During 2021-22, Florida Governor Ron DeSantis appointed 29 people to various Florida state college and university boards.
They included 8 business leaders, 3 real estate professionals, 5 doctors, 3 lawyers, 2 accountants, 3 educators, a banker, a farmer, a government leader, a not-for-profit leader and a public relations leader.
The 11 news articles emphasized the nominees’ professional and civic achievements. None mentioned any strategic agenda or revolution desired by the governor.
22 men and 7 women.
Every nominee was a Florida resident, with most highlighting their long ties to the state. One was touted as a “fifth generation” Okeechobee resident. Most highlighted their Florida college degrees. A handful listed experience with national US firms or military experience. Many listed their other board of director experience. Only 3 had obvious political roles in their biographies. Dr. Madhu Sasidhar, president of Cleveland Clinic, Port St. Lucie is the only nominee with limited Florida ties.
The governor’s office, board nominees, journalists and advocates from both parties highlight that the 6 recent 2023 appointments to New College of Florida’s board are intended to “revolutionize” the small (700 student) college in Florida.
The governor is only revolutionizing one institution. This appears to be for national political purposes. Florida voters, visitors, alumni and politicians need to consider what their response would be if the governor, of his own accord, decided that it was time to “revolutionize” an institution that they attended or supported.
The “contract system” replaces distribution requirements. Students cooperate/negotiate with a faculty sponsor to define their “program of study”, term by term. Foreign language requirements gone. Western civilization gone. Religion gone. Humanities gone. Science gone. Each student will have a “major” in order to graduate, but the first 1-2 years can be very flexible. The student-faculty relation/interaction is essential. Starting with just 100 “high potential” 18-year-olds in 1964.
Narrative evaluations replace letter grades. Pass, fail or incomplete. Faculty try to clearly define “mastery” up front for each course, tutorial or project. Real feedback is provided in person and in writing regarding progress and “opportunities for improvement”. Faculty and students are fellow learners, but standards are high; basically elite graduate school level.
Many independent study projects are required for all students. Tutorials with significant “independent study” components are offered by faculty to cover subjects not frequently offered. Students are encouraged to ” define their program of study, including the creation of interdisciplinary majors.
A senior “honors thesis” is required for graduation. The ability to research and write at a high level is required. Students must pass an oral examination of their thesis and related “major” program of study. Quasi-graduate school for undergraduates.
The US is leaving behind the pains of the 1930’s and 1940’s, enjoying more than a decade of solid economic growth. The business cycle is still very relevant. Rapid and extended post-war growth was unexpected once the economic demand of the war fell off. General economic growth into the future is now generally expected by 1964. The Keynesian economic model and policy prescriptions appear to be working. But true poverty continues in both urban and rural areas, especially among the elderly. Union-management relations remain tense, with strikes and labor actions frequently in the news.
Social Context
This is a conformist period where most individuals are willing to “go along to get along” in a world that is generally deemed positive by most. Religious attendance increases and conformist symbols on money “in God we trust” and the pledge of allegiance are adopted in the context of the Cold War. There is no 4th religious “Great Awakening”, but Pentecostal and fundamentalist churches see rapid growth. The Roman Catholic Church works through the second Vatican Conference to reform, update, reorganize and modernize the church. Mainstream Protestant churches are at the peak of their membership and influence. Liberal Paul Tillich is the representative theologian, emphasizing “matters of ultimate concern” and “the courage to be”. “Rock and Roll” music grows as an expression of teenage independence, but the “British Invasion” is yet to come. Racial justice is growing as a major topic, south and north. National and regional politicians take small steps forward on race as liberal judges take controversial larger steps ahead.
Global Context
The Cold War is topic A, B and C. The threat of nuclear war is omnipresent with students learning to “duck and cover” and citizens and communities building “bomb shelters”. Oppenheimer and other scientists who wish to “limit” further development are sidelined by the military and national leaders. Eisenhower warns about the power of the military-industrialist complex as he retires. The United Nations fills some global functions and Europe begins its long journey of integration. The US builds NATO into a strong alliance and supports the recovery of Germany, Japan and Europe through the Marshall Plan. Imperial/colonial holdings are released around the world within the context of the Cold War. Military technology continues to advance. The US is shocked by Soviet rocket, nuclear and satellite advances and invests in programs to recapture the lead. Displaced people and immigrants are resettled. Limited food production, oil availability and unlimited population growth are highlighted as a new Malthusian challenge. The pain is mostly felt in the “less developed” world, but policy elites highlight the risks. The Peace Corps is founded.
Political Context
Truman rode FDR’s goodwill to victory in 1948. Eisenhower accepted the New Deal and governed in a low-key, centrist manner for two terms. Populism and McCarthyism (nationalism) were largely eliminated in the 1950’s, but the existential threat of “Red” communism in Russia, China and its allies remained as a major political debate. Modern conservativism began with the academic scribblings of Russel Kirk (1953), the voice of William Buckley (1955) and the political moxie of Barry Goldwater and Ronald Reagan. However, John Kennedy squeaked out a narrow win over Richard Nixon in 1960 and provided that time with an idealistic, progressive, academically supported New Frontier and Camelot.
