This will be the last employment related chart for a while (I think) following recent posts This Time IS Different... Employment Edition and Breaking Down Productivity. This specifically outlines a much broader issue that will affect us over the long-term. Specifically, the level of U.S. debt and the number of workers available to pay down that debt.
The amount of debt per employed person has spiked in recent years to more than $100,000 per employed worker, up from ~$55,000-$60,000 throughout the 1990's.
There are a number of ways this problem can be solved / corrected:
- Economic growth (good)
- Higher taxes (not bad depending on your point of view, but not good for underlying growth expectations of the U.S. economy)
- Decrease government spending (good IMO, but also not good for underlying growth expectations of the U.S. economy)
- Inflation (decrease the "real" value of debt via a "tax" to savers / earners unable to keep up their returns / wages with inflation)
- Outright default (not feasible)
All that said, debt deflation is still a major concern of mine due to the levels of debt and political grandstanding currently taking place in D.C. See Steve Keen's epic piece that changed my understanding of the economic collapse here for more on this possibility.
Source: Treasury Direct / BLS
Hi Jake,
ReplyDeleteGood to see you posting again, and a I quite like this graph. You have a nice list of potential ways to correct the implicit problem of the graph, but I think you failed to highlight one major option.
There are two reasons why the the federal debt per employed person has jumped. The first is because the federal debt has jumped. But the second is because the number of employed people has dropped. Take a look at this Calculated Risk chart of Employment Population Ratio http://cr4re.com/charts/chart-images/EmployPopMay2011.jpg
Now all of your listed options to fix this problem focus on the debt. Why not instead focus on the number of employed people. If we could get the ratio back to the mid-2000s level, that would take 10% off of the total you're plotting.
Hi Kosta- you make an excellent point, but I will lump that in my "Economic growth (good)" camp. As I outlined recently, there are only two ways to make the economy grow:
ReplyDelete1) Output per worker
2) # of workers
I believe #2 is the lower hanging fruit for policy, but would need major structural changes to occur IMO (re-training workers, trade policy, etc...) as I don't think it is simply a low aggregate demand issue like the Fed seems to think.
I'll add another option of simply making it easier for highly educated immigrants to enter our workforce. If we can't retrain workers to areas that are productive and in demand, then "import" the talents like we've done for centuries. I don't think it is completely random that our economy has suffered since the post 9/11 immigration policies were enacted. Not the main cause, but definitely causing more pain...
ReplyDeleteI think structural unemployment is going to be a multi year process and thus not transitory.
ReplyDeleteThere would be another option to be discussed...
ReplyDeleteto prune off the system's strays class who produce nothing that are Pentagon,all Secret Services,Some Public employees,Politicians....
Corruption in governments. Lack of national unity to achieve national objectives is also the reason for difficulty in economic growth.
ReplyDeleteThe government may be bullish about economic growth next fiscal, but leading economists are not as confident as North Block.
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Why Federal debt, Jake? As you describe your post: "This specifically outlines a much broader issue that will affect us over the long-term. Specifically, the level of U.S. debt and the number of workers available to pay down that debt."
ReplyDeleteAnd you talk of the difficulty in achieving growth. But it isn't the federal debt that hinders growth. It is private-sector debt that hinders it, and private-sector debt which must be paid off.
Do the graphs.
ArtS
GDP is a huge source of tax revenue which is then used to pay off federal debt (i.e. the why federal rather than private). Personal income and/or personal wealth is more applicable to compare the level of private debt to IMO. If you search consumer credit and or debt, there are loads of charts on EconomPic that already outline those ratios. If I have time, I 'll re-produce.
ReplyDeleteJake, thanks for the clarification. I can search your older posts, don't re-do them for me... Two comments on your reply:
ReplyDelete1. I'm pretty sure they don't often "pay off federal debt". To see why I emphasize private-sector debt, Go to FRED and look at TCMDO relative to FYGFD.
2. You wrote: Personal income and/or personal wealth is more applicable to compare the level of private debt to IMO.
Yeah, IYO, and in the opinion of lenders everywhere, and economists too. But I think... bear with me Jake, I'm a hobbyist and I learned economics mostly on my own, so my ideas are often apart from the norm... I think comparing debt to income or wealth is a MICRO economic approach. I like to compare debt to the amount of spending-money in the economy. TCMDO relative to M1SL. Or perhaps TCMDO per AMBSL. I think my way is the MACRO approach, and nobody uses it, and that's why they "didn't see it coming" when the crisis hit. "Micro economic foundations", and all that.
Okay, I just gave you all my best stuff.:)