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June 23, 2011 - Freedomain Radio - Stefan Molyneux
31:07
1937 US Unemployent is Over 30%! - An Interview with Dr. John Russo
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Hi everybody, it's Stefan Molyneux from Free Domain Radio.
I hope you're doing very well. I have John Russo on the line, and it is an old-school line we've just upgraded from two yogurt cups and a piece of string.
Co-director of the Center for Working Class Studies and Coordinator of the Labor Studies Program at Youngstown State University's Williamson College of Business Administration.
Thank you so much, John, for taking the time today.
So you are the fifth horseman of the apocalypse as far as unemployment numbers go.
I think that's actually on your business card.
And I was wondering if you could talk about the claim which certainly startled me and may startle others, where you claim that the real unemployment rates can be verifiably calculated at over 30%.
I was wondering if you could step us through a little bit of that.
Sure. Let me go through a little bit of the history of it.
You know, we're here in Youngstown, and when the steel crisis hit way back in the 1980s, The unemployment rate in 1982 was 24.5%.
And within a year, the unemployment rate dropped, the official unemployment rate, to 12.5% or something in that neighborhood.
Everybody in town knew that those figures were wrong because we knew that the only people that were being counted were the ones that were currently unemployed and that people that had run out of unemployment were no longer counted.
And so the state came in and they found out that The real unemployment rate in the town during that time was about 150% of what was stated.
So if it was said it was 12%, it was really 18%.
During that period, Youngstown became really the poster child for deindustrialization in America, where we had lost around 50,000 jobs over a 10-year period in steel and steel-related industries.
In 2002, I published a book along with Sherry Lincoln called Steel Town USA, One of the major themes was that Youngstown's story was becoming America's story.
Just to move forward to 2006 and 2007, the economy was still doing pretty well, but I'd read a study that had been done by a famous research group called the McKenzie Group.
On Sweden, it talked about the unemployment rate being much higher than what was being reported in Sweden.
So what I did is I used their methodology and then went to the Department of Labor Statistics.
And they have many of the categories that the McKinsey Report had.
It's just not reported by newspapers and other journals.
So I put all those figures in.
And then I started thinking about what I saw in our own area, and one of the things we saw was that there were a lot of students and younger people that were going into the military because they couldn't find work.
So we started to think about a number of people in the Army, and of course there were fights over what was a standing Army and what wasn't a standing Army, and should we count all the people who are now We're basically outside of the actual military, but our military contractors.
In the U.S., that's about the same number that are actually in the military these days.
So we decided to add those people in there, not everybody, but just what was considered the standing army at the time.
And then we started to think about the number of people in prison, because when people can't find work, they often go into crime.
We're not suggesting they're not sociopaths out there and people that are not real hardened criminals.
But there's been such a dramatic increase in criminality in the United States as a result of What's going on economically and people, you know, selling drugs because they can't find jobs or committing crimes and stealing and stuff like that.
And sorry, just to clarify for my listeners who may be confused about this, we're talking about crime that is not associated with Wall Street and the government and the bankers and the financial industry as a whole.
We're talking about small-time blue-collar criminals, not big-time white-collar criminals.
Absolutely. And the only number that we can come up with is the number of people that are actually incarcerated.
So we put a little footnote and said, well, these are the number of people that are in prison.
More recently, well, let me just decide.
At that point, we put the survey out, which the original one was in December of 2007.
And nobody gave much attention to it at that time.
And then we kept sort of putting it out quarterly.
And then by the beginning of the middle of 2009 and 2010, We started to have the Wall Street Journal and all the other papers in the country starting to report that number of what was going on because now we're in the middle of a recession or slash regional depressions that were going on in the United States, so it gained some sort of popularity.
In recent times, we've added a new sort of calculation, and that has to do with the number of people in the U.S. that are 60 or older that are taking Social Security early.
As one person said, I'm too old to work and too young to die.
And so we know that these people would not be counted in the unemployment rate either as would the people in the military or the people that were in prison.
So we started to calculate all those numbers and put them together and we came up with what we call the de facto unemployment rate.
And throughout much of the last three years, the de facto unemployment rate It has hovered around anywhere from 27% to as high as 30.52%.
Now, it's interesting on this.
Let me just give you a sidelight. Now, people on both political persuasions have now grabbed onto this.
Obviously, this was something that more liberal folks wanted to talk about, but now even the Tea Party people have grabbed onto it because they want to use this number as a way of suggesting That the private sector is not creating anywhere near enough jobs.
And in fact, what they've done is they've said, well, we should all consider, and it's all public sector employees, because they're not in the private sector.
And so that number would be, you know, closer to 42, 45%.
