[OPE] Common dreams II

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Thu Nov 12 2009 - 15:33:02 EST

Floyd Norris makes a valid point in NYT:

"In reality, the government report says unemployment rates remained steady
at 9.5 percent. (...) So why is this the first time you've seen those
better-looking numbers? It is because the government adjusted them before
they were released. The adjustments are for seasonality."

This is true, because the seasonally unadjusted survey result was indeed
9.5%, whereas the seasonally adjusted unemployment rate is 10.2%. The
difference is 1,153,000 workers. How can the figures be so far out?

What Floyd does not mention however is that we're talking about a sample
survey, and that we do simply will not not know with a high degree of
accuracy what the current true unemployment rate is, until we get more
data. We just use models to infer what's happening, the best we can do with
means available. Once we get rid of the monthly fluff, BLS implies, the
position is really still worse than you think it is. The other thing Floyd
not mention in his poetics is, why seasonal adjustments are made at all. In
the words of BLS,

"Seasonal adjustment is a statistical technique that attempts to measure and
remove the influences of predictable seasonal patterns to reveal how
employment and unemployment change from month to month. Over the course of a
year, the size of the labor force, the levels of employment and
unemployment, and other measures of labor market activity undergo
fluctuations due to seasonal events including changes in weather, harvests,
major holidays, and school schedules. Because these seasonal events follow a
more or less regular pattern each year, their influence on statistical
trends can be eliminated by seasonally adjusting the statistics from month
to month. These seasonal adjustments make it easier to observe the cyclical,
underlying trend, and other nonseasonal movements in the series."

In a word, the seasonally adjusted estimate is a better indicator of
the long term trend. In point of fact, from June 2008 the first BLS
unemployment rate estimates were revised upwards every subsequent month of
2008. BLS points out that "A common form of outlier that presents a special
problem for seasonal adjustment is an abrupt shift in the level of the data
that may be either transitory or permanent. Three types of outliers are
usually distinguished: (1) An additive change that affects only a single
observation, (2) a temporary change having an effect that diminishes to zero
over several periods, and (3) a level shift or a break in the trend of the
data, which represents a permanent increase or decrease in the underlying
level of the series." http://www.bls.gov/cps/cpsrs2009.pdf

Point there is that the current recession creates unusual fluctuations,
which for that very reason are more difficult to predict accurately using
models which extrapolate past trends. As I mentioned before, quarterly GDP
results for example were revised three times over.

So what is the real rate of unemployment in the US? Frankly, we do not know
exactly. But what we do know is that it is going up, whatever the recovery
in GDP may be, because fewer workers are working harder to crank out more
product for the boss. The seasonally unadjusted US national unemployment
rate will, I think, go over 10% anyway, sad to say. This is
not a very spectacular prediction actually, many of the experts say this.
More substantively, my prediction is that US unemployment will be durably
higher than it was before, i.e. a 7-8% unemployment rate of the labour force
will become "normal" in the longer term. And you will get at the most
about 2% real GDP growth. Once you get a national average unemployment rate
in excess of 10% of the labour force, it takes at least half a decade to
reduce it. Previously, an unemployment rate of 4.5% or so was normal. The
new "normal" rate is likely to be close to double that figure, durably. I
could be wrong, but I don't think I will be.

Is this pessimism? Well, people talk about optimism or pessimism, but the
real question is whether you are prepared to face reality, or whether moral
prejudices just lead to a fluffy cock-and-bull story about what is really
happening. Ordinary working people did not cause this economic crisis. But
in fact they bear the brunt of it. Why? Simply because they are in a weaker
market position. Why are they in a weaker market position? Because they
don't actually own any significant property as an insurance collateral for
bad times, and don't have the bargaining strength. Most of the United States
is owned or controlled by just 3 million people or so. Why don't workers own
significant property? Because they have nothing to sell but their
and their work is systematically and relentlessly devalued by the economic
system. Productivity rises constantly, but wages don't, in real terms. The
system, in truth, does not reward "him who works", but "him who hath". And
that could be the ruin of the United States.

It would be nice if I could be more cheery about Europe. But in fact many
Euro-moguls suffer from the crazy delusion that Europe should be more like
the United States. And the more that Europe becomes like the United States,
the more we will suffer from the same diseases. The strong point of European
society has been, relatively speaking, that it materially cares about
people, and not just about property and money. Economically that makes



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