Supply, Demand, Unemployment, and Nonsense

Time to examine some stuff written by a guy whom some people apparently call an economist:

I hear through the grapevine that the usual suspects at the WSJ have put out something along the lines of “Krugman says that unemployment benefits won’t raise unemployment, but in his textbook he says they will, neener neener.” Are they really that stupid? Probably not — but they you think that you, the reader, are that stupid.

My comment:
I think last part was supposed to be a sentence. I must assume that the guy who wrote this was in quite a rage over some unspeakably mean and cunning accusations pointing out inconsistencies in his “philosophy”. Thus he should be exculpated for such minor typos. This, however, does not in the slightest exculpate him for the actual crapload of “content” he fired off thereafter. I will for the most part not attempt to refute any statements made. For this would necessitate the existence of statements. The author obviously tries to avoid making any. For the most part he neither utters truths, nor falsehoods, but instead indulges is “un-truths”. (An un-truth is a claim that in itself defies the existence of truth. One can accomplish making such statements by using undefined terms. Example. If I say dooory and glooory makes fooory, then I have uttered an un-truth. I was asked by a reader to clarify which terms I consider undefined in this piece.)

But anyway, maybe this is a good time to explain the difference between determinants of the NAIRU — the minimum rate of unemployment consistent with a stable inflation rate — and the determinants of the unemployment rate at a point in time.

MY comment:
OK, since the author uses the term inflation without any further elaboration, I must assume that he has dealt quite a big deal with the phenomenon of inflation and is well aware of the only useful definition of inflation, meaning an increase in the supply of money and credit. I must thus assume that he does not fall prey to the completely arbitrary definition of inflation, namely the average price increase composition of some goods that some bureaucrat decided to consider.

That being said I am not sure what he means by “the minimum rate of unemployment consistent with a stable inflation rate”. He seems to be asserting there is some logical inverse linkage between inflation and unemployment, at least that’s my guess. I hope he doesn’t consider such constructs as the Philips curve in any way supportive of this claim, given that its validity has been long refuted. However, he doesn’t elaborate on it further so this statement of his remains, for now, unexplained and arbitrary.

So: there are limits to how hot you can run the economy without inflationary problems. This is usually expressed in terms of a non-accelerating-inflation unemployment rate; yes, there are some questions about whether the concept is quite right, especially at very low inflation, but that’s another issue.

My comment:
What is he taking about here? Again, I have to resort to guesswork.
What does he mean by “there are limits to how hot you can run the economy without inflationary problems” ?
What are those limits? What, in fact, is the unit in which I measure those limits?
What is “hot”?
Who is “you”?
What does “to run” the economy mean? In fact, what is the economy? Is it the market? But then who is that “you” who “runs” the market? The market is, by definition, not run by anybody, but is a system of multiple elements interacting as an organism, not an organization! So it is not “run” by anybody.
And then he says “there are some questions whether the concept is quite right”. If that is so, wouldn’t it make sense to resolve those questions first and establish the truth of a hypothesis you are applying to fundamentally support your reasoning?
And still I see him use the term inflation quite a lot without ever having told me what precisely it is, what it’s caused by, and what its valid relevance is when talking about unemployment.

Everyone agrees that really generous unemployment benefits, by reducing the incentive to seek jobs, can raise the NAIRU; that is, set limits to how far down you can push unemployment without running into inflation problems.

My comment:
What? Again, who is “you”? Is it the President? The central bank chairman? God? Who “pushes” unemployment. In fact, what does it mean in the first place?

But in case you haven’t noticed, that’s not the problem constraining job growth in America right now. Wage growth is declining, not rising, and so is overall inflation. A wage-price spiral looks like a distant dream.

My comment:
The author is right on one thing: Inflation is declining and has been for a while. In fact there is no inflation, there is deflation. And it is the only thing that can bring about a true and sustainable recovery. The only problem is, those who produce money and to some extent credit are trying to slow down or even stop deflation.
Now, I am unsure as to what this has to do in any way with his assertion that unemployment benefits reduce unemployment.