This, I assume, would be public sector workers who may be extraneous from the Tea Party's view but are providing a pseudo-employment or a sort of subsidized employment.
That's exactly right. The life of this thing, which really started out as just playing games on the back of an envelope, has really sort of spread.
Of course, other people Other journals began to discuss, I mean, the Huffington Post developed the Real Misery Index, for example, and there's been a number of other people that have tried to play games with that, putting in things like bankruptcy and people losing their health care and people losing home.
But the reality of all this is that the United States has a real unemployment problem that is not being dealt with very effectively.
At the national level and part of the discussion in the United States and the upcoming events really in the elections are going to really be about this whole issue of jobs and where they're coming from and what the future of America is going to look like.
Yeah, well, I would certainly imagine that one of the successes of your studies is that it accords more empirically with people's actual experience rather than this shadowy world of semi-Soviet statistical manipulation that has been going on for many years.
I mean, two of the things that you haven't mentioned, though, I know is embedded in your calculations.
Of course, there are three questions that the government asks people in this sort of survey of 60,000 households to find out what the, quote, unemployment rate was.
The first is, are you without work, of course?
The second is, are you available for work?
And the third is, have you actively looked for work?
And of course, that ditches the people who are underemployed.
It ditches the people who have become discouraged workers or people who have given up looking for work.
And as you say, some of those go into early retirement.
But if you're younger than that, there may be other things that you can do.
And that is also pretty tragic and really shields or masks the true numbers of, I mean, significant desperation out there.
Exactly. In some of the center's blogs, our blog site is workingclassperspectives.wordpress.com.
We've talked about the informalization of the formal economy.
That is, we're finding many people who were formerly in the formal economy or are marginally attacked to the formal economy are now operating much like they were in an informal economy without a type of deregulated environment, not necessarily illegal or But certainly underground in many ways.
And even if you go to a cocktail party these days and ask somebody what they do, they say they're a consultant.
What that often means is they're unemployed.
And they're just going from job to job in a very episodic fashion.
And of course, those people, and I get into arguments with my colleagues in the business school who tell our students that Don't worry.
You're going to have five jobs by the time you're 35.
You're going to gain a lot of experience in this, and this is all very good.
My view of that is let me talk to you at 35 when you don't have any health insurance, when you don't have any pension.
You've got a couple of kids and a family going and see what life is really like.
But there's an attempt really to normalize, if you will, this whole experience of younger people as they move from job to job, Often under rather bad working conditions and wages and benefits.
Yeah, and there's other categories.
I'm an entrepreneur myself and I imagine that there are a lot of people who are running small businesses who are taking reductions in salary or possibly even drawing no salary in an attempt to sort of keep their skilled labor force through the recession.
They wouldn't be counted as unemployed, though they're in fact drawing reduced or no salaries just to try and keep their businesses afloat or going into debt or borrowing.
These things, I think, all have an impact in the long run because that is a significant loss of purchasing power and a sacrifice that's made in the short term for the sake of longer term sustainability.
These are all not captured for, I think, obvious political reasons by the existing methodology.
That's a terrific point.
I haven't counted that, but it's that sort of thought.
There are all these individual entrepreneurs and they can be people who mow lawns.
They can be people that just do episodic carpentry work.
I mean, there are a lot of industrial workers around here, Stephan, that if they have a pickup truck in a toolbox, they're suddenly working in construction.
But then there's no workers' compensation for them.
They work under really terrible sort of working conditions.
And they largely just call themselves independent contractors, but their working conditions are pretty bad.
But if they own a business and they're hiring a few other people, they'll do whatever they can often.
I've seen this in actuality to keep their employees employed during that time if they can, but it makes for a very difficult situation.
But all these things have an impact, like you said, on demand in the economy.
And so partially this whole debate that's going on in the United States really is about what's happening in the United States and why it hasn't recovered more quickly.
It's really a question of demand because we've wiped out so many of these jobs and people have paid more for their health insurance, more for pensions, and so they don't have money to practically spend.
When oil prices really spiked in the last few months, that's also hurt restaurateurs and anybody who is really dependent Yeah, I think that's an excellent point.
Just two other things popped into my head, which was that I know a number of young people who've left North America to go teach English in China or to be teachers in Thailand or English as a second language in Japan.
Of course, those would be considered reductions in the unemployment rate.
These are people fleeing for Either economic reasons in the short run or out of a genuine concern for their long-term careers.
Because, of course, as we know, people born in a recession face significant career and income losses throughout the course of their entire life.
So people are looking at that and saying, wow, you know, I've got to get some experience under my belt.
I don't want to be the 30-year-old guy with part-time work looking for, you know, a university degree and heavens, of course, college debt and so on.
They're looking at their future and deciding to leave the entire economy.
And that is considered a plus statistically, if I understand it correctly.
Yeah, that's right. But it's really interesting that you should mention China and, to a lesser extent, India.
You know, I've taken graduate students to both India and China over the last five years, and the types of discussions that go on privately over there are quite interesting because when we talk about what's happening in the U.S., much like we're talking about it today, their ultimate response, albeit privately, is that, you know, you guys had your century.
North America had its century.
This is our century, and this is what they say privately in China.
This is what they say in India.
This is going to be our time, and you had your time, and you guys are like other great nations.
You're on decline, and we are on the ascendancy.
So I think it's kind of an interesting sort of point, and probably important for these people that can't find jobs in the U.S. to go over there and get some experience, because in reality, those areas might be the ones that we see that According to the Chinese and Indians, where you'll see the greatest growth in the next century.
I think that's very true. Certainly, I grew up in England in the 1970s, and then we came to Canada.
So I feel I'm like Indiana Jones going from one crumbling empire to another, just on the tail end of things.
So perhaps I'll pop up in Shanghai next.
Now, I was wondering if you could talk a little bit about the stimulus package.
I'll just read a short quote from The Washington Times and get your thoughts on it.
So the Washington Times wrote, the president claimed that the first stimulus package already created or saved more than half of the 3.5 million jobs it was vowed to rescue.
But it's hard to see where those jobs are when examining the numbers in the Department of Labor's household survey, which is used to measure the official unemployment rate.
The number of people with a job fell by 589,000 in December.
On top of that job loss, the number of people no longer in the labor force grew by an astounding 843,000 from November to December.
These to me are just staggering numbers, and I don't really feel, or feelings don't really matter when it comes to statistics, but it doesn't really seem that the stimulus package has done other than shift profits to bankers and debt to future generations.
What are your thoughts about the massive stimulus that's gone on?
Things both right and wrong about that.
First of all, a lot of the people that have gone out of the labor force really just ran out of unemployment insurance.
And I tend to look more recently in employment rather than unemployment.
I think that's what the Washington Times is trying to do these days.
But the stimulus package helped the public sector.
That is, it maintained employment in terms of jobs in school districts and police forces and state employees.
But over the last few months, and let's say the last eight months, we've been seeing a leakage of jobs out of the public sector as a result of budget cuts, downsizing, whatever.
And with all the current legislation that's going on in the United States, you're going to see even greater amounts of downsizing in terms of the public sector, so the unemployment rate's going to increase.
Meanwhile, taxes have not, and like you sort of suggested earlier, a lot of the money is going to the people who have The most money right now.
And there's very little evidence that they're reinvesting it in the economy.
Here in Ohio, the tax rate for corporations is close to zero.
And under the new budget that was just passed yesterday, we're going to have more tax cuts for those people that are on the wealthiest end of the economy.
The idea of it is supposed to be that they're going to reinvest this and create new jobs.
But our history is something that says other than that, That's the way it's supposed to work.
You read it in the textbooks, but what we saw in the last 30 years is that people left businesses in the United States and took their money and moved offshore.
So the likelihood of them reinvesting back in the United States when you have labor costs so dramatically low in other countries is pretty highly unlikely that this is going to be a great increase in jobs as a result of the current sort of policy debate.
And by the way, that policy debate goes, you know, even for the Democrats as well as the Republicans.
So, I mean, as one person said that between the two parties, there's relatively little difference.
I think there is real differences, but I think right now that we're in a situation where there's stalemate between the two political parties, and nobody is willing to sort of say, look, this is what we have to do to get out of it, if there is anything we can do to get out of it.
If the Chinese and the Indians are right, Then we're going to be in this, and we're going to be suffering like many of our great-grandfathers and grandfathers did a century ago.
I know that's not a happy thought, but Americans are typically very hopeful.
But the point of it is, if you look at what's happening, and again, we look at it at the grassroots level, and we look at it through the eyes of what happened to a deindustrialized community, and now we look at a deindustrialized nation.
Well, I think that's really, really tragic, the degree to which American manufacturing, which was, of course, the stepping stone from the lower to the middle classes to a life of stability and growth, has almost completely evaporated.
I think another thing that's occurred, since we're just shooting for courses at the moment, I think another thing that's occurred is as real wages for the lower middle classes have stagnated or declined over the last 30 or 40 years, And, of course, costs have gone up considerably.
People have tried to bridge that by going into debt, saying, well, this is going to change.
I'm going to get a raise. Costs are going to go down.
Because things always got better before.
