Why unemployment is ignored by Washington…

An interesting exchange with Larry Summers, the shithead who advises the Messiah on issues of unemployment:

White House officials express confidence in the steps taken, saying the stimulus is spending money and creating jobs ahead of schedule, and forestalling far higher unemployment. They say they opted against direct jobs programs not for political reasons but because they thought such efforts would not produce long-term value. And they have not pushed the private-sector job-sharing idea — being promoted by Sen. Jack Reed (D-R.I.) — because they want to build real demand for workers, not just spread work among more people.

“I think we got the Recovery Act right,” Larry Summers, the president’s chief economic adviser, said in an interview. “The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”

Why would it be a concern of Larry Summers whether the problem of unemployment is solved by sharing the available work – and the available time off – or creating “real demand” for more work? As long as people were able to pay their bills and were satisfied with their real standard of living, why would Washington have a preference?

We’re glad you asked that question.

If, from Washington’s perspective, the problem of unemployment was a problem of people being evicted from their homes and going hungry, one would imagine any solution which dampened this pain would be considered by a democratically elected government responsive to those who placed it in power.

After all, the point is the well being of those who elected you, and by whose sufferance you remained in power.

But, suppose that government had its own agenda, the pursuit of which compelled it to feign concern with the condition of its constituents, but which, as a practical matter, stood in contradiction to the interests of its constituents. Suppose, in other words, that government saw it in its own interest that unemployment must be solved by creating more work, rather than sharing the available work – and the available time off from work.

As we have noted, a good deal of the artificial stimulus at work in the economy, which has produced the most recent uptick in economic activity, was nothing more than rapidly rising expenditures on military expansion.

That military expansion costs money which is being borrowed at an astounding rate. To service that newly acquired debt requires increasing tax revenues, which, if it not to be raised by increasing taxes, must be realized through increased economic activity.

Sharing work does not increase economic activity, it reduces it. If economic activity is falling, then tax revenues are falling, and debt becomes more difficult to service. If it falls fast enough and far enough, the accelerated military buildup cannot be maintained.

So to preserve his quiet military buildup, the Messiah and his henchmen have to get the economy growing and employment rising. And, any proposal to reduce work time must be avoided at all costs.

h/t Tom Walker

Someone else who gets it…

Over on Naked Capitalism the blogger, George Washington, continues on the theme we have written been covering here: American corporations are clearly pursuing the Cramer Gambit by focusing on foreign markets not simply as suppliers of goods, but also as the customer for those goods.

Guest Post: One Reason that the Stock Market is Rising While Unemployment is Soaring

Daniel Gross points out that part of the reason that the American stock markets are going up even though unemployment is rising and the real economy suffering is because multinational corporations headquartered in the U.S. are experiencing strong sales abroad:

Here’s a puzzle: The stock markets are doing very well, yet the performance of the underlying economy doesn’t seem to justify optimism. The buoyant S&P 500 has risen 53 percent since the March bottom. And while the economy expanded at a 3.5 percent rate in the third quarter, unemployment is high, incomes are stagnant, and consumers are shaky…

It could be that the notion the stock market is an accurate gauge of the domestic economy’s temperature is outdated.

The Dow, the S&P 500, and the NASDAQ are primarily indices of large U.S.-based companies, not main street businesses: more Davos than Chamber of Commerce. These increasingly cosmopolitan firms have been busy globalizing and expanding their operations overseas. In 2006, according to Standard & Poor’s, 238 members of the S&P 500 broke out revenues between U.S. and non-U.S. sales. These companies notched about 43.6 percent of sales outside the United States. For large companies that had already saturated the U.S. market, the home market was something of an afterthought. In the second quarter of 2007, 66 percent of Coca-Cola’s beverage business came from outside North America.

And thanks to the long recession, demand for products and services of all types in the United States has shrunk even since 2006. Yes, the global economy in 2008 experienced its first year of shrinkage since World War II. But growth has resumed, and in some places—Peru, China, India—it never stopped. As a result, the globe’s economic geography has continued to change, with the United States accounting for a smaller chunk of global output and demand each year. For much of the past two years, virtually all growth in economic activity has taken place outside America’s borders. As a result, U.S.-based companies are becoming even more reliant on non-U.S. customers and operations for sales… in two years, big companies’ proportion of sales coming from outside the United States rose 9.8 percent. It’s likely the 2009 figure will be something very close to 50 percent.

