Unemployment rate versus employment to population ratio

Given the tepid new jobs numbers out today, I got interested in private sector versus public sector job growth over the past several years. I went to the Bureau of Labor Statistics website, hoping to get a handle on to what degree the storyline of recovery is different for the two sectors. I wasn't able to find any obvious numbers on that question, but while I was playing around with their data tool, I found something else interesting.

This is a plot of the unemployment rate over the past 6+ years. It topped out at 10.0 in October 2009 and has been falling fairly steadily since and is now around 8%.

This is a plot of the ratio of employed persons to the total population. In October 2009, when the unemployment rate topped out, the employment/population ratio (as a percent) was 58.5. However, while the unemployment rate has declined, the ratio of employed to population has remained static. Since October 2009 it has fluctuated between 58.7 and 58.2, and is currently at 58.4. So the only reason the unemployment rate has gone down (and Republicans have been saying this for a year or more) is because people have stopped identifying themselves as job seekers. I can think of several plausible scenarios in which that might happen:

1) Older workers who planned to retire in a few years but who have become unemployed choose to retire early rather than look for a job.
2) Students choose to pursue further education, delaying entry into the job market.
3) Dual-income households shrink to single-income households.
4) Discouraged unemployed workers decide to depend on welfare and charity rather than work.
5) Employees shift to unreported employment.

There may be other explanations that I'm not thinking of, but it seems to me that all five of these have significant downsides and only a couple of possible upsides. (1) probably means that people aren't sufficiently prepared for retirement financially, and will put an even greater strain on the Medicare/SS system. (2) means that a large pool of job seekers will hit the market at a future point, pushing the unemployment rate statistic back up. (3) means families survive on decreased income. (4) and (5) represent failures of the state, either to encourage productivity among the populace or to fairly distribute taxation. On the other hand (2) means a better educated workforce, which I think is generally a good thing (although not always) and (3) potentially means greater availability of parents to children.

I guess I'm wondering whether this divergence between the two numbers is temporary (in which case the media focus on the unemployment rate leads to a wrong impression of the true state of employment), or whether there's been a permanent shift in the percentage of the US population participating in the job market (in which case I'm unsure, but generally have a negative feeling about, the long-term implications).

A Rebuttal

So "leaning to the left" caught my attention enough that I'll jump back into the fray. For some reason, anytime someone says "left" or "liberal" around me, I get all defensive and into battle mode. I think it has something to do with having lived in Utah so long. [By the way, Robert, I know that's not your intention--I'm just interested in exploring my reaction to the phrase].

By the way, I should never check my email one last time before I go to bed, and I especially shouldn't have clicked through to Robert's post, because I just spent the last 45 minutes trying to think up the best way to articulate the fundamental flaws that I believe underly Ezra Taft Benson's views on government.

And I still haven't thought of the best way to articulate things. That's understandable because Ezra Taft Benson put a lot of time and thought into his article, and one would expect that a decent rebuttal to the article would require an equivalent amount of time and thought. Back when I was in school I would have been up to the task. But now with my job and family responsibilities occupying so much time out of my life, it'll have to wait.

[Which reminds me of something I read once in The Atlantic--something about how Arafat, I think, once he got into power, decided that the best way to pacify some of his more radical terrorist supporters--whom he perceived as potential threats--was to give them wives and families. And apparently they have statistics showing that it worked. At first, I thought oh, that's a testament to the importance of families. Now I wonder if it's just because the former terrorists were so busy taking out the trash and fixing broken cabinet doors that they didn't have time to entertain radical thoughts. :)]

Anyway, I have no qualms with disagreeing with Ezra Taft Benson here. In fact, I think that many of our early church leaders would have disagreed with Ezra Taft Benson's poitical views. And no, I am no position to back that statement up right now.

