Friday, September 12, 2008

Unemployment: Another Crisis for the American Economy?

“The nation's unemployment rate bolted above the psychologically important 6 percent level last month for the first time in five years, and it's likely to go even higher in the months ahead, possibly throwing the economy into a tailspin as Americans pick a new president,” screamed our favorite AP economic writer Jeannine Aversa last Saturday, following the release of the August unemployment figures.

“A blizzard of pink slips propelled the jobless rate from 5.7 percent in July to 6.1 percent in August, the Labor Department reported Friday,” she continued, adding, in case readers weren’t properly frightened, that “such a sharp increase is usually a strong recession warning, and it dashed investors' hopes for a late-year recovery.”

The rise in the unemployment rate is the new weapon with which to bash the Bush Administration, using it to demonstrate just how awful the current economic environment is, and help everyone understand why we need a Democrat in the White House. Ms. Aversa’s hysterics certainly help make that job easier.

But perhaps Ms. Aversa is right. After all, we lost 84,000 jobs in August and have lost a total of 605,000 so far this year. In August, 9.1 million Americans were unemployed. Those numbers are enough to scare anyone, aren’t they? Especially when they are amplified by a hyperbolic reporter who chooses loaded words like “blizzard” and “propelled” for a straight news story, and thinks that’s her job.

But tossing around numbers without perspective is a reckless exercise. It allows demagogues to manipulate the uninformed and the unsuspecting, leading to gross misunderstanding, and that leads to bad policy making.

Combining the actual numbers and Ms. Aversa’s the-sky-is-falling rhetoric may convince many that the situation is dire, but in fact it isn’t as bad as you are led to believe. Of course, if you have lost your job—and need and want a job—then being unemployed is a serious problem. If the government didn’t pay you for a period of time while you looked for another job, it would be far worse. But as bad as things are for some out-of-work people, looking at the big picture—the unemployment data for the entire nation—tells a very different story.

Historically, 6.1 percent unemployment is neither unusual, nor a particularly high rate. In every year between 1980 and 1987 the unemployment rate exceeded 6.1 percent, and stood at more than 9.5 percent for two consecutive years. From 1991 to 1994 unemployment was higher than it is today, reaching 7.5 percent in 1992. In fact, in the 29 years since 1979 the unemployment rate was 6.1 percent or higher in 14 of those years, almost half the time, and many times significantly higher. In only seven years between 1979 and 2007 was the unemployment rate lower than 5.0 percent—25 percent of the time. It should be noted that periods of high unemployment plague both Democrat and Republican administrations.

The U.S. Bureau of Labor Standards considers full employment to be when 94 to 96 percent of the workforce has a job, and when the unemployment rate is 4.0 to 6.0 percent. Today’s rate of 6.1 percent is barely outside that range, and 149.2 million Americans have a job. Putting the unemployment rate into perspective, a rate of 6.1 percent means 93.9 of every 100 people wanting a job have one. In most schools, a grade of 93.9 percent gets you an A.

It is also instructive to know that in 2007, the estimated unemployment rate for all nations averaged 30 percent, and France, Greece, Spain and Germany were all at 8.3 percent or higher. Next to those numbers, the U.S. doesn’t look so bad.

But when the political season is in full bloom, a party that hasn’t held the White House for eight years and heads a Congress with the lowest approval ratings in history will use every possible weapon to try to win the presidency. In this atmosphere even fairly good times have to be made to look bad. And times like these, when the country is facing economic challenges, have to be made to look like the end of the world.

Democrat presidential candidate Barack Obama availed himself of the opportunity to make political hay on unemployment recently. "You would think that George Bush and his potential Republican successor John McCain would be spending a lot of time worried about the economy and all these jobs that are being lost on their watch," the first-term Senator said. "But if you watched the Republican National Convention over the last three days, you wouldn't know that we have the highest unemployment rate in five years because they didn't say a thing about what's going on with the middle class."

Notice that Senator Obama didn’t say that unemployment is not really very high in historical terms; he exaggerated the situation for political gain. Perhaps, rather than wondering why John McCain isn’t losing his cool over this exceedingly normal unemployment situation, we ought to be concerned that Barack Obama is blowing the unemployment situation out of all perspective.

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