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Statistics mask reality: Unemployment isn't going down, and Minnesota doesn't have a budget surplus

David Schultz
Courtesy of Hamline University
David Schultz

"Lies, damn lies, and statistics."  Proof that this adage rings true can be seen in two recent stories declaring the national unemployment rate had dropped to 8.6 percent and that the State of Minnesota had a budget surplus of $876 million. While many herald these numbers as signs that the American and Minnesota economies are improving, the truth is that both mask a reality that is far grimmer than the statistics reveal.

The meek jobless recovery from the 2008 recession persists. With unemployment hovering around 9 percent, the American economy seems stuck in terms of job production. Obama had proposed a series of tax cuts and projects to stimulate hiring, but their fate in Congress during a presidential election has doomed them. Even if passed, the original September $450 billion jobs plan would do little to encourage business hiring. That will not occur until consumers are willing to spend enough money on goods and services to make it profitable for businesses to hire. As late as just a few weeks ago the Federal Reserve Board predicted that well into next year unemployment would not fall below 8.5 percent. Such a number poses a political problem for Obama – with the exception of FDR, no president has been reelected with an unemployment rate greater than 8 percent.

The surprising drop in the unemployment rate from 9 percent to 8.6 percent in November appeared to be good political and economic news. Yet it is not for several reasons. First, the rate reflected less a robust growth in the economy than many individuals leaving the workforce because they could not find work. The official unemployment rate calculates only those actively looking for work. If you cannot find work and have stopped looking, you are not counted among the ranks of the unemployed. Buried in recent unemployment figures was evidence that the workforce was contracting — many individuals have simply stopped looking for work. Perhaps half if not more of the drop in the rate in the last month was due to this fact.

Low rate of job creation
Yes, the economy produced 120,000 new jobs. That appears to be good news, but not really. The country is millions of jobs away from re-creating all of the positions lost since 2008. Millions of additional jobs are also required for new workers entering the labor force. The economy needs to produce perhaps 300,000 or more new jobs per month for several years before the loses of 2008 are recaptured. This would require economic growth far greater than the 2–2.5 percent increase projected for the near future. 

There is little sign of significant turnaround for the American economy. Consumer debt remains high – nearly $830 billion – and student-loan debt will soon be $1 trillion. Housing prices and sales remain flat, consumer confidence low, and despite some bright signs that Black Friday and Cyber Monday were good, few are foretelling a serious consumer economic boom. The 8.6 percent unemployment rate fails to capture all this. 

Minnesota:  In the money?
If the 8.6 percent unemployment rate is a lie, news of the $876 million budget surplus is even more so. With predictions prior to the announcement last week that the state was up to at least $1 billion in the red, news of the surplus was greeted as proof that the Minnesota had turned the corner. Republicans cheered the news as proof that balancing the budget with cuts alone and no tax increases was correct. Dayton, with nodding approval of Zygi Wilf, hoped that the surplus would make public financing of anew Vikings stadium more salable. But despite claims by all that a surplus exists, the reality is: It does not. 

First, recall the budget deal from last July to end the government shutdown. It came with $2.2 billion taken from K-12, and $700 million in borrowing off of Minnesota’s tobacco endowment. This was on top of other budget cuts to vital programs.

The reality is that the balanced budget was achieved by serious debt financing.

Second, the budget projection benefits from a law that calculates inflation when it comes to state revenue but ignores it for obligations. This means that the actual projection released last week is distorted by overestimating income and underestimating obligations. 

Third, the budget agreement from July required that approximately the first $900 million of surplus must be used to replenish the state budget reserves and rainy-day funds. Thus, this $876 million is already called for and not available for spending.

One-time fixes
Fourth, whatever the reality of the current state budget, the fixes, such as borrowing to balance it last July, were one-timers. They failed to address to long-term fiscal imbalances in state financing, setting up the next biennial budget to again be several billions of dollars in the hole.

Finally, whatever the fiscal forecast stated, another one is due at the end of February 2012. That is the one that will be used by legislators to make the budget. It is still not clear whether it will be as optimistic as the one just released, especially if the state and national economies fail to recover. 

Minnesota really does not have a surplus. Nor is the United States experiencing a serious decrease in unemployment. These two statistics mask a reality that shows how numbers do not always tell the truth.

