[OPE] The unemployment implications of the current recession in the US: pondering the numbers

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Mon Apr 21 2008 - 14:39:52 EDT

Hi Alejandro, 

Yes you are correct, there's a difference between the statistical definition of "unemployed" and "jobless", as I noted in what I wrote. I agree that "unemployment is not a good measure of employment problems". But I am not a good cricket player yet, I keep losing.

In these turbulent days, really good economic analysis and prediction are worth a lot of cash, but the knowledge might be worth zilch, if the general public knows about it, hence it is often the case that only some suggestive poetical ideas filter into the media. The true speculator or rentier obviously doesn't really care much about whether the economy is up or down, as long as there is volatily of a type which is sufficiently predictable to make steady profits. You buy here, sell there. You can also make plenty money from economic contraction ("shorting" etc.). Most ordinary workers do care however, because it concerns their job future. Hence I wrote a bit about that - if the Marxists sow fear among the workers with gloom and doom stories, the Marxian social scientist has to try and inject a bit of objectivity into the situation, and relativise the moodswings that occur among the ideologists.

The CNN provides a useful tabulation of the duration of ten US recessions http://money.cnn.com/galleries/2008/news/0803/gallery.economy_overview/  (attachment)
The NBER list is here: http://www.nber.org/cycles.html

A rightwing site makes the following factual comment: 

In eight out of ten US post-recession recoveries since World War II, the unemployment rate continued to rise for months after real GDP reached its trough.
The unemployment rate peaked at 6.1 percent in September 1954, four months after the 1953-54 recession ended (May 1954).
The unemployment rate peaked at 7.5 percent in July 1958, three months after the 1957-58 recession ended (April 1958).
The unemployment rate peaked at 7.1 percent in May 1961, three months after the 1960-61 recession ended (February 1961).
The unemployment rate peaked at 6.1 percent in August 1971, nine months after the 1969-70 recession ended (November 1970).
The unemployment rate peaked in May 1975 at 9.0 percent, two months after the 1973-75 recession ended (March 1975).
The employment peaked in December 1982 at 10.8 percent, one month after the 1981-82 recession ended (November 1982).
The unemployment rate peaked in June 1992 at 7.8 percent, 15 months after the 1990-91 recession ended (March 1991).
The unemployment rate peaked in June 2003 at 6.3 percent, nineteen months after the recession's end (November 2001).
In two other post-war recessions US GDP reached its cyclical trough coincident with the unemployment rate:

The unemployment rate peaked at 7.9 percent in October 1949, coincident to the 1948-49 recession's end (October 1949). The economy expanded until July 1953.
The unemployment rate peaked at 7.8 percent in July 1980, coincident to the 1980 recession's conclusion. The economy expanded until July 1981.

Source: http://www.nationalreview.com/nrof_comment/kaza200405071257.asp

So there is a dissynchrony (a lag) between the moment of the greatest unemployment, and the lowest point in the level of economic activity as measured by real GDP. This probably has something to do with the lag in the recovery of business confidence, and with the fact that the upturn take time to spread itself through different industries. As I've said before though, real GDP is increasingly not a good measure anymore of total economic activity. That's because a growing circuit of property income exists (capital gains, interest, rent etc.) which is not captured by the measure.

A lot of years of research time were wrecked for me, I end up feeling a bit like a garbage collector (I didn't get that job, they said I was overqualified), so I am at this point unable to offer a really thorough analysis of the current world conjuncture yet, sorry. As I said before, the most interesting thing about this crisis is that they cannot blame it on the workers, because it is not as though workers are making impossible wage demands or running amok etc. That aside, if real wages move up or down a few percent, this doesn't really make much difference from a macroeconomic point of view anymore anyhow, technically speaking - though of course it makes a difference for the propertied class, since every dollar extra a worker actually gets in wage income is a cost which cuts into the profits of their own employer, or tax revenue.  

I think that with the massive increase in the trade of all kinds of financial claims, we are now into a new era, and therefore the current recession is likely to deviate somewhat from the previous pattern, showing novel features. The important thing is really to understand the specificity of this US recession, but I think I don't get there by simply quoting Marx or Grossmann. You have to grapple with the data, and the relevant circumstantial evidence. 

My basic hunch though is that the NAIRU is going to move up in the next decade i.e. "it will take more unemployed people to keep prices stable" as I phrased it in my RRPE piece. That may be a crazy way to put it, but that is how capitalism works. In 2007, from memory the number of officially unemployed in the US rose by about half a million, while the number of adults outside the labor force rose by more than a million. At the moment, there is still a considerable amount of "slack" in the US economy (idle funds) but gradually the fat gets trimmed off, and you get more permanently unemployed people and unemployment of a longer average duration. The strong defeat the weak, and in the recession, the weak get an extra kick on their way down to the bottom of the heap. Perhaps the Pope might provide some solace. He's big on human rights these days, at least if you accept his church's ideas about them (I'm rather critical).


PS - I should of course have included at least China in the US "main trading partners". I wrote a bit too quickly. The top US trading partners (in terms of goods, not necessarily total capital) are Canada, Mexico, China, Japan, Germany, UK, Korea, France, Saudi Arabia, and the Netherlands. The Netherlands? Yes, the Netherlands. That is why a US recession is of concern to the Dutch, we're talking $10 billion worth of goods a year, plus a whole lot more of capital investments (around a quarter of all Dutch FDI - about $150 billion out of total Dutch FDI of about $650 billion - is in the USA); total Dutch portfolio investment in the USA is about $300 billion, i.e. approximately double the FDI, out of a total Dutch foreign portfolio investment of about $1.2 trillion). If you also slip in Taiwan, those countries in total represent about two-thirds of US foreign trade in goods.

What have I done to deserve such a fate 
I realize I have left it too late 
And so it's true, pride comes before a fall 
I'm telling you so that you won't lose all 
I'm a loser 
And I lost someone who's near to me 
I'm a loser 
And I'm not what I appear to be 

- The Beatles, "I'm a loser"

ope mailing list

This archive was generated by hypermail 2.1.5 : Wed Apr 30 2008 - 00:00:18 EDT