Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

05 March 2011

No Improvement in Employment, Recession Continues Unabated

Do not be encouraged by the announced falling unemployment rates.  These are only informing us that the prospects for finding a job have been so bad so long that the unemployed have either given up on hunting for a job or the government has decided to assume that they no longer want a job.

As I have done many times before, we can calculate the number of jobs that people would want if the economy were robust and offering plenty of good jobs.  It is not doing this due to the huge increases of wealth transfer from the private sector to the government sector throughout the first decade of this century and the many, many tens of thousands of federal, state, and local regulations which are strangulating businesses and preventing the formation of new businesses.  When the situation was better in the late 1990s after the supply-side economics efforts from 1981 on had time to work their magic, many people wanted to work in desired jobs and the unemployment rate was very low.  In January 2000, 67.49% of the total non-institutional working age population was either working, looking for work, or transitioning from one job to another.  Our working age population has grown since then by more than 30 million people.  We can estimate the number of jobs that would be desired now based on the 67.49% who wished to have a job in January 2000.  I know of no fundamental reason why people would not be as eager to work now, if only good jobs were available.

Once we determine how many jobs would be wanted by this criterion, we can subtract the number of jobs actually held by Americans now.  The resulting number is the number of missing jobs.  This number of missing jobs is a great measure for the health of the economy, just as the GDP is also.  The GDP has been improving somewhat for some time in this Great Socialist Recession thanks to productivity improvements per worker, but as we will see, job creation is more dismally deficient than we are led to believe.

Let me provide the job numbers for January and February employment and unemployment before we go on.  The numbers in the table below are from the latest Bureau of Labor Statistics report or earlier reports.  The table does not use seasonal adjustments.  These are the actual numbers of people employed and unemployed.


The unemployment rate, using numbers not adjusted seasonally, was 9.8% in January and 9.5% in February.  This is not as good as 8.9%, the seasonally adjusted unemployment rate.  The real story is much worse than this.  In December, we had 22.067 million missing jobs, which we can compare to only 5.689 million missing jobs in January 2000.  Some sizable fraction of the January 2000 unemployed were probably briefly between jobs as they switched from one job to another, so this actually slightly overstates the number of missing jobs then.  The job market was so good, people were then changing jobs frequently.  In January 2011, the missing jobs rose to 23.5 million and we saw a small improvement in February to a mere 23.1 million missing jobs.  The percentage of missing jobs is actually 14.3% now.  That is much worse than the 8.9% unemployment rate we are told by the government and the media.  Of course, we also know that many people are also underemployed in addition to this appalling number.

To get a better sense of what the progress has been on job creation as the economy measured by the GDP has begun to improve, let us examine a graph of the number of missing jobs (given in thousands, making 1,000 jobs in thousands equal to 1 million jobs).  This graph has a baseline of 20  million jobs, so no month in the time from November 2009 through February 2011 has as few as 20 million missing jobs:


We see that January and February of 2010 were awful months, but there was some job growth through July of 2010.  Then the jobs situation became worse through the end of the year into January 2011.  February 2011 shows a bit of improvement, but the economy is still missing more than 23 million jobs!  If the Democrats had increased taxes as they wanted to before the voters convinced them in November 2010 that that would be suicide for their political careers, this missing jobs situation would certainly be worse.  But, with the upcoming scheduled reduction of corporate tax rates in Japan, the U.S. will have the highest corporate tax rates in the developed world.

It is easy to make a huge difference in the number of jobs available to Americans.  Right now, it makes more sense for companies to expand their operations overseas, close to their non-American customers and where the taxes and the environmental regulations are often less onerous.  The Cato Institute just released a study entitled New Estimates of Effective Corporate Tax Rates on Business Investment.  The effective tax rate on U.S. corporations is 34.6%, but it is only 18.6% for the average OECD nation.  The average for 83 nations is even lower relative to the U.S. rate at 17.7%!  Only an idiot can fail to see that this is a strong negative factor for the creation of U.S. jobs.  Indeed, this is why major corporate tax rate reductions have been made in Canada, our largest trading partner.  Canadian business is booming compared to the U.S. and generating more tax receipts for government as a result, thereby reducing the Canadian deficits.  Over the last decade or a bit more, Austria, Bulgaria, the Czech Republic, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Poland, Slovakia, Turkey, Egypt, Georgia, Kazakhstan, Lesotho, Mauritius, and Singapore have made large corporate tax rate reductions.  Australia, Belgium, China, Denmark, Finland, South Korea, Luxembourg, Mexico, New Zealand, Taiwan, and the United Kingdom made substantial corporate tax rate cuts also.  Many of these countries are going to make further tax rate cuts.

