Jobless rate really at 22%?

posted at 10:55 am on January 12, 2010 by Ed Morrissey

The AP gave us a media watershed moment last Friday when it, er, unexpectedly gave a full report on the fact that the joblessness rate hides a lot more misery these days than before.  Why?  So many people have been out of work for so long that that the Bureau of Labor Statistics no longer counts many of them.  The measured labor force — the number of people used by BLS as a baseline to calculate its unemployment rate — has dropped to its lowest percentage since August 1985, merely 64.5% of the American population.  Accordingly, the AP’s Christopher Rugaber noted that the underemployment figure has gone to its highest level since 1994, when the statistic first got measured, over 17%.

But does that tell the entire story?  John Crudele writes in today’s New York Post that the actual unemployment rate may be much higher than that — perhaps as high as 22%:

I’ve been mentioning that under-employed figure — called U-6 by the Labor Department — for years and I’m glad everyone else has finally caught up.

But that larger figure doesn’t include a huge number of unemployed folks who have given up looking for work because they feel the search is hopeless. Last Friday’s report said 661,000 such people left the labor force in December.

If you count these hopelessly unemployed, the real jobless rate is probably close to 22 percent. If these all weren’t such important issues, this would all be a big joke.

Ironically, one of the Obama administration’s top economic advisers made this same point — only Austan Goolsbee did his complaining in 2003, as Crudele explains:

Back in November 2003 an economist named Austan Goolsbee from the University of Chicago wrote an op-ed piece for The New York Times criticizing a Labor Department announcement about job growth the month before.

And he attacked the idea that the country had just experienced nothing more than a mild recession.

“Unfortunately, underreporting unemployment has served the interest of both political parties,” wrote Goolsbee. “The situation has grown so dire, though, that we can’t tell whether the job market is recovering.”

Did Goolsbee have a point in 2003?  A small point, perhaps.  This chart from the BLS shows the number of jobs rather than derivatives such as the unemployment rate, and I have added a circle to the period to which Goolsbee referred:

To be helpful, I’ve added a big rectangle to the data from the last two years.  Note that the slope of the decline actually remains the same in 2009 as in 2008 before bottoming out in November.  The period between 2003 and 2008 is when the Bush economic plan created a massive expansion of jobs, in case anyone forgets that point.

So yes, Goolsbee was right to note that job creation had not yet ticked upward until the third quarter of 2003, and that the unemployment figures masked that to a small extent.  But will Goolsbee admit that the unemployment numbers now mask a great deal more misery and job losses — and that the Obama administration’s stimulus attempts did nothing to halt the decline of jobs in the US?  Don’t hold your breath.

Update: Be sure to read Jim Geraghty’s take on this. Also, did a couple of minor edits on the final paragraph.

Update II: King Banaian says, “Not so fast” — and he has heartburn over Crudele’s use of the statistics.  Crudele’s point on Goolsbee is still undisputed, however.


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TheMightyMonarch on January 12, 2010 at 1:46 PM

Really? Lucky guess. Is The Devil’s Workshop still open in Niles? That’s the last vestige of the Fremont I knew…

NTWR on January 12, 2010 at 1:56 PM

NTWR on January 12, 2010 at 1:56 PM

I think it’s still there. The only store I’ve ever been in at Niles is the old auto parts store with the grumpy old owner who yells at his customers (he’s probably assumed room temperature by now).

TheMightyMonarch on January 12, 2010 at 2:05 PM

Yeah, Denninger’s been screaming for a while now about the ticking time bomb in failing to enforce mark-to-market. The idea of loan modifications is ridiculous since many of these mortgages are unaffordable at any interest rate. The bus driver making fifteen bucks an hour simply can’t afford a half a million dollar mortgage, no matter how many accounting games you play.

In order to keep people in their homes with affordable mortgage payments you’re talking massive principal reductions, in which case the bank is still taking the loss and the housing market still collapses to where it needs to be. Sure, it would be easier to force mark-to-market, seize the bank’s assets, and pay off the depositors, but that would require Congress to bite the hand that feeds them. Ain’t gonna happen.

Forcing mark-to-market would be a huge mistake. There are a lot of “toxic assets” tied up in “mortgage-backed securities”, which are “bundled” mortgages, some of which were made to solvent borrowers, others to insolvent borrowers. Mark-to-market means that their accounting value is whatever the last one sold for, and if none were sold, their book value is zero, maximizing paper losses for the bank.

The “bundled” mortgages need to be unbundled and traced back to the original lenders and borrowers, to find out what percentage of the borrowers are solvent. If the holders of the “bundled” mortgages can sell off some of the good ones, they recoup part of their losses, and even a foreclosed house has some value to a bank.

