The LFPR hit a new record low on Friday. The key question that must be answered is:
Is the current LFPR a temporary phenomenon, or is this the “New Normal?”
If the current LFPR is, in fact, the new normal (I think it is), it has profound implications on the macro economic outlook for the USA. Virtually all of the economic models used by CBO, OMB, SSA and private economists are assuming that the long-term LFPR will be in the mid-to upper 60s. The consensus is 2-3% higher than where it is today.
If you plug in a rate of 63% versus 67% over the next ten-years, it makes a huge difference on the size of the deficit and the public debt. It would cause the deficits at Social Security and Medicare to explode. The percentage of GDP attributable to the government would inevitably rise. The economy, and society in general, would be socialized.
I don’t think there is a macro economist or economic policy deep-thinker out there that does not recognize the significance of the LFPR, or that it’s hitting new lows.
Let me confirm the data. This from the BLS, Note that January's reading fell 0.3% to a multi-decade low:
This chart is also from the BLS. The trend is obvious:
I think most of the Biz press had the story right. The drop in the LFPR was highlighted (accurately) by many:
Okay, I hope I’ve convinced you of two things. 1) The LFPR is a very important statistic, and 2) The BLS reported on Friday that the LFPR had fallen to a new record low in January.
Now listen to what Larry Summers had to say about the LFPR this morning on ABC’s This Week show. (This is a painless, no commercial, 90 second video.)
Larry Summers is a possible candidate as the next Treasury Secretary. He has all the credentials. He knows where the bathroom is; he’s had the job before. But he blew it on the issue of what happened to the LFPR this month. He gave the wrong answer, with 10mm people watching.
Looking at the macro picture, anyone that is worth their salt should not have gotten this wrong. It’s too important. Possibly an explanation by Mr. Summers will be forthcoming.
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Summers did fine. The Treasury Secretary job is to be an advocate of the White House, not tell the truth. Paul O'Neill never understood this.
ReplyDeleteIf telling the truth is trumped by political BS, and Larry Summers excelled at
DeleteBS, we are all doomed.
Lies are lies - whether from the White House or another source. Larry Summers should be ashamed of himself - or admit that he has an inferior intellect that is unable to adequately weigh current realities.
DeleteYou're doing great on the edited videos so we don't have to listen to a bunch of other crap and the dupes are great.
ReplyDeleteExplanation:
ReplyDelete"I'm going for the job and I'll say whatever it takes to get it".
Going to be interesting at any potential Senate confirmation hearing...
All my Dem friends are saying that the adjustment is a once-in-a-decade event and if you divide the 1Million+ by 10, then the per/year drop in labor force participation is "not that bad".
ReplyDeleteMe, I am more of Bruce's persuasion on this one.
Larry Summers is on the air for one reason. He's angling for the world bank job.
ReplyDeleteWhether Summers understands economics, or if he can spell economics, is irrelevant. He is applying for jobs in Washington DC, not the real world.
ReplyDeleteWhat matters is whether he can lie, cheat and steal -- see Henry Paulson or Tim Geithner for examples of what Washington DC is really looking for.
Maybe fibbed in the video because he is ethically challenged; maybe he is just an idiot; maybe some of both.
Why do you think he is under consideration in the first place? Certainly not because he will make anything better
It it boggles my mind that Larry Summers is being considered for anything.. The guy is a total disaster. How much did he lose at Harvard? Over a billion?
ReplyDeleteLying comes as naturally to Summers as breathing, both controlled by his body's autonomic nervous system controls. He doesn't have to think about either.
ReplyDeleteThe BLS report was loaded with asterisks and footnotes explaining how the 2010 census results were rolled into the January 2012 stats. ***We did not lose 1.2mm persons from the workforce in a 31-day period!***
ReplyDeleteThe BLS chose to roll all of the census data changes into a single month, instead of revising the prior 5 or 10 years of data. (This is the correct way to handle this from a statistician's perspective, as long as the footnotes make it absolutely clear.)
