Monday, May 5, 2014

Flat Lining

We haven’t done an economic post in a while. Numbers came out last week, at the end of the month, and we can use those. If you’ve been reading this blog for a while, you might be familiar with The Trampoline Effect. We’re seeing that play out yet again, or still.
Growth was an essentially negligible .1 percent for the first quarter of 2014. By comparison, the average growth during recovery-from-recession quarters since that started getting measured in the 1960s is 4.1%. Average quarterly growth during the Obama presidency, which counts technically as an ongoing “recovery,” is 2.2%. In other words, the growth indicator is half what you’d expect if the economy is in recovery.
Employment is another indicator of recovery. The quarterly report looks positive; down by .4% to 6.3%. There are some provisos, however. The report is that 288,000 people were hired in April. However, simultaneously, estimates show 800,000 people dropped out of the work force—so they’re not counted in the unemployment figures anymore.
These are estimates. There’s a margin of error of around 300,000. So we get a better idea of the real picture averaging out several months. March showed an increase of 500,000 joining the labor force. If you take the two months together, you get an average of 150,000 leaving the labor force for each of those months, which is probably closer to the truth. But if it makes you feel a lot better than only 150,000 a month are so discouraged they are no longer even looking for work, you’re probably a little warped (or probably an Obama acolyte).
Full employment is traditionally considered 5% or better. There’s always some, because there are always individuals changing, or graduating from college and starting out, or deciding to start or stop an entrepreneurial enterprise, etc. So 5% means, if you’re a job seeker, you’ll probably be able to find a job, given a reasonable list of skills and good work ethic. The rate was 4.7% around the time of the 9/11 attack in 2001. That caused a fair amount of economic and social upheaval. Still, the highest annual unemployment was 6% in 2003, garnering a great deal of complaints from the democrats. It dropped down below full employment levels within a year.
You’ll recall that the current recession hit in late 2008, while Bush was still president (but two years into having Congress controlled by the democrats). Unemployment suddenly spiked to 5.8%. Then Obama and company took over—and it "recovered" to 9.3% in 2009, and “recovered” further in the wrong direction to 9.6% in 2010. It has slowly been dropping since—still lingering well above the post-9/11 economic recession that was so unacceptable at the time, six years into this mythical “recovery.”
The reason we need to combine this unemployment report with the number leaving the labor market is that the unemployment percentage is becoming less and less accurate. That number only counts those currently qualifying for unemployment compensation, plus a certain number added in based on phonecall polling. If someone no longer gets unemployment, they are not counted. We know the percentage of the population gainfully employed is going down—now 62.8%, the lowest it has been since the 1970s malaise. Maybe you remember that time, when President Carter gave a speech telling us to expect this to be the new normal.
Fortunately, Carter was wrong; that was not the new normal. That was the normal result of government interference policies. After a couple of years of Reagan removing impediments, growth and prosperity ensued, as expected.
Recessions are parabolic; when economic indicators fall, they naturally rise back up. However, there’s a trampoline effect; if government “helps,” it takes the energy out of the recover, so it doesn’t bounce back up, but dribbles along at pretty nearly a flat line, sometimes referred to as an L-shaped recovery.
This employment-population ratio illustrates
the L-shaped "recovery," from here
What is the solution—every time? Get government to stop interfering. Allow the hard-working, enterprising, creative population that is our greatest resource to do its thing, unhindered.

We know those in the current administration are not interested in an actual recovery; those power mongers benefit from a larger populace that feels helpless and turns to government for “help.” They will lie about and spin the numbers just enough to persuade those not paying attention to believe they are doing what they can under difficult circumstances—so they can keep getting elected. They hide the fact that this is the worst "recovery" since the Great Depression--which also lingered because of government interference.
We need to break through that haze and let people know—it doesn’t have to be this way. We can have freedom, prosperity, and civilization. We know how. We need to get those who are thwarting us out of power, and find followers of our founders to replace them.


  1. Pretty fair assessment, but needs a couple more issues addressed.

    The first is that we haven't had full employment in the US in so long we think 5% unemployment is full employment. It's not, it is the "new normal" since the policies implemented as part of the "recovery" from the great depression, specifically minimum wage. Full employment estimates that account for that distortion put real full employment close to 2% in the US.

    The second issue is that most large recessions are caused by government interference in the market in the first place, and you still usually get the trampoline effect. 9/11 was different in a way that should have made things worse. Government policy doesn't actually destroy capital, but 9/11 literally destroyed buildings, planes and, most importantly, the human capital of the innocent victims. Yet the market still recovered in less than a year.

    The biggest problem with our society seems to be that, while we understand in the market that people will generally act in their own self-interest, we assume that the people in government don't do the same. I don't think that just because you work for the government you are more altruistic than anyone else.

  2. Thanks for the added input. I love learning about the 2% being real full employment. This is especially good to know while discussions about raising the minimum wage come up. Some congresswoman from California suggested this week a $26 minimum wage, since that's what it takes to get by her part of the country--which means that all those jobs people could do for less--multiple jobs, or jobs for experience, or as a second income, etc.--would be prohibited because of her arbitrary declaration.