Where the U.S. Economy Is and Where It s Going

Transcription

1 Essays by David Houston home page Where the U.S. Economy Is and Where It s Going This essay was published on January 8, It provides a snapshot of economic output, income, and employment in the United States. This essay also discusses the nation s long-term economic prospects. Our economic prospects are very bright, but as the economy evolves toward a better future, the political system will be faced with very pronounced changes in the mix of products, services, and jobs in the economy. It appears that the political system will not respond as well as it should to those changes. There almost certainly will be more economic distress than there needs to be as the economy evolves. The snapshot is brief, and a great deal more can be said about its topics; but the snapshot provides much more information than the typical individual possesses concerning economic output, income, and employment in the United States. On the assumption that the public statements of our politicians concerning the economy are sincere, the snapshot provides much more information than the typical politician possesses concerning economic output, income, and employment in the United States. The sections of the snapshot are headed Three measures of economic output and one measure of income, Three measures of the manufacturing sector, Some measures of the labor market, and Income inequality and educational attainment. Three measures of economic output and one measure of income Gross domestic product is the highest it has ever been. 1

2 Real gross domestic product is the highest it has ever been. Real gross domestic product per capita is the highest it has ever been. 2

3 Real disposable personal income per capita is the highest it has ever been. Three measures of the manufacturing sector Real output of the manufacturing sector is higher than it was in the 1990s. Employment in the manufacturing sector is lower than it was in the 1990s. Labor productivity in the manufacturing sector is higher than it was in the 1990s. 3

4 Some measures of the labor market The civilian employment level is the highest it has ever been. The Bureau of Labor Statistics provides six measures of labor underutilization. Labor underutilization increased rapidly during the Great Recession. Labor underutilization has declined since Alternative measures of labor underutilization Seasonally adjusted,

5 Below are the descriptions the BLS provides of the alternative measures. (After setting forth the descriptions, I ll provide the definitions of some of the terms in the descriptions.) U-1, persons unemployed 15 weeks or longer, as a percent of the civilian labor force; U-2, job losers and persons who completed temporary jobs, as a percent of the civilian labor force; U-3, total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate); U-4, total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers; U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers. A person counts as unemployed if and only if he or she is jobless, is available to take a job, and has sought work in the last four weeks. The Bureau of Labor Statistics states: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. The December, 2016 U-6 rate of 9.2 percent, seasonally adjusted, shows that there is undesirable slack in the labor market. Some television personalities and some radio personalities have taken to calling U-6 the real rate of unemployment. U-6 can t correctly be called a rate of unemployment, since millions of individuals included in U-6 are employed. On the next page is a graph from the Bureau of Labor Statistics showing in thousands the number of persons employed part time for economic reasons. 5

6 Chart 8. Employed part time for economic reasons Seasonally adjusted, Numbers in thousands 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Beginning in 1994, data reflect the introduction of a major redesign of the Current Population Survey. Data online at 11 U.S. BUREAU OF LABOR STATISTICS bls.gov/cps 6

7 The labor force participation rate has declined during the presidency of Barack Obama. It also declined during the presidency of George W. Bush. To some extent, the decline in the participation rate is due to demographic changes. Our population is aging, and the participation rate for those over 55 is low. In 2000, the last year of the Clinton administration, the ages of the baby boom generation ran from 36 to 54. In 2016 the ages of the baby boom generation ran from 52 to 70. As of 2019, 100 percent of the baby boom generation will be 55 and older. 7

8 That our population is aging does not account for all of the decline in the labor participation rate. The labor participation rate for ages 25 to 54 has declined, and so has the participation rate for ages 20 to 24. The Bureau of Labor Statistics provides the following account of the reasons individuals gave for not being in the labor force in 2014: In 2014, 87.4 million people 16 years and older neither worked nor looked for work at any time during the year... Of this group, 38.5 million people reported retirement as the main reason for not working. About 16.3 million people were ill or had a disability, and 16.0 million were attending school. Another 13.5 million people cited home responsibilities as the main reason for not working in 2014, and 3.1 million individuals gave other reasons. (Source: People who are not in the labor force: why aren t they working? Accessed at: 8

