Free Markets, Free People
The most recent release of unemployment data has raised some questions, namely, how can we lose 20,000 jobs in the same month that the unemployment rate declined to 9.7%. The answer is simple: The unemployment rate is essentially a made-up figure. And I can give you a much more accurate way to measure the unemployment rate.
First, let’s take a brief look at how the monthly Employment Situation figures are compiled by the Bureau of Labor Statistics. The BLS combines two surveys to compile the Employment Situation. The first survey is the Establishment Survey. That’s a pretty accurate survey, because it consists of asking businesses to provide hard payroll data on the number of existing jobs. The second is the Household Survey, which is where the train runs off the rails.
For the Household survey, they ask if you are employed. If the answer is “No”, they then ask if you if you’re actively looking for a job. If the answer is no, then they just simply take you out of the labor force. They don’t care whether you aren’t looking for work because you know there are no jobs available, or whether you’ve retired and are planning to sail a sloop across the Pacific. If you aren’t actively looking for work, you aren’t part of the labor force. So, the official unemployment rate generally understates–sometimes substantially–the real level of unemployment.
Fortunately, there is a better way to calculate the rate of real unemployment, and the BLS web site conveniently provides you with all the data you need to do it. From here, we only need three items: The Civilian Noninstitutional Population, the Participation Rate, and the number of Employed.
The first thing we need to do is figure out the Labor Force Participation Rate during the most recent period of full employment. If you take the average monthly labor force participation rate from the 70 months between Jan 04 and Oct 08, you get a participation rate in the labor for of 66% of the Civilian Noninstitutional Population.
Next, you multiply the Civilian Noninstitutional Population by 0.66. That gives you the size of the normal labor force at full employment.
Next, you take the number of Employed, and calculate the actual rate of unermployment using the following equation:
1-(Employed/Normal Labor Force)=Unemployment Rate.
So, with this method, we can compare the unemployment level of Oct 08, right before the economy cratered, to last month. When we do so, we get the following results:
Civilian Noninstitutinal Population: 234,612,000
Participation Rate: 66%
Labor Force: 154,843,920
Unemployment Rate: 6.0%
Civilian Noninstitutinal Population: 236,832,000
Participation Rate: 66%
Labor Force: 156,309,120
Unemployment Rate: 12.5%
Note that this calculation for Oct 08 is very close to the official unemployment rate of 6.1%. But as the economy gets worse the official employment rates show greater and greater variance. In other words, the official unemployment rate becomes progressively less accurate as the Employment Situation worsens, substantially understating the actual rate of unemployment. This is, by the way a feature of the BLS’s method, not a bug. It is no coincidence, as our Soviet friends used to say, that discouraged workers fall out of the labor force calculations.
Now, this measure I’ve explained doesn’t tell us anything about people who are working only part-time, when they’d prefer a full time job, so it doesn’t tell us much about underemployment. But it does tell us, based on the recent historical labor force participation rate, what the size of the labor force should be. Once we know that, it becomes very easy to see what the actual rate of unemployment is in real terms, rather than the notional terms provided by the Household Survey.
According the BLS, however, the Civilian noninstitutional population has increased by 2,220,000 people from 234,612,000 to 236,932,000, while, at the same time, the civilian labor force has shrunk by 2,055,000 people from 155,012,000 to 153,455,000. Using the BLS numbers, then, the labor force participation rate is 64.6%. That kind of demographic change might be expected in a couple of years when the baby Boomers begin retiring in large numbers, but for right now, it seems…counter-intuitive.
In any event, 12.5% unemployment is a far more realistic number than the BLS estimate of 9.7%.
A bunch of interesting polls have emerged today. One finds Obama at his lowest job performance rating yet. Of course, as you might expect, Republicans mostly disapprove of his job performance. Democrats, on the other hand, generally approve. But what gets his job approval rating to 44% approval, 47% disapproval in this Marist poll are the independents. They’re very dissatisfied with his performance – only 29% approve while almost twice that number, 57% disapprove.
Remember it was the independents who put Obama over the top in 2008. Also remember it was they who put Scott Brown over the top in MA and were key in the elections in VA and NJ.
As for Obama’s personal popularity, that too has suffered.
And while GOPers strive to avoid attacking Obama personally, for fear of offending voters who see him in a favorable light personally, even that aura of invincibility is wearing off. Independent voters view Obama negatively, too, by a 39% favorable to 52% unfavorable margin. All registered voters still see Obama favorably by a 50%-44% margin, but that’s down 5 points in just 2 months.
However, there’s more to this than just Obama’s job approval and personal ratings. Also found in this poll is a strong trend toward anti-incumbency:
Meanwhile, members of Congress should brace for a difficult election year. 42% of registered voters said they would back their current member of Congress, while 44% said they would support someone else — a drop of 9 points in support of the incumbent in just 2 months.
Rassmussen has a poll out that begins to flesh out why that trend is building. Three-quarters of the public, according to his latest polling data, express some level of anger at the policies of the federal government. That’s up 4 points from November. It is also why I call the Tea Parties the “tip of the populist iceberg”. There are a whole lot of unhappy voters out there.
So how does it break down? Well, not as Jacob Weisberg and the “ignorant, childish voters who want to live in Candyland” crew would have you believe.
Part of the frustration is likely due to the belief of 60% of voters that neither Republican political leaders nor Democratic political leaders have a good understanding of what is needed today. That finding is identical to the view last September, just after the tumultuous congressional town hall meetings the month before. But only 52% felt this way in November.
And, as time goes by, this trend continues to grow. Note that the leaders of both parties are identified as being clueless by this 60%.
So this week let’s revisit the comparison between the Political Class and the Mainstream (you proles in flyover land) voters. And as we saw last time we checked it out, the PC bunch is totally clueless:
The divide between the Political Class and Mainstream voters, however, is remarkable. Eighty-eight percent (88%) of Mainstream voters are angry, but 84% of the Political Class are not. Those numbers include 57% of Mainstream voters who are Very Angry and 51% of the Political Class who are not angry at all.
But then 68% of Mainstream voters don’t think the leaders of either major political party have a good understanding of what the country needs today. Sixty-one percent (61%) of the Political Class disagree.
By comparison, the majority of Republicans, Democrats and unaffiliateds don’t believe the current political leaders have a good handle on what is needed today.
Older voters and higher-income voters share that belief most strongly.
Thus the Tea Parties and the very negative reaction by the PC to them. They simply don’t get it. Which is why we’re suffering through this spate of leftist pundit tantrums in which they damn the people, democracy, and the opposition for being unwilling to roll over and submit to their sublime enlightenment, ability to know what is good for us and benevolent despotism. We’re seeing laments about how the good old day before the damned internet, talk radio and 24 hour cable let the enlightened elite do as they wish.
Look around you my friends – to this point that’s worked out just wonderfully hasn’t it?
Rasmussen lists a bunch of reaction which pretty much outline what you’re hearing from the most vocal of the Tea Partiers:
Most voters oppose the now-seemingly-derailed health care plan proposed by President Obama and congressional Democrats for months. They continue to have very mixed feelings about the $787-billion economic stimulus plan approved by Congress last February.
Looking back, most voters still don’t approve of the multi-billion-dollar government bailouts of the financial industry and troubled automakers General Motors and Chrysler.
Forty-nine percent (49%) worry the government will try to do too much to help the economy, while 39% fear it won’t do enough.
As the economy continues to stumble along, 59% of voters believe cutting taxes is better than increasing government spending as a job-creation tool, but 72% expect the nation’s elected politicians to increase spending instead.
Eighty-three percent (83%) of Americans say the size of the federal budget deficit is due more to the unwillingness of politicians to cut government spending than to the reluctance of taxpayers to pay more in taxes.
Voters have consistently said for months that they have more confidence in their own economic judgment than that of either the president or Congress.
