities stage.  Where the actual bulk of economic activity takes place.  In these upper stages.  Which Keynesian economists ignore.  For they only look at aggregate consumer spending.  Which they try to manipulate with interest rates.  And increasing the money supply.  To encourage more consumer spending.  But there is a problem with Keynesian economics.  It doesn’t work.

When economic activity slows Keynesian economic policies say the government should increase spending to pick up the slack.  So they expand the money supply.  Lower interest rates.  And spend money.  Putting more money into the hands of consumers.  So they can go out and spend that money.  Thus stimulating economic activity.  But expanding the money supply creates inflation.  Which raises prices.  So consumers may be spending that stimulus money but those businesses in the higher stages of production know what’s coming.  Higher prices.  Which means people will soon be buying less.  And they know once these people spend their stimulus money it will be gone.  As will all that stimulated activity.  So even though retail sales may be doing well everyone up the production chain may not be expanding production.  Instead, wholesalers will draw down their inventories.  And not replace them.  So they will buy less from manufacturers.  Who will buy fewer raw commodities.

The continually falling Labor Force Participation Rate suggests the 2007-2009 Recession hasn’t Ended

So retail sales could be doing well during an economic contraction.  For awhile.  But everything above retail sales will already be hunkering down for the coming recession.  Cutting production.  And laying off people. Making unemployment another metric to measure a recession by.  If the unemployment rate rose by, say, 1.5 points during a given period of time the economy may be in a recession.  But there is a problem with using the unemployment rate.  The official unemployment rate (the U-3 number) doesn’t count everyone who can’t find a full-time job.

U-3 only counts those people who are looking for work.  They don’t count those who take a lower-paying part-time job because they can’t find a full-time job.  And they don’t count people who give up looking for work because there just isn’t anything out there.  Getting by on their savings.  Their spouse’s income.  Even cashing in their 401(k).  People doing this are an indication of a horrible economy.  And probably a pretty bad recession.  But they don’t count them.  Making the U-3 unemployment rate understate the true unemployment.  A better metric is the labor force participation rate.  The percentage of those who are able to work who are actually working.  A falling unemployment rate is good.  But if that happens at the same time the labor force participation rate is falling the economy is still probably in recession.  Despite the falling unemployment rate.

The NBER sifts through a lot of data to decide whether the economy is in recession or not.  Do politics enter their decision-making process?  Perhaps.  For they said the 2007-2009 recession ended in 2009.  The U-3 unemployment rate had fallen.  And GDP growth returned to positive territory.  But the labor force participation rate continued to fall.  Meaning people were disappearing from the labor force.  Indicating that the 2007-2009 recession hasn’t really ended.  In fact, one could even say that we have been in a depression.  For not only did a lot of our neighbors lose their jobs.  A lot of us lost our jobs, too.  And because the president who presided over the worst economic recovery since the Great Depression didn’t lose his job in 2012, there has been no recovery.  So given our current economic picture the best metric to use appears to be what Ronald Reagan told us in 1980.  Which means things aren’t going to get better any time soon.

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U-3, U-6 and the Labor Force Participation Rate 2004 through February 2013

Posted by PITHOCRATES - March 12th, 2013

History 101

During Obama’s First Term the U-3 and U-6 Unemployment Rates moved Further Apart

The latest employment data showed the official unemployment rate fell in February to 7.7% from 7.9% in January.  The Labor Department also reported the addition of 227,000 new jobs.  Proof, the economists say, that the economy is improving.  But when you dig deeper into the data you find otherwise.  For the economy may have added 227,000 new jobs but 296,000 jobs left the labor market.  And they didn’t count these people as unemployed.  So there was a net loss of jobs.  Despite the fall in the official unemployment rate.