David Schultz is a professor at Hamline University School of Business, where he teaches classes on privatization and public, private and nonprofit partnerships. He is the editor of the Journal of Public Affairs Education (JPAE). Schultz blogs at Schultz's Take.

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Comments (15)

I think that many thoughtful people already realized these truths, Mr. Schultz, but it's good to have them in black and white. Alas, much of the media simply takes what it is told and retells it. That's why the media was splashed with "budget surplus!" and "unemployment down!" not "Minnesota lawmakers attempt to fool taxpayers into believing the state can afford a new stadium" and "Election ambitions paint unemployment rosy." I admit, the appropriate headlines aren't as splashy, but my job isn't to make them splashy. Many people don't get past the headlines, which don't give the whole story, even if the rest of the article might (often, it does not).

The Shadow Government Statistics website puts the REAL unemployment rate at about 23 percent- greater than much of the Great Depression.

www.shadowstats.com/alternate_data/unemployment-charts

The SGS rate includes estimated long-term discouraged workers, who were defined out of existence in 1994, and includes marginally attached workers, "short term discouraged" workers, and those working part-time who want to work full-time.

How is the "official" unemployment rate calculated? It shouldn't be only those who are collecting unemployment benefits since those not can still be looking. Applicants registered at state job service offices? That would miss those not searching that way. Surveys of employers for how many recent applicants, cross checked to eliminate double counting? Telephone polling asking about employment status?

There must be a lot of estimating based on something that is never mentioned in these reports.

I don't disagree with anything said here, but laying out the facts in black in white is only 1/2 of the discussion.

It's undeniable that the K-12 "shifts" account for some of the relief, so it's time to speak plainly; those "shifts" are permenant cuts. The state doesn't have the resources to repay them, and isn't likely to have them any time in the near future.

Luckilly, the stakeholders themselves have picked up the slack by passing levy referendums which largely mitigate the downside.

Too, there are many unemployed people waiting to return to jobs that no longer exist, and it's time to lay the fact out for them. They are not going to see a return to the level of prosperity they enjoyed for many, many years.

And if they worked in a subsidized business, or directly for the government, and hope to return to those jobs, their standard of living will never return to where it was when they left.

We, all of us, are being forced to accept a new paradigm, and it's up to us to make it work.

Thomas Swift is again parroting the Republican dogma. Basically, he's saying that the party's over and we may as well get used to austerity and just be miserable.

This is completely ridiculous. The implication is that we arrived at this point purely by accident, when in fact our situation is the direct result of 30 years of trickle-down economics.

If the United States moved back to an equitable tax structure, the middle class would grow again and the country could prosper. Unfortunately, as the Republicans have only grown more evil since 1980, the Democrats have only grown more spineless.

The government CAN and SHOULD spend massive capital NOW to stimulate the economy. Take all the unemployed workers over 50 and train them to build roads and bridges -- a giant public works project financed by a tax on the 1%. There. Now you've put money back in the hands of people who will spend it, and you've lifted those people out of misery.

But we can't have that because we must instead coddle the "job creators."

Wow, I didn't think I would live to see the day that I actually agreed with most of what Mr. Swift had to say in one of his posts, and I am only in my 30's.

I agree with the vast majority of your assessment and individuals need to due a vast amount of the self assessment, however unlike you, I do not see government as an object simply in the way. Government on every level, but especially local, along with non-profits, and the business community can work together to go a long way to help create awareness and navigate in the new economy.

Additionally, I agree completely that many many jobs especially in low skilled/low inteligence postions have gone away forever and individuals and the "system" need to re-train workers and the future works for what the future actually holds, not the 1950's version most schools seem to be stuck in.

A new paradigm, Swiftee? Rather a big and overused word by now, don't you think?

It is up to those of us who strongly disagree with you to go to the polls in 2012 and unelect those responsible for absurd tobacco bonding, irresponsible school cuts, and dishonest property tax increases, among other sins. The right wing and Tea Party folks had a Trojan horse carrying a social agenda that they denied while the election went on. After the election the promised "laser focus on jobs" never materialized but the hidden social agenda did.

Voters are not stupid and it is quite clear that they are ready for a mixture of cuts and new revenues. Wedge issue politics - given the recent turmoil in the GOP - may not be such a great "new paradigm" after all?

You and other right wingers are responsible for the deterioration of Minnesota's infrastructure. Upkeep of which would provide employment.

The cant about "subsidized businesses" and government employment is no longer going to sell. See you in 2012.

