Thursday, November 28, 2013

Unemployed And Deployed In America

Original published here:

By: Wendy McElroy

Unemployment will be a global tipping point in 2014, and America will tip as well. Europe is already panicking about the likelihood of young people rioting in the streets next summer. The 17-nation Eurozone is predicting severe riots due to soaring unemployment, especially among the young. In September, the Eurozone's general unemployment rate was 12.2%; the rate for young workers was 24.1%. According to the Organization for Economic Cooperation and Development, youth unemployment is nearly 60% in Greece, 55% in Spain and 40 percent in Italy and Portugal.

Last month, violence broke out between police and tens of thousands of protesters who marched in Rome against unemployment and austerity; the French held similar mass rallies last month as well. Greece and Spain seem to have been protesting for most of 2013.

America is widely touted as being the exception in unemployment. But, then, America lies unabashedly about its statistics.

The Bureau of Labor Statistics (BLS) compiles the United States' unemployment statistics every month. It looks at six categories of different data, that are called U-1 to U-6. U-3 counts how many people were unemployed but were actively looking for work during the past month; this is the official unemployment rate that is broadcast by the media. By contrast, U-6 counts the unemployed and underemployed who are excluded from the U-3 data. For example, U-6 classifies people who have unsuccessfully looked for a job in the last year as “not participating in the labor force” rather than as unemployed. U-6 also includes part-time workers who need more employment in order to live, but the number of these workers is dwarfed by the number of long-term unemployed. (“Long-term employment” is defined as lasting 27 weeks or more).

The data included in the categories increase as the numbers ascend; the categories are defined as follows:

U-3 Total unemployed, as a percent of the civilian labor force
U-4 Total unemployed plus discouraged workers
U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force
U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons
What is America's real unemployment rate? According to U-3 for October 2013, 11.3 million people were officially unemployed. BLS adds that 91,541,000 working age people did not participate in the labor force. If these numbers are added together, there are 102 million working age Americans who are either unemployed or not in the labor force for reasons that are not clear; for example, they could be retired. The non-working population represents 37.2% of working age people.

(Note: it is not known how the federal furlough of employees during the October shutdown affected the data, if at all. The furloughed employees seem to have been counted as both unemployed and working because they eventually received full payment for the time off.)

The unemployment rate reflected by the last four categories of BLS data break down as follows:

U-3 = 7.3%
U-4 = 7.8%
U-5 = 8.6%
U-6 = 13.8%

The American media used the U-3 numbers and reported the unemployment rate for October to be 7.3%, which is about 1/2 of the more realistic U-6 total. The media also glossed over U-3 figures that were alarming. For example, the official rate for teen unemployment (16 to 19 years old) stood at 22.2%; black unemployment is 13.1%

And, then, there were the outright media lies. For example, the New York Times reported on November 17, “[T] he economy is improving, if slowly. Employers are now adding jobs at a pace of around 200,000 a month, and the unemployment rate has dropped to to 7.3 percent.” [Emphasis added.] Actually, the September rate was 7.2%, making the October rate an increase in unemployment, not a drop. But the NYT could not claim “the economy is improving” without data that reflected improvement.

One aspect of the BLS data is particularly alarming. In the month of October alone, 923,000 new people became “non-participants” in the labor force. Given the job killing impact of Obamacare, it is reasonable to assume that the rate of growth for non-participants will hold steady in the foreseeable future. If so, then, by 2017, there will be more working age people who are not in the workforce than there are ones holding jobs in America.

Other factors make American unemployment more explosive. For example, an estimated 1.3 million long-term unemployed workers are scheduled to lose unemployment benefits by the end of the year unless Congress authorizes an extension. An additional 850,000 could lose benefits in the first quarter of 2014. House and Senate Democrats have already introduced two bills to renew the federal program through 2014. It is doubtful that the bills will pass before Congress adjourns. It is doubtful that Republicans and Democrats will cooperate on a budget.

A mass of idle and discontented youths is a formula for social unrest. Indeed, high youth unemployment rates have been a driving factor in protest movements around the world, including the Arab Spring. There is no reason to believe that America will be spared the similar sight of protests, riots, street violence and the inevitable backlash by police.

Controlling civilians on its own soil is why the American police became militarized, in the first place. Arguably, a 1960s police unit in Delano, California was the first “high-risk team” that resembled the modern SWAT operation. The unit was organized as a specific response to the non-violent farm worker activism of the United Farm Workers led by Cesar Chavez. The police supported the growers and acted against the strikers in a manner that the courts found to be unconstitutional.

