Monday, September 7, 2015

Labor Day 2015

It isn’t a good story.

94, 031, 000 Americans were counted as not participating in the labor force in the most recent unemployment numbers. Some of them were laid off as they approached retirement. Age discrimination is real. Unable to find a job, they started collecting early Social Security. Even though the American workplace is safer than at any time in our history and medical advances coupled with changes in labor law allow more injured employees to return to their jobs, 10,988,000 Americans (an all time record) are collecting disability benefits. Some American workers have just given up. After spending a year or two looking for work, they are no longer actively seeking employment. Instead they sit on their sofas, drinking beer, watching TV, and listening to their wives’ complaints. For nine years, I lived on the edge of this world. Now both of those factories where I once worked are gone. The Government no longer continues to consider these “discouraged workers” a part of our workforce. Labor force participation is “stuck” at 62.6%, the lowest number in 38 years. To put this in perspective, 38 years ago in 1977 women were only just beginning to enter the workforce in large numbers. Alahambra Investment Partners notes in one of their recent reports that, after 93 months, the number of full time jobs has recovered to prerecession levels. However, during that time, the population continued to grow. Essentially, after accounting for population, there are still 13.6 million full time jobs missing from the American economy!

Prior to the crash of 2008, the employment/population ratio measuring jobs that required a high school or college education normally ran above the number for jobs not requiring a high school diploma. During the so called recovery, these numbers have flipped. The new jobs created since 2008 are typically low paying jobs for unskilled workers. The ratio for jobs requiring at least a high school education remains stuck at recessionary levels. Zero Hedge notes that the 1.4 million factory jobs lost since 2007 have been replaced with 1.5 million jobs for food servers and bartenders in the amenities & hospitality industry. Many of these new jobs were created as part-time positions to avoid the 30 hour limit, one of many perverse incentives found in the Patient Protection and Affordable Care Act.

Expect this situation to grow worse as the recent bear market continues to intensify.

The bifurcation of America is continuing. The new comfortable middle class (what was called the upper middle class) and the new poor both continue to grow at the expense of the shrinking traditional middle class. This phenomenon is examined in depth in two books that I highly recommend.

Our Kids: The American Dream in Crisis by Robert D. Putnam

Coming Apart: The State of White America, 1960–2010 by Charles Murray

One of these was written by a conservative/libertarian. One was written by a liberal. Although they propose different solutions, both define the problem in remarkably similar terms.

Let me rephrase their ideas in my language. Sixty years ago, although class differences certainly existed, there were fewer philosophical and behavioral differences between lower middle class blue collar workers and white collar professionals. Although they lived in different houses and drove different cars they shared the same communities, communion at the same churches, membership in the same lodges, and they sent their kids to the same public schools. They believed in an American dream that stated something to the effect that high moral standards, hard work, and self improvement would ultimately be rewarded.

And they were rewarded! For the first time in human history an unskilled worker willing to perform mindless tasks in a noisy unpleasant environment for 40 to 50 hours a week could reasonably expect to support a wife, two kids, and a house payment and after 30 to 40 years enjoy a comfortable retirement funded by a company pension, Social Security, and his own personal savings.

Today the new comfortable middle class lives in different communities than what remains of the blue collar middle class. While a smaller number of this growing educated elite still attends church, they are actively engaged in organized community activities. At least the next generation of my coworkers at the laboratory have impeccable moral standards, a solid work ethic, and they are constantly engaged in self improvement, both training and credentials for their own careers and activities to enrich the future for their children.

Because they still believe in the American dream, they consistently engage in behavior that will allow them to realize that American dream.

Things are not going so well for the American high school graduate with no particular skills. We have shipped 20 million wealth producing industrial jobs to countries like China and allowed roughly 20 million immigrants (legal and illegal) to compete for the unskilled and semi-skilled jobs that remain in our country. This situation is only made worse by automation technology, regulations (particularly environmental regulations) that have shut down entire industries, and a tax code that rewards companies for off-shoring jobs and profits while punishing them for keeping jobs and profits in this country.

Realistically, even with both parents working full time, it is difficult for many families to maintain a middle class life style. Gradually more and more Americans are coming to the conclusion that they don’t have a chance. When they decide that the deck is stacked against them, their behavior changes for the worse. They drop out of high school. They quit looking for employment. They have children out of wedlock; this jumps the probability that those children will grow up in poverty from 8% to 40%, a five fold increase! They become involved in drugs and the criminal justice system. This is a metanarrative that almost guarantees a life of poverty and despair.

I believe our elected representative should view Jobs as Job #1.

If it creates wealth producing jobs in the private sector, it is good.
If it hinders the creation of wealth producing jobs in the private sector, it is bad.

If it incentivizes the poor to work harder and more hours, it is good.
If it incentivizes the poor not to work, it is bad.

If it protects the middle class from unfair foreign completion, it is good.
If it destroys the middle class through the use of unfair foreign competition (including H-1B visas), it is bad.

If it rewards the rich for investing in enterprises that produce wealth in this country or that brings wealth back into this country, it is good.
If it rewards the rich for investing in financial abstractions (hedge funds shorting derivatives in virtual entities such as SIVs) or enterprises that produce wealth in other countries and leaves it there, it is bad.

The purpose of this blog is to help people better understand the money equation so that they can live a better life.

Money In = Money Stored + Money Out

Writing about the right hand side of the equation is pretty easy. Most of it is purely mechanical. Balancing the money equation using a zero sum budget requires nothing beyond grade school math. Helping others jack up the numbers on the left hand side of the equation is much harder. Even when I can clearly see opportunities that exist for some people, convincing them that it is possible to obtain a better life can be terribly difficult. The cost of the game I successfully played twice, going back to school and getting another marketable degree, has increased at 5 times the rate of inflation. Over a trillion dollars in student debt is crushing the Millennial Generation. Even the entry level industrial jobs like the one I found during the recession of 1973, putting rolls of cloth in burlap bags, have gone away to other countries.

Jeremiah 8:20 The harvest is past, the summer has ended, and we are not saved.

I offered this prayer for those who seek employment back in 2009. It is needed more than ever.

A Prayer For Those Who Seek Employment

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