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Old 10-28-2009, 09:57 PM   #1
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Okun's Economic "law"/Obama's nightmare

In 1962 an economist named Arthur Okun formulated a fantastically accurate model for the amount of employment/unemployment based upon the expanding or shrinking of the American economy.

Now there is a real crisis the Obama administration is really not discussing.

Based on Okun's "law" it is not possible to have the current level of unemployment. This means a pivotal calculation used by the upper levels of financial planning no longer works.

So, why doesn't it work? Well, let us look at current history.

Okun did his work before NAFTA and the shipping out of millions of factory jobs. We are on this side (timewise) from NAFTA and the shipping out of millions of factory jobs.

Will our society have to accept the fact that we have far too many people for far too few jobs? As TIME magazine so correctly put it in one of their September issues, we simply cannot create millions of low wage jobs to propel our nation to success!

Duh! - does not almost the entire middle class of America not know this?
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Old 10-29-2009, 02:18 AM   #2
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(Y-Y*)/Y* = - β(u-u*) right? how does this make the current unemployment rate impossible? it just makes it indicative of a recessionary gap doesn't it?

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Old 10-29-2009, 06:34 AM   #3
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Well,

the information I have on hand states Okun's "law" would set the maximum unemployment rate at 8.5% based on the current level of the economy as presented by the federal government.

So, while I do respect the views of others, from my point of view we are
more in need of new criteria both in the definitional and predictive
arena to describe the American economy.

I believe this work will have to entail a new class of people who are not the traditional "underclass" but are the "capable unemployeds".
It is my thought the "constant" level of unemployment may need to be set at around 8%. Of course this is horrific yet how else will we account for
all the adults plus masses of high school/college graduates needing jobs.

Absent pandemic dieoff our nation simply cannot lose enough people to offset the growing numbers of people ready to enter the job market each year.

I truly respect your position and your presentation but I do not believe we are in some sort of recessionary gap. It is much worse.
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Old 10-29-2009, 06:58 AM   #4
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Is that also taking into account the number of illegals taking jobs that Americans don't want to do?
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Old 10-29-2009, 07:32 AM   #5
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Quote:       Originally Posted by jmp8927 View Post
Is that also taking into account the number of illegals taking jobs that Americans don't want to do?
The "illegals" are doing the jobs that Americans would do, except the companies cut the wages to minimum, or lower so that only illegals will work and not complain for fear of "La Migra". The economy is in this condition because of corporations cutting costs by shipping manufacturing jobs out of the country. Even the illegals will not stay in their country, where all these jobs went to, because they can make more money here, cutting grass, than building American trucks, washers/dryers, toys, etc in their own country. If these jobs don't come back soon, we will all lose.
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Old 10-29-2009, 07:43 AM   #6
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Hi Rambo

I am so with you on your point of view.

NAFTA will eventually enter history as a far greater disaster than the Civil War. At least we recovered from the Civil War economically.
I feel we will never recover from NAFTA as the hidden goal is to make the world on an equally low standard of living.
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Old 10-29-2009, 08:12 AM   #7
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Quote:       Originally Posted by nathangdad View Post
the information I have on hand states Okun's "law" would set the maximum unemployment rate at 8.5% based on the current level of the economy as presented by the federal government.
But Okun's Law is only good as a rough guide to the relationship between output gaps and unemployment, it's not accurate enough to give a maximum unemployment rate.

Quote:       Originally Posted by nathangdad View Post
I believe this work will have to entail a new class of people who are not the traditional "underclass" but are the "capable unemployeds".
It is my thought the "constant" level of unemployment may need to be set at around 8%. Of course this is horrific yet how else will we account for
all the adults plus masses of high school/college graduates needing jobs.

Absent pandemic dieoff our nation simply cannot lose enough people to offset the growing numbers of people ready to enter the job market each year.

I truly respect your position and your presentation but I do not believe we are in some sort of recessionary gap. It is much worse.
If actual output is below potential output we have a recessionary gap, and if a gap gets worse it doesn't stop being a gap.

We might not see unemployment below 8% for a while but what happens when the capital/labor mix levels out between America and Mexico and unemployment starts falling? Setting the natural rate of unemployment at 8% would just mean that the fall in actual employment would lead to inflation more quickly. It's bad enough that we have deny 1 in 20 the opportunity to work to keep the economy ticking over, and many of those already included in the unemployment figures are capable people, it's not time to give up on another 3% of the population yet.