We keep saying official unemployment rate for a reason.  For the government has six different unemployment rates.  The ‘official’ rate is what they call U-3.  Which doesn’t count a lot of people who can’t find full time work.  A more inclusive rate is the U-6 number (see Labor Force Participation Rate for an explanation of the U-3, U-6 and the labor force participation rate).  The U-6 rate counts pretty much everyone who can’t find a full-time job.  Including discouraged workers, the marginally attached and those working part-time because they can’t find a full-time job.  Before the Great Recession (during the George W. Bush administration) the U-3 and U-6 unemployment rates tracked closer together than they do now (during the Barack Obama administration).  As we can see in the following chart (see Data Retrieval: Labor Force Statistics (CPS) for data source).

Unemployment Rates U3 U6 2004-2013

During Bush’s second term U-3 was between 4% & 6%.  And U-6 was between 8% and 10%.  But during Obama’s first term U-3 shot above Bush’s U-6.  And Obama’s U-6 soared to twice Bush’s U-6.  Most of this was due to the subprime mortgage crisis.  And the resulting Great Recession.  But that doesn’t explain why the graphs moved further apart.  And why did they do this?  Was it because they were overstating U-6?  Were they understating U-3?  Or is there some other explanation?  It has to be something.  And it’s likely not good.

The Official Unemployment Rate has been Understated by at least 2.9 Points during the Obama Presidency

During President Bush’s second term there was on average a 4-point spread between U-3 and U-6.  During President Obama’s first term this point spread increased to 6.9.  A difference of 2.9 points.  Which if we subtract to U-6 or add to U-3 the graphs will move closer together.  So they track each other at the same distance apart from each other they did during Bush’s second term.  When you look at the labor participation factor and the lost jobs one can only assume we’re understating U-3.  And not overstating U-6.  So if we add 2.9 points to U-3 after December 2008 the graphs look like this.

Unemployment Rates U3 Adjusted U6 2004-2013

We can ignore the sharp rise in U-3 adjusted.  As the loss 2.9 points of the U-3 unemployment rate would not have been instantaneous once January 2009 hit.  But once we get to the new highs the graphs maintain the same distance from each other as they did during Bush’s second term.  Which means the official unemployment rate didn’t fall from approximately 10% to 8% during Obama’s first term.  It actually fell from 12.9% to 10.6%.  And that the current official unemployment rate is not 7.7%.  But 10.6%.  Which is, of course, 2.9 points higher.

So the official unemployment rate is higher than they report.  With the official unemployment being understated by at least 2.9 points.  And the economy is not improving like they say.  Anyone reading the jobs data can see this.  But the Obama administration and their friends in the media, as well as mainstream economists, all say everything is getting better.  Or they say it is just the new normal.  To provide some cover for their failed Keynesian economic policies.  Which failed to pull the economy out of the Great Depression.  They failed to pull the economy out of the stagflation of the Seventies.  And they are now failing to pull the economy out of the Great Recession.

The ‘New Normal’ under President Obama has been a Steadily Declining Labor Force Participation Rate

Keynesian economics calls for the government to have control of interest rates.  They keep interest rates artificially low.  To expand the money supply.  They also increase taxes.  And borrow money.  Just so they can spend.  A lot.  For Keynesian theory says when the economy falls into recession the government should spend.  Even if it requires running a deficit.  To generate economic activity.  But expanding the money supply only causes inflation.  And higher prices.  Which dampens economic activity.  Which is why we have never spent our way out of a recession.  And never will.

President Obama is a Keynesian.  His Keynesian policies have hindered, not helped, the economic recovery.  And his excessive regulations have further hindered the economic recovery.  He shut down the domestic oil industry on public lands.  His war on coal has laid off swaths of coal miners and others in the coal industry. His rejection of the Keystone XL Pipeline has prevented the creation of thousands of new jobs.  His environmental regulations have increased the cost of doing business.  As has Obamacare.  Which has put a freeze on new hiring.  And pushed lot of full time people to part time.  Nothing this administration has done has helped the economy.  While most everything it has done has hurt the economy.  And we can see that when we look at the labor force participation rate.  When we graph it along with U-3 (the official rate not the adjusted rate) and U-6 (see Employment Situation Archived News Releases for data source).

