By Alexander Green For over eight years, I’ve listened to bearish pundits explain why this bull market is just about to end.
It will expire eventually, of course, as all bull (and bear) markets do. But not for the reason currently being bandied about.
I’m referring to the latest theory that full employment is on the verge of blasting wages higher, raising inflation and forcing the Federal Reserve to take interest rates higher, torpedoing stock and bond prices.
It isn’t going to happen. Here’s why…
It’s true that labor compensation represents about two-thirds of the total cost of production – and that full employment often accelerates price inflation.
It’s also true that the official unemployment rate is at a 16-year low, and the economy is near “full employment.” However, this analysis doesn’t take into account the abysmal labor force participation rate.
Believe it or not, only 55% of American adults 18 to 64 have a full-time job. Almost 95 million people have opted out of the job market entirely.
Demographer Nicholas Eberstadt notes that the labor force participation rate for men between 25 and 54 is lower now than it was at the end of the Great Depression.
How can this be? Don’t these people have to eat?
Indeed they do. But federal poverty programs ballooned under President Obama. According to the Census Bureau, nearly three-fifths of nonworking men receive federal disability benefits.
Uncle Sam now spends more each year on cash payments to “disabled” former workers than he spends on food stamps and welfare combined… even though medical advances allow many more to remain on the job, and new laws ban workplace discrimination against the disabled.
Don’t get me wrong. I don’t begrudge any man or woman receiving federal benefits who is truly disabled. These folks deserve our sympathy, not our condemnation.
But what medical condition is responsible for the explosion in federal disability recipients? Overwhelmingly, it is back pain and depression, two ailments that are common – including among productive full-time workers – and impossible to disprove.
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Two factors, however, might draw more of these individuals back into the workforce.
The first is the trillion-dollar federal infrastructure program that Trump favors. It is perhaps today’s only policy initiative with broad bipartisan support.
(Isn’t it good to know that the two parties can overcome their bitterness and opposition when a trillion dollars in pork is on the table?)
The other factor is new legislation that would reattach a work requirement to federal social programs. We already know that this works.
Within 10 years of the welfare reform act of 1996, the number of Americans in the Temporary Assistance for Needy Families program plunged 60%.
The work requirement was eliminated under Obama. But Republicans in Congress could revive it. And President Trump would almost certainly sign it into law.
This would reduce the budget deficit, increase the labor participation rate, and help supply businesses with the workers they increasingly require.
We don’t have a worker shortage. We have a welfare state surplus.
When people have an incentive to work, they will.
The bottom line? We are not at full employment, worker compensation isn’t set to …read more
Source:: Investment You
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