The Official Unemployment Rate is, Well, Bogus

For lack of a better word:

The U.S. jobs report, a key measure of how well the economy is doing, has gotten increasingly less accurate in the past 20 years. The fix for that problem could be in a surprising place: Twitter.

Those are the conclusions of two separate reports out this month. The first report, published by the National Bureau of Economic Research, found that the unemployment number released by the government suffers from a problem faced by other pollsters: Lack of response. This problem dates back to a 1994 redesign of the survey when it went from paper-based to computer-based, although neither the researchers nor anyone else has been able to offer a reason for why the redesign has affected the numbers.

What the researchers found was that, for whatever reason, unemployed workers, who are surveyed multiple times are most likely to respond to the survey when they are first given it and ignore the survey later on…

This works out to an under count of the unemployed and/or an over count of people not in the labor force – the bottom line is that the official unemployment rate doesn’t really reflect the unemployment picture. This is something we’ve known for a while just by the labor force participation rate: if we are in a recovery, it should not be going down. The fact that it is down means that something is off – and calculations of unemployment based upon, say, a 2007 level of participation would still likely have the official rate in double digit territory. But now we see that aside from that, the basic survey is just flawed.

I’ve long had grave doubts about the whole methodology we use to judge the state of the economy.  We aren’t quite as bizarre as Spain, which is apparently set to use transactions in, shall we say, ladies who work in a very specialized form of entertainment, as part of their GDP, but we’re close. To me, there is something absurd in counting government spending as part of GDP, let alone counting what a lonely man blows a hundred bucks on. Real economic strength should be judged by what we make, mine and grow.

If the economy is improving, we’ll see it in statistics of corn production, gasoline refined, tons of iron ore mined, and things like that. These things can’t lie and they can’t be fudged. Did we, or did we not, produce more steel in July of 2014 than in June of 2014? July of 2013? July of 2004?  If the answer is “less” then that would be a bad indicator.  It still might be partially explained by other factors (maybe we’re more efficient in our use of steel, for instance), but the bottom line is that if the production is up, then things are better than if production is down…because people don’t produce for customers that don’t exist. I want to know the measure of production for real goods that people use – I want to know what it is last month, the month before that, the year before that and ten years before that…this way I can see how things are going in both the short and long term; and no need to seasonally adjust: each July will be pretty much like all other Julys. Just tell me what was made, mined and grown – I’ll then see for myself if things are worse, better or just the same…and that will also inform me of what the employment picture is like. If we’re producing less steel, it is a cinch that we’ve got less steel workers, and so on.

We don’t need to know how many people are working in the legal industry – it produces no wealth. Don’t need to know how many people are working in the tourist industry – it also produces no wealth, once you understand that wealth is not a casino mogul in Vegas raking it in hand over fist, but a farmer in the midwest growing corn. The reality is that the entirety of our economy – all of that government and law firms and casinos, etc – is dependent upon the ability of the United States to make, mine and grow things. If we don’t make, mine and grow enough things, then the economy is doomed, no matter how much money the Fed prints to keep things going for years after the economy collapsed. So, let’s start counting what matters and see what our economy is actually like – it’ll tell us what we need to do.

 

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25 thoughts on “The Official Unemployment Rate is, Well, Bogus

  1. Retired Spook August 28, 2014 / 9:32 am

    Unless there is some secret plan to get the economy going again (and I think if there were, someone would have heard about it by now) , there will have to be a day of reckoning at some point. They can’t keep lying and papering the situation over with fake money. Sooner or later even the LIV’s are going to realize something is grossly wrong.

    • Amazona August 28, 2014 / 10:08 am

      ” Sooner or later even the LIV’s are going to realize something is grossly wrong.”

      Yes, and they will blame **George W Bush and the 1% and all of those Other People who are just not Doing Enough and Stopping Obama and if only the wascawwy wepubwicans were not so EEEEVILLLLL and had let Saint Barry do whatever it was he has been trying soooo hard to do (pause to wipe away tear) and more people had more of OPM the stimulus would have worked and those shovel ready jobs would have miraculously appeared instead of being stymied by —-and here we swing around to the beginning of the circle and start over at the **.