Intellectual Context
Some academics were walking away from the party line Marxism of China and the USSR by 1960 as the shortcomings of the economic, political and social systems were becoming apparent. They were very focused on the French existentialism of Sartre and Camus. In the shadow of “mutually assured destruction”, this was not surprising. The structuralism and post-modernist philosophies emerged at this time but did not quickly impact American cultural life. Universities were growing rapidly in this period, fueled by the GI Bill and the coming Baby Boom freshmen.
Public intellectuals were still a significant part of national debates about politics, technology, the economy and culture. The mainstream media provided print, radio and TV stages for public debate.
The “popular” intellectual debate was largely focused on the eclipse of the individual versus the power of the group, whether that group was society, advertisers, corporations, neighbors, property developers or government.
The continued growth of science and technology as practical applied science and theory was also a major concern at this time. The split between scientists and the humanities scholars was emphasized. The changing view of “science” as a firm, fixed, objective body of work conducted by objective scientists was also called into question.
The local (Sarasota and Florida) and national founders of the college were shaped by the context of the period. In hindsight, it is clear that they worried about growing “individuals” who could resist the power of the various social and organizational forces that demanded compliance. This was not a left- or right-wing political initiative. These were business, government and university elites doing their best in a patriotic American way to shape a new institution in a growing city, state and country.
60 years later, it’s not clear that these founding principles were “leaning left”. The focus was on the individual, not on the community, society, nation, state, religion, history or culture. The founders: well-minded business, religious and academic elites, emphasized this dimension of education because they believed that a simple, patriotic, conventional, practical, productive, well-defined, professional, feasible, traditional model of education was simply inadequate. It’s 1960. Two dozen successful people got together to form a new college in a resort town. They did a quick SWOT analysis (strengths, weaknesses, opportunities and threats) of colleges and universities. They chose to innovate. Let’s “reach for the moon”. We want to attract the “best and the brightest”. (Ouch).
College freshmen today (1960) are unduly shaped by society’s expectations. Let’s “turn them loose”. Young people are much more mature today due to their exposure to the “mass media”. They are very well educated in many high schools. Faculty and administrators are also much more highly qualified to lead the education process. Let’s fully engage them in the learning process.
This was an idealistic birth process only possible in a positive period of confident national growth.
I don’t see any incompatibility between New College’s historical educational program and associated learning environment with Florida Governor DeSantis’s stated desire to improve the critical thinking skills of students, making them less influenced by “trendy” philosophies. I believe that New College already provides a solid base in those skills. The burden of proof is on new trustees or new programs of study to better deliver the desired results.
Since July, overall inflation is immaterial (1%), about 2% on an annual basis.
The Services sector is the most concerning, with annual inflation still running near 6%. The recovery from the pandemic started with the goods sector and then slowly rotated into the services sector as “in person” services re-emerged.
Since March, 2022 durable goods have reassumed their long-term price Deflation.
Nondurable goods are back to 0% inflation.
Energy prices are clearly falling now.
Gas prices have retreated back to $3 per gallon as quickly as they increased.
Food prices have fallen but remain abnormally high, growing at 6% annually. Global pressures may keep this category above normal during 2023.
Wage-push inflation remains a thing of the past. Real wages remain flat.
Strong economies with solid currencies are able to import cheaper goods and reduce domestic inflation.
Producer prices have fallen by 6% from their peak.
US fiscal policy for 2022 was at the same expansionary level as pre-pandemic 2019. I think it was a little too expansionary, but this level of deficit did not significantly drive the increased inflation in 2022. The budget deficit for fiscal year ending September, 2023 is expected to increase by a small amount, even though the latest official CBO forecast showed a smaller deficit.
Monetary policy was very loose in 2020, attempting to offset the many threats to the economy. It has since been closer to “neutral”. There is no solid historical or theoretical basis to carefully predict the effect of this huge increase in the money supply two and a half years later.
The Federal Reserve Bank has increased interest rates and the housing, stocks, bonds, construction and commercial investment markets have been impacted, slowing aggregate demand for assets, goods and services.
The stock of “excess savings” which supported the rapid recovery from the pandemic peaked in early 2021 at $2.25T. It had fallen by 20% to $1.75B by the 3rd quarter of 2022 and continues to fall, reducing aggregate demand.
Summary
The scariest inflation scenarios are no longer plausible. Durable goods, nondurable goods, producer and energy prices are falling. Food and services prices remain elevated at 6% but are not in double digits and are not increasing. Real wages spiked briefly during the heart of the pandemic but quickly returned to pre-pandemic levels where they have remained.
The federal budget deficit in 2022 was the same as in 2019 when inflation remained low. Even with a slowing economy, the forecast 2023 budget deficit remains about the same as in 2022, not adding materially to excess demand. Monetary policy in 2022 has consistently been tighter and tighter, with the Federal Reserve chairman promising to “do whatever it takes” and highlighting the much greater negative consequences of inflation that does not return to the target level. Weakened fiscal and monetary policy should help to further reduce any remaining supply chain constraints in the global economy. The housing and capital investment sectors are declining. The impacts of changed monetary and fiscal policies are seen 6-24 months later.
