In my previous post “It’s the consumer, dummy”, I tried to strongly make the point that the entire economic situation rests on the health of the American worker. Unfortunately, they’re not looking too good right now. From the NYTimes:

The unemployment rate spiked to 6.5 percent from 6.1 percent, the highest level since 1994. Many analysts now expect unemployment will reach 8 percent by the middle of the year.

Coupled with revisions to September’s data — which now show a loss of 284,000 jobs, down from an initial estimate of 159,000 — the economy has shed 1.2 million jobs since the beginning of the year. More than half the job losses have been in the last three months alone.

Yow, that hurts. And yet, believe it or not, that’s still not a true look at the state of unemployment in America. I know I’ve mentioned before that unemployment is undercounted for basically political reasons (to make the government look better) but here is a more detailed explanation from Dan Gross, via The Big Picture via Xanthippas:

Rather, these two figures are undermeasuring the weakness in the labor market. By some measures, in fact, the job situation is worse than it has been at any time since 1994.

Exactly.

Wanna know why? Major changes in the BLS methodology since 1994. As Dan writes:

“BLS has been compiling alternative measures of labor underutilization. There are many different varieties of labor underutilization. There are marginally attached workers: “persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.” There are discouraged workers, a subset of the marginally attached crowd, who have “given a job-market related reason for not looking currently for a job.” There are people who work part-time because they can’t find—or their employer can’t provide—full-time work. There are people who have left the work force entirely. Neither the unemployment rate nor the payroll jobs figure captures the plight of many of these folks.

The alt.jobless rate was waring of trouble long before the U3 headline data did. U6, the broadest measure of unemployment, rose to 11% in September. That’s the highest level since the data series started in 1994.

Good point. When you hear the U3 index, look online for the BLS’ U6 index, which takes into account a greater variety of factors. It’s not secret, it’s just not put forth. I hope President Obama has the guts to tell people the hard truth: the economy is worse than anybody wants to admit.

To harken back to the NYT article, if the U3 reaches 8 (or higher) and there’s at least a 5 point difference between the U3 and the U6, does that mean we will see a real unemployment figure of around 13%? Scary thought. And yet by acknowledging the hard truth, we have begun to take a step towards solving the problem.

The latest business news is all about how the nation is facing high unemployment as businesses contract to deal with lowered consumer spending due to layoffs caused by companies suffering under the credit crisis which in turn is the offspring of the subprime mortgage crisis.

When October’s job losses are announced on Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.

“My view is that it will be near 8 or 8.5 percent by the end of next year,” said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s.

Bad news. Remember that this is the index which does not include numbers of people not looking for work nor does it tell us anything about the underemployed. But this post isn’t about the general economy. It’s about the folly of our obsession with gas-hogging SUVs.

The Big Three are all having extreme financial difficulties. GM appears to be suffering the worst, mainly because they relied so heavily on sales of SUVs.

After losing $18.8 billion in the first half of this year and facing more red ink for months to come, G.M. is now trying to salvage its future through a possible merger with Chrysler, another deeply troubled American automaker.

As of Friday, shares of G.M. were down 76 percent for the year and Ford shares were down 70 percent.

What is clear is that Detroit, among its other miscues in recent years, particularly overindulged its romance with S.U.V.’s, leaving it tethered to a product line that may prove to be the industry’s undoing.

The article explains exactly what has happened, so I suggest reading it in full, but the short version is that GM wasn’t competing at smaller cars because they didn’t feel the need to. SUVs were profitable for them. They believed in them.

“They told us it would never end, that it was a recession-proof vehicle and we’d never be able to build enough of them,” said Daryl Klemp, who was hired in 1995, when sales of S.U.V.’s were booming.

Well, they were wrong. Wrong in all sorts of ways.

Mr. Wagoner has often been asked whether G.M. miscalculated its need to invest billions of dollars to develop all-new S.U.V.’s. “We, like everybody else, didn’t anticipate fuel prices to go up like they did,” he said recently.

People did predict future price spikes in oil, automakers and buyers just didn’t want to hear it. Not like price spikes and shortages haven’t been seen before. But people’s memories are short, and wishful thinking seems to have ruled America for the past two decades, at least when it comes to automobiles. We forgot the lesson of the seventies, and when the Japanese rolled in with their super efficient little cars, Americans decided they wouldn’t compete for that market, they’d just go right ahead and sell gas-guzzlers. Unfortunately, that strategy worked. Fueled by decades of low gas prices, we got used to not paying the real cost of such vehicles. Those days are over.

This is exactly why we should have legislated a reduction in size and gas usage of all vehicles years ago. Don’t bother to tell me about CAFE standards, they’re a joke. Who cares what the fleet average is? Let me tell you what mandating a real minimum fuel economy standard would have done. It would have insulated us from the past summer of obscene gas prices in two ways: one, if overall US usage was even a few percent lower, it would drive demand down, driving prices down. Two, if more people had small cars, gas prices would hurt them less during price spikes. That could only be a good thing. Free marketers (is anybody still listening to them) told us that these things happen. If gas prices went up, SUV sales would go down. Indeed, that is true. But the idea that we should sit back and let this “correction” happen when we could have forced all US automakers to invest in smaller cars and keep employing Americans is ridiculous. Does anyone think if we’d banned sales of any vehicle that didn’t get 20mpg there would have been less vehicles bought? I’ve made this point before. And lest anyone counter with the argument that this would have cost GM profit, well, look where they are now.

All I’m saying is, government intervention in the economy that actually takes into consideration the best long-term interests of the nation as a whole might actually work out for private industry too. I’m sure no one now would disagree that the short-term thinking of GM and the other automakers focusing on SUVs is exactly what is causing them to be in such financial distress. But hey, that’s socialism and we couldn’t possibly consider that, now could we?