      Some of the LIVs are going to figure it out, but many—too many—-are too deeply invested in the excrement factory of the Left to get it.

      But we, as conservatives, bear some of the blame for this tsunami of ignorance. We continue to use Firefox in spite of Mozilla plastering huge banners saying things like “Obama GENEROUSLY lowers interest rates”. We hammer issues like Gay “Marriage” instead of comparing the actual success records of the Left and the Right. Hell, we don’t even DEFINE Left and Right. My favorite Lib has become quite indignant with me for using the term “Left” and claims it is a pejorative, because he has bought into the various issues and hate speech of the Left and is totally ignorant of the actual difference between the two political sides.

      As long as we continue to let the Left define our differences in terms of issues and personalities and Identity Politics, we are going to be fighting the same old battles, over and over again. But for some reason we hesitate when it comes to taking that power away from them and providing our own definitions, which rest on objective historical and economic fact and not on emotions.

      • Retired Spook August 28, 2014 / 12:08 pm

        and here we swing around to the beginning of the circle and start over at the **.

        How many times can we complete that circle before something gives? Seriously, is this just an endless, multi-generational cycle that we’re stuck in? I refuse to believe that.

      • Cluster August 28, 2014 / 4:06 pm

        This is from MSNBC today:

        ……the GOP has “moved the abortion debate into birth control. This is a huge step where women — that’s a threshold issue for women. That’s about birth control, controlling your life. This is being in control of your life. And they want to talk about taking that away? That’s a whole different conversation than abortion.

        Red meat for the LIV’s. How many times have they played this fraudulent card now?

      • Amazona August 28, 2014 / 8:02 pm

        Unless we have some brain-dead GOP candidate out there posing as a representative of the entire party campaigning to outlaw or control birth control, I don’t see why we can’t run really short TV and radio ads quoting this comment and then saying “The problem with this statement is that it is simply a lie. A complete and total lie. Ever wonder why people lie to you? It’s either because the truth will hurt them or a lie might help them. ”

        When they lie we need to call them out on it. And use the word “lie”. It has been considered improper, too “EXTREME” to use a new favorite word of the Left, to actually use the word “lie”. No more. Use it, use it often, use it whenever it pops up.

        And if there is a Republican out there campaigning against birth control (which I seriously doubt) we need to slap him down and lock him in a closet. Or at least point out that he has the right to explain his personal views, but these do not reflect those of the party or of most who vote for the GOP.

      • Cluster August 29, 2014 / 8:15 am

        100% agree. I also think we have a strong field of candidates this year both at State and National levels.

    • Cluster August 28, 2014 / 11:24 am

      What happened to $10 hr minimum wage. I thought for sure that would turn our economy around.

  2. Count d'Haricots (@Count_dHaricots) August 28, 2014 / 7:34 pm

    ” but the bottom line is that if the production is up, then things are better than if production is down…”

    Ah, the simple life.

    Okay, let’s look at the Noonan Economic Indicators.

    Diamond mining in the United States has suffered over the past few decades as diamond mines are becoming something of a rarity. Factually there is only one diamond mine in the US; Crater of Diamonds State Park. Two diamonds of value have been produced this year compared with the three tons of diamonds produced in South Africa.

    Ok, bad example.

    How about manufacturing?

    Italy produces about 3,200,000 hectoliters of distilled spirits while US produces 11,500,000. Yet production is up in Italy and down in the US indicating either there are more Italian drunks than last year or the US economy is falling apart at the gunnels, in which case we’re drinking more Italian whisky. Having tasted whisky from Italy I can tell you neither option is better than a bullet to the head.

    Maybe should stick with steel; because although production is down against Japan, Americans are in a better position to BUY Japanese steel than are the Japanese. Producing less buggy-whips and Coal Fired Furnaces than we did in 1900 is not really an indication of a contracting economy; any more than Sony producing less Walkmans®.

    We are, however producing more whisky than Japan.

    So … there’s that.

