Economy

Unemployment drops – Are you impressed?

(c) 2012 Earl L. Haehl Permission is given to use this article in whole as long as credit is given. Book rights are reserved.

So the unemployment rate dropped below 8 percent. October surprise? We will not know whether this is a sign of recovery for another six to twelve months. This is, of course, a figure that both parties will spend time spinning this figure. (How many campaign spinners will be out of work on 7Nov?) But how much does the figure really mean.

The unemployment rate is based on the number of individuals in the Civilian Work Force unemployed as opposed the total number of persons in the Civilian Work Force. This latter figure is the number of persons ages 16 through 64 minus undocumented aliens, military and naval personnel, the incarcerated, full time students, those committed to mental institutions, those working part time, the disabled (under SS guidelines), those who have ceased seeking employment and those whose unemployment benefits have expired.

I have heard estimates that the “actual” unemployment rate stands anywhere from 11 to 28 percent. Without actual figures there is no way to state an actual percentage and the Bureau of Labor Statistics numbers are, however flawed, what we have to work with. The interesting thing is that both the right and left actually defend or attack BLS depending on who is in office. I have been told by Republicans that 4.9 percent figure was actually too high because it ignored those on unemployment who were “scamming” the system. I was also told by members of the other party that the same figure is too low because it ignores “underemployment.”

Sorry. I know there are scammers. They show up for interviews and get their card stamped, but deliberately offend the hiring authority and get another week by showing that they were “looking.” Near the end of their eligibility they obtain employment which they keep long enough to have worked in two quarters and then be discharged for less than competent work. The number of these folks is not large but they do exist. They will take advantage of any system—the system just needs to figure them out.

Sorry. I do not buy the “underemployment” argument any more than I buy the “overqualified” argument in denying someone employment.

So we are dealing with the numbers BLS uses. But what, statistically, is the difference between 7.8 percent and 8.2 percent? In terms of who is work and who is not, you have to look at factors of economic activity as well. Are factory orders increasing? Is output increasing?

Does the American manufacturing sector show an increase or are these jobs based on the fluctuation of the retail system or the increase of freelance companies wherein the self employed have decided to go it without the capital base they need because there are no other options? And if so, how much of this is going to last? I had a discussion with my late father-in-law back in the late 80s about the surge of service sector jobs without an agricultural or manufacturing base to support them.

Right now, through the Quantitative Easing, the Fed is creating money without wealth. The created money will possibly create some employment in the financial sector—until the next bubble bursts. Without real wealth creation, reduction of unemployment is temporary at best.

To butcher a saying from Abraham Lincoln, “You cannot fool all the people all the time, but you can possibly fool a plurality through election day.”

Standard
Uncategorized

Social Security Commentary

(c) Earl L. Haehl  Permission is given to use this article in whole as long as credit is given.  Book rights are reserved.

I suppose every blogger has some opinion of the Social Security issue. And while every politician who can move his or her lips has spoken out, the question remains as to whether a permanent fix is appropriat for what in 1935 was a quick fix to lower the unemployment rate in time for the 1936 election.

Disclaimer: I am a Social Security recipient.  That was optional but I calculated out that any way I go I will be 82 1/2 when I will have gotten back the funds confiscated from my employers and myself in my name.  Added to this is the fact that the dollars confiscated in 1975 are paid back in 2010 dollars.  And with all due respect to those who have said this is an insurance plan I say, “No!”  Social Security was designed to supplement pensions so employees would have an incentive to leave the workforce.  A true insurance plan would have fiduciary responsibilities unknown in government programs.

I began working when Dwight David Eisenhower was President and was paid under the table.  I can say this because all of the employers who so paid me have long ago passed into the realm that is beyond the jurisdiction of the Internal Revenue Service.  The culture back then was to avoid this.  Lyndon Baines Johnson was President when I first had the deduction.

Every so often a politician announces that something has to be done about Social Security and it has to be a permanent solution not a quick fix.  The resulting solution is a bipartisan plan that buys a few more years so “we” will have time to work out a permanent solution.  It is interesting that politicians use the the term “we” to mean someone who will have to deal with the problem somewhere down the line.  But the root of the problem is never addressed.

It’s easy (and often accurate) to blame the Prussians.  John Taylor Gatto points out that Horace Mann was heavily influenced by the Prussian system of public education.  Bean counters admire Prussian record keeping,  The use of statistics in government program development comes from the formation of Germany in 1870.  The hours of close order drill to which I was subjected from age 16 to 19 was the result of Benjamin Franklin recruiting an out of work Prussian staff officer to devise a method of drill for the Continental Army.  And from use of statistics Bismarck determined that 65 was an optimum age for members of the German Army to retire.

