ElectionFraud2004 is a Public Group with 13 members.
- Public Group,
- 13 members
227unemployment if measured as it was during the Great Depression is worse than during the Great Depression
- GeopilotSep 10, 2009
Guest Post: How Bad Will Unemployment Get, And What Can We Do About It?
- 0 Attachment
By George Washington of Washington’s Blog.
Unemployment is disastrous on both the individual and societal level.
Individuals who look for work but can’t find it are miserable. Indeed,
most people who lose their job are unprepared for their circumstances.
On the national level, high unemployment is both cause and effect
concerning other problems with the economy. As we’ll see below, high
unemployment results from a weak economy and - in turn - weakens the
Until the causes of, and solutions to, high levels of unemployment are
understood, we will not be able to solve the problem.
How High is Unemployment?
Before we can even start looking at causes or solutions, we have to
understand what the current level of unemployment really is, and what
the trends portend for the future.
Let’s use America as an example. With the largest economy in the world,
it has often been said that “when America sneezes, the rest of the world
catches cold”. And much of the rest of the world has adopted the
“Washington Consensus” - America’s neoliberal view of economics.
Moreover, the rest of the world has been infected by many types of
“toxic assets” invented in America, such as credit default swap
derivatives, as well as Wall Street style banking strategies. So I
will use the United States has a case example, but will also touch on
Official figures put unemployment in the United States somewhere between
9 and 10 percent. But the official figures use a very different measure
for unemployment than was used during the Great Depression and for many
Specifically, the official unemployment reports of the Department of
Labor’s Bureau of Labor Statistics (BLS) provide conventional “U-3″
figures and various alternative measures including “U-6″. 
For example, as of December 2008, U-3 unemployment was 7.2 percent,
while U-6 was 13.5 percent. 
U-6 is actually more accurate, because it includes those who would like
full-time work, but can only find part-time work, or have given up
looking for work altogether.
As can be seen by the December 2008 figures, U-6 unemployment rate can
almost double the more commonly-cited U-3 figures.
But those in the know argue that the real rate is actually even higher
than the U-6 figures.
For example, Paul Craig Roberts  - former Assistant Secretary of the
Treasury and former editor of the Wall Street Journal - and economist
John Williams both said in December 2008 that - if the unemployment rate
was calculated as it was during the Great Depression - the December 2008
unemployment figure would actually have been 17.5%.
Williams says  that unemployment figures for July 2009 rose to 20.6% .
According to an article  summarizing the projections of former
International Monetary Fund Chief Economist and Harvard University
Economics Professor Kenneth Rogoff and University of Maryland Economics
Professor Carmen Reinhart, U-6 unemployment could rise to 22% within the
next 4 years or so.
As the New York Times pointed out in July :
Include [those who have given up looking for a job and those part-time
workers who want to be working full time] — as the Labor Department does
when calculating its broadest measure of the job market — and the rate
reached 23.5 percent in Oregon this spring, according to a New York
Times analysis of state-by-state data. It was 21.5 percent in both
Michigan and Rhode Island and 20.3 percent in California. In Tennessee,
Nevada and several other states that have relied heavily on
manufacturing or housing, the rate was just under 20 percent this spring
and may have since surpassed it.
Indeed, the chief of the Atlanta Federal Reserve Bank -Dennis Lockhart -
said in August 2009:
If one considers the people who would like a job but have stopped
looking — so-called discouraged workers — and those who are working
fewer hours than they want, the unemployment rate would move from the
official 9.4 percent to 16 percent. 
Former Labor Secretary Robert Rubin notes:
Over the past three months annual wage growth has plummeted to just
0.7%. At the same time, furloughs — requiring workers to take unpaid
vacations — are on the rise: recent surveys show 17% of companies
imposing them. 
Temporary employment is still falling as well. 
And economist David Rosenberg points out:
65% of companies are still in the process of cutting their staff loads…
The Bureau of Labor Statistics also publishes a number from the
Household survey that is comparable to the nonfarm survey (dubbed the
population and payroll-adjusted Household number), and on this basis,
employment sank — brace yourself — by over 1 million, which is
In addition to the failure of official BLS unemployment figures to take
into account discouraged and underemployed workers, many analysts argue
that BLS’ “Birth-Death Model” severely understates unemployment during
Many people - including economists and financial reporters - say that
unemployment is much lower than it was during the Great Depression. What
they mean when they say that is that current U-3 figures in America are
under 10%, while unemployment hit 25% during the Great Depression.