Here are some of my gut responses (probably a little repetitive in light of previous blog posts, but maybe one day I'll say it the right--er, left--way):

(1) Ezra Taft Benson's ideology appears to assume that, for the most part, all "wealth" is fairly allocated to those who created it, and all "costs" are fairly allocated to those who actions resulted in those costs. But this is clearly not the case. Our markets and monetary systems have innumerous flaws that I will not list here (though I have previously tried to explain some of these flaws). I'll just use an example (perhaps even a deliberately deceptive political cheapshot) as a proxy for those flaws: is the work of a plumber who takes home 250,000 a year really 6x more valuable than your average school teacher? Or (without the political cheapshot), is the work of your average CEO really 10x more important than senator? Should our Patent and Trademark Office be filled with grossly incompetent patent examiners because law firms are able to pay anyone who would be competent for the job 4x more in salary? (In case you couldn't guess, the last rant was inspired by my day at work).

Note that I am not saying that everybody should be paid the same as everyone else, I am merely observing that markets fail to fairly reward people the value of their work. Accordingly, our incentives are often in the wrong place, and our productivity is steered in unhealthy directions, sometimes with self-destructive consequences.

(2) The government, having created the monetary system in the first place, should also be responsible for taking measures to "fix" that monetary system to correct for market failures, including taking taxes and providing certain benefits.

(3) Not all government programs that involve the "redistribution of wealth" are zero-sum. For example, keeping people healthy and off the streets pays many indirect benefits to all citizens.

(4) Concentration of wealth, particularly when it involves the means of production, is as much a threat to life, liberty, and the pursuit of happiness as a despot or an invading foreign power. I believe I have blogged on this previously.

(5) Government action is necessary to initiate beneficial programs that, absent government involvement, no one person or entity would have the incentive to undertake (highway system, pollution controls, etc.) I.e., the tragedy of the commons.

(6) One thing I do agree on is that a lot of government is best left to the local level. Of course, I believe this is more true for executive and judicial branches and less true of the legislative branch. But maybe I'll save that conversation for another day.

(7) The point that I feel most adament about is that Ezra Taft Benson's political ideology distances the individual from government in a way that is unhealthy in the modern world. The people of this world become increasingly inter-connected every day, and it's time we started treating government as a forum in which we negotiate our interconnectedness, as opposed to a necessary evil.

And from this remark, let me just jump to one of my personal pedastool points. We all look forward to the day when God's kingdom will be restored to this Earth. But most of us assume that since it will take an intervening force to make that restoration possible, we should just be all doom and gloom and live in survival mode while we watch the world crumble around us. But why should we act this way? Is it not possible that a great deal of the intervening force that brings forth God's kingdom will be us taking a role in the future of the world, engaging our brothers and sisters in discourse instead of sitting firmly entrenched in our sheltered positions?

Sorry, not sure how I ended up on that pedastool. I should go to sleep.

Oh, and here are some articles that say things in a way I only wish I could:
http://maxwellinstitute.byu.edu/publications/transcripts/?id=119
http://www.geocities.com/Athens/Oracle/7207/demosp.html

Just like the good old days

(This is starting to get too reminiscent of the old symposiums. Here I am, thinking I have a whole Sunday afternoon to catch up on things like sleep and sorting through pictures and home videos, when all of the sudden I'm drawn in . . . )

Taxes

So Jesse and I appear to agree that taxes are a mechanism to redistribute the costs of benefits that, due to market failures, are not adequately borne by those who receive them.

I also agree that, in fairness, positive externalities must be considered. For example, the benefits of technological progress justify intellectual property laws and rights. I even agree that productivity is a positive externality.

However, I believe that the market more than fairly compensates for productivity. I imagine that I also believe that the costs (negative externalities) that I outlined in my previous posts are much greater than Jesse believes. By not paying for these costs, our corporations and other owners of means of production are essentially stealing from not only the American people, but all of humanity.

In reponse to Alvin, this is how I justify the majority forcing the minority to pay higher taxes.

Of course, the major problem here is that the we can argue all we want about what the true costs and benefits of these externalities are. It's very difficult to argue one way or another. So what can do to try to quantify these costs and benefits?

