Unemployment And The Demand For Jobs

Yesterday the United States Department of Labor released this previous week’s unemployment report, with no surprise the number rose to 365,000 with a 8,000 no-job increase. The big kicker to get out of this is the next short paragraph from the same Wall Street Journal article:

“Claims for the July 21 week were revised up to 357,000 from an initially reported 353,000.” – Eric Morath & Sarah Portlock – WSJ

The takeaway from this is that the Department of Labor (DOL) never gets it right when the numbers are initially reported. But the revision is always buried in the article where most skip over. There is a key under-tone to this methodology. For approximately 42 months – the unemployment rate has been above 8%. The accurate number for unemployment is to consider what the DOL labels as the U-6 Measure. This measure is the “total unemployed, plus all persons marginally attached to the labor force, plus total employed part-time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force”. After all Obama’s recovery plan was sold as a bill of goods that would prevent the unemployment rate from breaking the 8% threshold. The image above illustrates what happened. I understand the limitations of human future-telling to not blame Obama’s algorithms in being incredibly wrong. I do fault him for thinking that “his” team was smart enough to believe they could micro-manage the largest economy in the world. False omnipotence come directly to mind – narcissistic is next.

An honest person would understand the U-6 number is a better gauge on the status of the labor force. The U-6 unemployment has been above 14% for the same stretch of time – 42 months (~3.5 years). That being said, let us examine what a job means to different people. Obviously with the dichotomy of issues today it is amazing that there are two different perspectives on what a job is. Or as Bill Clinton would ask “Define what you mean by job”. First is the perplexed-Marxist position: President Obama was questioned by NBC’s Ann Curry and said the following:

Effectively Obama would like you to believe that a free-market system does not have the capacity to change with a volatile economy. If you understand capitalism – I would be happy to elaborate on this further if you do not- you know that a free-market is the only system structured for rapid and thus efficient change. President Obama’s conclusion is technology kills jobs. If we lived in a simpler time would, we have more jobs and less unemployment – say 5%?

The other side of the coin comes from Milton Friedman again. I combed my brain to think of another source to contrast Obama, but Friedman did it the best. I will attempt to set up the story, but I will include my source to provide reference to the Quote Investigator. There are many interpretations of the statement, but the premise is what counts here. Milton Friedman was on a visit to China while China was under rule of the communist Mao Zedong. He was traveling with Chinese officials through rural country-side. Mr. Friedman noticed a group of 100 men working with shovels to form a canal. He asked an official – a single earth moving machine could do the work all those men are doing. The Chinese official replied that it was a “job” program. Milton Friedman then replied cleverly; “If it’s jobs you want, take away their shovels and give them spoons.”.

The exact dialogue is not precise but the point is crystal clear. Milton Friedman favored technology to improve the productivity of a society. In my opinion, technology can be used in two different ways. The first is to increase the amount of work per unit that can be done. The second is to do the same amount of work with fewer people. What are the results and implications of either mind-sets? It can simply be stated that one promotes growth and the other promotes stagnation, does it not? Gross Domestic Product (GDP) is a fundamental economic indicator of the overall health of the economy and a measure of the rate of standard of living.

If we looked at the GDP as a piece of pie, as I hear a lot of Statist try to do, what is the application of the point made in the previous paragraph about growth? Of course, in one instance the pie grows and in the other the pie stays roughly the same. Expand one level deeper to how I interpret this.

Social and economic class warfare has been a tool used by the Statists for generations. The Kool-Aid has been drank for long enough that it starts to sound natural; until a drop of truth is added and the batch turns sour. We are currently watching an epic game of chess being played with our country and the values that built it. One subtle part of the strategy is to severely limit the growth and economic development, say GDP growth of about 1.5%, essentially static. If the economic pie is constant – the argument can be made to say that the rich are getting richer off the poor. The idea of a fixed, or conserved, amount of economic capital at all times is simply not how it works in real life. The pie is in a constant state of change. Economic commerce driven by capitalistic incentive increases the amount of money available in the whole economy. That is the demand. Is it not?

Now classical economics states there will be, in a free market, matching supply to prove momentary equilibrium. The metric to measure the supply for economic commerce can quite simply be stated to be jobs. If the pie is held constant, the demand for capital growth is not there and so there is no need for supply. A company is not going to hire an individual to do a share of work a whole individual would otherwise do. The only reason a company increases payroll is because they have more work than they have workers to complete. Common Sense…at least I think so?

So stop and think who is dampening the growth in our economy? The evil corporations? The bureaucratic central-planners? You tell me who controls the demand for jobs!