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Monday, August 08, 2005

The hidden reason why Things Are Really Fouled Up in America: U6 and the true measure of unemployment.

Supposedly, the unemployment rate is only 5%. Supposedly, the US is in recovery. Supposedly, there's good times just around the corner...if you trust the numbers the GW Bush White House is feeding the Mainstream Media.

However, at the Bureau of Labor Statistics, where the other set of books are kept, there are different numbers.

Try this on for size: in July 2004, if you counted the total numbers on the unemployment insurance rolls, plus "Discouraged and Marginally Attached Workers," (which means those who have given up on their job searches because they consider the search futile) plus those employed part time due to economic reasons, you get this number: 9.5% unemployed. In July 2005, this number dropped to 8.9%. This number is called, by the Bureau of Labor Statistics, the U6 unemployment rate. If you don't believe me, here's the link.

To give a little perspective: in 1930, a year after the Great Crash that launched the Great Depression, the unemployment rate, which was measured in a more U6-like manner, was identical to the U6 rate we saw in July 2005. Of course, it was all downhill from there after 1930, and nothing brought unemployment rates down until World War II.

For those of us alive during the 1970s, this picture all seems quite familiar. And it is. Anyone remember the term "stagflation?" Stagnant economy, rampant inflation. And what caused the "stagflation" of the 1970s? The energy crisis. Oil prices are spiking again in the realm of adjusted-for-inflation 1970s prices. The historical high point for oil prices was $24 a barrel in 1974, which when translated into current US dollars would be something more like $75 a barrel. OK folks, the current price of oil is $64 in current US dollars. $75.01 isn't too far away from that mark.

No matter how much smoke and mirrors are applied to the numbers, $64/barrel oil is going to cause inflation to skyrocket sooner or later. Oil is the lifeblood of manufacturing, whether here or in China. Oil powers tractors and trucks that get food out of the ground and to market.

So, let's repeat. The true (U6) unemployment rate is 8.9%, not 5%. Oil is getting close to its historical value high when adjusted for inflation, having left the nominal rate behind long ago. And I haven't even mentioned two scary words together in this article yet: housing bubble.

In this article on DailyKOS, Stirling Newberry applies his economic wizardry to the current situation. His view of current real inflation and real unemployment figures are a bit less than I am talking about, but in regards to basic stuff he's right on the money. This is why we're feeling like we're in so deep.

This bumpy ride is going to get bumpier.