A closer look at economic numbers

The White House announced that the latest unemployment number is at 5.5 percent, which is the lowest it has been in seven years.  So does this mean that Obama's economic policies are finally working, and the economy has recovered?

If you listen to Christine Romans on CNN you would think so.  She said: "Sometimes a good headline is just a good headline, Carol, and that's what this report shows us. When you look within these pages and pages of tables, you see an American economy that is creating jobs again across the spectrum. The trend here has been good. Jobs added consistently month after month. The unemployment rate, really important milestone here for the unemployment rate, 5.5%. It's been trending down for a year. The lowest since May 2008."

However, when I attended journalism school at Ferris State University school back in 1988, we were told to look deep into statistics to make sure they were completely accurate. If you do otherwise, if you report only the numbers reported without analyzing them, you are letting other people direct the flow of news for you.  Or, in other words, you are just being a pawn, so to speak.

I will give you a quick example.  In 1988 Ferris State University released a statistic showing that 98 percent of their graduates were employed. On the surface this number brought joy to a lot of faces. However, after a deep look into this number, I learned that it included any job, including jobs at McDonalds.  In the end, we learned this number was misleading.  

So, that in mind, is an unemployment number of 5.5 percent really telling us that the economy is improving?   Let us look deeper into the number.  

Labor Force.  This includes all people over the age of 16 who are not in the military or an institution. This number is currently at 249,899,000.  

Labor Force Participation Rate.  This includes the percentage of of the Labor Force that is actively working or actively seeking work. This number currently stands at 62.8 percent, which is a 37 year low.  The last time this number was this low was in 1978, or when Jimmy Carter was president. What this means is that a total of 92,898,000 Americans have given up looking for work, and this number is at a record high. Since Obama was elected in 2008,12,369,000 Americans have left the workforce.  Right now, at the time of this writing, the rate is the lowest it's been in 37 years, as it stands at 62.8%. 

U3 Unemployment Number.  This is an unemployment number that does not include anyone who has looked for a job fore greater than four years and has stopped looking.  That 5.5 percent unemployment rate is the U3 number. Of the 157,002,000 who did participate in the labor force, 148,297,000 had a job, and 8,705,000 did not have a job but were actively seeking one -– making them the nation’s unemployed (5.5%). This is usually the number the White House reports because it is the one that usually makes it look the best.

U6 Unemployment Number.  This includes all working age adults who are capable of working who are not working.  This unemployment number currently resides around 11.5 percent.  This number is considered by economists to be more accurate than the U3 number.

Everybody Eats.  As a nation, we have set up a system where everybody eats, whether you have a job or not.  At present we have 50 million Americans on food stamps, and of course there are many other programs that make sure everyone eats.  As recently as 20 years ago, if you didn't have a job you did not eat.  This was a great incentive for people to search hard to find a job. 

Jobs numbers.  This number includes all the jobs lost over a month, and the number of jobs created. The jobs created also includes part time work.  For example, last July the Obama White House reported that 273,000 jobs were created in June, and this meant the economy was improving.  Of this, I wrote: First of all, the numbers he uses are misleading. While the Bureau of Labor Statistics report that 273,000 jobs were created last month, 800,000 people left the workforce. So while the unemployment rate presently sits at 6.3%, the U-6 unemployment rate sits at 13.6%. This is a more accurate depiction of the 963,630,000 people in America currently not working..

Further reading:

Bottom line.  A good journalist would dig deep into numbers and report the whole story, rather than just letting the White House tell the story with the numbers it releases.  

• Record 56,023,000 women not in work force
• CNN overjoyed by phony jobless numbers
• Obama's economic statements misleading

What is Gross Domestic Product (GDP)?

Spikes in GDP by government spending are only temporary.

Among the most common means of measuring economic status of a nation is the gross domestic product (GDP).

So what is GDP? I think we are safe to use wikepedia in this instance.

The basic measure of a country's economic performance and is the market value of all final goods and services made within the borders of a country in a year. It is a fundamental measurement of production and is very often positively correlated with the standard of living.

Basically GDP is the sum of three products:

• Consumption by the people
• Investment by businesses and people
• Spending by government

The acronym for this is CIG: Consumption, Investment, Government spending. That should make this easy to remember.

