econcrit

Thursday, November 23, 2023

The Economy Slowed After 1973

Graph #1: Unemployment Level
Bigger is Better, or Click Graph # for the FRED Page

Tuesday, November 21, 2023

FYI: Population

FYI: Writing about this stuff helps me remember it -- and helps me find it again later, when I can't remember!

They have their reasons, no doubt, but economists use a couple different measures of population.

At FRED, this Real gross domestic product per capita page links to Table 7.1, which identifies FRED series B230RC0Q173SBEA as the relevant population measure for the per capita calculation. FRED calls that measure "Population". But when I search FRED for population, I get 107,803 results. So I call it "B23". I checked the arithmetic. Yes, that's the right population data for per capita GDP.

So we know the population measure for per capita output. But economists use a different population measure to figure labor force size. When they figure the Labor Force Participation Rate, they divide the Civilian Labor Force Level by a measure called Population Level. I checked the arithmetic here, too. The numbers work out.

So using two different measures of population is standard practice. The "B23" measure, FRED's "Population", is now approaching 340 million people. I did a quick check; these three other population measures offer numbers in the same neighborhood as the B23, but vary in details like data frequency and the start- and end-dates of the data:

FRED's "Population Level" dataset is approaching 270 million people, far short of 340 million. According to ALFRED, until 2019 this Population Level dataset was called the "Civilian Noninstitutional Population". And according to FRED's notes on the series,

Civilian noninstitutional population is defined as persons 16 years of age and older residing in the 50 states and the District of Columbia, who are not inmates of institutions (e.g., penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

The "Population Level" dataset leaves out a lot of people that the "B23" dataset includes.

By the way: To figure the unemployment rate, they count up the number of people unemployed, and divide this by a third population measure: the Civilian Labor Force Level. I think of that measure as a subset of the population, and it is. But it is also a useful measure of population. This measure is presently approaching a count of 170 million -- half the level of the B23 series, at 340.

Again, I checked the arithmetic.

This I find interesting: Economists talk about the Labor Force Participation Rate quite often. The participation rate is the number of people who have a job or want one, as a percent of the "Population Level", the small population measure, people who could have a job or want one.

The story is that the participation rate increased all through the 1960s and '70s and '80s because of the baby boom after World War Two, and because of the increasing entry of women into the workforce.

That story continues: The participation rate continued to increase in the 1990s, but more slowly. Then after 2000, the participation rate started to come down: People who started working in the 1960s were starting to retire in the 2000s. Then, after the financial disruption of 2008, participation started coming down even faster. This graph shows that history:

Graph #1: The Labor Force Participation Rate

Graph #1 is based on population after excluding people under 16, and people who are not US residents, and people who are inmates of institutions, and people on active duty in the armed forces. If instead we use a more inclusive measure of population, the graph will look different. For the next graph I use the bigger measure, my B23, the one FRED calls "Population". Now the "participation rate" looks like this:

Graph #2: The Keep-This-In-Mind Participation Rate

By this measure, the participation rate is well below 40% in 1962. It rises rapidly from the early 1960s to 1990, just as the official measure does. But that's it. It reaches 50% and stays there. It doesn't fall after 2000, as the official measure does.

The Graph #2 picture of the participation rate looks like it has reached an upper limit, a ceiling of some kind. Oh, yes, it came down two percentage points after the financial disruption of 2008. But it leveled off in 2014 and started rising the following year. By the end of 2019 it was almost back to 50%. And yes, with covid in 2020 the participation rate came down a couple points once again. But after the Covid Shutdown Recession, the rate went up again, and rapidly this time. By the third quarter of 2023 it had reached 49.96%. It will almost certainly be back to 50% by the time the end-of-year data is in.

Is there an upper limit to labor force participation? If we get a couple of years without a pandemic and without a financial crisis, this non-standard measure of the participation rate might go above 50% and keep on going up. Or maybe it will sit at the 50% level until the economy improves or, god help us, until it gets worse again. If we can go two years without some kind of global emergency, we will see if the participation rate can go over 50%.

Here's a thought: Maybe the Labor Force Participation Rate increases as the economy goes bad, because more people have more need for money at such times. If that is true, then both graphs above would indicate that the economy was going bad from the 1960s to 1990. I dunno if that's true -- and the two graphs disagree after 1990, so maybe not -- but going bad since the 1960s is a bedrock principle of my thoughts on our long-term economic decline.