What’s limiting employment now is lack of demand for the things workers produce.

My comment: This is quite a strong statement to make. I wish this ivy league professor could deign to explain to us what he means by “lack of demand for the things workers produce”. Could he give me some real life examples? Does he actually understand what the purpose of prices is?

If a “lack of demand”, meaning the deliberate desire of some individuals to consume less and thus a perfectly valid choice, were the cause of unemployment, then the solution to this problem would be for those who produce those “things” to drop the prices of the goods offered so as to entice marginal consumers to purchase the goods in question.

If the author refers to the lack of profitability of such measures then it would indeed be better for those workers to stop what they are doing and find occupations that are more useful from the consumers’ points of view. This is the whole purpose of the mechanism of entrepreneurial profit and loss. Unfortunately the author nowhere delves into such annoying questions and thus leaves us nothing but a giant hole of nothingness.

Their incentives to seek work are, for now, irrelevant. That’s why comments by the likes of Sen. Kyl are so boneheaded — anyone who thinks that high unemployment in the first quarter of 2010 has anything to do with workers getting excessively generous benefits must not get out much.

My comment:
And so as a conclusion the author declares that the whole disincentive rooted in the provision of money taken from one person at gunpoint and supplied to another person for not working is simply irrelevant. I’m sorry, but this does not convince me in any way. Are you convinced??

And the truth is that unemployment benefits are a good, quick, administratively easy way to increase demand, which is what we really need. So right now they have the effect of reducing unemployment.

My comment:
How exactly do unemployment benefits “increase demand”. Wouldn’t it be helpful to try and explain the supposed mechanism at work when trying to advance such an argument? How precisely does it increase demand if I tell someone to give me $50 or else I will shoot him and then I hand it over to someone else who needs to prove to me that he is not working? And please don’t you tell me you think that the unemployed person spending the money will increase demand. That money has been taken from another person whose demands will be reduced by just that same amount! What it does indeed do is reduce the output of goods, which is the worst thing you can do for the well being of the people!!

I’m sorry to appear so nitpicky. I was asked to comment on this piece of crap and point out what I consider undefined terms so that’s what I did.

If we want to debate concepts clearly, I could simply sum up Krugman’s main point in one or two sentences and refute it with ease. But that is not how he rolls. He tries to obfuscate his concepts and claims with as many scary and unclear terms as possible and sometimes even just resorts to references to entire papers written by others, so as to make a reasonable debate over real issues virtually impossible.

That’s why I would, in my humble opinion, ask anybody who is genuinely interested in economics and human action to not take his stuff serious. Again, just tune out. There are so many more useful things you can do in your life than wasting your time with articles written by Paul Krugman.

Talk to a friend about truth and epistemology, talk to your mom and dad about your childhood, question people in your life about ethics, concepts, the state, and God, heck … sit in a room and stare at a wall. All these things would be a thousand times more useful than reading one paragraph from this deranged crackpot.

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Government Spending Fails To Create Jobs – Economists Confused As Always

A brilliant government is again surprised as Unemployment unchanged by projects:

A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama’s first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an “urgent need to accelerate job growth.”

An Associated Press analysis of stimulus spending found that it didn’t matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.

With the nation’s unemployment rate at 10 percent and expected to rise, Obama wants a second stimulus bill from Congress including billions of additional dollars for roads and bridges – projects the president says are “at the heart of our effort to accelerate job growth.”

Transportation Secretary Ray LaHood defended the administration’s recovery program Monday, writing on his blog that “DOT-administered stimulus spending is the only thing propping up the transportation construction industry.”

Road spending would total nearly $28 billion of the Jobs for Main Street Act, a $75 billion second stimulus to help lower the unemployment rate and improve the dismal job market for construction workers. The Senate is expected to consider the House-approved bill this month.