The way to account for the adults and graduates who need jobs is to report the actual rate of unemployment honestly and work on reducing it by retraining the unemployed, not hiding them under the natural rate.
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Old 10-29-2009, 08:17 AM   #8
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I am always amazed by so called capitalists that hate NAFTA.
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Old 10-29-2009, 08:21 AM   #9
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Quote:       Originally Posted by nathangdad View Post
I feel we will never recover from NAFTA as the hidden goal is to make the world on an equally low standard of living.
The goal of free trade agreements is an equality in the ratio between returns to capital and labor, that doesn't translate to an equal standard of living but it supposedly goes some way toward improving the standard of living in poorer countries.
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Old 10-29-2009, 08:24 AM   #10
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Hi again,

When the capital/labor/output mix equals out between America and Mexico I do hope all the people in America learn to love tortillas.
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Old 10-29-2009, 08:30 AM   #11
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Quote:       Originally Posted by nathangdad View Post
When the capital/labor/output mix equals out between America and Mexico I do hope all the people in America learn to love tortillas.
I thought they did, I know I do. There might be less Mexicans around to make them though as there will be less incentive to migrate.
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Old 10-29-2009, 11:49 AM   #12
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I am always amazed by so called capitalists that hate NAFTA.
Perhaps it's possible to be a capitalist and a patriot. I know that according to the rules of capitalism the capital flows to where labor costs and manufacturing costs are lowest so the capitalists make a higher profit because of lower costs on the front end; but it's also a problem when you realize we have entire sectors of our economy that are absolutely dependent upon product manufactured abroad to function.

And there is still the question of what happens to the lower classes who used to make a decent living out of the factories that are no longer here that has to be answered. I can't think of an exact analogy from history to fit our current situation. The closest I remember is the migration to America in the early 19th Century of the English and Irish underclasses when there was an economic slowdown in the UK. Hundreds of thousands of them came to America and ended up working in factories in New England and mines in the Central Atlantic states with conditions and wages not too different from what they had left. The biggest difference was they had hope. Hope that if they saved their money, they could head West and homestead... or set up a small shop... or that their kids would do better as Americans than they would have as Britons or Irishmen, because we had an upward mobility based on ability denied to subjects of the British Crown back then.

But those conditions no longer obtain. We have no lands to homestead as small (my definition: a quarter-section or less in size) farms. Less than 4% of the US population works the land for a living and that number drops every year as more family farms go under and their lands are absorbed into agribiz operations. (Don't get me started.)

As noted, factory jobs have been shipped abroad to places where there are no labor unions and corporations (a concept evil in and of itself) don't pay living wages. At most, some components are made here while assembly of the finished product is performed elsewhere. Even in the auto industry, you won't find a current production car that is "100% American." I checked when Her Imperial Majesty insisted on buying The Big Red Gas Hog that squats in my driveway (a Chrysler minivan; I hate it passionately). Only about 75% of that minivan is American-made parts; it's cheaper to buy things like the tires, batteries, fabrics and some plastic parts abroad and ship them here to be put into the car than it is to make them from scratch in America.

My advice to kids today looking to make good money who can't go to the Ivy League schools would be to look at jobs in fields where the work can't be shipped abroad. Blue collar work like the construction trades (plumbing, electrical, HVAC, etc.) and things like engine mechanics. Work that has to be performed in situ, that you can't outsource to a call center or laboratory in India or China, in other words.

But what happens when no one is building construction projects and people can't afford to fix their cars? I ask because that's the way we seem to be heading.

One reason America made it through the Great Depression without the kind of mass starvation you saw in China or India under similar circumstances was in the 1930s, something like 90% of America still lived on farms. Provided you own your land and you aren't wrecked by drought (e.g., the Okie Migration to California), at the very least you will be able to feed yourselves and barter farm products (veg, fruit, meat, eggs) for things you can't make yourself like cloth, thread, needles and shoes. In other words, you can farm for subsistence and wait for times to get better; my grandfather did. (He and Grandma also made vodka and traded that to the local drinkers for both cash and goods, including to the sheriff; but that's another story.)

But today, 96% of Americans live in cities or suburbs. All cities depend on the countryside to feed them. What very few people realize is that starvation in the cities is rarely farther than two weeks away for city-dwellers. If transport systems break down and are not promptly restored, you are in a SHTF scenario and no mistake.

