Liberalism and Its Discontents – Francis Fukuyama 2022

US politics are very polarized. Left and Democrat are nearly synonymous. Right and Republican are nearly synonymous. Professor Fukuyama sees an even greater threat from the challenges of the “New Left” and the “Hard Right” to the core principles of the “classical liberal” political system of the United States.

The book is a defense of “classical liberalism”. Limited government power. Legal institutions protect individual rights.

Not US center-left political liberals or EU center-right political liberals.

Classical liberalism is under attack from right – nationalist, cultural, authoritarian and from the left – postmodern theory, inequality, identity politics, group rights.

Classical liberalism born of history, 1700-1800, rationalism, science of enlightenment, anti-conservative aristocracy, church, tradition, favored groups. Partial solution to the post-Reformation religious wars. Dominant world view 1945-1990 as communism and fascism lost war of ideas. But, also opposed by romantic movement 1800’s, nationalism late 1800’s, communism 1900, fundamentalist religion, etc.

Inherently a practical solution to a world with unavoidable diversity of opinion and interests: religious, ethnic, state, culture, race, gender, class, etc. Privileges individual over community. Privileges institutions (law, military) over individual political actors. Privileges pragmatism over theoretical cleanliness. Privileges conflict avoidance above utopian justice. Privileges incremental change to revolution. Privileges all individuals’ rights versus just the most valuable individuals’ rights.

In a more diverse, global world, “classical liberalism” remains a solid choice for organizing society. The burden for promoting change lies with the critics.

1. What Is Classical Liberalism?

A. Individualist. Claims and rights of individual get priority over claims of any group.

B. Egalitarian. All individuals have an equal legal and moral standing in society. This contrasts with systems and philosophies where groups are more important. Nations, monarchies, aristocracies, oligarchies, autocracies, religion, class, race, etc.

C. Universalist. Humanity as a species is first. Specific historical forms, institutions, groups, leaders, cultures, etc. are secondary.

D. Meliorist. Social and political institutions and arrangements are imperfect, subject to improvement or decay. Liberalism is inherently pragmatic, accepting that no system or policy will meet the needs or reflect the values of all citizens. Compromise and tolerance are required to govern a state with unreconcilable differences. Liberalism sought to end the “wars of religion” where opposing sides were certain they were right and willing to fight. Liberalism accepts the need for a “strong state” to militarily offset the powers of “strong men” or “strong groups”, echoing Thomas Hobbes.

Individuals have rights because they are human. These rights are more important than social, political, economic and cultural institutions. Freedom of speech, association, belief and politics. Right to own private property and transact by choice. The right to vote and influence political decisions were added through time. Starting with these principles, governments are freely formed by individuals (contract theory) in order to protect individuals and preserve these rights.

Critically, “liberalism” is based on ideas, rational philosophical ideas, rather than history, tradition or power, per se. It is not only based on ideas, but also on history and experience. The “rational” dimension of “liberalism” can cause proponents and defenders to take positions that are considered “extreme” by others.

Contrast “liberalism” with “democracy” which is “rule by the people”. Democracies provide voting rights to most citizens and limit the power of strong groups to restrict the vote of the people. Not all liberal states are democracies. Democracy has expanded greatly during the 20th century. “Liberalism” provides an infrastructure that supports democracies and buffers attacks on them.

The emphasis on individual rights in “liberalism” causes an emphasis on laws and the rule of law, independent of the exercise of direct political power. The history of powerful rulers disregarding any inconvenient “rights” made the early proponents and adopters of “liberalism” champions of this “checks and balances” approach to governance. Again, critics of “liberalism” point out that highlighting just legal rights can lead to unbalanced political systems and societies that downplay other values and interests.

“Liberalism” claims to be a moral system. It honors human dignity, autonomy and choice. Individual choice is supported in most areas of life, constrained only by legal and regulatory limits agreed upon by political representatives. This right to choose applies to all people.

Economic benefits stem from property rights, freedom to transaction, legal institutions and the “rule of law”. Individuals invest in potentially profitable opportunities because they are confident that they will be able to capture and maintain most of the benefits from successful ventures. Historically, this has delivered strong economic growth with positive spillover benefits. Some critics question the use of economic measures such as GDP and growth as proxies for society, but the “order of magnitude” growth levels under “liberal” economic systems clearly provide enough benefits to allow society to prosper and redistribute as desired. Liberals also tend to support “free trade” policies for the movement of goods, services, finances and people because these voluntary trades result in net added benefits to both sides.

“Liberalism” is strongly associated with the “enlightenment” and the “scientific revolution”, relying upon logic and evidence to make objective decisions. It is also linked with the “scientific method”, noting that the free marketplace of ideas is effective in evaluating competing claims and drawing conclusions, even if those conclusions are only formally probablistic, rather than certain.

Liberalism emphasizes tolerance and compromise as virtues in order to defuse strongly held differences of opinion. Hence, it is inherently in conflict with any religious or political view or system that believes that it holds the only “truth” and that this “truth” must be consistently reflected in political, regulatory, judicial and social decisions. This tolerance for differences aligns liberalism with ecumenical religious groups and “relativist” ethical philosophies. It also aligns liberalism with a more dovish foreign policy approach recognizing the “rights” of all states and the global community as valid. Because of its tolerance for diverse religious views, liberal secular states are sometimes seen as opposing religion or supporting atheist or agnostic religious positions.

Historically, liberal states have resorted to war to protect what they saw as essential national interests.

Liberal states focus on the philosophical principles that shape nation-states (freedoms, rights, liberties) rather than religious, ethnic or cultural dimensions (blood and soil).

Equal rights for all people was slow to develop in liberal states, even when the principles were enshrined in declarations, constitutions and bills of rights. On the other hand, the ideals of equality played a role in expanding equality through time.

Historically, the new “liberal” systems were supported by groups opposed to the existing, “conservative” powers: monarchy, state churches, aristicracy, landed gentry. Capitalists, property holders, traders, urbanites and professionals supported “liberal” systems which provided them with greater economic, political and social rights than the received systems. Through time, the more ancient powers lost influence and the new “middle class” accumulated power and influence in the “liberal” system.

“Liberals” celebrated the defeat of fascism and Nazism after WWII and the defeat of Soviet communism in 1990. Fukuyama’s 1992 book “The End of History and the Last Man” documented this achievement. The widespread adoption of basic liberal principles and “mixed capitalist” states was a clear economic success and no clear competitor remained in 1992.

Left- and right-wing political groups emphasize different parts of autonomy or free choice in the “liberal” state. Conservatives and neoliberals (Reagan, Thatcher, free marketers) emphasize free economic choices and a corresponding limit to government economic roles. Democrats, leftists and progressives emphasize personal social autonomy. Libertarians emphasize all freedoms and oppose large government roles of any kind.

2. From Liberalism to Neoliberalism

The post-WWII “good times” rolled for 3 decades, but the growth of government activities, slower economic growth, stagflation, international crises and growing political opposition to the “status quo” lead to a reaction against the general economic and political consensus that a “mixed economy” was “good enough”. Reagan and Thatcher won solid election victories with clear messages of “less government”.