This is trickle down economics minus the trickle part folks. There is no defense against this for workers, except a reduction of hours of work.

More chart porn: Service employment falls two years running

In 70 years of record keeping, the American economy has never recorded a back-to-back, year-over-year, decline in employment in the services sector of the economy.

Since this is so unprecedented in the economy, we thought we might take a snapshot of this elusive bird so everyone could stare at it with the awe we felt when we first gazed upon it.

Allow us to explain the chart: The green field shows total employment in service sector, which includes government employment, since 1979. The red line shows the change in the rate of employment growth during that period – from a high of 4.5 percent in 1984 to the present low of -2.4 percent in 2009. The black line shows the overall trend in this growth rate from 1979 to the present.

As you can see, during the period from 1979 to 2009, the rate of growth is trending down and finally has gone negative two years in a row during this recession.

What makes it so interesting is that exactly 30 years ago (June, 1979) the United States recorded its largest industrial labor force (19.5 million) only to see it promptly kneecapped by the double recessions of 1979 and 1981. From there, the labor force in manufacturing fell to its present low of 11.6 million workers – and a shitload of Walmarts stocked with inexpensive Chinese made goods.

As industrial employment fell due to increases in productivity and the off-shoring of manufacturing, service sector employment became the one sector where overall employment was growing. Agriculture employment was dead, industrial employment was a dead end, work that produced real economic value was becoming increasingly scarce.

And that is a real problem, since you having a job is the essential precondition for buying all those 42 inch wide-screen high-definition plasma televisions now being made with fewer workers. If you don’t have a job, production comes to a standstill – it is as simple as that.

The great thing about service sector employment is that it provides the wages necessary for you to buy all those otherwise unsellable 42 inch wide-screen high-definition plasma televisions, with out adding to the pile of unsold appliances – it supports mindless consumption without producing anything of real value. And, this becomes ever more important as the increase in productivity forces industry to turn out ever larger quantities of unsellable goods with fewer workers.

For service sector employment to be falling at this time, as the nation experiences the worst economic catastrophe since the Great Depression is, therefore, not only a significant event, it is a dire warning of a serious adjustment in the economy: US service sector employment, which has served as the primary customer for global production, is faltering and an economic train wreck is unfolding in slow motion as those unsold goods begin piling into each other like so many freight cars.

With this data it becomes clearer why many US industrial corporations have begun to shift the emphasis of their operations to foreign market, not just as suppliers of goods, but as customers for these products.

They can no longer count on probability that you will have a job.

Beyond chart porn: If history rhymed, would we hear it?

One of the most often indulged exercises in this economic crisis is to compare it to other, previous, crises – in particular, to the big daddy of all economic crises, The Great Depression.

It’s fun, educational, and a little like pornography: both a source of inspiration and a sort of how to manual.

As with porn, a detailed written description of the unfolding events can be a bit dry and clinical – but a picture? Well, that is stimulus operating on a number of levels simultaneously – not all of them appropriate for polite company.

See for instance this delectable piece of pornography constructed by economists Barry Eichengreen and Kevin H. O’Rourke:

World industrial production, now vs then

The elegance of the lines are tempting, are they not? She is so vulnerable, so intriguingly open to any interpretation the viewer cares to impose on her sultry undulations.

We are invited to infer from her saucy recumbency whatever fantasy, or dark desire, seems best suited to our mood of the moment: Are we plunging toward an abyss, or have we averted one just in time?

Here is another one you will find familiar – The Four Harlots of the Apocalypse:

Favorites of Wall Street bankers, these naughty beauties, cavorting with disaster, invite us in to play with them – but they are such real teases. The Grand Dame, circa 1930, caused man and beast to swoon, before passing them to her two strumpet sisters, Oyl (circa 1973) and the demur technophile, Siliconia. Having drunk of the nectar of these high priced Wall Street hookers, you might be tempted to taste the sweetness of their latest addition, the Lady Bush, but beware: if she is anything like her sisters, you will be disappointed.