So, you know, we're going through tough times now.
We're going to debt. But if the tough times continue, the debt becomes a significant downward drag on consumer demand.
And if there's not consumer demand, then people aren't going to invest in local manufacturing because there's just not that many people to buy whatever they produce.
That's exactly right. That was the other sort of leg of what was going on, is what happened in terms of credit and the ability to use credit that we had in the early part of the century.
And then the other part of that was the major asset that you had was your house, and then you could borrow on the basis of your house.
People can't do that.
Once again, there's not significant decline in purchasing power.
If people don't have purchasing power, the businesses are not going to be able to or want to produce products because it's just not going to be there.
So what we have is this sort of incredible situation where, on the one hand, in this country, stocks are going up, productivity is going up, gross national product is going up, but wages continue to fall, as does employment.
Interestingly enough, I looked at this just a couple weeks ago.
Is that even during the depression in the United States, there was an increase in gross national product, even though you had enormously high unemployment rates.
I thought that was very, very interesting, that you could still have economic growth to strike massive unemployment, and that seems to be what's happening again.
Well, I would imagine that you might have as many, if not more, disagreements with the way that GNP is calculated as compared to unemployment.
Can you talk about some of the- No, I think you can, but I think in terms of the political discussion that's going on, Stephan, there is this question about, you hear the Obama administration say, yeah, there's growth, albeit slow growth.
At the same time, we got this very high level of unemployment.
In classical theory, that's not supposed to happen, and there are problems, again, of doing the gross national product.
But it really does bring into sharp focus the idea that you can have this set of, I don't want to call it a bimodal economy, but you can have a terrific dichotomy between you can have a certain amount of economic growth, and largely we could add the technology to play a key role in that, but at the same time that you had very high unemployment.
If that's the direction of the country, at some point something's got to break.
Okay? Because you can keep producing products And you keep increasing levels of unemployment, and at some point, the economy is going to break.
Just for all the reasons you mentioned earlier, you're producing too much for an economy that doesn't have enough demand to purchase the product.
So I think that makes for a very interesting discussion in the future.
At the same time, we have this massive debt in the country.
A good part of it is off the books because it's military debt.
Even though we have, you know, and there's this fight over what are we going to do with our budgets, you know, and whether as part of this is going to be this incredible military budget, which raises a whole other set of questions.
For example, the editor of the Manufacturing Technology News, Richard McCormack, and I were talking about a discussion within the defense industries because American manufacturing now is very much tied to defense-related industries.
And the types of subsidies that the government gives in terms of that.
So what happens if we suddenly, you know, get out of all these wars?
You know, troops come home.
The economy is going to stall because in many ways it is now based on a type of military-industrial sort of complex that makes it absolutely central to the future of America's economic development.
That's crazy. But that's the way it is, and we can talk about conversion all we want to other types of domestic products, but that's a slow process, and nobody's really thinking very far ahead on it.
No, and of course, strong arguments can be made that the troops coming home are not going to be economic dynamos.
I mean, they've lost skill sets from the private sector.
They are probably traumatized, at least some part of them, for the hideous ordeals that they've had to go through.
There has been massive radiation doses in Iraq from these depleted uranium shells, which produced 1.2 million claims for disability from returning soldiers from the Gulf War.
So it's not like these people are going to step out of the camouflaged airplanes and start launching businesses, at least not all of them.
And so there's going to be a lot of adjustment costs and Expenditures just to keep these people afloat while they hope to make the transition, and of course there are divorces in military families higher than normal, which produces more poor people and more poor children.
They can apply for unemployment, so there's not a lot of savings to be realized in the short run through the deconstruction of the military-industrial complex.
I think that's one of the reasons why it's not happening as fast as it should be.
No, I agree 100%.
I think they're all very much tied together, but that puts us in a rather terrible situation.
Our country has become sort of a military-industrial sort of state.
And there's very little way out of it in the short term.
But the discussions that you're talking about are just not going on.
You know, in fact, the type of discussions we do say is, well, how can we cut some of the benefits for these people that have, you know, put their life on the line for American freedom?
And it really, it makes for a very interesting sort of political debate, but awfully still It's scary for the future of America.
Well, the only two real options for the debt is inflation or default, both of which, and this is the truly tragic thing about the great society and the programs that were put in place in the 60s, specifically designed to help the poorest among society, that all of the future financial options, of which there are really very few, that face the United States and other Western countries, particularly in Europe, They're all catastrophic for the poor.
Inflation is the most destructive, as you know, for people on fixed incomes and people who have little capital.
And same thing with default, because default means not the shedding of CEOs, but the shedding of line workers.
