Economic Calamity

One unemployment number doesn’t make a trend, but today’s was about as bad as they get. Hope you didn’t follow my advice yesterday and sell premium.

This number was outside the standard deviation of expectations. I really can’t stress how ugly it is. There is no way to sugarcoat it. The economic policies used since October of 2008 are an abject and total failure. Not only that, but they have put the finances of the country in a precarious position that was not unforeseen.

Table A-15 in the BLS report is really all you need to look at. There are no silver linings in this report. U-6 jumped by .4%. 16.2% of all Americans that want to find a job can’t. Those are Americans that are actually seeking work. Thousands have gotten frustrated and simply stopped looking and aren’t included in those numbers.

Table A-12 shows how bad it is. The mean time looking for work is 39.9 weeks, with a median duration of 22.5. Both numbers up from 39.7 and 22.0. There are only 52 weeks in a year, the average job hunt takes the better part of it. The labor force participation rate is at a 25 year low, 64.1%.

Progressive/Liberal/Keynesian Economists will call for more stimulus. This will make it worse. Government spending, and activist government policy at all levels are putting a chokehold on private expansion. The competition for an investment dollar between government and the private sector is being won by government. That’s why T-bill rates are so low.

This number puts a huge focus and pressure on politicians debating the debt ceiling. What is obvious is that gridlock is not good. The other obvious point is that Keynesian economics is a total fail. Fred Barnes quoted FDR Treasury Secretary this morning in the WSJ

“In FDR’s time, a surge in spending by Washington was a cornerstone of New Deal efforts to lift the country out of the Depression. But unemployment never dropped below 14% in the 1930s and rose to 19% by the end of the decade. “Now, gentlemen, we have tried spending,” Henry Morgenthau, FDR’s Treasury secretary, confessed to House leaders in 1939. “We are spending more than we have ever spent before and it does not work.”

Combine that with James Pethokoukis column yesterday that lays out exactly how dire the future budgeting and debt of the US is and you have an actual, not manufactured, crisis that needs to get resolved today.

This isn’t rocket science. But it does require the progressive wing to give up their reliance on economic theory that only works in a textbook. Economics is a social science and a study of human behavior. Keynes postulated a theory and we have numerous empirical examples of that theory failing miserably. How long will it take?

Einstein said the theory of insanity is doing the same thing over and over again, and expecting different results. There, my friends, is the core principle of Democratic policy. Insanity.

The way out is through aggressive tax cuts, privatization of large swaths of all governments, and reform of benefits. Without it, we will go broke. The math doesn’t add up.

tip of the hat to Instapundit

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A reader informs me that I incorrectly defined U-6. Here is the textbook definition.

“The unemployment number that is most often used in the media (and by the government) is known as the “U-3”. This number was 8.1% in February of 2009.

The “U-6” is considered to be a broader measure of the unemployment situation in the United States.

The “U-6” includes two groups of people that the “U-3” does not:

1. “Marginally attached workers” – people who are not actively looking for work, but who have indicated that they want a job and have looked for work (without success) sometime in the past 12 months. This class also includes “discouraged workers” who have completely given up on finding a job because they feel that they just won’t find one.

2. People who are looking for full-time work but have to settle on a part-time job due to economic reasons. This means that they want full-time work, but can’t find it.

The reader’s quibble was my last sentence, “Thousands have gotten frustrated and simply stopped looking and aren’t included in those numbers.”.

I will concede the point, although I think my phrasing is pretty close to the textbook definition. Now the reader has to concede that the Democratic agenda, and the Obama Economic team is a load of crap. How do they say it? “And the horse you rode in on.”

29 thoughts on “Economic Calamity

  1. You are using way too liberally the term ‘tax cuts’. I hope you mean tax reform that does not favor large corporations over small businesses.

    1. In a perfect world, we would eliminate subsidies for corporations, eliminate write offs, and take the tax rate down to a 15% flat rate. Small business too. No reason for them to be paying at the personal income rate. I’d also eliminate all taxes on dividends, incenting corporations to give cash back to investors, or use it for growth. It’s sitting idle on balance sheets or being used to buyback stock. That’s worthless activity.

      1. In a perfect world we would eliminate corporate taxes altogether since all corporations do is pass along the cost of the tax to the consumer through increased goods and services prices creating a hidden tax.

        The whole problem is and always has been insane, unbridled spending, essentially to buy votes.  When FDR arrogated all the power the federal government didn’t really have it amplified a government whose only purpose was to steal from one group to give to another group that would keep them in power and grant more power.

  2. I’ve said this before, elsewhere and I’ll say it again here, at this point, the only thing that will work would be to return to the 2006 spending levels, and the cut those levels of expenditure by 30% across the board.   That means every single budget line must be cut by 30%.  Medicare, Medicaide, Defense, Salaries, Education, EVERYTHING…

    But unfortunately there isn’t a single politician in this country willing to do that.  Not one.  We’re on the verge of catastrophy and our “elite political leadership” are talking about nickels and dimes (taxing corporate jets, etc).  Nothing less will draw this nation back from the brink of complete economy breakdown…

    But the idiots we have “leading” us in Washington, still bicker over pennies.

