Today the labor force participation rate is the lowest since February 1978, reversing all of the gains of the Reagan years, and the Federal Reserve has used an increase in consumer debt to fill in for the missing growth in consumer income for so long that consumers have no more room to take on more debt.
Americans live a never-never-land existence. The politicians and presstitutes make sure of that.
Consider something as simple as the unemployment rate. The US is said to have full employment with a January 2018 unemployment rate of 4.1 percent, down from 9.8 percent in January 2010.
However, the low rate of unemployment is contradicted by the long-term decline in the labor force participation rate. After a long rise during the Reagan 1980s, the labor force participation rate peaked in January 1990 at 66.8 percent, more or less holding to that rate for another decade until 2001 when decline set in accelerating in September 2008.
Today the labor force participation rate is the lowest since February 1978, reversing all of the gains of the Reagan years.
Allegedly, the current unemployment rate of 4.1 percent is the result of the long recovery that allegedly began in June 2009. However, normally, employment opportunities created by economic recovery cause an increase in the labor force participation rate as people join the work force to take advantage of employment opportunities.
A fall in the participation rate is associated with recession or stagnation, not with economic recovery.
How can this contradiction be reconciled? The answer lies in the measurement of unemployment. If you have not looked for a job in the last four weeks, you are not counted as being unemployed, because you are not counted as being part of the work force. When there are no jobs to be found, job seekers become discouraged and cease looking for jobs. In other words, the 4.1 percent unemployment rate does not count discouraged workers who cannot find jobs.
The US Bureau of Labor Statistics has a second measure of unemployment that includes workers who have been discouraged and out of the labor force for less than one year. This rate of unemployment is 8.2 percent, double the 4.1 percent reported rate.
The US government no longer tracks unemployment among discouraged workers who have been out of the work force for more than one year. However, John Williams of shadowstats.com continues to estimate this rate and places it at 22 or 23 percent, a far cry from 4.1 percent.
In other words, the 4.1 percent unemployment rate does not count the unemployed who do show up in the declining labor force participation rate.
If the US had a print and TV media instead of the propaganda ministry that it has, the financial press would not tolerate the deception of the public about employment in America.
Junk economists, of which the US has an over-supply, claim that the decline in the labor force participation rate merely reflects people who prefer to live on welfare than to work for a living and the current generation of young people who prefer life at home with parents paying the bills. This explanation from junk economists does not explain why suddenly Americans discovered welfare and became lazy in 2001 and turned their back on job opportunities. The junk economists also do not explain why, if the economy is at full employment, competition for workers is not driving up wages.
The reason Americans cannot find jobs and have left the labor force is that US corporations have offshored millions of American jobs in order to raise profits, share prices, and executive bonuses by lowering labor costs. Many American industrial and manufacturing cities have been devastated by the relocation abroad of production for the American consumer market, by the movement abroad of IT and software engineering jobs, and by importing lower paid foreign workers on H1-B and other work visas to take the jobs of Americans. In my book, The Failure of Laissez Faire Capitalism, I give examples and document the devastating impact jobs offshoring has had on communities, cities, pension funds, and consumer purchasing power.
John Williams of shadowstats.com questions whether there has been any real growth in the US economy since the 2008 crisis that resulted from the repeal of the Glass-Steagall Act. Williams believes that the GDP growth rate is an illusion resulting from the understatement of inflation. Just as unemployment is under-counted, so is inflation.
Two “reforms” were introduced that result in the under-measurement of inflation. One is the substitution principle. When the price of an item in the basket of goods used to measure inflation goes up, that item is thrown out and a cheaper substitute is put in its place. The “reformers” argue that consumers themselves behave in this way. Thus, they claim this practice is reasonable. However, the old way of measuring inflation measured the cost of a constant standard of living. The new way measures the cost of a falling standard of living.
The other reform is to classify some price rises as quality improvements rather than as inflation. The consumer has to pay the higher price, but he is said to be getting a better product, and so it is not inflation. There is some truth to this, but it appears it is over-used in order to report low inflation rates. Both of these reforms are suspected of being motivated by holding down Social Security costs by denying cost-of-living (COLA) adjustments to Social Security recipients.
If inflation is under-measured, the use of the measure to deflate nominal GDP in order to arrive at real GDP leaves some price rises in the GDP measure. Therefore, price rises or inflation are counted as increases in real goods and services. John Williams suspects that most of the GDP growth reported since the alleged recovery is simply price rises, not increases in real goods and services.
The historically high stock averages are another feature of make-believe America. The high price/earnings ratios do not reflect strong fundamentals, such as high rates of business investment, strong growth in real retail sales fueled by strong growth in consumer incomes. The Federal Reserve has used an increase in consumer debt to fill in for the missing growth in consumer income for so long that consumers have no more room to take on more debt. Without growth in wages and salaries or in consumer debt, consumer demand cannot drive the economy and business profits.