PS: I'm not saying there is anything wrong with the official measure of the labor force participation rate. I just wanted to see how it would look if we used a measure of population that matches how I think of the US population: all of us.

Thursday, November 16, 2023

Still saying the same (after almost 14 years)

I re-post below mine of 20 February 2010, from my old blog, revised only slightly.

I should say that when I use the word "credit" you should understand me to mean "borrowed money". I use the word "credit" to distinguish borrowed money from earned money, because borrowed money comes with debt and the cost of interest. Earned money does not.

We use credit for money

I say debt is caused not by excessive spending, but by the use of credit. You think that's just silly. You think excessive spending causes the use of credit.

I agree: That can happen sometimes.

You: It happens all the time. It is why the federal debt is so big.

(I do not point out that if the Prodigal Son wastes his whole inheritance but not a penny more, he has spent excessively without using credit. Nor do I point out that the non-federal debt is bigger than the federal.)

Me: No. Excessive spending is just one cause of credit-use. There are other causes.

You: That cannot be. Excessive spending -- spending in excess of income -- always results in the use of credit. There is no other cause.

(I do not point out that if one saves 75% of one's income, and spends a frugal 30% of income by borrowing 5%, this also results in the use of credit.)

Me: Okay. But what you are telling me is: IF A > B THEN (B-A) < 0. That is a mathematical definition, and it is certainly true. But it is not a cause. The mathematical definition is true always -- even when we do not have a deficit. Why do we have deficits?

You: Well, the reason is corruption... the special interests... greed... liberal thinking... forgetting conservative principles. The reason is whatever causes spending to be more than government brings in.

Me: Oh, you are right about that: The reason is whatever causes spending to be more than government brings in. Yes, indeed. It may be that spending is excessive. Or it may be that spending is not excessive but is "greater than B" for other reasons. We will never solve these budget imbalances until we discover the real cause of excessive credit use, and fix that specific problem.

And what is the real cause of excessive credit use? The cause is economic policy:

• It is policy to minimize spending-money in the economy (to fight inflation).

• It is policy to encourage spending (to promote economic growth).

• It is policy to encourage the use of credit (as a source of spendable funds).

• It is policy to encourage accumulation of debt (by unintended consequence).

Why do we have all this debt? Because we use all that credit. It's policy.

Monday, November 13, 2023

Oatmilk Tea

Edit 17 Nov 2023 (Renamed); old name: "Not Economics".

No econ today -- but what would we talk about anyway? Government shutdown, again?

When I was 15 or so, some 60 years back, I spent the summer on my uncle's farm. He had a horse -- Sally, her name was. He had a wooden bin in the barn where he kept oats for the horse. First time I had to feed Sally I lifted the lid of the bin and -- WOW! It smelled so good!

So that was my first impression of oats. It's still with me today.

I was a coffee drinker my whole life, until recently coffee started messing up my stomach. Looked for an alternative but kept going back to coffee because nothing else tasted right. But finally, my stomach made me quit.

Went with tea for a while, switching, peppermint tea and green tea and Celestial Seasonings Cinnamon Apple Spice and back. Eventually I stopped longing for the taste of coffee, and settled on green tea. It felt like I was home again then, for a while. But I must have been making it too strong, and my stomach started acting up again. So I stopped cold turkey.

I wanted to drink milk. But milk is cold, and I don't especially like the taste. And then we got oat milk. Planet Oat Oatmilk, the "extra creamy original". This stuff tastes good. I never thought I would say such a thing. Before long I was making oatmilk tea, hot water with a little oatmilk. So now I think about Sally and Uncle Cecil and his oats bin almost every day. And my stomach, so far, is okay.

Time for another cup.

Sunday, November 12, 2023

Intrinsic value

"But what was always true in the past, and will remain so in the future, is that the output of a free market economy and the notion of wealth creation will reflect the value preferences of people. Indeed, the very concept of wealth has no meaning other than as a reflection of human value preferences. There is no intrinsic value in wheat, a machine, or a software program. It is only as these products satisfy human needs currently, or are perceived to be able do so in the future, that they are valued."
Alan Greenspan

Again, Greenspan says: