Urban Survival’s Inside Report # 30 May 12, 2002

NOTICE:  All contents © 2002 by George A. Ure, MBA except other authors as noted.  This document is intended for the sole use of subscribers and may not be transmitted, reproduced, or in other way used without the written prior express consent of the author.  This publication is by subscription:  $30/year for web browser accessed delivery to a password protected site (price effective until February 20, 2002).  To subscribe, send a check to: George A. Ure, 1355 West Palmetto Road, #281, Boca Raton, FL  33486-3383.  You may also subscribe using PayPal.  Your username and password are both your email address, in all lower case to access the protected web site, so don't forget to include it!   Address comments and correspondence to: george@ure.net.    Read the disclaimer: http://www.urbansurvival.com/disclaim.htm This report is based on sources believed reliable and makes no specific investment advice.  Before you invest in anything, seek professional advice and remember, you can only spend it once, unless you are a member of the Fed, in which case you can spend it as fast as you make it.

If this is really the Second Depression:

Where's the DUST?

"Now as through this world I ramble, I've seen lots of funny men

Some will rob you with a six-gun and some with a fountain pen.

But as through this life you travel and as through this life you roam

You will never see an outlaw drive a family from its home."

From “Pretty Boy Floyd” by Woody Guthrie, American Folk Singer

Last week, as part of my notes on the sunspot numbers, I put up a chart that showed the current drought conditions, as recorded by the National Weather Service.  As you saw, a good sized chunk of the country was "in the red" on the weather service charts, indicating we're in a severe drought.  That got me to thinking about unemployment and where things were going.  As I was about 1/2 way into my morning coffee, I came across an interesting article from Reuters that reported on Fed Vice-Chairman Roger Ferguson's remarks at Webster University in St. Louis...so I dashed off to the Federal Reserve's web site to read the "official remarks".  I think you'll find this interesting:

The link between education and economic success is well documented. During the 1990s we were fortunate to have experienced the longest uninterrupted economic expansion in the history of the United States. By late 2000, the unemployment rate was the lowest it had been in more than thirty years. The expansion benefited all segments of the population, including minority groups. In fact, the unemployment rate for blacks dropped to less than 7-1/2 percent in late 2000; it had not fallen meaningfully below 9 percent between 1972, when minority unemployment statistics were first collected, and mid-1998. But, despite the improvement, blacks still lagged in terms of labor-market outcomes. Their unemployment rate was still nearly twice the national average.

Over the past year, as all of you know, some of the record gains of the 1990s have been retraced. The unemployment rate for blacks once again hit double-digits in December and remained near or above 10 percent during the first four months of this year. The overall jobless rate has climbed to its highest level since August 1994.

Yes, that last line is the part that caught my eye:  A lot of people don't realize that the unemployment rate is officially over 6% - and in an odd twist of fate, the U.S. now does a far better job of reporting minority unemployment than it does reporting non-minority unemployment.  As I've mentioned before, there are several reasons for this:  One is the perniciousness of "political correctness" which permits present day discrimination (quota systems) to right past discrimination.  Another is the fact that so many of the unemployed do not show up in the official statistics because they are not on the government aid lists, from which the unemployment is "inferred".

This point notwithstanding, Ferguson's remarks got me to wondering about the relationship between education and what I believe is the emerging Second Depression here in the U.S. 

University of North Carolina Professor Glen H. Elder has written that family stress, such as the type induced by economic hardship in the 1930's Depression, often led to a deterioration in child-rearing practices. 

That's an interesting observation, but one that bears some thought.  Intuitively, you might have thought that when unemployed, a person might spend more time with the children, not less.  But economics is a funny thing, and when people get hungry their stress levels go up - and consequently child raising falls a distant second to eating.

So I've made a note to keep a watch on educational outcomes with an eye toward seeing if the present perceived trend of increasing violence in schools, triggered by Columbine, is the tip of some emergent indicator that families in the U.S. are under an increasing amount of stress.  It might come from the pressure to keep a job that is unsatisfying, or it might be unemployment itself.  But I'll let you know if I see any trends.

This is not something as easy to track as the Dow Jones Industrial average.  The education establishment not only has issues of political correctness to deal with, but beyond that is the whole technical question "How do you measure how much learning has taken place" in a school system.  Thus, comparisons over a significant time base are perhaps best measured by history books than this year's standardized test outcomes.

Let me give you an example: When it comes to learning science, it appears that there is something about how kids were raised in Yugoslavia and Hungary that produced first-class minds in recent history.  Some names from this region might include John von Neumann and George Soros.  From nearby Yugoslavia, we find the paradigm shifting giant Nicolas Tesla.

I don't know if a single book has ever been written about where geniuses went to school, or seriously studied the teaching methods, both curriculum and pedagogy of the school systems involved, but it seems to me that such a book would be highly instructive, perhaps more than a good chuck of the standardized tests that are revised often enough that I find myself losing confidence that any change in outcome is related to instruction in the classroom or in the structure of the test itself.

But if there is one place where we might see evidence of "dust"  (as in the Dust Bowl" of the 1930's) it might well be the education system and its outcomes.

---

The second aspect of Ferguson's remarks that I found interesting was the comment about education being the key to future success. That struck me because of the difficulty of knowing what's really going on with growth in the country.

Strictly speaking, we have to pause for a moment when looking at future employment and ask ourselves, how to we measure this slippery question of employment.  Do we look only at the number of dollars involved in a chosen career?  If we do, then clearly everyone on the planet should go to medical school or law school because those areas tend to have high employment rates, present many employment opportunities, and generally come with some first-rate "clubs" that when properly worked, can set up the "old boy" network for life.

