The American economy has been stagnating since the end of the 20th century and has grown especially slowly (2% per year on average) since the end of the Great Recession in June 2009. This slow growth has various unpleasant causes and consequences:
Men without Work. The political economist, Nicholas Eberstadt, has pointed out that the work rate for prime working age (25 – 54) men has dropped from 94.1% in 1948 to 84.3% in 2015. This translates into 9.5 million prime working age men who are not currently in the workforce.
Mortality Crisis. The economists, Anne Case and Angus Deaton, show that the mortality rate for working class whites in America, aged 45 – 54, has doubled since 1990, and that these new deaths are largely “deaths of despair.”
Complacency. The economist, Tyler Cowen, makes a strong case that too many Americans are so comfortable in their own worlds that they have become complacent about the structural problems facing American society.
Segregation by Class. The political scientist Charles Murray has described a separation of American society into a new Upper Class (20% of all Americans) and a new Lower Class (30% of all Americans) with the Upper Class enjoying the four deepest satisfactions of life: family, vocation, community and faith while the Lower Class is largely left out.
What can be done to improve the fortunes of America’s blue-collar workers? There are actually a lot of things:
Greatly improve vocational training for the millions of skilled jobs for which there aren’t enough qualified applicants.
Revitalize America’s job-generating capacities. More businesses have closed than opened each year since the Financial Crisis.
Reverse the perverse disincentives against male work embedded in our social welfare systems. The Earned Income Tax Credit should be extended to single adults without dependents. Eligibility for disability income should be tightened considerably.
Come to terms with the enormous challenge of bringing convicts and felons back into society. The huge increase in incarceration rates in recent years has coincided with a dramatic drop in rates for both violent crime and property crime.
Conclusion. It’s a scandal that so many blue-collar workers are struggling to live a fulfilling life. There are many different actions government can take to improve their lot.
I’ve had several posts recently elaborating on the theme of Tyler Cowen’s new book, “The Complacent Class,” that too many Americans have become complacent about the comfortable life which they now enjoy.
Let’s take a different approach today and consider some of the problems which large numbers of Americans really are concerned about:
The election of Donald Trump as President. Granted, he just barely squeaked through in the Electoral College with 46% of the popular vote. He makes outlandish statements which have little, if any, basis in fact. But he has appointed many capable cabinet secretaries and other assistants and he listens to them. He adjusts his policies when struck down by the courts. In my opinion he has suffered no major mistakes so far.
Increasing income inequality in American society. This is a problem but, as Nicholas Eberstadt has pointed out, the real problem is income insecurity for millions of blue-collar workers. The best solution here is faster economic growth which the Trump Administration and the Republican Congress hope to achieve through tax reform and deregulation.
Global Warming. More and more Americans understand the increasing severity of this problem. There is a fair chance that a revenue neutral carbon tax will be implemented in the near future. This would be a big boost toward controlling carbon emissions in the U.S. and would provide more clout in establishing worldwide emission standards as well.
A chaotic world. Terrorism will not go away but at least ISIS will soon be defeated as an independent state. Other worldwide threats such as China, Russia and Iran can be managed with a strong U.S. military force undergirded by a strong U.S. economy.
Conclusion. The above problems are considered by large numbers of people to be serious and are therefore being addressed in one way or another. But our biggest problem of all, massive debt, is off the radar for much of the political class, including President Trump. It needs to be taken far more seriously than it is before we have another, and much more severe, financial crisis.
Donald Trump was elected President because of strong support from blue-collar workers in the battleground states such as Wisconsin, Michigan, Pennsylvania and Ohio. The American Enterprise Institute scholar, Nicholas Eberstadt, has explained clearly why this happened. It is largely a result of a slowdown in economic growth in recent years which has hit blue-collar workers especially hard.