This pro-business, anti-government philosophy became known as neoliberalism and was broadly adopted in many western countries, with left-leaning parties adapting with more pro-business policies and less government activism (Clinton).

Fukuyama points to inefficient, ineffective and overreaching government as drivers of this major change in political views. He notes that reduced regulations, outsourcing, divestiture and lower taxes did lead to more competitive industries and economies leading to increased growth and employment.

He also paints neoliberalism as an extreme view, discounting any role for government and unduly emphasizing just the economic dimension of public policy. He doesn’t see a close tie between “classical liberal” political states and neoliberal political philosophy and tactics. Like most “liberals” and economists, he sees various roles for the government in a modern state due to inherent “market failures”. Basic consumer and environmental regulations, military and public safety, anti-trust, financial market regulation, public goods (education, infrastructure), regulated natural monopolies, limits to inequality. He suggests that public policy should focus on the effectiveness of government services first and the share of government services second, without and demonization of government or lionizing of “free enterprise”. He notes that the share of government services provided is a political choice made within a “liberal” system that could be very low (20%) or very high (80%).

Fukuyama outlines the basic economic argument for “free trade” (opportunity to make both parties and societies better off) and notes that this is of little succor to those who lose from free trade (workers, businesses, localities), especially when policies and programs to help them recover are non-existent, underfunded or ineffective.

He observes that the political failures to ensure efficient governments, effective politics (vetocracy), limits to inequality, proper financial regulation and balanced trade have driven opposition to government, politicians and political parties on the left and the right from critics on the left and the right!

3. The Selfish Individual

The author sees neoliberalism and its libertarian cousin as distortions of “liberalism”, focusing solely on an extreme view of individual economic results alone.

Property rights matter, but no more than other rights of choice. Property rights are supported by government institutions, so the quality of government matters. The original distribution of property is an important factor which cannot be “assumed away”. There is no reason to prioritize financial rights or physical property rights over intangible property rights or other things which humans value. Economic efficiency and growth are valuable, but tradeoffs exist with other socially valuable goals: peace, security, opportunity, expression, speech, association, equality, fairness, solidarity, growth, etc.

Consumption is not the highest priority. Production matters, not supply-side economics, but human connection to producing. Pride of authorship.

Anti-trust regulation is required to offset monopoly power. Political action is needed to offset regulatory capture.

Libertarian approved theory of “spontaneous order” has little historical or theoretical support. Markets, common law and social Darwinism are not simply “facts”.

The state also has a role in international trade policy, industrial policy, R&D, defense, public goods airports, etc. Not either/or.

The economics discipline’s reliance on selfish utility maximizing agents is not supported by casual observation or behavioral economics. People use crutches to make decisions. They work from habit. They are OK with “good enough”. Individuals value social goods like friends, status, respect, pride, safety and power. They consider “fairness” and other principles. Choices are influenced by social norms.

People play various roles in groups. The simple rational model of principal-agent is inadequate to explain behavior. People follow leaders, norms and procedures. They discriminate based upon prejudices even when it is economically irrational. People belong to many groups which influence their behavior: nation, class, religion, family, neighborhood, profession, gender, gender preference, age, marital status, civic, artistic, political, social, athletics, etc. The materialist, determinist, rationalist, objective, calculating model of human behavior is clearly inadequate.

4. The Sovereign Self

The individual, good inner self evolves to become a self-worshipping god.

When the “liberal” model first evolved, a Christian (or at least deist) religious framework existed in most societies which provided a moral basis for politics and society. Freedom of choice was made within a largely fixed moral framework for most citizens. Through time, the individual grew relative to the community and individuals were then positioned to choose their own moral framework. This positioned individual autonomy to be the supreme virtue, above all others.

Autonomy evolved from individual choice to group choice and rights. This resulted in questions about the underlying basis of “liberalism”: individual versus group, universal human rights or differences, and the requirement of tolerance.

Martin Luther’s focus on “salvation by grace alone” focused on the individual, especially the internal individual’s thoughts in contrast with the mediation of salvation through the authority of the church and priests and the works of man. Jean-Jacques Rousseau’s vision of uncivilized man as inherently good further focused attention on the individual, since it was possible to shape this blank slate which could be perfected, in contrast with the doctrine of “original sin”. Immanuel Kant used reason to define the limits of reason and to develop a rational basis for morality, essentially the golden rule, optionally expressed in the maxim that man should always be an “end”, but never just a “means”. Again, the individual was highlighted and separated from religion. In this context, the ability of each man to reason and make choices was elevated as a supreme virtue, potentially above morality itself.

Fukuyama indicates that the basis for extreme individualism was available from the start, but only in the 20th century, after two world wars, Darwin, Freud, Marx and Hitler, was this variety able to blossom. He stresses the growth of the self-help movement as a key accompaniment to the philosophical, political and academic evolution. Therapists replaced priests and ministers as the guides for personal growth.

The author focuses on the philosophy of John Rawls in his 1971 “Theory of Justice”. Rawls provides a theoretical framework of choosing society’s rules in a “veil of ignorance”, where each individual does not know what his or her abilities, talents, wealth and opportunities will be. Rawls argues that a “rational man” in this situation would set rules that would protect him from the worst-case circumstances, even if that required transfers of resources and limits to opportunity and overall output. This matches the rational “mini-max” principle developed in post-WWII game theory. This provided American political liberals with a justification for their preference to reduce inequalities of income and wealth through government redistribution.

Fukuyama argues that Rawls goes “too far” in removing any moral basis from society. This “moral” choice is made almost mechanically on the basis of thought alone. The political influence of real individuals is ignored. “Justice” is defined without reference to “the good”. Rawls says that the human subject is separate from his attributes (wealth, status, character, genes) which are assigned arbitrarily. Hence, all property belongs to the state and can be redistributed as required.

Robert Nozick’s 1975 book “Anarchy, State and Utopia” challenges this view, arguing that individual rights cannot so easily be acquired by the state based upon a philosopher’s story. Resurgent libertarians argue that the individual owns all property before the state has any rights. Philosophers since that time have been busy contrasting the “individualist” and “communitarian” views of ethics ever since. Even left-leaning philosophers like Michael Sandel criticize this “thin moral world” of choices without communities, traditions or other moral values. Fukuyama says that this most modern view of ethics compared with historical ethics is parallel to the evolution of liberalism to neoliberalism. A valid principle has been elevated to an absolute standing and lost its rationale and practical effectiveness.

Fukuyama claims that Rawls’ provides a philosophical basis for moral choice that is solely individual, independent of society. He notes that many commentators on “liberal” political systems see a requirement for some level of shared moral belief, including tolerance and public-spiritedness. The growth of the self-help movement, personal growth and self-actualization in the postwar era provided practical experience of the self, detached from religious and social norms. Rawls’ philosophy said that is “fine”. Existentialist philosophy evolved into postmodernism and complemented Rawls’ political and ethical philosophy. Fukuyama argues that these views undercut the social basis required for a liberal political system and that individuals lured into believing that total personal autonomy is possible will be dismayed when they learn this is not so and thereby reject historical individual based political views and pursue group-based views (next chapter).