Unemployment Rates U3 U6 Labor Participation Rate 2004-2013

And here we see what caused U-3 and U-6 to move further apart.  U-3 is understated because people are continually leaving the labor force.  Unable to find a job.  This is why we have a net loss of jobs even when they report a gain of 227,000 new jobs in February.  Or a gain in any other month.  This is why the economy hasn’t improved under President Obama.  Despite what the official unemployment rate is.  And despite all of the new jobs they’ve created.  Because the ‘new normal’ under President Obama has been a steadily declining labor force participation rate.  Meaning he is a job destroyer.  And the only reason why the unemployment rate falls is because these people disappear from the labor force and they just don’t count them anymore.  Sort of how the European employment picture improved after the plague.  So many people left the labor force by dying that it created a labor shortage.  And low unemployment.  The problem here is that these people didn’t die.  They’re still out there waiting to rejoin the labor force.  To hire into jobs that are just not there.  And it’s going to take a long, long time for the economy to absorb these people.  Meaning the economy won’t be getting better anytime soon.  Because it’s a lot worse than they’re reporting.

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Labor Force Participation Rate

Posted by PITHOCRATES - March 11th, 2013

Economics 101

The Official U-3 Unemployment Rate doesn’t count Everyone who can’t find a Full-Time Job

The unemployment rate fell in February 2012.  Yet more people are out of the workforce than they were in January.  Odd.  For the two seem to contradict each other.  For how can the workforce shrink when the unemployment rate falls.  Easy.  It just depends on who you count.  The federal government has a few ways to count unemployed people.  Specifically, they have six ways.

U-1  Persons unemployed 15 weeks or longer, as a percent of the civilian labor force.

U-2  Job losers and persons who completed temporary jobs, as a percent of the civilian labor force.

U-3  Total unemployed, as a percent of the civilian labor force (official unemployment rate).

U-4  Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers.

U-5  Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force.

U-6  Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.

As you can see they count more people at each of the six levels.  And the official U-3 unemployment rate doesn’t count a lot of people.  By the time you add in discouraged workers, the marginally attached and those working part-time because they can’t find a full-time job the unemployment rate increases.  With the U-6 number giving a truer picture of the employment picture.  Which currently stands at 14.3%.  And is a long way from the official 7.7%.  So even though the news reports are celebrating that the economy is improving because the unemployment rate fell from 7.9% to 7.7%, the U-6 unemployment rate stands at 14.3%.  Down from 14.4% in January 2012.  Which is pretty bad.  And little to celebrate about.

The U-6 Unemployment Rate counts all of the People who can’t find a Full-Time Job

To better understand these numbers we need to understand exactly who the people are that they are counting.  Who are the people that could be working.  Who are the people working.  And who are the people not working.  Which is all defined at Civilian Noninstitutional Population and Associated Rate and Ratio Measures for Model-Based Areas.  And summarized here:

The civilian noninstitutional population consists of persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces.

Employment consists of all persons who, during the reference week (the calendar week including the twelfth day of the month), (a) did any work at all (at least 1 hour) as paid employees, worked in their own business or profession or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family, or (b) were not working but had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs.

Unemployment consists of all persons who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment some time during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

The civilian labor force consists of all persons classified as employed or unemployed as described above.

The labor force participation rate represents the proportion of the civilian noninstitutional population that is in the labor force.

The unemployment rate is the number of unemployed as a percent of the civilian labor force.

The civilian labor force, then, equals the total of employed and unemployed people.  But note who they count as unemployed.  Only people who were looking for work during a 4-week period.  And those on a layoff subject to recall.  (Who didn’t have to look for work during that 4-week period.)  Which excludes everyone who gave up looking for work not subject to recall who can’t find a job.  People who are living on their savings, their credit cards, their spouse’s income, their retirement nest egg or even moving back in with their parents.  Or are working a part-time job or two because they can’t find a full-time job.  The U-6 rate counts all of these people.  Which is why it’s almost twice the official unemployment rate.  And why it’s a much better indicator of the employment picture.

