Let's start with the idea that the numbers were manipulated. Yes numbers can be manipulated and yes there are political incentives for this to happen, but going down that road does not take us anywhere. You can not and should not pick and choose when you want to trust statistics. It is much more productive to look at what the statistics are telling us than claiming manipulation.
The official numbers show unemployment going from 8.2% to 7.8%, but what does that actually mean? The official numbers measure "Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work" divided by the total labor force. These numbers don't take into account people who have stopped looking for work or who are under employed, i.e. working part time when they want to work full time. If you look beyond the official numbers and look at U-6 unemployment(which includes people who have stopped looking and people who are underemployed) you will see that a large portion of the decline in unemployment was the result of more part-time workers. Seasonally adjusted the U-6 statistics show that unemployment went from 14.7% in August to 14.7% in September.
Even though U-6 did not change last month, total unemployment has gone down over the last four years. The questions that we need to ask now are how this happened and does this mean the economy is "fixed"?
Question One "How"
Over the last 5 years $5.866 Trillion dollars has been pumped into the economy with an additional $6.259 in committed spending. That is about 30% the size of the entire US economy that we have spent. So what happens in the short run when this much money is pumped into the economy? Well you are going to see an increase in economic activity. More people are going to be hired, people have more money to spend because the Federal Government is directly subsidizing these activities. It similar to a man who has not slept in two days and drinks 5 espressos, of course he is going to wake up, but does this fix the underlying problem?
Question Two "Is the economy fixed"
This question of whether or not the economy is fixed implies that the economy was/is broken, which is too long of a story to give justice here. Instead let's discuss whether or not the economy is going in the right direction. Have the actions of government over the last five to six years put the economy in a better position for the long run? Do you think that the massive amounts of new financial reform, new health care reform, and the trillions in spending have helped the economy? It is hard to believe that banks are going to more efficiently allocate capital when they have to fear Dodd-Frank and the Consumer Financial Protection Bureau that it created. It is even harder to believe that health care prices are going to decrease when health care reform increases demand for that product through an individual mandate.
Lastly, in reference to the stimulus, resource allocation matters. Let me say that again, "resource allocation matters". People have different and diverse knowledge and preferences, which impacts their spending habits. Think of how a 16 year old girl would spend $100 versus a 60 year old man. It is obvious that there would be a difference here in how the $100 was spent. In a more general sense think of the Federal Government versus society as a whole. There are knowledge and preference differences here as well. A million dollars in the hands of the Federal Government is going to be spent differently than if left in the pockets of individuals. The question is who is more productive with their money and in whose hands would we see more economic growth with that money? The answer to the question of whether or not the economy is fixed or is moving in the right direction depends a lot upon what the answer to the question above.
Question One "How"
Over the last 5 years $5.866 Trillion dollars has been pumped into the economy with an additional $6.259 in committed spending. That is about 30% the size of the entire US economy that we have spent. So what happens in the short run when this much money is pumped into the economy? Well you are going to see an increase in economic activity. More people are going to be hired, people have more money to spend because the Federal Government is directly subsidizing these activities. It similar to a man who has not slept in two days and drinks 5 espressos, of course he is going to wake up, but does this fix the underlying problem?
Question Two "Is the economy fixed"
This question of whether or not the economy is fixed implies that the economy was/is broken, which is too long of a story to give justice here. Instead let's discuss whether or not the economy is going in the right direction. Have the actions of government over the last five to six years put the economy in a better position for the long run? Do you think that the massive amounts of new financial reform, new health care reform, and the trillions in spending have helped the economy? It is hard to believe that banks are going to more efficiently allocate capital when they have to fear Dodd-Frank and the Consumer Financial Protection Bureau that it created. It is even harder to believe that health care prices are going to decrease when health care reform increases demand for that product through an individual mandate.
Lastly, in reference to the stimulus, resource allocation matters. Let me say that again, "resource allocation matters". People have different and diverse knowledge and preferences, which impacts their spending habits. Think of how a 16 year old girl would spend $100 versus a 60 year old man. It is obvious that there would be a difference here in how the $100 was spent. In a more general sense think of the Federal Government versus society as a whole. There are knowledge and preference differences here as well. A million dollars in the hands of the Federal Government is going to be spent differently than if left in the pockets of individuals. The question is who is more productive with their money and in whose hands would we see more economic growth with that money? The answer to the question of whether or not the economy is fixed or is moving in the right direction depends a lot upon what the answer to the question above.