Back in the 1930s, Franklin Roosevelt was trying to redesign the mode of production in the United States to combat an economic “crisis” resulting from government and government authorized actions.  In 1929, the Federal Reserve tightened the money supply because the economy was a little too “hot.”  This resulted in the Stock Market crash of 1929.  The Smoot-Hawley Tariff Act of 1930 was vetoed by President Hoover–I give him credit for this–but it was passed over his veto.  US Industry was at full production until April of 1931 according to Merrill Rukeyser.  He viewed Smoot-Hawley as the proximate cause of the recession that began in 1931 and was nursed along by FDR until it was handed to Harry Truman.

Which brings us to the New Deal.  What FDR promised was a set of temporary laws that would restore the country.  Frances Perkins, graduate of Mt Holyoke College and Columbia University was the Secretary of Labor.  In 1935 she chaired the group that brought forth the Social Security Act.  Remember back in 1870 that Bismarck’s plan for retirement arrived by statistics at age 65.  It was a rare retired soldier that would live beyond 67 or 68 (a significant portion did not make it to 65) which made the retirement age sustainable (well, statistically sustainable).  Age 65 retirement made sense in the new deal because it had a precedent–it did not have the statistical analysis that said that workers were not as effective at that age or that their longevity was ideal to this.  The other factor that was probably more important was that this would give the older worker an incentive to leave the workplace so that “family men” could have jobs.

Like the other alphabet programs the SSA would disappear at the end of the emergency, which in this case, turned out to be 1946.  However, all of the New Deal legislation remained in effect and was enlarged upon.  In 1965, Medicare was added to the Social Security entitlement.  There have been various adjustments in retirement age.  Only individuals ages 16 through 64 are considered to be in the Civilian Workforce.  This is comparable to the withering of the state after the dictatorship of the proletariat.  While Social Security did not demand retirement at any age, social pressure was applied to those who kept “family men” out of the workforce–this is the way authoritarian regimes keep power by demonizing those who do not get with the program,

Unintended consequences:  Every piece of social legislation has unintended consequences which keep lawyers and activists in business.  While taking social security is not necessary, in a society where there were “family men” out of work, there was a certain opprobrium attached to older workers staying on jobs.  In a manufacturing setting it used to be the older skilled workers would train the newbies–65 retirement eliminated that.  AVTS and junior college are not a substitute.  When I worked at the ladder company I was taught by the foreman even though I had shop training in school and knew everything.

And the “jobs are for family men” meme sort of evolved into a bias against older workers. That had to be rectified by the Age Discrimination in Employment Act of 1967.  And it is still a perception that when you’re 60 or so it is over.  Except that there is an expectation that “older workers” make excellent greeters but not necessarily sales associates in the sporting goods section.  You will find retirees in small hardware stores, but not the big box outfits.

Meanwhile, if you are between age  40 through 70 and so inclined, you may tie an employer up with an EEOC investigation to determine whether or not there are reasonable grounds for you to sue that employer–no worries; the taxpayers pick up your tab whether or not EEOC finds anything and you have achieved a terrific inconvenience for your employer. The costs of the inconvenience will be passed on to the employer’s customers who pay the taxes to fund federal regulatory agencies.  And if that employer is a manufacturer, the cost of mounting regulatory inconveniences can help make product less competitive in the marketplace.

Standard
Uncategorized

A quick trip from Locke and Smith to Keynes and Krugman

(c) 2012 Earl L. Haehl Permission is given to use this article in whole as long as credit is given. Book rights are reserved.

This is part of a manifesto I was writing before I realized I’m too old to lead a social movement.

A free society depends, not upon its political class, but on a general understanding of its principles by the majority.  These principles do not reflect entitlements or “goodies” but rather opportunity and duty.