Perhaps the most path-breaking SWAT was established in Los Angeles in 1967 by Inspector Daryl Gates, who later became chief of police. Formed as a response to the Watts riots, the SWAT unit was inextricably tangled in the control of social and political dissent. The first high-profile use of the Los Angeles SWAT team was in December 1969 when the police attempted to serve search warrants on the Black Panthers headquarters. A four-hour gun battle ensued.

The militarization of law enforcement on every level has increased dramatically since the 1960s. Police departments are prepared to treat fellow Americans who protest as enemy combatants.


The media and politicians cannot successfully lie to people about the food they can afford to put in their children's mouths. This is something people notice. Unemployment is a reality to which they wake up every morning. And, yet the media shakes its head in amazed confusion and asks, “Why is the recovery jobless?” The unemployed know the answer: because there is no recovery. What passes for progress – the rise of the stock market, for example – only reflects the quantitative easing that is skewing all economic data. What is real is what happens every time the state enters an industry or field of endeavor: stagnation.

Wednesday, November 27, 2013

Lies, Damned Lies, and Government Statistics

[Editor’s Note: The following is by TDV contributor, Christopher P. Casey, and originally appeared on WindRock Wealth Management's blog.]

“There are three kinds of lies: lies, damned lies, and statistics.” — Mark Twain

With all due respect to Mr. Twain, he did not extend the thought far enough – government statistics trump all lies. But then again, the government’s role as both preeminent statistical gatherer and manipulator is a phenomenon more applicable to our time. Today, various US bureaus and agencies monkey with every key macroeconomic indicator, most notably inflation, production (Gross Domestic Product), and unemployment. To wit:


Since the early 1980s, the Bureau of Labor Statistics (BLS) has engineered a lower “inflation” rate in the Consumer Price Index (CPI) with such maneuvers as:

Accounting for “quality” improvements in goods (“hedonic adjustments”);
Replacing items in the basket of goods measured with lower-price items (“substitution”);
Decreasing the impact of rising prices by any particular good within the basket (“geometric weighting”); and
Changing how rents are measured (“imputation”).
The results? According to ShadowStats, which calculates inflation with the previous CPI methodology, inflation has been understated by five to six percentage points over recent years.

Gross Domestic Product

GDP, to the extent it is relevant at all, must be assessed in real terms (discounting the effects of inflation). Otherwise, how else could you discern economic growth from a mere rise in prices? Therefore economists “deflate” GDP statistics by the rate of inflation to determine real changes in economic output. Curiously, instead of utilizing the CPI in such calculations, the government utilizes a different price index entitled Personal Consumption Expenditures (PCE). Why? As the PCE index is chronically lower than the CPI, real economic growth appears higher than if the CPI was used. Not content with just this trick, the Bureau of Economic Analysis (there are a number of US agencies which compile economic statistics) rolled out new guidelines for GDP calculation on July 31, 2013: henceforth, expenses paid for research & development will be included to “capture” the benefits of intangible assets. GDP jumped 2.7% with the addition (every little bit helps) and future growth is projected to be higher with the change.


As of October 2013, unemployment stood at 7.3%. Notwithstanding the previous month’s rate of 7.2%, this represented its lowest level since December 2008 (7.3%) which appears an impressive rebound given its peak of 10.0% (October 2009). But the Labor Participation Rate, the statistic which measures the actively employed percentage of an economy’s work force, stands at a mere 62.8% (October) – a level not observed since 1978. The discrepancy? Literally millions of discouraged unemployed workers having ceased looking for work. In BLS calculations, if you do not have a job, you are unemployed. But if you have been looking for years and have become so disillusioned as to end your efforts, you are no longer unemployed – but you still do not have a job.

We understand that many areas of the economy cannot be measured with any precision. In fact, the Austrian school of economics, to which we subscribe, was the first to point out the difficulties of measuring something as seemingly innocuous as the price level.

Because of such difficulties, it is reasonable to believe economists seek to improve their accuracy and worth. But when do refinement and improvement become, not a purpose, but a pretense for goosing the numbers? The aforementioned machinations prove we are already there.

However, worse than the manipulation of statistics to placate the populace and the financial markets is the reason the government is so interested in statistics. As explained by the noted economist Murray Rothbard:

“Statistics are the eyes and ears of the bureaucrat, the politician, the socialistic reformer. Only by statistics can they know, or at least have any idea about, what is going on in the economy. Only by statistics can they find out . . . who ‘needs’ what throughout the economy, and how much federal money should be channeled in what directions.” ("Statistics: Achilles’ Heel of Government" by Murray N. Rothbard)

Statistics are the critical tools of the central planners. Their growth in usage tracks the retrenchment of free markets from the economic landscape. Their manipulation reflects the deterioration of an economy.