Can this recent slow growth trend be reversed? The economist, Edward Lazear, has a positive answer to this question in today’s Wall Street Journal. According to Mr. Lazear:
3% growth is the long term norm. The annual growth rate in the 30 years preceding the 2007 recession was 3.1%. It has averaged just 2% annually since the end of the recession in June 2009.
GDP growth is the sum of two components: growth in productivity and in labor hours. Historically productivity has grown at a rate of about 2% per year and labor at about 1%.
Nonfarm labor productivity rose by a total of 7% between 2009 and 2016 which amounts to only 1% per year. It rose 18% between 2001 and 2008 or 2.3% per year.
Both President Trump and the House Republicans advocate business expensing (immediate tax write-offs for new investment) as an important part of tax reform. It has been estimated that just this one change in policy will induce an increase in GDP of from 5% to 9% over ten years. This would raise GDP from the current 2% annual growth to between 2.5% and 2.9% annually.
The Social Security Administration predicts no increase in the U.S. population age 20 to age 64 between 2020 and 2030.
But note that the labor participation rate fell during the recession by 2% among Americans between ages 25 and 54, the prime working age. Two drivers of this loss of workers are: 1) a large increase of the disability rolls and 2) the fact that the ACA will likely reduce the number of hours worked by about 2% between 2017 and 2024.
Eliminating burdensome business regulations will also help significantly.
Conclusion. There is clearly much that can be done to speed up both labor productivity and the number of hours worked by Americans. President Trump and the Republican Congress have a good shot at increasing economic growth to 3% annually.
Everyone is trying to figure out what Donald Trump is all about and I am no exception. My last two posts, here and here, compare his positives and negatives and what he is doing well so far and also not so well.
The American Enterprise Institute’s political economist, Nicholas Eberstadt, has an article in the current issue of Commentary, “Our Miserable 21st Century,” describing very cogently the economic and social conditions which have led to the election of Donald Trump as President of the United States. Says Mr. Eberstadt:
The year 2000 marks a grim historical milestone for our nation. The warning lights have been flashing for 15 years and now these signals are impossible to ignore.
First of all, the estimated net worth of American households has more than doubled between 2000 and 2016, from $44 trillion to $88 trillion (see below).
At the same time the recovery from the crash of 2008 has been singularly slow and weak. By late 2016 per capita output was just 4% higher than in late 2007. In effect the American economy has suffered something close to a lost decade (see below).
Then there is the employment situation. Between 2000 and 2016 the work rate for Americans aged 20 and older declined by 4% from 66% to 62%. To put this in different words: if our nation’s work rate today were back up to its start-of-the-century highs, 10 million more Americans would currently have paying jobs (see below).
Half of all prime working-age male labor-force dropouts (totaling 7 million men) take opioid medication on a daily basis, typically paid for by Medicaid. In fact, 53% of prime-age males not in the labor force are enrolled in Medicaid.
Of the entire un-working prime-age male Anglo population in 2013, 57% were collecting disability benefits.
Currently 17 million men in America have a felony conviction somewhere in there past. This amounts to one of every eight adult males in the country. It is difficult for felons to find work and therefore to become productive members of society.
Concludes Mr. Eberstadt, “The abstraction of inequality doesn’t matter a lot to ordinary Americans. The reality of economic insecurity does. The Great American Escalator is broken – and it badly needs to be fixed. With the election of 2016, Americans within the bubble (of affluence) finally learned that the 21st century has gotten off to a very bad start in America. Welcome to the reality. We have a lot of work to do together to turn this around.”
Our economy is doing a little better recently but not nearly as good as it could be. In my last post, “Men without Work,” I present Nicholas Eberstadt’s data that a significant part of the problem is the very large number (9.5 million) of prime working age (25 – 54) men who are unemployed and not looking for work.
Statistically, such men are likely to be un-workers if 1) they have no more than a high school diploma, 2) are unmarried and without dependent children, 3) are not immigrants and 4) are African American.
