Last week (July 3, 2013), the – US Bureau of Labor Statistics – released their latest – Employment Situation -June 2014 – which showed that in seasonally adjusted terms, total payroll employment increased by 288,000 in June while the Household Labour Force Survey data showed that employment rose by 407 thousand. The essence to be extracted from the data is that total employment in the US is now outpacing the underlying population growth by a considerable margin and the official unemployment rate is dropping quickly (from 6.3 per cent in May to 6.1 per cent in June). Over the last year, the official unemployment rate dropped by 1.5 percentage points. There has been an acceleration in employment growth in the last 6 months. But the unemployment rate has benefited not only from stronger employment growth but also from a continued decline in the labour force participation rate. As a result the labour force shrunk has fallen by 128 thousand people over the last year. There is also evidence that a significant proportion of the jobs created are in low pay, precarious areas of the labour market.

One of the things you can always bet on with surety is that the conservatives will always try to convince the public that a cyclical event is, in fact, a ‘structural’ event. This has two, linked purposes. First, they can downplay any hint that aggregate fiscal policy interventions, which work at the macroeconomic level are necessary no matter how bad the problem is. Second, they can then wheel out their favourite ‘structural’ remedies, all of which just happen to result in national income being distributed to profits or high income earners, less capacity for low-wage workers to enjoy real wage rises or reasonably share in national productivity growth, and lower government income support payments to the disadvantaged. A double-whammy strategy. Here is an example of that sort of lie. The US Employment-Population ratio has fallen dramatically since the onset of the crisis and remains stuck at low levels. The reason is clear – there was a huge collapse in employment in 2008 and 2009 and, in the recovery, the rate of job creation has not been sufficiently strong to reverse that decline. Total employment growth has been around or just above the underlying growth in the civilian population (above 16 years), which is why the ratio is stuck. There needs to be much faster employment growth for the US to make back the ground that was lost in the downturn. While the US civilian population is growing older and that is having an impact on the calculated Employment-Population ratio, the impact is small and doesn’t alter the fact that a huge negative cyclical event occurred in the US and the fiscal intervention was not large enough to fix the problem.

As a follow up to Monday’s blog on the US labour market – Cutting US unemployment benefits is cruel and stupid – this short blog considers the latest flows in the US to provide a fuller understanding of why it is madness to even contemplate undermining aggregate demand overall (by cutting unemployment benefits). The flows data shows that the labour market is still in recovery, albeit a very tepid recovery, and the chance of a reversal in fortunes is very high, should aggregate demand falter. The US labour market is a long way from full employment (as I demonstrated on Monday) and the underlying dynamics of the labour market which this blog is about show that it is also not very vital at present. Taken together only a stupid person would think it was sensible to deny benefits to the long-term unemployed. Their stupidity is only topped by the intensity of their socio-pathic tendencies.

Once upon a time when I was a postgraduate student and there were around 10 unemployed for every registered vacancy in Australia a professor at my university was waxing lyrical about the lazy unemployed and what they should do to get off the welfare list. His said well “if they really wanted to work they could go down to the municipal tip and scratch together some scrap wood and some old pram wheels and build a cart, then follow the milkman around each morning and collect the horse dung and start a garden fertiliser business”. He wanted the unemployment benefit eliminated to get “these characters off their bums”. I remember the session vividly. That was his cure for the indolence of the unemployed. I put my hand up and said: “Two problems. First, the local council generally will not allow people to scour the tips for rubbish. Second, more importantly, the dairies now have trucks. The horse and cart milkmen were eliminated a few decades ago”. Much laughter followed. My relations with that professor soured a little more after that but the base (sourness) was already large so the percentage change was minimal. The same sort of idiocy is driving policy in the US at present with the US Congress enforcing more than a million unemployed Americans (that is, about 12 per cent of the total official unemployed) will lose their unemployment benefits this coming Saturday because the US politicians have decreed against all available evidence and research that this cohort is lazy and that the dole is standing between them and jobs.

