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Unemployment Will Remain High Because Obama Will Do All The Wrong Things
This article was originally published on Labor Day by the Daily Capitalist.
It is fitting to publish an article on Labor Day about unemployment. No doubt you already know that the market reacted badly (-2.5%) to last Friday's unemployment numbers from the BLS. Here is what they reported:
The number of unemployed persons, at 14.0 million, was essentially unchanged in August, and the unemployment rate held at 9.1 percent. [U-6, the broadest measure of unemployment, was at 16.2% (see below table). At that rate, there are 24,900,000 unemployed persons in America.] The rate has shown little change since April.
The number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6.0 million in August and accounted for 42.9 percent of the unemployed.
The labor force rose to 153.6 million in August. Both the civilian labor force participation rate, at 64.0 percent, and the employment-population ratio, at 58.2 percent [62.7% in December 2007], were little changed.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.4 million to 8.8 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
About 2.6 million persons were marginally attached to the labor force in August, up from 2.4 million a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
The highlights for specific industries:
Health care employment rose by 30,000, mining continued to trend up in August (+6,000), computer systems design and related services added 8,000, information industry declined by 48,000 in August, manufacturing employment was essentially unchanged in August (-3,000), and government employment continued to trend down over the month (-17,000).
The workweek went down 0.1 hour to 34.2 hours. Average hourly earnings for private employees went down 2¢ (0.1%) to $19.47.
Here is what it looks like:
Unemployment remains stubbornly high and it is becoming a political liability for the Obama Administration. We appear to be going backwards.
I suspect that President Obama in his speech this week will come up with the same remedies that his Administration has been proposing before, but repackaged to make it sound like bold new remedies. More tax breaks for employers, more "focused" spending on infrastructure, job training programs, and green jobs. And he will be roundly criticized by his leftist base. Watch for Paul Krugman and Robert Reich to call for more Keynesian fiscal stimulus. Reich believes that if you don't believe in this spending remedy, then you are either a knave or a fool. They ignore the fact that it has never worked since governments have been trying it, and, as we all know, under this theory apparently you can never spend enough.
There are several reasons why it won't work and why they are sentencing Americans to a stagnant future of high unemployment.
One is the regime uncertainty that many conservative and Austrian theory economists point out. That is, because businesses and entrepreneurs don't know what the government is going to do next, they are reluctant to commit capital to expand business. Obama has increased regulation, threatens to raise taxes, and there is the overhang of the unknown impact of Obamacare. It is difficult to refute this argument because it is true. I'm not saying it doesn't have a negative impact, but it isn't the main cause of our malaise.
Also I don't think reducing taxes on employment or employers will do much to drive a recovery either, apologies to Arthur Laffer. I think lower taxes are always a good thing for society and the economy, and I think taxes sh0uld be substantially lower, but it will have the effect of pushing on a string right now.
The reason the economy is stagnant isn't that consumers, the purpose of all production, aren't spending. It is because they aren't saving enough.
Let me back up for a moment before you dismiss my argument out of hand. I have written many times about the boom-bust cycle and how the fallout from the boom is what is holding back the economy. We understand the huge malinvestment from the production of real estate (that, as we discovered, no one wants). We understand the debt that drove it and how that impacts families and our financial institutions. I lay the blame at the feet of the Fed who were responsible for the explosion of money and credit that fueled the mistakes of the boom. Contrary to Keynes, these booms don't spring up as if by magic ("animal spirits").
What these Fed-induced booms do is destroy capital. They cause businesses to misread the signals they get from interest rates and markets and as a result capital is directed to unprofitable ventures. Those ventures get wiped out when the Fed shuts down the money machine, and the capital that went into them is wiped out as well. In this cycle it occurred on a massive scale, almost worldwide. Perhaps $30 to $50 trillion was wiped out worldwide (admittedly a difficult number to pin down; in the U.S. it is estimated at about $15 to $20 trillion).