Double-digit and accelerating inflation are no longer credible. Deflation is the rule in a large part of the US economy. Monetary and fiscal policies are tightening. Overall inflation is falling. The economy has already slowed, so we may even be entering a period of self-reinforcing lower rates of inflation.
2018 and 2022 elections showed widespread increased voter participation. Increases were seen by all races, genders, income, ages, states and education levels. Increased voting by the youngest age group and Hispanic Americans were most notable.
The 2020 and 2022 elections both relied heavily upon mail-in and early voting options. Early voting participation, especially in competitive states, was equal to or ahead of 2018. Hence, election day participation in 2022 was somewhat lower than in the record year.
Voter Registration is as Important as Participation
Voter registration in the states with party-preference records increased from 108 million in 2017 to 117 million in 2021 and then a little to 120 million in 2022. Registrations have increased a little faster than voting age population, but have not made a material difference.
The Democratic party share has declined significantly in the last 2 decades, replaced by “independent” voters. The Republican party share has declined by just 3%.
Good data on the impact of various voting law changes is not yet available. Anecdotal media reporting of the 2022 election did not indicate extremely large changes in voter behavior.
US Registration and Net Participation is Low versus other Advanced Economies
Voting participation in the US varies significantly by gender, race, age, state, income and education level. It recovered to some degree in 2018-22 following a 40-year low period. Voter registration has increased by a small amount in the last 10 years, but increased participation among registered voters has been the driver of overall results. The availability of mail-in and expanded early voting clearly boosted turn-out in 2020 and 2022. The impact of additional voting restrictions is unclear, but obviously intended to reduce turnout. Polarized politics in the US has increasing voter turnout, but only by 10-15% versus recent history. Presidential years boost turnout by 15%. State by state participation in election years ranges from 58% to 76% (excluding a few extremes), based on habits, demography and state laws. Presidential elections could have 10% higher participation if all states followed the examples of the high participation states.
Government has an increased impact on all citizens. Democracy requires participation to make the decisions and programs of governments (at all levels) legitimate. The US can do better.
This is a follow-up article to my recent post on “A Very Robust Long-term US Labor Market (1970-2021). Rather than focus on total growth or the “skill-level” of jobs in the labor market, I want to focus on the roles or functions (like career clusters, similar to industries) played by the 150 million US workers in 2021. I’ve grouped the 500 detailed occupations into 17 categories so that we can look at subtotals ranging from 1% to 20% of the total, with an average of 16%. Enough detail to highlight the very significant changes in the last half-century.
Let’s start with the 1970 data. 75 million employees. Manufacturing was the “big dog”, with almost 14 million workers, 18% of the total, a little less than one out of five.
Administrative workers, including clerical, HR and accounting staff at all job levels were the second largest group, with 10 million people and 13% of the total, one out of eight jobs. These two traditional categories accounted for 31% of the total, not quite one-third.
The next three groups each accounted for 9% of the total, one of every eleven employees. Sales workers, at managerial, professional and retail/clerical levels. Members of the logistics industry broadly defined, including both transportation and distribution staff. Employees of the construction industry. Once again, classic job functions in 1970 that would have been familiar in 1930.
The narrowly defined “service sector”, combining staff in the food service, travel and personal services industries contained 5.5 million workers, or 7% of the total. These six together included 70% of all workers.
Six other categories were each a much smaller 4-5% of the total: Education (KG-post secondary), Cleaning and Groundskeeping, Health Care, Analysis (finance, IT, operations, engineering and marketing), Ag/Mining and Repair/Installation/Maintenance.
The final five categories each averaged just 1.5% of total jobs: Finance/Insurance/Real Estate, Managers/Supervisors, Protection/Legal, Entertainment/Arts and Relating/Counselors.
By 1970 production agriculture had already declined to an immaterial share of the economy. The historically male and blue collar dominated Manufacturing, Logistics, Construction and Repair categories combined to account for 40% of all jobs; two out of five. The historically more female friendly Administration and Sales functions held 25% of all jobs, one in four. Education was the largest “information industry” at 5%, largely dominated by traditional elementary and secondary school teachers. A more broadly defined service group of food service, travel, personal service, cleaning/grounds and health care summed to 17% of the total, or one in six jobs.
Six categories changed very significantly between 1970 and 2021. Manufacturing dropped from first place to tenth place, from 18% to just 5% of employment, from 14 to 8 million employees. US firms improved labor and overall productivity throughout this period, keeping the most productive firms and factories open, while closing and outsourcing work from the others. This was a tremendous change in the labor market, completed in just two generations of workers.
The Administrative category also declined markedly, from second place to fifth place, shrinking from 13% to less than 9% of total employment, but increasing slightly from 10 to 13 million staff. Process, computer and telecom changes drove improved productivity. Some administrative jobs were outsourced. While the Manufacturing sector lost two-thirds of its labor market share, the Administrative sector lost one-third.
The Ag/Mining group was the third losing category, dropping by nearly two-thirds from 3.9% to 1.4% of all employment. When politicians talk about “reviving” manufacturing, mining or production agriculture they are working against very strong long-term trends.