The most Accurate Read of the Employment Picture is the Labor Force Participation Rate

So you now can see how the official unemployment rate can fall even though fewer people are working.  They calculate the unemployment rate by dividing unemployment by the civilian labor force.  And the smaller unemployment is the smaller the unemployment rate is.  Which it is when you don’t count all of the people who can’t find a job.  Which brings us to the labor force participation rate.  Which they calculate by dividing the civilian labor force (the employed plus the unemployed) by the civilian noninstitutional population (the total of the civilian population that could be working).  Which, like the U-6 unemployment rate, provides a truer picture of the employment picture.

The U-3 and U-6 unemployment rates improved in February.  Showing an improving employment picture.  While the labor force participation rate fell from 63.6% to 63.5%.  Which means those not in the labor force increased.  Going from 89,008,000 to 89,304,000.  An increase of 296,000 people who disappeared from the labor force.  Which is greater than the 227,000 new jobs created.  So even though the unemployment rate fell there was a net loss in jobs.  Which means the economy got worse.  Not better.

Mark Twain said facts don’t lie but liars figure.  And this is what he meant.  The employment picture is not improving.  But the government reports the 227,000 new jobs and the falling unemployment rate as signs of an improving economy.  But the most accurate read of the employment picture, the labor force participation rate, shows the economy is getting worse.  As everyone who is struggling in the private sector already knows.  So someone is lying.  And it isn’t the facts.  It is those who want to hide the damage the government’s policies are doing to the economy.  So they can keep trying the same failed policies of the past.  Keynesian economic policies.  Favoring more government intervention into the private economy.  While dragging out the worst economic recovery since the Great Depression.  Another period of failed Keynesian economic policies.  For Keynesian policies are anti-business policies.  But pro-government growth policies.  Which is why liars figure.  And the labor force participation rate falls.

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The Poor and Middle Class see their Incomes Still Falling in the Obama Recovery

Posted by PITHOCRATES - March 3rd, 2013

Week in Review

If you listen to the president, his press secretary, the mainstream media and just about anyone on the political left the economy is doing super.  Sure, we can make improvements.  But over all everything is just swell.  If you’re rich, that is. People with money are doing very well in the Obama recovery.  Those who aren’t as rich aren’t.  No.  All they see is high unemployment, rising prices and falling incomes (see Americans see biggest monthly income drop in 20 years by Annalyn Kurtz posted 3/1/2013 on CNNMoney).

Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That’s the most dramatic decline since January 1993, according to the Commerce Department.

It’s something of a combination of one-time events, though.

Monthly income was unusually high in December because companies paid out early dividends to avoid upcoming tax hikes.

Further proof that people change their behavior when the government increases taxes.  The surge in December that made January look so bad was due to one-time distributions of profits to avoid higher taxes.  So December wasn’t that good, either.  Just an aberration as people tried to avoid the higher taxes coming their way.

The payroll tax cut’s expiration also played a role in January’s drop, because most workers have to pay 2 percentage points more in taxes this year…

Meanwhile, economists are closely watching consumer spending, which accounts for about two-thirds of the U.S. economy…

Economists think that rising gas prices in February could cut into consumer spending temporarily. Gas prices rose 10% in February, according to AAA, but are expected to fall in coming weeks…

The Social Security tax break helped consumers at the 2012 election.  Allowing them more disposable income in the year before the election.  And helping them feel things weren’t that bad.  Of course this Social Security tax holiday drew down the Social Security surplus to a dangerous low.  Something they will have to make up for with even higher taxes than the 2% temporary cut used to help the president’s reelection.

