Saturday, May 5, 2012

Obama 2012: Growing the dependent class

Over at Zerohedge, Tyler Durden provides a couple of graphs that tell us all we really need to know about the economy and where the current administration is taking it. The first one shows the labor force participation rate--meaning the number of people with jobs or seeking jobs--from 1980 to the present:

(courtesy of Zerohedge.com)

The second graph--which I'll not reproduce here--shows the growth of the number of people not in the labor force from December, 2007 to January of 2012. Numerically, that would be a growth from a little over 79 million at the end of 2007 to over 88 million at present, an increase of around 11%. In contrast, the total population of the U.S. increased by around 3% for the same period.
Getting back to the first graph, it clearly indicates this huge increase of people moving out of the labor force, as the labor force participation rate has essentially gone off a cliff under the Obama administration and is now at a thirty year low of 64.3%. Note how--in the graph--the rate began climbing during the Reagan years, eventually reaching 66%. Under Clinton and Bush (the second one), it actually pushed past 67%, before dropping slightly after 9-11. Yet, it stayed at or near 66%, right up until the financial and mortgage crises hit. 

One might say a sharp drop at that point was entirely predictable, but remember this is the participation rate, not the unemployment rate. It includes job-seekers, as well as the unemployed. Did huge chunks of the population simply "hang it up" after the crises hit?

Part of the answer is the politically-driven manipulation of unemployment numbers by the Bureau of Labor Statistics--which I have discussed before, with more help form Durden--in order to keep the unemployment rate lower than it really should be. This is accomplished by moving people out of the labor force, thus creating a lower number of job-seekers (whether or not all of these people really have given up looking for work is inconsequential).

Ezra Klein would like us to believe that another part--indeed, the largest part--of the answer is demographics: the increased numbers of retiring baby-boomers (something we've been hearing about for decades). Indeed, Klein cites studies that argue precisely this:
But since 2000, the labor force rate has been steadily declining as the baby-boom generation has been retiring. Because of this, the Federal Reserve Bank of Chicago expects the labor force participation rate to be lower in 2020 than it is today, regardless of how well the economy does. 
In a March report titled “Dispelling an Urban Legend,” Dean Maki, an economist at Barclays Capital, found that demographics accounted for a majority of the drop in the participation rate since 2002.
To be sure, this may account for some of the drop off, particularly in the latter part of the Clinton years, where "early retirement" actually picked up, thanks to the booming stock market. But the crises in the financial and mortgage industries--if we recall--wiped out a great deal of invested wealth, thus many people had to hold off retiring. Some--who had already retired--had to return to work. Klein forgets all of this, as he seeks to explain away the drop in the participation numbers under Obama's leadership.

The real kicker, the real issue that is driving the changes--apart from BLS manipulation--is ideological: the idea that there's nothing wrong with a large dependent class, that higher unemployment rates---reflecting a near-permanent class of unemployed--are just not a problem. To that end, we have seen the Administration extend unemployment insurance benefits and call for the same to be extended again, and again, and again. The Stimulus Bill--aside from all of it's "stimulus" spending--included provisions to increase the Food Stamp program (now called SNAP), along with other increases in entitlement spending.

The question is, will any of these measures--once touted as temporary--actually be undone? For in total, they are growth-killers. The continued extension of unemployment insurance benefits, in particular, can be shown to have one principle effect: a tendency to decrease employment (increase unemployment). And the end-game is a new normal for unemployment--in the 10% range--that is a standard feature of true welfare states.

This is the "remaking" of U.S. society currently underway, what we have to look forward to in the near future if we--as a nation--remain on our current path.

Cheers, all.

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