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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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the joke is on USa.........
http://www.youtube.com/watch?v=GyQyPUd8-Ug&feature=related
Yeah, hence why you should avoid the whole "permiting" process if you can. Just build it already.
There is only ONE solution.
Another Big-MIC equivalent. What all the nay-sayers conveniently forget is that Big-MIC has been providing this country with applied-socialist / crony-capitalist prosperity for over 60 years. So, let's apply that central-planning success of Big-MIC to a new Big-Sports program.
We can build massively huge sports stadiums in EVERY city and town across this great and glorious nation. This will provide jobs-jobs-jobs employing peanut sellers AND highly paid athletes.
yeah, more peanuts and circuses!!!
Been there, done that.... Socialized the costs and privatized the benefits...
We will see what your guy (probably another bubba from Texas) does when he becomes President.
A complete shitshow is what I predict...
Rick Perry: George W. Bush without all the intellectual incumbrances...
Great quote!
unemployment will remain high, and get even higher, even if he does the RIGHT things.
what a brilliant essay.....not only must bad investments be liquidated to make room for new (we hope healthier) investments, but also to excise the cancer of debt.....debt has become so lethal that the marginal productivity of debt is negative but the teleprompter-in-chief will propose more assinine keynesianism abetted by bernankula's monetarism nurtured by foolhardy taxcuts which are nothing more than more debt - and thus the vicious cycle continues......
the debt MUST go away and that means a lot of creditors will take a bath many of whom will be ruined.....let moral hazard run its course......
fuck the fed, fuck obama, fuck the military-industrial-bankster complex....
long live murray rothbard!! (in spirit that is)
BTW Econophile, dont get tricked into this 'Obama policy' stuff he's just an ass-puppet for his handlers to speak thru.
The unenjoyment will continue until complete Government control is achieved. Mission going as planned Obama, Good Job!
As for you slaverades, suck it up, and be a good slave.
Unemployment will remain high, because we shipped all our production and jobs overseas for loans from China in order to have our 20 year 'Borrow and Consume' economic model which blew out 5 years ago.
because of increasing regulations on so-called "Health Care", so called "Environmental Protection" (can we spell 'Invisible Gas That you Have Been Exhaling for your Entire Life', etc.)
SD1, job formation is among the puppies and lambs.
- Ned
"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."
Sorry idiot. This is only part of it. The most important part is customers. I have some stable customers, this is good, but as for growth (which the ponzi depends on) that is another matter, especially if everyone's input costs continue to increase. Rock, meet hard place.
NOTHING changes until the debt and banks are repudiated, period.
I would argue that they are reluctant to commit capital because they DO know what the government is going to do next, the details are unimportant, they know, based on stated intentions, and prior performance, that whatever the government does, it will make things worse.
There is no commitment of capital because there is very little worth committing to given the risk-reward. Why look at investment in a productive enterprise when can loot the country via Private Equity takeovers and "restructurings"... In the former days guys like Ichan would looking at venture capital and new technologies....
There is no commitment of capital because there is no visibility into the next 4-7 years of business prospects, workforce regulations, etc.
Oh, I see your point, you are looking at the top, like SP 1000 or so.
Au contraire, bunny, the job formation is in the skosh' companies who, well, can not commit, rather than suicide.
Of course, your recommended policies are to the .gov end of the business spectrum.
How narrow-sighted :-(
- Ned
The condescending tone does not suit you....
Why do you try to paint me into positions that I have never advocated here?
Where have ever I ever recommended "the .gov end" as a solution?
If you want jobs here, you better give up the idea that it can be based on people selling stuff to each other that they don't really need, financed by debt and the illusion of perpetually increasing consumption....
There is too much debt in the system. The economy will never recover until that debt is gone. Everything else is bullshit.
We definitely need some infrastructure improvements, but it's total non-sense to suggest that we are lacking jobs because we don't have enough bridges or roads.
The irony here is that the government is standing in the way of the necessary debt clearance. They are doing everything in their power to prop up insolvent(and incompetent) banks, fuck over real producers, and obstruct the market cycle.
Then we all stare in wide-eyed wonder and chant to the moon "Why are there no jobs???"
There is too much debt in the system.
I would also add that there is too much fraud in the system for it to ever be healthy again in its current form.
Capital will never form in a system this corrupt.
All of the easy money policies and fraudulent activity have created a perverse state of affairs where malinvestment, criminal fraud and capital extraction are actually encouraged. And productive investment of capital is discouraged. I agree that in the current environment, we will continue to have a growing cancer of malinvestment where capital is not properly employed.
Yes.... it is called the financialization of an economy and the US is not the first place that it has occured, e.g. read up on the Dutch....
Capital formation requires productive labor....
Unemployment will remain high no matter what the fuck anyone does...
A lot of partisan shit about how Obama is killing the economy and country. In reality, the winner of the 2008 election got to be undertaker and the winner of 2012 beauty contest gets to shovel the dirt into the grave...
The growth game is over.....
Don't you get it?
Flak:
How in hell can I agree with you? But I do.
So why is Our Dear Leader presenting that he can do something about this all?
Inquiring minds wish to know.
