Fri 12/2/11 2:48 PM – Unemployment #s and Social Security, Medicare

While the unemployment rate dropped to 8.6% from 9%, the participation rate, i.e. those of working age that are actually working dropped in this report to 62.3%, the lowest level since 1984. Put another way, the ratio of those working compared to those that are not for whatever reason, is 1.65 to 1 (62.3% / 37.7%). That’s well less than 2 to 1. Most baby boomers have yet to retire and if they can retire, that will make the ratio even lower.

That’s an enormous problem for Social Security and Medicare which are financed by payroll taxes. You just can’t support what will likely be 40%+ of the population not working on the backs of the remaining 50%+ in the workforce unless you have extremely high taxes.

No matter how politically unpalatable, those two programs have got to be reformed soon or this country has absolutely no chance to balance the budget for decades to come, thus going deeper and deeper into debt until we become a Grecian behemoth, too large for any entity to bail out and with interest rates on our debt that will swell interest payments to half the budget.

This country, because of the incredible speed with which it is building up debt, is in the most danger since the Great Depression. Don’t stone me for saying it, and my wife says I should stay out of blogging on politics (though she often writes on it in an incredibly good Facebook page under Adina Hoshour) but it will take somebody of forceful character in the White House that is totally sold on cost-cutting to get us out of this mess.

Love him or hate him, and there are several things I really dislike about him, but Newt Gingrich is the only current candidate that fits that profile. The others are too bland or seem incompetent.

Herman Cain’s 9-9-9 economic plan is just plain awful. Does he really think a 9% national sales tax on top of local taxes of 7-10% will help the economy? It’s ECON 101 — raise the total price significantly and watch sales drop. Add to that a 9% income tax that will be a tax increase for the bottom 60% of Americans and you have a recipe for a deep recession.

On the other hand, President Obama seems completely clueless about the dangers of mountainous debt and still buys into the old Keynesian model of economics requiring massive government spending to goose the economy. It just does not significantly stimulate the economy in a deleveraging and highly indebted country. That’s also why his estimates of how many jobs will be created or saved by one program after another have proven to be wildly off the mark on the optimistic side.

The better unemployment number today reflects two things – 1) more people dropping out of the labor force and 2) increased hiring by retail stores (think minimum wage and no benefits) and some small business sectors. Why is retail picking up – because people have stopped saving and started using credit cards again. It has little or nothing to do with government spending.

This will be part of my newsletter in the next week, though there I will charts and pictures.

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