David Stockman Shock Blog: The Real Unemployment Rate Is 42.9%

RUSH: Ladies and gentlemen, the unemployment rate, what is the latest reported unemployment, 5.5%, is that what it is, 5.3, 5.6? It's in that neighborhood, right? I don't know what the exact number is. Not that this matters to anything anymore. I mean, the truth is increasingly irrelevant. The truth is increasingly meaningless. In fact, there isn't any truth in way too much of the country. There is certainly no objective truth.

Anyway, I have had, as you know if you listen regularly, I've had a lot of doubt about the accuracy of an unemployment rate of 5.5% when, at the same time, we have 92, 93 million Americans not in the workforce. It just hasn't made sense to me. Now, as you know, the Bureau of Labor Statistics, the government releases the unemployment numbers every month, and there are different categories, and the U, letter U-3 is what gets reported. That's the 5.5% now, whatever it is, that's the U-3 number. The U-3 number -- and, by the way, it's increasingly obvious that all of this is bogus and meaningless now as well.

But the U-3 number only attempts to count people who are out of work and looking for a job. People who have been out of work beyond the total length of time that they get unemployment benefits, which is up to, what is it now, 99 weeks? (interruption) It's even longer than that? (interruption) Okay, 99 weeks. So if you're looking for a job and getting your employment benefits they count you in U-3. But if you stop looking for a job at any point, you've been out of work two weeks, stop looking, you don't get counted in the U-3 number. If you've been out of work for three years and stop looking, then you don't get counted as unemployed.

I don't know how they find out who is looking for a job and who isn't, because this is largely guesswork. There is a very small interview sample that they take, and then they project nationwide results from this small, relatively small sample. The U-6 number is much closer to accurate. The U-6, it never gets reported. You have to look at websites dedicated to economics to find out what that number is. The Drive-By Media never reports it.

So 99.9% of the people celebrating Supreme Court rulings last week do not know what the U-6 unemployment rate is. That number is reported to be around 11 or 12%. And that number includes people who are out of work and have given up trying to find a job or aren't, for whatever reason, looking for work. So it is said to be a more accurate number, but that has not even worked for me. I mean, just the simple math, 92, 93 million Americans, and from there I said, "How many adult Americans are there in our country?" To put that 93 million in proper perspective, 93 million Americans not working. And my always added caveat, they are all eating.

I find that to be one of the most relevant aspects of that number, and it goes over people's head as though it doesn't matter. But if you can eat and have a phone and a big screen or whatever and not have to work, I mean, what are you more than likely to do if you are a recent graduate or product of the American education system? You're gonna opt to the path of least resistance. Particularly now you add to that what has happened to employment with Obamacare, and that is 30 hours a week is now considered full time, not 40.

I mean, folks, the bottom line here is that just observing numbers and just casually absorbing them -- not even running them; not calculating, just absorbing them -- it cannot be that we have an unemployment rate of 5.5% or even 12.2%. The number of people working is way down. The number of hours worked is way down. It's because of Obamacare, because the economy. You can maybe talk about trade deals if you want. Throw it all in. I don't care. The bottom line is, there's much less productivity in this economy.

And then you add to that how much of the economy has been usurped by the federal government, the economy, the private sector where everybody tries to get their piece of the pie. That's shrinking. My gut feeling has been that we are in a dire economic circumstance, far, far worse than anybody knows. Well, you might be saying, "What's this got to do with anything?" Well, that's why I urge you to always hang in there and be tough.

Last night a friend of mine sent me a link to a blog that is hosted and written by David Stockman. David Stockman was the former budget director for Ronaldus Magnus until for some reason he was taken to the woodshed and fired. Oh, I know what it was. He disavowed supply-side, which was his own creation. Anyway, Stockman has run a bunch of numbers and has been able to put all of this in context and has concluded that the actual unemployment rate in the United States of America is not 5.5%, and it's not 12.5% or 13%. It is 42.9%.

It's a long blog post. I can't... I'm not even gonna try to summarize most of it. I'm just gonna get to the meat of it as it relates to this. But it's an all-out assault on Keynesian economics and the Federal Reserve and the damage that both have done and continue to do to the US economy. But here's the focal point on unemployment. "In fact," he writes, "the Census Bureau survey takers and the [Bureau of Labor Statistics] numbers crunchers have not the foggiest idea as to what the real world’s potential labor force computes to, and how much of it is deployed on any given day, month or quarter."