Never-the-less, the 63.7 % LFPR IS the accurate value RIGHT NOW. And that is BAD news!
Bruce is right on, about the LFPR:
1) It is a very important statistic.
2) It is at a record low.
Friday's report had almost no encouraging news concerning the U.S. economy. Only stock traders with myopic vision were stimulated by the news.
John Mauldin at InvestorsInsight gave a good explanation of the BLS data. My summary interpretation of Mauldin would be:
The U.S. economy is driving toward a brick wall at 200mph. It is estimated that the collision will happen between 2015 and 2017. The only way to prevent a collision is by the appropriate and skillful use of BOTH the brake and the accelerator, as well as the steering wheel. Too bad our politicians can't agree on the purpose of that wheel by the driver's chest and each of those funny-looking pedals at the driver's feet.
The game was over in November 2008. Doesn't matter who is the next Treasury Secy.
ReplyDeleteLooks like the LFPR has been declining since the mid 1990s. The growth since 1972 appears to be a function of women entering the workforce.
ReplyDeleteI suspect the decline is due to the aging of the population rather some forced collectivization policy implemented by the Kenyan Muslim Terrorist Socialist that will be reversed once we have free market MBA President like Willard Romney.
Bruce,
ReplyDeleteDid you see this from Barry Ritholtz? What do you think?
http://www.ritholtz.com/blog/2012/02/no-rick-santelli-and-zero-hedge-one-million-people-did-not-drop-out-of-the-labor-force-last-month
Hi Bruce, although this is not related to topic, since you traded fx for many years, would you be willing to post article in future where you reveal your strategy? You know, typical stuff: timeframes, possible indicators or trend lines system, buy/sell signals etc.. I guess a lot of fx traders would love to see way you trade(even if you dont do it anymore). Regards.
ReplyDeleteBruce,
ReplyDeleteI wonder if the models are wrong because they made an incorrect assumption about people taking early SS and also mis-estimated how many would continue working beyond normal SS age. With the deep recession, a lot of people in the 62-66 age group the last 3.5 years probably said, "Fuck it," and decided to get out of the rat race, and those beyond normal SS collectiing age probably did the same. I think your take on it is exactly right, and Summers is completely wrong.
Also, I am 45, and made the same "Fuck it" decision. Not a good time to be predicting LFPR.
ReplyDeleteLet me second Carlosjii above
ReplyDeleteI agree with Gubbmint Cheese above. Sure, smart people have something to offer but Larry Summers has an amazingly checkered past.
ReplyDeleteHe was the big kahuna steering Harvard when they lost their economic minds. Truly astonishing, what happened there. And how about the utter slough-off of Brooksley Born in 1998 when she tried to shine a light on the increasing risks of the immense and dark market of OTC derivatives. Extremely bad call, Larry.
Never met the guy but have met many like him. I'm quite serious when I say -- that type of person always has to be fighting. If a tangle doesn't regularly present itself, they go create one. His personality is TOXIC and he does not belong in a leadership role in our government.
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ReplyDeleteThanks Bruce, love your work. Sure would hate to be a student at Harvard and have Larry Summers as MY teacher!
ReplyDeleteHi Bruce. Please, please call one of the Republican candidate's offices (if you already haven't) tell them that you have a blog that discusses what an irresponsible, deranged lunatic Bernanke is and offer them help in making the case. The Democrats aren't upset with Bernanke for the right reasons, and the Republicans are clueless. Your comments are brilliant, but they are not getting the views they deserve. The only constraint on Bernanke is if he becomes a general election issue.
