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Spring is Coming!

In the heat of the summer start to the Presidential campaign, it’s hard to remember that we’re really still in Winter. That’s in economic terms, as the cycles of the seasons last for years rather than a few months. There’s a good reason people are as angry as they are. This Winter has been long and brutal.

Then again, as Barataria has pointed out before, things are very much warming up. Employment is up like the first tulips of Spring and most of the signs are very positive. But it doesn’t feel that way to many people. As sure as the arrival of Spring often comes with a few storms it seems darker before it all clears up.

Spring is coming. If you pause for a moment and reflect you can feel it. But that doesn’t mean it’s time to just sit around and wait. If you ask any gardener or farmer, Spring is the season with the most work. To get it done, there is no doubt that we are stronger together – that many hands make light work. More importantly, what we harvest is what we plant now. There’s a lot to do, but plenty of reasons to do it joyfully.

The future is theirs. Let's make it bright!

The future is theirs. Let’s make it bright!

Barataria has consistently taken the position that in economic terms we have been in something like a Depression since the year 2000. We’ve labeled it the “Managed Depression” because the powers that be have done their level best to not repeat the mistakes of the “Great Depression” of 1929-1947. Interest rates were dropped, government deficits run up, and every method was made to “prime the pump” and get things moving again.

It was only partially successful. A drop in demand, a key characteristic of an economy restructuring through a Depression, cannot be solved purely by monetary policy – making money cheap enough to borrow freely. Mostly, we inflated a terrible bubble that finally popped in 2007-2008.

This was discussed at length in the first installment of “People’s Economics”, a series of talks I gave at Sidhe Brewery last December. You can see this discussion, “The Long View”, below:

Nikolai Kondratieff, the Father of modern business cycle theory - and co-architect of Lenin's first 5-Year Plan

Nikolai Kondratieff, the Father of modern business cycle theory – and co-architect of Lenin’s first 5-Year Plan

Economies runs in cycles for reasons not well understood. Nikolai Kondratieff, a Russian communist economist, first understood what we now accept as “business cycles” back in the 1920s. Stalin sent him to the Gulag for this, where he died anonymously. His work lives on, however, dividing the cycles into bear and bull markets described as “secular” – lasting long enough to seem permanent. Kondratieff divided them into “seasons” which we see last 17-18 years now . The Postwar period started with the busy Spring of 1947-1965, turning down through the lazy summer of 1965-1983, rising in good times from 1983-2000, and finally freezing off in the Winter of 2000-2017.

The Postwar period is over. The new technologies of information, automation, and cheap shipping drove the collapse in demand that created Winter, but are finally being absorbed. A new economy is arriving based on these technologies right on schedule.

Spring is coming!

Try anything. It's bad out there.

Try anything. It’s bad out there.

How can we say that? Aren’t workers’ salaries down? Isn’t unemployment still a terrible problem? The short answer is that no, things are indeed turning around. A lot has to do with the retirement of the Baby Boomers, born in great numbers from 1947-1965 in the last Spring. The peak years for births were 1952-1958, and they are turning 65 next year. As they retire, there will be fewer people entering the workforce.

A lot has been made of the declining workforce participation rate, the percent of people over 16 years who are working. It’s now now at 63%, down from a peak of 66% in 2000. But it’s important to note that in that last Spring, before 1965, it was never higher than 60%. The Bureau of Labor Statistics (BLS) predicted in 2013 it will keep dropping as Boomers retire – and so far, it’s right on schedule:

The BLS projection for Labor Force Participation.

The BLS projection for Labor Force Participation.

The jobs are there!

The jobs are there!

This is a good thing for the simple reason that there is considerable evidence that there is only so much paid work to go around. With increased automation that is especially true, which is why economic output continues to rise even as workers have a hard time finding a job. By supply and demand, more workers chasing fewer jobs means higher wages. Fewer workers is mainly positive.

But who will pay for the retirees? A rising economy surely helps, but with the United States attracting investment from around the world long term bond rates are at absolute historic lows, never seen before. Like it or not, our economy is going to be more “socialized” – but we have the capacity to pay for it.

