Engine Running Cold

Here’s the increase in the percent of men out of the labor force (neither looking for work nor working) by race, since 2003:


The main reason for this rise isn’t really because guys are staying home playing video games (though there’s some of that), it’s because the baby boomers are aging out of the workforce, sometimes earlier than planned. But there’s a point that I think sometimes gets ignored about this. A huge portion of the population leaving the labor force but still consuming, as is happening now, should be putting upward pressure on wages and prices for most goods, but it doesn’t seem to be doing so. We have 4.7% unemployment but haven’t had any sharp uptick in wage growth, and core inflation has been below the Fed’s 2% inflation target for a decade now, as Larry Summers points out:


A shrinking workforce as a portion of the population¬†should produce a lot of upward wage and price pressure, but it doesn’t seem to be doing so. This could be because of some kind of deflationary technological change, it could be because of falling birth rates among the portion of the population with more money, it could be because the people dropping out of the workforce aren’t consuming a lot of stuff that generates much demand outside of health care, or it could be because the captains and colonels of capital are capturing a larger portion of GDP but won’t spend all their ill-gotten money. But apart from ever-rising property values and rents in a few high growth metros and spiraling education and health care costs, the economy doesn’t seem to be running that hot even at 4.7% unemployment.

treasury (2)

And this is in spite of the >$4 Trillion the Fed pumped into the economy since 2007 but never really took out :

Balance sheet

My guess is that these kinds of macroeconomic processes drive a lot of elite support for mass immigration and increasingly for a Universal Basic Income; even if we aren’t going to run out of workers, it seems like there’s the real chance of not having enough consumers to keep the economy running at an even clip in spite of technological and demographic change. The lefty economist JW Mason has argued that the Euro monetary project was an attempt to “restore the rule of money” over the economy and society in the face of social democratic redistribution; this may be true, but if so, it would only compound the demand shortfall that seems to be the rule in post-industrial economies. This might explain why enthusiasm for mass immigration has been even more comically intense among Euro-friendly elites than among Beltway centrists over the last several years.

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