Although economists assess economic downturns primarily in terms of the reduction in aggregate output of final goods and services, the public pays greatest attention to the rate of unemployment. Ever since the Great Depression, it seems, people have lived in mortal fear of having their current employment terminated, and politicians have come to evaluate every conceivable economic issue (and some noneconomic issues, too, such as the 1991 U.S. war against Iraq) with regard to its effect on “jobs, jobs, jobs.”  The news media focus obsessively on every tiny rise in the unemployment rate, notwithstanding that many such changes fall within the range of measurement error and therefore signify nothing with certainty.

During the present recession, however, there is little doubt that labor-market conditions have deteriorated substantially—that many jobs have been “lost,” as people say. The most recent report from the Bureau of Labor Statistics (BLS) puts the unemployment rate for May 2009 at 9.4 percent, a rate greater than any reported since the recession of the early 1980s. During the recent economic expansion, the unemployment rate fell to a cyclical low in late 2006 and early 2007 of 4.4 percent. Since it last touched that low point, in March 2007, it has increased by 114 percent. Putting the matter in this way makes the economic bust appear to be already quite bad.

Some observers, hankering to make it look even worse, have called attention to a more encompassing concept of “unemployment” (though the BLS does not describe it in this way), which is produced by adding to the officially unemployed persons (1) those persons working part-time who say they would prefer to work full-time (9.1 million in May 2009) and (2) those persons who have left the labor force because, they say, they believe they could not find a job even if they tried (hence, “discouraged workers,” amounting to 0.8 million in May 2009). By my calculation, this bulked-up, unofficial measure of unemployment stood at 15.6 percent of the civilian labor force (including discouraged workers in the denominator, for consistency) in May 2009.

It is tempting to think of employment and unemployment as mirror images of the same phenomenon, but doing so may easily mislead us. The official rate of unemployment purports to measure the number of civilians not employed but actively seeking employment in the survey period as a percentage of the number of civilians who are either currently employed or actively seeking employment (that is, all those “in the civilian labor force”). When people leave employment, however, they may either become officially unemployed (if they continue to seek employment actively) or not (if they leave the labor force). Similarly, when people enter the civilian labor force, they may do so by becoming employed or by becoming unemployed (by actively seeking but not yet finding acceptable employment). Therefore, the ebb and flow of the labor force acts as a sort of buffer between official employment and official unemployment. Careful labor economists routinely monitor all of these variables, including the number of involuntarily part-time workers and the number of discouraged workers.

To some extent, these complications can be circumvented by paying attention not to unemployment, but to employment during the ups and downs of the economy’s aggregate fluctuations. Recently, for example, the number of civilians employed reached a peak in November 2007, when 146.665 million persons were reported as employed. By May 2009, the number of employed persons had fallen to 140.570 million, or by 4.2 percent.

So, depending on whether you wish to make the recession appear to be bad or not so bad, using official BLS data in both cases, you may say that the rate of civilian unemployment last month had risen 114 percent from its previous cyclical trough, or you may say that the number of civilians employed last month stood at 95.8 percent of its previous cyclical peak. That the public, the media, and the politicians tend to focus more on the former sort of statement than on the latter tells us something about the public’s fears, the media’s desire to gain the attention of readers and viewers by frightening them, and the politicians’ desire to validate a crisis in order to justify their actions as ostensible rescuers delivering life-saving “stimulus packages” and all the rest of their pseudo-salvation.

A student recently asked me “why do the annual federal budget deficits not match increases in the national debt.” It is an excellent question, since the national debt is a stock, and the deficit (or surplus) is the annual flow altering that stock. As we will see, the answer takes on particular significance in these days of fiscal stimulus and bailouts.

But first we must distinguish between the gross national debt and the outstanding national debt, both of which the government regularly reports. The gross national debt includes the holdings of the various federal trust funds for Social Security, Medicare, and several smaller government programs. These programs have run surpluses that are in essence loaned to cover other government expenditures. Consequently, the figure to which most economists and commentators refer is the outstanding national debt, net of the trust funds (i.e., the debt held by the public, including the Federal Reserve). Changes in neither measure of the national debt match annual deficits or surpluses, nor do the changes in either measure match each other.

Let me start with the debt held by the public. When the U.S. government borrows money to cover ordinary expenditures, the full amount appears in annual outlays, the annual deficit, and the annual increase in the outstanding national debt. But when the U.S. government borrows money to make direct loans to private parties, usually only the net present value of those loans is counted as an outlay and part of the deficit. Under the Federal Credit Reform Act of 1990 (applied retroactively in all official budget statistics), the net present value of each loan (and loan guarantee) is the estimated amount of the subsidy (or cost to the government, exclusive of administrative costs). The subsidy is analogous to the loan loss reserves that banks set aside when they make loans. The outstanding national debt, in contrast, increases by the full amount of the loan. The national debt can therefore increase by more than the deficit when the U.S. government makes direct loans and by less than the deficit when the loans are repaid.

This accounting practice today is affecting how the TARP (Troubled Asset Relief Program) bailouts are reported. The Congressional Budget Office puts the TARP’s contribution to the fiscal year 2009 deficit at $184 billion, even though the TARP is expected to add an additional $461 billion to the outstanding national debt during the same fiscal year. That means President’s Obama’s reported budget, coming in at nearly 28 percent of GDP (the highest since World War II), significantly understates the increase in federal spending on a pure cash-flow basis.

The same thing happened last September when the Treasury initiated its Supplementary Financing Program, in which it eventually borrowed half a trillion dollars solely for the purpose of reloaning it to the Fed, primarily to finance the Fed’s currency swaps with foreign central banks. None of that money was booked as part of federal outlays, and so it could not appear in the annual deficit. Yet however much remains outstanding (currently down to $200 billion) will be included whenever the national debt is reported.

The additional difference between the outstanding national debt, held by the public, and the gross national debt is of course the total amount in the federal trust funds. Since the trust funds can rise or fall independent of the U.S. government’s annual outlays, the increase in the gross debt can be more or less than the increase in the outstanding debt. The easiest way to comprehend this relationship is to keep in mind that when all the trust funds are totally exhausted, the two ways of measuring the national debt will perfectly coincide. (Currently, under intermediate assumptions about future variables, the Medicare trust fund will be empty in 2017 and the Social Security trust fund will be empty in 2037).

A technical point: Many mistakenly believe that, when the Johnson Administration moved Social Security from “off-budget” to “on-budget,” it made a major difference. But because both “off-budget” and “on-budget” sets of government outlays and receipts are regularly reported and unified, the change was of little significance, even from an accounting perspective. Indeed, in 1983 Social Security was technically moved “off-budget” again. For details about these virtually meaningless convolutions, go here.

For those who don’t follow Florida politics (and, why should you?), former Speaker of the Florida House of Representatives Ray Sansom, who is still a House member, is facing some legal trouble.

Sansom was in line to be appointed Speaker last year, which already gave him a lot of political clout.  Last year he steered $25.5 million to Northwest Florida College, which is in his district, and another $6 million for an “education building” at an airport 15 miles from campus, which as it turned out was to be an aircraft hangar for the use of one of his friends.  On the day he took over as Speaker, he was also appointed to a $110,000 a year job at Northwest Florida College.

A state attorney saw enough evidence of misconduct in all this to bring Sansom’s case before a grand jury, at which point (and under pressure) Sansom stepped down from the Speaker’s position, but kept his seat in the Florida House of Representatives.  Now he’s been indicted by the grand jury, and will come up for trial, both on charges of official misconduct, and on perjury charges, because the grand jury says he lied to them when he told them the aircraft hangar was an educational building.

That’s just background.  What I really wanted to say is, my own state Senator Al Lawson, commenting on this case, said, “Ray hasn’t done anything everybody else hasn’t tried to do.  That’s just the way it works.”  Taking Senator Lawson’s comments at face value, it appears that if the grand jury knew what Lawson and the rest of his colleagues were doing, the whole legislature would be indicted for official misconduct.  Myself, I’d be slow to come right out and say that everyone in the Florida legislature is a crook, but when a state Senator says so, it gives the accusation some credibility.

If you thought Kelo was bad, Obama’s Supreme Court nominee upheld an arguably even more offensive land grab in Didden v. Village of Port Chester. All eminent domain is a violation of property rights, and there is no such thing as “just compensation” when the seller is unwilling and the buyer is the compelled taxpayer. But in this case, there was not even a pretense of “public use” or “public benefit” at all. The government stole from an owner who wanted to build a CVS pharmacy to give the land to another party to build a Walgreens pharmacy. Reportedly, the judges didn’t even humor this case with a thoughtful deliberation.

As Alexander Cockburn has pointed out, all the liberals on the Supreme Court sided with eminent domain perversity in Kelo. Although one could argue this was not properly a federal issue, states rights was not their rationale, nor are they known for respecting the limits of federal power, as was seen in Raich, also mentioned by Cockburn. That was the decision where all the liberals, along with Kennedy and Scalia, despotically upheld the right of the federal government to override California’s relatively liberal medicinal marijuana laws.

Supreme Court picks on the left tend to have little compunction about expansive federal power or domestic tyranny. On some issues, they tend to be better than the right – especially criminal justice procedure and presidential war powers – and so I prefer a “balanced” court, all things being equal, with a swing justice with some libertarian sympathies. This has all made me reluctant to comment much on her nomination.

We can never know exactly how a justice will behave once on the highest Court, but Sotomayor’s disrespect for private property rights and due process certainly gives us no reason to expect a change for the better.

Momentum is building with 179 co-sponsors for Congressman Ron Paul’s bill in the U.S. House of Representatives to audit the Federal Reserve System (Federal Reserve Transparency Act of 2009) not just because of the growing unrest over the Fed’s gigantic and reckless expansion of trillions of dollars in credit during the past eight months but because of the increasing awareness that the Fed itself is unable to account for where this money has gone. According to a report from Bloomberg News on February 9th:

The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years and pledged up to $5.7 trillion more. . . .

Only the stimulus bill to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates enacted in 2008 have been voted on by lawmakers. The remaining $8 trillion is in lending programs and guarantees, almost all under the Fed and FDIC. Recipients’ names have not been disclosed. . . .

Bloomberg requested details of Fed lending under the Freedom of Information Act and filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral.

At a hearing in early May, Federal Reserve Inspector General Elizabeth Coleman was asked by Congressman Alan Grayson (D-FL) to account for the $9 trillion in off-balance sheet transactions ($30,000 for each man, woman and child in the U.S.) plus a $1 trillion expansion of the Fed’s balance sheet since last September. Her answer is that no one at the Fed knows or is keeping track of where the money has gone.

For books on the need to end the Federal Reserve’s monopoly over money and banking in the U.S., please see the following:

Money and the Nation State: The Financial Revolution, Government and the World Monetary System, edited by Kevin Dowd and Richard H. Timberlake, Jr.

Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity, by Robert Higgs

Here is “Uncle Jay” this week on Obama’s new corporatist GM (a.k.a., Government Motors) and nomination of Sonia Sotomayor for the U.S. Supreme Court:

News that Governor Arnold Schwarzenegger proposes to fund a portion of California’s $21 billion budget deficit by exercising a little-known 2004 state law that allows Sacramento to demand loans of up to 8 percent of the property tax revenues collected by cities, counties and special taxing districts raises the specter that more local governments will go the way of Vallejo, the town just north of San Francisco that declared bankruptcy last year.

Having, like General Motors, locked themselves into labor contracts providing generous pension and healthcare benefits for municipal employees and seeing their tax revenues dry up as the recession presses on, mayors and other local officials are in the midst of their own budget crises, which only will worsen if they are forced to loan money to a profligate state government whose creditworthiness already is in jeopardy – and whose ability to repay those loans is open to serious question.

But wait! Foreseeing that the governor’s plan is likely to push many local governments over the edge, a bill being considered by the state legislature would make it much more difficult for cities to follow Vallejo’s lead. Supported by an organization known as California Professional Firefighters, the legislation requires cities considering filing for Chapter 9 protection to first obtain the blessing of a new four-person state bankruptcy commission, whose membership will be comprised entirely, as you might have guessed, not of experts in public finance but of state legislators.

