Friday, October 07, 2011

The Economy, Unemployment, and the Possibilities

For four years interest rates, when properly measured, have been negative. Americans are getting by, maintaining living standards, by consuming their capital. Even those with a cushion are eating their seed corn. The path that the US economy is on means that the number of Americans without resources to sustain them will be rising. Considering the extraordinary political incompetence of the Democratic Party, the right-wing of the Republican Party, which is committed to eliminating income support programs, could find itself in power. If the right-wing Republicans implement their program, the US will be beset with political and social instability.


On September 21 the Federal Reserve announced a modified QE 3. The Federal Reserve announced that the bank would purchase $400 billion of long-term Treasury bonds over the next nine months in an effort to drive long-term US interest rates even further below the rate of inflation, thus maximizing the negative rate of return on the purchase of long-term Treasury bonds.


The Fed’s new policy will do far more harm than good. Interest rates are already negative. To make them more so will have no positive effect. People aren’t buying houses because interest rates are too high, but because they are either unemployed or worried about their jobs and do not see a recovering economy.


According to the Bureau of Labor Statistics, as of 2009, average hourly take-home pay for US workers was $23.03. Social insurance expenditures add $7.90 to hourly compensation and benefits paid by employers add $2.60 per hour for a total labor compensation cost of $33.53.

In China as of 2008, total hourly labor cost was $1.36, and India’s is within a few cents of this amount. Thus, a corporation that moves 1,000 jobs to China saves saves $32,000 every hour in labor cost.These savings translate into higher stock prices and executive compensation, not in lower prices for consumers who are left unemployed by the labor arbitrage.


However, US wages are about the lowest in the developed world. They are far below hourly labor cost in Norway ($53.89), Denmark ($49.56), Belgium ($49.40), Austria ($48.04), and Germany ($46.52). The US might have the world’s largest economy, but its hourly workers rank 14th on the list of the best paid. Americans also have a higher unemployment rate. The “headline” rate that the media hypes is 9.1 percent, but this rate does not include any discouraged workers or workers forced into part-time jobs because no full-time jobs are available. [...] The US government has another unemployment rate (U6) that includes workers who have been too discouraged to seek a job for six months or less. This unemployment rate is over 16 percent. Statistician John Williams ( estimates the unemployment rate when long-term discouraged workers (more than six months) are included. This rate is over 22 percent.

Paul Craig Roberts

"If the right-wing Republicans implement their program, the US will be beset with political and social instability." Seems to me we’re already there.

....but hey, do what you will anyway.

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