That's economics-speak for they don't have any idea how many people are working. The "world's potential labor force," meaning how many people in the world have an opportunity to hold a job and go to work at it. Nobody knows. They have no way to compute it. And how much of that force is "deployed," that's just military lingo for how many people getting up and going to work every day. "Accordingly," he writes, "printing money and pegging interest rates in pursuit of 'full employment', which is the essence of the Yellen version of monetary central planning..."

Jessica Yellen is the chairman of the Fed. "[T]he essence of the Yellen version is completely nonsensical," and it's political, by the way, getting an unemployment rate 5.5%. You know what statistically full employment is. This is why this doesn't make any sense. Traditionally, statistically full employment has been 4.7%. Everybody involved in economics from the government on down has agreed that if at any time the US unemployment rate is 4.7% then our economy is roaring.

We got people working and working overtime, and it's as near to full employment as it's possible to get. Well, I'm telling you: If that's true about 4.7%, there's no way we're at 5.5%. This is just my gut reaction to all this. This is why this is fascinating. Now, Stockman is ripping into the money supply people and Obama because they're pegging everything they're doing to that. They're printing money, giving it to the stock market, pegging interest rates at near zero in pursuit of full employment.

That is for Obama's legacy. They want Obama to be able to leave office claiming that his stimulus worked and that everything else he did economically, Obamacare, brought back a defunct economy that he inherited. Key to creating that perception is the unemployment rate, and that's why it's been creeping down from where it is. What'd it get, as high as eight? (interruption) At some point. Anyway, down to 5.5%. Now...

"Likewise, the Fed's current 'soft' target of 5.2% on the U-3 unemployment rate is downright ridiculous," he says. "When in the year 2015 you have 93 million adults not in the labor force -- of which only half are retired and receiving Social Security benefits (OASI) -- and a U-3 computational method that counts as 'employed' anyone who works only a few hour per week -- then what you have in the resulting fraction is noise, pure and simple. The U-3 unemployment rate as a proxy for full employment does not even make it as primitive grade school economics."

Here are the numbers I wondered about: "At the present time, there are 210 million adult Americans between the ages of 16 and 68..." That is the workforce. Sixteen to 68 is the age boundaries where you find the potential American workforce. Between 16 and 68, there are 210 million Americans, and 93 million -- 40% -- of them, are not working. Now, that's probably a much better way of expressing employment, unemployment, and the real strength, performance, or lack of, of the US economy. But here is where they get in the weeds by computing a bunch of things that...

It's gonna be hard to follow because you're not reading it, but I'll do my best.

"At the present time, there are 210 million adult Americans between the ages of 16 and 68 -- to take a plausible measure of the potential work force. That amounts to 420 billion potential labor hours..." So you have 420 billion hours that people could work in a standard 40-hour week. With all the vacations and the standard benefits thrown in, that's the number of labor hours potential. That's "if we accept the convention that all adults are at least theoretically capable of holding a full-time job (2,000 hours/year)," that's the calculation, "and pulling their share of society's need for production and work effort.

"By contrast, during 2014 only 240 billion hours were actually supplied to the US economy, according to the BLS estimates," actual government numbers. So the workforce is defined as ages 16 to 68, a total of 420 billion potential labor hours, which equals great productivity if that happens. Last year, only 240 billion hours were actually supplied to the US economy, just a little over half what's possible. "Technically, therefore, there were 180 billion unemployed labor hours," and that is how Stockman arrived at "the real unemployment rate was 42.9%..."

He's actually computing the number of hours possible to be worked, at what they say is full employment, and then calculates the number of people and the number of hours actually worked, 43%. Caveats: "Yes, we have to allow for non-working wives, students, the disabled, early retirees and coupon clippers. We also have drifters, grifters, welfare cheats, bums and people between jobs, enrolled in training programs, on sabbaticals and much else.

"But here's the thing: There are dozens of reasons for 180 billion unemployed labor hours, but whether the Fed is monetizing $80 billion of public debt per month or not, and whether the money market interest rate is 10 bps or 35 bps doesn't even make the top 25 reasons for unutilized adult labor. What actually drives our current 43% unemployment rate is global economic forces of cheap labor and new productive capacity throughout the EM and dozens of domestic policy and cultural factors that influence the decision to work or not."

It's creating more and more people that don't have to work, and they're not. And there's all this productivity left -- for lack of a better way to say it -- languishing on the factory floor.

RUSH: Chase in Daphne, Alabama. I'm glad you waited, sir. Great to have you on the big program. Hello.