    Lawyers produce no wealth? You must know some pretty chintzy lawyers.

    If manufacturing and mining are the keys to financial prosperity then how did Bill Gates generate enough wealth for a dozen billionaires when producing nothing more than ideas? Or did he, like your lawyers, only shuffle money from the farmers to the programmers creating no new wealth? And, if that is the case, how does a farmer “produce wealth” if not for shuffling money from the consumer to the seed monger and the water department?

    But, to the point of the “Unemployment Number”, I have long lectured that the dynamic number is only functional as a month-to-month comparative and can not reliably be used as a long term indicator. Nor can you look backwards to the 1970s or 1980s as a comparison because the methodology was entirely different.

    Because the methods and the potential pool change slowly over time, the only valuable information is the short term trend and not (never has been) the raw number or the magical percentage.

    Bush had 5.7 and Clinton had 7 X 49 Macanudo Churchill while Coolidge fly-rod over six feet and OBAMA’S Hat Size is a Functional 7¼. Just about as meaningful.

    • M. Noonan August 28, 2014 / 11:33 pm

      Diamond mining, though, has not been a major industry in the United States. Coal, oil, steel – have been rather important. We know, for instance, that oil production is up – massively; and it is producing a boom in a lot of areas of the country (booms so large that you’d never think you were in the United States economy if you lived in those areas).

      As for Bill Gates – he did make something; computer programs. Those are things.

      Lawyers don’t produce wealth – they move it around, most often into their own bank accounts. But a rich lawyer doesn’t amount to anything in the overall economy. If all the lawyers disappeared tomorrow, the net effect on the economy would probably be positive (lawyers erect legal roadblocks to activity, and then demand payment for bringing down the roadblock).

      This is crucial, and if people don’t grasp it then we are doomed: we have to produce wealth to survive. Wealth is things that people need. In other words, wealth is what we make, mine and grow. Mine another ton of copper ore and you’ve done something worthwhile – fill out your 1,000th bureaucratic form of the month and you’ve done nothing worthwhile.

      • Count d'Haricots (@Count_dHaricots) August 29, 2014 / 2:40 pm

        *Sigh*
        Economic activity consists of THREE sectors; agriculture, industry and service. Make, Mine and Grow addresses only two of those sectors.

        The idea that service does not cause economic growth is appropriate if we were living in a Monty Python Sketch. “There’s some lovely filth down here Dennis”

        There has never been a time in America where industry employment has exceeded service. Read that again – Lawyers doctors accountants sales people teachers designers architects truck drivers cabbies wholesalers retailers and all the rest of us roadblocks produce more wealth, grow more sectors of the US and World economies than all of your miners and farmers throughout the entire history of the United States.

        AND, there has never been a sustained period where an industry or group of industries has retained equity in the economic equation. Industries come and go; in sheer volume mining copper replaced mining silver; manufacturing automobiles replaced manufacturing buggies which replaced textile manufacturing which replaced tanning leather and pelts as the leading industries.

        Textile industries, as an example was among the strongest economic indicator just prior to the industrial revolution. As production costs dropped with the advent of mechanization the growth of the industry put the US ahead of every other country. Eventually though the costs dropped sufficiently that we could stop producing textiles and buy them cheaper than we could manufacture them. The decline in the US Textile industries corresponded with an expansion of the US economy-not the decline you would have us believe.

        Next time you find yourself arrested, the next time an appliance explodes in your kitchen and burns down your house, the next time the government wants to take your property or your possessions or put you in an institution against your will, the next time some relative shows up with a hand written “Last Will and Testament” with your wife’s signature on it, call a farmer or a coal miner. I’m sure that’s just as good as having a lawyer filling out forms for you.

        And now for something completely different: Two Communists plotting the overthrow of the Government -By William Shakespeare

        Dick the Butcher: “The first thing we do, let’s kill all the lawyers.”
        Jack Cade” Nay, that I mean to do.”

      • M. Noonan August 29, 2014 / 4:20 pm

        I won’t need a lawyer if we get rid of 10,000 laws.

