When Unemployment Runs Out, the Unemployed Get Cranky

Q: How can a government that has done such a horrible job of managing the economy keep its citizens from revolting en masse?

A: Spend like there's no tomorrow.

Unfortunately for the government, and the unemployed masses, tomorrow is almost here.

In December, the unemployment extension, which allowed people to continue receiving unemployment benefits for 99 weeks after losing their jobs, will run out, immediately dropping tens or hundreds of thousands of Americans from the unemployment rolls, and eventually dropping many more.

Up until now, the government has managed to keep a lid on the anger of Americans by keeping the unemployed fed with foodstamps and kept money in their pockets with extended unemployment benefits. But these are stopgap measures that count on a rebounding economy to get people back to work. However, our economy shows little signs of a rebound, and people continue to lose their jobs.

In an era when banks receive billions of federal dollars for a job poorly done, Americans are fully justified in their anger towards their government. Our economy is crumbling while our legislators twiddle their thumbs, while devising new ways to reward corporate failure.

Now that the unemployed are about to feel the full force of the crappy situation we're in, we can expect their anger to grow.

Notice that even though this is the worst economy since the Great Depression, we haven't seen any bread lines or droves of unemployed workers flooding the streets. This is a testament to the effectiveness of food stamps and unemployment checks at hiding the devastation. But once we run out of money for those programs, things will get ugly.

I'm not thrilled about the prospect of a breakdown of social order, but this is the bed we made, and come December, we will have to lay in it.

The Crappy Economy is Getting Crappier

No one want's to spend money, according to a new Gallup Poll. Back to school time is usually a boon for retailers, but parents seem to be tightening their belts, as this year's self-reported spending is even lower than in 2009.

The picture becomes clearer when you add in the fact that nearly two-thirds of Americans believe the economy still hasn't hit rock bottom. Many those who still have jobs are convinced that the economy will fall even further, and are probably saving money or paying off debts instead of buying their kids a new Sponge Bob backpack.

My advice? Don't listen to me. It'll only depress you.

The Economy is Fucked: In Graph Form

We all know the economy is bad, so I'm not shattering any illusions. But the bad news is that its getting worse, especially for those most deeply affected: the unemployed.

This is a graph of the median length of unemployment for those looking for work, and it stands at nearly 5 months. So half of all those looking for jobs have been looking for over 5 months--and they aren't finding anything.

The government likes to release its unemployment statistics, and their current number is 9.3%, which gives a much rosier picture of the situation than truly exists. Like any good statist government, they have to massage the unemployment numbers to make it look like they are doing a good job, even when they aren't.

The real unemployment picture is much darker.

This graph shows the ratio of non-government jobs to the population as a whole, basically how many jobs per capita. This ratio is a true measure of unemployment, as it accounts for those who have given up looking for work or for other reasons aren't counted. You have to go back to before my birth (1985) to see a worse time to find a job in America.

Of course, I don't want to be overly dramatic, there is one sector of our economy that is doing quite well, and appears unfazed by the economic destruction taking place. That sector would be the government.

Despite its crumbling tax base, our government is having no problem steadily adding jobs, and putting an increasing strain on those who can still find work in the private sector. While our economy is taking a hacksaw to jobs, our government is happy to continue piling them on. This would be great, if it wasn't for the fact that the rest of us have to pay for those jobs. These government jobs aren't creating wealth and they aren't helping the recovery. In most cases, government jobs destroy wealth, and that's the last thing we need right now.

But why, you may ask, is the economy struggling so much? What makes today different from yesteryear? That is a question with many answers.

First, too much bureaucracy. Our economy and employment live and die on small businesses. If entrepreneurs have to fill out a thousand documents and apply for a thousand permits before they can open up a new small business, they may not even try. It isn't worth it to start a business, especially in this economic climate. The problem goes much further than this, of course, but fixing this would be a start.

Instead, Obama has added even more complexity and paperwork to the already overburdened businessman with the health care bill. He simply doesn't understand that paperwork can slow economic growth, or even set it backwards.

Second, too much uncertainty. Our government has never taken such direct control of our economy. It would be tolerable if that control was producing results, but it isn't. Instead, our economy must constantly adjust to the trillion dollar whims of Congress or the Fed, and this constant adjustment means no one can possibly plan and invest for the future. Without this investment, our economy stagnates and sheds jobs, waiting out the turbulence so it can start investing again.

With trillions in bailouts saving huge companies from their own mistakes, the laws of economics no longer apply. Companies are waiting for bailouts, or sitting tight and waiting for the economic picture to make sense, but either way they aren't expanding and adding jobs.