The problem with chart porn

One of the problems with chart porn is exactly what makes them so appealing: a blank white surface with a bold engrossing squiggle holding your attention with its unpredictable wanderings. Where will it go next? Why did it take this particular path? It’s all a bit like staring at the apparently random movements of an ant. It is only when the path of that single ant is overlaid with the paths of all the other ants along the same trail does it become obvious there is a fairly precise goal in the behavior of the individual.

Which is why chart porn like the four bears above offer some (mistaken?) sense that the path of our own Great Recession has a reassuring logic to it.

We say mistaken only in part referring to Mark Twain’s injunction: History doesn’t repeat itself, but it rhymes. In a rhyme, the point is not what is the same, but what is different. But, in a more fundamental way, the four market crashes pictured above differ not merely in the particular path each found to its bottom, but also in the very economy against which they played out.

Although each is pictured against an otherwise blank canvas of the chart the economic landscape of each was markedly different. The differences can be so important, that it becomes something of a comparison between apples and oranges.

One notable difference between 1929 and 2009, for instance, is the radically smaller population living on farms and making their living through agriculture. In 1929, about 29 percent of the American work force lived on farms. By 1934, because of the vicious impact of the depression on the rest of the economy, their weight in the economy had actually risen to 33 percent as employment in other sectors fell wildly.

Agriculture employment in the United States, 1929-2002

Why did agriculture employment remain so stable during the early part of the Great Depression? One possible explanation is that most of these individuals were self-sufficient, and, to the extent they did not lose their farms in the downturn, were only indirectly affected by events. In this recession, such individuals are negligible in the economy, with the entire sector accounting for much less than one percent of the work force.

Is it significant that one of the sectors of the economy least affected at the beginning of the Great Depression has virtually ceased to exist as a form of employment? Who knows. But, it just seems important to note the change.

The Era of Big Government Begins

Another sector of the economy where employment did not fall significantly in 1929 was government; it actually registered an increase of about 100 thousand jobs between 1929 and 1934. And, as the chart below shows, unlike agriculture, it grown aggressively since the Great Depression:

Government employment in the United States 1929-2002

Like agriculture, government seemed initially resistant to the Great Depression, but, unlike agriculture, it proved to be actually resistant not only to the depression, but also the economic forces at work in the economy for decades after.  It is not until the late 1970s and early 1980s that we begin to see a leveling off in government employment.

Not so manufacturing employment: The Great Depression takes a withering toll on it from the very beginning:

Manufacturing in the United States 1929-2002

Of course, the American Bombs for Kids program during the 1940s revives manufacturing, but the effects wear off by 1979 when, from a peak of about 19 million workers, manufacturing employment begins collapsing to its present size of just over 11 million workers. Unlike government, but all too similar to agriculture, the Great Depression was the high water mark of manufacturing employment. By the time Reagan took office, manufacturing was in a long irreversible 30 year depression of its own losing about 50 percent of its work force.

With a 50 percent loss of jobs in this sector, and a further 93 percent loss of employment in agriculture, trying to make a comparison with the Great Depression is not as simple as capturing a handful of changes on a chart.

Which brings us to the services sector:

Service sector employment in the United States 1929-2002

At one point, the economy was neatly divided into three almost equal portions – agriculture, manufacturing and other non-farm goods producing industries, and services. Then something very weird happened: Services employment, after an initial fall of about 13 percent in the Great Depression, took off and began growing wildly, while the other two areas of employment atrophy.

So we end up with four different parts of the economy, each of which respond to the Great Depression in significantly different ways:

• Agriculture shrugs off the crisis, but virtually disappears as a form of employment
• Government shrugs off the crisis, and then goes on to triple its relative size in the economy
• Manufacturing is initially devastated by the depression, recovers, but only to enter its own depression from 1979 on.
• Service employment is also hit hard by the depression, but goes on to account for 83 percent of all employment

What does all of this mean?

It is hard to tell at this point, but we will point out an obvious connection: Any sector which results in the creation of a real good, which contributes real economic value, has disappeared, or is disappearing even as we write these words, as a means of employing people. What is left are those sectors of the economy that produce nothing of value.