One could attempt to do a meta-comparison by comparing results of our current American system to that of other countries (like GDP per capita--I find that that much more agreeable than unemployment). However, I am skeptical as to the validity of a multi-national comparison for a number of reasons. Our nation's wealth owes almost as much to historical happenstance of circumstances (i.e. our geographic location, free land as a safety valve to the poor for almost half our existence, large number of natural resources) and exploitation of other countries (both the past effects of imperilaism and our current exploitation of third world labor) as it does our current system, itself.

I am interested in a historical comparison of American taxation, productivity, and distribution of wealth. However, I've been too lazy to dig up hard numbers. I hate making claims I can't back up, but here's a go. I believe that the top marginal tax rate for most of the first 70-80 years of the last century was above 70%. In fact, during the middle of the century, it was over 90%. Thanks to Reagonomics, it very rapidly declined and is now about 35%. Meanwhile, 1% of the population now holds approximately 90% of our wealth (or something like that--this is where I need to do research). That ratio has been getting worse and worse, not coincidentally, at the same time the highest marginal tax rates have been falling. Likewise, poverty rates have been climbing in a very similar way.

I should take some time to argue why all of this is bad, because I'm sure there are apologists who would say it isn't, but I'm runing out of time before my kid wakes up. So, if anybody **cough**esse, wants to tell me argue why this isn't bad, that's fine with me. (But it's all fun and games, right Jesse--especially since I'll actually agree with you later on here).

Another question of importance is "what should we tax?" Jesse has argued that we should tax consumption. In general, I think this is a very bad idea, because it becomes an essentially regressive tax. Those who have the least amount of money spend the most (percentage-wise) on consumption, while those who have the most amount of money can afford to save money, avoid taxation, and then make even more money.

And while we're talking about savings, while I think we should stay out of debt and encourage a small amount of savings for emergencies, I think we should discourage people from saving large amounts of money. ANY amount of savings has a negative effect on the current economy, because it represents money that is not being put into circulation to make more money. So if we're going to encourage savings, it should be just the minimal amount to take care of reasonably expected emergencies.

Nature of Government

I'm with Elliott. We need to stop looking at government as being somebody else forcing something upon us, and more as a social contract in which we all participate.

But, what do we do about the fact that we can't all agree all the time? I think we all agree that we can't just have a society where everybody can do anything they want just so we can make sure that no one should have to be forced to do anything. We have a right to force people to abide by certain rules that interfere too much with the rights of others--i.e. no murder, no theft, not running red lights, etc.

So we're left to walk the line between "freedom of choice" and protection of other people's rights to life, liberty, and pursuit of happiness. The issues that we've been debating are all hard issues along that line. It's hard to say just where on this spectrum of "freedom of choice" and "protection of rights" things like pollution and ownership of limited resources belong.

Also, I was going to argue with Jesse's assessment that government is, for the most part, no different than any other entity, but I think I'll save that for another day.

Legislating from the Bench

It would probably be pretty easy for me to backtrack from this statement by saying I was being technical when I said that "judges do not legislate." Technically speaking, of course, they do not. They interpret laws. They merely provide their best interpretation of laws that are ambiguous, or strike down laws that Congress had no right to make in light of the constitution. Congress (and by extension, we, as a people) then have the power to make laws that are not ambiguous and/or do not violate the Constitution.

But I'm not going to back down here. When people say that judges legislate from the bench, what they are really saying is that the judges have a different interpretation than they do, but they are saying it in such a way as to dismiss the legitimacy of that interpretation and ascribe typically dishonorable motivations to the judges who hold that different interpretation.

Most of these judges have no aspiration to "legislate." Yes, some of these judges are not generally elected, but these are not people who are appointed on a whim, nor are these people who have no reason but partisanship for making their decisions. These are people with very methodical and thorough understandings of the law, which understandings cause them to hold oft-times difficult to categorize beliefs. For these beliefs and legal understandings, they at one point were appointed office by people we trusted enough to elect to office. The beliefs of these judges are, generally speaking, quite centrist. Their attitudes reflect the attitudes of different populations of the American people very well (which is unfortunate in many circumstances).