But most people forget that the worst unemployment numbers during the
Great Depression did not occur until years after the initial 1929 crash
. Specifically, unemployment did not hit 25% until at least 3 years
after the start of the Depression.
As of this writing (2009), we are only a year into the current economic
crisis. Therefore, we have at least 2 more years to go until we hit the
same period that unemployment peaked during the Great Depression.
Indeed, former Secretary of Labor Robert Reich wrote in April that the
unemployment figures show that we are already in a depression.
And Chris Tilly - director of the Institute for Research on Labor and
Employment at UCLA - points out that some populations, such as
African-Americans and high school dropouts, have been hit much harder
than other populations, and that these groups are already experiencing
Assuming that Williams, Roberts or Lockhart’s calculations of
unemployment are correct (using the same methods of measuring
unemployment as were used during the Great Depression), and depending on
when we deem the current crisis to have commenced, then - as shown by
the following charts - unemployment percentages may actually be worse
than they were during a comparable period in the Great Depression:
[19 and 20]
We also know that, in terms of total numbers of unemployment people (as
opposed to percentages), more people will be unemployed than during the
Great Depression. 
What Are the Unemployment Trends?
If unemployment is anywhere near as bad as during a comparable period
during the Great Depression, the obvious question is where the trends
It is well known among economists that unemployment is a “lagging”
indicator.  In other words, there is a lag time. When the economy
hits a rough patch, the economic weakness will not show up in the
unemployment numbers until several months or years later.
For example, as Europe’s largest bank - RBS - warns:
Even if the economy starts to turn up the headwinds will be formidable,”
[the company's CEO] warned. “The green shoots are short in duration and
you need to be cautious about interpreting them. Even if growth returns,
unemployment will rise for some time afterwards …
Because of the lag time between conditions in the economy and
unemployment, we have to ask the following two questions in order to
forecast future unemployment trends:
1) How bad were conditions in 2008 and early 2009?
2) What will economic conditions be like in the future?
How Bad Did It Get?
Unfortunately, many experts - including the following people - have said
that the economic crisis which started in 2008 could be worse than the
* Federal Reserve chairman Ben Bernanke said on July 26, 2009:
A lot of things happened, a lot came together, [and] created probably
the worst financial crisis, certainly since the Great Depression and
possibly even including the Great Depression. 
* Economics professors Barry Eichengreen and and Kevin H. O’Rourke said
that world-wide conditions are worse than during a comparable period
during the Great Depression  (updated in June 2009 )
* Investment advisor, risk expert and bestselling author Nassim Nicholas
Taleb said that the current crisis could be “vastly worse” than the
Great Depression 
* Former Fed Chairman Paul Volcker believes the current crisis may be
even worse than the Depression 
* Nobel prize winning economist Joseph Stiglitz said “this is worse than
the Great Depression” 
* Economics scholar and former Federal Reserve Governor Frederick
Mishkin said that conditions were worse than during the Depression 
* Well-known PhD economist PhD Economist Marc Faber believes this could
be far worse than the Great Depression
* Former Goldman Sachs chairman John Whitehead thinks that the current
slump is worse than the Depression 
* Morgan Stanley’s UK equity strategist Graham Secker predicts economic
collapse worse than the Great Depression 
* Former chief credit officer at Fannie Mae Edward J. Pinto said in
January 2009 that the current housing crisis was worse than the
Depression, and that current efforts to rescue the mortgage industry are
less successful than those used during the 1930s. 
* Billionaire investor George Soros said in February 2009 that the
current economic turbulence is actually more severe than during the
Great Depression, comparing the current situation to the demise of the
Soviet Union. 
What Will Economic Conditions Be Like In the Future?
As of this writing, the fact that unemployment will substantially
increase is quite controversial. Most people still assume that the
benefits of the government’s policies will soon kick in, the economy
will recover, and then jobs will recover soon afterwards.
In order to accurately determine how bad general economic conditions -
and thus unemployment - might be in the future, it is necessary to look
at a variety of trends, including residential real estate, commercial
real estate, toxic assets held by banks, loan loss rates, consumer
spending, age demographics, the decline in manufacturing, and
destruction of credit.
Residential Real Estate
Citigroup is projecting that unemployment in Spain will rise from its
current 17.9% to 22% next year. 
