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Do healthier longevity and better disability benefits explain the long term decline in labor force participation?

by New Deal democrat

Do healthier longevity and better disability benefits explain the long term decline in labor force participation?

A few weeks ago I took another deep dive into the Labor Force Participation Rate.  There are a few loose ends I wanted to clean up (at least partially).

One of the most noteworthy things about the LFPR in the long term is that, for men, it has been declining relentlessly at the rate of -0.3% YoY (+/-0.3%) for over 60 years! Here’s the graph, normed to 100 in 1948, showing the long term decline (blue) and also normed to 100 in 1948, showing the YoY% change +0.3% (red):

Once we add +0.3% to the YoY change, the LFPR always stays very close to 100.

But what is the *reason* for this very steady decline that has already lasted a lifetime.

I want to lay down a hypothesis for further examination later.  I believe the secular decline in the LFPR for men, paradoxically, can be explained by two improvements in disability benefits and health:

1. expansions to the definition of disability; and

2. (a) better health care, leading to (b) an increased life span.

Here’s the thesis: 60 years ago, men (whose life expectancy from age 20 was only to about 67 years old to begin with) went from abled to disabled to dead over a shorter period of time.  Now at age 20 they can expect to live to about age 76, and if they get disabled, better health care will keep them alive for a much longer period of time.  And more conditions can qualify them for disability.  This means that a greater percentage of men qualify for disability, and once on it, they survive beyond working age. (Note that if somebody dies at say age 50 while on disability, they – ahem – are no longer part of the population).

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The “Cutz & Putz” Bezzle, Graphed by FRED

by Sandwichman
The “Cutz & Putz” Bezzle, Graphed by FRED

anne at Economist’s View has retrieved a FRED graph that perfectly illustrates the divergence, since the mid-1990s of net worth from GDP:

The empty spaces between the red line and the blue line that open up after around 1995 is what John Kenneth Galbraith called “the bezzle” — summarized by John Kay as “that increment to wealth that occurs during the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it.”

In Chapter 8 of The Great Crash, 1929, Galbraith wrote:

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A Brief History of South Africa, A Briefer History of Pre-Columbian America And How to Think About Justice

I’m no expert on South Africa, but I did some reading and pieced together a brief history of the country’s last 50,000 to 150,000 years. It begins with the San. Depending on who you ask and what evidence they are looking at, the San people have been in Southern Africa for somewhere between 50,000 to 150,000 years. For most of that time, the San and a related population, the Khoi Khoi (more on them below) have been the only people in Southern Africa. As a result, the Khoisan (as the San and the Khoi Khoi are sometimes collectively called) are somewhat genetically distinct;. The San seem to have split off from the rest of human race somewhere around 80,000 to 100,000 years ago. At one time, the Khoisan were most populous group of people on earth.

In the West, the San are sometimes referred to as Bushmen, and are perhaps best known for their click languages or their appearance in The Gods Must be Crazy. They maintained a Stone Age hunter gatherer culture, and tended to live in small groups.

Somewhere between 2500 and 2000 years ago, the Khoi Khoi (aka KhoeKhoe, aka KhoiKhoi, aka Khoi) began expanding out of their home territory of Namibia and into what is now South Africa. By that point in time, the Khoi Khoi were pastoralists, and they were more sophisticated and lived in larger groups than the San. Nobody was writing history in that region back then, so the precise nature of the interactions between the two groups are unknown. Nevertheless, archaeological evidence is clear: very quickly the Khoi Khoi ended up living in the the choice real estate and the San abandoned those areas to live in the mountains.

Around 1800 years ago or so, the leading edges of the Bantu Migration reached the southern edges of Africa. (I use the word “Bantu” with some trepidation. From what I can tell, it was a pejorative term in Apartheid South Africa and still used that way by those who feel the end of Apartheid was a mistake. On the other hand from my perusal of the literature, elsewhere in Africa the word “Bantu” seems to have no negative connotation. More than that, the word is widely used by the scientific community and is the most precise description of the population in question.)

The Bantus were tribes originating in or around Ghana. Around 5,000 years ago or so, Bantu groups began radiating out from their ancestral home. The Iron Age Bantu tribes were more advanced than the San and Khoi Khoi. The result was that several Bantu groups, the Nguni and the Sotho-Tswana, carved out territories for themselves in areas that had previously been inhabited by the San or the Khoi Khoi. Nevertheless, the displacement of the existing population moved slowly.