I guess what I'm getting at is that by dismissing judicial decisions as partisan-minded activism, we disrespect the judicial process, the judges themselves, and the opinions of the many Americans who hold the same beliefs as the judges. I'm not saying we have to agree with every decions handed down by a judge, or every opinion held by every American citizien, but we should at least take the time to respect the legitimacy of their opinion. Until we take the time to understand one another, all we are doing is yelling back and forth, getting no where.

Social Conservatism

So finally, on to the main topic of the day--social conservatism. I liked Alvin's story about someone trying to convince him to be a Democrat. I think I was in much the same frame of mind as Alvin coming out of BYU. I wish the BYU environment would more openly challenge students to develop political consciences for themselves. I think American Heritage was supposed to do this, but it didn't. Even in law school, by which time I'd become more liberal minded, it was difficult to have a fair and open discussion of politics.

The first time I ever forced myself to actually build my political consience from the ground up, I became a libertarian (this was for about a year right after 2001--obviously, I have since changed my mind on many issues). The most difficult aspect to accept of libertarianism was, for me, the idea of being socially liberal. I never made it all the way there, but to this day I still believe there are a lot of "private" issues that the government has no business being involved in.

For a while, one of these was gay marriage. Morally, I'm opposed to it. Emotionally, my revulsion to homosexuality is complicated by the fact that one of my sisters is gay. Intellectually, I think my opinion is similar to Jesse's--except I would argue that it was perfectly legitimate for the court to decide what they did. I question whether government has any role endorsing any kind of religious institution, and thus I question whether government should endorse marriage. The fact that this is the only political issue I've ever seen the church become involved in, however, has me looking for ways to intellectually reconcile things. So, anyone out there have good secular arguments for it? Particularly since, as a California citize, I need to decide how to vote?

So cool to hear you guys break it down—makes me nostalgic for the non-virtual symposium.

Here are some of my thoughts on the recent Jesse/Karl government/taxes topic.  First off, I think its pretty much impossible to be objective; 'help the poor' I think is accurate but carries an emotional load–it inclines us to empathize with towards those that are being helped.  I would say the same thing about a description 'subset of people forcing another subset of people. . .'—sounds like dispassionate language but its still using terms that incline us empathize with one side, the people people being forced. 

So here's my own subjective spin.  The government isn't (and i'm speaking in ideal terms here), a subset of people, it is the people; we as a collective reached a decision—because as citizens we have implicitly agreed to abide by the decisions of the whole—when I am 'forced' to pay a parking ticket, I'm really just abiding by a decision that I had a say in—a decision that 'we' made—because I had a say in it, maybe 'force' is the wrong word—its different than 'force' for a surf in the feudal system. 

On an unrelated note, where is Chris Garcia?  he's the one the named it the symposium if memory serves.  I think its someone's job to find him.

On progressive taxes

So many political topics have been mentioned here...so little time to respond. I'll start by recommending Mr. Friedman once again, this time in video form. At http://www.ideachannel.tv/ you can now watch the original PBS specials "Free to Choose" which help with background I don't have time to write here.

I was hoping to write a significant preface to introduce some of the core principles which guide my views on specific topics but, well, I honestly just don't have time to think it all through. So here's my cliff notes version:

1. People are selfish
2. Governments, corporations, non-profits, etc. are just entities through which some group of people act---they are not therefore exempt from #1.
3. Government is unique among these entities in that it acts by compulsion---it acts with the ultimate threat of force.

I find these useful in mentally translating many ideas about the role of government. For example, "we should help the poor" is hard to disagree with, but "some subset of people (the government) should force some other subset of people to help some third subset of people" is more complicated (in every sense). You may certainly still agree with it---the subset of people represented by the government may have legitimate claim to take from one group and give to another---but I think it's unfair to avoid thinking the question through by clever use of semantics.

