Answers to your economic questions

This month I will respond to some questions people have written to me, mostly about previous columns:

“If the unemployment rate is now reasonable, why does the economy still seem to be so sluggish?”

Although the media report one unemployment rate, the federal government actually reports six unemployment rates. The “famous” one is U-3. For decades, this was a reasonably good proxy for unemployment in our country.

More recently, it has become a poor measure of unemployment, because it does not include among the unemployed “discouraged” workers, who have not looked for work recently, or anyone who makes at least $20 in a week.

I recently wrote a column advocating the importance of “apples to apples” comparison and the U-3 has been failing that test primarily because large numbers of people change their minds about whether or not they are “discouraged” from one month to the next. A more accurate unemployment rate to use today would be U-6, which also counts the “underemployed” — people who are discouraged and people who are working part-time making as little as $20 each week.

For an apples-to-apples comparison, we need to consider the workforce participation rate. Today, we are at about the lowest participation of adult males in the workforce in our country’s history. The recent recession officially ended in June 2009. At that time, the total workforce participation rate was 65.7 percent. Nearly six years into an economicrecovery, we actually have a substantially lower percentage of the population working — 63 percent.

Even using the U-3 definition for unemployment, if the same percentage of the population was working today as six years ago, the unemployment rate today would be 9.7 percent. Using U-6 or a workforce-participation-adjusted rate for unemployment provides a far more accurate picture of what is truly happening.

That is why the economy remains sluggish — unemployment is still staggeringly high.

A related question: “If we have been recovering for six years, why aren’t things better?”

The brief answer is that they are, but for the wealthier segment of the population.

President Obama has raised income inequality as an issue of social justice. In perhaps the irony of ironies, he has implemented policies that have kept the economy in recovery by almost exclusively benefiting those who are more well-off and better-connected politically.

The most dramatic actions have been implemented by the independent Federal Reserve Bank, but endorsed wholeheartedly by the Obama Administration — quantitative easing and holding interest rates artificially low.

Can you explain quantitative easing and its impact on the overall economy? If not, you have not benefited from it. The wealthy have, though. The top 1 percent had 18.2 percent of the country’s income in 2009, and 22.46 percent for the most recent data I could find, which is from 2012. That’s nearly a 25 percent increase in income share during a three-year period.

Under the Obama Administration’s direct control was the “stimulus” bill. No doubt, we all benefit from a few more roads and we did have a temporarily funded business development position here in Robeson County, but if you can’t point directly to what you gained from at least $600 billion in deficit spending from that bill, you mostly didn’t benefit.

In that case, having political connections helped substantially. Then-Sen. Kay Hagan’s husband and son formed a business in 2010 and only seven weeks later received as much as $390,000 in stimulus money. Since the money was not awarded in a free market, you and I had no opportunity to compete for it.

Another large contributor to the recovery has been the tremendous increase in deficit spending. Since the start of the economic recovery, our national debt has increased from about $11 trillion to about $18 trillion. Most of that money vanished as soon as it was spent, but some percentage of that increased someone’s wealth.

If we equate what we’ve done nationally to the personal level, we’ve largely gotten by the past several years by charging on a credit card a large percentage of our spending on essentials, but we have a credit card with a nearly zero percent interest rate and no payments have to be made on principal.

It will be interesting to see how long we can keep this up, and how dire the consequences will be if we cannot.

Eric Dent teaches business at Fayetteville State University. He lives in Lumberton.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s