We can’t bail out insolvent borrowers forever, but one way of minimizing the foreclosures would be for Fannie Mae and Freddie Mac to offer FIXED-RATE loans to stressed borrowers to repay ARMs, with principal amounts limited so that monthly payments are no more than 30% of the borrower’s income. People who could have been solvent with a fixed-rate loan but got suckered into an ARM would save their houses, reducing the number of foreclosed houses on the market, while those who simply had eyes bigger than their wallets would be forced out of a home they never should have bought in the first place.

A shakeout is needed to get the housing and lending markets back on solid footing, but mark-to-market is the wrong way to go–it would needlessly make the shakeout more painful.

Steve Z on January 12, 2010 at 2:08 PM

The period between 2003 and 2008 is when the Bush economic plan Federal Reserve created a massive expansion of jobs amount of credit, in case anyone forgets that point.

FIFY.

Bill C on January 12, 2010 at 2:27 PM

Methinks the AP may have interviewed the one man who CNBC or Fox Business will not have on…BOB CHAPMAN! Who is he you ask…look here!

BobAnthony on January 12, 2010 at 2:31 PM

A shakeout is needed to get the housing and lending markets back on solid footing, but mark-to-market is the wrong way to go–it would needlessly make the shakeout more painful.

Steve Z on January 12, 2010 at 2:08 PM

Needlessly? I disagree. The pain is going to happen regardless, the question is, do we want intense pain and a relatively quick recovery, or muted pain and a long, drawn-out recovery where the underlying problems still haven’t been resolved?

Housing will not recover until it has been allowed to hit bottom. That is not going to happen until market prices reflect the true ability of people to finance it. The legal entanglements involved in what you’re suggesting are neither feasible, nor will it incentivize responsible borrowing or lending. Bottom line is this;

1. If you’re a lender and you get stuck with a bunch of worthless mortgages, you should go under. Until recently the FDIC’s job was to identify these banks and seize them before obligations outpaced assets. Now their job apparently is to look stupid while failing banks play accounting games to make their balance sheets look kosher.

2. If you’re an investor that got suckered into buying a bunch of worthless MBS, you can either eat the cost or attempt to sue the banks that defrauded you. The housing bubble was well evident for years, for anyone who wished to see it. The fact is a lot of people got caught at the peak of the Ponzi scheme and they want an easy way out.

3. If you’re a homeowner who bought too much house, got caught trying to flip property at the peak, or were stupid enough to get yourself into an option ARM (which are an absolutely horrible loans for anyone actually intending to live in the home), then you can declare bankruptcy and go rent. Sorry, no one held a gun to their heads at loan closing.

TheMightyMonarch on January 12, 2010 at 2:41 PM

Steve Z on January 12, 2010 at 2:08 PM

Problem is even more insidious than that…

There are reports that Fannie and Freddie WAY overestimated the stability of loans when they sold those derivitives… giving them much higher ratings than they should have had.

There may even be blatant Fraud involved… but the only ones who have the power to investigate this, have a vested interest in the stability of these things (which is why they suspended Mark to Market in the first place).

Romeo13 on January 12, 2010 at 3:08 PM

At the local microbrewery I frequent, the manager informed me the other night that he will have to quit producing beer, shut the restaraunt, and fire all 60 full and part-time emplyees if he is mandated to insure everybody. He says they don’t make enough to insure one-night-per-week waiters and waitresses.

riverrat10k on January 12, 2010 at 4:24 PM

Steve Z on January 12, 2010 at 2:08 PM

Steve Z, I disagree with some of your points. Why hurt all taxpayers for fraud perpetrated by the looting bankers? Should not the banker executives, their boards, and investors take the hit? Possibly jail the corruptocrats in congress who allowed their malinvestment?

Many of the large banks had their REQUIRED FDIC PAYMENTS WAIVED. Why? To allow more profitability and more leverage. There are plenty of bad guys to go around. I don’t see why my children should pay for this sins of the corrupt.

Let the banks fail and let those who hoarded their net worth start new ones. It’s the American way.

Oh yeah. What Mighty Monarch said.

riverrat10k on January 12, 2010 at 4:45 PM

The change in the method of determining the unemployment rate in 1994 was done by the Clinton administration to make the rate appear lower.

To do this they removed the estimations of the long term unemployed from the mix.

That’s why it is disingenuous to compare unemployment rates before and after 1994.

schmuck281 on January 12, 2010 at 4:56 PM

I’m much more impressed with Beck’s chart from yesterday, showing that the percentage of job losses is worse now than during the Great Depression… and we aren’t done losing jobs yet:

http://video.foxnews.com/v/3965419/the-one-thing-111

RightWinged on January 12, 2010 at 5:04 PM

So how do they count all of the self-employed folks like me who have no work because people have no money and banks won’t lend? Ten percent is sheer fantasy – figment of Obamas’ peckerhead fools’ imagination.

LarryG on January 12, 2010 at 9:29 PM

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