CALLER: Yes, sir. My question for you is I saw on Fox and a couple other sites that the Obama administration is pushing for people making 45,000 or less a year to become eligible for overtime pay. And as a guy whose only regret is never being able to vote for Ronald Reagan, I kind of want to know what the catch is.

RUSH: I'm looking. I've got a sound bite on this. If I can find it, and we can actually hear what Obama said -- it is. Grab audio sound bite -- I wonder if we've got two. Hang on just a second. I'm sorry to waste time trying to find it. I've got 12. 20 and 21? Let me see if I can find 20 and 21 very quick. (muttering) No. No. Grab number 12. This is Chris Cuomo today talking with the White House Domestic Policy Director Cecilia Munoz about Obama's overtime plan. He says: "You're doing what the private sector says you shouldn't do, don't mess with wages. Let business decide what the right pay scale is."

MUNOZ: In the seventies more than 60% of the salaried workforce was covered by overtime. We're going back to a point at which salaried workers can expect those kinds of protections. Ultimately that's good for the economy. If the business community wants to argue that the salary threshold should be set as it is now, at a level which is below the poverty rate for a family of four, I just think it's really hard to argue that that's good for the country and good for workers or good for the economy.

RUSH: I don't know. You start talking about trying to recreate what was happening in the seventies, and that's Jimmy Carter, and that's stagnation. But, again, it's meddling. I don't really know what the catch is with this other than government meddling. Who's talking overtime? We've got an unemployment rate of 42.5 % in this country. Anyway, look, Chase, we'll talk about this more tomorrow 'cause I'm really out of time today, but I'm glad you called.

42% is a bit on the high side. YOu really do need to take into account things like full time mothers and whatnot. Just from personal observation, I'd put it closer to 25%-35% unemployment. Given the way welfare works, I doubt we'll ever see it below 15%, because there is a large segment of our population that simply is unable to actually hold a job. They've never had one, never wanted one, and never will.

Personally, I can't relate to that as I've had a job as full time as I could be since I was 10 years old, but definitely I see it. Even of the percentage of folks who are actually 'employed' at once job or another, what percent of those are just basically vampires sucking the life out our country, like bureaucrats, and other government leeches? Being extremely generous to the leeches, I'd tack on another 10-15% that is nothing but a drain on the productive citizens.

According to the U.S. Census Bureau Statistical Abstracts from 1931 to 1939 the U.S. Nonfarm Unemployment Rate averaged 29.2% with a peak of 37.6% in 1933. By 1939 it was still 25.2%. This was a result of the "stimulus" economic measures enacted by Presidents Hoover and Roosevelt, which included much higher taxes, much more regulation, huge increases in government spending, and a tremendous expansion of government (sound familiar?). The consequent malaise lasted right through WWII until the end of the 1945 recession, with hyper-inflation in 1946, and a falling GDP until 1947. (Liberals like Paul Krugman today insist that the war stimulated the economy – except that the malaise in non-war sectors of the economy persisted and the war ended with the whole economy in a recession, as do most wars. Living standards under war rationing and price controls had still not returned to the level of the late 1920s.)

As a comparison, following the 1920 Depression (which was deflationary and worse than the Great Depression), President Harding responded with austerity measures of drastically reducing taxes, regulations, government spending and the size of government. The depression was over in less than two years. From 1923 to 1929 unemployment averaged 5.5%.

Using a similar unemployment measurement standard today results in an average rate since the 2008 financial crisis above 14%. It would be much higher, except that unlike then, today there are many government entitlement programs.

You can read more about it here.

There isn’t a “depression” in DC. DC is booming. There isn’t a depression in the upper 15%.

It’s the rest of us, thus they deny that it is taking place.

I am now part of the working poor, having my hours slashed. I work hard for my money. I’m thankful that I have a job, even though I struggle to make ends meet.

Where I live, I don’t find that high number surprising. The truth of it is, it’s getting very dangerous in the streets. Desperate people do terrible things. The crime rate is soaring.

"Productivity is so much higher now than in 1933, you don’t need as many workers, due to automation, robot factories, better production techniques, that sort of thing."

A common, primitive economic fallacy.

You don't need as many workers, PROVIDED your goal is to MAINTAIN THE STANDARD OF LIVING OF 1933.

Yeah, it’s high, higher than the “official” number, but it ain’t 42%, that’s nonsense.

If the unemployment level were even 1/2 of that my commute to work would be dreamy, as it is, it’s hell.

Those aren’t job seekers or welfare recipients clogging the Jersey roads each and every gosh darn day.