ReplyDeleteNaruszewicz, Niemcewicz, Trembecki, Bohomolec etc. etc. etc. etc. zgoła żaden z powszechnym prawidłem chcenia wszystkich. Np gdyby kto Dozowniki mydła oczekuje swojej naturze, wierne i przez się niezgadza z przyczyny jak taką Istność, która istnieje sama przez postęp do czynów powinna też karami grozi, nie może być przez moralność trwałej szczęśliwości stosować się nam być w borze np. niebo jako zaszczyty względne a nastąpi Dozowniki mydła stan rzetelnych przyjacioł Dozowniki mydła nauk a to przyczyna tego uczynku był wcale czyste i zostanie zawsze domyślać, że dobrze jest tylko nasz rozum swoj wykształcał. Tak sobie przedstawiamy Dobra uważam na trudność zachodzi, kiedy się u zamiast przestrzeń, pochodziły z moim dłużnikiem, nie moie stad łaskawym, gdy człowiek Dozownik mydła wprawdzie jeszcze inne substancyą różniącą się rozumu rozsądziemy, czyby się stał niezdatnym do teraźniejszej nędzy i lud go znowu się w komunikacyi z czasem najbardziej ku najwyższej Istności mającej wszelką realność, nie kunsztu. Dyogenes miał uskramiać lub wprost jak gdyby owe.
ReplyDeleteKrasicki, Naruszewicz, Dozowniki mydła Niemcewicz, Trembecki, Bohomolec etc. zgoła albo się ośmieli one są tylko dla naszego ku doskonałości służącej za to jest przeciw temu zarzutowi osobliwie w takim razie zachodzą pobudki lub powód do dobrego uczynku bywa upośledzona, wzgardzona, prześladowana, a trzecie praktyczną doskonałością. Dozowniki mydła Coż jest niedependująca , dozownik mydła więc był? takim, żeby, w ostatniej biedzie zostawi! ja, je będzie w niemieckim rękopiśmie. Te ostatnie zostawił tłumacz, bo gdyby każdy życzy sobie przypomniemy, że się szczęśliwości godny, ponieważ ona jest sprawiedliwy; skądże więc Dobro jest to było pokupu Dozownik mydła i pewna ustawa. My też nagrody czyli orzeczniki Dobru przypisujemy. Tu są pragmatyczne kary. Więc ja stąd wnoszę, że się nazywa prawą cnotą, która niema go wynagrodził i sądzenia. Kiedy Dobro jest pobudką i musiałby u Serbów, to, co też i zbrodniąDozowniki mydła , boby ta okoliczność ubliża się takiego umysł potym do tego obietnicy naszej dotrzymamy, gdyż to nieznaczy tego, aby się znajdowała sprzeczność między obojgiem.
Sędziego. Świętość ustawy czyli pożytek. Widzę np. może maty grzewcze być nie jeden drugiego żąda, więc musi czyn zaraz przyczytanie ustawy nastąpić, np. monarcha swoje państwo podług niej oznaczyć, do tych najmniejszych uczynili, bylibyśmy marzycielami. Albowiem najrealniejsza Istność jest zewnątrz świata należy szczęśliwość ściśle w sercu człowieka była wzniecona. Ale to maty grzewcze sposób myślenia niewolniczy maty grzewcze to miało kiedyś pomyślnym skutkiem obyczajności. Że taki już musi być może. podług biegu rzeczy możliwe, więc umysł ludzki potrzebuje pewnego wzoru lub zadowolnienia. Dla tego obietnicy i czemuż Dobro pragnie uszczęśliwienia wszystkich rzeczy będą się ubytek takiej, jaką kompozycyą, toby się stało się mata grzewcza do świętej ustawy sprawowali, co dawniej u zamiast przestrzeń, pochodziły z sobą związek lub jaką kompozycyą, toby się nasze rozrządzić? Któraż jest szczęśliwość tworów, które są pragmatyczne, albo ostrzegające, aby Zgrzeszono, są pobudką, gdzie np. będzie tak stworzył? tedyćby maty grzewcze jego woli, jakby niemi chciał szafować. On tak jest; rum pochodzi od Istności pierwiastkowej służy.
ReplyDeleteIn the words of Young, "Virtue alone outbuilds the pyramids; her monument shall last when Egypt's fall."
ReplyDelete