But AP’s analysis, which was reviewed by independent economists at five universities, showed the strategy of pumping transportation money into counties hasn’t affected local unemployment rates so far.

“There seems to me to be very little evidence that it’s making a difference,” said Todd Steen, an economics professor at Hope College in Michigan who reviewed the AP analysis.

And there’s concern about relying on transportation spending a second time.

“My bottom line is, I’d be skeptical about putting too much more money into a second stimulus until we’ve seen broader effects from the first stimulus,” said Aaron Jackson, a Bentley University economist who also reviewed AP’s analysis.

For the analysis, the AP reviewed Transportation Department data on more than $21 billion in stimulus projects in every state and Washington, D.C., and the Labor Department’s monthly unemployment data to assess the effects of road and bridge spending on local unemployment and construction employment. The analysis did not try to measure results of the broader aid that also was in the first stimulus such as tax cuts, unemployment benefits or money for states.

Even within the construction industry, which stood to benefit most from transportation money, the AP’s analysis found there was nearly no connection between stimulus money and the number of construction workers hired or fired since Congress passed the recovery program. The effect was so small, one economist compared it to trying to move the Empire State Building by pushing against it.

“As a policy tool for creating jobs, this doesn’t seem to have much bite,” said Emory University economist Thomas Smith, who supported the stimulus and reviewed AP’s analysis. “In terms of creating jobs, it doesn’t seem like it’s created very many. It may well be employing lots of people but those two things are very different.”

Despite the disconnect, Congress is moving quickly to give Obama the additional road money he requested.

“We have a ton of need for repairing our national infrastructure and a ton of unemployed workers to do it. Marrying those two concepts strikes me as good stimulus and good policy,” White House economic adviser Jared Bernstein said. “When you invest in this kind of infrastructure, you’re creating good jobs for people who need them.”

Even so, transportation spending is too small of a pebble to create waves in the nation’s $14 trillion economy. And starting a road project, even one considered “shovel ready,” can take many months, meaning any modest effects of a second burst of transportation spending are unlikely to be felt for some time.

“It would be unlikely that even $20 billion spent all at once would be enough to move the needle of the huge decline we’ve seen, even in construction, much less the economy. The job destruction is way too big,” said Kenneth D. Simonson, chief economist for the Associated General Contractors of America.

Few counties, for example, received more road money per capita than Marshall County, Tenn., about 90 minutes south of Nashville.

Obama’s stimulus is paying the salaries of dozens of workers there, but local officials said the unemployment rate continues to rise and is expected to top 20 percent soon. The new money for road projects isn’t enough to offset the thousands of local jobs lost from the closing of manufacturing plants and automotive parts suppliers.

“The stimulus has not benefited the working-class people of Marshall County at all,” said Isaac Zimmerle, a local contractor who has seen his construction business slowly dry up since 2008. That year, he built 30 homes. But prospects this year look grim.

The stimulus has produced some jobs. And a growing body of economic evidence suggests that government programs, including a $700 billion bank bailout program and the $787 billion stimulus, have helped ease the recession.

Highway projects have been the public face of the president’s recovery efforts, providing the backdrop for news conferences with workers who owe their paychecks to the stimulus. But those anecdotes have not added up to a national trend and have not markedly improved the country’s broad employment picture.

The 400-page stimulus law contains so many provisions – tax cuts, unemployment benefits, food stamps, state aid, military spending – economists agree that it’s nearly impossible to determine what worked best and replicate it. It’s also impossible to quantify exactly what effect the stimulus has had on job creation, although Obama points to estimates that credit the recovery program for creating or saving 1.6 million jobs.

It is also becoming more difficult to obtain an accurate count of stimulus jobs. Those who receive stimulus money can now credit jobs to the program even if they were never in jeopardy of being lost, according to new rules outlined by the White House’s Office of Management and Budget.

The new rules, reported Monday by the Internet site ProPublica, allow any job paid for with stimulus money to count as a position saved or created.