Two other relevant factors are 1) the huge increase in employment for prime working age women, from 34% in 1948 to 70% in 2015 and 2) the very high male arrest and incarceration rates for blacks and those without a high school diploma.
Obviously, it is highly detrimental to society to have such a large number of men who are idle during their prime working years.
Here are several ways to address this problem:
Revitalize America’s job-generating capacities. More businesses have closed than opened in each year since the 2008 financial crisis. Furthermore, the growing regulatory burden is not a recipe for encouraging entrepreneurship.
Reverse the perverse disincentives against male work embedded in our social welfare systems. The Earned Income Tax Credits should be extended to single adults without dependents. Eligibility for disability income should be tightened considerably.
Come to terms with the enormous challenge of bringing convicts and felons back into our economy and society. The huge increase in incarceration rates in recent years has coincided with a dramatic drop in rates for both violent crime and property crime.
Conclusion. One good way to speed up economic growth is to put more unemployed prime working age men back to work. There are several very concrete steps which can be taken to do this.
As most of my readers know (but I’ll remind you anyway!), I have two major themes on this blog which are:
Slow U.S. Economic Growth, averaging just 2% per year since the end of the Great Recession in June 2009.
Massive Debt Accumulation, now 75% (for the public debt, on which we pay interest) of GDP, the highest since right after the end of WWII.
My last post, “The Economy Is Improving But Not Enough” points out that even the latest very good news, that median household incomes were up by 5.2% in 2015, doesn’t get us back to where we were before the financial crisis hit.
A new book, “Men without Work,” by Nicholas Eberstadt sheds much light on why our economy is growing so slowly. Says Mr. Eberstadt:
Between 1948 and 2015, the work rate for U.S. men age twenty and older fell from 85.8% to 68.2%. Even for prime working age men, age 25 – age 54, the work rate fell from 94.1% in 1948 to 84.3% in 2015.
This translates into 9.5 million prime working age men who are not in the workforce, even after correcting for the million or so of these men who are in school or training.
Statistically, men age 25 – 54 are more likely to be an un-worker in 2015 if 1) they had no more than a high school diploma, 2) were unmarried and without dependent children, 3) were not an immigrant and 4) were African American.
Looking for possible explanations for so many unemployed men, it is noteworthy that the work rate for prime working age women has increased from 34% in 1948 to 70% in 2015.
One reason for so many unemployed men is the high arrest rate and incarceration rate for working age men, especially blacks and those without a high school education. In fact, Incarceration rates are way up even though violent crime is declining.
Conclusion. It seems obvious that having such a large, and growing, number of prime working age men out of the work force is a very serious problem. Besides slowing down economic growth, they are losing their best opportunity for personal fulfillment. What should be done to turn around this deplorable situation? Stay tuned!
GDP growth has averaged just 2% since the end of the Great Recession in May 2009.
The Federal Reserve has taken unprecedented steps to keep interest rates low in the meantime but these efforts aren’t boosting GDP and, in addition, have quite harmful side effects.
Wages are growing and consumers are spending money but business investment is shrinking and productivity growth is slowing.
This means that the problem is supply side rather than demand side, contrary to what many economists are saying.
At least part of the problem is a lack of skilled workers. Two articles in today’s Wall Street Journal, here and here point out that:
America is now home to a vast army of jobless men, seven million of them age 25 to 54, who are no longer even looking for work. This is 15.6% of the traditional prime of working life.
Openings for manufacturing jobs this year have averaged 353,000 per month up from 311,000 per month in 2015 and 121,000 per month in 2009.
According to the Manufacturing Institute, 8 in 10 manufacturing executives say that the growing skills gap will affect their ability to keep up with customer demand.
As shown in the above chart, at the present time there are only an average of two unemployed manufacturing workers for each job opening, way down from the level in 2010.
Conclusion. Speeding up economic growth requires new business investment in order to increase worker productivity. But a lack of skilled and trained workers will greatly hamper this effort. The solution here is better vocational and career training in high schools and at community colleges.