9 Levels of educational attainment play a large role in determining labor force participation and in determining employment rates. As is shown in the table below, the employment-to-population ratio of those over twenty-five years old with a bachelor s degree and higher is a whopping 16.9 percent higher than the employment-to-population ratio of those over twenty-five years old who are high school graduates with no college. The employment-to-population ratio of those over twenty-five with a bachelor s degree and higher is 30.3 percent higher than the employment-to-population ratio of those over twenty-five with less than a high school diploma. Employment status for December, 2016 of the civilian population 25 years and over by level of educational attainment Educational attainment Participation rate Employment-topopulation ratio Unemployment rate Less than a high school diploma High school graduates, no college Some college or associate degree Bachelor's degree and higher Notes: The figures are seasonally adjusted. High school graduates, no college includes persons with a high school diploma or equivalent. Bachelor s degree and higher includes persons with bachelor's, master's, professional, and doctoral degrees. (Source: Bureau of Labor Statistics Table A.4 Employment status of the civilian population 25 years and over by educational attainment. Accessed at: 9

10 Income inequality and educational attainment Income is very unevenly distributed in the United States. Percent of aggregate income received by each fifth and the top 5 percent of households in 2015 Lowest fifth Second fifth Third fifth Fourth fifth Highest fifth Top 5 percent (Source: U.S. Census Bureau: Historical Income Tables: Households: Table H-2. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households, All Races: 1967 to Accessed at Below is table showing (1) median and mean household income for all households for the year 2015 and (2) median and mean household income by number of earners per household for the year Households with two or more earners are above the median income for all households and also are above the mean income for all households. Households with one earner or no earners are below the median income for all households and also below the mean income for all households. The differences in income between the two-or-more earner households and the remaining households are pronounced. For example, the median income of the two-earner households is 45,260 dollars higher than the median income of the one-earner households. Mean and median household income for all households and by number of earners per household for the year 2015 Number (Thousands) Median income Mean income All households 125,819 56,516 79,263 No earners 29,694 21,519 31,633 One earner 46,356 46,763 65,209 Two earners 39,648 92, ,269 Three earners 7, , ,956 Four or more earners 2, , ,966 (Source: U.S. Census Bureau: Historical Income Tables: Households: Table H-12. Household by Number of Earners by Median and Mean Income. Accessed at The differences in household income by level of educational attainment are stark. Below is a table showing the median and mean income levels of households by level of educational attainment for the year The table is restricted to householders 25 or older. A number of features of the table are noteworthy. It is striking that households with a bachelor s degree or more have more than twice the median income and more than twice the mean income of the high school graduate households. The value of an associate degree is very high. The median income of households in which the highest level of educational attainment is an associate degree is $20,438 higher than the median income of 10

11 the high school graduate households. The mean income of the associate degree households is $19,622 higher than the mean income of the high school graduate households income levels of households with householder 25 and over by level of educational attainment Number (Thousands) Median income Mean income All households 119,457 58,044 80,837 Less than ninth grade 4,671 26,252 39,853 Ninth to twelfth grade, no diploma 7,640 26,356 38,678 High school graduate (includes equivalency) 32,349 42,047 57,526 Some college, no degree 21,477 51,906 67,816 Associate degree 12,298 62,485 77,148 Bachelor's degree or more 41,022 94, ,662 Bachelor's degree 25,063 87, ,940 Master's degree 11, , ,084 Professional degree 1, , ,176 Doctoral degree 2, , ,536 (Source: U.S. Census Bureau: Historical Income Tables: Households: Table H-13. Educational Attainment of Householder -- Households with Householder 25 Years Old and Over by Median and Mean Income. Accessed at Some comments concerning what our snapshot reveals and suggests In some respects, the economy of the United States is moving in the right direction. Real GDP, real per capita GDP, real disposable personal income per capita, and civilian employment are at all-time highs and are increasing. There is some labor underutilization, but labor underutilization is declining as the economy grows. An economy that is moving in the right direction in those respects can nonetheless be in the process of leaving millions of individuals behind. Economically speaking, those over the age of twenty-five with only a high school degree do much less well than those over the age of twenty-five with at least an associate degree. Our snapshot of the U.S. economy suggests, but does not demonstrate, that it is in the best economic interest of millions of individuals over twenty-five to return to school and attain an associate degree. Our snapshot suggests, but does not demonstrate, that income inequality will become less severe if the percentage of households in which the highest level of educational attainment is a high school degree or less declines substantially over time. That income is too evenly distributed is definitely not a problem the United States faces. The effects proposed tax reforms will have on economic inequality if they are enacted must be taken into account if the nation is to arrive at rational policies. More broadly, the effects current policies are having on economic inequality and the effects proposed policies will have on economic inequality if they are enacted must be taken into account if the nation is to arrive at rational policies. Our snapshot does not demonstrate, but I believe, that the facts concerning income inequality warrant making the earned income tax credit much more generous. If my efforts as a writer go as I hope they will, I will publish an essay on the earned income tax credit. 11