However, this marker has come under scrutiny by some economists as it may be misleading. Take, consider, for example, the October, 2009, number, which showed an improvement in economic activity 3.5%. Many economists used this as a sign that the recession ended.

However, if you dissect the sum of the three above products, you will see that that 3.5% is misleading. According to statistics there was no new consumption by consumer;  they were not buying the goods and services produced by businesses; they were not buying houses; they are not buying vacations and TVs and electronics. In fact, according to statistics, consumer spending was down.

Likewise, according to statistics there was no increased investment in businesses or by businesses. They did not create new jobs, the did not spend on new equipment, the did not build new facilities.

So, if you consider consumption by the people and investment by business and people, you see no economic growth.  This is bad, because, in order for an economic recovery to be sustainable, it must come from the private sector

However, if you look at spending by the government, you do see economic growth. This is bad because it shows that the only economic growth was because the government was spending money it collected by taxes.  This, in essence, is artificial economic growth, and is unsustainable growth.

If you look back to this time in Obama's term, it was when he was handing out cash for people to buy cars.  In other words, you see growth because people bought cars because the government just paid $24,000 per car bought during the cash for clunkers program. It was also a time when the government was handing out cash to get people to buy houses, so this also helped spike the GDP.

So you can see, that if you analyze all the numbers, the private sector was not growing in October of 2009, and the government sector was.  Individual people and businesses were not investing money into the market, but the government was busy spending other people's money.

In fact, economic experts have said that half the 3.5% increase in GDP was the result of cars bought during the cash for clunkers program, which, by the way, had expired by October, 2009.  A large portion of the remainder was from houses bought under the house refund program, which was set to expire in November, 2009.

The Obama administration purposefully increased government spending because this is the crux of Keynesian economics.  So, to Obama and his progressive followers, the GDP of October 2009 of 3.5% was good. This was not by accident, it was because Obama is a follower of Keynesian economics.

Keynesian economists believe that that the economy will improve if the government stimulates it by artificially increasing demand. FDR used the same economic system.  Both Obama and FDR increased spending on goods and services in order to create government jobs and increase spending, and therefore GDP, in this way.

However, increasing economic activity through government spending has drawbacks.

1. Most jobs are temporary.  Creating temporary government jobs by government programs to build bridges, repair roads, plant trees, etc. will create jobs that increase the GDP, but a few months later the GDP will shrink as these jobs are eliminated. 
2. Money used to pay for government jobs is taken from people who work, meaning they will have less money to put into the market.  
3. Obama's stimulus package increased the national debt by trillions of dollars that must be paid back at the expense of our economic future. 
4. Like the cash for clunker program, all government created jobs are only temporary. While they are in effect the GDP may rise, but once they are expired the GDP will go back down again. Thus, a rise in GDP caused by increased government is NOT a sign of an improving economy.
5. Government programs like cash for clunkers artificially inflates the sale of cars, making economists thin the economy is improving when it's not.  So car companies hire workers only to have to lay them off when the program ends, resulting in a shrinking of the GDP. 
6. Government spending increases the national dept, forcing future generations to pay it off, and forcing the government to borrow money from other nations, such as China.  The ultimate risk here is that the entire system will collapse, and other nations will lose respect for America. It presently stands at $17,480,794,453,219.59
7. Keynesian economists use dept to create economic growth.  This comes with severe consequences if that dept cannot be paid off.
8. U.S. government debt to GDP failed to rise dramatically from 1960 to 2008, but it almost doubled from 2008 to date, just as households took on debt rapidly from 2001 to 2009 and companies quietly increased their leverage.

The only way to get real economic growth is to create incentives like cutting taxes on consumers so they have extra after tax revenue to purchase goods like computers, TVs, cars, houses, telephones, and MP3 players, and services like cable TV and the Internet.

The only way to get real economic growth is to cut taxes and regulations on businesses so they have an incentive to increase investments on things that will boost the economy like new machines, tools, buildings and workers.  This is the only time tested method of getting long-term increases in GDP, and real economic recovery. You have to have growth in the private sector.