But isn’t job growth slowing? Yes, it is – but with fewer people entering the workforce, we have some slack. Even at the lower rate of only 170,000 jobs per month gained, as we have seen recently, job growth is outpacing the 90,000 Millenials coming of age and looking for work. Unemployment by the broadest measure, U6, which counts “disaffected workers” and even those who want more hours, is dropping steadily:

Total Unemployment (U6) since 2000. Data from the St Louis Federal Reserve.

Total Unemployment (U6) since 2000. Data from the St Louis Federal Reserve.

Even at the lowest rate of job growth seen recently, we will be at the 2000 record level of employment, essentially full employment, in 4 years. If you assume 210,000 jobs created per month, the average over the last year, we’ll hit that in 3 years. And we’ll hit the 2006 level in just 18 months:

Monthly job growth since 2008. Data from the St Louis Federal Reserve.

Monthly job growth since 2012.   Data from the St Louis Federal Reserve.

Spring is indeed coming. We will feel it in 2017, maybe early 2018. But it is coming.

This isn’t the last of the “buts” that people will ask, of course. But aren’t wages stagnant? The short answer is that, no, with the rise in employment wages are now higher in real (inflation adjusted) terms than they have ever been. Look at this chart of the median weekly take-home pay in 2016 dollars (that’s the math done on the numbers):

Weekly earnings by workers, adjusted to 2016 dollars. Data from the St Louis Federal Reserve.

Weekly earnings by workers, adjusted to 2016 dollars. Data from the St Louis Federal Reserve.

It shows that a median worker is taking home $828 per week, a new record. Yes, this did spike when so many were being laid off, which is to say that the lowest paid, mostly unskilled, were the first ones let go. That’s the economic transformation led by increased automation and information. But workers are climbing back strongly. We can see it in the total amount paid in wages and salaries, also adjusted to 2016 dollars to take out inflation:

Total compensation of all workers, billions of 2016 dollars (adjusted). Data from the St Louis Federal Reserve.

Total compensation of all workers, billions of 2016 dollars (adjusted). Data from the St Louis Federal Reserve.

From the low point in 2010 of $6.8 trillion we’ve risen to $8.1 trillion in total wages. That’s $1.3 trillion going out into the world, a net growth of 5% of the economy. Since 2000 we’ve seen a rise of $1.8 trillion, or 12% of the economy.

Who will replace him when he's ready to rest?

Who will replace him when he’s ready to rest?

Fewer available workers is putting upward pressure on wages. This will only continue to get better as Boomers retire, too. Full employment is at hand and wages will continue to rise – as long as workers have the right skills for the jobs being created.

That’s not to say that everything is perfect, of course. Years of stagnation in government have left our systems, regulations, rules, laws, and incentives tied primarily to the Postwar economy that has already died. Major reform is needed and solid attention paid to a genuinely pro-worker progressive agenda which embraces the changes crystallizing around us.

Strong capital investment today looks like a net negative on Wall Street. But the benefits come later.

Strong capital investment today looks like a net negative on Wall Street. But the benefits come later.

We don’t need a dictator telling us what to do, we need to work together to make this new economy, this new society real and relevant. We are stronger together because the work that comes with Spring is heavy. Social change must come to absorb this economic change and provide opportunity for all, growing together rather than fighting for a fixed share of a stagnant pie.

What we plant now is what we will harvest for the next decades, the next seasons of this cycle. There is a lot of work to be done – work for all of us.

Spring is indeed coming. It may not feel like it all the time, but we can see it. The best years of the United States are yet to come. We have only to accept it, roll up our sleeves, and stand side by side getting the gradually warming soil ready for the crops we lovingly plant together.

This is not a time to look backwards to an economy or the other social arrangements that have already fallen apart. That’s the Winter, and it sure was hard. It’s time to step into the sun and put heart and arm and brain to work making the next period of American history the greatest period yet.

10 thoughts on “Spring is Coming!

    • Time will tell. But we have been moving this direction, steadily, for six years now. The easiest call to make is “Trends will continue”. There is nothing about this call that is “out there”.

  1. From what I saw last night the “shining city on the hill” is now yours. Best of luck with it. I also hope you are right.

  2. Trump is so wrong, on everything. I agree spring is coming, we can see it every day. Its not like it happens all at once, it is slow but we can see it. I have no doubt that things are better I see it every day with my clients. Spring is coming! It’s already here if you look around and don’t believe the media.

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