12 The nation s long-term economic prospects Let us consider some changes that are very likely to occur over the next one hundred years. We shall find that the nation s long-term economic prospects are very bright, but that it is probable that there will be political failures in which the nation does not address in a reasonable way problems that arise as the mix of products, services, and jobs in the economy changes. Widespread use of self-driving vehicles is virtually certain within twenty years, and it s even more likely within one hundred years. Imagine the efficiencies and the benefits that will be realized in a world in which that technology is employed so widely that human beings rarely if ever drive vehicles. I ll mention only six: elderly individuals will no longer lose their independence due to becoming unable to drive; the number of deaths and injuries due to traffic accidents will be reduced very nearly to zero; the cost of repairing vehicles that have crashed will be reduced very nearly to zero; traffic jams that are caused by crashes will be reduced very nearly to zero; transportation costs for both human passengers and goods will be much lower; as a consequence of much lower transportation costs, gross domestic product will be much higher. It is very nearly certain that self-driving vehicles are but one of many technologies that will yield dramatic increases in productivity over the next one hundred years. If, as almost certainly will occur, productivity increases dramatically over the next one hundred years, gross domestic product will increase dramatically over the next one hundred years. That productivity will increase and that the economy will become larger over the next 100 years are practical certainties. It is less certain, but nonetheless very likely, that prosperity will become more widely shared as the nation becomes more prosperous in the aggregate. If prosperity does not become more widely shared as aggregate prosperity increases, the failure will be political in nature. Political failure to achieve widely shared prosperity cannot be excluded. However, we will have ever larger economic means to make prosperity more widely shared, and the politically realistic options for achieving a shared prosperity will expand over time as aggregate prosperity increases. That prosperity can and should become more and more widely shared as productivity increases and the nation becomes more and more prosperous in the aggregate is so obvious a truth that it is difficult to frame a credible scenario in which our politics fails to be informed by that truth for the next one hundred years. While it is probable that GDP will grow and that prosperity will become more widely shared, it also is probable that there will be very serious political failures in which the nation does not respond in a reasonable way to problems that arise for workers who are displaced as the mix of jobs in the economy changes over time. A modern economy s mix of products, services, and jobs changes over time. The mix of products, services, and jobs in the current economy differs a great deal from the mix of products, services, and jobs in the economy of one hundred years ago. The mix of products, services, and jobs in the economy of one hundred years from now will differ a great deal from the mix of products, services, and jobs in the current economy. It is a plain fact that numerous workers will be displaced over time as the mix of products, services, and jobs changes. A politician who denies that fact is engaged in lying or is deluded. Some types of employment will be severely reduced or eliminated entirely as technology advances and productivity increases. Consider, for example, what will happen to employment as self-driving vehicles are deployed. There will be fewer 12