Will we get a SHTF scenario when there are no jobs to make the money to buy the food required to live? Probably. The only question is, which scenario do we get? Urban rioting and the breakdown of local government? Revolution in which the current crop of mismanagers from Obama on down decorate every lamp post and tree in town and a new, probably dictatorial system is installed? A massive die-off from starvation that breeds disease and more death to the point the survivors wind up digging mass graves and pushing the bodies into them with bulldozers, like we remember from the movies taken by the Allies after the Nazi death camps were liberated? Cities contracting to their centers while the outlying districts turn into ghost towns? (Note: we are seeing this happen in Chicago, Detroit and Flint, Michigan already.) I do not know, and I would much prefer not to find out.

If we want to avoid this, we have got to get the manufacturing jobs that went overseas back home to America, even if that means the capitalists must pay workers more and products cost more. That's what I meant by the 'patriotic capitalist.' Thing is, I don't know if such really exist or if they are mythical beasts like unicorns, wyverns and dragons.

There is another solution, but it's not viable these days: conquest. We conquer territory, subjugate the native population (or exterminate it, as Hitler had in mind for Russia), and move our own people into it as overlords.

I don't see that one flying.

So we had better get those jobs back home. Just don't ask me how we can compel the people in a position to make that happen to do it.
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Old 10-29-2009, 07:48 PM   #13
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Quote:       Originally Posted by Cyrano View Post
My advice to kids today looking to make good money who can't go to the Ivy League schools would be to look at jobs in fields where the work can't be shipped abroad. Blue collar work like the construction trades (plumbing, electrical, HVAC, etc.) and things like engine mechanics. Work that has to be performed in situ, that you can't outsource to a call center or laboratory in India or China, in other words.
Good advice, and not just for kids who want to make good money but for anyone who wants to make any sort of living. The cost to wealthier nations of free trade agreements is a temporary increase in unemployment, not temporary on a personal level because many manufacturing workers who have lost their jobs will never work again, but temporary on a larger scale because the next generation will train for less relocatable jobs or more capital intensive industries. Capital will flow to countries with lower cost labor with or without a free trade agreement, free trade just reduces deadweight loss, and every job lost here creates more than one job over there. Free trade is good for everyone else, but not those who are paying for it with job losses. Even if we could bring back manufacturing jobs we'd just be setting the next generation up to go through it all again.
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Old 10-29-2009, 08:01 PM   #14
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we don't have far too few jobs for far too many workers. We have a huge illegal immigrant problem overtaking the american work force with cheap labo and far to many companies moving their production jobs over seas where they dont have to deal with all the bullshit safety and environmental regulations and can get way cheaper labor. WE need to tax the living hell out of companies the push american jobs over seas to the point to where it is not worth the trouble to do so, and we need to fine the living hell out of the employers hiring illegals that do the job at half the price. force business to obey the law. I used to run a family construction business with my brother and we only hired Americans and we had veterans preference. We could have hired Mexicans cheaper and made more money but we held our values above everything else and our customers respected us for it.
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Old 10-29-2009, 08:04 PM   #15
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I don't know why you are worried about NAFTA with the dollar in free fall soon we will be making plastic trinkets painted with lead for Chinese children.

The if enough american's lose their jobs, wages will go down, imports will go down, labor will become cheaper and jobs will comeback and exports will go up.

Free Market Capitalism is pretty darn simple.
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Old 10-29-2009, 09:44 PM   #16
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Quote:       Originally Posted by sea_chicken1 View Post
we don't have far too few jobs for far too many workers. We have a huge illegal immigrant problem overtaking the american work force with cheap labo[r]
If you want to stop the cheap labor flowing in, let the capital flow out. Free trade creates jobs for people in countries with cheap labor reducing the incentive for migration.
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Old 10-29-2009, 09:55 PM   #17
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There is another solution, but it's not viable these days: conquest. We conquer territory, subjugate the native population (or exterminate it, as Hitler had in mind for Russia), and move our own people into it as overlords.
That's not outside the realm of possibility.

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Old 10-29-2009, 11:26 PM   #18
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Whenever the the outflow exceeds the inflow the maintenance will sink you. That's my rule of economics. Get out the life boats and mount bayonets!
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Old 10-30-2009, 12:11 AM   #19
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TIME OUT !!! Because of NAFTA we lost companys, factorys and the like ???

If we did what the Heck did we gain by signing it ???

Do not re-elect your Senators and Congress people that were in office when this agreement was signed !!!!
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Old 10-30-2009, 12:19 AM   #20
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Whenever the the outflow exceeds the inflow the maintenance will sink you. That's my rule of economics. Get out the life boats and mount bayonets!
Get out the free trade agreements! Richer foreigners means lower current account deficits.
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