Monday, January 13, 2014

Jobs, Jobs, Jobs

These days, a lot of the worst national news is about the employment situation. David De Gerolamo points us to a bleak summary:

The number of working age Americans that do not have a job has increased by nearly 10 million since Barack Obama first entered the White House. In January 2009, the number of "officially unemployed" workers plus the number of Americans "not in the labor force" was sitting at a grand total of 92.6 million. Today, that number has risen to 102.2 million. That means that the number of working age Americans that are not working has grown by close to 10 million since Barack Obama first took office. So why does the "official unemployment rate" keep going down? Well, it is because the federal government has been pretending that millions upon millions of unemployed workers have "left the labor force" over the past few years and do not want to work anymore. The government says that another 347,000 workers "left the labor force" in December. That is nearly five times larger than the 74,000 jobs that were "created" by the U.S. economy last month. And it is important to note that more than half of those jobs were temporary jobs, and it takes well over 100,000 new jobs just to keep up with population growth each month. So the unemployment rate should not have gone down. If anything, it should have gone up.

In fact, if the federal government was using an honest labor force participation rate, the official unemployment rate would be far higher than it is right now. Instead of 6.7 percent, it would be 11.5 percent, and it has stayed at about that level since the end of the last recession.

But "6.7 percent" makes Obama look so much better than "11.5 percent", don't you think?

The labor force participation rate is now at a 35 year low, and the only way that the federal government has been able to get the "unemployment rate" to go down is by removing hundreds of thousands of Americans out of the labor force every month.

Here's another view from economist Paul Craig Roberts:

The alleged recovery took a direct hit from Friday’s payroll jobs report. The Bureau of Labor Statistics reported that the economy created 74,000 net new jobs in December.

Wholesale and retail trade accounted for 70,700 of these jobs or 95.5%. It is likely that the December wholesale and retail hires were temporary for the Christmas shopping season, which doesn’t seem to have been very exuberant, especially in light of Macy’s decision to close five stores and lay off 2,500 employees. It is a good bet that these December hires have already been laid off.

A job gain of 74,000, even if it is real, is about half of what is needed to keep the unemployment rate even with population growth. Yet the Bureau of Labor Statistics reports that the unemployment rate fell from 7.0% to 6.7%. Clearly, this decline in unemployment was not caused by the reported 74,000 jobs gain. The unemployment rate fell, because Americans unable to find jobs ceased looking for employment and, thereby, ceased to be counted as unemployed.

In America the unemployment rate is a deception just like everything else. The rate of American unemployment fell, because people can’t find jobs. The fewer the jobs, the lower the unemployment rate.

I noticed today that the financial media presstitutes were a bit hesitant to hype the drop in the rate of unemployment when there was no jobs growth to account for it. The Wall Street and bank economists did their best to disbelieve the jobs report as did some of the bought-and-paid-for academic economists. Too many interests have a stake in the non-existent recovery declared 4.5 years ago to be able to admit that it is not really there.

Given that the great majority of today's working-age Americans derive their incomes from wage employment by corporations, the bitterness in these authors' words is fully justified.

But it wasn't always that way.

Historically, economic growth in the U.S. has been almost exclusively a phenomenon of small business. As new businesses formed and existing small businesses expanded, the economy developed and Americans became more prosperous. When that was well understood, the "unemployment rate" was regarded as a make-believe statistic. Can't get someone to hire you? Hire yourself! Do what you do well as your own boss, or perhaps in collaboration with others, and show the "mature" firms what they're missing.

The essential analytical distinction drawn there is the one between a job and work. "A job" is a contract, whether formal or informal, with someone who's agreed to pay you for your labor. "Work" is your labor itself -- the value-added that might or might not get you "a job."

Even if you can't get a job, you can always work. That should go without saying. Yet here I am saying it, in italics, no less, because the distinction has largely been lost.

But could you make your work support you? A good question, especially given the negative evidence of being unable to get a paying job. The answer depends:

  1. On what you can do well;
  2. On how many others can do it as well;
  3. On what you want to charge for your labor;
  4. On whether there are customers for it;
  5. On any "barriers to entry."

This is Labor Micro-Economics 101. Unless you elect to pursue subsistence farming and can get access to a plot of land on which to do it, you must trade your labor and / or its products for the labor and / or products of others, normally through the intermediation of "a medium of exchange and a store of value" (i.e., money). To do that, you must satisfy all five of the conditions implied above:

  1. You must have a capability that's of value to others;
  2. You must not be the ten-billionth person to offer that capability in the marketplace;
  3. You must not ask $5 million for a glass of fresh lemonade;
  4. You must not attempt to sell chocolate-covered cotton;
  5. You must be able to defeat or circumvent any obstructions to doing what you do commercially.

Even today, most "unemployed" Americans, whether or not they're counted in the "unemployment rate," can satisfy requirements 1 through 4. It's condition 5 that gives most of us fits.

Among the foulest of all political conceits is the notion that government can "create jobs." There is no political mechanism by which that can be done. There is no office, high or low, that can put one single American to work. All governments can do is erect barriers to entry:

  • Laws against certain types of commerce;
  • Taxes that prevent the accumulation of capital to fund new enterprises and initiatives;
  • Regulations that hobble "legal" businesses and confer advantages on the largest firms.

Of course, governments can also dismantle barriers to entry, but that's very rare. Those barriers are an important element of the extortionate dynamic of politics; see Peter Schweizer's book Extortion for a comprehensive treatment. Historically in America, barriers to entry have risen steadily, and over an ever widening field of commercial activity. For such a barrier to fall is quite rare, which is why, when a field is deregulated or otherwise freed of some governmentally imposed burden, it always makes headlines and evokes screams of anguish from the established firms it protected.

Barriers to entry are the impetus toward entry into the "underground economy:" the zone of commerce in which taxation, law, and regulation are disregarded. He who "goes underground" must often take substantial risks, especially if his kind of business is high on Washington's target list. In compensation, he can offer his products and services on a laissez faire / caveat emptor basis, in which all that matters is the judgment of the participants to any exchange. Many persons formally "no longer looking for work" have taken that route out of the hunt for above-ground employment.

Estimates of the fraction of the GDP attributable to the underground economy have ranged as high as 30%. Not all of it is due to prostitution and crack.

His Infallibility, Barack Hussein Obama the First, has promised us "a year of action" on the economy. It's not the first time he's said something like that, of course. Still, every time he makes such a pronouncement I feel a trickle of cold sweat run down my spine. This, I fear, might be the year he actually does something -- and as I said above, governments can erect barriers to entry and nothing else.

Indeed, any politician touting a "jobs creation program" should be treated as the enemy of the economy and of the Constitution. It is neither within their Constitutional authority nor within their practical powers to "create jobs," and after two centuries and more of meddling with our livelihoods we should all know it. Yet the political value of a plausible "jobs bill" seems proof against all logic and hard sense.

It's high time for an awakening. No matter what the specifics of any "jobs bill" might be:

  • Bureaucrats will get the jobs;
  • Taxpayers will get the bill.

If we can't get them out of our way, let's get ourselves out of their sights.


Roy Lofquist said...

The "underground economy" is just that - underground. Economists have made estimates but they vary widely. An "independent contractor" (painter, plumber, handyman, mechanic, ...) can charge half of what the guys in the Yellow Pages do and prosper - SSI is 17%, income taxes, overhead.

GDP, retail sales, etc. don't reflect the reduction in official workforce participation. Be wary of the official numbers. They deal in tenths of a percent whilst the error bars are unknown but certainly many times the implied precision.

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