On its face, the
seems to be OK again. After an unprecedented glut of spending and a resulting inflation crisis, employment has kept up while investors downgrade their risk of
President Joe Biden’s
victory laps seem to be celebrating a mere facade — an economy that is fundamentally unwell and flying on fumes.
BIDEN RELEASES DEBT CEILING MEMO WITH TWO QUESTIONS FOR MCCARTHY AHEAD OF MEETING
So first, the good: The unemployment rate sank to 3.5% at the end of last year, with jobless numbers hitting their lowest number in half a century. After two consecutive quarters of economic contraction (usually deemed a recession under every president except Biden), GDP output rebounded despite the Federal Reserve’s most aggressive rate hike campaign in decades. That campaign, in conjunction with quantitative tightening so successful that our money supply has decreased by 2.5% since its apex last March, has brought CPI inflation down from 9.1% in June to 6.5%. Against all odds, the Fed may actually manage to pull off its “soft landing,” bringing inflation down to its 2% target without inducing a painful and lasting recession.
And yet nobody feels that all is well. Even with the unemployment rate and economic growth rate back to pre-pandemic levels, people don’t have the same sort of economic confidence or satisfaction that they had achieved by the end of the last bull run. In February 2020, 63% of Gallup respondents
the economy as either excellent or good, with only 9% rating it poor. Flash forward to the end of last year, and nearly half of the nation deemed the state of the economy “poor.” Another 3 in 5 described it as “only fair,” with just 15% considering it excellent or good.
Scratch the surface of the seemingly good data about our economy, and these numbers start to make sense as they echo the sentiment that beyond the problem of inflation, which has destroyed price signaling in the market, the economy simply no longer works in the efficient way it used to.
The labor force participation rate was already declining before the pandemic due to the vast baby boomer generation gradually aging into retirement. But the pandemic and its shutdowns corroded our workforce, putting it in its worst state in 50 years. The labor force participation rate (a more meaningful figure than unemployment because it represents the share of everyone older than 16 who is working or looking for work) fell from more than 67% to 63.3% right before the pandemic and to 62.3% by the end of 2022.
The “Great Resignation” of lazy millennials has been vastly overstated, as 82.4% of adults aged 25 to 54 years old remain in the labor force, although parents (
and disproportionately mothers
) were indeed forced to halt their careers to accommodate the teachers unions’ school closures. The more sizable drop came from those 55 and older, some 4% of whom dropped out of the workforce early. A new study
that much of that labor force decline resulted from the boomers cashing in on the government-engineered housing boom during the height of the pandemic, concluding that if “housing returns in 2021 would have been equal to 2019 returns, there would have been no decline in the labor force participation of older Americans.”
This brings us to the ways in which the government ramped up its rigging of the game and how we will continue to feel the consequences in unprecedented ways. As inflation, which remains more than three times what the Fed will tolerate, continues to
households an average of five figures by the year, the White House continues to fight the Fed. Although Chairman Jerome Powell was willing to finance the first $5 trillion in pandemic spending under both former President Donald Trump and Biden, the Fed has made clear that as it sells off its balance sheet and raises the cost of borrowing, it won’t bail out the rest of Biden’s agenda.
Despite Biden’s boasts about supposedly reducing the deficit, literally all of that reduction is due to pandemic appropriations expiring. The 2022 deficit was $1.4 trillion, with interest payments on our $32 trillion national debt set to hit a record high of 3.4% of our annual economic output within the decade.
Why does Uncle Sam’s spending matter to the rest of us? Not only is the Fed’s standoff with the White House the last bulwark protecting us from ruinous inflation (Biden has made clear he has no consideration for the fiscal restraint required to combat inflation), but also the bill will inevitably come due to the taxpayer, lest we sacrifice our standing as the world’s reserve currency. As bipartisan bailouts (and the Fed’s asset inflation of the decade of quantitative easing) let the boomers escape the workforce as the wealthiest generation in history, America’s working-age population is stuck in an unprecedented position, with fewer than three workers forced to bankroll each decadeslong retirement of a senior who cashed in on all the pandemic spending.
The generational collapse in our workforce and monetary austerity were a long time coming, but only in the last decade have the Democrats been aided by the Republicans, who refuse to even pay lip service anymore to ending easy money. The only question is whether politicians of either party are willing to do the hard work, end the White House’s spending agenda, and salvage the solvency of both Uncle Sam and the little guy.