This is the chart that Mankiw used and he was taken from the St Louis FED but I redid it since I wanted to look at the numbers in detail. This is the total unemployed by month since the 1940s. Looks frightening but you really should normalize by the population. So I did that one below. This is unemployment for 27 weeks or more:
But we are still not there because we should really look at percent unemployed as percent of the working population. Thus we again normalize this. Remember, however, that the Feds play all sorts of normalizing games here but alas we have corrected for this before but will not do so here for we have a different point to make. Looking at that subset we obtain the following:
Now we can look a bit closer at this just in case over the most recent recession as we do below:
So indeed we have great unemployment. But what does that mean on the deficit. So I went to the Treasury and got the receipts, deficits etc for the past few years. Here is what I looked at:
1. What was the tax per employee per month sent to the Treasury say in 2007. The answer was $1,500, not that much. Recall that this is gross tax and is not just income but corporate and all the other stuff, but the ratio is a reasonable metric since income tax accounts for about 70% and the others tag alone. I admit my wording is not economics acceptable but this is the way one looks at a problem.
2. Now I asked what was the average number unemployed during 2007 for the same 27 weeks or more, the answer was about 1.25 million and what was the monthly deficit in 2007, well about $52 billion. That was Iraq and the other stuff we are messing with. Again not a great economics description.
3. Now, if we have about $1.5 K per month per employees, and we had normally 1.25 million not working and not paying and we now have say 6.25 million not working more than 27 weeks , that is 5 million more at $1.25 K per month or $6.25 billion a month, or $80 billion more year. But we are way over that, why? But the total unemployment was 14 million and the baseline before that was about 7 million, so roughly we added 7 million to the unemployed at $1500 tax per we have a down turn of $10.5 billion a month or $125 billion per year.
Here is the data for the receipts in 2007 on a per employed person basis. See that they are flat. That is where we got the $1500 per month:
Now look at the past two and a half years:
They are declining. So not only do we have fewer people contributing but we have less per person of those contributing. A double hit, but still not enough to get the large hist we are seeing.
We then plot this deficit, estimated, real and variance and we do that below:
So what does that leave us with?
Well the current administration is apparently going wild spending money. Further they seem to just outright falsify facts. Romer, the head of the CEA and the who whose words we track monthly just outright refused to admit that her numbers of January 11, 2009 were benchmarks before a Senate Committee. At what point do facts matter? Apparently not to Washington and especially not to economists.
The back of the envelope numbers seem to say $1500 lost taxes per month per employee and with an added 7 million unemployed we lose almost $125 billion per year. Large but it does not explain the shortfall. You do not get to a trillion and a half from that number. Add unemployment and it may double the number but you are still not there. Keep trying and trying and you must go line item by line item...where is my CFO and my staff when I need them.
When will they ever learn, when will they ever learn... thanks to Pete Seeger and friends ....
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