        All of that which you describe – even the parts that have some utility – is still built on the back of those who make, mine and grow. The lawyer can’t buy his $1,000 suit unless someone makes it – and makes all the materials which go into it. He can’t buy his expensive, uptown dinner except for farmers who produce the food. He can’t drive his BMW unless someone gets the oil out of the ground.

        There is no other measure of wealth except what we make, mine and grow. Period.

      • Retired Spook August 29, 2014 / 4:19 pm

        Mine another ton of copper ore and you’ve done something worthwhile

        Mining is just the first step in the wealth that’s created by that copper. If the copper ore sits in the hold of a freighter or in rail cars, no wealth is created. If it’s refined and converted into copper wire, that’s the “make” part of the equation, but if the rolls of copper wire sit in a warehouse, not only is no additional wealth created, a storage cost subtracts some of the wealth that has already been created. The next step is to ship the wire to a wholesaler, broker or dealer — not part of make, mine and grow, but creates wealth for the shipping company and its employees, nonetheless. Some of the largest fortunes in American history were amassed by shipping magnates. The next step is the sale of the wire to the end user — again not part of make, mine and grow, but certainly another step in the wealth creation process. Then the copper wire is used in residential or commercial wiring or as a component of some piece of equipment – so, yes, used to “make” something, but then at the end of the useful life of whatever that copper wire is a part of, the copper is recycled – not part of make, mine or grow, but yet another step in the creation of wealth. “Make, mine and grow are certainly components of an economic system, but by no means are they the be-all, end-all.

        BTW, Mark — I’m going to be in Las Vegas this weekend. Email me and maybe we can chat.

      • M. Noonan August 29, 2014 / 4:25 pm

        Still, Spook, none of it would have happened except that someone mined the copper out of the ground and made something useful out of it – be it a copper pot or copper wire. The basis of all of it is someone making and mining – and, of course, growing because if no one is growing the food, the copper miner and the copper smelter will starve. Sure we can over produce – and we often do; because no one can be sure just how much copper is going to be needed at any given time…but even if the copper isn’t needed, today, it still represents wealth. You won’t find anyone taking copper ingots and tossing them into the landfill. No matter how much of a glut of copper there is at any moment, someone will buy and hold on to that copper.

        I’m not saying that the shipping and retail fields are worthless – but they don’t add to the wealth. They merely move around and sell wealth already created. This is a necessary function, but it doesn’t tell us much about the health of our economy…if the shippers are all shipping Chinese copper and the sellers are all selling Chinese copper, then how are we, as a nation, paying for the copper? What material goods are we selling to the Chinese which allows us to pay for the copper?

      • Retired Spook August 29, 2014 / 5:11 pm

        I’m not saying that the shipping and retail fields are worthless – but they don’t add to the wealth. They merely move around and sell wealth already created.

        If that were true, there would be no such thing as a value-added tax. I think we’re arguing about semantics. At the end of the day, no one really makes money until a product or service is sold.

      • Retired Spook August 30, 2014 / 6:02 am

        There is no other measure of wealth except what we make, mine and grow. Period.

        Do you consider the “measure” of wealth the same as the creation of wealth — the same as the multiplication of wealth? What about inventors without whom the making, mining and growing would be all but impossible? What part do they play in the wealth creation process?

      • M. Noonan August 30, 2014 / 1:18 pm

        Spook,

        Investors are still not the wealth creators – they are, of course, important. I can have all the copper in the world on my land but if I don’t have the means to extract it, then it is of little use. Most people, of themselves, will never have enough means to do something major on their own – we must, therefor, go into partnership. But let us not blind ourselves to the fact that the investment firm isn’t making wealth – it is assisting in the process which will produce wealth. To an investment company, however, the purpose isn’t wealth creation but profit creation – which are not necessarily the same thing. Government bonds can be profit-making but they can’t be counted as wealth creation – such bonds represent wealth extracted from the total pool of wealth; and even if the bonds are for, say, building a dam it doesn’t translate as a 1 for 1 thing of wealth creation…because in any government activity, part of the wealth is siphoned off by the government before it even gets to the dam building (though a dam represent wealth, so the government building such a thing is not doing something negative). But also keep in mind that government essentially issues bonds to pay for liberal fascists to create a “truthy” program to track conservatives on the web. Might be useful in building up the Gulag shipping data base, but not much use in terms of wealth creation, huh?