Spain’s unemployment is largely driven by the bursting of its housing
Housing bubbles are now bursting in China , France , Spain ,
Ireland , the United Kingdom , Eastern Europe , and many
other regions. 
(And unemployment in Japan is apparently at the highest level since the
government began collecting the data in 1953, a year after the U.S.
military occupation ended.)
Unfortunately, while the peak in subprime mortgages is behind us, many
analysts say that Alt-A mortgage defaults have not yet occurred (as of
this writing), but will not peak until 2010.
Indeed, the crash in real estate and rising unemployment together form a
negative feedback loop. As McClatchy notes, foreclosures rise as jobs
and income drop. 
Former chief IMF economist Simon Johnson notes that a vicious cycle also
exists between unemployment and property foreclosures:
Unemployment is always a lagging indicator, and given the record low
number of average hours worked, it will turn around especially slowly
this time. Until then, people will continue to lose their jobs and wages
will remain flat, and any small rebound in housing prices is unlikely to
help more than a few people refinance their way out of unaffordable
mortgages. So unless the other part of the equation – monthly payments –
changes, the number of foreclosures should just continue to rise.
Indeed, the Washington Post notes:
The country’s growing unemployment is overtaking subprime mortgages as
the main driver of foreclosures, according to bankers and economists,
threatening to send even higher the number of borrowers who will lose
their homes and making the foreclosure crisis far more complicated to
Commercial Real Estate
Moreover, a crash in commercial real estate is now picking up speed.
Unlike the subprime mortgage meltdown - which affected mainly the
biggest banks - the commercial meltdown will apparently affect a huge
number of small to medium-sized banks. 
On August 11, 2009, the Congressional Oversight Panel on the bailouts
issued a report saying that small and medium sized banks are especially
vulnerable, the report will say, in part they hold greater numbers of
commercial real estate loans, “which pose a potential threat of high
That could spell real trouble for employment by small businesses since
(1) smaller institutions are disproportionately responsible for
providing credit to small businesses , (2) credit is essential for
many small businesses, (3) commercial real estate is crashing even
faster than residential , and (4) industry experts forecast that the
commercial real estate market won’t bottom out for three more years.
Indeed, largely because of the commercial real estate crash, the FDIC
expects 500 banks to fail in the coming months. 
Unfortunately, the crash in commercial real estate is occurring
The Congressional Oversight Panel report also says that banks remain
threatened by billions of dollars of bad loans on their balance sheets,
more could fail if the economy worsens, and that - if unemployment rises
sharply or the commercial real estate market collapses – the banking
system could again crash:
The financial system [still remains] vulnerable to the crisis conditions
that [the bailout] was meant to fix…
Financial stability remains at risk if the underlying problem of toxic
assets remains unresolved.
As Reuters notes:
The chairman of the congressional oversight panel, Elizabeth Warren,
said no one even knows the value of the toxic assets still on banks’
books…”No one has a good handle how much is out there,” Warren said.
“Here we are 10 months into this crisis…and we can’t tell you what the
dollar value is.”
Loan Loss Rates
Loan loss rates in could also be worse than the Great Depression, at
least in the United States. Specifically, during the depths of the Great
Depression, the loss rate which banks suffered on their loans climbed as
high as 3.4% (it is normally well under 2.0%).
Last month, banking analyst Mike Mayo predicted that loan loss rates
could go as high as 5.5%, which is substantially higher than during the
But the Federal Reserve’s more adverse scenario for the stress tests -
which everyone knows is too rosy concerning most of its assumptions -
predicts a loan loss rate of 9.1%, nearly three times higher than during
As US News and World Report wrote in May 2009:
For most of the past 50 years, the loss rate on all bank loans has
stayed well under 2 percent. The Fed estimates that over the next two
years the loss rate could reach 9.1 percent. You know all those
historical comparisons that end with “the worst since the Great
Depression”? Well, 9.1 percent would be EVEN WORSE than during the
1930s. Still looking forward to a soft landing or a quick recovery?
Consumer spending accounts for the vast majority of the economy in the
United States. The figure commonly cited is that consumer spending
accounts for 70% of U.S. Gross Domestic Product. . (Consumer
spending has been a lower percentage of GDP in most other countries. )
But the economic crisis is driving consumer spending downward. Economist
David Rosenberg  says that consumers have undergone a generational
shift in spending habits, and will be frugal for a long time to come.