The largest growth was in the “Analysis” category, which grew by two and one-half times as a share of the total, from 4% to 10%. There was incremental growth in the existing Engineering sub-category, adding 2 million roles. The IT category grew added almost 6 million roles from a base near zero. The operations, finance, marketing analysis group added another 6 million positions to its base of 1.5 million. The “Analysts” category rose from tenth place to first place as firms became more complex and found ways to better employ the talents of individuals with high level analytical skills. At 11% of the economy, one out of every nine jobs falls into the analysis category.
Health Care increased from ninth place to second place, moving from 4.4% to 10.3% of all jobs (2.5X). The number of jobs grew by 13 million, from 3 to 16 million.
The Managers/Supervisors category climbed from fourteenth to ninth place, rising from 1.8% to 5.2% of the economy, adding almost 7 million jobs. The 1970 detailed coding was somewhat different from the modern approach, with many supervisors and managers grouped with other professions or industries. My best guess is that on a comparable basis, the 1970 category would have been closer to 2.5 million than the reported 1.4 million managers and supervisors. This would have put this group in thirteenth place in 1970. Hence, the growth as a share of the total market would be smaller, from 3.3% to 5.2%, but still quite significant. Once again, larger firms with more complexity demanded more managers and supervisors.
In total, we have 20% (1/5 workers) leaving the Manufacturing, Administration and Ag/Mining sectors and 16% (1/6 workers) joining the Analysis, Health Care and Managers sectors.
Comparing the millions of employees in 1970 to 2021 by sector clearly shows the massive changes in the labor market. The Health Care and Analysis sectors leapt from a small 3 million workers each to 16 million workers each. Manufacturing fell in absolute terms from 14 to 8 million workers. The Sales and Service sectors began as large sectors, so their relatively normal growth still added about 8 million roles each. Construction and Administration began as larger sectors and were able to add 3 million employees each, despite slower than average growth rates. Logistics grew slightly slower than the market, but added 6 million workers. Education grew faster than average, adding 6 million colleagues.
Relative growth rates as a percentage of the 1970 base or as a percentage of the total mostly tell the same story. Manufacturing, Administration and Ag/Mining have declined sharply. Analysis, Health Care and Management have grown materially.
The 152 largest detailed occupations and those with the greatest change in employment are documented below. They account for 91 million jobs, 59% of the 2021 total.
Economists assert that the principles of comparative advantage drive national economic activity. In essence, nations, firms and individuals rationally do what they are “relatively” best at, which changes through time. We see this reduction in the role of agriculture, manufacturing and mining across long periods in the US.
Economists assert that consumers’ tastes change as they have higher income and the relative prices of goods change. Once basic “food, clothing and shelter” needs are met, people turn to other “needs” and “wants”. These tend to be “services” and we also see this transformation.
Economists assert that profit maximizing firms will employ labor that provides a return on the investment based on the marginal or incremental value added by the labor resource. In a more complex economy, professional and managerial skills are in greater demand. Firms (and not-for-profits and governments) have adapted very well to these major changes in the last 50 years.
These changes are not without major pain to individuals, firms and local economies. The general trends in the economy (more automation, greater trade/outsourcing, more services, more personal care, greater role for analytical skills) are clear. Nations, firms, individuals and regions that adapt to the trends will be relatively successful. This requires wise individual and political choices and investments.
It’s time to revisit the state of the US economy. The media and stock market are overreacting to the positive news today that the US economy added about 250,000 jobs in September. Pundits and investors deem this as a “too hot” labor market which will drive higher inflation and force the Federal Reserve Board to further increase interest rates to slow the economy. We need to look at history, components of the economy and specific measures carefully to evaluate our position.
In a nutshell, the US Congress and President spent so much to offset the pandemic that we have classic inflation from higher demand and lower supply. At the same time, the Fed increased the money supply and lowered interest rates to zero to ensure that the banking sector did not provide a “credit crunch” to businesses or households. Foreign governments and banks acted similarly. This allowed the world economy to work through the pandemic with minor negative effects. However, the boost to the economy was too much and governments and central bankers were slow to reduce the stimulus they provided. The world was tightly focused on “recovering” to the pre-pandemic GDP and employment levels during 2021, so major changes in government spending and the money supply were not implemented until near the end of 2021. By the start of 2022, it was clear that growth was unsustainable and inflation was rising quickly, so policy makers needed to adjust. They have now done so and the impacts can be seen. So far, the economy is slowing, official recession or not, to low/zero growth and looks to remain at that level through the end of 2022 with low/slow growth expected in the first half of 2023.
We can call this a “soft landing”. We can call this a “growth recession”. We can call this a “recession” or a “recessionette”. There is no evidence of a “major recession” with 2% GDP declines or 3% unemployment rate increases or “50% declines” in housing starts or bank lending freezes or massive industry balances to liquidate or … Inflation is high and seems to have peaked. It is not coming down as quickly as most experts (or me) predicted during the first half of 2022, but many factors indicate that we are not in a self-perpetuating inflationary spiral.
With the benefit of hindsight, real GDP growth during 2018-19 was somewhat above trend and unsustainable. A 2% excess output doesn’t seem like much, but it does matter. The economy at the end of 2021 was in roughly the same place with 3.5% style unemployment. 4Q, 2021 was more than $1 trillion higher (5%) than 4Q, 2020. 5% real annual economic growth is very rare for a large, modern, developed economy. This was after the immediate pandemic bounce. The 3rd and 4th quarters of 2022 are likely to be reported as essentially flat with the 2nd quarter. Consensus forecast is near zero growth in the first half of 2023, returning to 2-3% growth in the second half.
