The current unemployment figure is a little over 9%. This ignores the “discouraged workers” (folks, like me, who don’t bother to sign up for the government dole) and it ignores those folks who’s unemployment benefits have run out. Why go to the unemployment line if you will not get a cheque?
So we hear statements like “Unemployment among youth is 25%” and “Discouraged Workers add 5%” or 10% or… and the real unemployment level is closer to 20%.
But I think there is another “term” here, being ignored.
Percent of Whom?
I’ve heard it a couple of places, most recently on a business news program (CNBC or Bloomberg I think), that the total of government at all levels in the USA is about 50% of the national product.
Now that, of itself, is a key number. When government percent of GDP goes over 50%, most countries enter an economic collapse. It starts with a stagnation and then accelerates from there, more or less in proportion to the percentage. The reason is pretty simple. Government is a parasite on the rest of the economy and at that level, the host has little blood left. It’s a poor parasite that kills it’s host, but governments do.
So this got me thinking. Who is employed by government? Places like this site:
have the government employment rate at about 14%. But I think that seriously under reports the truth. A worker at Newport News shipyard building nuclear submarines is technically employed outside government, but really, who else is going to buy that nuclear submarine? For all practical purposes, they are a part of the Government Machine. They produce nothing of ‘wealth’ for the rest of the economy and they could be gone tomorrow and national productivity would not notice. Similarly, the James Hansen like “researchers” of the world who get paid to play computer video games with weather and call it research do nothing to increase net national wealth nor productivity. They consume a lot of government dollars, but will not improve our economy (some would assert they damage it) nor will they be “let go” in an economic downturn.
So in my opinion, a much larger part of the ‘work force’ is employed BY government even if they are not employed IN government…
How much? Well, as a first approximation, we can use the percent of GDP as a guide. While there are wage disparities (with government folks now getting more slop at the trough per hour… it was less than private sector when I was a kid…) they are not gigantic. While there is plenty of room to improve that estimate, it’s a decent ‘working number’. So lets assume for now that it’s roughly 1/2 the population, directly proportional to GDP percent. And that 1/2 is NOT subject to layoffs to any degree like that in the truly private sector.
The Rest Of Us
The implication of this is that the unemployment rate among ‘the rest of us’ is really closer to 20% even before counting “discouraged workers” and those with no unemployment cheque to collect. It might even be pushing 30% if those are added in. So we have a bifurcated world.
On one side, the Government Lackey in one form or another seeing “no problem”, yet dependent on the other side.
On the other side, the Private Sector. With effectively 1/4 to 1/3 of them unemployed and with the company managers and owners painfully aware that The Government wants just as much money from the remaining 2/3 as they did in the past from the fully productive whole. The mantra from DC (and local levels) is, after all, “Tax beatings will continue until morale improves.”
The truly Private Sector must support itself, the direct Government employees, AND the indirect Government Dependent employees. The wealth creation has to come from them and flow to the consumption goods that all those other folks consume. (And yes, a nuclear submarine is a consumption good. War material is among the most fleeting of ‘investments’ and most prone to destruction.) Right now, the Truly Private Sector is being asked to carry that same full sized burden with a much smaller base. And it is showing “failure to thrive”.
Stimulus, Redistribution, and Pork
So we had a “stimulus bill” and now we’ve got another $26 Billion hand out of “pork” to the state governments to hand over to union employees in the public sector as more “stimulus”. And all this is doing is to move more of the money around on the public consumption side of the ledger. (Don’t get me wrong. The spouse is a teacher who is taking mandatory ‘furlough days’ every so often as The State of California is bankrupt. So we will benefit from this pork. Yes, I’m biting the hand that gives me pork… It’s not like I’m talking-up something for my own benefit.)
But from where does this money come?
I had a business at one point that had several employees. I closed it some time ago as the paperwork and pain started to exceed the gain. That was a source of net wealth creation ( I did a lot of site build outs for I.T. systems) and created a net increase in physical capital to create more wealth.
Now, not only is that wealth creation gone, but my family has joined the ‘wealth consuming’ side of the ledger. Someone ELSE has to create the wealth that will be ‘redistributed’ via that “stimulus” to me. And I’m a “discouraged worker” rather than a host…
So where does the money come from?
It isn’t coming from the truly private sector. They are not growing. The “Sovereign Risk” is just too high to add employees. Added ‘social benefit’ costs are up 10% to 25% and a giant tax hike is coming in December. Nope, not a time to add more employees nor invest in new capital stock. (Capital gains taxes skyrocket in December too. Now is the time to be cashing out those capital gains and relocating them to other countries with better tax treatment.)
The money is coming from debt.
But not from our cumulative credit cards. Those are already full.
And not from our Home Equity. That was made “toast” by our government owned home mortgage system. (Government made Fanny and Freddy. Government set the rules for them, for the banks, and for the mortgage market. Government sets the interest rates and makes all the other rules and laws about real estate. Government OWNS the mess it made.) No, the day’s of doing “Re-Fi and Buy!” are a fading memory.
There are 2 sources of debt still being used. The Chinese Credit Card and “Bugger the Currency”. China has loaned the U.S. Government close to a $Trillion. They are nervous and IMHO are likely to be taking subtile actions to reduce the risk in their portfolio. Certainly not buying another $Trillion of 30 year bonds.
So that leaves “bugger the currency”.
The Fed announced an intent to let their real estate loan portfolio ‘run off’ and as the money comes in, to buy treasury bonds. About $Trillion. So we know that US Treasuries will have a large “bid” for several years. Probably TIPS are your best bet. (Treasury Inflation Protected Securities). But we also know that this is ‘monetizing the debt” and will lead to inflation. Maybe not right now (we are at 1%) but as the monetizing happens.
Inflation is a tax on all holders of money denominated assets. So that 2nd mortgage you took back when you sold your home that might buy 1000 loaves of bread today will only buy 500 in a couple of decades. Half of the value was taxed away via inflation. That is, IMHO, where The Fed and The Government are headed to get the money they are spending right now.
Yes, it is possible to “fix this”. But it will take a while and it will take the will to act. Historically, folks have not done that until ‘too late’. We’ll see.
But for now, it seems pretty clear to me that the actual unemployment in the productive half of the economy is way higher than the official figures; and that if you do not allow for that and see what it means, no amount of “stimulus” or “redistribution” can ever hope to fix it. It can only Bugger the Dollar. And make everything else that much worse.
Or looked at another way: “What the stimulus giveth to the Government Lackey the Sovereign Risk taketh away from the productive economy”. Repeat until collapsed in a fit of Dollar Buggery.