And so I think all of these status approaches have, you know, in the short term, I think you could argue that they've materially benefited the lower classes, but what is coming down the pipe for the lower classes, I think, is going to be pretty gruesome.
Yeah, we can see it in Greece right now, absolutely.
It's funny because you can see it around in an area like Northeast Ohio.
I make my students go out to one of the strips, and I ask them just to get off the highway and then count the number of deep discounters along the strip, whether it's Kmart, Super K, Gabriel's, Wal-Mart, and all the do-it-yourself stores, all deep discounters.
And I say, what does that say about the economy?
And they all finally get to the point where they say it means that that's a function of a type of deflationary economy because prices are going down to rock bottom.
People can still purchase some things, but it does represent a type of deflationary economy that in part is subsidized by all sorts of things coming in from China and developing countries where the labor costs are much cheaper.
But you can see, you know, right on the surface...
of an economy where values are being reduced and there is a type of deflation that's going on and of course ultimately that hurts working people too.
Yeah and of course what does it say about the wages and the jobs available to people in their local neighborhoods who can't afford a car?
It means that they're going to be stuck in this minimum wage ghetto for many people forever and I think that's hugely tragic.
Yeah it is terrible and of course here in Ohio the Republicans are trying to take advantage of that by changing the voting rights Now you're going to have to have a driver's ID. They're trying to get that through the house.
Who are the people that don't have driver IDs?
They're older and elderly people.
There are people that are students.
There are people who don't have money, and there's people in the urban cores that just don't have cars, and they're dependent on that.
So that's the whole idea, of course, that they won't vote in the next election.
And vote Democrat.
And vote Democrat, exactly.
Now that we've thoroughly lowered the ass of depression from an elephant's standpoint on everyone's chest, where do you think that the hope lives?
Because I think that a lot of people feel that these forces are far outside of their control and influence.
What is it that you do to get up in the morning and still have the joy to teach and to instruct people?
I wonder if you can give us a few personal words of hope just before we sign up.
Well, I like what I do.
I like working with people and talking to them and teaching them about it.
But my job is not to be the sunshine boy.
The Chamber of Commerce can do that and everybody else can.
It's rather to come in here and say, look, this is the way the numbers look.
This is what's happening. I don't have all the answers to this.
I think there should have been a greater attention to manufacturing.
I think there's an enormous amount of infrastructure work that can be done in the country as it's rebuilt.
You know, when I was in China, I seen all their networks of new trains that are being developed in their train systems.
Well, the U.S. could have a train system, and that could be like going to the moon or someplace else.
We're going to need some programs that are much like that we had during the 1930s.
I know that's very much out of favor right now, especially in Republican circles, but the point of it is you're going to have to...
There has to be some job creation that can lead to incomes that are sufficient to increase demand and stimulate the economy itself.
So I try to push along those particular lines.
I don't necessarily need to talk about just the bad things that are happening, but that's going to mean some changes in policy.
We're going to have to have industrial policy like many other developed nations do.
We're going to have to do some Changes in terms of taxes, especially on those who have the most money and that's not going to be an easy job to do.
But I'm not in favor of lowering benefits for working people and decreasing their health care and making their life even harder where they have to even work longer.
We did a quick study with ex-auto workers who had worked in the automobile plant for 30 odd years And they were retiring at 55 or 60 years old, that range.
What would it be like if they changed the pension laws or the Social Security laws where they'd have to work 40 years in an automobile manufacturing plant?
And what would their bodies be like after that?
It was quite incredible to talk to them and interview them and to see what they felt about that.
Could they do it? As one person said, my goal in life is not to work and die.
I want to have some retirement.
In order to solve some of the economic crisis, there are people talking about cuts in Social Security right now.
I appreciate that.
Certainly, the economic argument or approach is like going to the doctor with a bad cough.
He doesn't tell you all the things that are working right.
He just looks at your lungs and your throat.
You don't go to the doctor and say, my foot's fine and my other foot is fine.
Just before we sign off, you had mentioned a blog where people can get more information about the kind of work that you're doing.
It's called Working Class Perspectives.
It's the name of the blog. The call numbers are workingclassstudies.wordpress.com That website became a staff pick of the Washington Post last year.
It's being read pretty regularly.
As you said at the very beginning, I'm not the most astute person as it goes to social media or various new media, but we found that it is quite incredible the amount of people and the number of people that are reading it.
Also, you can go to our website, which is at C-W-C-S dot Y-S-U dot E-D-U and learn more about the Center for Working Class Studies.
Fantastic. I will put all of these links in the show notes and thank you so much, John.
I really do appreciate your time. It was very illuminating.
Thank you very much too, Stefan. Take care.
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