As an aside to this point I'll briefly mention how important I think "compulsion" is to think about here. At the risk of citing scripture in a political discussion, I note the Lord speaks of compulsory means several times. For example, in D&C 121:46. The united order has frequently been compared to "communism" of some sort but had this important difference---no one was compelled to give. I'm not saying all compulsion is therefore unholy or something, and don't want to dwell on this point. But I think my semantic argument above is not as trivial as it might first appear.

Ok, feel free to ignore all the above if you'd like. I don't mean to make this an abstract philosophy discussion. But I figure I may make use of all that as we go along.

Ok on to a specific topic. I figure I might as well start with Karl on progressive taxes.

Let's start with point 2. Karl argues here, and elsewhere, that taxation is a tool to correct externalities---actions a person takes which affect other people but for which he/she is not fully compensated (positively or negatively). I could not agree more---this is a basic and fundamental principle of economics. Correcting for externalities is certainly not contrary to economic conservatism. Often externalities are simply the result of incompletely specified property rights---the air I breathe is not owned by anyone so there is no market mechanism to compensate me for the pollution you put into it. Karl argues that one role of government is to tax actions which generate negative externalities (pollution), and I would add subsidizing actions which generate positive externalities (education).

I would add several externalities to the list. First, saving money. When you or I save money, we lower interest rates by reducing the demand for debt (and/or increasing the supply). As others have noted, Americans in general and our federal government in particular carry large debts. My saving lowers the cost of other individuals' debts as well as the federal government's. Not to mention that my savings act as "insurance" against needing other taxpayers to bail me out later on. How might policies "internalize" (to use an economist term---meaning to cause the cost/benefit of the externality to be reflected in the individual decision maker's utility function) saving as a positive externality?

1. Lower capital gains taxes. My wages are taxed, if I then spend everything I pay no additional federal taxes. If I save my money it will be taxed again. This distorts the save/consume decision toward consuming and away from saving.

2. Tax consumption, not income. This would directly tax the negative externality (consumption) and not the positive one.

Which of these policies are favored by any single democrat holding federal office?

Another externality to add: productive businesses and people. Productive businesses employ people and create wealth. I would argue this is as significant a positive externality as you will find as it enables all others. How much better off are you because great people and businesses made this country as wealthy as it is today? As a positive externality this should then be subsidized, yet it is taxed. If my business is productive I pay higher taxes than if my business is not.

You may argue the cost-benefit implies that taxing productivity (in both businesses and individuals) is worthwhile, but you cannot ignore the cost. If I were to argue that taxing pollution is a bad idea because it will be harmful to the economy (a cost-benefit analysis) how much sympathy would I find from the left? Yet our tax code in effect subsidizes pollution (by taxing productivity) and this fact is inadmissable in most debates I've had with leftists on taxation. You just can't have it both ways.

As I mentioned, I view this positive externality as large and worth encouraging. Why is the U.S. the richest nation in the world today? Why is unemployment in the U.S. 4-5% while it is 10-14% in Europe? Why have so many of the products we use today come from the U.S., and so few from elsewhere? I believe it is because we have maintained a strong incentive to be productive and am very cautious about policies which would discourage it.

This applies as well to Karl's last two points: overthrowing the tyranny of wealth and ensuring a land of opportunity. What country exceeds the U.S. in this regard? Isn't this part of the reason immigrants have come here for centuries? Does Europe afford greater opportunity? Less tyranny of one social class over others? My experience and study of macroeconomics indicates those countries with less regulation, smaller government and less redistribution of income have greater upward mobility than those with more progressive policies. I just see no evidence of the contention in point #4.