5. Liberalism Turns on Itself

In the next two chapters the author outlines how modern “new left” thinkers have created a political theory that is quite opposed to “classical liberalism”, especially as outlined by John Rawls. “Critical theories” and postmodern philosophy reject any strong individualistic philosophy that does not give strong weight to groups, communities and society. Ironically, in this debate, classic conservatives and “new left” progressives are aligned, raising up the group as a critical basis for ethics, morality and a just political state.

Fukuyama focuses on the nature of the individual self in Rawls’ philosophy compared with that of others who propose “critical theories”. While most citizens don’t really want to dig this deep, Fukuyama and other philosophically minded academics, critics and political leaders consider this essential. In the Rawls model, and in other “classic liberal” models, the focus is on the rational individual facing a world of choices. From this existential situation, the need and desire for certain rights and freedoms to support these choices by the “choosing being” are developed and a consistent political and ethical model is developed. As with the ultra-skeptical Rene Descartes, the mathematical Newton and the medieval philosopher of science Occam, “less is presumed to be more” in “classical liberal” philosophies. If a few assumptions and observations about individuals are sufficient to create a robust and effective model, why make reference to groups or specific moral goods, especially after many philosophers wrestled with the distinction between facts and values, is and ought, descriptive and evaluative claims and concluded that these two groups of ideas simply don’t exist in ways that they can be combined and evaluated. In practical politics, liberals of all stripes are ready to insert and advocate for their “progressive” values, including the importance of groups and specific moral values. But this is missing from the philosophical model.

Philosophers have long seen individual identity as a crucial aspect of being a person, especially as a choice making agent. Without self-awareness and a personal identity, how can one make choices? For “liberals” the choosing agent makes choices which build that identity, preferences and moral framework to guide choices. Per Rousseau, the individual starts with a “blank slate” and constructs this identity. The individual is first; the environment, including family, groups and society is secondary.

For “critical theorists”, some group characteristics that are imposed upon the individual (race, ethnicity, gender, gender preference, culture) are much more fundamental. The individual may begin with a “blank slate”, but society forces its perceptions and values regarding these group characteristics upon the individual no matter how hard he or she may try to choose for him- or herself. The critical role of society, the group, the system, the power structure is unavoidable.

To the common man, even a very interested “John Q Public”, this seems to be “much ado about nothing”, senseless quarreling over “nature versus nurture” or “which came first, the chicken or the egg?”. But for philosophers, academics, theorists and advocates, getting to the “root cause” is precisely the most important topic.

“Identity politics” is aligned with the view that an individual’s identity based on these key groups is essential. Those with power in any society use that power to create ideologies, structures and norms that define these group identities in ways that benefit the elites of that society. Hence, individuals in the non-preferred categories are unwittingly deprived of their rightful power and marginalized. Individuals shaped and governed by society’s messages, institutions, laws, thoughts and actions must be re-educated to understand the “real” situation and combat their exploitation. This sounds very much like the Marxist view of western society before communism was discredited by the real-world actions and results of the Soviet Union. The marginalized groups replace the marginalized workers, both needing to be enlightened by the few who have “true insight”.

From the 1960’s “New Left” forward, proponents of “critical theories” and “identity politics” have rejected “classic liberalism” as being an ideology of the powerful classes designed to maintain power and exploit the “masses”. The progressive left rejects individualism alone as a valid basis for any meaningful political philosophy. It observes little progress on reducing inequality or helping individuals to develop their true identities free from socially imposed masks. Unconstrained capitalism is linked to “classical liberalism” and found guilty of supporting the elites and oppressing the marginalized groups. The divide between the center-left and far-left is very deep.

In 1964 Herbert Marcuse outlined the basics of this transition from Marxist to “new left” political thought in “One Dimensional Man”. So-called liberal democracies did not promote equality or autonomy. The elites captured the corporations and legislatures and controlled society to maintain political, economic and social control by the elites. Charles Reich’s 1971 The Greening of America provided a more digestible best-seller with a similar message. “Free speech” was deemed a tool of the powerful and questioned. The “working class” was determined to be coopted in a consumer society where Vance Packard’s “hidden persuaders” forced them to consume ever more, work ever more and envy others. Individuals didn’t really choose; they only had the illusion of choice.

The New Left questioned the individualistic “contract theory” underlying “classic liberalism’s” political model, highlighting examples of slavery, worker and marriage contracts that were clearly imposed rather than negotiated. They argued that the exploitation of society by capitalists, dominance of neoliberal ideology and capture of regulatory agencies were inevitable. They outlined the long history of colonialism, imperialism, destruction of natives and presumption of a superior “western civilization” as evidence that the powerful groups would always do whatever is required to maintain control. They documented the ways in which political “checks and balances” provided the ruling elites with additional levers of power. They concluded that “classical liberalism” was intellectually and historically bankrupt.

Fukuyama presents some counterevidence to oppose these claims. Liberalism does not exclude groups, morals, society or other values. Real-world liberal political systems incorporate these values. An extreme form of liberal philosophy (Rawls) is just a straw-man, not representative of how actual liberal political systems work. Liberal states have made social progress through time, voluntarily investing more individuals and groups with greater rights. Economic progress is obvious. Liberal states invest heavily in social welfare programs. Liberal political states make it possible for progressives, liberals, conservatives and hard right groups to all have voice and political influence. International trade and economic growth make possible individual choices, health, art, safety, security and self-actualization. The individual focus of the liberal state frees individuals from the constraints of traditional family, kin and religious bonds. Meritocracy is consistent with a wide range of human development and actualization ideals. Migration continues to flow from states with limited individual rights to those with liberal rights, the rule of law and economic advantages. Liberal states support multicultural societies. The worst “sins” of “western civilization” and liberal states, including colonialism, are receding into history. Eastern European, East Asian and other states have successfully adopted the liberal state model. “Checks and balances” result in sustainable political changes and prevent authoritarian rule.

6. The Critique of Rationality

“Classical liberalism” is also closely associated with a rational approach to determining truth. Historically, logically and currently it uses and supports the “scientific method”. An objective reality exists and can be discovered by observation. Theories begin with self-evident assumptions and are fleshed out using logic. Theories are evaluated by the testing of predictions. Theories build credence as they develop more testable hypotheses which are validated or not invalidated. Humans can understand this objective reality and use science and technology to control nature. Scientists keep facts and values separated. Scientific conclusions (theories) are inherently probabilistic, but relative confidence can be determined and agreed upon. Techniques to verify propositions are agreed upon by professional scientists. Evidence is more highly regarded than individual assertions. Testing is defined so that it can be repeated and verified. Progress accumulates, although changes in scientific theories do occur. Science, like the courts, journalism and the military, is led by professionals who are largely independent of political power.

“Critical theory” proponents treat science and rational discourse as another social institution subject to control by the powerful elite.

