Still feels like being unemployed

This time out, I tackle a couple of “why” questions. These are things I’ve asserted in the past, but here are some of the reasons they are true.

Socialism has failed every time it’s been tried. But why is that? Is it inherent in the economic model, or is there something else involved? I mean, it sounds like a good idea to so many people, but are there any assumptions that these folks make that make it sound better than it is?

You’ve heard me talk about how unemployment numbers can be misleading, but why is that? I first tackled this issue way back in episode 21, and this time I come armed with…charts and graphs! Oh no!

Mentioned links:

Another ‘Win’ for Socialism in Venezuela

THE TRUMP ECONOMY RISES: Unemployment Drops To Under 4%, Lowest In 17 Years

United States Labor Force Participation Rate (Click on MAX under the chart to see the trend line. Also, you can click on Unemployment Rate on the right sidebar to get the trend line for that.)

And here’s the graph I created that I mention in the show:

How labor participation affects the unemployment rate (click for a full-size version)

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Show transcript

Nicholas Maduro won re-election in Venezuela recently, meaning that unfortunate country is going to have 6 more years of economic winter. With a 17% voter turnout, the voters have become incredibly apathetic, don’t believe their votes actually count, or (more likely) both. Honestly, who would re-elect an administration where food, medicine, and toilet paper shortages are common and where parents leave their children at orphanages to be fed. Inflation is at 650%, but hey, the minimum wage keeps going up.

I just want to touch on this idea that the reason Hugo Chavez’s socialist experiment failed is because of mismanagement. That’s what apologists keep asserting, and you know what; they’re right. But that doesn’t mean socialism could work; it explains why it always fails.

First of all, a national economy is so complex that there is no way that a single body can properly manage it at all. Centrally planned economies always fail because of this. That’s why a decentralized market works best. Government oversight is still necessary to prevent or punish cheating and graft, but the people generally know best what they need, and the more information they have, the better decisions they can make. The best deterrent from companies acting evil is to go out of business, but the best friend of an evil company is a government that gives them protection via crony capitalism or regulations that make it too expensive for anyone else to get in and compete with them.

Secondly, all that power over an economy invites the very kind of power-hungry people you don’t want in power to take control, and then work things out for themselves and their friends. Socialism requires that those in charge be incredibly selfless and have all the right motivations, in addition to being able to handle the aforementioned complexity. The problem is, where do you find these angels in human form? And if you do find one, you’re still just one election away from the devil, and you’re back to going to hell in a handbasket. An economic system this brittle is just asking for failure.

Mismanagement in socialism is inevitable because mankind is fallible and incompetent to deal with such complexity. This is why Chavez had to dissolve the congress and the supreme court. You can’t have accountability when you’re trying to take all the economic power to yourself. This is why many proponents have the worldview that man is essentially good. Acknowledging thousands of years of evidence to the contrary would require them to admit that such angels with the perfect set of qualities are rare, if not non-existent.

Paging all those celebrities that praised Chavez to the sky; please call your office. Reality is calling to remind you that you still have a phone, and electricity, and toilet paper, and a job.

The economy continues to create jobs, and workers continue to take them. In April, the unemployment rate dropped to 3.9 percent, the lowest in over 17 years. During the Obama administration, when it went below 7%, the media was ecstatic about it. Today, well, no so much.

“Now wait just a minute,” you might be saying, “didn’t you beat the drum against this particular statistic in the past?” Why yes, you’re right; I did. But first of all, if the media loved 7%, then 4% should be the top news of the day. But of course, it’s not. I’m pointing out their hypocrisy on this.

But yes, I did point out how incomplete that unemployment number is. Waaay back in episode 21 from November of 2012, I talked about this. That was before I put a transcript in the show notes, so you can’t search for it on the website, so I’m going to say it again here.

At that time, some people were saying, “Well, the unemployment rate has been declining; that’s progress.” Actually, here’s how the unemployment figures we see reported are calculated. Let’s say we have 100 people, all looking for work. If 10 of them can’t find work, the unemployment rate is 10%., but the percentage of people working or trying to find work, the labor participation rate, is 100%. And here’s where the illusion happens. The unemployment number in the news is based on the percentage of people looking for work who can’t find any. If two of our 100 people give up looking for work or go on disability, and nothing else changes, we now have 8 out of 98 people unemployed, and the percentage magically becomes 8.2%. The labor participation rate has dropped from 100% to 98 % (remember, the number of people working or actively looking for work has dropped), the same people are employed or unemployed, but politicians and the media only report on the new magic number. When people give up trying to find work, whether through retirement or just giving up hope, it helps decrease the unemployment rate, but if the same participation rate was used, we’d still have 10% unemployment. Now, doing that for the US economy at the time, instead of a 7.9% rate reported for November, 2012, if the labor participation rate then were the same as when Obama took office, unemployment would have been somewhere in the 11% range. That’s right; one big reason the magic number was down, and Obama tried to claim an improvement in unemployment, was that enough people just gave up trying.

So to be fair, let’s look at that for Trump’s 3.9% number. I have a link in the show notes to a graph of the labor participation rate. If you show the past 10 years, you see it dropping all throughout the Obama administration. Then when Trump gets into the White House, it levels off. Now, I’m not suggesting he should get credit for it, but I am suggesting, based on the data, that this historically low unemployment rate has not been artificially lowered due to labor participation. Did we hit some plateau of retirements, perhaps? That would be unusual, but the main point is this: the unemployment rate has been dropping since 2010, but this trend has continued into Trump’s administration without the boost that Obama got from a dropping labor participation rate.

So basically, if Obama got credit for bringing the unemployment rate down, Trump should, too, and potentially, even more so. But good luck getting that acknowledgement from our media.

Filed under: Economics & TaxesSocialism