Economics is the science of explaining how the totalling of an economic model in its collision with reality is really not as bad as it looks. In fact, in the economist's version, it is reality that is at fault!
In this, it shares a lot with the science of selling used cars. The latest unemployment numbers certainly point to the ruinous nature of the Bush fiscal policy. While pumping into the system 600 billion some dollars that the state has to borrow, plus the money that it has on hand, is going to produce short term growth, that growth won’t necessarily engender employment. This lesson was learned, by left-wing Keynsians, in the inflation haunted seventies. Right wing Keynsians are reproducing the conditions for that fiasco from the other end.
We read, with mounting hilarity, the analysis of unemployment produced by the London Times Business editor, Anatole Koletsky. The numbers do look bleak, according to Koletsky, but that is because you aren’t looking hard enough. If you look under the numbers, and then you look around for other numbers, what you discover is an employment boom in America.
AK starts from the collision:
"Friday's US employment figures were undeniably a shock to economists (including myself) who have been expecting a strong global expansion, led by American growth."
The rest of the article, he talks himself into believing that the collision didn't take place. It is very funny. We especially like this part:
"But were the employment statistics really all that bad? Looking below the surface, the US economic figures still present an extremely positive story - albeit with a nasty sting in the tail.
The most important point -apart from noting that a single month of figures can never have much significance in its own right -is that Friday's stagnant employment figure was inconsistent with every other indicator of the state of the US economy. Figures on GDP, industrial production, layoff announcements, weekly jobless claims and the monthly surveys by the Institute of Purchasing Management (which have a 50-year track record of correctly anticipating cyclical movements in the US economy) have all been pointing unambiguously to strong employment growth.
"In such conditions, it is wise to ignore the rogue statistic..."
Indeed, such is the wisdom of the economists. There is the problem, however, that the rogue number might, after all, be the extraordinary 3rd quarter growth. As AK knows, each of the last two years have witnessed spurts that petered out.
Still, you need some statistic, somewhere, to continue to perform your shamanic function. Luckily AK has one, having been pointed there, no doubt, by the WSJ editorial board, which has lately given up economics in favor of examining the entrails of cows and such. Cow say, Bush, he very very good!
"The survey of payroll employment, conducted by a questionnaire sent to US employers, normally attracts more attention than the survey of households because it is less volatile from month to month. But over longer periods (such as 12 months) the two surveys have always moved closely together. In the past year, how-ever, the usual relationship has broken down (see top chart). According to the payroll survey the US economy lost 74,000 jobs in the year to December, but the household survey shows a healthy increase of 2.02 million jobs. So which should we believe?
To me the answer seems very clear: the household survey is right and the payroll survey is wrong."
This kind of hocus pocus is disappointing. Kaletsky is, in general we think, right to point to the inflationary load that is being generated by the Bush budget and the Fed's enabling of that budget. His problem is that he doesn't want to see what he is seeing -- an inflationary load and a week job economy.
The survey of businesses, it is true, doesn’t pick up small business starts. However, there is another explanation for the divergence. That is the length of this recession. The survey of households distinguishes between unemployed and ‘self-employed” without really asking too many questions. Kolatsky knows as well as anyone else how soft the ‘self-employed’ category is. People routinely describe themselves ‘upward’ to surveyors. That’s why 14% of Americans surveyed describe themselves as being in the upper 1% income bracket.
LI recently answered a survey, and for the first time, we answered unemployed to the question of what we did. It felt extremely uncomfortable. Of course, we could say self employed. Self employment last year grossed us some 8 thousand bucks – a real fortune. We rounded out the pittances we made from reviews by getting some day labor as a house painter, etc. This month, we owe 350 dollars in rent and, as the month comes to its halfway point, we have made zero house painting, zero on our articles, and zero has come in from our plea to LI readers, making a grand total of zero.
That is self employment. The difference between self employment and unemployment, in my case, is that the later is a step upward. We have no doubt that the extra unemployed, having every incentive to describe themselves with optimism, have, over time, either dropped from the rolls of the unemployed, or turned unemployment into a "choice.' It makes you feel better to think that you are self employed. So a former designer waters plants for some connections, earns a third of what she did earn, sends out resumes and gets no reply, and puts herself down as self-employed. This happens over and over. It isn't a pick up -- it is a symptom of a creeping and chronic malady.
There is no talking one’s way out of the employment picture wrought by the extreme of fiscal irresponsibility and the diversion of hundreds of billions to the richest percentiles, a diversion that has purchased an investor boom, but hasn’t trickled down to tighten the labor market in the least. From May of last year to yesterday, LI has sent off approximately 75 responses to job advertisements. We have received one interview. This is over a range of jobs – liquor store clerk, law office receptionist, customer service representative. It is drier than a dead man’s tongue out there.
Surely the investor boom will trickle down this year. There are signs of that in Austin. Up and down fifth street, there are new and very expensive apartment condos. In the past two years, perhaps 40,000 square feet of office space has been added just to downtown Austin. Yet we don’t see any rush to occupy either those condos – which start at 300,000 – or those office spaces. This is speculation of a non-risky kind – usually, after two years of economic doldrums, the American business cycle comes roaring back. But don’t believe the diagnosticians who, not hearing a heartbeat, decide that hearts beating aren’t the main thing. They are. If anything, the unemployment rate is probably understated, by not counting people like me. When Koletsky claims that two million jobs were added to the payrolls last year, I think that this is only evidence that the man is suffering from an almost terminal case of delirium partisans, a disease caused by bending over backwards to defend the Republican economic policy.