Sacramento to Rio Vista: Don’t dare try to avoid “loaning” us money by going belly up and breaking sacred union contracts!

Rio Vista has another card up its sleeve, however. It, as are bankrupt Vallejo and several other small towns around the nation, including Mountain View, Colorado, and Mesa, Washington, is thinking about “de-incorporating”, that is, dissolving its municipal government altogether and throwing itself on the mercy of county taxpayers, who thereby would become responsible for sharing the cost of sewerage, police and fire protection and other public services formerly paid for by city residents.

De-incorporation, which would benefit Rio Vista but harm everyone paying county taxes, is equivalent to rearranging the chairs on the deck of the Titanic after it had struck the iceberg. Unlike a declaration of bankruptcy, de-incorporation would not permit Rio Vista or any other municipality to get out from under existing contractual obligations.

Except for scale, there is no essential difference between municipal de-incorporation and Governor Schwarzenegger’s demand that California’s sub-governments help pay Sacramento’s bills. He can blame mayors for any tax increases required to pay the piper and the mayors of Rio Vista and Vallejo can blame their county officials.

The fundamental problem here is that governments at every level overspent when economic times were good. Now that the recession has brought the chickens home to roost, all are engaged in desperate attempts to shift the burden of paying for past extravagances onto others’ shoulders. A more principled response – although not one which should be expected from self-serving politicians – would be to cut government down to a size that taxpayers can afford and to supply the public goods and services for which they are willing to pay.

Returning recently from a trip to Turkey, my wife and I had the distinct displeasure of passing repeatedly through “security” checkpoints, not to mention waiting in long queues in order to arrive at these unpleasant passages. Although every country’s airport security boasts its own unique idiocies, all have much in common. It’s a waste of time to fret about swine flu; the more pressing danger to the world is obviously fool flu – although I am not sure who are the greater fools, the politicians and their flunkies who put these stupid procedures in place or the masses who put up with them in the wholly mistaken belief that their security is thereby enhanced.

But let us not dwell on generalities when specifics lie so close at hand. Consider food. As all travelers have learned, the authorities strictly forbid passengers from bringing onboard an aircraft any food that has not been purchased in the airport outlets available to them after they have successfully navigated past the checkpoints. Moreover, U.S. authorities forbid travelers entering the United States from bringing various food items into the country with them. Nevertheless, because the Turks make scrumptious candies and pastries – I particularly recommend the baklava with finely ground pistachio nuts – we decided to bring some of these treats home with us despite the security prohibition, being confident that the security employees’ abysmal level of competence gave us a good chance of success in the commission of this forbidden act. Suffice to say that our packages of candy and pastries sailed though all of the checkpoints ever so smoothly.

To compound the absurdity of the enforcement apparatus, a U.S. Immigration and Customs Enforcement agent with a sniffing dog stopped by our bags as we were collecting them after entering the United States at the Atlanta airport. Uh, oh, I thought, as the dog took a distinct interest in our luggage and would not move along on his appointed rounds. The agent asked, “Are these your bags.” I confessed that they were. “You have any food in them?” “Yes, we have some sweets.” “Okay.” Still the dog would not move on. “You have any pets at home?” “Oh, yes, we have tons of pets at home – cats, and dogs, and what have you.” “Okay,” he said, dragging the unfortunate Gestapo-pooch away from our luggage. We were greatly relieved, first that the airport thugs had not gunned us down on the spot for our admitted violation of the no-food rule, and second, for our good fortune in getting the cherished treats to their intended destination in St. Tammany Parish, Louisiana, where we have been enjoying them for the past several days. (Note to unfriendly readers: don’t bother to report us; by the time the gendarmes get here, we certainly shall have eaten all of the evidence.)