The head of Collective Brands, Matthew Rubel, states:
Consumer spending as a percentage of GDP has moved down, will probably
continue to move down through the end of year, and then normalize as we
get into somewhere in early-to-mid next year, from our point of view.
The chief economist of IHS Global Insight, Nariman Behravesh, says
consumer spending will decline to 65 percent of GDP:
With individuals more focused on saving than spending, Behravesh said
retail consumer spending as a percentage of GDP is likely to fall from
70 percent to 65 percent. “It will take a while, maybe 10 years,” he
said. “Correspondingly other countries are going to have to shift in the
opposite direction to rely more on their own consumers rather than the
Jason DeSena Trennert, Chief Investment Strategist for Strategas
Research Partners, says:
Consumer spending as a percentage of GDP is going to go in one direction
for a long time — lower.
Time points out :
Economist Stephen Roach, chairman of Morgan Stanley Asia, says that
“there is good reason to believe the capitulation of the American
consumer has only just begun.” U.S. consumer spending as a percentage of
GDP reached 72% in 2007, well above the pre-bubble norm of 67%. Using
that as a gauge, Roach says that only 20% of the potential retrenchment
of spending has taken place, even after the dramatic decline at the end
of 2008. “The imbalance that contributed to the crisis — overconsumption
and excessive savings — cannot continue,” says Ajay Chhibber, director
of the Asia bureau at the United Nations Development Program in New York
City. “The model where you stimulate and [then] go back to the old days
The Wall Street Journal notes:
“Economists also see an upturn in U.S. household saving as the beginning
of a prolonged period of thrift…..”
Financial analysts who have studied U.S. demographics - like Harry Dent
and Claus Vogt - point out that the U.S. population is aging:
United States Population Pyramid for 2010
Predicted age and sex distribution for the year 2010:
United States Population Pyramid for 2020
Predicted age and sex distribution for the year 2020:
United States Population Pyramid for 2050
Predicted age and sex distribution for the year 2050:
Vogt argues that an aging population within a given nation is correlated
with a decline in that country’s economy. . Certainly, a population
with less working-age people and more dependent elderly people will
experience a drag on its economy.
Dent argues that one of the main drivers of a country’s economic growth
is the number of people in the country who are in their peak spending years.
For example, Dent says that in the U.S., 45-54 year olds are the biggest
spenders, because that is when - on average - they are paying for their
kids’ college, paying mortgage on the biggest house they will own during
their life, etc. Dent argues that the American economy will tend to grow
when the number of 45-54 year olds grows, and to shrink when it shrinks.
As the charts above show, the number of 45-54 year olds in the U.S. will
shrink considerably in the year ahead.
Decline in Manufacturing
As everyone knows, the manufacturing has shrunk in the United States and
the service sector has grown. Even in a manufacturing center such as
Detroit, manufacturing jobs have been declining for decades:
Indeed, according to professor of economics Dr. Mark J. Perry,
manufacturing jobs have dropped to their lowest level since 1941, and
are now below 9% of the workforce for the first time. 
Wayne State University’s Center for Urban Studies argues:
For each job lost in the manufacturing industry, more spinoff jobs are
lost than would be in other sectors. Each manufacturing job helps
support a larger number of other jobs than do most other sectors. 
That means that the ongoing reduction in manufacturing jobs will
adversely affect unemployment for the foreseeable future.
Destruction of Credit
The amount of credit outstanding has been reduced by trillions of
dollars in the past year.
For example, the amount of consumer credit outstanding has plummeted:
Banks have become tight-fisted about lending, and this will probably not
change any time soon. As the New York Times wrote in an article from
October 2008 entitled “Banks Are Likely to Hold Tight to Bailout Money”:
“Will lenders deploy their new-found capital quickly, as the Treasury
hopes, and unlock the flow of credit through the economy? Or will they
hoard the money to protect themselves?
John A. Thain, the chief executive of Merrill Lynch, said on Thursday
that banks were unlikely to act swiftly. Executives at other banks
privately expressed a similar view.
‘We will have the opportunity to redeploy that,’ Mr. Thain said of the
new capital on a telephone call with analysts. ‘But at least for the
next quarter, it’s just going to be a cushion.’
Lenders have been pulling back on credit lines for businesses,
mortgages, home equity loans and credit card offers, and analysts said
that trend was unlikely to be reversed by the government’s money.