Along with the so called Tea Party, I believe we need to cut the power in Washington and the power to Washington.  We are engaged in a domestic battle which so far involves attempted government takeovers of health care, banking, education and industry.  There is also an attempted takeover of our Constitution which has been going on since 1901 with the repeal of the Militia Act of 1792.  Since 1968 there has been an increased attempt to federalize and militarize law enforcement.  But this goes back to the Benjamin Harrison/Grover Cleveland era and anti-trust legislation.
Progressives love the Commerce Clause of the Constitution and Alexander Hamilton. What they ignore is the agenda of Hamilton and Madison in the commerce clause itself. What Alexander Hamilton and James Madison wanted in the Commerce Clause was elimination of barriers to trade among the States–to be specific the states having power to restrict, whether by tariff or prohibition or unreasonable regulation, the lawful movement of goods from one location to another.  The example was that New York could not grant a preferred status to goods from New Jersey as opposed to Connecticut or Delaware by means of tariff and excise.  It had nothing to do with Federal Regulation of hours of work, wages or other terms and conditions of employment.  It had nothing to do with the regulation of sales of firearms or ammunition to individuals, with a federal scheme of licensing and regulating dealers, with regulation of medical equipment, with federal regulation of pharmaceuticals and the food supply.
If we go back to the areas for takeover, we can examine each.  We must realize that much of the industrial and banking infrastructure predates the progressive movement which some trace to Thomas Woodrow Wilson’s essay on the transcendent constitution.  It even predates Lincoln and the Transcontinental Railroad, as well as the Land Management Act.
Hamilton believed in the free flow of commerce to the extent that he supported the Democratic Republican/Clintonian candidate, Morgan Lewis, over the Democratic Republican/Federalist candidate, Aaron Burr.  Burr was of the Federalist faction like Hamilton, but had allied himself with the secessionist faction within the faction.  Hamilton realized that the dream of free commerce would be destroyed by a breakup of the Union and therefore he supported the successor of his old political enemy George Clinton.  There was bad blood between Hamilton and Burr regarding their banking rivalries–Burr’s family had incorporated the Manhattan company to provide water to Manhattan, but had also gotten authorization to issue notes.  They were on opposite sides of the National Bank debate.
Hamilton also believed in the excise power of the government.  He was influential in getting Congress to pass the gallonage tax on production of whiskey in 1791.  This was a cause of the 1794 Whiskey Insurrection.  In his papers he claims credit for inciting the rebellion because he felt it would demonstrate the inadequacy of reliance on militias rather than a national army.  The performance of Governor Lee and the combined militia force supplied by Virginia, Pennsylvania, Delaware and Connecticut disproved this on a small scale.  The excise power has been the subject of much mischief over the years as well as the commerce clause.
While this seems a digression, the study of history cannot be complete without the dots to connect unless you have a coloring book where the colors show up when you brush water on the sheet.  Much of the history taught in schools follows this latter pattern with the dyes drawn into the paper by leftist interpreters. The national bank proposal of Hamilton, for example, was only the first of many resulting in the Federal Reserve in 1913.  Hamilton, while a financial player, would probably not recognize the Creature from Jekyll Island.  Nor for that matter would Nicholas Biddle, David Crockett, William Henry Harrison or other 19th Century Whigs.
So let us start with the regulation of banking, Wall Street, mortgages, credit cards, etc. Back in the seventies and eighties (the 1980s–I’m not that old) there was a crisis in agricultural property foreclosures.  The banks were generally willing to work with the farmers but FmHA wanted to clean the books.  As usual Congress acted with the Emergency Farm Mortgage Act to help farmers delinquent on mortgages through the Farm Credit Service.
The fact is that a lot of farmers lost their land anyway.  An exception is that German anabaptist farmers (Mennonites, Amish, Brethren, Hutterites) did not have delinquencies or foreclosures because they avoided major debt.  They were able to purchase some foreclosed land which temporarily caused some resentment among the “English.”  This is an example of the banks following social mandates in lending and then having negative consequences for which they are blamed.  The primary culprits in the recent “mortgage meltdown” are the quasi-governmental twins (Freddie and Fannie) and the “affordable housing movement” which had the effect of putting people into properties they could not afford.
A friend of mine, the late John R Kuefel, observed that the whole federal loan program of student, home and business loans has the result of placing large numbers of individuals in a state of villeinage.  Villeins were indebted individuals whose freedom was limited by those holding the debts.  They were outside of society and considered to be of a criminal class, hence the term “villain.”  As an experiment try getting an exit visa or visa waiver to leave the United States if you are delinquent on a student loan.  For an example of the impact of villeinage on a society, read up on the Peasants’ Revolt of 1381.