Another relatively short blog today – it is holidays after all. There was an article in the New York Times (December 23, 2013) – Inequality for Dummies – by regular Op Ed columnist Bill Keller, who clearly thinks he represents the pragmatic, reasonable progressive “centre-left” as distinct from the “left-left” who have their heads in the sand and apparently are content to mouth of slogans to make themselves feel better but which do nothing to address reality or advance the progressive cause. My version of the topic is inverted. I usually think the “centre-left”, which used to be the centre-right or even further out to the right before neo-liberalism shifted the central point sharply so that it made Genghis Khan look downright reasonable, are gutless wonders who pretend to be progressives if it allows them to extra personal rents (rewards) and/or gain position of power in non-conservative political parties. I typically see the “centre-left” as part of the problem not part of the solution. So I read on.

The Financial Times article (December 19, 2013) – The long farewell to quantitative easing – concluded such: “Quantitative easing has demonstrated to politicians everywhere that it is possible to finance government deficits simply by printing money, a fact which had become obscure in the developed economies in previous decades. The umbilical link, previously unchallenged, between running a budget deficit and the requirement to sell bonds has been broken in the mind of the political system. Who knows what the long-term effects might be”. While mistakenly thinking crediting reserve accounts is activating any printing press it is true that there is no requirement to sell bonds to run government deficits. Today I am updating my analysis of the latest flow of funds data in the US. The US Federal Reserve recently put out the latest – Z.1 Financial Accounts of the United States – aka the Flow of Funds, Balance Sheets and Integrated Macroeconomic Accounts. If the FT author had have been studying this and related data he would have known years ago that there was no functional relationship between government net spending and its habit of issuing debt to the private sector. The former is financially unconstrained while the latter is just a system of corporate welfare. But recently, the government has given the game way by being the dominant purchaser of its own debt. Hysterical (as in comical) when you think about it!

There was an interesting article in the January 2012 edition of the Monthly Labor Review, published by the US Bureau of Labor Statistics – Labor force projections to 2020: a more slowly growing workforce. I was reading this the other day in conjunction with a new report from the US Federal Reserve Bank of Philadelphia – On the Causes of Declines in the Labor Force Participation Rate, which was released on November 19, 2013. The latter paper is controversial because it suggests that the US labour market is much tighter than the actual unemployment rate would suggest. I would suggest otherwise and here is some preliminary analysis to back that view.

There was an article in the Atlantic yesterday (November 5, 2013) – How Washington Is Wrecking the Future, in 2 Charts – which reports in a related article in the UK Financial Times (November 3, 2013) – US public investment falls to lowest level since war. The essence of the articles is that the political landscape in the US has undermined the US President’s plans to spend more of public “infrastructure, science and education” which will undermine the future growth potential and prosperity of the US economy. A Bloomberg article (November 6, 2013) – Don’t Blame Congress for Cutbacks in Public Investment – criticised both analyses on the grounds that the cutbacks are relatively small and the culprit is state and local government in the US rather than the federal government. There is truth in both sides but neither really grasps the nettle and considers the cutbacks in government spending in the context of what is going on in the non-government sector. The cutbacks in public spending in the US over the last three years are unnecessary (financially) and the fiscal drag is keeping unemployment high and increasing the poverty rates.

I have been watching in my spare time (yes) the 2010 first season of the HBO series – The Newsroom – which could be about events in US this week, so persistent has been the moronic behaviour that nations’ polity. There is growing evidence that the US Republicans are now an extremist party with a substantially tenuous grip on reality. They clearly do not understand that an economic depression is likely to follow their refusal to prevent the US Treasury to continue spending according to the current laws that the US Congress passed and which, together with the tax code, determine the current deficit. They clearly do not understand how deficits arise and the function they serve. The US might hold themselves out to be the world leaders in a range of areas but this debate is revealing how stupid the government representatives have become.