Regulatory costs, environmental policies that have shut down oil drilling on public lands and inflation (the incessant quantitative easing of the Fed putting more and more dollars into circulation) are keeping gas prices high.  For you can hide inflation in some consumer goods by reducing package sizes but you can’t do that with gasoline.  Because you sell gas by the gallon.  So the full cost of the Fed’s inflationary policies hit gas prices hard.  And, of course, high gas prices increases prices for everything else that uses fuel.  A large factor in the rise in our grocery bills.  Taking a bigger bite out of family budgets.  Leaving little for other consumer spending.

All of that said, consumers are benefiting from a housing recovery and rising stock prices…

They’re not able to save much, though. On average, people saved about 2.4% of their disposable income in January, down from 6.4% in December. That marks the smallest saving rate since November 2007.

Rich people are benefitting from the housing ‘recovery’ and stock prices.  Those who have a lot of money left over after meeting the living expenses.  Who can save a lot of money.  And invest it into housing.  Or stocks.  In fact, that’s why the stock market does well on news of the Fed continuing their quantitative easing.  For the rich are taking advantage of that cheap money to borrow it.  So they can invest it.  Trading on the interest.  Borrowing at low interest rates.  And investing in something that earns a higher rate of return.  People struggling to make their paycheck buy everything it once did as prices rise everywhere aren’t enjoying any benefits from that cheap money.  As they have no money left over to even save up a down payment on a house.  So they can take advantage of those low housing prices.  No.  The poor and middle class are not reaping anything in the current economic ‘recovery’.  Only the rich are.

Under President Obama the rich are getting richer.  And the poor are getting poorer.  Because of his economic policies.  Especially the Keynesian policies.  Keynesians look at personal savings as leaks out of the economy.  For if people aren’t spending money they are wasting money.  Which is the point of low interest rates.  To get people to borrow money to buy things.  Thus stimulating economic activity.  And generating more consumer spending.  But all that quantitative easing has raised prices so much that consumers are left with less and less money to spend.  The poor and middle class aren’t borrowing money to buy new houses.  They’re just trying to get by on what little they have.  Hoping for good economic times to return when their personal incomes rise once again.

Keynesian economics don’t work.  Just as Keynesian stimulus does not stimulate.  If it did we wouldn’t still have fewer jobs in the U.S. economy than when President Obama took office.  And he spent about $8000 billion on a stimulus bill.  The American Recovery and Reinvestment Act of 2009.  Some critics said it failed as an $8000 billion stimulus wasn’t big enough.  Even though the Obama administration declared the summer of 2010 the Recovery Summer.  Proof that the American Recovery and Reinvestment Act of 2009 restored economic prosperity.  Even though it didn’t.  For things still haven’t returned to where they were under George W. Bush.  Despite 4 years of Keynesian policies.  That haven’t raised personal incomes.  The true measure of any economic recovery.  And when personal incomes are the lowest they’ve been in 20 years, there hasn’t been any economic recovery.  Despite $800 billion in stimulus.  And 4 years of President Obama’s Keynesian economic policies.

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Disposable Income and GDP Growth

Posted by PITHOCRATES - February 25th, 2013

Economics 101

With less Disposable Income there will be less New Economic Activity Created

The key to economic growth is disposable income.  For when we live from paycheck to paycheck economic growth is flat.  It’s when we have disposable income that we can spend money beyond our basic needs.  Such as on a vacation.  A new car.  A television.  New windows, carpeting, appliances, furniture, etc.  Movies, ball games, dinners, the theater, etc.  New clothes, jewelry, shoes, accessories, etc.  Tennis rackets, skis, baseball gloves, hiking boots, fishing gear, etc.  Smart phones, MP3 players, iPads, laptops, etc.  Jet skis, boats, motorcycles, mountain bikes, etc.  Radio-controlled cars/helicopters/planes, Game Boys, Xboxes, Wiis, PlayStations, multiplayer role-playing computer games, etc.

Buying these things creates a lot of economic activity.  But we can’t buy any of these things unless we have disposable income.  So the only way to increase economic activity is to increase disposable income.  Which means there is a direct relationship between GDP and disposable income.