The reason the economy is stagnating is that we haven't generated enough "real" capital, i.e., savings from actual production, to fund new growth. The reason we know this is because manufacturing and industrial production is falling. You can't just print this kind of capital since it is based on productive activity.
We haven't been able to create new "real " capital because we haven't wiped out enough malinvested projects to clear the decks (and balance sheets). Excess (malinvested) residential and commercial real estate and their debt still clog up the balance sheets of our banks, small businesses, and consumers. There isn't sufficient production from which profits or wages can be saved.
When we've abandoned extend and pretend, mark-to-make-believe, and the programs that prop up underwater housing, we can move forward. It isn't as if this isn't happening. It is; it's just too slow because of the government's efforts to forestall it. Despite their efforts, CRE and housing continue to decline.
If you spend massively to build infrastructure to revive the economy, you will find out, as have the Japanese, that the economy still stagnates. Assuming as a result of such spending consumers have more money to spend, why didn't Japanese companies expand production to meet the supposed demand? Answer: you have to make goods first before people buy them.
When manufacturers wish to expand production, they have to buy raw materials, machinery and equipment, and hire labor. That takes capital. Capital comes from savings, not spending. Printing new money has never worked. If the money comes from the printing press or credit expansion, then it will again be malinvested into things that producers will eventually find that consumers don't want. If it comes from deficit borrowing, it just robs Peter to pay Paul — no net gain. You can't trick the market this way.
It is a sad commentary on conventional economics that these well-intentioned policies achieve the exact opposite of full employment. Obama's remedies will do nothing but perpetuate long-term high unemployment. And that is a hell of a gift to workers on Labor Day.
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i Think you analysis of reich is rather simplisitic. he's not saying government spending, but more along the lines of getting more money to the middle class who have been squeezed by 30 years of anti labor policies. you can read his position in the times from last weekend.
Now the idea that we don't have capitial to spend is false, but I do believe attempts to prop up artifficially inflated markets are doomed to fail. there lots of war spending going on.
There is no doubt in my mind we have too much dbt int eh system and that must be reduced before we can expand again. alas, each and every program by the government and fed is about making sure the banks don't take a hit on that debt. since that means the crisis is in effect "solvency", not liquidity like the fed pretends, it always means they have the wrong solution.
To admit it is a solvency issue, means they in efect have to admit they blew it, and their model of ever expanding credit doesn't work.
Keynesian based polices work, you just don't like them.
This is a very simple for business to hire they must be creating a product or service people want to buy. Demand must increase beyond capacity to produce.
The current problem is that most consumers don't have money to buy anything, they don't even have money for an emergency. It has all been sucked up by rich.
Why has this site become a Libertarian/Conservative mouth piece.
they work until they don't work, and that is when a debt threshold is reached, and peopel can't borrow more. if you look at the stimuli each and every episode requires a bigger stimuli because of the debt load burden. people maxed out don't have use for credit.
For all the anti keynes folks out there, I would like to point out that when times are good government is to runa surplus, so there is room to work, not run a deficet. So, that'ws an issue. you aren't to run endless foreign wars, and by having a surplus, it should in theior help to make sure government doesn't get too large.
of course greenspan didn't want a surplus. therefore endorssed bush tax cuts, didn't spek out against unfunded wars, etc. But excess credit means good bank business, and government borrowing is a great income stream for the banks. Of course the fed can't /won't do anything to end that gravy train.
Yes.... there is overcapacity and any increase in capacity will occur where the capital requirements are lowest...