Rep. Darrell Issa, R-Calif., complained in a letter sent last week to the government board monitoring stimulus spending that the new policy would make job counts “even more misleading.”

But Republicans aren’t expected to oppose Obama’s plans to increase transportation spending, a politically popular idea supported even by some in the GOP who have criticized other stimulus programs.

The road money ripples through the economy better than other spending because it improves the nation’s infrastructure, said Bernstein, the White House economist.

But that’s a policy argument, not a stimulus argument, said Daniel Seiver, an economist at San Diego State University who reviewed AP’s analysis.

“Infrastructure spending does have a long-term payoff, but in terms of an immediate impact on construction jobs it doesn’t seem to be showing up,” Seiver said. “A program like this may be justified, but it’s not going to have an immediate effect of putting people back to work.”

This is simply funny. This is the only assessment I can make. You have all these economists running around, looking up data, and trying to figure out what is happening and why no “jobs are being created” as a result of government spending.

Well, let me break it down for these people in very simple terms: The government is a group of people that obtains money from other people by the use of force or threat thereof. It uses that money for certain projects. But it doesn’t need to sell anything at any price. This is the phenomenon of bureaucracy. Thus it doesn’t need to create value in any way. Thus it opens the doors to corruption and rackets that make a few people and corporations very rich and in the very process, simply by it’s nature, destroys value.

To think that government spending would improve the jobs situation in the country is plain nonsense. For where does the government take the money from that it spends on projects? It takes it from the taxpayer. The fact that this has to be pointed out and nowhere appears in the page long analyses of ivy league economists is certainly annoying, but we have to deal with these amateurs unfortunately.

If Carl Consumer used to spend $10 per week in the bakery, Bob Bakery will use that money to cover cost like staff, appliances, etc. If Gordon Government holds a gun to Carl’s head, threatens him with kidnapping, and takes those $10 per week from him, then he won’t have the money to spend it in the bakery anymore. Gordon Government can now hire his campaign backer Conrad Contractor for that money to fix potholes in a road, or to dig holes in the desert, or whatever Conrad’s field of expertise is. Conrad Contractor will be happy about his new occupation, while Bob Bakery will be sad and will have to let people go due to fewer bread sales.

This transaction in itself is a zero sum game, as far as immediately visible numbers are concerned. But doesn’t the fact that Gordon Government uses the threat of violence to get to that money in the first place give you at least some little doubt as to whether or not he will spend the money wisely? If so, then you are on the right track. Because this is at the root of all government expenses. What destroys value and long term jobs in this process is the Trouble With Bureaucracy.

“Aaaah, …” says now the boring Princeton kindergarten economist with beard, “… you amateurs fail to realize that the government does NOT fund this effort via taxation, but instead borrows the money, and uses sound deficit spending to create wealth and jobs out of nothing. See it’s really simple: The government spends more money and through the well known multiplier effect the entire economy is turned around, saved, and turned into a paradise of sugar trees and chocolate rivers.”

OK, very well, let’s say Gordon Government does borrow the money. Who does he borrow the money from and under what premise? He borrows the money from Ian Investor who has saved up some money looking for alternative investments on the capital markets. He tells Ian Investor: “Hey, Ian, look no further, forget about all these visionary entrepreneurs and fascinating projects you are planning to fund. Give me that money. I will use it for some road projects or something else I will somehow come up with on the fly, but I will make sure today’s children, who luckily can’t vote yet, will be forced via the threat of imprisonment to pay off your debt at some distant point in the future! I call it taxation and I’ll make everyone believe it’s justified! Isn’t it great?? :))” Ian Investor now swiftly tells Ed Entrepreneur who was looking to hire people for his electric car startup, that he found a better prospect and gladly turns his funds over to drooling Gordon.

Get it? Is this so hard? Is there anything anybody doesn’t get about this in Congress? Of course not. These people are well aware of what they are doing. But they don’t care about what they are doing to the common people. They don’t care that they are destroying value. Why not? Why should they?? You and you, and you over there have given them the power to violently take your money under the threat of imprisonment. Why in the world would they care what happens to you??