I can't tell you how many Stanford graduates I've met who have managed to make the word "Stanford" come out of their mouth no later than the 10th paragraph of conversation.

On the other hand, if we look at the future employment picture from the standpoint of employment flexibility, today's headlines might infer that there is almost unlimited employment growth possible in the criminal justice system.  Therefore, a police officer with a degree in public administration, criminal justice, or accounting, would seem to be a "meal ticket" for life. Sure, there are risks associated with that career track, but look at the options for employment.  We know from our reading of the 1930's event that as unemployment went up, so did the crime rate. 

This brings me to the point that watching crime statistics is certainly another way of seeing where the economy is headed.  As the unemployment rate continues its climb, we should expect to see an increase in the number of burglaries, an increase in the number of economic crimes, although it may be partly masked by improved detection systems and an aging population base that is less likely to buy "hot goods".  Most baby boomers by now are smart enough to ask questions like "How is it you can afford to sell a $6,000 plasma screen TV from the back of your van for $250?"

Education and crime stats however, are only indicators of where the new Dust Bowl will be located.

If you remember your history, you'll recall that in the 1920's and 1930's plowed up much of the Great Plains and planted wheat, hoping to scratch out a living.  So much land was ruined in the process that more than 150,000 square miles in places like Arkansas and Oklahoma were subjected to massive dust storms and darkness at high noon due to the dust, was not uncommon.

Those dust clouds forced families to flee looking for a better life.  John Steinbeck's novel "Grapes of Wrath" is about just a flight.  And in Woody Guthrie folk songs you'll hear references to Oakies and Arkies, along with more mentions of dust than you can shake a stick at.

This notion of being displaced by events out of our control is another benchmark for spotting the Second Dust Bowl:  People pack up and move when times get bad if they think there's a better life to be had elsewhere.

We know from past experience that when people start to leave an area, there will be a collapse of real estate prices.  Although Guthrie and his contemporaries gave a lot of credence to foreclosures as being a "cause", they weren't a significant "cause" of the First Depression, in my view.  The root causes were from falling prices of grain due to over-production, the impact of automation on the family farm, a saturation of consumers, and of course the massive credit and speculation bubble..

Given all these concepts, we could probably construct a set of criteria that we could apply to specific sectors of the economy and test to see if it will be our Second Dust Bowl:

You may have other ideas on this, but for my money, the core of the Second Depression will be the huge over-development that came to the Internet, the tech sector in general, and more recently to the destruction of telecom pricing by the advent of fiber optics.

Unfortunately, it is at this point that we start to run headlong into one of the major issues that will vex future analysts of the presently developing Second Depression. 

Where in the 1920's and 1930's, there was plenty of data available about the amount of wheat that was grown, how much milk was produced, and dozens of other figures from various agriculture agencies, we don't have the kind of statistics that will allow us to go back and reconstruct and document the over production that has wrung out the dotcom world.

Moreover, the issue is one of how statistics are measured related to unemployment.  We tend to look at unemployment in geographic terms.  In other words, things are a little worse in Seattle than in Boca Raton, when we look at statistics based on location. 

However, when you consider unemployment statistics by SIC code, you can get a vastly different picture.

Look at the State of Massachusetts (OK, Commonwealth of, but let's not be picky, OK?).

We find according to State unemployment figures that employment in the SIC codes associate with electronics and electric equipment has declined quite steeply.  From a peak employment of 67,700 persons in February of 2001, employment has fallen to 59,600 persons in March of 2002.  Put another way, employment is 88% of what it was 13 months earlier, which would imply a 12% unemployment rate in just 13 months!

The huge statistical problem of we collide with is that the ripple effects of sector collapse are difficult to extract to either support or negate the supposition that the Tech Wreck is to our generation what Oakies and Arkies were in the 1930's.

We can't cross tab housing sales to this SIC, nor can we (readily) cross tab crime stats.  And beyond primary impacts, the ripple secondary and tertiary effects quickly become incalculable.  How do we "scientifically" look at Massachusetts test scores this year by parent SIC code?

The answer: We don't.

I think the point I'm trying to make this week is that the last time we experienced an economic depression of the kind of magnitude that lies before us, we had limited statistics, primarily labor force numbers, and collateral damage is being assessed even today by researched such as Professor Elders at UNC.

But unlike the Grapes of Wrath, where people were fleeing from a single location (the Dust Bowl), today's event is being marked by flight from a sector, a much more difficult notion, but one that's just as real.

In Washington State, home of such giants as Microsoft, Boeing, Amazon, and Starbucks, the unemployment rate is 6.8% (on a seasonally adjusted basis) or 7.3% (unadjusted).  Supporting the notion that the techs are dying on us is a decreasing of employment in the same electric equipment sector as Massachusetts of 13.3%.

In the early stages of a Depression, there's a lot of job-shifting that goes on.  People move from high paid jobs to less well paid positions and for a time, they get by.

Absent an economic miracle, which I frankly don't expect to see for at least a year, and then it may only be the presidential economic cycle working, we'll likely see continuing rotation out of techs, or lots of relocation of techies.  Although the numbers from that Capitalist Tool, Forbes, shows the number of layoffs going into this week was a mere 162,219, that was before more bad news later in the week.

IBM's announcement that they're laying off another 8,000 people or so is evidence of what?

Dust.

On to the charts...

Write when you get rich!

George & Elaine