US government budget deficit will be $2 trillion lower in the fiscal year ending September, 2022. This is good news. The “excess” spending was capped more than one year ago, so the trend rate is part of the current core economy. “Excess government spending” is not driving inflation today. It contributed to the inflationary build-up during 2021 into the first half of 2022 (economic stimulus works with a lag effect).
The increased money in consumers’ pockets lead to a 30% increase in purchases of durable goods. Consumers had money. They were afraid to consume in-person services. They bought stuff. They’re still buying stuff. The transition from buying goods to buying services has been slower than expected. This has led to extended supply chain disruptions (globally), higher demand for many commodities and increased goods prices which feed higher inflation and higher demand for labor. The total demand for durable goods has flattened and prices have stopped increasing. This is a much-improved situation from late 2021.
Consumers did save some of their extra earnings during 2020 and the first half of 2021, but as prices increased and services became available, consumers chose to spend more and reduce their savings rate down to just 4% of income, well below the 7-8% of the prior expansion period. So, part of the “excess demand” in late 2021 was the drawdown of savings. That cannot happen again. It’s possible that low consumer confidence will reduce spending in the next year, but flat spending is more likely.
Most business cycle recessions show a clear build-up and subsequent liquidation of business inventories. Inventories were reduced (involuntarily) in the recovery from the pandemic and have increased a bit since then. There is no current indication of a pending “inventory recession”. In a “zero growth” retail holiday sales season, there will be some eternally optimistic retailers that have to cut prices to move goods, but this happens nearly every year.
The Fed increased the money supply by an historically unprecedented 25% in response to the pandemic. And then by another 10% during 2021. In hindsight, the 25% was too much and the extra 10% was irresponsible. Fortunately, the money supply growth ended by the fourth quarter of 2021 and has remained flat.
Mortgage rates were held to less than 3% for 2 years to support the recovering economy. They have now more than doubled, in excess of 6%. These higher interest rates will slow economic activity in many dimensions: lending, home buying, consumer credit, consumer spending, business investment, risk taking, stock prices, etc. Higher interest rates work with a lag to slow economic activity. They were still at “crazy low” rates at the end of 2021. The impact of higher rates is now being felt.
With extra savings, higher earnings, lower unemployment, restricted services available and historically low mortgage rates, consumer demand for housing grew rapidly while supply increased marginally. Housing prices (and rents) grew by 30%. Demand has now slowed. Housing inflation has slowed, perhaps to zero. This is a major channel through which GDP is decreased and inflation is reduced. Home purchases usually trigger thousands of dollars of additional move-in and fix-up expenditures.
Housing sales and new housing starts have adjusted to the new interest rate environment. Note that the level of new housing starts remains above the pre-pandemic level, so some further decline is possible in the second half of 2022.
The US and global stock markets very quickly rebounded from the initial pandemic fear levels (-25%) back to the pre-pandemic levels which were more than 10% above the 2018-19 trend line. Stock markets increased after the initial pandemic recovery by 50% in line with growing profits. They have since dropped by one-quarter, a combination of lower expected future profits and higher interest rates increasing corporate financing costs and the cost of equity investors’ funds. Lower stock market prices usually have a negative “wealth” effect, with nominally poorer investors spending less in the current economy.
By the second quarter of 2021 we started to see 7-10% annual inflation rates. Increases finally slowed (or stopped) in the last 2 months. Reported inflation on a 12 months apart basis will remain above the 2% target level for the next 9 months, as high monthly inflation during the end of 2021 and the first half of 2022 remains in the measurements. Experts have a wide range of inflation forecasts for the first half of 2023, ranging from 3% to 8%. Most expect inflation to be close to the 2% target by the second half of 2023.
Producer price increases followed the same general pattern as consumer prices. They appear to have reached their peak. Producer prices better reflect global prices, especially the higher price of most commodities. Note the 30% increase in US demand for durable goods.
Global energy prices played a significant role in recent inflation. The last few months displayed an easing of prices, but recent OPEC+ decisions to reduce output indicate oil prices rising some again.
Job openings were at a historical high before the pandemic and quickly returned to that level by the end of 2020 and then nearly doubled in the next year+ as businesses saw opportunities to profit from the expanding economy, but could not find workers at the somewhat elevated prevailing wage rates. The number of unfilled jobs has dropped by nearly 2 million recently, from 12 to 10 million. The labor market is returning towards “normal”, but with 10 million open positions, the number of net new positions added is likely to increase throughout the fourth quarter, even as the Fed attempts to slow the overall economy.
The US labor force participation rate slid from 67% to 66% to 63% from 2000 to 2009 to 2015. It dropped by 1.5% due to the pandemic (61.5%) and has since partially recovered to 62.3%, still a full 1% below the recent peak rate just before the pandemic. The labor market recovery has been good, but not great.
The core, 25-54 year old labor force participation rate has increased by 1.5% since the pandemic to more than 82.5%, less than one-half percent below the recent high of 83% before the pandemic. By this measure, the labor market is recovering nicely, but not completely.