Charles Krauthammer calls this “The Great Peasant Revolt of 2010″. And in a very real sense it is. What Republicans haven’t yet grasped is this revolt is pretty non-partisan. The reason Republicans seem less threatened by it is because of their fiscally conservative, limited government philosophy. Democrats, on the other hand, suffer more because of their tendency toward fiscal profligacy and government expansion. The problem for Republicans, however, is the country is no longer in a mood to see them give fiscal conservatism and limited government lip service. If you don’t believe me, take a look at this Iowa poll:
A third of Iowans from across the political spectrum say they support the “tea party” movement, sounding a loud chorus of dissatisfaction with government, according to The Des Moines Register’s new Iowa Poll.
Neither party has a lock on these restless advocates of limited government and fiscal control, according to the poll. However, their conservative leanings appear to give Republicans a greater opportunity than Democrats to make gains at the dawn of a volatile election year.
Is the GOP listening?
It should be clear to both sides that we’re moving into an era of “do what you say or be gone”. The days when incumbents only left office when they assumed room temperature, as did Jack Murtha today, are coming to an end. What the Tea Parties signal is a much more connected, networked and activist population which has been empowered by the communications technology of today – much to the chagrin of the elitists.
The fun is just beginning. Barack Obama and the Democrats may not realize it, but the era of big government is over.
UPDATE: Gallup also has polling numbers out today. They run different approval ratings for Obama on 9 different issues.
At 36%, Americans give President Barack Obama his lowest job approval rating yet on his handling of the economy. By contrast, the president’s 51% approval rating on handling foreign affairs is up slightly from last month.
As I’ve noted any number of times, the foreign policy’s crisis is yet to come. 2009 was a year of checking out the new president and assessing his strengths and weaknesses. 2010 will be the year that actually tests his foreign policy skills and abilities.
On domestic issues, Obama’s approval rating is in the tank at 36%.
Most interesting though was the fact that in the list of 9 issues, both foreign and domestic, independents did not once give Obama a majority approval rating, again making the point that indies are not at all happy with his administration.
Interest rates are at record lows and literally trillions of hastily printed dollars have been pumped into the economy by the Federal Reserve in an effort to stem an even deeper recession. While it is debatable as to whether or not it has really accomplished that goal, what isn’t debatable is at some point, the Fed has to wring that excess money from the economy or risk all sorts of dire consequences.
The Wall Street Journal carries the Bernanke plan for doing so. The centerpiece of that plan is found in the interest rate the Fed pays banks on the reserves it keeps. Right now, that’s .25%. The plan is to gradually raise that rate with the assumption that such rate raises will give an incentive to banks to keep even more money on reserve and thus out of circulation. This “interest on excess reserves” then is the primary vehicle the Fed plans to use to begin to pull money out of circulation.
But that’s a process fraught with risk. Because the immediate effect of any such interest rate increase will be to tighten credit. And depending on the strength of the economy, it has the potential to affect it negatively. Says the WSJ:
Extricating itself from these actions [low interest rates and trillions of infused dollars] will require both skill and luck: If the Fed moves too fast, it could provoke a new economic downturn; if it waits too long, it could unleash inflation, and if it moves clumsily it could unsettle markets in ways that disrupt the nascent economic recovery.
It’s pretty easy to drop interest rates and pump money into a down economy. But going the other way is not at all as easy. “Skill and luck” are understatements. Timing will have to almost be perfect. The problem is, should markets get skittish because of moves by the Fed that it sees as having a negative effect, things could break negatively quickly and spiral out of control. While the Fed would like everyone to believe this is a piece of cake – and will continue to tell us it is – it’s not at all an easy thing to do. The desire of those talking positive about the ease of draining the monetary swamp is to bolster confidence and allay fears if possible so a panic which could undermine the whole plan doesn’t develop. That, however, is going to be extremely difficult:
The nature of its exit from today’s unusually low interest rates will affect everything from mortgage rates and what companies pay on short-term borrowings to the rates savers earn. The timing and sequence of the steps are the subject of intense speculation in financial markets.
At the risk of boring the living hell out of you, I want to stress that this plan may be one of the most important plans in quite some time. If it isn’t executed perfectly, we could see a quick slide back into recession or rampant inflation. Read the whole article if you get a chance. The Fed has some other contingencies and plans as well. But as you’ll see as you read through them, all present the possibility of having a very negative downside if the strength of the economy is misread and/or the execution of each portion of the plan isn’t almost perfect.