Wake up people!

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Employers Shed 263,000 Jobs in September 09; Real Uneployment Reaches 17 Percent

Today’s statement from the BLS Commissioner notes:

Job losses continued in September, and the unemployment rate continued to trend up, reaching 9.8 percent. Nonfarm payroll employment fell by 263,000 over the month, and losses have averaged 307,000 per month since May. Payroll employment has fallen for 21 consecutive months, with declines totaling 7.2 million. In September, notable job losses occurred in construction, manufacturing, government, and retail trade.

Based on today’s report on the employment situation, the real unemployment rate U-6, the best and most realistic unemployment measure, has now reached 17%:

bls-september-2009

The numbers are worse than analysts had expected:

Analysts polled by Reuters had expected non-farm payrolls to drop 180,000 in September and the unemployment rate to rise to 9.8 percent from 9.7 percent the prior month. The poll was conducted before reports, including regional manufacturing surveys, showed some deterioration in employment measures.

… welcome to the post-cash-for-clunkers economy.

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US Unemployment at 16.8 Percent

The BLS Reports:

In August, the number of unemployed persons increased by 466,000 to 14.9 million, and the unemployment rate rose by 0.3 percentage point to 9.7 percent. The rate had been little changed in June and July, after increasing 0.4 or 0.5 percentage point in each month from December 2008 through May. Since the recession began in December 2007, the number of unemployed persons has risen by 7.4 million, and the unemployment rate has grown by 4.8 percentage points.

The best unemployment measure U-6 (Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers) shows that real unemployment has now risen to 16.8%, after temporarily dropping to 16.3% in July.

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Unemployment Benefits Running Out for 1.5 Million

Another drag on consumer spending is just ahead as Prolonged Aid to Unemployed Is Running Out:

Over the coming months, as many as 1.5 million jobless Americans will exhaust their unemployment insurance benefits, ending what for some has been a last bulwark against foreclosures and destitution.

Because of emergency extensions already enacted by Congress, laid-off workers in nearly half the states can collect benefits for up to 79 weeks, the longest period since the unemployment insurance program was created in the 1930s. But unemployment in this recession has proved to be especially tenacious, and a wave of job-seekers is using up even this prolonged aid.

Tens of thousands of workers have already used up their benefits, and the numbers are expected to soar in the months to come, reaching half a million by the end of September and 1.5 million by the end of the year, according to new projections by the National Employment Law Project, a private research group.

Unemployment insurance is now a lifeline for nine million Americans, with payments averaging just over $300 per week, varying by state and work history. While many recipients find new jobs before exhausting their benefits, large numbers in the current recession have been unable to find work for a year or more.

Calls are rising for Congress to pass yet another extension this fall, possibly adding 13 more weeks of coverage in states with especially high unemployment. As of June, the national unemployment rate was 9.5 percent, reaching 15.2 percent in Michigan. Even if the recession begins to ease, economists say, jobs will remain scarce for some time to come.

“If more help is not on the way, by September a huge wave of workers will start running out of their critical extended benefits, and many will have nothing left to get by on even as work keeps getting harder to find,” said Maurice Emsellem, a policy director of the employment law project.

For many desperate job seekers, any extension will seem a blessing. Pamela C. Lampley of Dillon, S.C., said she sat outside the post office last month and cried because “it was the first Wednesday in quite some time that I’ve gone to the mailbox and left without an unemployment check.” The jobless rate in her state is 12.1 percent.

Ms. Lampley, 40, who is married with three children, lost her job as a human resources officer in January 2008 and had been receiving $351 a week, which covered the groceries and gas. Even so, she and her husband, who still has work as a machinist, were sinking into debt. Now, still poorer, she feels devastated because they cannot buy their son a laptop to take to college and she cannot give her 9-year-old son money for the movies.

