Friday, February 6, 2009

What if 25% and Growing Real U.S. Unemployment is Equilibrium?

For starters, it would be called Structural Unemployment; and there is mounting, compelling evidence that this is precisely where we're headed. Not as punishment -- unless we are stupid and inflexible about it -- but as the logical outcome of the overwhelming success of industrialization. Nevertheless, it's also observed in nature that every metamorphosis is an excruciating process; an epiphany of existential crisis.
It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world. -- Paul Krugman, New York Times, Feb 5, 2009

Data extracted on: February 6, 2009 (8:47:17 PM)
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SOURCE:Bureau of Labor Statistics Table A-12. Alternative measures of labor underutilization (Percent)
Series Id:LNS13327709 Seasonal Adjusted
Series title: (seas) Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers
Labor force status: Aggregated totals unemployed
Type of data:Percent
Age:16 years and over
Percent/rates: Unemployed and mrg attached and pt for econ reas as percent of labor force plus marg attached

Just last month, January 2009, Seeking Alpha explained:

As you can see here we have an increase of 1.3% to 13.5% unemployment in December. Many people including myself think this is a better more accurate number for understanding the current unemployment situation.

It is also interesting to note that a loss of 1.3% of jobs from a labor force of about 254 million with slightly more then a 65% participation rate equals job losses of more then 1 million jobs from November to December. Almost double that which was reported.

Interesting also is that even though the scales are somewhat different (U6 at 6% unemployment is good) the U6 numbers represent a 10% increase in the unemployment rate vs just a 5.8% increase in the U3 from Nov to Dec.

Something to think about and keep an eye on going forward.

Prior to the addition of today's (February 6, 2009) 600,000 lost jobs, The Market Oracle, UK explained, "if you include the people that the government doesn't even count – such as unemployed farm workers, the idle self-employed, and workers in private homes – the unemployment rate approaches an astonishing 18% (top line)."

"In other words, unemployment has insidiously spread to almost one-fifth of the U.S. work force, a number much larger than the single-digit figure commonly bandied about in the press."

So if we're already at 18% to 20% real unemployment, and Davos is even partially correct that things are definitely going to get worse before they get better, how unlikely is 25% unemployment, really?

Not all that unlikely, at all. Friends, in case you haven't yet noticed, this is called a Disruptive Inflection Point. It's time to insist that our leaders shift gears into the Post-Industrial, Post-Information, Post-Scarcity policy mode.

I understand the paradox, it's easy to think that downturns must be because we don't have enough stuff. However, terabyte hard drives are $100. Brand new state-of-the-art netbooks with 1GB RAM and 8GB solid state drives (no moving parts) are $250. We have more than enough information age stuff. In fact, it's a crisis of context amidst runaway accelerating change, a crisis of abundance, and a crisis of resource skews; not a crisis of lack. Perhaps Toffler was simply a little ahead of schedule; perhaps his future shock has finally arrived.

What we do know is that Barry Ritholtz has: "frequently exhorted people to pay attention to N.I.L.F. — those people Not in Labor Force." And:

Over the past few years, dishonest politicos failed to mention that Unemployment had gone down primarily due to people leaving the labor poolnot due to a surge of new job creation.

U.S. Labor Force Participation Rate
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We also know that as far back as June 2008, Ritholtz pleaded, to no avail, of course:

Here is a modest proposal for all of the poor scribes (like me) who slog through the monthly NFP report: For the sake of more accurately describing the conditions in the labor market, let's begin reporting two measures of Unemployment: U3 as well as U6.

Its been pretty obvious for sometime that the Financial Media are doing a disservice to their readers by only reporting U3, given how dramatically it understates Unemployment. Indeed, consumer sentiment reports are at deep negative levels that only occur when Unemployment is much than what U3 has been saying. It is painfully obvious that U3 does not paint an accurate view of the Employment situation.

Its way past time to fix that.

Here's the experiment I propose: Let's start reporting both, with appropriate descriptions of each. Report U3, add U6, provide monthly and year over year changes. Let the reader see the full picture, via BLS data.
Finally, raise your hand if you think U6 is really, truly accurate. What, no hands? How many think the number is overstated? Really? Nobody? How about understated? That's what I thought. But by how much 10%? 50%? Can we really continue to sit around twiddling our thumbs and placing false hope in this "stimulus" that will essentially only bail out essential infrastructure companies? I think not.

So what do we do to adjust to this Disruptive Inflection Point? We legislate a U.S. Basic Income immediately and make it a model for The World.

The Basic Income solution to Structural Unemployment is nothing new, many of the world's leading intellectuals have seen this coming for a very long time:
One of the explanations behind structural unemployment came from Austrian and French social philosopher, André Gorz. He argues that it could be permanent in modern society. He therefore argues that a basic income could be a solution, and as he explain: "The connection between more and better has been broken; our needs for many products and services are already more than adequately met, and many of our as-yet-unsatisfied needs will be met not by producing more, but by producing differently, producing other things, or even producing less. This is especially true as regards our needs for air, water, space, silence, beauty, time and human contact...
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