The unseen destruction

The true measure of unemployment IS NOT the paltry unemployment number which does show 9.4% unemployment.  Yes, this is awful and proof that we’re in very deep recession.  We’re going to be in for a very painful readjustment period.  The real unemployment number we ought to be examining is U6.

This is the measure of:

Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

Currently the U6 is 16.4% and it has almost doubled since a year ago.  This is the unseen destruction.  Years of misallocated resources, malinvestment, and policy driven consumption created a huge bubble, the boom time, when instead of actually creating wealth, we were in the process of destroying it.  Now comes the very rough but very necessary readjustment period when malinvestment is liquidated and capital and labor can be allocated to more desirable ventures.

But don’t expect that anytime soon.  The administration is going full steam ahead on its Keynesian agenda while the fed plays right along.  Massive deficits, artificially low interest rates and monetary expansion are going to only prolong this pain.  And to top it off, Congress is voting on cap and trade and soon will be working on nationalization of health care.  In the works is “consumer protection” legislation and massive new regulation of the financial markets.

The U6 numbers say it all.  Fully 1/6 of the labor force is being underutilized.  As for capacity utilization, this graph is staggering.


Will it end soon?

This is by far the sharpest downturn in investment in the post WW2 era.  The longer we have interventionist policies, the longer it will last.  So, the answer I guess is quite simple: it’s going to last a very long time.



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