Back in the eighties the Kansas Legislature passed a law requiring that the state pension fund make investments to increase local business development in Kansas.  Mainly they were looking a urban based development that was having trouble getting funding in the private market.  A number were also associates of the governor and legislators sponsoring the program.  The executive secretary of the pension fund recommended strongly against the legislation because it would compromise the fiduciary integrity of the system.  When, as usual, this turned out badly, the executive secretary took the fall.  A law professor with an impeccable reputation as a judge and cabinet officer (for the governor who supported and signed the bill) was appointed to investigate.  Charges were brought against some businessmen for defrauding the fund.  No culpability was assigned to either the governor or legislators who promoted the bill that opened the system up to the scam.
Pension funds took a hit in 2009 when the Obama Administration interjected itself into the bankruptcy proceedings of General Motors and Chrysler with proposals that benefited the United Auto Workers union to the detriment of stockholders.  The new beneficiaries are the “stakeholders” preferred by the regulating power.  Among the preferred stockholders who got left out were pension funds that are heavy investors.  There is a movement to nationalize all private and state pension funds.
Stock brokers began to be regulated after the “crash” of 1929 when the Federal Reserve, without a signal from the economy jacked up interest rates.  There was a panic on Wall Street and some of the reverberations came from the turning bones of Alexander Hamilton in the church yard at Broad and Wall.  The “crash” however did not start the Great Depression other than being about 17 months prior to the recession of 1931, the proximate cause of which was Smoot-Hawley tariff act.   As the recession was beginning to abate, Franklin Delano Roosevelt took office with a plan that involved Secretary of Labor Frances Perkins and National Recovery Administrator Hugh S. Jackson.  Their approach to the ills of the country was a massive set of federal agencies and regulations based on The Corporate State by Benito Mussolini.  The Commerce Clause ceased to be about the free flow of goods and services, and more about federal power to intervene in the employer-employee relationship.    This view of the Commerce Clause is best epitomized by William O. Douglas and William J. Brennan.  Brennan expanded his view of the Commerce Clause to include state and local governmental activities as “commerce.”
The twentieth century was all about War.  In 1898, the United States Congress, at the behest of William Randolph Hearst and Assistant (read Acting) Secretary of the Navy Theodore Roosevelt, declared war on Spain.  Roosevelt involved himself in the Cuba campaign which also doubled as the beginning of his campaign for Governor of New York.  McKinley was not in favor of a war but Congress declared it and at least he had Roosevelt out of his cabinet.  Roosevelt was planning to run for reelection for governor but the powers that be decided he could do less damage as vice president.  Unfortunately for the establishment, McKinley was assassinated and TR became a reality to be dealt with.  He continued the occupation of the Philippines, created the general staff, and sent the Great White Fleet around the world.  He was prepared to use the Marines to protect Panama’s “independence” to build a canal across the isthmus.  Out of the malaria that plagued the workers came the Public Health Service.  “I took the Canal Zone and let Congress debate about me.”
While there was a four year lag in the “progressive” movement under William Howard Taft. Then in 1913 Thomas Woodrow Wilson came into office largely as a result of the “Bull Moose” campaign of TR that took electoral votes and made Taft the second incumbent in history to come in third.  Wilson soon had the Federal Reserve act, the ratification of the income tax, the ratification of direct election of Senators, and troops in Mexico.
The sixteenth amendment says, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” This basically gives the government the means to expand without raising tariffs and to engage in military adventurism,  The Wilson administration was responsible for the occupation of Mexico, our involvement in World War I, and the 1920 invasion of the Soviet Union to interfere with the Bolshevik revolution.  Also on the plate were the Sedition Act of 1917 and the Intelligence Bureau (modeled after the Soviet Cheka) to break up socialist and anarchist gatherings.
The post war economic downturn was due to loss of about 40 percent of the industrial work force between the “Great War” and the Camp Funston flu.  The first outbreak of the 1918 flu was at Camp Funston, Kansas.  What the government did about this downturn was, in a word, nothing.  The recession ran its course and by 1925, America was back at full production.  Admiral Yamamoto who took his master’s degree at Harvard warned Japan that America would ultimately triumph because of industrial might.
But after eight years of limited government in the twenties, the United States turned to Herbert Hoover, a Rooseveltian progressive.  Since that time the power struggle has basically been between styles of progressivism.  Kennedy and Reagan were Rooseveltian progressives (TR) with some conservative and occasional libertarian tendencies.  But it has been a steady movement of more alphabet soup agencies and restrrictions for the good of the people.   Remember castor oil?  It was part of every grandmother’s medicine chest and it was derived from the toxic castor bean,
So that is how we get from John Locke and Adam Smith to the disciples of John Maynard Keynes, J.K. Galbraith and Paul Krugman.
Standard