Gee, Why Not Expand Social Security?

Democrats from Sanders to Clinton to Obama are clamoring to expand Social Security benefits. Sure. We're already $19 trillion in debt. What's another $10 or $20 or $30 trillion. Or maybe we can increase taxes on a workforce that the declining portion of the population that is still working.

The Unemployment Rate Does not Measure Labor Market Vitality

Despite what you will hear out of Washington, there is really only one reason that the reported unemployment rate keeps dropping. Each month there are fewer people actually participating in the workforce. The unemployment number you see reported each month is the percentage of the people in the workforce who are unemployed. When the denominator of that ratio drops, the unemployment number drops even though there may be no more people actually employed.

You will sometimes hear that the drop in labor force participation is due to more people taking normal retirement. This may be happening, but take a look at the chart below. Do you think the normal retirement rate suddenly accelerated starting in 2007?

The number of people not working increased by 315,000 this month to a record 92.6 million. Anyway you cut it, that's not good. Fewer people working -- for whatever reason -- means fewer people producing things and (in general) less money to spend buying things. There is no way that the US economy can have robust growth when fewer people are working each money,

Fewer Men Working in Prime Earning Years.

The chart below is for men 25-54 -- what should be the prime working years. If this were related to cyclical phenomena you should see a reduction in non-participation by 2010 at least. Yet it keeps going up. Economics teaches us that when you make not working less painful you will have fewer people working. It is hard to build sustainable growth when fewer and fewer people work to support more and more people that aren't working.

Unemployment Rate Drops as the Workforce Drops Out

Periodically you hear President Obama pat himself on the back because the unemployment rate has fallen from nearly 10 in 2009 to 7.6 today. Huzzah!

Except that what's really going on is that more and more people are leaving the workforce.



Which is a bit like the high school principle congratulating himself for having a higher grade point average as more kids are dropping out of school!