In the 18th and 19th centuries, though, the pace picked up. On the one hand, there was the arrival of the Europeans. Sometimes the Dutch and English found virgin territory, but often they simply ousted established Khoi Khoi or Bantu tribes. At the same time, one Bantu tribe, the Zulu, under King Shaka, began a period of rapid expansion. Shaka was cruel but effective, and the Zulu quickly subjugated other Bantu and Khoi Khoi tribes alike. (One of the few benefits of being forced into the worst land was that the San, in general, weren’t subjected to much interaction with Shaka’s Zulu or even the Europeans.)

Eventually the Europeans defeated, subjugated, and marginalized the Bantu tribes, which in turn had defeated, subjugated, and marginalized the Khoi Khoi before them, who in turn had defeated, subjugated and marginalized the San who were the first people in the area.

Fast forward a bit, to a few decades ago. The afore-mentioned Apartheid came to an end. This was brought about through secret meetings between leaders of the European-descended groups and the leaders of one of the most populous Bantu groups, the Xhosa tribe. The South African system has, since then, been run more or less democratically, though it should be noted that the the same party, the African National Congress or ANC (sometimes referred to locally as the Xhosa Nostra in an obvious allusion to the Mafia) seems to win all the relevant elections despite representing less than half of the Black population, let alone the San, Khoi Khoi or Whites.

So how should one think about all of this? Apartheid is obviously horrible system and it is tremendously unfair.  That, incidentally, is the most charitable description I have for it.  Leaving aside allegations of impropriety by the ANC, one person one vote seems, on the face of it, to be the fairest way to run a country. And now, if never before in the last 150,000 years, South Africa does have (in fact or in appearance) such a system.

On the flip side, consider this from a different perspective that is popular these days: the perspective of racial justice. Its a useful perspective since it was a term people used to define the struggle against Apartheid. Maybe I’m missing something, but from that point of view, the current outcome is only fair if the San don’t count. Otherwise, the power, the land, and the resources of today’s South Africa would be hands of the San, the original residents of the area and the victims of 2,500 years of oppression at the hands of pretty much everyone else.

That won’t happen. At this point, the San population continue to face discrimination.  Few of them are left.  There might be 10,000 in South Africa, and maybe 100,000 in all of Southern Africa. Nor is the South African government showing much concern toward the San. For example, South Africa has eleven official languages, but none of them are San languages. Or Khoi Khoi languages, for that matter.

Now let’s change gears and bring this a bit closer to home. We can do a similar look at the history of the Americas, though the time frames are compressed.   The latest genetic research of which I am aware seems to suggest the possibility that in many (most? just shy of all?) places in the Americas, the populations that were present when the Europeans arrived had, ahem, replaced earlier populations that had previously resided in the same areas. The less polite description for what happened (time and again) is genocide.

Now, there’s an old expression in Brazil: Ladrão que rouba ladrão tem cem anos de perdão. Loosely translated – a thief who robs from another thief deserves 100 years worth of pardons. Personally, I disagree with this proverb. But I also strongly disagree with the idea that we can somehow achieve justice by giving unearned advantages to descendants of yesterday’s perpetrators simply because their ancestors have since fallen victim to more effective perpetrators. If we start out with realistic notion that just about all of us are the descendants of both perpetrators and victims, the rule for achieving justice becomes obvious:  try to arrange for everyone to start out on as equal a footing as possible, and then let each person rise and fall according to his or her own merits.

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Paul Ryan not taking Phone Calls Faxes, or Petitions

A suggestion from Michael Halasy:

The Randian Congressman Paul Ryan has turned off ALL of his public telephones & fax machines in response to protests in favor of the Affordable Care Act, Planned Parenthood, Medicare, etc. He is also NOT accepting signed petitions and is TURNING-AWAY voters who deliver the petitions. So, let’s see what 67 million postcards looks like in his driveway. Please start mailing postcards to his HOME:

Congressman Paul Ryan
700 St. Lawrence Ave.
Janesville, WI 53545

Costs less than a buck to deliver this protest and makes sense to me.