Roger Freeman, an analyst at Barclays Capital, which acquired parts of
the now-bankrupt Lehman Brothers last month [said] ‘My expectation is
it’s quarters off, not months off, before you see that capital being put
to work.’ ”
And another New York Times article included the following quote:
“It doesn’t matter how much Hank Paulson gives us,” said an influential
senior official at a big bank that received money from the government,
“no one is going to lend a nickel until the economy turns.” The official
added: “Who are we going to lend money to?” before repeating an old saw
about banking: “Only people who don’t need it.”
Reading between the lines, the bank officials are saying that they will
not lend freely until the economic crisis is over.
As WLMLab Bank Loan Performance points out, outstanding loans in the
United States have dropped $110 billion dollars quarter-over-quarter. 
Over the course of 2008, the nation’s five largest banks reduced their
consumer loans by 79 percent, real estate loans by 66 percent and
commercial loans by 19 percent, according to FDIC data. A wide range of
credit measures, including recent FDIC data, show that lending remains
Indeed, total seasonally adjusted consumer debt fell $21.55 billion, or
at a 10.4% annual rate, in July 2009 alone. credit-card debt fell $6.11
billion, or 8.5%, to $905.58 billion. This is the record 11th straight
monthly drop in credit card debt. Non-revolving credit, such as auto
loans, personal loans and student loans fell a record $15.44 billion or
11.7% to $1.57 trillion 
In addition, the securitization market has largely collapsed, which in
turn has destroyed a large proportion of the world’s credit. As noted in
an article in the Washington Times:
“Before last fall’s financial crisis, banks provided only $8 trillion of
the roughly $25 trillion in loans outstanding in the United States,
while traditional bond markets provided another $7 trillion, according
to the Federal Reserve. The largest share of the borrowed funds - $10
trillion - came from securitized loan markets that barely existed two
decades ago. . . .
Mr. Regalia [chief economist at the U.S. Chamber of Commerce] said … 70
percent of the system isn’t there anymore,’ he said.”
The reason that seventy percent of the system “isn’t there anymore” is
because the traditional bond markets and securitized loan markets (part
of the “shadow banking system”) have dried up. As the Washington Times
“Congress’ demand that banks fill in for collapsed securities markets
poses a dilemma for the banks, not only because most do not have the
capacity to ramp up to such large-scale lending quickly. The securitized
loan markets provided an essential part of the machinery that enabled
banks to lend in the first place. By selling most of their portfolios of
mortgages, business and consumer loans to investors, banks in the past
freed up money to make new loans. . . .
“The market for pooled subprime loans, known as collateralized debt
obligations (CDOs), collapsed at the end of 2007 and, by most accounts,
will never come back. Because of the surging defaults on subprime and
other exotic mortgages, investors have shied away from buying the loans,
forcing banks and Wall Street firms to hold them on their books and take
Senior economic adviser for UBS Investment Bank, George Magnus, confirms:
The restoration of normal credit creation should not be expected, until
the economy has adjusted to the disappearance of shadow bank credit, and
until banks have created the capacity to resume lending to creditworthy
borrowers. This is still about capital adequacy, where better signs of
organic capital creation are welcome. More importantly now though, it is
about poor asset quality, especially as defaults and loan losses rise
into 2010 from already elevated levels.
And McClatchy writes:
The foundation of U.S. credit expansion for the past 20 years is in
ruin. Since the 1980s, banks haven’t kept loans on their balance sheets;
instead, they sold them into a secondary market, where they were pooled
for sale to investors as securities. The process, called securitization,
fueled a rapid expansion of credit to consumers and businesses. By
passing their loans on to investors, banks were freed to lend more.
Today, securitization is all but dead. Investors have little appetite
for risky securities. Few buyers want a security based on pools of
mortgages, car loans, student loans and the like.
“The basis of revival of the system along the line of what previously
existed doesn’t exist. The foundation that was supposed to be there for
the revival (of the economy) . . . got washed away,” [economist James
K.] Galbraith said.
Unless and until securitization rebounds, it will be hard for banks to
resume robust lending because they’re stuck with loans on their books.
Not only has the supply of credit been destroyed, but the demand for
many types of loans - such as commercial real estate loans - is also
So there is simply much less credit flowing through the economic system
than there was prior to 2007.
