On February 3, 2015, Jim Clifton, the Chairman and CEO of the iconic 85-year old polling company, Gallup, penned an article for his company in which he called the reported unemployment number issued by the U.S. Government “The Big Lie.”
Wall Street On Parade has now discovered that a speech by former Fed Chairman Ben Bernanke and a statement made by the current Fed Chairman Jerome (Jay) Powell, support the view that today’s reported unemployment rate of 3.5 percent is statistically impossible based on a long-held economic model known as “Okun’s Law.”
Named after economist Arthur Okun, the economic law works like this according to a speech given by the Fed Chair Ben Bernanke in March 2012:
“Okun noted that, because of ongoing increases in the size of the labor force and in the level of productivity, real GDP growth close to the rate of growth of its potential is normally required just to hold the unemployment rate steady. To reduce the unemployment rate, therefore, the economy must grow at a pace above its potential. More specifically, according to currently accepted versions of Okun’s law, to achieve a 1 percentage point decline in the unemployment rate in the course of a year, real GDP must grow approximately 2 percentage points faster than the rate of growth of potential GDP over that period. So, for illustration, if the potential rate of GDP growth is 2 percent, Okun’s law says that GDP must grow at about a 4 percent rate for one year to achieve a 1 percentage point reduction in the rate of unemployment.”
Here’s the common sense version of Okun’s Law: when there is a financial crash and millions of workers are thrown out of their jobs and businesses shut down, it is going to take a significant increase in GDP to create new jobs for those workers plus create jobs for the new job entrants coming from high school and college graduates.
But that never happened. From 2009, the year after the epic financial collapse on Wall Street, through 2018, U.S. GDP has grown at an average rate of 1.8 percent. That substandard rate has persisted despite three rounds of Quantitative Easing (QE) by the Federal Reserve; $29 trillion in secret revolving loans from the Fed to bail out Wall Street trading houses and their foreign derivative counterparties; vast amounts of federal government fiscal spending to stimulate the economy; and the massive tax cut [corporate welfare] of the Trump administration.
But somehow, magically, alongside a subpar growth rate of 1.8 percent, unemployment has shrunk from 9.6 percent in 2010 to 3.5 percent today.
This is an excerpt of what Jim Clifton of Gallup had to say about the government’s unemployment number in 2015:
“Right now, we’re hearing much celebrating from the media, the White House and Wall Street about how unemployment is ‘down’ to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.
“None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job — if you are so hopelessly out of work that you’ve stopped looking over the past four weeks — the Department of Labor doesn’t count you as unemployed. That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news — currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast ‘falling’ unemployment.
“There’s another reason why the official rate is misleading. Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 — maybe someone pays you to mow their lawn — you’re not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.
“Yet another figure of importance that doesn’t get much press: those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find — in other words, you are severely underemployed — the government doesn’t count you in the 5.6%. Few Americans know this.”
Everything Jim Clifton reported above is precisely correct. And there’s more, as we reported in 2017:
…here’s the quirky thing about how the U.S. government counts people as being employed: according to the official web site of the U.S. Department of Labor’s Bureau of Labor Statistics, an individual can be counted as employed even if they didn’t receive a dime in salary during the week the data is collected. The BLS explains its rationale as follows:
People are considered employed if they did any work at all for pay or profit during the survey reference week. This includes all part-time and temporary work, as well as regular full-time, year-round employment. Individuals also are counted as employed if they have a job at which they did not work during the survey week, whether they were paid or not, because they were: on vacation; ill; experiencing child care problems; on maternity or paternity leave; taking care of some other family or personal obligation; involved in a labor dispute; prevented from working by bad weather.
The government counts these individuals as employed under the rationale that “they have a specific job to which they will return.” But in a labor market where workers are frequently paid on a per diem basis and live from paycheck to paycheck, what the government is reporting and the economic reality on the ground may be quite two different things.
There is another situation where an individual could not be receiving a dime of compensation – on a long term basis – but still counted as employed by the U.S. government. The BLS provides two examples:
“Garrett is 16 years old, and he has no job from which he receives any pay or profit. However, Garrett does help with the regular chores around his parents’ farm and spends about 20 hours each week doing so.
“Lisa spends most of her time taking care of her home and children, but she helps in her husband’s computer software business all day Friday and Saturday.
“Both Garrett and Lisa are considered employed. They fall into a group called unpaid family workers, which includes any person who worked without pay for 15 hours or more per week in a business or farm operated by a family member with whom they live. Unpaid family workers comprise a small proportion of total employment. Most of the employed are either wage and salary workers (paid employees) or self-employed (working in their own business, profession, or farm).”
All of the above is how the U.S. government has been able to defy Okun’s Law and make the labor market look dramatically better than it is since Wall Street imploded the U.S. financial system in 2008 and crashed the U.S. economy and housing market, putting millions of Americans out of work and causing the greatest foreclosure crisis since the Great Depression.
The sitting Chairman of the Federal Reserve, Jay Powell, apparently knows the current 3.5 percent U.S. unemployment rate is statistically impossible. Prior to becoming Fed Chair, Powell sat on the Board of the Federal Reserve. Minutes for the October 23-24, 2012 Fed meeting reveal the following statement by Powell:
“While I see some improvement at the margin, it still feels to me like a world with 2 percent inflation and 2 percent economic growth, which is obviously not strong enough to reduce unemployment.”
In Bernanke’s speech referenced above, which occurred in March of 2012, he attempted to save face among global economists who were skeptical that U.S. unemployment could be showing such an improvement with such a tepid rate of GDP growth. Bernanke offered them this nugget:
“…the combination of relatively modest GDP growth with the more substantial improvement in the labor market over the past year is something of a puzzle. Resolving this puzzle could give us important insight into how the economy is likely to evolve. To illustrate the tension, consider the relationship between the recent changes in the unemployment rate and in real GDP relative to the predictions of Okun’s law…the decline in the unemployment rate over the course of 2011 was greater than would seem consistent with GDP growth over that period. Indeed, with last year’s real GDP growth below 2 percent, less than what most economists would estimate to be the U.S. economy’s potential rate of growth, one might have expected little change in the unemployment rate last year or even a slight increase.”
What was this smoke and mirrors all about? Just imagine how much more public anger there would be against Wall Street’s fat cats and their bailout kingpins at the Federal Reserve if the media had reported the real unemployment rate along with the fact that Wall Street banks and their foreign derivative counterparties had received a secret $29 trillion bailout from the Fed, allowing them to pay billions in bonuses to their miscreant bosses, while average Americans’ lives and dreams were shattered.