13 and fewer taxi drivers, truck drivers, persons employed in body shops, and persons employed in the automobile insurance industry. There will also, thankfully, be less work related to automobile accidents for emergency room personnel, physical therapists, occupational therapists, lawyers, and undertakers. It is not inevitable that the nation will fail to address in a reasonable way the problems that will arise as the mix of products, services, and jobs changes. However, at this time the quality of political discourse in the United States is disgracefully poor. The most likely outcome, given the current trajectory of political discourse toward even greater irrationality, is that there will be a number of political failures in which the nation does not address in a reasonable way problems that arise as the mix of products, services, and jobs in the economy changes. Given the current trajectory of political discourse toward even greater irrationality, it is very likely that there will be political failures in which the nation does not respond in a reasonable way to problems that arise for workers who are displaced as the mix of jobs in the economy changes. Now let us return to discussing some respects in which the future is bright. Millions of individuals who use computers well have capabilities no one had before. The desirable trend of computers enhancing the capabilities of human beings can only continue. Results better than we can imagine at present will be achieved. As scientific and technological progress continue, the repertoire of concepts possessed by humanity will expand. In all probability, views concerning the conduct of life will be achieved that are expressed using scientific concepts we do not possess at this time and are informed by correct scientific theories we do not know at this time. Discussions of the conduct of life composed in the future may employ biological concepts we do not possess at this time, be informed by correct biological theories we do not know at this time, employ psychological concepts we do not possess at this time, be informed by correct psychological theories we do not know at this time, employ concepts that describe brain function we do not possess at this time, and be informed by correct theories concerning how the brain works we do not know at this time. Education will advance as scientific progress and technological progress are made. In all probability, there will be billions of instances in which an individual s life is enriched and made happier by an education that draws on contributions to civilization that have not been made as of this time, gives students abilities no persons have at this time, and gives students a repertoire of concepts we do not possess at this time. In all probability, views concerning the conduct of life will be achieved that are informed by truths we do not know at this time concerning the knowledge, the abilities, and the concepts education can impart. There will be billions of instances in which an individual employs a technology we do not possess at this time to achieve a healthier life, billions of instances in which an individual employs a technology we do not possess at this time to enhance his or her education, and billions of instances in which an individual employs a technology we do not possess at this time to benefit others. In all probability, views concerning the conduct of life will be achieved that are informed by truths we do not know at this time concerning technologically advanced ways of life. 13

14 In all probability, hundreds of millions of individuals in the United States and billions of individuals outside the United States will lead lives enriched and made happier by an education that gives them knowledge, abilities, and concepts no persons have at this time, by the use of technologies we do not possess at this time, and by views concerning the conduct of life that are expressed employing concepts we do not possess at this time and are informed by truths we do not know at this time. There are, of course, many ways in which the nation can fail to achieve a bright future in which prosperity is widely shared and the possibilities described in the above five paragraphs are realized; but the odds are with us. Our prospects are quite bright if we preserve and promote the conditions that give rise to scientific, technological, cultural, and economic progress. Few individuals alive today will live to see the more advanced world of one hundred years from now, but numerous individuals alive today will live to see substantial progress toward that world. Examining the nation s long-term prospects yields a vision of a better future that is both inspirational and attainable. Let us return to the nation s politics, which, as we have noted, is irrational at this time and is likely on current trends to yield very significant political failures. There is nothing inevitable about the persistence of irrationality, and giving up and concluding that the triumph of irrationality is permanent is unwarranted. It is easy to envision a better politics. Let us do so in this paragraph. By the rational political center, I mean the position in our politics that deals with the nation s problems in their full complexity. The rational political center addresses the legitimate concerns of both liberal political philosophies and conservative political philosophies. The rational political center is the place where reason arrives, consensus can be found, and majorities can be formed. To envision a better political future for our country, envision a politics in which the nation moves away from the currently triumphant superficial partisan analyses of our problems and toward the rational political center. Optimistic scenarios in which the political system reverses its trend toward evergreater irrationality and moves toward the rational political center are by no means precluded by the disgraceful current state of affairs. It is possible on the available evidence and it is reasonable to hope that in place of a descent into irrationality we shall have a politics that moves toward the rational political center. 14