The New Normal - Lower Economic Activity
As chief economist for the International Monetary Fund, Olivier
This recession has been so destructive that “we may not go back to the
old growth path … potential output may be lower than it was before the
All of the above trends force many economists to conclude that economic
activity as a whole will be lower for many, many years. In other words,
they say that “The New Normal” will be a much lower level for the economy.
Pimco CEO Mohamed El-Erian says elevated unemployment and record wealth
destruction will keep growth at 2 percent or less for years. 
As Bloomberg writes:
The New Normal theory predicts that the recession will leave
unemployment, forecast to reach 10 percent for the first time since 1983
early next year, higher for years. 
Indeed, the “overhang” of inventory - that is, the inventory of
unsold goods - in everything from housing [91 and 92] to cars  to
consumer electronics  means that the newly reduced consumer demand
is meeting up with very high levels of supply. This is a recipe for
Many economists also point out that the length of time people are
remaining unemployed is skyrocketing. As the Washington Post notes:
Another disturbing development was that the number of people out of work
for 27 weeks or longer reached a record 5 million, accounting for a
third of the unemployed. That suggests to some economists that those job
losses were caused by structural changes in the economy and that many of
those people won’t be called back to work once the economy picks up. The
longer people are out of work, the harder it becomes for them to find
jobs and the more likely they are to exhaust savings or lose their homes
to foreclosure. 
The following chart from the St. Louis Federal Reserve Bank shows that
people are staying unemployed much longer than they have in any previous
economic downturn since 1950:
As David Rosenberg writes:
The number of people not on temporary layoff surged 220,000 in August
and the level continues to reach new highs, now at 8.1 million. This
accounts for 53.9% of the unemployed — again a record high — and this is
a proxy for permanent job loss, in other words, these jobs are not
coming back. Against that backdrop, the number of people who have been
looking for a job for at least six months with no success rose a further
half-percent in August, to stand at 5 million — the long-term unemployed
now represent a record 33% of the total pool of joblessness. 
[98: for graphical updates on the state of the economy, see charts from
the Cleveland Federal Reserve Bank posted at
Another Trend: Increased Productivity Means Less Jobs
All of the aforementioned economic trends point to lower levels of job
creation, and thus higher unemployment.
In addition, the chief economist for MarketWatch, Distinguished Scholar
of Economics at Dowling College (Irwin Kellner) points out that worker
productivity is rising, and that increased worker productivity means
less new people will be hired. 
Other Theories Regarding the Causes of Unemployment
The main cause of unemployment today is the economic crisis. For
example, a report from the the National Industrial Conference Board
pointed out in 1922 stated the obvious: depressions increase
The report also points out that seasonal variations, “immigration and
tariff policies and international relationship” can affect unemployment
In fact, economists from different schools of thought ascribe different
causes to unemployment. For example:
Keynesian economics emphasizes unemployment resulting from insufficient
effective demand for goods and services in the economy (cyclical
unemployment). Others point to structural problems, inefficiencies,
inherent in labour markets (structural unemployment). Classical or
neoclassical economics tends to reject these explanations, and focuses
more on rigidities imposed on the labor market from the outside, such as
minimum wage laws, taxes, and other regulations that may discourage the
hiring of workers (classical unemployment). Yet others see unemployment
as largely due to voluntary choices by the unemployed (frictional
unemployment). Alternatively, some blame unemployment on disruptive
technologies or Globalisation.
[102 and 103]
For example, many Americans believe that globalization has increased
unemployment because “American jobs” have moved abroad. Certainly, the
American government has encouraged multinational corporations based in
the U.S. to move jobs overseas. But quick fixes may lead to new
problems. For example, a new American protectionism could stifle trade,
further weakening the American economy.
Similarly, some economists believe that inflation decreases
unemployment. However, that is only true where the workers drastically
underestimate the extent to which higher prices are decreasing the real
value of their wages. Indeed, as the Cato Institute notes:
This reduction in unemployment cannot occur unless workers
systematically underestimate the inflation rate. When workers are aware
of the inflation rate and, for example, have their pay adjusted
according to the cost of living, they will interpret wages properly and
not be misled into thinking that a normal wage offer is a relatively
high wage offer.
Rather than merely failing to decrease unemployment, inflation may
actually increase the unemployment rate. Frequent concomitants of
inflation, such as high interest rates and volatility and uncertainty in
the financial and product markets, increase the risks inherent in
business operations and thereby discourage the expansion of firms and
the creation of jobs. 