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Liberals Getting it Wrong on the Job Guarantee

I’ve been quite troubled lately by voices I’ve been hearing from my compatriots on the Left discussing the Job Guarantee — especially in relation to an alternative, Universal Basic Income. A new Jacobin article by  displays several of the aspects that make me uncomfortable.

Get the Math Right. Right off the bat, I’m troubled by the article’s flawed arithmetic — not what I would like to be seeing from left economists who need to be scrupulous in their role as authoritative voices for the left.

…we argue for a FJG that would pay a minimum annual wage of at least $23,000 (the poverty line for a family of four), rising to a mean of $32,500. … In comparison, many of the UBI proposals promise around $10,000 annually to every citizen…half the rate that would be available under the FJG.

$10K per citizen versus $23K per worker is not “half the rate.”

How do the two policies actually compare? I have no idea. This is exactly the kind of difficult calculation that we need economists to do for us (it’s way beyond our abilities), so we can evaluate different policies. Absent analysis with clearly stated parameters (Who counts as a citizen? Children? Etc.) this kind of statement carries no import or information value.

These analyses have been done by economists. I’ve seen them around. But I don’t have them to hand; they’re exactly what I’d like this article to point me to. Are these authors unaware of this work, or did they just not bother to look at it, draw on it, or cite/link to it in this article?

Perhaps most important: this kind of slipshod analysis delivers live and loaded rhetorical ammunition to the enemy. It’s an invitation to (very effective) hippie-punching.

Get outside economists’ fetishistic obsession with short-term business cycles, and with the automation versus globalization debate. We’re facing decades-long campaigns to get any JG or UBI implemented, and decades- or centuries-long technological and job-market trends. If Ray Kurzweil’s exponential productivity growth is even somewhat valid (choose your exponent), we’re facing at a world where Star Trek-style replicators can turn a pile of dirt into a skyscraper or a thousand Thanksgiving dinners — and potentially, where a small handful of people own all those replicators.

In this world, nobody would ever pay a human to produce goods. It would be stupid. Will service work deliver the kind of jobs and wages that let a worker share the fruits of that spectacular prosperity? It doesn’t seem likely. Will the highest-paying service jobs themselves be automated? It seems likely.

That’s an extreme vision, but it embodies the long-term issues these policy discussions need to address. Instead we get from the authors:

The dangers of imminent full automation are overstated…. No doubt, stable and high-paid employment opportunities are dwindling, but we shouldn’t blame the robots. Workers aren’t being replaced by automatons; they are being replaced with other workers — ones lower-paid and more precariously employed.

They’re pooh-poohing the technological future — continuing centuries of Luddite-bashing — because (quoting Dean Baker):

In the last decade, however, productivity growth has risen at a sluggish 1.4 percent annual rate. In the last two years it has limped along at a pace of less than 1 percent annually.

Issues here, in very short form: 1. Productivity and “economic capacity” measures are wildly problematic, both theoretically and empirically. The econ on this is a mess. 2. A decade, much less two years, is not even close to a trend. 3. The automation vs offshoring debate is specious; they’re inextricably intertwined, like nature and nurture. 4. They’re (I think unconsciously) buying into the whole economic worldview and conceptual infrastructure (think: “factors of production”) that delivered us unto these times.

The authors are certainly correct that:

…the balance of forces over the last few decades has been skewed so dramatically in the favor of capital. … It’s time to get the rules right

But this fairly muddled (and hidebound) depiction of the issues at hand does little or nothing to suggest what the new rules should be. We need left economists to unpack these long-term secular forces and trends far more cogently — and radically. They need to be examining the very foundations of their economic thinking and beliefs.

The “Dignity of Work.” It actually makes me squirm in discomfort to hear liberals with very cool, interesting, high-paying jobs going on about the dignity of work. I’m just like, “how dare you?” That kind of supercilious presumption arguably explains why liberals have been losing elections for decades — especially the latest one.

Here’s the full passage on this:

Conventional wisdom holds that people dislike work. Introductory economics classes will explain the disutility of labor, which is a direct trade-off with leisure. Granted, employment isn’t always fun, and many forms of employment are dangerous and exploitative. But the UBI misses the way in which employment structurally empowers workers at the point of production and has by its own merits positive dimensions.

