Naked Capitalism: Why the US Economy Won’t Fully Recover

Tuesday, August 27, 2013 By Justin Deschamps Leave a Comment

Spread the love

Yves here. It almost seems quaint to think that someone (in reality, large swathes of the investor and orthodox economics community) thinks the US economy will someday bear a passing resemblance to its former bubble-stoked vigor. I agree wholeheartedly with one of van Onselen’s cause for concern, that of low wage growth in the US (which is probably more accurately described as an unduly high profit share of GDP), and have doubts about the other, an expected rise in the dependency ratio. As regards the latter, demographic forecasts are fraught. The US was predicted to show a decline in population due to a decline in the birth rate, in keeping with advanced economy norms. The 2000 Census showed the demographers to have been all wet, due to a combination of a modest rise in the birth rate plus immigration.

The fallacy of the dependency ratio concern is that it does not allow for adaptations in the average age of labor force entry and exit. While I know many people who retired early, some voluntarily, many not, I also know lots of people who plan on working or actually have worked past the age of 65. Similarly, with the payoff of a debt-funded college education looking dubious, we may see more young people foregoing that, with a result in the average age of entry into the workforce falling. A college education was once seen as a guarantor of a middle class lifestyle if you were also reasonably diligent and organized about finding a job. If that’s no longer the case because college costs are wildly out of whack and the middle class is going the way of the carrier pigeon, why should we expect the same proportion of young adults to go to college as now (believe me, I think this trend is a disaster, but making college so costly has meant that many students can’t afford to treat is as an exercise in self-betterment that will work out without them thinking too much about it). The discussion of demographic trends also points to a rise of McJobs replacing better-paid work, which suggests that the picture of stagnant wages has the potential to morph into declining wages if present trajectories are not reversed.

So while I have no doubt we’ll wind up at pretty much the same place, I suspect there will be some changes in workplace norms that will alleviate the impact of an aging workforce on labor force participation rates. Perversely, not having enough decent jobs is likely to prove to be the stickier problem.

Finally, I am hearing from well-placed sources that the war on drugs will be wound down (apparently as much as Wackenhut enjoys having loads of young men, mainly non-whites, in prison, the consensus in the Beltway is moving towards decriminalization of some now-controlled substances and different approaches to others, which in the next 10 to 20 years should lower the percent of working age adults in prison).

By Leith van Onselen, Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. You can follow him on Twitter at @leithvo. Cross posted from http://www.macrobusiness.com.au/2013/08/rise-of-the-bullshit-job/“>MacroBusiness

The Wall Street Journal (WSJ) has produced two excellent reports shining a light on why the US economy will continue to struggle and won’t produce a full-fledged recovery.

In the first of these reports, the WSJ looks at average real US wages, which have fallen since 2009 and are erroding the purchasing power of consumers, denting consumption expenditure:

Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation’s economic growth.
All told, Patrick Newport, an economist at IHS Global Insight, expects real wage growth of only 1% by the end of 2014. That is “good news for employers,” he said, “not-so-good news for workers.”
Consumers remain the biggest driver of the U.S. economy, but without more money coming in, it will be difficult for them to spur robust growth.

ScreenHunter_16-Aug.-27-11.49

The second report examines the ageing of the US population, which will shrink the relative size of the working-aged population, reducing potential growth of GDP and incomes in the process:

New research by two economists, Richard Burkhauser of Cornell Universityand Jeff Larrimore of Congress’s Joint Committee on Taxation, suggests things may get even worse in coming years—thanks to two basic population trends. After supporting the economy during their peak earning years, America’s Baby Boomers are starting to retire, which will mean higher numbers of lower-income older individuals. Second, the researchers argue, relatively high-earning whites are over time being replaced by minority workers, especially Hispanics, who tend to make less money.
Burkhauser and Larrimore project these two factors will reduce growth in median incomes by about 0.5% per year through 2030.
Demographic trends used to support income growth. The median household income rose about 9% between 1979 and 1989 and 13% between 1989 and 2000, the researchers note. A key driver was the increased employment and earnings of women.
But in the mid-2000s incomes slumped. Many Americans apparently took this in stride since home values were climbing significantly, boosting wealth, and credit was easy to get. To offset stagnant incomes, Americans took on more and more debt, which made the Great Recession that much worse, according to a separate paper by New York University economist Edward Wolff. As the crisis took hold, net worth plummeted. At the same time, median household income dropped about 7% from 2007 to 2010, more than the 3.5% fall seen between 2000 and 2004 and a 4% decline between 1989 and 1992.