In 1882 Friedrich Nietzche proclaimed “God is dead”. The decline in religious belief and influence in western Europe, especially in elite circles, allowed this to be stated and analyzed. Nietzche was saying that society had substitutes for the concept of God as a way to explain the world and manage suffering, so God was no longer necessary. He saw that Christian morality underpinned western society and politics and that the loss of this framework was a radical and threatening change. In such a world without shared morality, the only virtue or value was power. Nietzche outlined the contrasting lives of those living by the Christian “slave morality” and those of a noble superman who sees himself as the measure of all things. He concluded that “there are no facts, only interpretations”. Nietzsche did not convince many of his views then or now, but he opened the door to considering such different viewpoints. No morality. Only power. No objectivity.

Nietzche was a precursor to the philosophical approaches that lead to postmodernism. Nietzsche’s professional training was in philology, the study of a language’s grammar, history and literary tradition. His contemporary, Ferdinand Saussure, was a pioneer in the development of linguistics as the science of language. He separated words from a direct link to reality. For him, the human process of speaking is dynamic and the meaning of words are shaped by the speaker, disrupting the naive view that words simply signify things. The act of speaking also shapes the worldview of the speaker, making language a subjective entity.

Saussare’s subjective approach to language and meaning lead a series of French intellectuals including Jacques Derrida in the 1960’s and 1970’s to develop an extension of this view. The claimed that the external world is actually created by the words that we use to describe it. Other philosophers had considered what was “really real” previously and some had proposed that reality is really a subjective creation of the mind rather than an objective, material fact but this approach had limited impact outside of philosophy. As philosophers focused on language as a primary topic during the twentieth century, this idea became more attractive and, in some sense, “plausible”. The next step was to link language back to the power structures which determine language. Now, we have the power structure determining language which determines thought which creates reality. With this “structure”, a critic could “deconstruct” the underlying meaning of any important writings and show how the power structure guided the writer to reinforce the beliefs and interests of the power structure. Many doctoral dissertations could be written to show that all of “the western canon” was comprised of individuals unwittingly working for the power structure.

Michel Foucault expanded from this criticism of the true meaning of written language to a broader attack on all modes of thinking done within the framework of language guided by the “powers that be”. A subject like cross-cultural studies was inherently defective due to assumptions shared by the ruling western culture. The liberal idea that all individuals share an underlying moral core was rejected by Foucalt and the postmodernists. Instead, the shared lived experience of group identity is considered most important and differs from person to person. A privileged white American male simply cannot understand the experience of a marginalized non-white non-American female. The group experience is most important. The combination of various dimensions results in the concept of intersectionality which defines the most relevant group in even finer terms. By denying the ruling group member’s ability to understand the experience of the minority group member, this approach undercuts any authority of the ruling group member.

Fukuyama says that some of these insights about the role of language, subjectivity, tools of power, self-deception, alignment of interests, hidden biases, unconscious prejudices, etc. are valid in some historical situations. However, he does not agree with the philosophical or political conclusions that have been drawn. He notes that the deconstructionists and postmodernists have written in ways to make their theories difficult to describe or evaluate. He asserts that the extremely broad use of power as the driver of all activity is inherently flawed, asking if Foucalt’s analysis is also driven by the power structure. He notes that this framework can be used effectively for political purposes, to fence off criticism from others with differing views and to force others to consider societal or systematic components of social challenges instead of focusing on individual moral choices.

The author concludes the chapter by noting that modern identity politics can be a tactic used to help left-leaning partisans increase the sharing of equal rights, opportunities and outcomes for all members of less-privileged groups within the framework of the liberal state model. Or identity politics can be a threat to the liberal model, denying universal modes of comprehension and experiencing reality and promoting groups as the primary political actors. He notes that the hard right often takes this same point of view, denying the authority of science or elites, creating its own language, denying free speech, challenging facts and elevating racial and national groups above the rule of law and universal rights of individuals.

8. Are There Alternatives?

The author summarizes some of the major criticisms of liberal states from the right and the left. He acknowledges that liberal states are imperfect at delivering these desired outcomes, even when they might be broadly accepted by the citizenry. He does not really address the true strength of this criticism. He has three responses. Better results could be delivered within the existing system through more effective political strategies and improved rules. The far left and far right usually don’t offer structural solutions that are better conceptually or practically. The solutions that are offered are typically offensive to the liberal state’s individual protecting principles and a majority of the citizens’ political opinions.

Social conservatives say that the liberal state offers no moral core beyond a soft nationalism, universal human rights, rationality, tolerance, respect for the rule of law, deliberation and compromise. The state “allows” morality and allegiance to groups but does not promote them. Hence, society has weak communities, low trust, diluted morality, limited responsibility and the absence of any overarching purpose. The bureaucratic state tends to overreach, prioritizing secular over religious views and empowering judicial and administrative actors to intrude on individuals. Unchecked market capitalism undermines family, community and tradition. The emphasis on individual rights undermines the efforts of groups to maintain ethnic, religious or other group cohesiveness.

Progressives focus on the lack of progress on addressing equal rights, opportunities and results for the broad population, but especially marginalized groups.

10. Principles for a Liberal Society

A. The quality of government matters, as does trust and support.

B. Inequality of opportunity, rights and outcomes matters.

C. Federalism is an important tool for controversial, non-critical issues.

D. Freedom of speech is a core value that supports other freedoms.

E. Privacy is a core right requiring protection.

F. The scientific method and rational problem solving matter.

G. Individual rights are fundamental. Group rights are problematic.

H. Human autonomy/independent choice is not a trump card. Groups, ethics, morality, nation matter too.

I. The liberal state rests upon the commitment and participation of its citizens.

J. Moderation is a virtue.

New College of Florida: Not WOKE

https://www.latimes.com/world-nation/story/2023-02-05/florida-liberal-arts-college-gov-ron-desantis-wants-to-take-over

The New College trustees could benefit from reviewing the actual current state of affairs. It’s easy to caricature New College as left and woke, indoctrinating students and not preparing them for careers. The college might take a random sample of students who graduated in 2012, 2002 and 1992 and summarize their experience, education and career results to provide some perspective.

I’ve taken my own non-random sample of 13 students from my time at New College: 6 that did a state legislature internship with me, 6 roommates/housemates and me. I’ll share their New College graduation status, major, senior thesis title, other education and quick career highlights.

Stephen Duprey. 1974. Public Policy. “The Concept of Representation”. JD, Cornell. New Hampshire State Representative. Investor. NH State Republican Party Chairperson. Advisor to many presidential candidates.

Josie Coster Martin. 1978. Political Science. “Candidates and the Mythic Presidency”. Republican New Hampshire State Representative. US House and Senate staff member. Lobbyist and communications director for a half-dozen national associations, including Pharmaceutical Research and Manufacturing of America (PhRMA). VP, Communications, Steward Health Care.

