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Wednesday, August 24, 2011

Statistical evidence of economic depression

Readers here are aware that I have staunchly maintained the U.S. economy has been in an economic depression since 2008. I have done so despite NBER declaring the "recession" over in 2009 and in the face of seven straight quarters of positive GDP growth statistics because I don't believe that either the agencies or the statistics they report have much, if anything, to do with the observable economic reality.

To give one example, the U3 unemployment rate is presently reported at 9.1%. But this is a heavily massaged number which not only depends upon survey-based employment estimates, but upon the subsequent manipulation of the raw data. Since it's not possible to radically alter the number of reported "employed" without looking as if they are blatantly manipulating the numbers, the BLS manages to keep the official unemployment rate artificially low by reducing the size of "the labor force", chiefly through reducing "the participation rate".

However, is it reasonable to believe that people are any less inherently willing to work in these difficult economic times than they were in the year 2000? I don't see any justification for it. The suggestion that something is amiss can be seen when comparing the labor force participation rates with the employment population ratios (EPR) for 1973 and 2000 versus today. Given that the percentage of women participating in the labor force has methodically risen from 44.7% in 1973 to 59.2 in 2009, and that this increase has outpaced the exit of elderly men from the labor force since 1973, the current overall participation rate should be significantly higher than it was in 1973. But this is not the case, according to the BLS.

Dec 1973 Participation rate 61.2 EPR 58.2 U3 4.9
Jan 2000 Participation rate 67.3 EPR 64.7 U3 4.0
Jul 2011 Participation rate 63.9 EPR 58.1 U3 9.1

Now, if we simply compare the present number of reported employed to the present size of the civilian, non-imprisoned population, but calculate the labor force based on the 2000 participation rate, we get an unemployment rate that is 50 percent higher than the currently reported rate of 9.1%. Note that numbers given are in thousands as per the BLS.

239,671 Civilian non-imprisoned population x.673 participation rate equals

161,299 Labor Force minus
139,236 Employed equals
22,063 Unemployed

22,063 divided by 161,299 equals 0.13678

This means the current U3 unemployment rate according to the BLS metric should be 13.7%, not 9.1%. Note that this is higher than the "unemployment rates" reported in the first two years of the Great Depresion, 1930 (8.9%) and 1931 (13.0%). Please also note that the two historical "unemployment rates" are estimates made well after the fact as the BLS didn't track unemployment statistics until 1948. Finally, one also must take into account that the current rate would be considerably higher were it not for the 2,868,000 more people that are now employed by the federal government than were employed in 1940, much less before the New Deal of 1933. Including these extra 2.8 million government workers in the unemployed list, as one must do in order to make a reasonable comparison between 2011 and 1930-31, indicates a comparable "unemployment rate" of at least 15.5%.

A second sign is the woeful state of the housing market. "A telling sign of how bad things have gotten for the housing industry: Prices have dropped more since the recession started, on a percentage basis, than during the Great Depression of the 1930s. And it took 19 years for prices to fully recover after the Depression."

Of course, we can always apply Paul Krugman's reasoning and launch an alien war to solve the economic problem. If we can simply arrange for 30 million people to be slaughtered by the aliens, that will reduce the labor force and lead to full employment overnight.

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1 Comments:

Anonymous Economic Problem March 21, 2013 3:25 AM  

This statistic shows the condition of our economy, well even without such statistics we can easily feel that we are indeed in an economic depression.

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