Unemployment and the Economy

I need to take a break from ranting and get back to the mission. I thought I would start by showing a few graphs.  According to the Labor Department,  467,000 jobs were cut in June, compared to a decline of 345,000 in May. The unemployment rate hit 9.5%, up from 9.4% in May.

However, this article, from the Dollars&Sense website, explains how unemployment may be at a 68 year high, by some Bureau of Labor Statistics calculations.

Econ collage

Obviously, Bush 43 didn’t have the worst economy since the Great Depression but President Obama seems to by vying for that record.

Let’s focus on the unemployment graph, and compare the current unemployment to Reagan’s. The current climb doesn’t appear worse than the climb during  Regan’s recession.  So what’s all the fuss about. Mostly, the fear has to do with the underlying economic situation. Look, for instance, of this chart of total Federal debt from this great, interactive, web site.

Fed debt

Although there are explanations for why the debt increased under Regan, Bush 41 and Bush 43, we haven’t seen the current rate of increase since the aftermath of the attack on Pearl Harbor. Regan had a smaller debt as a percentage of GDP and he cut tax rates. Obama has a debt approaching 100% of GDP and he is increasing rates in the form of letting the Bush 43 cuts expire and the proposed carbon, VAT and health insurance taxes, just for starters.

So many of us are concerned that the economy cannot cope well with the combination of debt and tax increases and we are skeptical about the efficacy the “stimulus package.” We are skeptical because we are aware of the other side of the equation.  Before (or after) the Federal Government can spend money to stimulate the economy it must take the money out of the economy in some way. It can tax the money out or borrow the money out or inflate it out. So, to the extent that injected money stimulates the economy, taking the money out must depress the economy. It’s a zero-sum game. There is no free lunch.

But, there is a way for government to help the economy and that’s to stop hurting it. Big spending, high taxes and burdensome regulations are all a drag on the economy. Reducing one or all of them would be an economic boost. But that would reduce the influence of politicians. And that, I suspect, is the rub.

For a far more complete explanation of the economic benefits of small government, see any of the books by Milton Friedman or this You Tube video series.

Friedman Book41utGfkTk7L._SL160_Friedman 51M3RSDHG8L._SL160_


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