Free exchange – Where did everyone go? … Demography may explain the weakness of America's recovery … The notion that America's potential growth has slipped is not new. Some economists have argued that the crisis itself undermined potential by starving innovative companies of financing and driving some workers, whose skills have atrophied from long spells of unemployment, out of the labour force. Mr Obama's council, however, makes a different argument: the lower trend was largely in place even before the recession hit. – Economist
Dominant Social Theme: There are not enough people, and that's why the US economy is failing. The Internet is not innovative enough.
Free-Market Analysis: Okay. So now we know. The reason the US is in a Great Recession is because there are not enough people (see excerpt above).
From our point of view, the failure of the US economy and European economies has to do with too many regulations, too many taxes and too much money printing. Any one of these elements would suffice to depress animal spirits. All together, these are an insupportable burden.
Throughout the West, production is down, unemployment is up, interest rates are non-existent and price inflation is a good deal more prevalent than is admitted. This doesn't sway The Economist, though.
Dedicated to the proposition that one can never REALLY have enough prudent regulation, enough considered taxation and a sufficient and expansive stock of money, The Economist pounds the drum every day for alternative reasons as to why the Great Recession has taken hold and continues.
Britain is facing a third recession. The PIGS – and now France and perhaps even parts of Northern Europe – face continued slumps. But this article has discovered that the US's problems preceded the Great Crash of 2007-2008. Here's more:
… In its annual economic report, issued on March 15th, Barack Obama's Council of Economic Advisers argues that … [an] underlying trend rate of growth … is determined by the supply of workers, capital and technology. Mr Obama's economists argue that the trend is now much lower than in the past. The recovery, then, is not nearly as disappointing as it is often portrayed; Americans have set their sights too high …
Lower potential growth would help answer one puzzle: why has unemployment fallen further than either the Federal Reserve or the White House expected, even though the economy has grown more slowly? Since the end of 2007 the population over 16 has grown by 11.6m people and the labour force (those either working or looking for work) has grown by just 1.6m. As a result, the share of the population actually in the labour force has fallen from 66% to 63.5%, a tie for the lowest level recorded in more than 30 years. If the other 10m want to work but simply are not looking, they should arguably be included among the unemployed. But in fact, only a fifth of them say they want to work.
The White House council reckons demography is driving this drop. Labour-force participation is highest between 25 and 54; if the share of the population under 25 or over 54 grows, that will drag down overall participation rates. To show this, the council constructed a "trend" participation rate by estimating a rate for each age and gender group and then using that to compute changes in total participation as each group's share of the population shifts.
In the early 1980s, when baby-boomers and women were pouring into the job market, this trend participation rate rose by nearly two percentage points (see left-hand chart). In the past five years, as the boomers began retiring and women's participation levelled off, it has fallen by one point. In both periods, actual participation was about one percentage point lower than this trend rate, thanks to the influence of a weak economy.
Do you believe this, dear reader? We do not. This is a variant of the most predictable of all arguments – that anything matters besides regulation, fiscal and monetary policy. Nothing else DOES matter. Within the context of modern economies, it is monetary policy that has the most impact by far.
The Economist is one of the prime purveyors of the anything-but-monetary-policy meme. Growth or the lack thereof can be attributed to anything so long as the globalists hold over money printing and central bank policies generally are not discussed.
This article is a great example of this sort of methodology. Perhaps the idea is to throw as much as you can against the wall and hope something sticks. At least you can confuse some of the people some of the time.
It gets even more ambitious, however. Just for good measure, the article throws in the Internet as well. Perhaps it is because of the admitted insufficiency of the explanation. "Lower participation cannot explain all the apparent slowing in potential growth," we are told.
Enter the 'Net! It is the maturity of the Internet and the slowing of growth from this dynamic "sector" that when coupled with the lack of workers has contributed to the US's malaise. "The productivity enhancing impact of the Internet has begun to wear off."
Perhaps you didn't think certain negative trends had changed a great deal from the 20th century. You believed the same war-mongering, aggressive taxation, regulatory zeal and pump priming that caused the US economy to sputter in the 1970s, the late 1980s and the early 1990s exists today and was in main responsible for the US's horrible problems.
You are wrong! The problem is not enough workers and an aging and uncreative Internet.
And knowing the real reason for the US's endless downturn, you will no doubt appreciate President Barack Obama's solutions. The article informs us that while "policymakers cannot rejuvenate long-term growth by inventing another Internet, they can boost the supply of workers." What else? Obama wants to hike immigration levels, reduce disability benefits and raise the retirement age …
Hmm … How about just ending the Fed?