Retirement age workers have not returned to the work force, with more than 1.5% of potential workers choosing to not join the labor market. Employers will need to be more innovative to attract workers back into the labor market.
Summary
The economy is slowing down, inflationary pressures are easing, but the labor market still looks strong. Slow to zero growth for the prior (3rd) and next 3 quarters is likely as inflation falls from 7-8% to 2-4%. Unemployment rates may increase, but it appears that the total number of employees will increase slowly during this low/zero growth period.
Claims of election fraud have a long history in the US. They exist for 3 reasons. Losers hate to lose. Fraud claims support efforts to restrict voting by opponents. Fraud claims undermine the legitimacy of US democratic processes (Russia).
TRUTH
Historically, without “checks and balances” or other controls, political parties and machines had taken advantage to ensure that they won. We’re mostly talking about 1820-1900. Even in the 20th century, there were states and cities where one party had control and could “deliver” votes at the city, state or national level. This kind of fraud largely ended by the 1960’s based on journalists, lawyers, political opponents and activists overturning this corruption of democracy. Then and now, the numbers of fraudulent votes were very small as a percentage of the votes cast, less than 1%. Fraudulent votes are effective in a democracy only when their small share can tip the election. Most claims of voter fraud are based on a misunderstanding of voting, statistics or logic.
History
In 2007, before the partisan push for photo-ID’s and Trump’s 2016 and 2020 pre-emptive and post-emptive claims of fraud, the Brennan Institute consolidated the research and concluded that voter fraud was statistically irrelevant, 1 in 10,000 or 1 in 1,000 at the most.
We are blessed with an incredibly low level of election fraud in the US for the last 50 years. With a simple two-party system, partisans from both sides have ensured that fraudulent voting is difficult to do, highly punished if discovered and easy to discover (and therefor highly disincentivized). US voting is largely managed at the lowest levels: counties, cities, precincts, where citizens know their neighbors. It is effective because enough Americans of various political beliefs today believe in this process and volunteer their time to make it effective.
Analysis
Republicans generally take a negative view of human nature, expecting individuals to actively pursue their self-interest. Hence, they expect that Democrats, with influence over the election process in some venues, will take steps to optimize their results. In an earlier age this was partially true. But, in the modern world (post 1920’s), several factors work against this direct pursuit of self-interest. The country’s laws make voting fraud a felony with significant penalties. Local election officials are elected. In a two-party system it is relatively easy to engage both parties to monitor the election process. The US has very many lawyers ready to assist their preferred party. Election results are public. Statistically improbable results are very easy to identify today. Each precinct has a historical preference which is unlikely to change materially in any single election, so any fraudulent voting is easily identified.
US Corporate profits grew from $1.9 Trillion(T) on an annual basis in the second quarter of 2019 before the pandemic to $3.0T in the second quarter of 2022; plus $1.1T (+57%)!!! US nominal gross domestic product (GDP) grew by 17%, from $21.3T to $24.9T, an increase of $3.6T. Real, inflation-adjusted, GDP grew by just 4%, accounting for a $0.8T increase in the real economy. Inflation grew by 13%, causing the other $2.8T of measured GDP. The $1.1T of increased corporate profits represents 39% of the inflation which has occurred in the last 3 years.
Analysis
Let’s look at the growth of US corporate profits from a half-dozen starting points to try to put this into perspective.
US corporate profits reached $3 Trillion in 2022, up from essentially zero in 1950. I’ve selected 7 peak profit years to outline this growth. Nominal profits increased from $55B in 1970 to $3.0T in 2022. In real, inflation-adjusted terms, profits have grown from $142B to $1,023B, a 7-fold increase in 52 years! Annual profit growth has been erratic, increasing by a high of 8% from 1995 to 2006 and a low of -1% from 2012 to 2018. The cumulative annual real profit growth has stayed near 4% throughout the period. 4% compounded for 52 years is a little more than 7x.
The US population grew from 200.3M to 338.3M during this period, 1.0% per year. So, corporate earnings grew by 3% per year above the rate of population growth for 52 years!!!! This kind of compound growth rate cannot continue for long periods of time without greatly impacting other sectors of the economy.
Corporate profits fluctuated in the 4-6% of GDP range from 1947 through 2000. Profits jumped up to 10% of GDP by 2010 and have largely remained at this two-fold elevated level for a decade. Profits reached a new record of 12% in 2022!
This measure shows profits growing eight-fold since 1970. (I’m going to ignore the detailed differences between the various measures of profit. They are important, but not necessary to see the major growth in profits, which is broadly consistent across the various measures.)
Most analyses of the growth in profits and decline in relative wages note that labor productivity has continued to rise by 2% or more annually, but labor has received almost no portion of those gains in the last 30 years.
A right-leaning think tank adjusts the data and claims that labor’s share remains constant in the long-run. The Tax Foundation does delve into the various measures of income and provides arguments for their preferred measure.
Stock prices tend to follow profits. The S&P 500 index has grown by 50% in the last 2 years (despite the recent decline), reflecting the amazing growth in corporate profits during a “once in a century” pandemic driven recession.
