Bernanke Has America's Workers In a Red Room Of Pain

Last week's selection of Charlie Hunnam to play Christian Grey in the upcoming movie version of Fifty Shades of Grey was a mistake. Based upon his real-world experience, Federal Reserve Chairman Ben Bernanke should have gotten this plum role. With his quantitative easing and incessant monetary tinkering, Bernanke has managed to keep America in an economic Red Room of Pain for almost five years.

The "Employment Situation" report released by the Bureau of Labor Statistics (BLS) on Friday was just more of what we have come to expect from the Bernanke/Obama economy. Yes, the "headline" U-3 unemployment rate went down by 0.1 percentage point, but this was a statistical illusion produced by the ongoing (and completely unprecedented) exodus of American workers from the labor force. The true unemployment rate, adjusted to the labor force participation rate of December 2008, actually rose from 10.8% to 10.9% during August.

The labor force fell by 312,000 in August, with labor force participation falling to 63.2%, a rate last seen 35 years ago, during the great surge of women into the workplace. August's 69.5% labor force participation rate for men was the lowest ever recorded.

The 2.58 percentage point decline in labor force participation during the Obama presidency is equivalent to 6.4 million American's giving up on being self-supporting via work.

The number of full-time equivalent (FTE)* jobs fell by 54,000 during August, and America moved 174,000 FTE jobs farther away from full employment.

Right now, it would take the creation of 16.0 million FTE jobs to fully employ our working-age population. At the average rate of progress during the 11 months of Bernanke's "QE3" program to date, generating the needed jobs would take...well, forever. This is because the nation has actually moved 219,000 FTE jobs away from full employment during this period.

Because the announced reason for QE3 was the unacceptably slow rate of recovery of the labor market, it is logical to judge the results of QE3 based upon its impact upon employment. After almost a full year of Bernanke's blizzard of money creation, the results lie somewhere between "shocking" and "appalling."

If we compare the 11 months of QE3 to date with the 11-month period immediately prior to QE3, we discover that Bernanke printed an incremental $1.05 trillion in order to prevent the creation of 1.3 million FTE jobs. That's right. If the Fed had not done QE3, and had simply continued with its previous policy, it is reasonable to expect that today the Fed's balance sheet would be $1.05 smaller, and there would be 1.3 million more Americans working.

If QE3 is not a trip to the economic Red Room of Pain, what is?

So, why don't Bernanke and the Federal Open Market Committee (FOMC) notice what is going on? There is no way for anyone outside the FOMC to know for sure, but the most likely reason is that they are blinded by economic superstition.

Mainstream (i.e., Keynesian) economists and the mainstream media simply assume that QE works the way that the (Keynesian) economic textbooks say that it works. So, if the Fed does QE and the results are terrible, this just means: 1) things would have been that much worse without QE; and, 2) we need even more QE. Intellectually, it is a very simple system.

Corroboration of the "superstition" hypothesis was provided by a recent white paper by economists at the Federal Reserve Bank of San Francisco. They created a model of "what would have happened" during the QE3 period if there had been no QE, and then compared their model with the actual results. Their conclusion was that QE3 had a modest, but positive effect on the economy.

Now, imagine that you were the Vice President of Sales of a private sector company. You propose a costly new marketing program. After a year of your new program, sales are down by 50% from the previous year. However, you explain that your staff created a spreadsheet model, and the model says that sales are actually up by 10% from what they would have been without your marketing program. How long do you think you would keep your job?

Keynesianism, both the fiscal ("stimulus") and monetary ("quantitative easing") varieties, can never survive accountability for actual results. Fortunately for the Ben Bernanke's and the Paul Krugman's of the world, the CBO and the mainstream media allow them to compare actual results with "counterfactuals" calculated via models that assume that their Keynesian policies work as advertised.

This is nice work if you can get it. The only problem is that, right now, there are 16 million Americans that are not fortunate enough to be able to get secure, high-paying, taxpayer-supported jobs building Keynesian economic models for the CBO and the Fed.

It is assumed that when Ben Bernanke retires, he will go back to teaching at Princeton. However, if Universal Studios were to contemplate our Fed Chairman's proven skill at keeping an entire nation in economic bondage, they would no doubt push Charlie Hunnam aside and give Big Ben the lead in Fifty Shades of Grey.

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*FTE jobs = full-time jobs + 0.5 part-time jobs