This touches on a heated debate on the Left. But for now, there is no doubt that people want jobs, but they want good jobs that provide flexibility and opportunity. They want to contribute, to have a purpose, to participate in the economy and, most importantly, in society. Nevertheless, the private sector continues to leave millions without work, even during supposed “strong” economic times.

The workplace is social, a place where we spend a great deal of our time interacting with others. In addition to the stress associated with limited resources, the loneliness that plagues many unemployed workers can exacerbate mental health problems. Employment — especially employment that provides added social benefits like communal coffee breaks — adds to workers’ well-being and productivity. A federal job guarantee can provide workers with socially beneficial employment — providing the dignity of a job to all that seek it.

The variations on the “dignity” thing are endless. Our authors here give us:

employment structurally empowers workers at the point of production

This is clearly something that working-class workers and voters are clamoring for.

by its own merits positive dimensions

Sure: in our current system where only wage/salary work provides “dignified” income, you’re gonna see positive second- and third-order effects from employment. Does a program where government provides the income (in most implementations, channeled through private-sector employers) change that pernicious social environment?

But wait: workers get communal coffee breaks!

The whole thing actually, rather remarkably, turns Marx on his head. The alienation that he imputes to working-for-the-man, wage labor is here transformed into the sole, primary, or at least necessary source of human dignity and self-worth. It’s the only way for the working class “to contribute, to have a purpose, to participate in the economy and, most importantly, in society.” Contra David Graeber, if there’s not a money transaction involved, it’s not “valuable” or worthy.

This before even considering the freedom to innovate and thrive that arises when you don’t have to go to work. (Every startup I’ve ever been involved in — many — began with endless hours of hanging out and drinking beer with friends.)

Like so much so-called left thinking over the last half century (think: The Washington Consensus), this thinking unquestioningly, even blindly, unconsciously, adopts and is entrapped by one of conservatism’s core economic mantras: “incentives to work.”

Why in the hell do we want people to work more? We know why conservatives do: because it allows rich people to profit from that labor and grab a bigger piece of a bigger pie. But isn’t the whole point of increasing productivity (or a/the main point) to work less while having a comfortable and secure life?

What the authors dismiss as “conventional wisdom” is in fact largely correct: Most people don’t want to go to work. Or they don’t want to work nearly as much as they do. They can manage their “relationships” and social well-being just fine, thank you. Sure, they enjoy the social interaction at work, to the extent that… But they go to work because they want and need the money. Full stop.

In 1930 Keynes predicted a future of 15-hour work weeks. Sounds idyllic to me. Does anyone think workers would object? Or do we have a better handle on their wants and needs than they do?

We haven’t even come close to that future. Two-earner households are now the necessary norm, and hours worked per worker has been flat since — surprise — 1980, after a very nice decline postwar. Here’s annual hours worked per household, even as households have gotten steadily smaller:

A job guarantee as I understand it does nothing to advance that Keynesian bright future. Given the pro-work rhetoric we hear from JG enthusiasts, it might just further entrench what you see above.

So three takeaways here:

• Get the math right. Do the careful, difficult analysis for us so we can make informed judgments. Or point us to the work that’s already been done.

• Look to your theoretical and empirical fundamentals. They’re often inherited, often unconsciously. They’ve been indoctrinated and inscribed into economists’ invisible System 1 thinking. Many of them are not conceptually coherent, or morally valid.

• Just stop talking about the “dignity of work.” It’s a huge own-goal — both the policy results (more work for workers), and the electoral results of that presumption.

If we want that Keynesian utopia — comfortable, secure lives with not a lot of work required — UBI seems like a far more direct path to getting there. If you want to give people comfort, security, dignity, well-being, power, the opportunity to thrive on their own terms, and economic security…give them money.

Cross-posted at Asymptosis.

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The 24 Trillion Dollar Bezzle

At the beginning of 2007, net worth of households and non-profit organizations exceeded its 1947-1996 historical average multiple, relative to GDP, by some $16 trillion. It took 24 months to wipe out eighty percent, or $13 trillion, of that colossal but ephemeral slush fund.