Median REAL, inflation-adjusted, earnings remained flat at $330/week from 1979 through 2014, a period of 35 years! This is during periods where profits were growing at 4% per year in REAL terms. In the last 8 years, REAL wages have increased by 9%, a bit better than 1% per year on average.
The media has published many articles, especially noting the increase of profits, overall, since before the pandemic. This is a popular topic because the result is certainly counterintuitive and because President Biden and the more left-leaning national Democrats have been criticizing corporations for “price gauging” and causing the recent inflation spike.
A variety of sources provide compelling data and logic to indicate that corporations are “taking advantage of” the post-pandemic inflation caused by supply chain issues and expansive fiscal and monetary policies to boost prices at rates faster than their costs of inputs (suppliers, labor, capital).
Most economists and analysts point to the increased concentration of firms (fewer) by industry increasing their pricing power and allowing them to raise prices during periods of change.
This is pretty dense and dry stuff. There is a general consensus among economists who focus on this topic that concentration and pricing power have risen very significantly. This is partly due to the simple aging of industries with fewer players left standing. The winners in a world of global competition are simply “much better” than the losers so they continue to take market share. US anti-trust enforcement in the last 40 years has been very limited, following the theory that “open competition” in the long run (Schumpeter’s creative destruction) eventually undermines leading companies with innovative products, processes and market strategies.
The US Chamber of Commerce argues that industry concentration has not increased, noting that consumer choices in broadly defined industries have increased greatly through time.
By a dozen measures, profit has consistently grown as a share of the American economy in the last 40-50 years. This necessarily means that the share of output and income received by labor is much smaller as a percentage of the total pie. The recent surprising ability of American corporations to effectively work through the pandemic supply chain disruptions, lose more than 10% of their labor force, increase nominal wages significantly, encounter severe input price inflation and still engineer price increases to come out much further ahead on profits is a major story for our time.
It is attracting attention to what I believe is an even more important story: the ability of corporations to incrementally capture nearly all of the increased value added by the productive American economy across 40-50 years and share very little with labor. This structural advantage of a very effective corporate sector “doing its job” within the relatively low-tax and low-regulation US political context is now completely proven.
In an ideal world, we would be developing and considering serious policy options that would limit this excess power without “killing the goose that lays the golden eggs”. Unfortunately, the Republican party remains focused on tax and regulation cuts as the main economic tools and the Democratic party alternates between 1960-70’s era Biden “centrist” policies and much further-left Bernie Sanders style policies.
Lower environmental standards. Withdraw from Paris climate deal. Methane limits. Wetlands. Vehicle milage and emissions standards.
New limits to welfare benefits: Medicare and SNAP.
Antitrust investigations for telecommunications, media, internet, network advantaged firms.
Increased use of Congressional Review Act (1996) to allow Congress to vote down newly implemented regulations.
Economic recovery continued for 3 more years. 2.5% annual growth. 3.5% unemployment. Stock market gains. 6.5M jobs added. Tighter labor market. Increased wages. Minority and lower income gains.
Bipartisan Covid relief spending for individuals and firms.
Home building increased during Trump term and afterwards.
More “Middle Americans” believed that they were heard and represented.
NAFTA agreement renegotiated.
China relations re-evaluated. Higher tariffs on both sides. Technology limits.
Presidential “bully pulpit” used to maintain some US jobs.
Legislation and executive orders used to support US steel, coal and manufacturing businesses and employment.
Legislation passed to improve visibility to tax shelters and tax fraud enforcement.
Agriculture industry subsidies offered to offset trade costs.
Trade deals with South Korea, Japan and EU.
Enhanced trade policy for communications, IT, technology and AI.
Increased military spending.
Revised defense strategy focused on China and Russia.
Flexed US military muscle in limited attacks.
Actions reduced Islamic State threats to low level.
Supported Israel diplomatic relations with 4 Arab states.
US troops withdrawn from Afghanistan, Syria and Iraq.
Opposition to dictators in Cuba, Venezuela, China and Nicaragua.
Reduced support for international organizations such as WHO.
Built 80 miles of new wall and 300 miles of enhanced walls on Mexico border.
Negotiated improved coordination with Mexico and Central American nations regarding immigration.
Reduced legal immigration from all countries.
Reduced opportunities for asylum seekers.
Used “zero tolerance” family separation policies to disincentivize immigrants.
Removed Affordable Care Act individual mandate.
Streamlined FDA approval process and made financial commitments to ensure rapid COVID vaccine development.
Took steps to reduce drug price inflation.
Invested in opioid drug addiction prevention and correction.
Enacted market friendly policies and regulations to expand domestic energy development, furthering American energy independence.
Supported the bipartisan First Step Act which reduces minimum sentences and supports recovery from incarceration.
Invested in historically Black colleges and universities and vocational education (Perkins).
Made small steps to support “school choice”.
Appointed 3 conservative Supreme Court justices and 225 federal justices.
Trump Presidential Results
Economic Policy
Deficit spending is permanently entrenched. 3-5-7% annual budget deficits do not appear to have major economic downsides in investment crowding out or inflation.
Tax cuts do not generate extra growth, investment, productivity or economic resiliency. They transfer dollars to the recipients.
Concentrated supply chains (China) are subject to significant trade, logistics, military and emergency risks which must be managed.