The demographic pressures facing the US are being played-out right across the developed world (and in China). While the workforces of many Euro countries have been in relative decline for more than a decade:

ScreenHunter_17-Aug.-27-12.04

It is a relatively new phenomenon for the Anglospehere nations:

ScreenHunter_18-Aug.-27-12.06

Overall, population ageing is a key reason why growth rates in the US (and elsewhere) are likely to underwhelm in the decades ahead.

Source:

http://www.nakedcapitalism.com/2013/08/why-the-us-economy-wont-fully-recover.html

We need $2000 per month to pay our costs. Help us one time or recurring. (DONATE HERE)

To sign up for RSS updates, paste this link (https://stillnessinthestorm.com/feed/) into the search field of your preferred RSS Reader or Service (such as Feedly or gReader).

Subscribe to Stillness in the Storm Newsletter

“It is the mark of an educated mind to be able to entertain a thought without accepting it.” – Aristotle

This website is supported by readers like you.

If you find our work of value, consider making a donation.

Stillness in the Storm DISCLAIMER: All articles, videos, statements, claims, views and opinions that appear anywhere on this site, whether stated as theories or absolute facts, are always presented by Stillness in the Storm as unverified—and should be personally fact checked and discerned by you, the reader. Any opinions or statements herein presented are not necessarily promoted, endorsed, or agreed to by Stillness, those who work with Stillness, or those who read Stillness. Any belief or conclusion gleaned from content on this site is solely the responsibility of you the reader to substantiate, fact check, and no harm comes to you or those around you. And any actions taken by those who read material on this site is solely the responsibility of the acting party. You are encouraged to think carefully and do your own research. Nothing on this site is meant to be believed without question or personal appraisal.

Content Disclaimer: All content on this site marked with “source – [enter website name and url]” is not owned by Stillness in the Storm. All content on this site that is not originally written, created, or posted as original, is owned by the original content creators, who retain exclusive jurisdiction of all intellectual property rights. Any copyrighted material on this site was shared in good faith, under fair use or creative commons. Any request to remove copyrighted material will be honored, provided proof of ownership is rendered. Send takedown requests to [email protected].

What is our mission? Why do we post what we do?

Our mission here is to curate (share) articles and information that we feel is important for the evolution of consciousness. Most of that information is written or produced by other people and organizations, which means it does not represent our views or opinions as managing staff of Stillness in the Storm. Some of the content is written by one of our writers and is clearly marked accordingly. Just because we share a CNN story that speaks badly about the President doesn’t mean we’re promoting anti-POTUS views. We’re reporting on the fact as it was reported, and that this event is important for us to know so we can better contend with the challenges of gaining freedom and prosperity. Similarly, just because we share a pro/anti-[insert issue or topic] content, such as a pro-second amendment piece or an anti-military video doesn’t mean we endorse what is said. Again, information is shared on this site for the purpose of evolving consciousness. In our opinion, consciousness evolves through the process of accumulating knowledge of the truth and contemplating that knowledge to distill wisdom and improve life by discovering and incorporating holistic values. Thus, sharing information from many different sources, with many different perspectives is the best way to maximize evolution. What’s more, the mastery of mind and discernment doesn’t occur in a vacuum, it is much like the immune system, it needs regular exposure to new things to stay healthy and strong. If you have any questions as to our mission or methods please reach out to us at [email protected].

Leave a Reply Cancel reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.