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Productivity and Capital Stock Per Employee

Last week Timothy  Taylor at Convertible Economist did a very good post on  gross vs net capital spending. Declining US Investment, Gross and Net

He showed that in recent years the more rapid growth of  high  tech  spending has had an unanticipated impact.  The new high tech equipment has a much shorter life span that more traditional equipment. Consequently, more and more of gross capital spending is just being used to replace old equipment ( depreciation).  Before the 1980s net investment was about 40% of gross investment but now it is only about 20% of gross investment. We are having to run faster and faster just to stay even. As he points out investment in capital is a major driver of productivity growth and is a major factor behind the stagnation in US economic growth.

I’ve taken his analysis one more step to show the relation between productivity growth and the change in real capital stock per employee.

productivity

 

 

As the chart shows, there is a very tight relationship between productivity growth and the growth of the real capital stock per employee.  I am convinced that this is a real and important factor behind the weak productivity and the stagnant economy in recent years. Real GDP growth  is essentially the growth of productivity plus the growth of the labor force. You should be able to tell that the trend growth of both economic series have a significant downward slope.

What I’m showing in this chart is not unusual and would fit in with most versions of mainstream economics.  But I’m going to take the analysis a step further and suggest that the underlying problem is cheap labor.  If labor is cheap, business has little or no incentive to make large scale investments to raise the productivity of labor.  Rather, the two dominant factor explaining much of business investment over the past few decades has been the shift of factories from the north to the south of the US and if this is not enough to shift production abroad.

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Any Economist Who Talks about Rational Investment is Full of Shit, Hoosier Edition

CPAC had a gathering of Republican Governors today. As Jennifer Hayden (@Scout_Finch) on Twitter noted, the Brownback/Walker/etc. panel was called “How to ruin your state’s economy with one easy tax cut.”

So naturally my thoughts shifted to the one way blowing up your state’s economy could be ameliorated: if some unearned windfall occurred. Could a Legislature be saved from itself?

Lo and behold, the PowerBall jackpot was won by a ticket in Lafayette, IN, last night. The Indianapolis Star (Dan Quayle’s ancestral paper, fwiw) notes that this is the second large-value ticket won in the Hoosier State in the past nine months:

A Powerball ticket purchased in Lafayette is worth about $435 million this morning, a Hoosier Lottery official said Thursday….

In July, another Hoosier hit a big jackpot in the Mega Millions game. That ticket, worth about $541 million, was sold at a Speedway gas station in Cambridge City.

One great thing about having people win nearly $1,000,000,000 in the lottery is the tax windfall for the State.

So what is the brilliant Indiana State Senate planning to do with those windfall profits? If you guessed “invest in human capital,” you must be an idiot or an economist (but I repeat myself):

A powerful Indiana Senate panel on Thursday slashed a proposed funding increase for a state program that sends poor children to preschool, jeopardizing a major pillar of Republican Gov. Eric Holcomb’s agenda.

The move imperils efforts by Republican and Democratic education advocates to help Indiana catch up with more than 40 other states that offer significant preschool programs, according to 2015 figures from the National Institute for Early Education Research at Rutgers University.

So much for that Rutgers-joining-the-Big-Ten thing meaning that Indiana State Senators pay attention to the needs of their constituents:

Increasing state funding for preschool programs was a major issue in the governor’s race last year. Democrat John Gregg called for a universal program, while Holcomb said he supported expanded access for poor kids. The state currently spends $10 million a year on a preschool pilot program, called On My Way Pre-k, which is offered in five counties. But advocates say demand far outstrips available funding and sought $50 million for preschool programs in the next state budget.

The Thursday vote by the Senate Appropriations Committee reduced a $10 million a year increase that Holcomb sought to $3 million.

Maybe that $7MM savings will go toward saving two more jobs at Carrier. Maybe the Fed could get interested; I hear an unpopular ex-Governor from that State might now have a position of power there.

The current pilot program was created at the behest of former Gov. Mike Pence, now the vice president, over the objection of many skeptics. But Pence shocked advocates when he opted not to seek $80 million in federal preschool funding for the effort.

Gosh, I wonder why he “shocked” them?

The adoption of a statewide program has proven politically difficult with tea party groups, religious conservatives and a network of home schoolers opposed.

Oh, right, because they were stupid enough to believe he cares about his constituents in the first place.

Short of destroying the entire Midwest with a neutron bomb, there is no chance those states will contribute positively to the economy this century. But economists will keep pretending that they aren’t destroying their seed corn, which may be even more pathetic.

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