The Fetish of Full Employment
Lies, damned lies and the dismal science of economics...
Joel Bowman, appraising the situation from Buenos Aires, Argentina...
America: it works! But, so what?
Employment figures out of the Labor Department came in slightly stronger than “experts” had forecast on Friday.
During the month of November, non-farm payrolls increased by 263,000 (versus an expected 200,000). The unemployment rate, such as it is, remained unchanged at 3.7%. Meanwhile, year-over-year hourly wages increased 5.1%, higher than the 4.6% Wall Street had penciled in.
Of course, employment numbers don’t really tell us very much. Nor, for that matter, do GDP growth rates...inflation figures...consumer confidence readings and the rest of the numerical distractions and accounting sleights of hand fed to us by our better angels and their crackpot teams of dot.gov book cookers.
As with tax returns and string bikinis, it is not what statistics reveal that matters… but rather what they conceal that is of primary concern.
Behind the titillating headlines, boasting “full employment” and “robust wage growth” lies, for example, context. Tug on the loose strings and we are soon confronted with the kinds of surprises that typically set off unisex bathroom debates.
For example, even at 5.1%, annual wage growth still trails inflation. The rate at which the dollar is losing its purchasing power against real world goods is, officially, 7.7% per annum. (Unofficially, it’s likely considerably higher.) That means, even after his/her/their hourly wage “increase,” the average American worker is still losing 2.6% of his/her/their paycheck each year.
Work, Work, Work
And here we pull at another flimsy knot... the headline unemployment rate, also known as the U3 rate, doesn’t include those categorized as “underemployed, marginally attached or discouraged.” The Uber driver who can’t find work as a civil engineer... the “actress” who just asked if you wanted your combo upsized... the (heavily indebted) college graduates who were promised jobs as barristers, but are currently plying their craft as baristas. These quasi-workers are shuffled into the U6 category... where they remain in the statistical shadows for a year... before the Labor Department stops counting them altogether.
Folks looking for a truer indication of the health and vitality of the labor market often cite the Labor Force Participation Rate. This is defined as “the number of employed and ‘unemployed but looking for a job’ as a percentage of the population aged 16 years and over.”
In other words, those able bodied individuals who have or are actively seeking a job versus those that do not want, cannot get, or simply will not suffer one.
Don’t look now, but here another string comes loose...
At 62.1% (and not counting the government-induced torpor of Covid lockdowns) the Labor Force Participation Rate is back to where it was in July... of 1977. For what it’s worth, the rate peaked at the top of the tech bubble (at 67.2%, in March of 2001), and has been in more or less steady decline ever since.
But what does any of this matter anyway? Well, for one, an allegedly robust job market was the main reason cited for the gray area you don’t see shaded in on the graph, the one not right there in the first half of 2022.
Regular readers will recall this as the “recession by any other name,” when the current administration bucked a seven decade trend (going all the way back to 1949) and declared that, in fact, two negative quarters of GDP growth did not constitute a recession at all... despite the National Bureau of Economic Research having uttered the R-word every single time – all ten of them – that had happened before.
Quantity vs. Quality
Still, we mustn’t rush to disparage statistics or those who compile them. After all, a bean counter is paid to count… not to wonder why. Questions like “What is a bean?” and “Why am I counting these damned things anyway?” may well never occur to him.
And therein lies the other half of the story. Raw data aims to give quantitative measurements. Qualitative values are much harder to come by.
The number of jobs is one thing, in other words… their quality is quite another.
How many people now work in the part-time, after-hour “gig” economy? How many struggle by on the margin, taking second and third jobs, just to get by? How many of those jobs are in hospitality and tourism and other “seasonal” sectors; here this month, gone the next? What is the job satisfaction among the marginally attached and underemployed?
The mainstream headlines do not rush to say.
Besides all that, even if every man, woman and inbetween had a job, so what? Full employment is an easy enough itch to scratch.
The U.S.S.R famously boasted “full employment”… right up until the eve of its collapse. Soviet stiffs even had a saying for the whole charade: “We pretend to work; they pretend to pay us.”