@#4
Wow. I agree with you, Mr. Swift.

There may be a new paradigm, Mr, Swift, but those phony transfers and robbing future tobacco revenues were old style politics practiced by Gov. Pawlenty for short term gain. That left us with some big holes to fill. Sort of like the legacy of his colleague George Bush.

I agree rolf; Gov. Pawlenty danced around the issue. His unwillingness to confront the reality of the economic downturn did, indeed kick the can down the road.

That does not mean the Democrat legislature that was in control at the time doesn't have it's share of the burden to bear. Governing via simple minded sloganeering isn't any more effective than slight of hand budgeting.

But none of that addresses the problem at hand. And those who are waiting for some government functionary to take them by the hand and lead them to the road to prosperity are in for a *big* letdown.

Keeping a family's ship afloat is a job that takes constant vigilance. A good captain knows that when the winds of fortune slacken his sails, it's up to him to tack.

Squirting tears about how unfair it is that he doesn't have a steam turbine, or incoherently babbling that if only the sails were blue the wind would change isn't going to get the ship into port.

#5 Can all those re-trained over 50 workers at least be allowed to build a bridge by Stillwater? They could if Betty! and Keith would let them.

Out of curiousity, just how much money are we taking from the 1% for this giant package, and once it is completed, do all the over 50's get to keep their jobs for another 15 years?

Mr. Anderson illustrates the fundamental flaw in the democrats' strategy for job creation: the government-financed infrastructure projects are temp jobs and are only suitable for the physically able.

The real, long-term solution is to encourage businesses to build factories and to expand their corporate functions that support those factories. Those aren't just jobs but careers for people of all ages, skills and physical abilities.

Why didn't Saint Paul offer the Ford plant location to another manufacturer, for example? When you have the highest corporate income tax in the world, why would you expect any company to expand here instead of overseas, for example? When thousands of permanent jobs could be created by allowing the oil, gas, or nuclear energy industries to expand, why wouldn't you, for example?

Rather than paying for temp jobs the taxpayers can't afford, we should be encouraging the private sector to expand in this country via the tax code ... something only a capitalist understands apparently.

@#12
"Capitalists," as found in politics, apparently DON'T understand how to expand the private sector via the tax code or we wouldn't have the problems we have, now, would we? "Capitalists" have been the vast majority in Congress for quite some time, and they've failed. I agree that we can and should probably reduce the corporate tax rate, but only in combination with significantly increasing the personal income tax rate in order to encourage reinvestment and not pocket-lining. We already have ample evidence that reduced income tax rates do diddly squat for job building. We also have ample evidence that temporary economy boosts (such as infrastructure improvement) help the economy--see PWA and WPA.

By decreasing corporate taxes and increasing personal taxes (particularly at the top), there is more incentive to reinvest capital back into the economy. This concept also increases the reward for smart business management and punishes those who ruin businesses.

Before you argue that this will disincentivize people from getting rich, give me a break. Lots of people got rich and stayed rich with much higher tax rates. If I had the opportunity to be a billionaire rather than a multibillionaire, I don't think I'd decide to simply remain only moderately comfortable just to pay less in taxes.

Yes, over the last 30 years our manufacturing base has moved to the Far East.

But in return we got "everyday low prices" on goods and an expanded availability of credit.

Think back to the 70's when a woman with a job had to rely on her husband's credit score to get a credit card. College kids and high schoolers with a credit card or cell phone, walkman, etc., were rare.

One also has to look at what one "does" with expanded opportunities.

Actually, Rachel Kahler, raising corporate taxes encourages reinvestment in the company, since all legitimate business expenses are paid for with pre-tax dollars. If a company hires new employees, upgrades its facilities, buys new office equipment, rolls out a new marketing campaign, or opens a new branch, those expenses are subtracted from its taxable income.

Not coincidentally, all of these moves create jobs, either within the company or for its suppliers.

Low corporate taxes, on the other hand, initially provide a windfall for shareholders, which leads to demands for further such windfalls, which are achievable only through stringent cost-cutting, such as laying off workers and/or moving production or other functions overseas.

Yes, shareholders deserve a return on their investment, but investment is a gamble, and shareholders are not automatically *entitled* to ever-increasing dividends.

Another conservative lie is that corporate income taxes cause companies to raise prices. That is nonsense. Raising prices would increase their tax liability unless they made corresponding investments to use up the extra earnings.