May 17 2008
Down is Often Up & Black is Often White (Why I Love Economics!)
Published by Steve Latter under
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WikipediaOne of the many reasons that I find the study of economics so fascinating is that what so often appears to be a negative situation to the average citizen is actually a positive one. In other words: “down is often up” and “black is often white”. One of my favorite examples of this “180 degree moment”, and why I love to teach AP Macroeconomics, relates to the study of unemployment.
Candidates running for President in the United States often campaign to potential voters that “the United States has 7.5 million Americans out of work”, which is very true. But I say, “Wow, where does the U.S. pick up its’ first-place trophy for being so excellent at employment.” To me, having only 7.5 million out of work is like getting a 5 on yesterday’s AP Macro test! Of course, 7.5 million unemployed in the United States is only 5.0% of our 150 million labor force, and the unemployed workers consist almost entirely of “frictionally” and “structurally” unemployed workers. Frictionally unemployed workers are those workers who are transitioning between jobs or entering the job market. This transitional unemployment is a normal and desirable occurrence in any market-based economy as it evidences free choice. Structurally unemployed workers are also a by-product of a successful, market-based economy as workers are only temporarily unemployed, for the long-run benefit of the economy, as new automated technologies are replacing manual labor, and/or trade agreements are implemented allowing a country’s citizens to purchase less expensive, but still high-quality imported products. Let me be sarcastic for a moment: maybe we can get the U.S. Government to pass two new laws to lower their unemployment rate; one law to outlaw new technology so they can reduce their structural unemployment, and a second law to prevent their citizens from quitting their current jobs so the country can reduce the frictional portion of the unemployment rate as well. Maybe after that (I’m still being sarcastic if you hadn’t noticed!) the U.S. Government will then establish a new goal of 0% unemployment, which is what I hear the unemployment rate is in the US prison work camps!
Another specific example of this “180 degree moment” relating to unemployment is that manufacturing in the U.S. is somehow declining. This misperception has been created primarily on the large loss in U.S. manufacturing jobs and the declining share of manufacturing jobs as a percentage of total U.S. jobs over the last 20 years. It is widely believed that the U.S. global share of manufactured products has decreased which is an incorrect belief. Basically, the misperception has been created because: 1) employment in manufacturing is at an all time low, and 2) the U.S. has increased their share of imports from countries like Japan and China.
The reality, however, is that U.S. Manufactured real product has more than doubled over the last 20 years and they have accomplished this feat with an amazing increase in worker productivity via technology. U.S. manufacturing output per employee has increased markedly due to technology and the effective use of capital.
Yes, I believe “down often really is up”, and “black often really is white”!