Therefore, many “quick fixes” for unemployment may actually do more harm
Isn’t the Government Helping to Reduce Unemployment?
The government has committed to give trillions to the financial
industry. President Obama’s stimulus bill was $787 billion, which is
less than a tenth of the money pledged to the banks and the financial
Of the $787 billion, little more than perhaps 10% has been spent as of
this writing. 
The Government Accountability Office says that the $787 billion stimulus
package is not being used for stimulus.  Instead, the states are in
such dire financial straights that the stimulus money is instead being
used to “cushion” state budgets, prevent teacher layoffs, make more
Medicaid payments and head off other fiscal problems. So even the money
which is actually earmarked to help the states stimulate their economies
is not being used for that purpose.
Indeed, much of the $787 billion was earmarked pork , not for
anything which could actually stimulate the economy. 
Mark Zandi - chief economist for Moody’s - has calculated which stimulus
programs give the most bang for the buck in terms of the economy:
But very little of the stimulus funds are actually going to high-value
Indeed, as the Los Angeles Times points out:
Critics say the [stimulus money reaching California] is being used for
projects that would have been built anyway, instead of on ways to change
how Californians live. Case in point: Army latrines, not high-speed rail.
Critics say those aren’t the types of projects with lasting effects on
“Whether it’s talking about building a new [military] hospital or
bachelor’s quarters, there isn’t that return on investment that you’d
find on something that increases efficiency like a road or transit
project,” said Ellis of Taxpayers for Common Sense.
Job creation is another question. A recent survey by the Associated
General Contractors of America found that slightly more than one-third
of the companies awarded stimulus projects planned to hire new
employees. But about one-third of the companies that weren’t awarded
stimulus projects also planned to hire new employees.
“While the construction portion of the stimulus is having an impact, it
is far from delivering its full promise and potential,” said Stephen E.
Sandherr, chief executive of the contractors group.
It’s unclear how many jobs will be created through the Defense
Department projects. Most of the construction jobs are awarded through
multiple award contracts, in which the department guarantees a minimum
amount of business to certain contractors, and lets only those
contractors bid on projects.
That means many of the contractors working on stimulus projects already
have been busy at work on government projects.even the stimulus money
which is being spent 
David Rosenberg writes:
Our advice to the Obama team would be to create and nurture a fiscal
backdrop that tackles this jobs crisis with some permanent solutions
rather than recurring populist short-term fiscal goodies that are only
inducing households to add to their burdensome debt loads with no
long-term multiplier impacts. The problem is not that we have an
insufficient number of vehicles on the road or homes on the market; the
problem is that we have insufficient labour demand.
Donald W. Riegle Jr. - former chair of the Senate Banking Committee from
1989 to 1994 - wrote (along with the former CEO of AT&T Broadband and
the international president of the United Steelworkers union):
It’s almost as if the administration is opting for a
rose-colored-glasses PR strategy rather than taking a hard-nose look at
actual consumer and employment figures and their trends, and modifying
its economic policies accordingly.
How Much Unemployment Do We Want?
On the one end of the spectrum, Article 23 of the United Nations’
Universal Declaration of Human Rights declares:
Everyone has the right to work, to free choice of employment, to just
and favourable conditions of work and to protection against
In other words, the U.N. says that there should be essentially no
unemployment for those who wish to work.
On the other end of the spectrum, some people - who make a lot of money
during periods where the condition lead to high levels of unemployment -
are comfortable with unemployment percentages reaching those in the
Societies should decide for themselves what level of unemployment they
consider acceptable, and then demand policies which will accomplish that
goal to the greatest extent possible. As discussed above, there are many
factors which affect employment levels, and so solutions are complicated.
However, without an open and visible public policy debate about the
issue, unemployment levels will either remain second order affects of
policy choices concerning other elements of the economy, or will be
decided behind closed doors by decision-makers who may or may not have
the best public interest in mind.
As the above facts show, unemployment is a very serious problem in the
United states, and world-wide. The policy responses of the U.S. and
other Western governments has not been working. As discussed above,
there is no simple solution.
Senator Riegle recommends a 4-part prescription, including:
Ensure that loans and credit facilities are readily available to the
nation’s small and medium size businesses and manufacturers.
Many of the top economists argue that we need to break up the giant
banks which are insolvent in order to save the economy.
Fortune, BusinessWeek and Federal Reserve governor Daniel K.