As for point 1, income seems a noisy proxy here. I know lots of folks at Harvard who will go on to make little money but have spent 12 years gaining a world class education. Shouldn't many of us (Ryan and I for example) have been taxed a lot for the opportunity to work toward at PhD which is certainly not necessary for us to make a living? How about those born wealthy who squander it? How about those born with little who just work really hard? How about those who emigrate and manage to make something for themselves? How about those who save their money?

And if you're going to tax based on what they've received shouldn't you also consider what they've contributed? Here income seems a noisy proxy as well.

Ok this is getting too long. I believe government should encourage positive externalities and discourage negative ones. Progressive income taxes are exactly the opposite.

Progressive Taxes

As I promised Alvin, here’s my explanation of what I don’t like about Ron Paul’s platform. As I have already explained, I believe that there are a large number of roles that government should serve, in aggregate requiring a much larger government than Ron Paul would like. I won’t bore everyone with another discussion of that.

In addition to the issue of the role of government, I also disagree with his position on how the costs of government should be apportioned—i.e. taxes. So, for the rest of this post, I’ll make the case for highly progressive taxes (not so much that there’s a complete redistribution of wealth, mind you).

1. The greater your wealth, the more you’ve benefitted from the American system

I believe people should be taxed in proportion to the benefit they’ve received from the American system. But wait, you may argue, don’t the poor receive more welfare services, and therefore don’t they benefit more? I disagree. This argument first of all characterizes benefits as zero-sum. But I believe that every American benefits from such services—e.g. businesses benefit by having healthy, effective workers who aren’t constantly worrying about paying doctors bills or having a roof over their heads, markets benefit consumers who can spend money buying goods instead of on basic necessities, motorists benefit from mass-transit programs by having less crowded roads, land values benefit because the homeless have somewhere to go so where they don’t create a public nuisance, and so on.

Or, put another way, to determine the benefit each American receives from the American system, one must ask how much of their wealth would exist but for the American system. Think about the impact of stable markets, police forces, protected property rights, intellectual property rights, military forces, freedom of choice (particularly from a consumption standpoint), freedom of speech, and so on in creating an environment in which Americans may accrue wealth. Clearly, all Americans benefit from this system, but a wealthy person has likely benefitted much more from the system than a homeless person.

2. Some wealth must be redistributed to correct deficiencies of free markets

Just a short point, but still important. Employers should have to pay for hidden costs, such as pollution, healthcare and other necessities that keep their workforce alive and so on. Yet, so few do. See my discussion of free markets.

3. Some wealth must be redistributed to overthrow the tyranny of wealth

Obviously, wealth confers great economic power. Nor would I doubt that anyone would argue that economic power translates into political power. Is there any difference between having that kind of power vested in a monarchy and having that kind of power vested in an upper class smaller than it has been in who knows how long? Or, perhaps even more applicable to today’s world, should we allow large global corporations to govern over us? Take, for example, the power of global oil corporations, which, in the interests of preserving their own wealth/power, have for decades now translated their wealth into a political force for unnaturally suppressing the demand for clean, renewable energy, even though clean, renewable energy clearly would bring great benefit to the American people.

4. Some wealth must be redistributed to ensure that America remains a land of opportunity

I believe that the highly progressive taxes present in the middle of the last century served a purpose that “free land” once served for America—giving people a chance to build wealth from scratch. But now, with the wealth increasingly concentrated in the hands of the few, it is becoming increasingly hard for certain segments of the population to create wealth.

Though America is still a system where those born into poverty can escape it, it is a system where increasingly few actually do escape it because escape is just so difficult. We watch movies like "The Pursuit of Happyness" and feel good inside that we live in a land where people can pull themselves up by the bootstrap, but we deceive ourselves into thinking that everyone can do what Will Smith (I mean the character played by Will Smith, of course) did. Personally, I don't know if I'd be able to do what he did, if I were in the same shoes.

Taxing the wealthy to provide services to make it easier to escape poverty would ensure that America does not cease to be a land of opportunity for those who are in poverty. And as I stated before, this is not a zero-sum proposition. When we increase the standard of living for the least of us, we benefit all Americans.