Not all airport security is created equally idiotic. I hereby award the blue ribbon to the Charles de Gaulle International Airport outside Paris, where we transferred from one aircraft to another on our trip from Istanbul to New Orleans. Many people think of Paris as a romantic place. Get over it. It’s actually an asylum for persons deemed incapable of holding down a real job, as opposed to a job in airport security. The queues seemed interminable – at least the ones into which we were herded, notwithstanding that nearby queues had hardly anyone in them. This lop-sided arrangement was probably a test setup arranged by a security expert with a minor in queuing theory (his identity will be revealed, no doubt, when he is awarded a future Nobel Prize in Economic Science). The French authorities seemed to be mightily exercised about the threat posed by swine flu, completely overlooking the greater threat posed by the fool flu that was manifestly running rampant at the airport.

My wife Elizabeth was traveling with a lead-lined bag, approximately six inches by ten inches in size, to shield her photographic film from damage by the X-ray machines. When an X-ray machine produces an image of such a bag, it shows up on the screen as a large totally black rectangle, a fact that induces some of the less idiotic airport-security personnel to panic and inquire into what it is, and even to open it and paw through the rolls of film in search of those containing plastic explosive, fuses, and timing mechanisms. Shoe bombs are passé; film-pack bombs are now all the rage among fashionable terrorists. To make my story short, I can state for the record that the Parisian X-ray personnel blinked not an eye upon seeing a large black blob on their screens. Move along, mes amis; you may proceed with your parcel of explosives and whatever other hidden items your black blob contains. Bon voyage!

It would be droll to maintain that we did enjoy a bonne journée, but the imperative of telling the truth forbids me from maintaining that we did so. The time spent – in truth, more suffered than merely spent – in enduring our passages through three of the world’s more prominent security theaters guaranteed that whatever other indignities might have dimmed the sunlight of our travels, the airport Gestapos in themselves were more than adequate to ruin the entire experience. Elizabeth declared most emphatically that she will never travel again, except by ship.

Like Paris, foreign travel used to be seen as romantic, or at least as interesting and enjoyable. Gone are the days. Today’s world traveler is little more than a guinea pig in a diabolical experiment designed to determine how much abuse the masses will take before either lapsing into complete madness or taking up pitchforks and torches and coming after the Dr. Frankensteins who created these “security” monstrosities.

“Mankind,” declared the American revolutionaries of 1776, “are more disposed to suffer, while Evils are sufferable, than to right themselves by abolishing the Forms to which they are accustomed.” I submit that the mass endurance of “airport security” illustrates the truth of this statement. The American Declaration, however, went on to say: “But when a long Train of Abuses and Usurpations, pursuing invariably the same Object, evinces a Design to reduce them under absolute Despotism, it is their Right, it is their Duty, to throw off such Government, and to provide new Guards for their future Security.” Amen, brothers and sisters. Moreover, if not us, who? If not now, when?

Although forced population movements are not unique to the twentieth century, as anyone of Cherokee, Creek, Seminole, Chickasaw, or Choctaw ancestry can attest, such atrocities are among the greatest disgraces of the past century. One of the earliest such movements in this era was the population exchange between Turkey and Greece under the terms of the 1923 Treaty of Lausanne, which settled the conflict from which the modern Republic of Turkey emerged.

Like most Americans, I know little about Turkey or the history of the territories its present government controls. So I consider the way in which I spent the evening of Monday, May 25, as one of my life’s wholly unexpected experiences. On that occasion, my wife Elizabeth and I found ourselves in the village of Şirince, high on a mountainside about nine kilometers from the town of Selçuk, which itself is about three kilometers from the ruins of the fabulous city of Ephesus, one of the greatest metropolises of the ancient world.

By a series of events unlikely to have happened to anyone but a certain lovely, vivacious, and outgoing Louisianan (a.k.a. my wife), Elizabeth, who had gone to Selçuk earlier on Sunday while I was still occupied with business elsewhere in Turkey, had become acquainted with an affable carpet dealer by the name of Aydin. Through him, we met Metin, a young man who works with or for Aydin. (In Turkey it seems that everybody works with or for a great many others, who are described in most cases as brothers, cousins, uncles, or nephews.) Both Aydin and Metin speak good English and have spent time in the United States.