Only the U.S. has been too dumb to stop penalizing companies for providing the goods, services, and jobs we want!  The Democrats have actually raised the future effective corporate tax rate with provisions in ObamaCare and the Dodd-Frank financial reform bill.  They raised the rate with the imposition of mandates to use expensive and unreliable "green energy" and will raise it more with anti-carbon regulations out of the errant EPA.  On top of all that, before the November election, they wanted to raise the basic corporate tax rate.  The Obama budget proposal for 2012 and beyond calls for tax increases of $650 billion.  He wants to add $46 billion of taxes from oil companies, thereby preventing them from taking advantage of many new oil and gas finds in the U.S. to create new jobs and wealth.  Actually, they probably will not be able to extract much more oil and gas anyway while Obama occupies the office of the president since he is allowing no leases to be sold.  In addition, he plans to hit multinational corporations with an additional $129 billion of taxes.  Such an anti-business climate makes the avowedly socialist countries of Europe look like better bets for expansion in too many cases.  The Democrats talk about wanting to create jobs, but virtually every concrete proposal they make will kill jobs.

Investment in U.S. corporations is also blocked with high taxes on dividends.  The owners of a corporation pay an effective tax of 34.6% prior to any dividends being issued and then pay an amount on ordinary dividends equal to their individual income tax bracket.  Through 2012, that bracket may be 35%, making the total tax they pay on an ordinary dividend equal to an overall tax of 0.346 + (1 - 0.346)(0.35) = 0.5749 or 57.49%.  This leaves little incentive for such investors.  In 2013, the situation gets worse, since the Democrats want the highest income tax bracket rate to automatically go up to 39.6%, which will take the dividend rate along with it.  Dumb and dumber.

Job creation is mostly the business of small business.  The personal income tax rates strongly affect small businesses, since their profits are normally added to the income of individuals on their personal income tax returns.  The same is true for many angel investors and the family members who invest in a relative's business when he starts one up.  The risks in starting a small business are huge.  Most go out of business within ten years.  Those that succeed in generating profits, return less to their investors by virtue of the long-term capital gains tax.  Through 2012, this has just been set at 15%, but it is scheduled to go up to 20% in 2013, unless the more economically savvy Republicans can pass legislation opposed by Obama and the Democrat Senate before then.  Meanwhile, no one can undertake a long-term investment without assuming that any success will be taxed at the 20%, not the present 15%, capital gains tax.

One of the most important requirements of good tax laws is that businessmen should be able to count on their tax rates not going up.  When tax rates go up, they turn calculations that justify an investment of money and years of work into failures.  Wealth and jobs are lost as a result.  Even the threat of a tax increase causes proposed investments to be tossed out as excessively risky and it can cause somewhat marginal businesses to be closed down early.  Most businesses have a learning curve in which the owner messes up and has a number of close calls with failure and bankruptcy.  Many wildly successful businesses had such close calls in their infancy.  Every time a tax burden or a regulatory burden is added for a young business, that business may be pushed over the cliff.  We cannot calculate how many future successes are killed in this way.  But, we do see that countries with lower tax and regulatory burdens on businesses do tend to have higher growth rates, generate more wealth, improve the living standards of both the poor and the wealthy, people live longer, there is less pollution, and they have lower unemployment rates.

This picture is so clear that it is evidence of a strong idiocracy in academia, the political class, and most of the media.  Idiocracy is my word for persistent wrongheadedness in the face of a multitude of evidence to the contrary often subscribed to by otherwise intelligent people.  The word is applied most frequently to college indoctrinated Progressive Elitists.  They have worked very diligently to produce the Great Socialist Recession and to maintain our economy in a jobless state.

2 comments:

Michael E. Marotta said...

Thank you for your maths. 22 million missing jobs while four of the ten "wealthiest" suburbs in America are around Washington DC.

That key word must be in quotation marks, of course, because cash transfers are not wealth. Like dropping a bomb over a city, the first loss is in the material (neglibile) and labor (tremendous) that went into the bomb and its delivery mechanism. Call it what they want, every government program is a bomb one way or another.

Charles R. Anderson, Ph.D. said...

Politicians and government workers, like college professors, generally do not understand that when they take money, labor, and wealth away from the private sector, there is a loss of a substantial compounded interest thereafter in the wealth of the nation. When government takes 50% of GDP (45.5% in spending and more in regulations and mandates), it hugely reduces the growth of wealth. Had the wealth been greater, that greater part is compounded year after year as we go forward. The accumulated result over 20 and 30 years is huge. Our standard of living could easily be much, much higher than it is.