December Jobs Report and Unemployment

In December the U.S unemployment rate fell to 6.7%. This should have been good news. Being below 7% should be a good thing. It should have been something that was seized on by economists as a sign that the US economy was continuing to recover and move out of the doldrums. We should have seen Democratic partisans run to the nearest microphone to take credit for Presidential economic policies that have led us to this point. (BTW the ability of ANY President-- Republican or Democrat-- to take credit or blame for a single data point in the massive system that is the US economy is far overstated but that never stops supporters or detractors from trying to give him credit or blame in good times or bad).

But this time there was no Vice-President Biden braying and bragging about a "recovery summer" on the way. That's because the greatest nation on the earth, a place that put a man on the moon and defeated Hitler and Tojo in just four years, was only able to create a net 74,000 jobs. Even by the standards of the so-called recovery we've been having this was a horrible number. The average net increase for 2012 and 2013 was a net 182,000 jobs. Even those numbers were just barely short of what was needed to keep up with population growth. The unemployment rate is only below 7% because more people gave up and moved out of the workplace. It's not because companies are on hiring sprees. They're not. At least they're not hiring in the United States.


So this number is hopefully something of a statistical fluke. Maybe there was something that was going on in December that won't be repeated again. Maybe this was the initial impact of ObamaCare. The health care sector lost 6000 jobs. Maybe this had something to do with colder weather. Maybe someone didn't get a clean compile on a program and so the number will be adjusted upwards in the coming months. We shall see. For now all we have is this data. What's more troubling than the unemployment rate is the reason why it's fallen. The overall labor participation rate is hovering at 62.8 percent, which is the lowest level in some 35 years. This is weird. I've always wondered about this because for me, there's no choice but to either be working or looking for work. I'm not yet rich enough to retire. There's no one who would be willing to work in order that I could pursue a life of leisure. So if I lost my job I'd have to keep looking for another one and/or create my own business. And I don't think I'm alone. So what are these discouraged workers doing? That's a mystery. Clearly some of them are working off the books, going back to school, relying on family and friends for food, shelter and income, going on disability or retiring. 

If the low labor participation rate was being primarily driven by retirements, that is by an increasingly older population, well then it would be nothing to worry about. The problem is though is that it's not being driven by retirements. The labor participation rate for workers 65 and older has been on a near inexorable rise since 2000 or so. People are increasingly delaying retirement because they simply can't afford it. Those old people you see in grocery stores or big box stores working as clerks or greeters aren't there because they're bored. No, they need the money, thanks in no small part to the financial sector's destruction of their retirement wealth I would guess. And even among younger workers aged 45 to 54 the labor participation rate is 79.2%, which is the lowest since 1988. As I've wondered before, we may be in a situation where thanks to automation, weak unions, outsourcing and wholesale transfer of industries overseas, the US economy simply doesn't need as many workers as it did before. Period. The average duration of unemployment calculated for December was 37.1 weeks. It was 38 weeks a year ago. So it's not as if this economy has been doing well for a long time now.

The other interesting thing about the job numbers is that not only were most of the gains in low wage sectors (retailing, leisure, and hospitality) but for the first time since 2007 ALL of the net job growth went to one gender. Women. Men had a net loss in jobs. Again, this may all be "statistical noise" which will be corrected in coming months. But right now it looks to me like we have an economy that excels in creating low wage jobs and bailing out banks but doesn't seem to be able to create jobs which support a strong middle class. As usual the black unemployment rate was twice that of the white unemployment rate while the "did not graduate high school" unemployment rate was three times that of those with a college degree. And although both political parties will use this report in their battle over extending unemployment benefits again, I think this report and the mostly anemic jobs reports that came before it only support my belief that we need some radical changes in economic policies.
Growth in jobs slows sharply

What do you think of the jobs report?

If you lost your job how long could you last without a new job?

Should unemployment benefits be extended?

China-The New Frenemy

There is a long ugly history of Yellow Peril in American and Western literature and thought. This phenomenon generally looks at the much more numerous Chinese and/or East Asian peoples and sees in them not only unfathomable cultural and racial differences but also finds an insidious threat to the American way of life. This fear and hatred was once so great and well respected that authors like Jack London  (Call of The Wild) could write fiction calling for the complete and utter annihilation of Chinese-total genocide. Obviously no one is calling for such steps today but people from across the socio-political spectrum are starting to realize that while China may not quite be a threat but it's very much not a friend to the United States. China may be something a bit more dangerous than a competitor. Some have pointed out steps that the US must take to aggressively pursue its own desires vis-a-vis China.