So, during an economic recovery you will have an increase in consumer spending and investment by businesses, not the government. An improved GDP is good, but not so much when the reason for that increase is due to an increase in government spending which is funded by increased taxes, increased national debt and printing of more money -- things that decrease confidence in the economy and devalue the dollar.

The private sector is what holds the key to you and me making money. It's where all the good paying, long term, jobs are created. If the private sector does well then the economy is doing well.  If the private sector is doing well, both the unemployment and the U-6 unemployment rate will drop.

Falsely spiking the GDP by government spending is a Keynesian strategy to artificially make economic numbers look better. True economic growth would be indicated by a rise in GDP due to spending by consumers and businessmen.

References:

1. Exploding Private-Plus-Government Debt To GDP: Davos (World Economic Forum) Conversation Starter
2. U.S. National Dept Clock

Government spending 20% of GDP

If you want to improve your standard of living, you're not going to do it by receiving a check from the government.  The only way to improve your standard of living is by investing yourself in the marketplace.

Yet there are a lot of folks who think the government is needed to make life better for people.  They think that it's a good thing that 20% of the gross domestic product (GDP) is government.  In fact, the media is reporting this as a good thing.  They are reporting that if it weren't for Obamacare, that the economy would have had negative growth in the first quarter of 2014.

They say healthcare spending increased at its fastest pace in more than three decades because of Obamacare, according to Reuters.  They say it caused a floor that prevented a net loss in economic activity.  They say this is good.

Reuters notes:

Healthcare spending increased at a 9.9 percent annual rate, the quickest since the third quarter of 1980, and it contributed 1.1 percentage points to GDP growth.

But this is not good news.  In fact, it is bad news.  When the only reason the government grew at all (an abysmal 1% of 1% in the first quarter of 2014) is due to government spending, then you have a serious problem.  This is because, for there to be an economic recovery, it needs to come from the private sector.

It's the private sector where the good jobs come from.  It's the private sector that provides the best opportunities to get rich.  It's the private sector that provides the best opportunity to improve your lot in life, not the government.

Surely the government can create jobs.  But it does so at the expense of the private sector.  Surely the government can assure that everyone has healthcare.  Sure the government can assure everyone has a retirement.  But, it does so at the expense of the private sector.

Why? Because everything the government does is with money it took from people who work for a living.  When you take what people earn, that's money they won't be spending on goods and services; that's jobs that won't be created. All this growing government is spending money that is not yours.

But when 51 percent of people who vote don't pay taxes, they have no invested interest in this.  They don't care how much the people who work are taxed, because they're not affected by it.

It doesn't help when the media buys into the idea that more government is a good thing, and they put a positive spin on it.  They sell the idea that Obamacare prevented a negative GDP for the first quarter of 2014 and sell it as a net positive.

No wonder the youth in this nation, the millennials who have never seen a robust economy, have a pessimistic view of their country.

China to become #1 world economy this year?

The United States became the world economic leader in 1872.  So that means the U.S. has been the economic leader of the world for 142 years. That streak is pegged to come to an end in 2014.

Ulyssess S. Grant was President in 1872. Experts predict, based on analysis of economic data, China will surpass the U.S. as the most dominant economic nation sometime this year.

This is stunning, and it will happen under Obama. I'm not saying I'm blaming Obama for the collapse of the American economic system, although he did nothing to turn things around.  He said he was going to, although, to this point, none of his economic strategies have worked.

Statistics show that the U.S. had an abysmal 1% of 1% (that's 0.1%) economic growth in the first quarter of 2014.  The Obama administration is blaming it on cold weather.

Now, let's delve a little deeper into this.  Consider statistics between 2011 and 2013.  During this time, the American economy grew 7.6%.  However, during this time the Chinese economy grew 24%

Obviously, there is something the Chinese are doing that's driving their economy, something the U.S. is not doing.  And I know what it is: it's capitalism.

Communist leaders, after years of watching how successful capitalism works, has adapted a capitalistic economic system.  The U.S. has gone in the opposite direction.  The result here is a rising Chinese economy and a declining U.S. economy.

Personally, I think we should be happy for the Chinese, because it's evidence of what conservatives have been saying all along: capitalism works.  That the U.S. is falling is evidence of the failures of the progressive movement here.