Unemployment numbers are misleading - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 6 September 2010
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London, England

You just can't keep a good economy down. At least, that's what you think upon reading the headlines this weekend.

"Fears of double-dip recession recede," was the headline in the Financial Times.

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Why the receding fear?

The private sector created 235,000 new jobs in the past three months, the paper explained.

And here's the "good news" report from Bloomberg:

"Companies in the U.S. added more jobs than forecast in August, easing concern the world's largest economy is sliding back into a recession.
"As private payrolls that exclude government agencies climbed 67,000, after a revised 107,000 increase in July that was more than initially estimated, Labor Department figures showed today. Overall employment fell 54,000 for a second month and the unemployment rate rose to 9.6 percent as more people entered the labor force. The median estimate of economists surveyed by Bloomberg News called for a gain of 40,000."

Wait a minute. The economy needs 120,000 jobs per month just to keep up with population growth.

Okay...okay...let's not quibble about that. The census workers got dumped back onto the unemployment rolls, "causing overall payrolls to fall by 54,000" and the unemployment rate to jump from 9.5% to 9.6%.

Hmmm...let's get this straight. Unemployment went up, right? Right.

There are fewer people working now than there were three months ago, right? Right.

And the number of jobless people is still growing too, right? Right.

All of which prompted Mr. Obama, in a moment of candor, to admit that "there's no quick fix..."

He should have said there's no fix at all coming from the feds. The economy has to fix itself. But nobody seems ready for that level of candor. Transparency, yes. But still, draw the curtain behind the actors....let voters see the farce ...not the dirty dealings and incompetence backstage.

The level of thinking about what caused the crisis and how to respond to it is pathetic and absurd. Even the deepest thinkers on the subject seem unable or unwilling to consider the matter in any but the most superficial terms. Has the unemployment rate gone up? Has GDP gone up? Never mind about what goes on underneath these numbers...about what they really mean...or about how an economy really works.

Technicians need measures and gauges they can work with. Nobody seems to mind that they don't really make much sense.

But news from the unemployment front - following a couple of days of rising stock prices - was all it took to allow investors to put aside their worries about a 'double dip' recession for the Labor Day weekend.

On the last day of trading they bid up the Dow by 127 points and took a couple of points off bonds and gold. Gold settled at $1251 - just $11 short of its all-time high. Which set us to wondering about the metal. It seems to be in an extraordinary bull market. When stock prices were going down a week ago - gold was going up too. This past week, stocks were going up. Still gold went up too.

Risk off...risk on...gold doesn't seem to care. An amazing analysis in the Financial Times told us that investors are now buying gold when they think the risks of DEFLATION are increasing. Doesn't make much sense...deflation should increase the purchasing power of dollars. No need for gold.

Don't bother to write and tell us how well gold performed during the Great Recession. Gold was officially money back then. The US government increased the value of gold - by pronunciamiento - in order to reduce the value of the paper currency.

Our guess is that gold goes up when deflation threatens because people expect the Fed to do something rash and stupid - a familiar subject here at the Daily Reckoning.

All of which seems to make gold a 'can't lose' bet. If inflation picks up gold is, well, golden. If deflation gets a grip, on the other hand, gold goes up too.

But what if nothing happens? What if this Japan-style slump continues? What if the Fed doesn't do something rash and foolish?

*** "It's really stupid, I agree...but I can't even serve you a glass of water."

There is a noxious trend developing all over the world - an alarming increase in lawfulness. Even in such famously scofflaw countries as France and Italy...people are obeying the law.

Yes, dear reader, all over the world, humans are developing into a race of sheep...led by jackasses...

Two boys entered the café in the 16th arrondissement of Paris on Saturday morning. Approximately 9:30 AM. One was about 10. The other about 12. On their way to play tennis, at least that was the implication of the rackets hanging from their shoulders.

At approximately 9:35 AM these two delinquents attempted to break the law of the land...flagrantly, and in broad daylight.

"Can we have a glass of orange juice...we'll share it," asked the older boy.

"No, I'm sorry," replied the waiter...the last rampart of law and order...guardian of all that is good, up-right, and fair...defender of the La Republique. Surely there will be a statue to him erected in the square nearby. He deserves at least the honors accorded to the French soldiers in WWII. In a moment of trial, he stood his ground, fearlessly facing up to these miscreants.

"We're a licensed bar. We can't serve kids unless they're with a parent."

For a moment, it was tense. The kids might have escalated their attempt at misdemeanor. They might have asked for a cup of coffee! Instead, well brought up kids that they were, they retreated...

"Okay, Monsieur," they said...their faces downcast...on their way to tennis without a glass of orange juice to give them energy. They headed for the door while the coast was still clear. Then, they made their getaway down the Avenue Mozart.

Thank God for the waiter! What would the Fifth Republique do without men of such steady nerves? Quick-thinking...right thinking...and plain old dumbbells. Who knows how that might have turned out? We all know that orange juice is just the beginning. Pretty soon these reform-school escapees will be knocking down Perrier water. Then, a few years later, it will be 40s.

We are deeply disappointed in the French. We never thought they'd become law abiders like the American. We had hoped for more.

*** Wonder why university fees are so outrageously high? The question comes to us at least once a year. We've had at least one child in college for the last 14 years - often two. Year after year, tuition costs rise. A study reported in the Economist shows tuition rising at two to three times faster than household income over the last 40 years. For Ivy League schools the excess was 14 times income.

We haven't noticed any increase in the quality of education. So why have costs gone up so?

Outside of government itself, America's universities probably shelter more zombies than any other industry. Of course, there are the millions of students who spend some of the best years of their lives doing little or nothing useful - study loads have dropped from an average of 24 hours a week in the '60s to just 14 hours now. The professors, administrators and hangers-on are even more zombified. The students eventually have to leave this sanctuary and go out into the real world - or the government. The employees stay zombified for life.

Harvard increased its administrative staff by 300% since 1993. And the typical professor at an Ivy League university now takes a sabbatical every three years, rather than every 7 as the word implies. And according to the Economist, 20 of Harvard's 48 history professors are on leave this year.

Come to think of it, we don't know why they bother to teach history at a university. Anyone can read it on his own. And if you want to know what the professor thinks, just buy his book. You can get it for... what, $29?

Which just goes to show what a zombie business higher education is. You could get a fine education in history, law, politics - or dozens of other specialities - just for the price of a library card. But the public library doesn't give you a degree.

Take this Daily Reckoning challenge: drop out of college. Set up a reading and discussion group... Spend four hours a day, two hours reading...one hour writing a critique/opinion on what you have read...and one hour challenging each others' thoughts. Do that for 4 years at negligible cost....or spend $160,000 and 4 years fulltime at Harvard.

Let us know how it works out.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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1 Responses to "Unemployment numbers are misleading"

Roy Savio

Sep 6, 2010

Too much rambling by Bill Bonner.

He should be writing an article....not sound like a teenager letting his thoughts loose through disconnected ramblings. :)

~S

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