January Jobs Report: 9% Unemployment

The January 2011 jobs numbers came out and we are supposed to be happy that the unemployment rate fell from 9.4% to 9.0%. My unemployed friends are not cheering, however. (We are suffering through a 26 year low in labor force participation.)

Officially, the recession ended months ago because that’s when the economy started growing again. But the growth is very small by post-recession standards, just two or three percent compared to the usual six or eight percent. That means we are adding jobs very, very slowly. As a result, we are still in a “jobs recession” that may take many years to recover from.

Another thank you to the Calculated Risk Blog for one of my favorite graphs:

Percent Job Losses Jan 2011

Click on the graph for a larger version.

For those of us advocating free markets, this graph is no surprise. The economy for job-seekers continues to suck. The prescription offered by President Bush and double or triple dosed by President Obama is no different than the prescription that both Presidents Hoover and Roosevelt believed in. The result is the same in both cases, weak or non-existent economic growth.

That prescription is massive government spending. In FDR’s day they called it “pump priming.” (You have to know how a hand pump works to get that.) The fallacy in this solution seems obvious once you hear it. Where does the money come from that the government injects into the economy to “prime the pump?” The stimulus money has to be taken out of the economy first. Isn’t that like giving a guy a raise after docking his pay?

This fallacy I see with pump priming  is so obvious that there must be another factor I’m missing. There is. The additional belief that makes people accept this silly economic perpetual motion machine is the notion that the recession is caused by fear, by people hording funds rather than spending and consuming. So the stimulus plan consists of prying that money out of their hands through taxation and spending it for them through government programs, thereby overcoming the fear and causing economic growth. How well do you think that plan is working?

But, you say, it would have been much worse except for President Obama’s intervention. That, of course, is hard to prove. All we can do is judge the predictions made by advocates of this idea. The best examination of the Obama stimulus plan in one graph is the wonderful work posted at Ace of Spades by Geoff on Feb. 4th, 2011.

Stimulus-vs-unemployment-January-2011

The beauty of this graph is it contains only Obama administration claims. Note, of course, that the actual performance of the economy is worse than either the alleged free market performance or the performance predicted by advocates of stimulus and pump priming. What should we conclude from this? As a scientist, if your theory does not predict reality your theory is wrong. The Obama theory did not predict reality. QED.

Read Geoff’s whole post at Ace of Spades. Therein he explains how the drop from 9.4% to 9.0% is largely meaningless thanks to the government changing the denominator of the unemployment fraction.  Another explanation of this is found at the American Thinker.

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