The U.S. economy is worse than it looks
So the headlines said June jobs were up by about 80,000 and unemployment stayed at 8.2 percent. Not great, but not a disaster. At least things are not getting worse. Right? Well, you could be forgiven if that was the meaning you drew from the headlines and the latest Labor Department releases on job creation. ...
So the headlines said June jobs were up by about 80,000 and unemployment stayed at 8.2 percent. Not great, but not a disaster. At least things are not getting worse. Right?
Well, you could be forgiven if that was the meaning you drew from the headlines and the latest Labor Department releases on job creation. That was how it looked to me at first glance. But having been through this many times before, I took a second glance — and quickly lost my appetite.
The headline unemployment numbers are the so called U-3 government numbers that count just current jobs held, gained, and lost. Because of seasonal factors it is easily subject to distortion that makes it more or less meaningless as was the case in June. A broader, more meaningful measure is U-6 which takes into consideration short term discouraged workers who have only recently stopped looking for work as well as those working part time who really want full time work. U-6 unemployment is 14.9 percent and up about two tenths of a percent in June. Then there are the numbers of the consulting firm Shadow Government Statistics (SGS) which hark back to 1994. Until that time, the U.S. government kept track of long term discouraged workers as well as short term discouraged workers. In 1994, the method of collecting and calculating the unemployment data was changed and the workers who said they would like to work but were so discouraged that they hadn’t been looking for work for a long time were defined out of the calculation. But SGS still does the calculation, and it’s a shocker — 22.9 percent. Yes, that’s the percent of Americans who say they would like to work but for one reason or another can’t find work, are working only part time when they want to work full time, or have become so discouraged that they have given up looking for work. That number means that the U.S. full time work force ought to be a quarter larger than it currently is. Can you imagine what that would do to U.S. GDP growth, to local, state, and federal government tax collections and budget deficits, to savings and investment, and to long term retirement prospects?
The fact is that the U.S. economy is operating far below its potential productive capacity. Estimates of how far below vary, but a good guess is about 5-8 percent of GDP or close to $1 trillion. Remember when Senator Everett Dirksen used to say: "a billion here, a billion there, pretty soon you’re talking about real money?" Well a trillion dollars is real money, and it’s money America isn’t making. Why is the big question.
A significant piece of the answer can be glimpsed in a recent report by U.S. Trade Representative Ron Kirk. In a recent press statement about the Global System of Preferences he said:
"GSP is a valuable tool for advancing the Administration’s goals to boost trade and to advance international economic development. The GSP program helps developing countries to grow their economies while also helping U.S. businesses, workers, and consumers by lowering the costs of imported goods, including those used as inputs for U.S. manufacturing. The annual review allows the Administration to ensure that the program is working as intended."
Got that? The focus is on promoting cheap imports. Looking at the U.S. trade deficit, I’d say the program is working fully as intended. But if the U.S. government spent a fraction of the effort it spends on promoting cheap imports on promoting domestic American production, the U.S. unemployment numbers would look a lot better and the economy would be much closer to operating at its full potential capacity. For the United States to achieve growth without increasing debt, it must substantially cut its trade deficit.