California's Employment Development Department released its latest numbers Friday, showing sustained job losses in California for the third straight month.  California employers cut over 33,000 jobs last month, nudging the state's unemployment rate upward from 12.3% to 12.4%.

The Los Angeles Times reports that multiple sectors were hit by the job losses, including "construction, manufacturing, financial services, lesiure and hospitality, trade, transportation and utilities."  Perhaps more interestingly, government jobs took the worst hit, with over 9,200 lost jobs in August, most of which were temporary census positions.

Despite the insistence of many pundits, analysts, and economists that both California and the entire country are in the process of a slow recovery, it may be time to let go of that notion and acknowledge that both the state and country are facing a prolonged economic downturn.  As Albert Einstein once said, "No problem can be solved at the same level of consciousness that created it." If we expect our economy to recover, we need to start rethinking our entire understanding of it.

To begin with, it could be helpful to discard employment numbers as a metric for gauging the health of an economy. Employment numbers don't show how our economy is doing, they show how our economy did.  Job creation is merely a secondary effect of wealth creation, and inversely, job losses are a secondary effect of wealth destruction (particularly the destruction of capital).

The U.S. could easily have 0% unemployment tomorrow morning. The Federal government could simply draft everyone without a job into the military or some civil service corps, and pay them to move piles of rocks, or alternatively dig and fill up holes.  While that would "fix" the employment situation, it would not actually create any real, new value. Our unemployment rate would be 0%, but our economy would not be a penny more prosperous. All those workers would get paid by taxes on wealth that already exists in the economy.

And by draining that wealth and redirecting it from more productive uses to less productive uses, we would have actually made our country less prosperous, and destroyed the capital that could have gone to creating actual, productive, sustainable jobs.  That's the problem with government make-work jobs like the census positions or the jobs "created" by stimulus measures- they are often aimed at improving the employment situation, not at improving productivity.

But, if we adopt policies aimed at increasing economic productivity (like spending less and allowing more money to remain in the productive capital markets instead of siphoning it off for the government's coffers), we'll get the results we want, such as greater wealth, higher standards of living, and more jobs.