Employment Considerations
According to those who usually report on the employment reports put out by the US Bureau of Labor Statistics, June wasn’t such a great month. Maybe not, but then, maybe so. Consider that local, state, and federal government employment was down 39,000 people while employment overall was up by 18,000. According to the attorneys for employees, this means government employment is shrinking but the private sector is employing enough new people to offset that shrinkage and then some. If this is not good news, what is? And further, this is a trend since October of 2008. Government employment has been trending down, and overall employment has been up more than enough to offset that. One can then wonder what is happening with all the money the US Government is spending. If spending is up, why is employment down? Where is the money going? Two small examples are: National Endowment for the Arts and National Endowment for the Humanities each get $167.5 million annually.
If one considers that local, state, and federal governments combined are spending $6,000,000,000 per year and the economy is only $14 trillion, government is spending 42% of all the money made in the United States. A different way of looking at this is: Government employs approximately 20,000,000 people yet 130,000,000 are employed throughout the US economy, so government employs 15% of the people while spending 42% of the money. Part of the reason is that Social Security payments are made to about 55,000,000 people per year. Those, combined with Unemployment (5,000,000 people) and Welfare (5,000,000 people), raise the total on the government payroll to 85,000,000 people. They take approximately $3.3 trillion of the combined government expenditures. Add pensions at $1 trillion per year and the total is government payments to individuals of $4.3 trillion per year. Which leaves a fair amount, $1.7 trillion, to spend on other things. In a different manner of speaking, $1.7 trillion is a lot to spend buying votes which, in effect, puts even more people on the government payroll. There is no wondering why people vote for bigger government, close to 100,000,000 people depend on a government check for their income.
So, with all these people getting paid, and spending their money on housing, clothes, food, automobiles and the like, why aren’t their more jobs. If government spending is the same as private spending, why hasn’t all the deficit spending under the Obama administration created enough jobs. There are many reasons, but three stand out.
The first is: Recipients of Social Security, Welfare, and Unemployment are paid to produce nothing. So what they purchase comes from the production of someone who does produce. The same is true of those who actually work for government. Most of them produce nothing. This is not to discount the value of firemen, teachers, policemen, military and the like, but they aren’t PRODUCING anything. Still, they get paid and want to consume. The conventional wisdom (Keynesian economic theory) is that by producing nothing yet still consuming, demand for jobs which do produce will be increased. This is true initially, but in not producing, there is less to go around than there would be otherwise, so the price of goods is higher than would occur if more people produced. Higher prices means those spending have less to spend on other things, which, if it occurred, would create more jobs.
The second is: Interest payments and borrowed money. When borrowing to purchase anything, the obligation is to repay the purchase with labor from the future. The principle of the loan is someone’s savings from their previous labor, so at that point the exchange is equal. Interest is the amount the lender charges to borrow the savings from that labor. When interest charges are too high, they cost more than they are worth and become a drag on the economy. Further, excessive borrowing, as occurred in the ‘subprime’ bubble, caused an excessive amount of construction, far beyond what the economy could absorb. The lenders made their money on interest, while those in construction were employed in jobs that weren’t sustainable after the collapse of a bubble in the economy. Concurrently there was enough extra interest in the loans for them to be rebundled and sold again numerous times. This indicates the initial interest rate was too high, so those paying the loans are being taken advantage of to the benefit of the lender. As many of these lenders are in the business of manipulating financial instruments to their personal gain, part of the money paid as interest leaves the economy where jobs are created to enhance the bank accounts of the financial institutions and owners, which means fewer jobs available.
The third is more mundane. During an economic bubble people spend more readily. They believe things are going to keep getting better and money easier to come by, so emotionally they are more readily able to spend. Now, even though the economists tell us the recession is over and the economy is growing, that is a technical definition differentiating between growth and shrinkage. With millions who want jobs still without, the feeling is we’re still in a mild depression. This leads to concern for the future which will cause people to save instead of spend. Further, the recession scared many people into a different mindset about money, and they continue to save, even though they are earning a good wage. So the economy is not doing as well as people would like, even while governments are borrowing more. The savings in the private sector becomes an offset of the government borrowing. So despite the fact government is borrowing to spend, since the people are not, the result is the economy feels no net effect.
While describing the effects of interest and borrowed money, the excess of construction which occurred during the subprime bubble was referenced. Until this excess is used up, those in the construction industry, either directly or in support industries, will not find the demand for their previous jobs so strong as it once was. As the economy has long depended upon growth in the construction industry as a basic support, this lack has a large negative effect on the economy as a whole.
Consider all this and any increase in jobs is to be commended. Further, when government employment stops shrinking and private employment continues to grow, we will see exceptional numbers. Hopefully that will not be for a while and the relationship between those who produce and those who don’t will get closer to what it should be.
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