Darcy Ashman. 1978. International Relations. “Neighborhood Action”. Masters, International Relations, Fletcher/Tufts. DBA, Organizational Behavior, Boston University. Prolific author of academic papers. 30 years as project manager and consultant to international agencies. Recently, Technical Director, Management Systems International.

Betsy Crabtree. 1978. American Studies. “Split Seeds”. Recently President, SF Arts Media and Board Chair, Head-Royce School.

Janet Weisenford. 1977. Public Policy. “Things We Dreamt We Died For”. Masters, Public & International Affairs, U. Pittsburgh. 20 years Navy program manager. Senior Director, ICF Consulting.

Rick Kint. Music and IT. BM, Music, George Mason. MS, Info Systems, George Mason. Systems engineer, including a decade at Google.

Tab Uno. Political Science. BS, Political Science, Utah. MPA, Public Administration, Utah. MSW, Social Work, Utah. Therapist, licensed clinical social worker, candidate for Utah House of Representatives.

Bryan Sachse. 1979. Economics. “Inflation and Consumer Behavior”. MS, Finance, Cornell. MBA, Cornell. Vietnam Vet. Salesman.

Bridget Patton. 1978. Economics. “A Direct Test of the Tiebout Hypothesis”. law courses, CWRU.

Julia Carrasquero. 1978. Political Science. “Chief Justice Warren’s Legal and Socio-Political Theory”. Legal and post-grad studies at Sanford University. 30-year Army veteran. Training supervisor.

Glenn Hendrix. 1982. Political Science. “Islam and Politics in Egypt and Iran”. JD, Emory. Chair, Atlanta law firm Arnall, Golden Gregory.

Jane Marie Pinzino. Humanities. PhD, Religious Studies, U Pennsylvania. Humanities Librarian, Tulane U and Earlham College.

Tom Kapostasy. 1978. Economics. “Determinants of Migration”. MBA, CWRU. CPA. Executive finance and operations roles.

Summary

Some serious academic work in this sample. Ten of 13 completed New College degrees and defended their senior theses. Eleven added graduate degrees, a professional certification and other post-graduate work.

We have an arts executive, therapist, librarian and home professional, somewhat aligned with the New College stereotype. But we also have an international consultant, systems engineer, lawyer, investor, lobbyist, accountant, salesman, Navy program manager and Army trainer.

New College in the 1970’s had little “wokeness” and no “indoctrination”. Given the opportunity to focus on relevant coursework, we were highly engaged in learning and building learning skills. We argued politics. The faculty made sure that we always looked at multiple perspectives. There is always “room for improvements”, but I urge the trustees to apply their critical thinking skills to the current situation.

New College of Florida: A Matter of Perspective

https://www.foxnews.com/media/ron-desantis-shakes-liberal-university-appoints-six-new-members-new-college-florida

Florida governor and presidential aspirant Ron DeSantis decided that my alma mater, 700 student New College in Sarasota, Florida needs a makeover. He appointed 6 new trustees and expressed his desire for the publicly funded liberal arts college to be overhauled to better provide for the public good and to eliminate “woke” policies, practices and culture.

New College was founded in 1964 as an alternative private college with an innovative program of study emphasizing personal responsibility for learning using all available resources without the usual bureaucratic constraints. Private New College was folded into the University of South Florida in 1975 and eventually set up as New College of Florida, branded as “the honors college” of the Florida state university system. New College’s very low student faculty ratio (7-1 to 10-1) has made it an inherently costly investment. In 2021 Florida politicians introduced bills to fold it into some other state university. A new president was hired in 2021 to help the small college re-evaluate its academic, financial and political strategies in order to re-establish its long-term viability.

The college has continued to attract very high potential students, its graduates have a truly enviable record of graduate and professional study and fellowships, but its 5-year graduation rate is low versus comparable schools and its graduates disproportionately pursue academic, not-for-profit, small business and other non-traditional career paths so that the average measured financial success of graduates is not competitive with schools which produce students who pursue more conventional professional careers.

I hope that the 6 new trustees will invest some time to analyze the “current state” before seeking to overhaul, makeover or revolutionize the curriculum, culture, faculty and leadership. I believe that there is a large overlap between what really matters at New College historically and today and what conservative leaning Florida politicians, citizens and voters value.

The Individual Matters

New College curriculum and culture emphasize the central role of the individual in making life choices.

Personal responsibility for the student’s program of study is at the heart of the curriculum.

Freedom of thought is honored. Left, Right or Center. Various shades of left.

Freedom of expression. Academic freedom. Free discussion. Free beliefs. Changes. Exploration.

Humility. Great thinkers among classmates, professors and writers. Chances are good that your views are not “simply the best”. In a post-Freudian world we only “know” so much. Many have a “piece of the truth”. Pride is risky.

Authenticity. Consistency. Self-awareness. Embracing feedback and interaction.

Ideals Matter

Ideals matter. The unexamined life is not worth living. Politics, community, philosophy, religion and spirituality matter. Dead serious. It’s important to proactively explore options and make choices. Evaluate choices versus experience, data and new frameworks, paradigms and world views. Individuals are responsible for developing personal philosophies.

Growth and Learning Matter

College provides an opportunity for tremendous learning in many dimensions. So much to learn. Consider all possibilities. Personal quest. No limits to growth. The journey matters. There is no end to growth and learning, so develop those skills. “Still there’s more”. Embrace feedback and interaction, even when it hurts.

Community Matters

Community of learners and seekers of knowledge, wisdom, truth, beauty and meaning. Small scale community where “everybody knows your name”. Forced to interact and be authentic. Academic discipline and profession matter. Generation matters. Groups matter. Politics matters. Service matters.

Character Matters

Classical philosophy focused on “living a good life”. Authenticity. Humility. Respect for others. Openness. Personal responsibility. Tolerance/acceptance of differences. Dead serious. Excellence. Merit.

Competency Matters

Demonstrated learning. The Western Canon. Mastery. Results. Achievement. Research. Critical thinking. Written expression. Debate. Progress. Examination.

Creativity Matters

“Both/and” perspective. Multiple intelligences. Multiple perspectives. Interdisciplinary views. Paradigms. Two cultures. Theory and practice. Local and global.

Founded in 1964

The post-war economic expansion was followed by a culturally conservative 1950’s and then concerns about the role of the individual in a world where big business and big government dominated. World War I and World War II shattered simplistic modern expectations of “progress”. Romanticism and utopian socialism were in decline. Cultural critics worried about the sameness of suburbia, the organization man, the man in the grey flannel suit and “the lonely crowd”. Existentialist philosophy was very influential at the time. I think that New College’s curriculum and culture were shaped by this founding period. Existentialism focused on the individual in a different way than Ayn Rand, but clearly on the individual. The key insight was that “in spite of” the challenges provided by modern knowledge and society, an individual could move forward (maybe).

The relation between the individual and various communities was a clear focus. The contrast between existential “existence” and the historical emphasis on “essence” by philosophers and religions alike was unavoidable. The “solution” was to study, learn and grow, while accepting that final, deterministic answers were very unlikely. The best a person could do was to work through life considering the conflicting viewpoints and holding on to whatever he or she thought was best. This is a fundamentally “liberal” view, even if many/most of the implications greatly support historical conservative views that aim to preserve individual character and institutions.

