Longtime Democrat court intellectual and former Secretary of Labor Robert B. Reich sees a macroeconomy on the edge of recession.
I expect the U.S. economy to sputter in 2016. That’s because the economy faces a deep structural problem: not enough demand for all the goods and services it’s capable of producing.

American consumers account for almost 70 percent of economic activity, but they won’t have enough purchasing power in 2016 to keep the economy going on more than two cylinders. Blame widening inequality.
Nowhere in his note, however, do we see any mention of a non-stimulus stimulus that was too hemmed in with constraints and favors to special interests, or any recognition of the way the vulgar culture is hostile to human capital formation.
The median wage of young people, even those with college degrees, is also dropping, adjusted for inflation. That means a continued slowdown in the rate of family formation—more young people living at home and deferring marriage and children – and less demand for goods and services.

At the same time, the labor participation rate—the percentage of Americans of working age who have jobs—remains near a 40-year low.

The giant boomer generation won’t and can’t take up the slack. Boomers haven’t saved nearly enough for retirement, so they’re being forced to cut back expenditures.
Perhaps the baby boomers as a cohort have relatively small savings accounts because they expected "Social" "Security" to be there for them.  There has been research over the years on the effect of those payroll taxes on future capital formation.  I don't recall any study suggesting it boosted capital formation: you can bet such work would get plenty of play in the palace guard media.  On the other hand, what happens any time a public official proposes that future workers get the opportunity to invest in private retirement accounts.

Now, if the labor force participation rate remains low for reasons other than retirements by baby boomers (you'd expect to see it rising from about 2009 onward because 2009 - 65 = 1944) there has to be something else at work.  Something like Eurosclerosis brought to the United States.
Exports won’t make up for this deficiency in demand. To the contrary, Europe remains in or close to recession, China’s growth is slowing dramatically, Japan is still on its back, and most developing countries are in the doldrums.

Business investment won’t save the day, either. Without enough customers, businesses won’t step up investment. Add in uncertainties about the future—including who will become president, the makeup of the next Congress, the Middle East, and even the possibilities of domestic terrorism—and I wouldn’t be surprised if business investment declined in 2016.
We have much to look forward to.

1 comment:

Dave Tufte said...

Just an opinion from my area: I don't think labor force participation (with business cycles smoothed away) will bottom out until 2020 or 2022.