Twain may have been a great author of fiction, but the US government wins the Pulitzer.

Sunday, November 17, 2013

Increased Minimum Wage, Decreased Economic Prosperity

Original article here:

Standard microeconomic theory shows that deviations of a price from its natural level bring forth bad results. In my experience, students most easily grasp the pernicious effects of price controls when phrased in terms of the minimum wage.

Long story short, the minimum wage acts as a price floor which stops people from selling labour services at a price below the mandated level. The final result is an increase in unemployment, partly from existing workers who lose their jobs and partly from new entrants to the labour market looking for a job but unable to get hired.

It’s really not a very difficult theory to comprehend.

Yet I’m always surprised at how few are able to apply this basic lesson. Take the recent protests in Thunder Bay in support of increasing Ontario’s minimum wage from $10.25 to $14 an hour as a case in point.

Amongst the arguments the protestors put forward, two stood out to me for their weakness in justification.

First, some protestors seemed to think that $14 was inherently “more fair” or “just” than $10.25. Prices are not about justness or fairness, they are about reflecting underlying conditions. A price doesn’t just come out of nowhere. Instead it is the result of the subjective demand someone has for an object, the resource constraints available, the substitute goods that the person could resort to instead, or the potential purchaser’s income level. Changing these general determinants of demand into the specific ones that affect the labour market, we can see that wages are the result of: 1) the productivity of workers, 2) the number of workers available, 3) the price of labour substitutes, like machinery or automated production processes, and 4) the incomes of the employers. (There are lots of other determinants, but this short list will suffice.)

Changing the price of labour does absolutely nothing to alter these determinants. Advocates of alterations to the minimum wage confuse cause with effect. The wage one earns is the effect of all of these aforementioned causes. Changing the wage will not have a positive effect because unless one of these determinants changes there is no reason why the wage should change.

The second prevalent argument at the protests was that higher wages would stimulate the economy. One protestor claimed that the increase in the minimum wage to $14 would stimulate the Thunder Bay economy by $5.1 billion!

Economist Livio Di Matteo did a little digging, and it turns out the “stimulus” in question is the sum of all Thunder Bay residents earning an extra $3.75 an hour. Unfortunately this doesn’t amount to stimulus; it just changes the distribution of income. Minimum wage earners, if they manage to keep their jobs, will end up a little wealthier and businesses will lose some money.

One of the best lessons from economics is that one should pay attention to the unseen effects of a policy. Often times this will be more important than those results which are obvious.

In minimum wage discussions, the unseen effects are two-fold. First are those people who are going to lose their job because of the increase in the minimum wage. If you thought it was hard to survive on $10.25 an hour, wait until you are earning nothing. Second, even those who keep their jobs are not stimulating the economy through their increased wages. To the extent that businesses will have to pay more money to workers there will be less money to invest. This means less growth, and fewer opportunities for people in the future.

Wages, like all prices, are not randomly created. They signal underlying conditions and as such are not inherently just or unjust; they just are. Changing the wage rate without doing anything to alter one of the underlying variables creating it cannot achieve anything positive, and will more than likely make people worse off. If these protestors are successful in achieving an increase in Ontario’s minimum wage, at the very least some of them will gain time to think about this simple lesson after they lose their job.

David Howden is Chair of the Department of Business and Economics, and professor of economics at St. Louis University, at its Madrid Campus, Academic Vice President of the Ludwig von Mises Institute of Canada, and winner of the Mises Institute’s Douglas E. French Prize. e:

Friday, November 15, 2013

Unemployment and Growth Numbers - Pure Propoganda

From the interview with Dr. Paul Craig Roberts, former Assistant Secretary of the Treasury . . .

Dr. Roberts: “Well, Eric, Friday’s jobs report is part of that propaganda. Already they are saying, ‘Oh my goodness, we had 2.8% economic growth in the 3rd quarter and so the Fed will probably start tapering.’ It’s all nonsense....

First of all, almost a full percentage point of the 2.8% growth rate is unwanted inventory accumulation. They count this as economic growth -- the buildup in inventories. Well, inventories buildup because nobody is buying the stuff. So, as nobody buys what they are trying to sell, the growth rate goes up (laughter ensues).

The real growth number would be approximately 1.9%, but we also know that number reflects optimistic or faulty measures of inflation. If you use the statistician John Williams’ measurements for inflation, the real growth rate last quarter was close to zero.

Now, let’s look at the jobs they claim to have. They gave the figure of 200,000 jobs, which was much higher than Wall Street had expected. These are the same kinds of jobs they have been ‘creating’ for 10 years or even longer. What are these jobs? They are 44,000 retail clerks. These are largely part-time jobs with no benefits. They are 30,000 waitresses and bartenders. They are 23,000 education and health services. Then, there were 15,000 administrative and waste services jobs.