Dem dems, union suckers and chief TOTUS reader Barama sure are smart. What with calling most of the country the enemy, practically guarantees success. Of course I'm just a terrorist, barbarian, son-of-a-bitch that's goin straight to hell thankyou very much.
thats just racist of you
You need to eliminate the decadent financial system that has sprung up over the last several years. It is absorbing resources, but produces absolutely nothing other than more financial scams
I haven't heard anyone ponder what would happen if we went to a gold standard. Considering the price, how much productive capital is parked in PM? I, for one would either become a small buisness or capitalize one I thought had a good foundation if the only risk was asset performance not risk of devaluation through money printing and getting slammed by being on the outside of crony capitalism. I would even take my chances to invst in a solid buisness if not for currency devaluation. Want to create jobs by spurring smart investment? Go back to the gold standard. There would be far less incentive to park otherwise productive capital. Growth comes from savings driven investment. How much potential is being lost? Let me be clear the only way this investment would create growth is if it was wisely invested by individuals. The govt confiscating it and giving it to Solyndra would be disaster. I hate having all my liquid assets parked, but in the clymate it's the only way to go. I just dream about what if. And for all those convoluted "fixes" going back to a gold standard would be quick, easy and game changing.
Of course, it screws the manipulators, so I'm not holding my breath. I refuse to stop dreaming.
Nothing has changed, but the puppet on the stage.
Sooo, repatriation of off shore US Fiats?
This guy is complete BULLSHIT! DEMAND creates jobs! DEMAND creates production and services! What tiring crap, take a fucking ECON 101 class dumbass!
How's that Econ 101 doing for you now, fella?
I agree. Customers create jobs. No customers, no jobs. And, of course, no jobs, no customers. So, no jobs, no customers, no jobs, giant sucking sound. Ross Perot tried to tell them.
The title of the article is Bullsh*t. Blame it on Obama? As if Obama is doing anything that Wall Street doesn't want him to do. He been bought and sold.
So we get a Republican in. Do you honestly think the next Republican won't do exactly what Wall Street wants too?
Besides, Obama bends on backwards to compromise, so he's anything but all powerful. I have a lot of problems with Obama, but its not because he isn't doing what any other politician in his position would also do.
mid:
You see, there's the problemo. You see, an "honest" politician is one who "Stays Bought."
Harry S. Truman knew this in his total political experience.
- Ned
Maybe, just maybe, the "uncertainty" tripping up capital expansion reflects realization that America's political system has become unpredictable. Observe the huge political, social and economic turn-around engendered by Bush. So America votes in Obama hoping for peace, and instead gets a warmonger. Very unpredictable.
In fact, if Ron Paul becomes a serious contender (30% chance), start off-loading your gold.
If you paid attention, Obama told everyone before the election what his military policies would be.
"...their well-intentioned policies will achieve the exact opposite..."
This specious assertion in the headline allowed me to skip reading any of it.
and a greenie for ya.
But, please, tell me what their "intentions" are for the "well" part, I'm a confused piglet.
- Ned
obama isnt trying to create jobs.....he is transferring money to people that will vote for him.
Totally agree. We're hosed so long as people look to politicans and scream "do something". They can't do anything. We need less government, not more.
Funny how the GOP always ensures that the Government does nothing for the people, then they scream how useless government is out the other side of their mouths.
Perhaps it's not government but the GOP in government.
Right, how well did that bullshit under the Shrub work for us? DEMAND creates jobs, not falling wages and employment numbers. Without demand you have more unemployment and lower and lower wages! Ask the fucking Chinese how that works. How about reading a book WEALTH of NATIONS!
yes, but are you talking organic or true DEMAND or debt-driven fake (unsustainable) DEMAND? It is the latter that we have been seeing the last 30 to 40 years at all levels of society. It will take a lot of pain to get back to the TRUE level of demand.
You have to transition from debt driven demand to true demand by making companies pay higher wages and not allowing people to fuck up the policies every 2-4 years.
"The reason the economy is stagnating is that we haven't generated enough "real" capital, i.e., savings from actual production, to fund new growth. The reason we know this is because manufacturing and industrial production is falling. You can't just print this kind of capital since it is based on productive activity.
Out of the park, smashing windshields in the parking lot homerun!!!
Just one question.
