Monday, October 22, 2018

The Unemployment Lie: Why the Unemployment Rate is Inaccurate and Paints an Incomplete Picture of Reality



Numbers are great. Quantitative analysis and related methods of inquiry into our world can yield startling insight into objective events.

Every great technological and scientific advancement in history has manifested through numerical understanding. An increase in mathematical comprehension can lead human beings to heal diseases, communicate across vast distances, conquer the stars, and more.

Yet even Albert Einstein once said that:

“Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.”
The point is if you can’t see past a simple figure, you’re missing quite a lot of the picture.

In order to begin to understand what numbers really mean, especially with regard to economic and financial numbers, it’s necessary to look at the fundamental factors underlying those figures.

Drawing a conclusion from a single number like a percentage point is like trading a stock, currency, or commodity by looking at a single variable like a moving average, Fibonacci retracement, or Bollinger band. Without considering the actual fundamental features of the underlying asset (market cap, quarterly sales, price-to-earnings ratio, etc.), you have no idea what’s really going on. You’re throwing dice at a craps table with a blindfold on.

Yet you have better odds of winning while gambling blindfolded than you do of discerning economic reality by reading official statistics.

When Keeping It Quantitative Goes Wrong

In modern Western culture, we place a high value on numbers. They provide us a quick and easy means by which to assess things that matter to us.

However, we seldom stop to think about how quantitative reasoning can be blended with rhetoric to conflate, confuse, conquer and divide entire populations.

Here’s why the official unemployment rate is inaccurate.  

1) “Employment” Definition


What does it mean to be employed? According to the Bureau of Labor Statistics,

Employed persons (Current Population Survey)
Persons 16 years and over in the civilian noninstitutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. Excluded are persons whose only activity consisted of work around their own house (painting, repairing, or own home housework) or volunteer work for religious, charitable, and other organizations.
There are so many things wrong with this definition.

To begin, “the reference week” refers to a week when the people at the BLS decided to conduct a phone survey. That’s the source of these magnificent numbers everyone is clamoring about – random phone calls.

And if someone worked a single hour on a family farm and got paid for it, or worked 15 hours without pay during that week, they’re counted as employed. But that’s not the most important point.

2) Labor Force Participation


The labor force has been shrinking precipitously for the past ten years. 


And no, baby boomers retiring do not account for this dramatic downward shift that just happened to begin following “The Great Recession.” Many baby boomers can never retire in the first place, having to deal with soaring costs of living while also being robbed of any earned interest on savings, CDs, or treasury bonds thanks to central banks lowering interest rates into oblivion.

How does the BLS define workers who are “not in the labor force?”

In a nutshell, workers who are no longer drawing unemployment income, haven’t worked in 12 months, and have given up looking for work.

Not in the labor force (Current Population Survey)
Includes persons aged 16 years and older in the civilian noninstitutional population who are neither employed nor unemployed in accordance with the definitions contained in this glossary. Information is collected on their desire for and availability for work, job search activity in the prior year, and reasons for not currently searching. (See Marginally attached workers.)

Here's where things get really revealing. Pay close attention to this last definition.

Marginally attached workers (Current Population Survey)
Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached. (See Discouraged workers.)

Furthermore, “discouraged workers” are defined as:

Discouraged workers (Current Population Survey)
Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

So, in the end, people who gave up looking for work a long time ago are not considered to be unemployed at all. Does this really sound like a reasonable method of counting the unemployed segment of the population?

In addition, there is nothing to be said in the numbers about the quality of employment. Even if it were true that unemployment is at a 49-year low, does that translate into economic prosperity for all?

Working three jobs, say, at Target, Wal-Mart, and McDonald’s counts as being employed.

Can you pay your rent? Maybe. Maybe not. You might be living in your car and reading this from a desktop computer in your local public library.



But hey! You’re employed. Happy days are upon us.

While many prefer to blame things on this politician or that political party, that kind of dichotomous thinking has no real significance when looking at long-term trends.

Economic Reality Transcends Political Ideation

In conclusion, the official economic numbers put out by the government, as Peter Schiff puts it in his book The Real Crash, are

 “Pure propaganda, plain and simple.”

A brief analysis of the methods used to create these numbers confirms this assertion beyond any reasonable doubt. It’s not hard to see why the unemployment rate is inaccurate.

This holds true across administrations.

It’s true for the Trump administration.

It was true for the Obama administration.

G.W. Bush, Clinton, Bush Sr., Reagan, Carter, and every previous administration conducted business in the exact same fashion, going back all the way (at least) to President Woodrow Wilson, who signed The Federal Reserve Act into law on December 23rd, 1913.

Speaking of which, what did Wilson say about America’s system of credit after he signed this ruinous law?

Just over 100 years ago, in 1916, President Woodrow Wilson said the following, according to official Senate documents:

“A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men ... We have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world—no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men.”
 

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