There’s been a lot of talk about real incomes being flat.  Even falling during the Obama presidency.  Which is bad.  For if median incomes are falling people will have less disposable income.  And with less disposable income they will be buying less of all those things that create new economic activity.  The things we enjoy.  That make our lives more fun.  More enjoyable.  And less miserable.  Those things that increase our standard of living.  And the quality of life.  So a flat and falling median income reduces our standard of living.  And our quality of life.  As we live from paycheck to paycheck.  Making barely enough to meet our living expenses.  And sometimes not even making enough for that.  Having to turn to government assistance to make up the difference.

We add Disposable Income and Discounted Government Spending to get the Net Add to GDP

The key to disposable income and GDP growth is jobs.  And the more jobs the better.  So job creation is very important.  Which means we need a business-friendly environment.  With a minimum of costly regulations.  And low taxes.  To encourage employers to hire more people.  So more people have jobs.  Those who do use their income to meet their living expenses.  And use their disposable income to create new economic activity.  The more disposable income they have the more new economic activity they can create.  So what’s the best way to increase their disposable income?  The same way we encourage employers to hire more people.  Low taxes.  We can illustrate this in the following table which is based on assumptions and approximations.

GDP Discounted Required and Average Calculations

The effective tax rate a person pays includes all taxes he or she will pay.  Property tax, sales tax, gas tax, telecommunication tax, liquor tax, cigarette tax, import tariff, dog license tax, fishing license tax, luxury tax, watercraft registration tax, vehicle sales tax, state income tax, federal income tax, Social Security tax, Medicare tax, capital gains tax, etc.   Median income and living expenses are constants.  We subtract taxes from median income to get net income.  Subtracting living expenses from net income gives us disposable income.  We then calculate these numbers for additional effective tax rates that are multiples of 4%.

We add disposable income and stimulus together to get the net add to GDP.  What we call ‘stimulus’ is a percentage of all those taxes reentering the economy through government spending.  In our example 80% of those taxes find their way back into the economy.  While 20% is lost through waste and inefficiency.  This stimulus can pay for a government worker, a government contractor or a direct government benefit that helps people meet their living expenses.  This redistributed income is money that the income earner would have spent had it not been taxed away.  Instead, someone else will spend it.  But not as efficiently.  As it must first pass through an inefficient government bureaucracy.

Giving People Benefits does not Replace Disposable Income

We extend the table out to an effective tax rate of 52% and graph the results.  We see that as the effective tax rate increases disposable income falls.  As does GDP growth.  Showing that increasing taxation reduces GDP.  That said, average GDP growth has been approximately 3% during the latter half of the 20th Century.  Despite increasing taxation reducing GDP.  So how do we reconcile a falling GDP and a 3% GDP growth?  With aggressive increases in productivity.  And investments in capital equipment.  Allowing business to produce more with less.  Resulting in a rising real GDP growth rate.  As shown in the following graph.

GDP Discounted Required and Average

In order to maintain a 3% growth rate in GDP we need a rising real GDP growth rate (in one America doing very well despite government) to offset the falling discounted GDP growth rate due to falling disposable income (in another America not doing well because of government).  When we add the real and the discounted GDP growth rates together we get the constant 3% of average GDP growth.  Which is why businesses have never been more profitable despite stagnant economic growth during President Obama’s time in office.  They’re doing well because they’re producing more with less by exchanging people for new capital equipment.  Hence the higher profitability along with chronic high unemployment.  With more unemployed workers than available jobs there is a downward pressure on median income.  That combined with higher personal effective taxes has greatly reduced disposable income.  And new economic growth.  Which subtracts a lot away from that real GDP growth.

