Monday, May 11, 2015

What Have We Learned During the Obama Years About The US Economy?

'You see, Sherman, the economic policies of former
President Jimmy Carter were an unmitigated disaster.
You Millennials do not want to repeat them.'
We talked recently with the bright young man who is going to work for the Federal Reserve this summer as a followup to our last post about the uncharted waters we are now navigating in the post-2008 Crash/2009 Great Recession years under President Obama.

The main thing we were glad about was that we did not interpret anything he said to us in an egregiously wrong manner. He said he has been reading economics books since the 7th grade because he 'loves this stuff' and apparently the folks at the Fed felt like he was good enough to come help them this summer.

We'll leave aside the question of what kind of 13-year old loves reading dry, dusty tomes about the 'dismal science' and just leave it at that. We are glad there are people such as him and Ben Bernanke who do 'love this stuff' so they can figure out how to get out of messes such as the one we face today.

During the course of the conversation, it became apparent that the Fed has been scratching their heads at a lot of things, not just the expanded balance sheet.

Apparently, the past 6 years has stood a lot of economic assumptions economists and policy-makers have held dear and sacrosanct over decades straight up on their heads. Meaning the past 6 years have pretty much disproved almost all that was taken for granted before 2008.

Such as:

  1. Low interest rates will lead to much higher economic activity in both the personal and commercial sector. (Not. Interest rates are effectively near or at zero and we have not had the economic boom most economists otherwise would have expected)
  2. Low inflation rates will lead to much high economic activity in both the personal and commercial sector. (Not. Inflation rates are effectively at or near zero real rates of inflation and we have not had the economic boom most economists otherwise would have expected)
  3. High budget deficits will 'crowd-out' other borrowing and lead to higher interest rates across-the-board (Apparently not true as well. Maybe there is not enough borrowing going on in the private sector for interest rates to be pushed up by the government competing for funds nowadays, who knows?)
Every one of these shibboleths were held as the gospel truth by conservatives in the 1980's through 2008. High interest rates and inflation rates during the Carter years through Reagan's inaugural year in 1981 were held responsible for the dismal job market and economic recession that, at the time, was the worst since the Great Depression.

'Fiscal insanity' in the form of 'enormous budget deficits" ($79 billion in 1981) and a 'huge' national debt ($789 billion held by the public in 1981) was leading the United States into 'financial ruin'. Which led to the landslide election of Ronald Reagan over President Jimmy Carter with the highest number of electoral votes ever by a non-incumbent presidential candidate (489-49)

If there was a time machine, and we could go back and tell President Reagan and any other candidate who ran for office in 1980 that our current budget deficits would 'only' be $486 billion and our national debt would be almost $14 trillion held by the public (over $18 trillion when intra-government debt is considered), their heads might literally explode.

There is something else going on during the Obama years and it could be as simple as the following things:
  1. The labor participation rate has plummeted to its lowest level since the Carter years, 1980, meaning that fewer adults of working age who can work are choosing to work. Many are Boomers who entered the workforce in the 70's who are now retiring in massive numbers between 2010-2022. However, many are older workers who were laid off during the Great Recession and have not been able to find meaningful work since then so they take early retirement or go on disability in amazingly high numbers relative to past experience.
  2. Many businesses are being very cautious about how many people they do hire in the wake of Obamacare and the myriad of new regulations that have spewed forth on the America workplace since President Obama got elected. A recent report suggests that the Dodd-Frank banking legislation alone will cost the US economy up to $1 trillion in lost economic output in the next decade.
Both of these could help explain the sluggish job market where even a number announced last week for new jobs created in the month of April, 223,000, was considered sub-par for what is needed to get everyone who wants to work full-time back to work.

The stunning thing about the lack of robust job growth during the Obama years versus the Reagan years is the simple fact that the civilian work force is about 50% higher today than it was in 1980. It stands to reason that with over 50 million more people in the age groups who to want to work, the job creation under President Obama in a recovery would be at least the 300,000 jobs per month that were created during the recovery period under President Reagan in his first term from 1981-1985. (See Bureau of Labor Statistics)

Yet, it has not been even close to those numbers during the Reagan years. How can a population with 50% more people in it who want to work in 2015 not create more jobs per month than were created in 1982, 1983 and 1984 at the very minimum?

The next presidential election is going to be important (they all are) but especially important for the young college graduates who entered the dismal job market in 2009-2012, millions of whom are still trying to find that meaningful job for them on a full-time basis that will make full use of their interests and talents.

Many Millennials have already lost up to 6 years of full pay/salaries in their careers, 6 years where they could be putting away savings in investment vehicles that will compound over time in a far more impactful manner than any amount of money they can sock away in their 50's, for example.

So does that make who becomes the next President very important to your future, Millennials? Ask anyone you know who started working in the Reagan years if they wished that there could have been 'four more years' of President Jimmy Carter and his failed policies.

They'll tell you right away.

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