Foreign Policy
U.S. remains the leading superpower and can pursue its own goals with less allied cooperation and attention to “niceties”, at least in the short run. See NATO, Japan, Korea, climate.
China is the number one competitor.
U.S. and Russia relations are no longer based on Cold War issues. The “Hawks versus Doves” dimension competes with domestic political parties.
Negotiating with nuclear states (Iran, North Korea) is very difficult, even for a superpower.
Europe has its own international interests. It will pursue them. It cannot rely upon the U.S. for its defense.
Domestic Policy
Bipartisan immigration policy may be impossible.
Supreme Court and judicial politicization may drive structural changes/reforms.
Racial relations and inequality will be a top political issue for decades.
Wedge issues – abortion, guns, school content/choice, liberty, gay rights – will remain a focus of both parties.
Traditional social security, Medicare and Medicaid are untouchable.
Obamacare is now essentially untouchable. Lower income citizens will have health insurance.
Democracy at Risk
Legitimacy of media, press, free speech threatened.
Government employees, courts, justice system, law enforcement threatened.
Schools, universities and teachers threatened.
Legitimacy of voting processes threatened.
Illiberal democracy, authoritarianism have more support.
Gerrymandering, voting rules, campaign funding rules undercut public confidence.
Voter participation has increased in response.
Communications Policy
Media attention is priceless and can be manipulated by extreme statements and behavior.
Traditional media “fairness” approach (quotes from both sides) can be manipulated to support unsupportable claims.
Every media outlet or actor has some degree of bias. Consumers are more aware, but many choose to only reinforce existing beliefs.
The president has the opportunity to control/influence the attention of the media.
Facts and objectivity are not respected by some media voices. The pattern of communications statements and framing of subjects can be much more important than content.
Political actors are not held accountable for false claims or exaggerated promises. Claims and promises are just tools to motivate the faithful.
Rules of Politics
President has tremendous power. International agreements. Regulations. Executive orders. Bully pulpit. Political party discipline. Using power seems to have little downside.
Only winning matters. Not popularity, broad support, bipartisanship, appearances, fairness, mud, litigation, critics, impeachment, norms, tradition or relations.
Polarization strategy is more effective than building a central coalition. Motivating your team to vote is more important than persuading independent voters.
Candidate character does not matter. Politicians are salesmen and saleswomen. They are lawyers. They are tools, not statesmen.
Party/team winning is most important factor. 400,000 covid deaths were not enough to spark a revolution. Deaths were traded off against economic opportunity without negative political impact.
Harry Truman’s “buck stops here” responsibility position is not required. No one was responsible for Covid results.
Administrative competence is not required to hold office or to run the federal government (so far). Slow appointments, fast cabinet turnover, acting secretaries, department heads that oppose the role of their departments.
President represents his team and interests, not the whole country.
Party Policy
Philosophical conservatives have departed the Republican party and lost influence.
Moderate Republicans (RINO) have mostly departed, have no political candidates and no influence in the national party.
Extremist groups (race, religion, military, nationalist) are not opposed.
Traditional business interests have much less influence (immigration, social issues, antitrust, trade limits, industrial policy, presidential threats, banking, bailouts).
Pragmatic policies and legislation remain largely unimportant. No party platform for 2020. Everyone in the party “knows” basic positions on all issues. No budget policy debates. No health care alternative to Obamacare. No abortion policy. Statements of preference and intent and belief are more important than wonkish details.
Highlighting the threats and follies of the most leftist Democrats is the most effective means to motivate true believers and maintain support of more independent minded voters.
Only a few federal level policies really matter. Tax and regulation cuts. Social wedge issues. Most other topics can be “managed” with small policy victories and messaging.
Party discipline is essential. Republicans are obligated to support the political winners in their party, not to represent all Republicans or all Americans or to “solve problems”.
Managing the voting system (districts, rules, methods) is as important as policies, candidates, fundraising and communications strategies.
Summary
Trump has revolutionized modern American politics. The Reagan revolution consolidated conservative voters, clearly aligning them with the Republican party. The Gingrich revolution further separated the two parties, emphasizing winning and party allegiance. Republican candidates and voters engaged in a reinforcing cycle of “purist” policy aims such as no tax increases, “drill baby drill” environmentalism, banning abortions, and “bomb baby bomb” anti-terrorism. The Great Recession and the tea party further motivated populist leaning voters to demand populist policies and appeals. Trump modified many historical Main Street and Wall Street Republican policies to make the party better embrace the populist mood and “make American great again”.
Trump’s “only results matter” approach has further transformed the party and the nation. His presidency delivered some key political accomplishments. It also produced many “results” that will shape American politics, economics, society and debate for years to come.
The US Dept of Labor does not publish a consumer price index specifically for refrigerators, but the category it belongs in showed essentially zero nominal inflation between 1994 and 2018. The real price decline shown in the first chart probably continued through 2018.
Refrigerators and appliance prices spiked by more than 10% in 2021 as consumer demand for durable goods grew 20% during the pandemic, supported by government transfer payments.
Refrigerators now account for just 7% of home electricity consumption, down from 14% in 2001.
Opinion writers differ on who gets credit for the improved price/performance results for refrigerators, but it seems clear that both energy standards and inventive firms share credit.
Good News 