How will we know when the economy is turning the corner towards real growth? Everyone has their own answer, but Fed Chair Janet Yellen told us last March what she has on her “dashboard”. As the most powerful person in the financial world, and probably the whole world, her opinion counts more than most. With the arrival of another piece of data on where we stand right now in the second quarter of 2014 (2Q14), it’s time to check in on how we’re all doin’.
What we see is that we’re making some substantial progress, but we still have an awfully long way to go before we can say we’re close to the last time everyone felt remotely flush, which is before the arrival of what Barataria calls a “Managed Depression” at the end of year 2000.
There’s a persistent lie making its way through popular media- and often twisted through social media. Like any good lie it starts with a kernel of truth but gradually becomes a clear and open lie.
The truth – the labor force participation rate is at a 40 year low, down to 63% from a high over 67%.
The lie – that this is the result of people giving up looking for work, a sign that the “recovery” is weak (which can be blamed on President Obama).
We’ve discussed this before, but it’s important to confront the lie as clearly as possible. Yes, the labor force is shrinking – but this has been due to retirement of Baby Boomers for the last two year. And yes, the trend will continue. More importantly, this is an opportunity that will help us when the dust finally settles on the working careers of the Baby Boom.
In his inaugural speech, New York Mayor Bill de Blasio returned constantly to the theme of “A Tale of Two Cities”. New York is big enough to be both of them at once – one a poor city where people barely get by and another that is wealthy beyond the imagination of most people. But it isn’t just his city that de Blasio wants to fix. “This inequality problem bedevils the entire country,” he intoned. “But it is not just a moral outrage, it is a horrible constraint on economic growth and on giving people the security they need to tackle problems.”
So starts 2014, the year when inequality is certain to be the big social, political, and economic issue. That is a given because after many years of intellectual stagnation the Democrats have a popular issue that they can run with. Where did it come from? A lot of credit has to go to a short video published in November 2012 that still lights up social media. And the reaction to it shows how far we have to go in order to tackle the problems of inequality.
After all, it’s not a matter of policy – inequality is a feature of the system we have.
Income inequality is one of the biggest barriers to sustained growth today. You can’t have a consumer economy without income reasonably well distributed, and such an economy is going to have more sustained, reliable growth. But as we’ve shown before, income inequality has grown since 1968, threatening long term growth.
Here is another way to look at that rising inequality as part of a long-term trend that defined 1968-2000 – the expansion of the workforce and subsequent collapse of that expansion that will solidify when the Baby Boom hits retirement. Economic changes are often demographic at heart, and we are due for some major upheaval that we need to be ready for.