Unavoidable Conflicts Between New College and Modern Conservatism (The Rub)

Rejection of civil and religious authorities. Belief that the individual must choose (and live with the consequences).

Inherently a “relativistic” perspective. There are many ways to frame situations, decisions, politics, religion, etc. No one view, perspective or paradigm is clearly correct. Individuals may embrace fixed perspectives but should accept that others might make different choices.

The classic western canon of received literature and science continues to evolve. There is value in having “everyone” share in the study of “the classics” but diverse perspectives also have an important role to play.

Individuals belong to many “communities of limited liability”. The nation or church does not automatically take dominant priority.

The global community and priorities may be as important as the national and commercial perspectives.

No one deterministic religious perspective is fully adequate.

Individual “rights” compete with the community’s rights and interests.

There is an intolerance of “intolerance” by left-leaning institutions like New College and its students, faculty and leadership.

Summary

New College was founded in the early 1960’s within a culture that raised up the individual in contrast to the conformist social norms of the state, community and businesses. Yet, it was a child of the US which embraced individualism even as it promoted patriotism. The New College curriculum and culture which I experienced in the 1970’s and which largely continues today supports this individual centered model of learning and personal growth. Most of the curriculum and culture is compatible with classic conservative views. Some of the beliefs are incompatible with more fundamentalist conservative views. New College has recently become a pawn in the national “culture wars”. I hope that the trustees will see the very positive role which New College can play in helping a small share of students to wrestle with the difficult questions posed today and contribute mightily to society.

Firms and Jobs 3: It’s Complicated

The relationships between firm size, age, growth, survival, death, locations and job creation and retention are many, complex and politicized. However, the core relationships expressed in my 2 recent posts are well supported by data and theory. I’d like to share more background information.

The 10-year job survival rate for startups is roughly 80% and has improved in the last 10 years. However, the FIRM survival rate is much lower. The surviving firms, through economic natural selection, grow rapidly from a low (4 average employees) initial base.

This study of 2011-14 highlights the initial start-up job surge, followed by 10 years of net job attrition and then modest net job growth by mature firms when low firm death rates (5%) are exceeded by decent levels of net jobs added.

The Small Business Administration (SBA) reports the average firm survival rates for 1994-2019 as roughly two-thirds for 2 years, one-half for 5 years, one-third for 10 years and one-fourth for 15 years.

My review of the 10-year data confirmed the 33% rate for most of the period, with an increase to 36% for firms that began after the Great Recession in 2010-12.

https://www.chicagobooth.edu/review/surprising-numbers-behind-start-survival-rates

This post-recession improvement was widespread, across most industries.

In 2010, Kauffman Foundation researchers summarized the detailed Business Dynamics Statistics (BDS) data, showing the relatively slow decline in net added employment from 100% initially to 80% at 5 years to 70% at 15 years and the rapid decline in the surviving firms rate to one-half at 5 years, 40% at 10 years and just 20% at 25 years.

Another Kauffman report from 2010 shared similar results. The universe of firms is dominated by young firms because the cumulative attrition makes “mature” firms quite rare.

Another Kauffman report in 2009 summarizes this competition between dying firms killing jobs and surviving firms adding jobs. In the first 5 years, the firm failure rate is so high that it overwhelms the high job growth rate of those successful startups. In years 6-10, the death rate is still winning, but the total net job destruction is much smaller. For this 18-year data set, firm deaths exceed added jobs at every age, although 29+ year-old firms basically break-even. This is a critical insight when thinking about the claim that all or nearly jobs are added by startups. It is “true” due to the firm survival and jobs added rates at different ages. It is possible to have quite different results, with existing firms accounting for relatively more jobs, but that would require either the firm/establishment death rates to fall or the job creation rates of surviving firms to increase significantly. It looks like there has been some of that change after the Great Recession. This chart also helps to show that the “net, net” addition of jobs from start-ups, when considered as the sum of their first 5 years is in the 75-80% range, because the net jobs lost in those early years is only 5% per year, despite the more rapid loss of firms.

My summary of the last 30 years of data shows that startup firms do account for “all” new job growth. As others note, in a way this is almost “by definition”, because this is the only age group that only has “adds”, but no “losses”. It always must be positive. As we’ve seen in the details on job departures/hires, jobs created/lost, firms created/lost and establishments created/lost the positive and negative flows tend to be “roughly equal”. Hence, even a single year which is not burdened with an offset will stand out as the “big winner”. So, on the one hand we can discount the critical, essential, vital role of startup job creation, but we can’t ignore it. It is a necessary part of the life cycle of firms that delivers a growing economy.

The 2010 Kauffman study combined the initial jobs created with the jobs lost in the next years to emphasize the vital role of startups, using 2007 data. Mature firms also made a small contribution to jobs added.

Click to access size_age_paper_R&R_Aug_16_2011.pdf

A follow-up report in 2011 by Dr. Haltiwanger summarized the data slightly differently but tells the same story. New firms, nearly all “small”, account for almost all job growth. Other small firms destroy jobs in their first 10 years at a high rate and as mature firms at a modestly high rate. Middle-aged firms lose jobs while successful firms grow to more than 500 employees and become large firms! Young large firms add a few net jobs. Old large firms lose a small percentage of jobs for this time period (1992-2005).

The same author updated the calculation with more recent data and found the same basic results.

https://www.census.gov/library/stories/2022/02/united-states-startups-create-jobs-at-higher-rates-older-large-firms-employ-most-workers.html

The central takeaway remains valid with more recent data across industries. The initial growth of jobs is not offset by the net losses in the next 5 years. Firms more than 6 years old do not add jobs overall.

https://www.bls.gov/opub/ted/2018/over-the-last-decade-large-firms-responsible-for-48-percent-of-net-job-growth.htm

A different set of data indicates that about one-half of net jobs added come from firms with 250 or more employees.

Another analysis indicated that nearly all added jobs were at “middle market” firms rather than startups.

https://www.bizjournals.com/bizjournals/washingtonbureau/2015/04/middle-market-companies-create-most-net-new-jobs.html

I don’t know how to reconcile these competing claims but expect that the time periods chosen, and firm sizes chosen, are keys to understanding the significantly different claims.

https://www.bls.gov/spotlight/2022/business-employment-dynamics-by-age-and-size/home.htm

The most recent BLS report shows that startups and large mature firms add jobs.

In the early papers the Kauffman Foundation explains that it is new firms that drive new jobs. There is an overlap between new firms and small size that makes an analysis based on size alone appear to say that “small firms create most new jobs”; but the “newness” logically comes first. Existing small employment firms tend to shed jobs through firm death or internal job reduction.

Click to access size_age_paper_R&R_Aug_16_2011.pdf

A simple model focuses on just the first 5 years of a firm’s life after the initial startup year and defines four buckets of job growth and loss due to adding new establishments or experiencing deaths versus internal job growth (up or down) at the survivors. All four buckets matter. New establishments are infrequent for startup firms. Deaths are a major job killer. Job creating firms outweigh job losing firms. But the net gains from internal job growth is less than the drag from firm deaths.