Metin had previously kept a shop in Şirince, and he took us there on Monday evening, when Aydin, who had promised to take us, was diverted by business dealings. The village was nearly deserted when we arrived just after sundown, and almost all of the shops had closed. Metin informed us that the village had been inhabited for many generations by Greeks, whose houses were built in the customary Greek style (the style in which they remain today, at least on the outside). In the early days of Mustafa Kemal’s (Kemal Atatürk’s) reign as modern Turkey’s founding strong man, these Orthodox Christian people had been expelled in the great population exchange and replaced by Muslim Turks who had previously lived in Greece.

With no tourists swarming in the streets, our stroll around the village before dinner was pleasant and unimpeded. We then sat down to have dinner at a restaurant whose menu was extensive and inviting and in which for an hour or more no one else was being served. In response to our questions about present-day relations between Turks and Greeks, Metin indicated that he had nothing against Greeks. “Problem is not people,” he averred. “Problem is always governments.” In reaction to this delightfully unexpected libertarian statement, we expressed our wholehearted agreement.

When Metin inquired as to how we liked President Barack Obama, we replied that we dislike all politicians. He nodded as if he understood and agreed with our sentiment. Then, after a brief pause, he said. “But there is one who is different.” After pausing again, as if he were searching his mind, he said simply: “Ron Paul.” Quickly following up, he declared emphatically: “I love Ron Paul!” Nearly struck dumb by this amazing declaration, we asked how he knew about Dr. Paul. He said that everybody in Turkey knows about him, and many Turks like him better than other politicians. When we informed him that we are personally acquainted with Dr. Paul, it was almost as if we had told him we are personally acquainted with some world-famous celebrity. Elizabeth confessed to him that although she normally steers clear of politics, she had joined a meetup group to promote Dr. Paul’s Republican presidential candidacy and had placed a big Ron Paul sign in front of our house. Instant solidarity!

On Tuesday, we talked about Ron Paul with Aydin, who shares Metin’s enthusiasm for the Texas congressman and expressed a desire to bring him to Turkey to be elected president. I daresay Turkey could use such a leader, under whom there certainly would be no collectivist state atrocities such as the heartrending Greek-Turkish population relocations of 1923. As we left Aydin’s shop for our final departure from Selçuk, we could hear him speaking to another man. Although we could not understand what he was saying in Turkish, we did catch the recurrent words “Ron Paul.”

[Cross-posted at Organizations and Markets]

Several folks in my part of the blogosphere have noted John Hasnas’s terrific op-ed in yesterday’s WSJ, “The ‘Unseen’ Deserve Empathy, Too.” Hasnas invokes the great Bastiat to counter President Obama’s call for judges who have compassion, empathy, and understanding of “people’s hopes and struggles.” As Hasnas points out, judges should consider the effects of legal rulings not only on the parties before the bar, but also on the “unseen” whose lives will be affected:

One can have compassion for workers who lose their jobs when a plant closes. They can be seen. One cannot have compassion for unknown persons in other industries who do not receive job offers when a compassionate government subsidizes an unprofitable plant. The potential employees not hired are unseen. . . .

The law consists of abstract rules because we know that, as human beings, judges are unable to foresee all of the long-term consequences of their decisions and may be unduly influenced by the immediate, visible effects of these decisions. The rules of law are designed in part to strike the proper balance between the interests of those who are seen and those who are not seen. The purpose of the rules is to enable judges to resist the emotionally engaging temptation to relieve the plight of those they can see and empathize with, even when doing so would be unfair to those they cannot see.

This was on my mind when, channel surfing last night, I came across Oliver Stone’s 1987 classic “Wall Street,” which I haven’t seen in its entirety in years. To my surprise (perhaps not yours), I found myself rooting for Michael Douglas’s Gordon Gekko, the corporate raider who serves as the movie’s arch-villain. The main sub-plot revolves around Gekko’s attempted buyout of Blue Star Airlines. Bud thinks the buyout can save the struggling airline, where his father still works, and helps convince the pilots’ and flight attendants’ unions to Gekko’s move. Later, Bud discovers Gekko is really planning to break up the company and sell off the pieces and Bud feels betrayed, leading to a climactic confrontation. (The film feels remarkably fresh, despite the glowing green CRT screens and brick-sized cellular phones, and Douglas’s performance is dazzling.)