Tarullo have pointed out that breaking up the largest, insolvent
banks would allow more competition from small to mid-size banks, and
that such banks may actually make more loans to small businesses. More
loans to small businesses would lead to more employment by those many
In addition, the U.S. has largely been financing job creation for ten
years. Specifically, as the chief economist for BusinessWeek, Michael
Mandel, points out, public spending has accounted for virtually all new
job creation in the past 1o years:
Private sector job growth was almost non-existent over the past ten
years. Take a look at this horrifying chart:
Between May 1999 and May 2009, employment in the private sector sector
only rose by 1.1%, by far the lowest 10-year increase in the
It’s impossible to overstate how bad this is. Basically speaking, the
private sector job machine has almost completely stalled over the past
ten years. Take a look at this chart:
Over the past 10 years, the private sector has generated roughly 1.1
million additional jobs, or about 100K per year. The public sector
created about 2.4 million jobs.
But even that gives the private sector too much credit. Remember that
the private sector includes health care, social assistance, and
education, all areas which receive a lot of government support.
Most of the industries which had positive job growth over the past ten
years were in the HealthEdGov sector. In fact, financial job growth was
nearly nonexistent once we take out the health insurers.
Let me finish with a final chart.
Without a decade of growing government support from rising health and
education spending and soaring budget deficits, the labor market would
have been flat on its back. 
Raw Story argues that the U.S. is building a largely military economy:
The use of the military-industrial complex as a quick, if dubious, way
of jump-starting the economy is nothing new, but what is amazing is the
divergence between the military economy and the civilian economy, as
shown by this New York Times chart.
In the past nine years, non-industrial production in the US has declined
by some 19 percent. It took about four years for manufacturing to return
to levels seen before the 2001 recession — and all those gains were
wiped out in the current recession.
By contrast, military manufacturing is now 123 percent greater than it
was in 2000 — it has more than doubled while the rest of the
manufacturing sector has been shrinking…
It’s important to note the trajectory — the military economy is nearly
three times as large, proportionally to the rest of the economy, as it
was at the beginning of the Bush administration. And it is the only
manufacturing sector showing any growth. Extrapolate that trend, and
what do you get?
The change in leadership in Washington does not appear to be abating
So most of the job creation has been by the public sector. But because
the job creation has been financed with loans from China and private
banks, trillions in unnecessary interest charges have been incurred by
Former Washington Post editor and author of one of the leading books on
the Federal Reserve, William Greider, points out that governments
actually have the power to create money and credit themselves, instead
of borrowing it at interest from private banks:
If Congress chooses to take charge of its constitutional duty, it could
similarly use greenback currency created by the Federal Reserve as a
legitimate channel for financing important public projects–like sorely
needed improvements to the nation’s infrastructure. Obviously, this has
to be done carefully and responsibly, limited to normal expansion of the
money supply and used only for projects that truly benefit the entire
nation (lest it lead to inflation)…
This approach speaks to the contradiction House Speaker Pelosi pointed
out when she asked why the Fed has limitless money to spend however it
sees fit. Instead of borrowing the money to pay for the new rail system,
the government financing would draw on the public’s money-creation
process–just as Lincoln did and Bernanke is now doing.
By creating the credit itself - instead of borrowing from private banks
and foreign nations - the American government could finance the creation
of new jobs without incurring huge interest charges owed to the private
banks and foreign countries which lent America the money. In other
words, the U.S. government would itself create the new credit, just as
Lincoln did to finance the civil war.
By financing new projects with credit created by the government itself,
America might be able to pick itself up by its bootstraps and put its
people back to work.
The same may be true for other countries as well.
More on this topic (What's this?)
Unemployment Surging — Effectively 18.7 Percent? (Red Hot Energy and
Gold - Global..., 7/3/09)
Unemployment Rate Drops, but Joblessness Continues to Plague the Economy
(Money Morning, 8/10/09)
Daily Futures Commentary September 4, 2009 (Jutia Group, 9/4/09)
Read more on Unemployment (U.S.) at Wikinvest
Topics: Doomsday scenarios, Dubious statistics, Economic fundamentals,
Guest Post, Macroeconomic policy, Social policy
Email This Post Email This Post Posted by George Washington at 11:57 pm
find the best selling music every hour
www.GlobalBoiling.com daily storm, weather and satellite images
www.ElectricQuakes.com daily sun and earthquake images.
find the best old sciencefiction