Every crisis is an economic adjustment to changes in the way an economy is organized and this one is no different. Trying to extrapolate from the Great Depression to our present difficulties is ultimately misleading.

To make this point, we will leave you with one additional piece of chart porn.

Anyone attempting to compare the Great Depression with the Great Recession has to take into account that, in reality, there really is no such thing as a US economy anymore. It is a convenient fiction maintained by Washington to conceal how dependent the nation is on global economic forces.

Today, just the combined volume of real goods exports and imports moving out of or into the United States – which does not include the volume of services, income and profits flowing to or from the US – amounts to almost one out of every four dollars of GDP. By contrast, in 1929 international goods trade accounted for about 10 percent of GDP.

US foreign trade as a percentage of GDP, 1929 and 2008

The idea that there is a “US economy” the performance of which, in this depression, can be easily compared to the performance of the US economy during the Great Depression by means of some attractive chart porn is laughable. We are part of a global economic organism, and our fate is bound up with it.

Neal Fox: Fuck The Fed

Terribly addictive little jingle…

more about “Neal Fox Fuck The Fed“, posted with vodpod

 

Because your day doesn’t suck enough…

Another piece of economic news from the beginning of October (which we missed, sorry):

Using a specially-designed telephone survey, which Princeton University’s Survey Research Center put in the field in June and July 2008, we experimented with three different ways to measure offshorability. In the first, professional coders used the answers to standard CPS questions to rate the offshorability of each person’s job. In the second, respondents essentially classified their own jobs by answering a single question about the need for face-to-face contact and/or physical presence on the job. (Both attributes indicate an inability to move the work offshore.) In the third, we used the answers to a series of questions on face-to-face contact, the ability to deliver one’s work from a remote location, etc. to create our own index of the offshorability of each job.

Strikingly, and surprisingly, all three measures agreed on the overall macro number – roughly speaking, 25% of US jobs are offshorable.

Full story here

Omigod, dude! You’re killing us!

It is becoming truly painful to read the bullshit coming out the progressive wing of the Democratic Party these days. The latest example is this piece of specious reasoning by some shithead named Marshall Auerback, who blogs at Huffington Post and on the website, New Deal 2.0:

We’ve said it before and we’ll say it again. As a matter of national accounting, the domestic private sector cannot increase savings unless and until foreign or government sectors increase deficits. Call this the tyranny of double entry bookkeeping: the government’s deficit equals by identity the non-government’s surplus.

So, if the US private sector is to rebuild its balance sheet by spending less than its income, the government will have to spend more than its tax revenue. The only other possibility is that the rest of the world stops saving on a massive scale — letting the US run a current account surplus. But that is highly implausible and socially undesirable, since it means we export our economic output, rather than consume it domestically. And if the government deficit does not grow fast enough to meet the saving needs of the private domestic sector, national income will decline, which, given the size of the private sector’s debt problem, will generate a huge debt deflation.

So, now the economy operates like the ledger of a green-shaded accountant? The “private sector’s” surplus, in the absence of foreign trade, has to accrue as a deficit in government spending?

So, how is the present massive federal government deficit being financed?

According to Auerback, minus the contribution of foreign trade – which itself is in deficit – this deficit has to be funded out of the saving being accrued in the non-government sector.

But, wait a minute. Haven’t most Americans been accruing debt of their own over the last 10 years? And, if that is true, that would imply that the whole of the federal government deficit must be coming from the saving of a relatively small portion of Americans who are saving.

It would also imply that the household deficit being accrued by the larger portion of Americans, who have not been able to save over the same period, must have been financed by this same lucky portion of Americans who have been able to save.

In other words, there has to be at least three players here:

• Creditors – those with savings to lend out
• Private debtors – who have been borrowing from the savers
• Public debtors – who have also been borrowing from the savers

So, Auerback is telling us that if the wealth of the savers is increasing, or the debt load of the debtors is declining (or both) that the debt load of government has to increase!

But, if the debt load of government increases – they borrow more from the savers – wouldn’t this just increase the rate at which the savers are saving? In addition to their present wealth, they begin to enjoy a stream of income from this increased government debt.