        To Antonia’s point – I agree that a whole host of people are involved in the process of making, mining and growing even if they don’t particular make, mine or grow anything. But I still class the truck driver who drives the copper ore to the copper smelting plant as a “maker”. He is involved in the process which will result in real wealth being made – and so, for those hammering me, yes, the banker who lent the mining operator a million dollars also helped…but I still don’t count the banker as a wealth producer because he doesn’t do the actual work of getting it done.

        The reason I separate this out is because I think we’ve really lost sight of what is economically important – probably not 25% of our GDP is actually representing genuine wealth creation. And we’ve got ourselves suckered into thinking that making, mining and growing things is secondary to economic health. That there doesn’t have to be any real work done. The other day I was talking to a friend of mind who had an 8 year old son and we got into the discussion of long-range plans…and her dreams of college, natural enough for a doting mother. But she hadn’t even considered that college wasn’t necessarily where its at: when I suggested he might wind up a very highly paid tool and die maker, she hadn’t a clue of what I was talking about…now that I mentioned to her what sort of pay such skilled labor can command, it is at least in her mind. The boy will eventually decide – but, let’s face it, kids mostly choose from among the options provided by the parents. I think that we, as a people, are not even putting it out there that there are rewards to be found outside government and corporate bureaucracies…especially in terms of individual liberty and genuine ownership of the means of production.

      • Amazona August 30, 2014 / 10:40 am

        I do agree that the FOUNDATION of all wealth lies in mining, making and growing. But there are vital and important industries built upon that foundation that make the mining, making and growing expand into more than the basic subsistence level of old economies. There have always been miners, makers and growers, but they tended to keep their wealth to themselves, employing some to do the work but for the most part retaining what wealth was produced.

        Now we have many other industries, for lack of a better word, which while dependent at their most basic roots on what has been mined, made or grown are still vital to expanding that wealth. This is what has created the middle class—–the teachers, the lawyers, the managers, and yes, even the bankers.

        Simple example: Between Denver and Colorado Springs is an area now being drilled for oil. So a primitive overlay of this would be: Farmer John, a “grower”, owns the mineral rights, which he leases to ABC Oil Company, which hires GHI Drilling Company to do the drilling, GHI hires JFK Excavation to build the road across Farmer John’s pasture, and to level a drilling site. JFK buys its gravel from LMN Gravel Company, and it is hauled by NOP Trucking Company. Each of these companies hires people to do the work of that particular company; management staff, office staff, operators, drilling hands, truck drivers, etc. Stop this process right here—don’t go on to the transfer of the oil and gas to the processors, and then to the consumers. Just at this point we have miners—-the oil company and the gravel company—-and we have makers—-from all the many components of a drilling rig to the heavy equipment used in the excavation to the crushers and screens and loaders and scales at the gravel pit to the trucks hauling material to the fire resistant clothing worn on the rig, it was all made somewhere, by someone. It was also made FOR someone. The “wealth” is spread to someone who is not now growing to make the money but merely owns the land—Farmer John—and to administrators, drivers, accountants, lawyers (because it is not only good fences that make good neighbors, but good contracts), engineers, and so on.

        If we go beyond the perimeter of the drilling site, once the petroleum product is produced, we have makers of roads and houses and buildings to house retail sales and grocery stores and churches and schools and those pesky banks, and we have movie theaters and restaurants and bowling alleys. We have makers supplying the buildings and their contents, we have growers providing for the grocery stores and restaurants, but none of these would survive without service staff. None of them. The makers can make houses, but without bankers to loan money to workers to buy those houses, or to investors who rent the houses, nothing happens.