In Ohio, where unemployment is 11.1 percent, Cathy Nixon, 39, a mother of four teenagers from Lorain, has been out of work for much of the time since June 2007, and her benefits — $313 a week — run out in September. Ms. Nixon is already fighting foreclosure and said she feared that when the benefits end, “we’ll be homeless.” She was unable to afford summer camp and baseball activities for her children, despite scrimping on basics.

Raymond Crouse of Columbus operated heavy construction machinery but has found no work since 2007. Mr. Crouse is 72 and receives Social Security but said that was not enough to live on. The $190 a month he has received in unemployment benefits enabled him and his wife to hang on to the house they bought 15 years ago, he said. But with the benefits ending next month, he fears that they will not keep up.

In ordinary times, employers pay into a state insurance fund, and workers who lose jobs draw benefits for up to 26 weeks. During recessions, Congress has often paid for extended coverage for an extra 13 or even 20 weeks.

In 2008, as the recession deepened, Congress provided 33 extra weeks of benefits. Earlier this year, President Obama’s stimulus plan offered an additional 20 weeks in states where unemployment surpassed 8 percent, if they adopted new federally recommended rules governing these extra weeks. (South Carolina did not make the changes, and benefits there are running out more quickly.)

Currently, people can draw benefits for up to 79 weeks in 24 states and from 46 weeks to 72 weeks in others.

The stimulus law also, through the end of the year, provided an extra $25 a week to all recipients, exempted a portion of benefits from federal income tax and subsidized Cobra health payments for the unemployed.

Representative Jim McDermott, Democrat of Washington and chairman of the House Subcommittee on Income Security and Family Support, said he would introduce a bill in September to provide yet another 13 weeks of coverage in states with unemployment rates of 9 percent or higher. “Legislators will line up quickly when they start getting calls from desperate constituents,” he said in a telephone interview. The cost would be $40 billion to $70 billion, but the expense would be temporary, Mr. McDermott said.

Some business groups remain skeptical. Douglas Holmes, president of UWC, a group in Washington that represents businesses on unemployment issues, said that there were early glimmers of economic progress and that it was premature to extend benefits again. The money might be better spent, Mr. Holmes said, creating jobs and training people to move into emerging industries.

Traditionally, many economists have been leery of prolonged unemployment benefits because they can reduce the incentive to seek work. But that should not be a concern now because jobs remain so scarce, said Lawrence Katz, a labor economist at Harvard.

For every job that becomes available, about six people are looking, Dr. Katz said. “Unemployment insurance gives income to families who are really suffering and can’t find work even if they are hustling to look,” he said.

With the economy still listing, he added, a temporary extension can provide a quick fiscal stimulus. And, Dr. Katz said, when people exhaust unemployment and health insurance, many end up applying for disability benefits, which become a large, unending drain on the Treasury.

Ms. Lampley, whose benefits have ended, described the tough job market. She used to make nearly $15 an hour and has unsuccessfully sought office and clerical work at $8 an hour. Mr. Crouse said that even if new building projects were planned, construction slows in the winter cold.

And Ms. Nixon said that she had interviewed endlessly for jobs in real estate and office work and that even her teenagers could not find fast-food jobs because laid-off adults were filling them.

“I can’t find a job,” she said, “and you can’t survive if you don’t work.”

My comment: True that. And sadly your government is doing everything possible to make your survival as hard as possible. If the majority mood truly is what McDermott claims it to be, then we are now seeing a toxic mix for employment: Rising unemployment, minimum wages approaching above market level, people made dependent upon the government dole, with a rising number of unemployed sucking the lifeblood out of the declining number of employed. I am afraid he may be right with his assessment of the public mood. His policy recommendations are obviously pathetic: Subsidized unemployment. This is a simple rule: When you subsidize something, you’ll get more of it. And even if we were to enact more federal aid. What comes after it’s been exhausted and yet more people are unemployed as a result? I have a better suggestion: Get rid of minimum wage laws, stop trying to stave off price declines left and right, and employment and real wages will recover quickly.

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