Kauffman also created a complete theoretical model of job changes through time based on the key parameters and demonstrated that the model was a good match with the observed relative consistency of the parameters and the net output of jobs created. In a prior life, we called this the “layer cake” graph, using it to explain the composition of revenues or profits in a business based upon the year of customer contracts signed or new products introduced. At any point in time, there is a history of additions of various ages. Employment tends to decline over time based upon the combination of firm deaths, establishment gains/losses and internal job growth. Each year a new group of firms is added, all with job gains in the first year. This group too follows the pattern of job erosion in the first 5 years, smaller erosion in the next 5 years, close to break-even by age 20 and small net job creation for the mature surviving firms. Again, the parameters could be different, and the results would be different. But this framework provides economists and statisticians with the tools to analyze the components.

Another author created a dynamic model which illustrates how this process works through time.

https://www.cbpp.org/blog/startups-fuel-job-growth-animated

The Small Business Administration promotes the view that small businesses (less than 500 employees) are essential to the US economy and create a majority of all jobs. As noted above, startups are the key. Size is a byproduct.

https://bipartisanpolicy.org/blog/trends-in-new-business-creation/

In my earlier post I discounted the importance of the decline in the share of new to total firmsbecause the corresponding decline in failure rates and improved job creation by mature firms was still delivering solid annual job creation. However, this warning signal is worth monitoring together with the other measures. The Brookings Institution provides some other “warning signals” about the health of the new firm/job creating capacity of the economy in light of reduced measurable competition in many industries (a topic for another day).

Startup rates are down in most industries.

New firms account for a smaller share of total employment.

Business formation takes longer. Recent Kauffman reports shows that this trend has continued.

The entrepreneurship rate of college educated Americans has fallen most significantly.

One professor analyzed this and concluded that it was the result of American firms taking advantage of the low cost of capital and paying the higher salaries and incentives needed to attract and retain high potential employees. He says that job creation is happening more in existing firms and less in startups with no negative overall effect. He says that “marginal” (low return) entrepreneurs have been removed with little negative impact on the economy as a whole.

The slowdown in the new firm/job creation rate after the Great Recession attracted much attention from the media and politicians. Two representative articles are listed below, mostly bemoaning the decline of startups/small firms and the relative growth of large firms.

https://www.inc.com/magazine/201505/leigh-buchanan/the-vanishing-startups-in-decline.html

With the renewed emphasis on small firms and public policy to support them, others have responded by emphasizing the benefits of large firm growth and questioning the need to support/subsidize small firm growth.

https://thereader.mitpress.mit.edu/small-business-job-creation-myth/

https://hbr.org/2016/06/do-startups-really-create-lots-of-good-jobs

https://www.washingtonpost.com/business/on-small-business/who-actually-creates-jobs-start-ups-small-businesses-or-big-corporations/2013/04/24/d373ef08-ac2b-11e2-a8b9-2a63d75b5459_story.html

Using less than 250 employees to define “small business”, this article shows a 4% decline in small business share and 4% increase in large business share.

https://www.wsj.com/graphics/big-companies-get-bigger/

The Wall Street Journal reports that there are now more employees at very large (2,500+) versus small (<100) firms.

Professor Haltiwanger reports that large, mature firms have increased their share of total employees from 50% to 60% between 1992 and 2018. Both large and small young firms have lost offsetting market share.

https://www.census.gov/library/stories/2022/02/united-states-startups-create-jobs-at-higher-rates-older-large-firms-employ-most-workers.html

A recent Census Bureau article documents the increased employment share of older firms (6 years+) in many key industries.

It also highlights the increased concentration of workers in large firms in the retail, health care, accommodation and food services sectors.

The WSJ articles itemizes the increased concentration of employment in large firms in the retail, services and finance sectors and documents that these are the growing segments of the economy.

Summary (It’s Complicated)

The Business Dynamics Statistics database provides researchers with the consistently defined and reported data since 1977 to document the key role of startup firms in adding net new jobs to the US economy. Startup firms are one part of an ecosystem of firm, establishment and job creation and destruction that plays out through time in relatively predictable ways. The death rates of young, middle age and mature firms play a similarly important role. The growth and decline of new establishments in existing firms matters. The internal job growth rates of young, middle age and mature firms matter. The relatively small size of startups compared to mature firms has an impact on job growth. Historical parameters are generally similar and change slowly, causing the layers of employment by firm age to be similar in this 50-year period. The model and framework for measuring firms, establishments and jobs is solid. Startup firms are essential, but they are not the only driver of success.

“Jobs created by firm size” is similarly shaped by all of these factors which describe the typical firm life cycle. Small firms are not superior job creators. New firms are job creators, and they happen to have small individual employment levels (4 on average), so small firms have higher measured rates of job creation.

In the last 10-20 years there has been a significant decline in the rate of new firm creation as a share of total firms. New firms created have not lost as many jobs due to firm deaths in their first 5-10 years. Mature firms continued to shed a disproportionate number of jobs during recessions, but after the Great Recession began to add more net jobs due to internal growth than they had in the prior 40 years. The overall number of jobs created has remained in the 2-4 million per year range across the 50 years.

The conservative SBA, Kauffman Foundation, WSJ and Republicans promote policies to ensure a thriving entrepreneurial environment for new and small businesses. The more liberal Brookings Institute, college professors and Democrats have an instinctive distrust of big business and concentrated economic power, so also lend support to some pro-small business policies. If job creation falters during periods of economic prosperity, this may be a rare place where bipartisan agreements could be reached to promote new firm and job creation.

DeSantis’ Revolutionary Board Appointments

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.

A Revolution Only at New College of Florida

https://www.foxnews.com/media/ron-desantis-shakes-liberal-university-appoints-six-new-members-new-college-florida

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.

https://www.seminolestate.edu/newsroom/article/6361/governor-desantis-appoints-two-to-seminole-state-s-board-of-trustees

https://news.ufl.edu/2021/02/governor-appointed-bot-members/

https://irsc.edu/news/articles/governor_appoiints_six_to_the_irsc_district_board_of_trustees_121622.html

https://www.sjrstate.edu/press2021/21-buchanan-board.html

https://ssrnews.com/governor-desantis-appoints-three-to-the-university-of-west-florida-board-of-trustees/
https://www.gulfshorebusiness.com/gb_daily/desantis-appoints-four-to-fgcu-board-of-trustees/

https://floridant.com/dfl/governor-ron-desantis-appoints-lauran-monbarren-to-the-university-of-south-florida-board-of-trustees-floridant-10138371

New College of Florida, Founded 1956-64

https://www.heraldtribune.com/story/news/local/sarasota/2019/05/17/im-pei-left-his-mark-on-sarasotas-new-college/5142336007/

A Very “New” Educational Program for 1964

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.