The economic high-wire act – without a net – the Fed is about to embark upon is a very difficult one. Yes, it’s necessary and, in fact, critical – but it isn’t going to be easy. And if screwed up, could be pretty devastating to a recovering economy.
Did you happen to catch the Audi commercial during “The Big Game” last night (btw, congrats Saints)? It is, I suppose, an attempt at humor. And it’s a good commercial, I guess, because I remember which product it was pushing. But in reality I found it to be a bit scary. Why? Because it foretells something which I would hope is unlikely, but – at least at a state level – I believe couldbe entirely possible in some places. Don’t forget, California was talking about drive-by thermostat monitoring and restricting car colors that could be sold in the state. So this isn’t at all beyond the possible at some future date in a state near you:
When the NY Times entitles anything, especially an editorial, starting with “The Truth About …”, you should be immediately suspicious. As Arnold Kling says, that normally means “The liberal elite narrative about …”. And it’s editorial, “The Truth About The Deficit” is no exception. The first part of the editorial is spent on a selective history lesson which makes all of our troubles, as you might imagine, something brought on by the GOP’s focus on tax cuts for the wealthy. Nevermind that they were across the board marginal cuts – this narrative won’t die.
The entire bit of revisionist history (with the normal “blame Bush” tautology) is aimed at justifying this paragraph:
Americans should be anxious, for reasons including the huge deficit. But the cold economic truth is this: At a time of high unemployment and fragile growth, the last thing the government should do is to slash spending. That will only drive the economy into deeper trouble.
What the NYT and the Krugman’s of the world believe is government spending can be substituted for private spending and have the same result – economic growth. And that economic growth, spurred by this spending, will create jobs. But if you think about it, unless the government is buying goods and services produced by the private sector, that’s most likely not going to happen, is it? Temporary jobs located in “infrastructure improvement,” unemployment benefit extensions and jobs “programs” don’t create jobs. Private sector growth does. And when government is borrowing .40 cents for every dollar it spends, it starts to dry up the private credit market. That means if there is a desire to expand, the credit isn’t as readily available as it would be if the 800 pound credit hog weren’t in the market.
Then there’s this:
To truly tame deficits will require serious health care reform …
To which Kling replies:
In Washington, serious health care reform means “fixing” private health insurance. But our deficits are caused not by problems in private health insurance. They are caused by the structure of Medicare and Medicaid. That is where we need reform. But the Times and other liberal mouthpieces need to create a narrative that makes it sound as though unsound government programs are the fault of the private sector.
Spot on. This has been the most irritating part of the “health care reform” issue. It is the public programs – which neither party will touch – that are breaking the bank, yet we continually hear politicians on the left talk about “greedy [private] insurance companies” as the sole reason health care costs or so high. In fact, without private health care insurance to pay the difference, Medicare and Medicaid would have foundered long ago. But the point is the deficit problem is not one caused by private insurance. It has no effect on public debt. That is caused by the mismanagement of the government programs. And other than a passing wave at “stopping waste, fraud and abuse” – the promise of every politician since the inception of those programs, and accomplished by none of them – this “reform” package ignores the real problem while attacking the private market.
But back to the primary point of the NYT’s attempt to persuade you that deficit spending – massive deficit spending – is a good thing:
Here is an unpopular but undeniable fact of life: When private sector demand is weak, the federal government must serve as the spender of last resort. Otherwise, collapsing demand sets in motion a negative, self-reinforcing spiral in which lack of demand — for goods, services and new employees — leads to ever deepening economic weakness.
And here’s the undeniable economic truth about the snake oil they’re peddling:
The narrative is that we are suffering from a shortfall in demand. The reality is that the private sector has decided that workers should be hired on the basis of profits, rather than on the basis of debt. The government may choose to make a different decision, of course, but that will not necessarily strengthen our economy.
One of the many economists not at all in agreement – despite President Obama’s claim to the contrary – with the prescription that deficit spending is not only good, but necessary. And while they can blame the situation on anyone they choose, the decisions being made to run up this massive debt based on some pretty flaky economic logic are theirs and theirs alone.