        We have to have the teachers and the preachers, the waiters and bartenders and grocery clerks and the guy who sprays disinfectant into rental bowling shoes. We have to have the plumbers and electricians and computer techs and people who not only sell us our cell phones but teach (or try to teach) us how to use them.

        It is all intertwined and none of it can be separated from the rest, so I think the argument is really one of quibbling over where in the chain of events is one or the other choosing to make his stand.

        I have a visual mind, so work with me here. Take a pyramid, and cut off the top so it is not pointed. Turn it over, so it rests on the truncated former top. This is how I see the economy. That fairly narrow base is what Mark is talking about—the miners, the makers and the growers. Everything pretty much rests on them. But then the economy expands, upward and outward, with all the many areas of economic development that emanate from the production and marketing and consumption of what has been mined, made or grown. Mark seems to be focused on the base of the pyramid, which is a legitimate point, as it is crucial, and the Count is looking farther up and out to the essential supports that make the foundation function in an expanding and vital economy.

        The most stable economy is one where that foundation is American—where we mine, make and grow what we need to expand upward and outward. We can expand if we import the goods mined, made and grown from other economies, but we would be better off if most of what we buy and use were to come from our own foundations of mining, making and growing, and not from those of other nations.

  3. Retired Spook August 28, 2014 / 10:46 pm

    When Barack Obama was inaugurated in January, 2009, there were 112,630,000 Americans employed in full-time jobs. By July, 2014 that number had increased to 118,490,000, an increase of 5,860,000. During the same time frame, the U.S. population increased from 307,006,550 to 318,761,703, an increase of 11,755,153. Even a LIV can do that math.

  4. dbschmidt August 30, 2014 / 10:31 pm

    Now, for something completely different…

    I am one of the wealthiest people I know. Not because I have money ~ for I have little compared to others. Nor do I live in a mansion ~ just a little 3/2 ranch in NC. Instead of a fancy sports car – I drive a 97 POS (not point-of-sale) Ford F-250 at 300,000 miles every day by choice.

    I am wealthy because I can count my true friends on one-hand and getting close to needing two. I do understand the business of business; however, I deal with most via a promise and a handshake. Those that cannot be trusted are echoed into the community (nation-wide) and those that are honest are recognized.

    Let me be frank here as I do have two attorneys here in NC and another in Fla among other professionals I do defer to on occasion. As much as I love my friends (including attorneys) as this land was built on the rule of law—they have done nothing but muddy the waters till grey was the national color and they could feed upon the average citizens

  5. Fredrick Schwartz, D.S.V.J., O.Q.H. [Journ.] September 2, 2014 / 8:20 am

    From Carlton Pryor who opines on such matters, “Unfortunately manufacturing are only one part of any economic system. Service jobs count as well and in the modern world they count significantly more. What a nation produces is a metric of its needs and its wealth not purely of its economic growth. If you make a bit of an effort to understand macroeconomics without political shading these things would be clearer to you.”

    • Amazona September 2, 2014 / 1:12 pm

      So Carlton Pryor believes that manufacturing are only one part, eh. That was a good indication of the blather that followed. “What a nation produces is a metric of its needs and its wealth not purely of its economic growth”. Didn’t he mean to say “What a nation produce are a metric of its needs….”?

      You people crack me up. You are so smug in your little bubble of imagined intellectual prowess, yet you can’t match a noun to a verb and indulge in silly prattle which you seem to think is really deep analytical discourse.

      • Cluster September 2, 2014 / 8:42 pm

        Is Obama still “laser focused” on jobs?

      • tiredoflibbs September 3, 2014 / 5:22 am

        Right! Remember, he will not rest until……..(insert hope and change BS rhetoric here, that LIVs want to hear)!

      • Amazona September 3, 2014 / 10:08 am

        ………and no one is more upset than he is about (insert problem of the day) and he might not even sleep till it is solved

    • M. Noonan September 3, 2014 / 12:13 am

      Making, mining and growing are the most important parts of the economy – all else is based on these three things. If you aren’t doing enough of them then you will not be able to support the non-essential elements of the economy – except by printing money and debt, which will eventually come crashing down.

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