    Rich Vail
    Pikesville, Maryland
    The Vail Spot dot Blogspot dot Com

  3. Furthermore, we need to overhaul the tax code.  Eliminate ALL subisdies, special exemptions, and reduce it to a flat tax on every business and person in the  country…20%, if Congress were to do that in addition to actually cutting spending across the board, we as a nation would be financially sovlent within 5 years.  

     We could, if future Congresses could keep their hands out of the cookie jar, actually pay down the debt within 50 years…within 100, it would completely pay off the national debt…then taxes could be lowered to a reasonable level.

    Rich Vail
    Pikesville, Maryland
    The Vail Spot dot Blogspot dot Com

  4. You guys all need to ask yourself this question, when the government spends money where does it go?

      1. There is no “discussion” here.  It’s a one way street.

        Where does “money” come from?  “money” can’t exist until the government spends it.  Think about it this way.  Government deficit = Private sector Surplus.  If the government were to run a surplus (meaning it will take in more dollars than it spends) where would that money come from?

        Answer that question and then lets have a discussion

        1. Money is a way to conduct tranactions.  It’s value is what the market decides what it is.

          If the government did not maintain a currency, then people would find other ways to exchange value for value.  Printing more money does not stimulate the economy, it devalues all the money in the system.  If you were right, than Zimbabwe could buy China several times over.

        2. No, there is no correlation between a government deficit and private sector surplus.  Government prints the money, they issue debt. The market determines the value of it all.  

          Answer, government gets its money from the taxpayer.  Period. 

    1. It goes to pay Government employees and Political cronies.  It makes the circle from the taxpayer to the payees and back into the public domain without producing anything of value unless, of course, you consider the reams of paper wasted on Bureaucratic forms and the time taken to fill them as a productive asset. 

  5. Obama came on and started talking about construction workers and putting them to work with stimulus.  When will the stimulus junkies learn?

  6. The Germans have stated the so-called Keynsian multiplier is a myth; instead of a dollar of govt spending producing $1.50 of economic activity, they found it only produces sixty cents.  Unfortunately, there are whole boatloads of people in and out of Congress whose jobs and careers depend on this myth continuing to be believed.  Personal interest is the real core principle of the Democratic Party.

  7. Hey Jeff, I have to take issue with a few points:

    “about as bad as they get”  —  Have you already forgotten the down 500,000 and down 700,000 months of 2008 ?  If you are disucssing “as bad as it gets,” you need to look below the zero line !

    2nd, as to expectations, the economists have gotten EVERYTHING about this recession and recovery wrong. Why even pay attention to their expectations? They are meaningless

    3rd, as R&R have shown, this is what post-credit crisis recoveries look like. It has less to do with the “policies since October of 2008” (which we agree the bailouts were disastrous)  and more to do with the abject and total failure of 3 decades of radical deregulation.

    4th, I have come to recognize that Bankers are like children who need constant supervision. They have demonstrated they are willing to blow up their firms for short term profits. Now we can add moral hazard on top of their stupidity.

    Finally, as a technician, I am sure you appreciate the importance of steering clear of the “ISMs” and focusing on the facts on the grounds.

    1. points are well taken.  This was one of the worst reports since Obama took office.  The months of 2008 you cite were during the crash.  Kind of outliers statistically.  Even when looking at long term stock market returns, many finance people toss out some years in the 1930’s because the distort reality.  

      I know some economics guys that have gotten most everything right.  Brian Wesbury, John Cochrane, Kevin Murphy with regard to the market, or the stimulus.  The Keynesians missed it for sure.  

      If we look at post crisis recoveries, this one is the most anemic ever.  Again, the recovery that took place in 1939 had a different driver-World War Two.  Not the best way to “recover”, since you could say the recovery was negative if you factor in the opportunity costs of loss of human capital, and loss of productive resources and property due to the war. 

      Banking needs to be restructured, and so does the structure of the marketplace.  Dodd-Frank does nothing for it.  Worst piece of legislation after Obamacare.  

      All that being said, corporations look pretty lean and mean, and the market should go higher.   Consumer spending doesn’t look like it will lead us there as many had hoped.  

  8. ‘Table A-15 in the BLS report
    is really all you need to look at. There are no silver linings in this
    report. U-6 jumped by .4%. 16.2% of all Americans that want to find a
    job can’t. Those are Americans that are actually seeking work.
    Thousands have gotten frustrated and simply stopped looking and aren’t
    included in those numbers.’
    This is completely false as even a cursory reading of definitions at the BLS would tell you. U-6 includes both those ‘marginally attached’ and also those who have become discouraged and stopped looking  [as well as part-timers.]

    I hope the rest of your posts aren’t as offbase as this one.

      1. Not sure what your reply to that guy is supposed to mean, but your assertion that those who have become discouraged are not included in U-6 is prima facie false.

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