Giving people benefits does not replace disposable income.  For government assistance helps people meet basic living expenses.  While having a job offers the ability to earn disposable income.  Which is key for new economic growth.  If we bring the effective tax rate down the discounted GDP growth graph will flatten out.  As this happens the gains in productivity would remain.  Leaving real GDP growth unchanged.  With real GDP growth unchanged and discounted GDP growth decreasing the average annual GDP growth would therefore increase.  And approach real GDP growth.  With double digit GDP growth tax revenues would soar even at lower effective tax rates.  Requiring less borrowing.  Which would give us smaller deficits.  While reducing the growth in the federal debt.  Perhaps even reducing the debt.  Solving all of our financial problems.  By simply cutting taxes.  And the spending those taxes fund.

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The Solution to the Epidemic of Gun Violence is adopting Conservative Economic Policies

Posted by PITHOCRATES - February 16th, 2013

Week in Review

The Left is saying there is an epidemic of gun violence in the nation.  And President Obama wants to pass new sweeping federal gun control laws in response to that epidemic.  Because the Left has always wanted to take guns away from the people.  The president wants to try these sweeping measures even if it only saves one life.  And that may be all the lives they save.  One.  For guns aren’t killing people.  It’s the people using these guns that are killing people.  And that’s what we should be looking at.  These people.  And what so many of them have in common (see MILLER: Chicago’s deadly gun control lessons by Paul Miller posted 2/11/2013 on The Washington Times).

Last year, more than 500 individuals were murdered in Chicago…

Fifty-six children — under the age of 18 — met violent ends last year in Chicago, while 133 individuals — nearly one-third of all the murdered victims — never saw their 21st birthdays. Still, the city and the state don’t want to talk about the nightmare that Chicago’s African-American and Hispanic neighborhoods have become. Nobody is asking how the disastrous economy of Illinois is contributing to violence on the streets of Chicago.

Illinois has an unfunded pension deficit of $200 billion. It now lays claim to the worst credit rating in the nation. Single-party rule — controlled by public-employee unions — has created a business climate that is benefiting neighboring states. The black unemployment rate average in 2012, according to the U.S. Bureau of Labor Statistics, was 24.2 percent. That is not a typo — the unemployment rate in Chicago’s black community is almost 1 in 4. The overwhelming majority of the murders take place in minority neighborhoods, which implies this is not a gun control issue — “it’s the economy, stupid…”

Elected officials for over a decade have seen their policies fail time after time. They continue down the same path, knowing full well their policies do more economic harm than good. They are more concerned with power than people. The results are higher taxes, fleeing businesses and no jobs. Minority communities get hit the hardest.

Guns don’t kill people — politicians do…

Unemployment in minority communities is appalling. That story line in Chicago is the same from Detroit to Baltimore and Oakland to St. Louis. The most dangerous cities in the nation have minority communities that see no hope because they have little opportunity. The results have been the same throughout human history — poverty leads to violence and hopelessness equals suffering.

What’s causing people to pick up guns and kill people?  Liberal economic policies.  At least, in cities like Chicago, Detroit, Baltimore, Oakland and St. Louis.  Cities controlled by liberal Democrats.  That are highly unionized.  Have high taxes.  And costly business regulations.  All of which discourage business from locating in these cities.  Which is why these cities have such high unemployment rates.  Especially in their minority communities.  Creating fertile ground for unrest.  Hopelessness.  And desperation.  Making people pick up guns to kill people.

Guns aren’t the cause of this violence.  They’re the effect.  It’s the poor economic conditions that cause people to be hopeless and desperate.  Pushing them towards gangs.  Drugs.  And violence.  Had they had jobs they would not be so hopeless and desperate.  As they would be too busy working.  And raising their families.  This is what conservative economic policies give.  A business-friendly environment that creates jobs.  While liberal economic policies give us strong unions, high unemployment, hopelessness and desperation.  Especially in our minority communities.

So if the president wants to adopt policies that can stop this epidemic in gun violence he should endorse conservative economic policies.  And if you bring down the unemployment rate down from 24.2% you’re going to get a lot of people off the street.  And save a lot of lives.  Far more than just one that the president is targeting with his new sweeping federal gun control laws.

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