- Ned
Think anyone would vote for Obamatron if he just threw up his hands and said, "I'm a failure!"??
i b thinkin' that his speech, before the real event in cheeseheadland could really croak all of the shorts.
Meh.
- Ned
Who knows.... but I do think that he knows something is desparately wrong and the old playbook ain't working....
"Dreams Come Due, Government and Economics as if Freedom Mattered", ISBN: 0-671-61159-3, by John Galt
The book is dated, but many of the things it talks about are still valid today.
It was all explained back in the 1980's (or the 50's, if you agree with Ayn Rand!)
Some honesty from someone might have helped, but as we are all "babies" in the eyes of the elite, no one is willing to grab the candy out of our hands. Nasty old Mr. Economics and his immutable laws will have to do the heavy lifting.
Anyone who listens to Obamas plans in his speech and thinks hes actually trying to create jobs and growth is an incredible moron. Obama is simply a puppet, and further the destruction of this country was planned long ago, and is basically complete now.
More bread and circuses for the masses while Rome burns.
I disagree, he is not a puppet, but he is incapable of thinking outside the box when the rules and game have changed. He was afraid to rock the boat, so he surrounded himself with the same collection of asshats. We needed a leader and what we got was a spineless guy afraid to make a stand.
Don't think for a minute that McCain would have done any better, remember, Phil Gram was going to be his top Econ advisor. Gram is the most craven and base of all the thralls of Wall St. His fingerprints are over all the legislation that led to the problems within the financial system.
The '08 election required someone to really rock the boat, didn't happen and now I think it is too late...
This country will morph into some kind of fascist feudalism led by some right-wing demagogue, a corn-pone Nazi as some have predicted or outright breakup within 8 years.... Then the fun will really begin.
No this just doesnt happen by chance, look at what happened he was PUT there, and anyone with the least bit of challenge to 'The One' was immediately ushered out of the building. What, you actually believe an unknown 'community organizer' just popped up out of nowhere and became president? Yea right. Then why did Soros over 15 years ago pick him up and groom him, and still there behind the scenes telling him what to do? No one off the streets of south Chicago just jumps up and becomes president overnite, you got to be incredibly gulliable to actually believe that.
Naw, you give the system too much credit. Granted, he may have been pushed a little harder by those that wanted no part of Hillary.
Seriously, do you recall the dreck that was on display for the Dems in '08? Much like the dreck the Repubs are parading about now.... RP is the best of the bunch but he sure as hell ain't the second coming....
Total NONSENSE Obama was the hand selected black face on the New World Order 20 years ago! ANY presidential candidate who goes anywhere at all was pre-approved, end of story!
Handpicked, no...
Not everything is a grand conspiracy despite what passes as wisdom here at the Hedge.
Anyone who considers running is vetted by the powers-that-be. They are all the same and it has been that way for a long time.
And for the record, I did not vote for him in '08.....and I sure as fuck didn't vote for numbnuts McCain.
Kennedy, Durbin and Kerry backed and catapulted Obama very early on because they knew they would be relegated to lower status than door stops if Hillary and her crew snatched the nomination. I think even they were surprised at how well their slick, clean, well spoken community organizer skyrocketed in campaign donations and popularity.
Most people don't stop to consider how, if Hillary hadn't been so impatient so as to carpetbag the NY Senate seat and had waited just two years for the next contest in her home state of Illinois, that SHE would likely have snatched that seat and could have have been similarly positioned to run for POTUS.
Obama would probably still be shucking Springfield corn for ethanol and voting "present" in the Illinois legislature today.
Good observation....
Just because people have aligned goals does not imply a conspiracy.....
Agreed. I really don't see states with abundant natural resources wanting to stick aoround more than 10 years. If they do, they will demand a pound of flesh.
WTF are you talking about you just contradicted yourself 3 times at least.
How so? Being a puppet and spineless are not the same...
mais biensieure, Flak bunny. The stringz hold up where a normal troll would hold her spine. Don't cha' know. - Ned
He is the "flake" master after all.
Now, now, no need to be like that...
Hope Lee filled your cisterns... and not too much else.
Higher unemployment is his goal, if you haven't figured that out yet. He has, what, 14 more months left in order to fuck over the economy and cause a crisis that will initiate martial law? The trillion dollar question is, will the military and police follow his orders, or not?
I was just going to say that, I'm mean what? You kidding me? The cocksucker in chief just announced amnesty for hundreds of thousands of illegal aliens so that they can get work visas! You think he gives a rat fuck about US citizens?
Over 70% of polled americans are against both amnesty and the Dream Act. Because he can't get that legislation passed he just went ahead and told the justice department to ignore the law and process illegals for work visas!
The President should be charged with treason but instead will get more kudos from the idiots unable to think critically about what this actually means for US citizens.
This has been the goal of BOTH parties for some time now.
I see military dissent in our local guard forces already. Unlike socialist states, the military in the U.S. is by far a volunteer force.
Unless Obama is paying in gold, I don't see too many locals turning on their own (much less veterans) for paper. Most already know that the paper is worthless and take as much physical value (housing, healthcare, free education etc.) that they can get from the military when they join. This is not my gradnfather's military.