Third, too much debt. Our government is running up debt like a psychopathic teenager with a credit card. Our leaders have ignored the consequences of a debt based economy for decades, and now those consequences are upon us. We spend nearly a half a trillion on interest for our national debt every year. We have now taken on the debt of Fannie Mae and Freddie Mac, which totals into the tens of trillions of dollars. That isn't even counting our un-paid-for obligations to Social Security, Medicare, ObamaCare, and, oh yeah, Two Wars.

Business leaders are not blind. They see this massive debt obligation, and they know it means at least one of two things: Much higher taxes, Drastically cut government services, or Both. Either way, this is perhaps the worst time to start a business in the history of this country. Even if you can eke out a living, or if you're lucky a profit, you can be assured that most if not all of your success will be soon taxed away by our spendthrift government.

Congress, seeing the desperate situation and the looming mid-term elections, have passed another round of unemployment benefits. I liken this to attempting to bail out a sinking ship with a coffee mug. You might buy yourself a minute or two, but the ship is still going down.

Bernanke Admits Fed Caused Great Depression

In case anyone still had any doubts that the Federal Reserve helped create the Great Depression:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.
-Ben Bernanke, November 8, 2002

It only took the Fed 70-odd years to admit to devastating the American economy. I wonder how long we'll have to wait to hear them admit it they did it again.

[via Glas]

Repeating the Mistakes of the Great Depression

This enlightening article on the Great Depression dispels some myths and misunderstandings about the circumstances that led to and compounded the world's greatest economic recession.

Hoover dramatically increased government spending for subsidy and relief schemes. In the space of one year alone, from 1930 to 1931, the federal government’s share of GNP increased by about one-third.

Hoover’s agricultural bureaucracy doled out hundreds of millions of dollars to wheat and cotton farmers even as the new tariffs wiped out their markets. His Reconstruction Finance Corporation ladled out billions more in business subsidies. Commenting decades later on Hoover’s administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”[6]

To compound the folly of high tariffs and huge subsidies, Congress then passed and Hoover signed the Revenue Act of 1932. It doubled the income tax for most Americans; the top bracket more than doubled, going from 24 percent to 63 percent. Exemptions were lowered; the earned income credit was abolished; corporate and estate taxes were raised; new gift, gasoline, and auto taxes were imposed; and postal rates were sharply hiked.

My immediate reaction was that we are repeating the same mistakes of Hoover and FDR and expecting different result.

The Lost Decade II

The Lost Decade (失われた10年 Ushinawareta Jūnen?) is the time after the Japanese American asset price bubble's collapse (崩壊, hōkai) within the Japanese American economy, which occurred gradually rather than catastrophically. It consists of the years 1991 2008 to 2000 2017.[1]

The strong economic growth of the 1980s 1990s ended abruptly at the start of the 1990s mid 2000s. In the late 1980s 1990s, early 2000s, abnormalities within the Japanese American economic system had fueled a massive wave of speculation by Japanese American and foreign companies, banks and securities companies. A combination of exceptionally high land values and exceptionally low interest rates briefly led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and mortgage backed securities.

Recognizing that Because this bubble was unsustainable, the Finance Ministry sharply raised interest rates in late 1989 mortgage delinquencies and foreclosures skyrocketed due to sub-prime mortgage rate hikes. This abruptly terminated the bubble, leading to a massive crash in the stock market. It also led to a debt crisis; a large proportion of the debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks being bailed out by the government.

Michael Schuman of Time Magazine noted that banks kept injecting new funds into unprofitable "zombie firms" to keep them afloat, arguing that they were too big to fail. However, most of these companies were too debt-ridden to do much more than survive on further cuts, which led to an economist describing Japan America as a "loser's paradise," replete with bank bonuses. Schuman states that Japan's America’s economy did not begin to recover until this practice had ended. [2]

Eventually, many became unsustainable, and a wave of consolidation took place, resulting in only four national banks in Japan America. Critically for the long-term economic situation, it meant many Japanese American firms were burdened with massive debts, affecting their ability for capital investment. It also meant credit became very difficult to obtain, due to the beleaguered situation of the banks; even now the official interest rate is at 0% and has been for several years, and despite this credit is still difficult to obtain[citation needed].

This led to the phenomenon known as the "lost decade", when economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life was muted, however. Unemployment ran rather high, but not at crisis levels. This has combined with the traditional Japanese emphasis on frugality and saving (saving money is a cultural habit in Japan) to produce a quite limited impact on the average Japanese family, which continues much as it did in the period of the miracle.

On February 9, 2009, in warning of the dire consequences facing the United States economy after its housing bubble, U.S. President Barack Obama cited the "lost decade" as a prospect the American economy faced. [5]

-Lost Decade (Japan)
From Wikipedia, the free encyclopedia

Japan went through a nearly identical asset bubble, and it's government reacted with bailouts and extremely low central bank interest rates, just like America's government. With frugality and savings, Japan managed to get through it in ten years. American's are not notorious savers of money, as we are the world's biggest debtor nation, so it will probably take us longer.