What explains the high stock prices? The answer is the trillions of dollars the Federal Reserve has created in order to stabilize the large “banks too big to fail” and bail out their extremely poor investment decisions. All of this liquidity found its way into the financial sector where it drove up the prices of stocks and bonds, enriching equity owners and denying retirees any interest income on their savings.
The values of financial instruments are supported by money creation, not by underlying fundamentals. Yet, the stock averages are treated as proof of economic recovery and America’s first place in the world.
As I said, it is never-never-land in which we live.
This article was originally published at PaulCraigRoberts.org on March 7, 2018.
This liberal rag didn’t see the need to explain how bad unemployment was during Obama’s reign. You can’t move the goal post now that Trump is succeeding beyond anything Obama dreamed of, which was probably even worse jobs. Obama hates capitalism, and you know it.
Thank you for this wonderful demonstration of your own narrow-mindedness. Some of us are not confined to the paradigm of partisan politics.
Here is just a small sampling of articles written by Paul Craig Roberts on “how bad unemployment was during Obama’s reign”:
https://www.foreignpolicyjournal.com/2015/08/12/the-us-economy-continues-its-collapse/
https://www.foreignpolicyjournal.com/2015/05/12/economic-disinformation-keeps-financial-markets-up/
https://www.foreignpolicyjournal.com/2015/05/01/the-dwindling-us-economy/
And many, many more for anyone who wishes to search the author’s article archive to see.
The fact that you just assumed that those articles wouldn’t exist simply highlights your own inability to escape the aforementioned narrow confines of your own mind.
But try harder. You can do it!
this site is not democrat, you utter child … pick up books
I feel sorry for people who can’t earn a living through no fault of their own (and even some who don’t have the tools to earn a living). This includes poor and middle class Americans, Canadians, Brits and others who live credit card consolidation to credit card consolidation, paying one credit card payment by using another. I also feel sorry for those, most obviously in the Middle East, who for the worst of political reasons are kept poor and starving (for example, Palestinians) and are bombed out of their homes and turned into refugees so that Europeans and North Americans have someone to hate besides those who actually deserve that hate, their global bankers and such meat puppets as are from time to time useful to these people. When will we have Sharia banking (NOT Sharia law) as an option to the Kazarians? I’d certainly weigh the pros and cons.
The biggest problem in the US is that each president “creates” jobs by increasing defense spending. Overtly or covertly. Obama at some point decided not to increase defense spending as much and the result was 1.5% growth of hte economy once the recession ended. Trump claimed he would create jobs and threw another $50b at defense, followed by $85b in 2018 and $80b in 2019. Yes, that will create jobs very fast, and it has done that. The problem with it is that it will not protect the dollar from devaluing if reserve currency gets diminished, which it will, since both Russia and China and a host of other countries started to trade in local currencies.
The real problem with creating jobs with increases in defense spending is that it can only be upheld if there is perpetual war. And war is a loss of taxpayer funds. The around $140b in weapons sales cannot make up for the cost of defense.They are mostly paid with foreign aid – i.e. US taxpayer’s money. Thus the weapons sales contribute to the shortage of money for Social Security and welfare including food stamps. 22% of US children are food insecure. But the US continues to spend trillions on wars that don’t accomplish anything other than to keep the military industrial sector going to pretend creating jobs.
The continuing wars create national debt. In order to keep the dollar from losing its value due to the debt, debt is sold as treasuries. This entire system creates a Ponzi scheme: without war, there are no jobs; with war, there is national debt and treasuries have to be issued to pay treasuries that come due.
Looking at the real industry, not derivative of the defense industry, then the increase in GDP is way smaller and possibly even recessionary, because so many jobs left to Asia. Instead of investing the money into research and development of new products, technologies, ways to improve life for all, the money drifts to the banks and from there into the stock market. While the tax reduction helps businesses, it is a windfall for large corporations. And ironically, for all the claims that people are on welfare and food stamps because they are lazy, the lowest paid employees pay the “subsidies” to the biggest corporations. Were they obliged to pay living wages, food stamps would not be a big expense. But there is no such obligation. Under the pretext of higher minimum wages cutting down the number of entry-level jobs and thereby preventing young people to get a foot in the door of the job world, these young people are obliged to live at home because the wages don’t pay for housing and food.
Until the US dares to put all its effort into creating ever new and better products – not just second rate copies of European products – and to solve the conundrum of national debt, the economy will not get genuinely better.
Stumbled on this article while searching for a graph on US labor participation rates. Having dabbled in economics in college, I could not agree more. The largest increase in our expenses has been health care by far even though we have it via our employer.
the UK healthcare system is half the cost of the USA … and UK is free at the point of use