Counting Those Who Have Given Up on Employment

The following is a revised version of my June 7, 2008 post.

Peter Goodman writes...

The unemployment rate does not count people who have given up looking for work. Over all, the percentage of working age Americans employed dropped to 62.6 percent in May from 63 percent a year earlier.

That means nearly 40% are unemployed. Even if one argues that 10% of these unemployed people are unemployable, due to health or other legitimate reasons, the real unemployment figure in the US is closer to 30% not 5% as we are lead to believe.

The figure below, which shows the percentage of adults employed, verifies the rough 40% figure. Some might be thinking, "How can these numbers be so different than the government statistics?" Kevin Phillips' book Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism explains how. Chapter 3, entitled, "Bullnomics: Favoratism and Fictions," outlines the manipulation of key economic indicators and the implications. For example, many cost-of-living adjustments are tied to government inflation statistics. By keeping the inflation statistic artificially low, retired people's cost-of-living adjustments are suppressed.



Goodman's Article is worth reading. The in the New York Times publication of his article is a rare example of the establishment media acknowledging a distinction between the Main Street economy and the Wall Street economy. (Rembember comment was written in June 2008 before the meltdown).

Psssst... Do Something

• Contact the Broadcast Media
  
• Contact the Newspapers
  
• Contact the US Senate
  
• Contact the House of Representatives

Sources:

New York Times, Job Losses and Surge in Oil Spread Gloom on Economy, Peter S. Goodman, June 7, 2008.

Lead to St. Louis Fed graphic: Paul Krugman's December 6, 2008 blog post.

McCain's Mortgage Bailout Plan

McCain's mortgage bail out idea rewards the bad behavior of both mortgage lenders and irresponsible home buyers. A diagram makes it easy to see:

McCain Mortgage Double-Bailout Plan

So, the lesson is, if in the future we or the banks want to take a risk to make big bucks, but things go bad, the government (aka tax payer) will bail us out. That gives us an incentive to take big risks for potentiall big profits, and not worry about the consequences. This is known as the moral hazard of such policies, and is looked down upon gravely by honest conservatives. John McCain doesn't appear to be one of them.

But there are better alternatives. I provide one below.

0) Most of our mortgages now reside in "bundles" of 500 - 1,000 mortgages that can be sold or used as collateral for issuing bonds (aka securities) that make up the mortgage backed securities we hear of. Before we can do anything with individual mortgages, they must be un-bundled, and the bad mortgages must be separated from the good mortgages(McCain has to do this too).

1) Buy Bad Debt: We the tax payer (aka the government) give holders of bad mortgages (like banks) the option of buying their bad mortgages and assuming the debt (let banks get them off the books). The option is completely voluntary. The houses would be purchased at the prevailing prices. With prices continuing to drop, the mortgage holders have an incentive to sell them to us (the tax payer). The banks loose the red part on the graph above, but with prices dropping, they could loose more (they better sell now).

2) We Own Bad Debt: Waahoo! The tax payer now owns lots of property. Not the first time. We (aka the government) were the largest property owner in the US following the 1980s Savings and Loan Bailout (same thing, smaller scale, yet HUGE... making today's debacle, uber-HUGE, I like to call it historic).

3) Separate Renters from Owners: The government will need to provide jobs to help sort out the mess. Some home buyers will be able to pay for the house, with some adjustments. They can continue to own their home. Others will be in way over their heads. For them, the government takes ownership of the house, and the people can rent. A third group might be able to "rent-to-own." Nobody is thrown out into the street. The payments on mortgages and rent help pay for the new jobs needed to "sort thru the mess."

4) Sell the Houses Back to the "Free Market:" In time, as the economy recovers and the property values have risen, the tax payers can place these houses back on the market and receive a hansom profit. Most likely, the reintroduction of homes back into the market would be done over several years through a bidding process.

5) Enjoy the Profits: We take the profits and pay for all the things we need, not military stuff nor any corporate welfare, etc.

6) Control Our Destiny Forever: We rule over the banking industry, as we should, and we live happily ever after. Ah Men.