With all these schizophrenic Keynesians (Reich-Krugman-Romer-Ghoulishby...lol...et al) solemnly swearing debt & deficits are bad one day...and then sniveling like petulant children for still more debt the next...does this mean I do or don't have to eat my peas? ;-)
I STILL say that ALL citizens should mail a can o'peas to the White House, c/o Obamatron!
nmewn, u get to eat the excrement sandwitch, sometimes w/peas, sometimes w/o.
Means? You and your'n, me and mine, get to bend ova' and ...
'cuz they "know better" don't cha' know.
- Ned
Well ya gotta admit, the Keynes clan has gone right around the bend into full blown schizophrenic retard.
Four trillion in only two & a half years...the take over/beat down of banks, cars, drilling, doctors, suntan salons, Gibson guitar and caulking guns everywhere.
And then there's Solyndra and the Barry bundler Kaiser...please tell me they ain't slippin the wet willie to the Birkenstock greenies too...ROTFL!!!
When manufacturers wish to expand production, they have to buy raw materials, machinery and equipment, and hire labor. That takes capital. Capital comes from savings, not spending. Printing new money has never worked. If the money comes from the printing press or credit expansion, then it will again be malinvested into things that producers will eventually find that consumers don't want
Econophile: You show a complete lack of understanding of the way the fractional reserve money system works. Jeez...
Part of the point is that the fractional reserve money system DOES NOT WORK.
Once you've seen the Emperor running around sans clothing, it CANNOT BE UNSEEN! :>D
I've thought long and hard about this and this is my conclusion: the joint session of Congress is all wrong. What we need is a reprise of the Saturday Night Live format "the Question is Moot!" that includes "the buzzer" when there's the appearance of kibbutzing.
Obama is playing a dud hand like a dude emperor, in the nude, won't admit its crude, tries not to be rude, and yells at those red necked prudes that prod his lean butt with their fiscal gertrudes; crying no food for the entitled brood who claim jobs to boot the federal deficit to empire state's summital protrude. Foreclosures of 8 millions homes without owners and a back log to make the log cabin president shiver in his grave. Be brave and face the coming wave of 20 percenter jobless future.
nice! I have noticed that the readership of ZH are quite the poets.
I agree with the tilte of this blog Obama is a regid idelogue he can't change who he is and will fail because of it.
How can one say that a person is an ideologue when that person hasn't done anything? (Because, it appears to me that Obama, after two and a half years, hasn't done anything. Other than talk, that is.) :^)
Exactly....
He's like a marriage counselor brought in to sort out Henry VIII and Anne Boleyn...
Great simile! :-)
The problem is not just savings,it's that people don't have money to buy the items produced.Increasing the production of goods and wealth is always good for a country,the question is if it can be done in America because judging from the past years most companies are transfering their production outside of USA.
Where do these clowns get this Austrian shit from? What has Austria's economy looked like for the past 100 years? I remember an an Austrian painter from the '30s that tried to shove some other Austrian shit on the rest of the world. This turned out bad for the world. I would not trust things out of Austria.
"I would not trust things out of Austria."
Should've told that to Maria Schriver.
You just revealed your true ignorance. Austrian economics is named for where the original scholars were from. The only place to embrace the principals of Austrian economcs, although not named such at the time, was early America. I won't attempt to educate you, but if you care to know more, explore mises.org named for one of the early Austrian economists. Or for a crash course search YouTube for econstories and watch boom and bust or fight of the century. It beautifully contrasts Keynes and Austrian economcs. Austria never embraced Austrien economics. I can't stand people that open their mouths without a clue. It's an important topic, espcially to us commoners. Maybe the most important topic there s.
That's it, DumFarmer, tell him to "smarten up!" :>D
You sound like a cliche soaked idiot.
try again
Unemployment will remain high because of automation, excess capactity and the offshoring of jobs. Obama may as well try to bail out the ocean.
and complete education/skills mismatch of the unemployed masses for the jobs that are still out there. Or the future jobs in the future industries yet to be created.
..and high oil prices
...and excessive consumer, corporate, state and federal debt