And, if it increases the rate at which the savers are saving, wouldn’t this require that government increase the rate at which it accrues more debt? Would not the rate of government borrowing be driven up as well to offset the increase in the savings rate?

Economists, with their fancy ciphering and unintelligible Greek symbols, go right over our head, but we still can do simple math:

If:

Excess savings by the savers amounts to $1000

And:

Government borrows this $1000 at an interest rate of 10 percent.

Then:

At the end of one year government must pay the savers $1100

Which means (all else unchanged):

Government borrowing must increase to $1100.

That’s right, at some point that debt has to be repaid, and when it is repaid, with interest, the initial problem continues to confront the society. Borrowing the excess savings only intensifies the problem when the debt is cleared.

The upshot of this exercise is that attempts to restore the balance to the economy by increasing government deficits appear only to exacerbate the problem. A large part of the material wealth of the nation is tied up in the excess savings of a relative handful of individuals. Since these excess savings cannot be profitably invested, progressives advocate that government borrow it. However, interest payment on this new debt only add to the excess savings of this wealthy minority and makes the underlying problem worse absent the appearance of profitable outlets for investment.

Of course, this is only an exercise based on this idiot’s assumption that a national economy can be conceived as a sort of accountant’s ledger. In fact, it is not, and any attempt to treat it as such runs into such logical problems as this one we have highlighted.

Dean Baker: Cure for unemployment? Work shorter hours

The movement to reduce hours of work is bubbling up from the underground.

From Dean Baker, Co-director of the Center for Economic and Policy Research:

“…There is an easy and quick way to begin to get these unemployed workers back to work. It involves paying workers to work shorter hours. The mechanism can take the form of a tax credit to employers. The government can give them a tax credit of up to $3,000 in order to shorten their workers’ hours while leaving their pay unchanged. The reduction in hours can take the form of paid sick days, paid family leave, shorter workweeks or longer vacations. The employer can choose the method that is best for her workers and the workplace.”

Read it here

h/t Tom Walker

Good news from the Ministry of Plenty…

But actually, he thought as he re-adjusted the Ministry of Plenty’s figures, it was not even forgery. It was merely the substitution of one piece of nonsense for another. Most of the material that you were dealing with had no connexion with anything in the real world, not even the kind of connexion that is contained in a direct lie.

*****

Political Pen’s citation of this quote from George Orwell has indeed hit the mail on the head. The bullshit piles up faster than one can shovel. And, the press has completely abandoned any pretense of oversight and fact-checking.

From the New York Times:

WASHINGTON (AP) — Construction spending in September posted a better-than-expected performance, powered by the largest jump in housing construction in more than six years. The advance spurred hope that the battered housing sector is starting to turn around and will provide support for the overall economy as it struggles to emerge from the worst recession since the 1930s.

August report:

The U.S. Census Bureau reported that construction spending during August 2009 was estimated at a seasonally adjusted annual rate of $941.9 billion, 0.8 percent above the revised July estimate of $934.6 billion. The August figure is 11.6 percent below the August 2008 estimate of $1,066.1 billion. During the first eight months of this year, construction spending amounted to $629.5 billion, 11.9 percent below the $714.3 billion for the same period in 2008.

September report:

The Commerce Department said Monday that total construction spending was up 0.8 percent in September, much better than the 0.3 percent drop that analysts had forecast. The August performance was revised down to show a 0.1 percent drop rather the 0.8 percent gain first reported.

Total construction spending grew to $940.28 billion at an annual rate in September. It was the first increase after four straight declines but still left construction spending 13 percent below the level of a year ago.

For the record, we would like to point out the following:

• Initial August estimate from the Ministry of Plenty Department of Commerce: Annual construction spending was $941.9 billion
• The new September Estimate from the Ministry of Plenty Department of Commerce: Annual construction spending was $940.28 billion

$940.28 billion minus 941.9 billion equals -$1.62 billion

In other words, the Ministry Department’s estimate for construction spending went down not up.

Answer: 4

Question: How many times has Washington bailed out Citigroup to keep it from going bankrupt?