In Cuba, every other hotel clerk and barkeep is a qualified medical doctor. Of course, there are no medicines on the shelves… the surgical technology is half a century old… and “free healthcare” is too expensive for anyone to afford.
Around the world and throughout the ages, across space and time, central planners have harbored various grand ideas, most of which involve reducing human activity to mechanistic functions. If the infinite complexity of an economy could only be expressed as mathematical formulae, if man’s hopes and dreams and resulting actions could be made to take numerical form, if he would only yield to the statistician’s whim... then he could be guided, molded... controlled. He could be made to realize the future he never knew he wanted.
The Wonka Hypothesis
Take the above-mentioned unemployment measures for a second. Let’s say, for sake of discussion, some boy genius introduces to the market a new wonder drug...a drug that makes eating entirely unnecessary. Packed in this miraculous little compound are all the vitamins and proteins that a healthy diet requires. (We’re just imagining, remember...) Now, being a benevolent, conscientious comrade, our budding inventor decides not to patent his Willy Wonka wonder drug...but instead makes it available worldwide for a few cents a pill, just enough to cover costs.
Almost overnight, planet earth is rid of malnutrition. The lives of hundreds of millions, perhaps billions of human beings, are instantaneously improved beyond measure. Mothers give birth to strong, healthy babies. Fathers live long enough to watch their children become parents. Pain and suffering is alleviated, especially across the poorest parts of the globe. Our (hypothetical) kid genius has cured starvation…
“But!” squeals the modern day economist. “Look what he has done to our employment figures!”
In most developed countries, including the US, around 10% of the entire workforce is employed in agriculture and related industries. In developing nations, the percentage is much higher.
“Well, there goes all those jobs!” the bean counter laments. And he’d be right...in a way. Why raise crops if you don’t need to eat them? Same goes for all the jobs in the food services and distribution industries...at grocery stores and warehouses...in chic restaurants and trendy cafés and calorie-conscious hipster hangouts…
But so what? In the real world, people adapt. They retool...retrain...restart. Without restrictions and arbitrary regulations, the workforce is fluid, able to fill demand where and when it’s required. Out-of-work potato planters might become hairdressers...or poets...or physical therapists. In the case of our hypothetical wonder pill, those folk previously employed in food-related jobs would migrate to other positions or take up other hobbies...each according to his own aptitude and desire and industry. One might open a furniture store. Ten more go to work for him. And, best of all, thanks to our (imaginary) technological breakthrough, they now do so without an empty stomach.
Would that be an improvement?
Or take the other flip side of the question: If full employment really is the goal (as opposed to, say, maximum efficiency or superior quality or spiritual fulfillment or whatever else tickles your flanks), then why not just ban machines altogether? Think of how many jobs could be added to the economy if only some bright academic had the idea to outlaw threshers and grain elevators. Emails, too, would go the way of the dodo without servers and semiconductors and silicon chips. Think of the joyous revelry at government postal service as workers there are reenlisted en masse! Longer work hours for them! Slower communication for everyone!
And why stop there? We could ban simple machines, too. Down with the pulleys! Off with the wheels! Screw the screws!
Heck, a few strokes of the legislative pen and everyone could have a job tomorrow...each hoeing his own miserable row.
The great moral philosopher, Frédéric Bastiat, called this line of “thinking” the “Fetish of Full Employment.” It is an argument that ought to have been laid to waste the moment the loom beat out the Luddites. Simply put, it just doesn’t work.
And now for some more Fatal Conceits...
In today’s discussion, we’re joined by MN Gordon, editor and publisher of the Economic Prism newsletter and former California native.
Earlier this year, Mr Gordon packed up his family and headed east to find his own American Bolt Hole. We begin today’s discussion with his fascinating story… then talk about Opendoor - as both an idea and a company - and what’s next for real estate in the US.
Please enjoy our discussion and leave your own comments and ideas regarding the best places in the US to live below…
And that’ll do it for us for another week. Tune in again tomorrow for your regular daily missives. Right now, we’re off to a little spot on the Costanera Norte for a bug-free ribeye and a bottle of malbec.
Whatever you’re up to this weekend, have a good one!
Until next time...