What Don't We Understand at This Point About Economics and Unemployment?

Employment is still near a 30-year low …The employment-population ratio has barely changed in three years, showing that 58.6% of U.S. adults over age 16 had a job as of April. Forget the unemployment rate. The employment rate – the percentage of adult Americans who hold a job – has barely budged in the past three years. It's hovering near its lowest level in three decades, and it's unlikely to improve when the Labor Department releases its May jobs report on Friday. – CNN

Dominant Social Theme: The economy is on the rise.

Free-Market Analysis: This is a statistic that just doesn't budge. Much of the happy talk about high stock markets and rising real estate prices doesn't affect the basic reality of the US economy: It has nowhere else to go but up, but it is not getting there.

This lends itself to classical Austrian analysis. The Greater Recession was never allowed to unwind and thus businesses and banks are reluctant to lend because they don't know which companies are solvent and which are not. This obviously depresses employment and provides us with a good insight as to how money flows work and don't work.

Fiat money flows from central banks to banks, stock markets and real estate. It would be easy for central bankers to send money directly to consumers but this would do away with the mystery surrounding money printing. Austrian economics doesn't always comment directly on these sorts of money flows but alludes to them through analysis of the business cycle.

Here's more from the article:

This rate – officially called the "employment/population ratio" – has been stuck … for several years. The last time it was this low was in 1983. Looking at the job market using that measure paints a stark picture. Sure, companies have been hiring, but they've been creating jobs at a pace that merely keeps up with recent population growth. It's not enough to also make up for the jobs lost in the crisis. That's why the needle simply hasn't moved.

Once you strip out the retirement effect to look at the employment rate only for workers ages 25 to 54 – those who should be in the prime of their careers – the story of stagnation remains. The employment rate for that population was 75.9% as of April. It, too, has barely changed over the last three years, and matches levels not seen since 1984.

Even Federal Reserve Chairman Ben Bernanke, at a press conference in December, nodded to this indicator as a worrying sign of "discouragement about the state of the labor force." Shierholz calls the employment rate the single best measure on the job market right now. "It's my desert-island indicator," she said. "If I'm an economist on a desert island, and I had one measure to look at, this is the one I'd want."

It is fascinating that these unemployment observations continue to be made with the greatest seeming surprise. Anyone exposed to Austrian economics on the Internet, where it is extremely popular, can figure out what's going on with Western economies in a short time.

Additionally, cites of Austrian economist Ludwig von Mises are nearly as numerous as John Maynard Keynes, if not more. Thus, one is tempted to conclude that there is something in the mainstream media that is resistant to Mises and the concept of free-market human action.

What will finally bring free-market economics to the fore is likely a wholesale collapse. The economic community is resistant; the bulk of the academic community ignores the Austrian strain of neo-classical economics and politicians always endorse the activist economic philosophy.

The kind of memes that are repeated in the article we are analyzing are discouraging because they indicate how much resistance there is to common sense economics.

After Thoughts

And that means that enlightenment will be painful, indeed.