The Depression That Wasn't

In 1920-21, America's GNP plunged 24%, from $91.5 billion in 1920 to $69.6 billion in 1921, in one of the worst economic downturns in history. In response, President Warren G. Harding cut taxes on business, and held personal income tax rates steady at 8% for top earners.

Harding vetoed spending bills, including one that would give bonuses to veterans. He saved billions.

Harding also cut billions from the existing budget. The Federal budget went from $6.3 billion in 1920 to $5 billion in 1921 to $3.2 billion in 1922. Federal taxes also fell, from $6.6 billion to $5.5 billion to $4 billion, respectively. In this time, Harding paid off a significant portion of America's World War I debts.

By 1922, the GNP had rebounded to $74.1 billion and unemployment dropped to 6.7%. Unemployment continued to decline through the roaring twenties.

Without debt, by simply cutting taxes and slashing government spending, Warren G. Harding prevented a Great Depression and turned an ailing economy around in under 18 months.

Suck it Keynes.

Unionized Teachers Get What They Deserve

Unionized Rhode Island teachers refuse to work 25 minutes more per day, so town fires all of them.

Central Falls is one of the poorest towns in the state. It looks like the pictures everyone's seen of Detroit or Flint. There are lots of boarded up windows, abandoned buildings, decrepit factories with broken windows, etc. It's an absolutely depressed community. According to Wikipedia, the median income in the town is $22k.

Teacher salaries at the high school average $72-78k. Apparently 50% of the students at the school are failing all of their classes, and the graduation rate is also under 50%. In an effort to turn the school around, the superintendent requested some changes be made whereby the school day would be slightly extended, teachers would perform some extra tutoring, etc.

The union balked and refused the terms, so now she is firing the entire teaching staff of the high school and replacing them. This is yet another example of unions digging their own graves by refusing to negotiate or accept reasonable terms. Sentiment is on the side of the superintendent, at least among the folks I have discussed the issue with.

While private sector workers are losing their jobs, public employees are doing better than ever. Luckily this Rhode Island town decided to fight back.

Some things are best dealt with on the local level, where average people still have a voice.

[Mish via BusinessInsider via Instapundit]

Congress Rips Bernanke a New One

Ben Bernanke, Fed Chief, is up for confirmation again. Most believe he will be reconfirmed, but members of Congress are taking this opportunity to verbally tear him apart before they give him a pass.

Members of the Senate Banking Committee signaled at a hearing that Fed Chairman Ben Bernanke is likely to be confirmed for a second term as head of the central bank. But that may come at a steep cost -- lawmakers said the Fed had "failed" or done a "horrible job" as a regulator and suggested they would push ahead with a proposal that would strip much of its regulatory authority.

...

Mr. Dodd's Republican counterpart, Sen. Richard Shelby of Alabama, said he has traditionally held the Fed in "very high regard" but that the central bank's actions over the last year has eroded his view.

"I fear now, however, that our trust and confidence were misplaced," Mr. Shelby said.

...

"You are the definition of a moral hazard," said Sen. Jim Bunning (R, Ky.), a long-time Fed critic. "I will do everything I can to stop your nomination and drag out this process as long as I can."

Under Bernanke's watch we have not only seen the collapse of our entire banking and financial markets, taking us to the brink of full economic depression, but we have also seen the coffers of America pillaged to save greedy bankers from their own mistakes. And he is likely to keep his job.

I'm wondering exactly what it takes to get fired over at the Fed.

Make a Right at the Next Recession

Recessions are no fun for anyone, especially for the party in power. Ross Douthat looks at how our current recession could push voters rightward if Obama and the Democratic Congress continue to flounder.

Meanwhile, the regions hardest hit by the current downturn are places where liberals have dominated for generations, and where government is overextended already. (Of the 10 “States in Fiscal Peril” featured in a recent Pew report, nine went for Barack Obama in 2008.) Even if the residents of California or New Jersey or Illinois wanted further expansions of government, there isn’t any revenue to finance them.

So voters are turning rightward instead. In New Jersey, a recent Quinnipiac poll found that 61 percent of voters favored laying off state workers to reduce the current budget shortfall; only 23 percent favored raising taxes instead. Nationally, the percentage of Americans who say that government is doing “too much” hit a 10-year peak this fall. In 2007, 69 percent of the public said that government should guarantee universal health care; now that number is down to 47 percent.

I think we'll be seeing a Republican landslide come 2010.

Why You've Never Heard of the Great Depression of 1920

How Warren G. Harding turned a recession around in 1 year.