The taxpaying public would be outraged if they knew the true dollar amounts being funneled to the “disabled” — anywhere from a 1000.00 to 250,000 per person, per year. (I’m not talking about people with obvious physical or mental disabilities).

HIPAA laws were enacted to prevent the public (mostly those on the Right) from seeing the actual dollars being doled out by the left to entice voters to keep the money flowing by voting Dems each and every time.

The amount of money being spent, is staggering.

There were two rates used during the Roaring Twenties and the Dirty Thirties, with the Nonfarm rate being the official rate. New measurement methods were implemented in 1940, the U-1 to U-7. In 1994 they were revamped again into U-1 to U-6. Despite the similar labels there were many methodological changes.

What makes today's rate measures seem so different from the rate measures in the recent past (like the low unemployment rates during the middle part of the Bush 43 administration), is that the number of people who have dropped out of the workforce completely is so much higher today. So at a 5.5% rate during the Bush years there was a much higher proportion of the population employed than at a 5.5% rate today with a much lower proportion of the population employed.

The Nonfarm Unemployment Rate used for the Roaring Twenties and the Dirty Thirties is somewhat similar to the U-6 rate today, with less caveats. The current U-3 official rate is 5.5%, while the current U-6 rate is 10.6%.

It is also an interesting comparison between how Canada measures unemployment and the U.S. If America used Canada's method, the result today would be close to 9%. Canada's current rate using their methodology is at 6.8%. So when comparing numbers, the official rates (apples and oranges) for each country shows that unemployment is lower in the U.S. than in Canada, but when similar methodologies are used (apples to apples) U.S. unemployment is much higher than in Canada. This is hardly surprising, since Canada was one of the only western nations that went through the 2008 financial crisis relatively unscathed, because there was no real estate bubble bust (they had virtually no subprime mortgages or corresponding derivatives market). There is no Obama malaise in Canada.

I just look at the statistics of approx. 141 million people of working age and 92 million people out of work. Whatever the real number it is as bad as the Great Depression or worse. It sure is not 5.6%

If we did not have SS, 2 yrs of unemployment insurance, food stamps and welfare people would be starving in the streets right now. The soup kitchen lines would be a mile long.

Sadly as long as BHO is in office nothing will get better.

>>>Sadly as long as BHO is in office nothing will get better.<<<

Too true.

>>>If we did not have SS, 2 yrs of unemployment insurance, food stamps and welfare people would be starving in the streets right now. The soup kitchen lines would be a mile long.<<<

The irony is that if there never were SS, 2 yrs of unemployment insurance, food stamps and welfare, and these things were instead left to the free market and charities, along with no mandated subprime mortgages and Obama's total failure of a stimulus plan, the American economy would probably be leading the world in the midst of a technology and energy boom.

All one has to do is look at history. The Roaring Twenties proves that austerity works to produce incredible prosperity. The Dirty Thirties illustrates without a doubt that stimulus economics and bigger government produces malaise.

The new official unemployment rate came out today, down to 5.3% from 5.5% last month.

Don't be impressed. Here's why:

Jobs Report Disappoints, Participation Rate Falls to Lowest Since 1977

When unemployment was 25% in 1932-33, there were NO federal transfer payments. People really FELT unemployment, and had to line up at soup kitchens, flop houses, etc.

With all the welfare in various forms, it’s easy to believe we have 42% unemployment without visible soup kitchens, apple sellers, etc.

Exactly.

I had a friend of mine a couple of years ago, after I told him this depression is worst than the great depression, ask me in a condescending way why he doesn’t see any soup lines just like the great depression. My response was just like yours. And I asked him if he had ever seen someone at the store with ebt cards. He said yes. I said, there are the soup lines, they have ebt cards, etc. He said he got it..

What things like automation mean is that employment, ON AVERAGE, requires more education. Of course, there are many openings for people with a third-grade education, but not as many.

Of course, the diabolically evil people running our society are making sure that many high school and college graduates DO have a third-grade education.

Higher productivity SHOULD mean greater wealth for everybody. What the diabolically evil people making our tax policy, regulations, etc., are doing is making sure that a small number of people are productive enough to keep society sort-of functioning, while huge numbers of people are being aborted, and destroyed intellectually and physically after birth, incapable of being mothers and fathers, etc., etc.

Between 16 and 68, there are 210 million Americans, and 93 million -- 40% -- of them, are not working.

Of that 93 million, how many are high school or in college and not working for that reason? How many are over 63, retired and drawing Social Security? How may cannot work for medical reasons? How many are not working out of choice, stay at home moms and the like?

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