https://en.wikipedia.org/wiki/New_College_of_Florida

http://www.sarasotahistoryalive.com/index.php?src=directory&srctype=detail&refno=1488&category=Articles&view=history&back=history

Economic Context Circa 1960

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.

https://www.smithsonianmag.com/history/what-happened-americas-public-intellectuals-180963668/

https://magazine.nd.edu/stories/where-have-all-the-thinkers-gone/

https://lareviewofbooks.org/article/dilettantes-and-connoisseurs-the-public-intellectual-in-the-united-states/

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.

https://en.wikipedia.org/wiki/The_Power_Elite

https://en.wikipedia.org/wiki/The_Organization_Man

https://en.wikipedia.org/wiki/The_Man_in_the_Gray_Flannel_Suit

https://en.wikipedia.org/wiki/The_Lonely_Crowd

https://en.wikipedia.org/wiki/Vance_Packard

Book

https://en.wikipedia.org/wiki/The_Catcher_in_the_Rye

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.

https://en.wikipedia.org/wiki/The_Two_Cultures

https://www.theguardian.com/science/2012/aug/19/thomas-kuhn-structure-scientific-revolutions

Birth of New College

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).

https://en.wikipedia.org/wiki/The_Best_and_the_Brightest

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.

Inflation is Slowing

Brief Analysis Below Each Chart:

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.

https://www.cbo.gov/publication/58470

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.

https://www.federalreserve.gov/econres/notes/feds-notes/excess-savings-during-the-covid-19-pandemic-20221021.html#:~:text=By%20the%20third%20quarter%20of,%241.7%20trillion%20by%20mid%2D2022.

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.

2022 US Election Participation Rates: Fair

Record High Voting Rates in 2018 and 2022

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.

2022 Voting Higher than Recent Decades, but Lower than Record 2018 and 2022

https://www.washingtonpost.com/politics/interactive/2022/voter-turnout-2022-by-state/

Complete detailed breakdowns are not yet available.

https://www.washingtonpost.com/politics/interactive/2022/voter-turnout-2022-by-state/

Only 8 of 50 states had increased voter participation versus 2018.

https://www.statista.com/statistics/1184621/presidential-election-voter-turnout-rate-state/

https://circle.tufts.edu/latest-research/millions-youth-cast-ballots-decide-key-2022-races

https://circle.tufts.edu/latest-research/half-youth-voted-2020-11-point-increase-2016

Young-adult voting remained above history, but less than the record 2018 performance.

Alternative/Early Voting Remains High

https://www.usnews.com/news/articles/2022-11-04/early-vote-totals-point-toward-record-breaking-turnout-for-midterm-elections

https://www.axios.com/2022/10/22/2022-midterms-early-voter-turnout-numbers-2018

https://www.cnn.com/2022/10/20/politics/voter-turnout-analysis

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

https://www.census.gov/library/visualizations/2020/comm/participation-congress-election.html

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.

https://ballotpedia.org/Partisan_affiliations_of_registered_voters

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%.

Voting Rules Encourage and Discourage Voting

https://www.bbc.com/news/60309566

https://graphics.reuters.com/USA-ELECTION/VOTING-RESTRICTIONS/znvnbdjbkvl/index.html

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

Summary

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.

A Very Responsive US Labor Market: 1970 – 2021

https://www.staffordschools.net/Page/20853

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.

https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.bls.gov%2Fcps%2Fcpsaat11.xlsx&wdOrigin=BROWSELINK

Summary

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.

Appendix: Other Reference Articles/Sources

https://www.bls.gov/oes/current/area_emp_chart/area_emp_chart.htm

https://stacker.com/stories/3487/most-common-jobs-america

https://stacker.com/stories/3494/most-common-jobs-america-100-years-ago

https://www.usatoday.com/story/money/business/2014/04/28/americas-most-and-least-common-jobs/8285441/

https://billshander.com/dataviz/occupations/

https://www.bls.gov/cps/cpsaat09.htm

https://www.bls.gov/cps/cpsaat11.htm

https://www.dol.gov/agencies/wb/data/occupations-decades-100

Economy: Solid Landing

https://aviationweek.com/defense-space/sticking-landing-us-navy-software-eases-aircraft-carrier-landings

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.

https://fred.stlouisfed.org/series/GDPC1

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.

https://www.conference-board.org/research/us-forecast#:~:text=This%20outlook%20is%20associated%20with,percent%20year%2Dover%2Dyear.

https://seekingalpha.com/article/4514734-soft-landing-in-economics

https://www.npr.org/2022/07/24/1112770581/inflation-recession-soft-landing-rates-jobs-fed

https://www.washingtonpost.com/business/energy/why-fed-aim-is-growth-recession-a-not-soft-landing/2022/09/01/c85e9eb8-29c3-11ed-a90a-fce4015dfc8f_story.html

https://www.cnn.com/2022/09/26/investing/premarket-stocks-trading

https://www.bloomberg.com/news/articles/2022-09-13/jpmorgan-says-soft-landing-not-recession-base-case-for-markets

https://fred.stlouisfed.org/series/FYFSD

Federal spending added $2 trillion to aggregate demand in each of the first two pandemic years. In retrospect, too much extra demand.

https://www.cbo.gov/publication/58416

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).

https://fred.stlouisfed.org/series/PCEDG
https://fred.stlouisfed.org/series/CUSR0000SAD

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.

https://fred.stlouisfed.org/series/PSAVERT

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.

https://fred.stlouisfed.org/series/ISRATIO

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.

https://fred.stlouisfed.org/series/WM2NS

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.

https://fred.stlouisfed.org/series/MORTGAGE30US

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.

https://fred.stlouisfed.org/series/MSPUS
https://fred.stlouisfed.org/series/MSPNHSUS

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.

https://www.nar.realtor/blogs/economists-outlook/existing-home-sales-decline-5-4-as-home-prices-continue-to-rise-in-june-2022
https://fred.stlouisfed.org/series/HOUST

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.

https://fred.stlouisfed.org/series/CP
https://fred.stlouisfed.org/series/SP500

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.

https://fred.stlouisfed.org/series/CPIAUCSL#0

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.

https://fred.stlouisfed.org/series/PPIFIS
https://fred.stlouisfed.org/series/PALLFNFINDEXQ

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.

https://fred.stlouisfed.org/series/DCOILWTICO
https://fred.stlouisfed.org/series/DCOILBRENTEU

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.

https://www.atlantafed.org/chcs/wage-growth-tracker

Nominal wages accelerated during 2022, perhaps peaking at 7% annual growth.

https://fred.stlouisfed.org/series/LES1252881600Q

Yet, real wages have been falling for 2 years. We do not have a 1960’s style wage-price spiral.

https://www.washingtonpost.com/opinions/2022/10/07/september-jobs-report-analysis-no-recession-yet/
https://fred.stlouisfed.org/series/JTSJOL

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.

https://fred.stlouisfed.org/series/CIVPART

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.

https://fred.stlouisfed.org/series/LNU01300060

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.

https://fred.stlouisfed.org/series/LNS11324230

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.