Now, when you have this kind of job creation for 10-to-15-years, which is all we’ve had, you are turning into a third world country. This is the profile for a third world labor force. The question is, did they really have 200,000 jobs created? The answer is, no.

They use the Birth/Death Model in order to generate these supposed jobs. Well, when that model was created it was during the time of a growing economy, with more startups than failures. That’s not been the case since the collapse in 2008. We’ve not had the startups, but we’ve had continuing failures. So, these ‘jobs’ they claim to have created are just ‘phantom jobs.’ They are not real. But as you said, the mainstream media trumpets all of this and just continues as a propaganda machine for the government.

The media just reports the 7.3% unemployment, or U3 number. That’s the only one the media ever reports. Now, the reason that unemployment number is at 7.3% is because last month 750,000 individuals were dropped out of the labor force count. Meaning, they became discouraged and stopped looking for a job because they couldn’t find a job. So, almost 1,000,000 people simply dropped off of the rolls for the unemployed. In other words, it’s a fake measure.

Now, the government has another measure called, ‘U6,’ that’s seldom reported. It counts the short-term ‘discouraged’ people who have stopped looking for jobs. That rate is almost double, at 13.8% unemployment. This counts people who have been ‘discouraged’ for less than one year.

The government has no official rate that counts the long-term ‘discouraged,’ the people who have simply given up, long-term, finding a job because there are no jobs to find. John Williams estimates that rate, using previous government methodology, at (a staggering) 23.5%. So, the real rate of unemployment (23.5%) is over 3-times the reported government figure of 7.3%. That’s the real picture, and it’s kept from people. It’s not reported in the mainstream media because it goes against their intended propaganda.

So, the outlook is dismal. There has been no growth in retail sales. There has been no growth in real median family incomes, and therefore there is nothing to drive the economy. This means the economy is not going anywhere. You can’t have an economy growing when people don’t have any money to spend.

If you look at the number of people on food stamps, that figure continues to rise. It’s now about 11 million higher than it was just a few years ago. If you find these kinds of figures that indicate growing hardship, you can’t just turn around and say you have 2.8% growth (laughter ensues once again). This is all just part of the massive propaganda and continued coverup which is being orchestrated to hide the truth from the people."

Friday, November 08, 2013

After Catastropic Failure of ObamaCare, Democrats Look To Raise minimum Wage

By: Erika Johnsen

Democrats have had plans in the works to make a minimum-wage increase a major issue ahead of the 2014 midterms, and now that ObamaCare is floundering so spectacularly and the prospects for centering their campaigns around it are wearing thinner by the day, they definitely need to get the wheels in motion on a bright-and-shiny new initiative they can determinedly tout to their perturbed constituents.

During his State of the Union address early this year, President Obama (in what seemed like an almost non-sequitur at the time) brought up the idea of raising the national minimum wage to $9/hour and indexing it to inflation rates, but certain Congressional Democrats want to go even further with a hike to $10.10/hour, and they’re getting ready to introduce the relevant bills to get things rolling. Via The Hill:

Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin (D-Iowa) is spearheading the push to raise the minimum wage to $10.10 an hour, but not all Democrats are yet on board. …

Harkin said Wednesday he is not certain whether all 55 members of the Democratic caucus would back his proposal, which would also raise the minimum rate in jobs that rely on tips to 70 percent of the standard minimum wage.

“There are different views on proceeding to it, as an amendment, as a direct bill, how do you do it,” he said. “That’s what we’ve got to figure out.”

“There are some who may want to add something to it, put something else on it, which other people would not want,” he said. “I think people deserve a clean-cut bill. Raise the minimum wage.”

Rep. George Miller (D-Calif), the senior Democrat on the House Education and the Workforce Committee, is the House sponsor of the measure.

Their bill would raise the minimum wage to $10.10 by 2015 in three increases of 95 cents.
Back in February, House Minority Leader Nancy Pelosi aptly hinted at the Democrats’ tactical plans for this specifically-resurrected-to-avoid-more-pressing-issues issue: “Just keep it simple. We want to raise the minimum wage, and you don’t. Why not?” I.e., that old fallback of the Democratic playbook: Republicans must really hate poor people, because that is literally the only possible explanation they could have for being opposed to such a simple, zero-repercussions gesture.

That minimum wage increases are among the most superficially simple yet intellectually cheap populist faux-giveaways that in the long run actually harm the people they were ostensibly meant to help the most, and are in fact wildly counterproductive to the goal of encouraging and economic growth and employment… will not be mentioned, and indeed vehemently avoided. Get excited.