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Monday, February 8, 2016

Macro Corner 2016...I just penned this piece today for an alumni news letter. Regime change begins at home.

Macro Corner 2016

Hello out there all you friends of the economics department, time for another sit down with the old tale spinner. As the 13th of this month brings my 56th birthday, the “old” part fits more than ever. I know the president said it is “pedaling fiction” but somehow I just can’t seem to get my arms around singing the praises of this economy and how it has performed over the last few years. Last month’s jobs report of 151,000 is pathetic and is only matched by last quarter’s growth of .7%. These are the kind of numbers that has an economy stumbling sideways worse than some drunk ECU frat boy tripping on the curb trying to get into the football stadium. But there are other numbers that will perhaps “move you from your comfort zone” as the president has said about the objective of social activism.

Let’s start with the labor force participation rate. This used to be a procyclical macro variable, going up in expansions and down in recessions. Well, not any more. This variable shows the new age we live in, where 5% of the workforce can vanish and no one says anything except we are at full employment. Half of the decline is from baby boomers leaving the workforce to the tune of 10,000 people a day. But the other half, as Chicago economist Casey Mulligan showed in his book The Redistribution Recession, are people who have exited the labor force because of the increase in the value of transfer payments. Make it more attractive to not be in the labor force and what do you get? Less labor force participation and a return to 1978. Who knew?

But worse than this, in 1960 1 in 20 prime-aged adult males between ages 25-54 (note where I am now classified) were not in the labor force (5%). Today it is approaching 1 in 5. Think of that for a moment…almost 20% of the young prime-aged dudes of this country are not participating in gainful employment. What are they doing then? Growing up in Chicago, my father God rest his soul would call guys like these “bums”.  I won’t go there, but if a young man does not have a job that leads to a career, that then leads to responsibility and personal growth, then what is he doing? Painting fences and helping old ladies across the street? I sort of doubt it.

But it gets even better, or worse I should say. Just 15 short years ago 62% of the young folks between the ages of 20-24 were in the labor force and working. Today it is but a mere 42%. The way I always thought it worked was you got educated, went to work, got a career, found a life partner, bought a home and built a life for yourself and your significant other. Now that does not seem to be the case anymore. The opportunities for people starting out have dried up significantly. A two percent growth economy, and an economy that has not seen three percent annual growth since 2005, does not produce the dynamic qualities needed to create jobs enough for our new graduates to flourish and begin their employment paths like we did. The opportunities are not there. You can fill in the blank as to why. But we are failing our young people and that is the biggest disappointment of all.

So if your son or daughter asks to move back home after graduation, be kind and set some rules. But under no circumstances should you cash in your 401K to build an extension on the home for Junior and his girlfriend/boyfriend. Just say no.

And for all the young people who are for Bernie Sanders, I’ll repeat what H.L. Mencken once famously said…”Democracy is the theory that the common man knows exactly what he wants…and deserves to get it good and hard.” When Sanders is elected and all those Karl Marx wannabes are in the unemployment line, maybe then they will really feel the Bern.   

Remember regime change begins at home. Hope to see you at the golf tournament.


Dr. Parker