These calls to action are not necessarily based in racist thought but in the very real fact that China's rise to economic prominence, its relentless demand for natural resources and its increasingly muscular foreign policy is not necessarily in the United States' or even the world's best interest. And when I say United States' best interest I am referring to the military-security state, the corporate superstructure, and the generally muted concerns of labor and environmentalists.

All of these groups' concerns are somewhat endangered by China's growth and behavior over the past few decades. Labor's concerns are obvious. Cheap Chinese labor reduces job and wage growth within the United States. The corporate sector was generally in favor of this of course but some corporations have belatedly realized that China simply does not believe in intellectual property protection in the same way that the US does, at least not for foreigners. And the military-security state may finally be reaching a point where it's not only concerned by China's rather pugnacious statements about several Pacific regions, including but not limited to Taiwan but also worried about the allegedly successful and ongoing penetration of corporate and government databases by Chinese hackers. When Vietnam, Japan, S. Korea and The Philippines are all trying to get closer to the US to get backup against Chinese bullying and over the top territorial claims, it may be that China is overplaying its hand. With rising inequality in China, the state may be deliberately fanning nationalist furies to take people's eyes away from internal problems. Imagine that.

Because President Obama is meeting with Xi Jinping this weekend, there have been a remarkable series of analysis pieces and op-ends detailing what's going on and what the nature of the US-China relationship will and should be going forward. I'm only going to link to two. If you can find it there is a great piece on China in the latest ISR (International Socialist Review). The ISR piece is longer than the two I've linked here but takes the view that China is now acting as a classic imperialist power just as the United States has. It details more of the history and interactions between the two countries.

Economics professor and gadfly Peter Morici's piece  has a list of steps that the US can and must take in a variety of places to, if you will, stop the Chinese batter from hogging the plate. There's nothing like a brushback pitch high and inside to get someone's attention.

Again, the Obama Administration turns to diplomacy, and China responds with denials. If not to change China then at least insulate the U.S. economy and national security from reckless and cynical behavior, the Obama Administration needs to act more aggressively. Moderate and progressive economists, such as Fred Bergsten and Paul Krugman, as well as this conservative voice, have advocated direct action on the currency issue: U.S. market intervention to raise the value of the yuan, slash the bilateral trade deficit, boost manufacturing and accelerate growth.

Limit Chinese investments to those sectors posing no security threats and to only minority stakes—no wholesale purchases of U.S. assets without reciprocity for U.S. businesses seeking to participate in the Chinese economy. If China wishes to engage in cyber warfare, after fair warning and without not much delay the United States should do more than harden defenses, but rather go after China's commercial secrets and security defenses as well. 

Be plain, demand transparency and engage in talks from a position of strength. Through fruitless diplomacy U.S. presidents have permitted China to become stronger and bolder—the lessons of history regarding appeasement are clear. Only stronger recognizable actions that impose costs on China may bring real change in its conduct and cultivate Beijing to act more responsibly and constructively.

The NYT piece points out that China's state financed economic model is in the short run defeating the US' market driven one. This is not a good thing as it will lead to misallocation of resources and an even more unpleasant changes in US worker expectations.

It is important to remember what is really behind China’s global economic expansion: the state. China may be moving in the right direction on a number of issues, but when Chinese state-owned companies go abroad and seek to play by rules that emanate from an authoritarian regime, there is grave danger that Western countries will, out of economic need, end up playing by Beijing’s rules. 

As China becomes a global player and a fierce competitor in American and European markets, its political system and state capitalist ideology pose a threat. It is therefore essential that Western governments stick to what has been the core of Western prosperity: the rule of law, political freedom and fair competition.

They must not think shortsightedly. Giving up on our commitment to human rights, or being compliant in the face of rapacious state capitalism, will hurt Western countries in the long term. It is China that needs to adapt to the world, not the other way around.

However it turns out I think from self-interest more and more people are thinking twice about the Chinese-US relationship. But the barn door is already open. We can't go back to the 1970's vis-a-vis China. And Chinese cheap labor will continue to be quite attractive to US and European corporations. The question is how do people outside of China deal with what has been described, fairly or not, as a devouring dragon. We have to find a way to ensure that continued interaction with China is beneficial to both countries and the entire planet, not just for one nation or for a small number of elites within each country. I like the idea of raising the value of the yuan and taking steps to make China pay for any hacking.

Thoughts?