It would seem to be easy to calculate the unemployment rate. Just take the total number of people who don't have jobs but are able and willing to work, and divide that by the total number of people who are willing and able to work. Like I said, it seems simple. But not to our government. You see, they have multiple rates, the one they announced Friday is the lowest. It is the number of people who are actively seeking work. This number does not include those that have given up and live off the largess of government or some underground activity or those who are underemployed (think NASA type flipping hamburgers part time).
10% unemployment in most economic theory is bothersome, but not crisis. However, if you add up the total unemployment, then the rate is closer to 22%, according to the New York Post. I did some research and at the peak of the Great Depression the unemployment rate hovered around 25%. Is there any wonder why, no matter what Washington is saying, We the People are feeling stress? Couple that unemployment rate with the price of gas and you do have a crisis. Washington can try to placate with made up numbers and rosy rhetoric, but until the people feel better, this economy will remain in the doldrums.
What can we do? As individuals we need to continue to be productive if we have jobs. We need to continue to spend, but not to a point of insanity. If you need a new car, buy it. If you need an appliance, don't try to make the old one last. Go out to dinner with your significant other, take in a movie. And stay positive.
By pulling back too radically on spending we exaggerate the problem. It really is a spiral, you are in control. If we as a group stop spending, then those who make the products slow production, increasing unemployment, causing employed to cut back on their spending, until an immense crisis is at hand.
Irving Fisher proposed 9 factors that made the Great Depression what it was.
- Debt liquidation and distress selling
- Contraction of the money supply as bank loans are paid off
- A fall in the level of asset prices
- A still greater fall in the net worths of business, precipitating bankruptcies
- A fall in profits
- A reduction in output, in trade and in employment.
- Pessimism and loss of confidence
- Hoarding of money
- A fall in nominal interest rates and a rise in deflation adjusted interest rates.
Spending is up, but it is driven mostly by commodities, oil and food. It is imperative to try to control the cost increases of both to end the spiral. By spending our cash on those items to the exclusion of others causes imbalance and economic turmoil.
Government is not the answer, it is the problem. By blocking new oil leases, it keeps supply stagnant and prices higher than they need be. Higher oil prices affects the costs to produce food and get it to the store, as well as encouraging things like ethanol, which takes food stuffs that we could eat and puts it in the tank as fuel, and it is not as efficient as oil based fuel.
There is good news! The business cycle has consistently spun. Recessions and depressions help to improve productivity, cull the parts of our economy that are inefficient and leads to a boom cycle after. The goal is to survive the bad times. Since 1980 our economy has been very productive on the whole so look forward to the comming expansion! And as the Clinton Administration said: It's the economy, stupid.
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