It certainly is no trivial matter that the world of ideas is a very complex place. It so complex that I am in complete awe at degree of relative calamity and prosperity to which the American political economy functioned in the last decades of the 20th century.

As we know, that calamity and prosperity did not last. And there are plenty of theories in current circulation that attempt to explain the problem of what might be boiled down to the general feelings of well-being having faded. Some popular ones are: secular stagnation that has something to do with demographics, boom/bust bubble punch bowl cycles, deficient trade agreements including malicious currency manipulation schemes, and so on…

Since many of these theories come from sources that are demonstrably more intelligent than I, I would not presume to challenge them. Though I must admit that many of them lack an element of directness and provide very few golden threads of logic in some of the finer points, and can be contradicted by readily available data. For example, the secular stagnation hypothesis relies somewhat on a demographics argument, and data available from the labor department has shown that the over 55 group has seen the most increase in activity in the labor force in recent years.  Thus, in my view, it likely contains some grain of truth but probably does not adequately explain the problem as a whole. I am also a bit skeptical that it explains even the lion’s share of the problem.

This post was inspired by two recent posts on free trade from David Glasner and Scott Sumner. These posts touch on the larger topic of national discussion regarding the economic impact of trade that has been brought to the fore most recently by Donald Trump during his presidential campaign. They are great posts on the subject, but they approach the subject of trade in terms of job loss, two subjects that appear to me as perhaps superficially correlated.

In his post, David Glasner touched on the damage to psychological well-being from the personal tragedy of job loss, a point with which I agree if considered on its own. Job loss is a personal tragedy that has the odds on chance of inducing a feeling of insecurity and loss of well-being. But from experience, there is more to the long term impact of job loss on well-being than this point alone. Rather, it is my belief that we can live with job loss under the conditions that there are other opportunities available.

Speaking anecdotally, while I was young, I had the occasion to be unexpectedly let go, especially since many of the jobs I had were temporary. Each time it happened, it raised feelings of panic that ultimately were short-lived because there were plenty of other opportunities available that, in the longer run, turned out to be richer in opportunity than before. But that simply was not the way it turned out in my last go-around with unemployment that started in 2007. At that time, I was let go from the company where I had worked for 12 years, there were no additional opportunities available, a condition that lasted until late 2012. Thus, it appears to me that any correlation between trade, job loss and loss of well-being perhaps is not nearly as straight forward as it might seem; though I do appreciate the very thoughtful sentiment.

At the heart of current perception of economic problems in the US, I believe, if the loss of well-being is more accurately associated with reaching a dead end in the employment market, is what has happened the last link in the chain, additional opportunities, in a comparative sense between the last decades of the 20th century and now, because I don’t believe trade alone can answer that question given that the total value of trade is but a small fraction of annual GDP.

In other words, I am pointing more toward trade having been put up in a rhetorical sense as just one of many other scapegoats, including, but not limited to, immigration and bubble mentality, for the extremely bad and expensive conduct of domestic economic policy. Both supply and demand side policies have worked in concert to destroy the feelings of well-being in the nation, and the politicians, of course, just like the central bankers, would rather pass the buck than be held accountable for a mess that is by far easier to make than it is to clean up.

Specifically, if I were to start a project to explain some of what could be the majority of the problem, I would start the study with data going back to 1999 when the Federal Reserve officially became an inflation-targeting central bank. Since then, the US has become more recession prone, experiencing one in 2001, a close call in 2003, and another that in began 2007. Some questions I would seek to answer are: whether there was sufficient monetary accommodation to support reallocation and recomposition of the workforce as trade barriers were eliminated; and whether there was also sufficient support in supply side policy during the last decade. These questions are important to answer, because as I suspect, they are at the heart of the debate regarding the economic performance of the United States during the last decade and a half.

During this time there were a number of supply side policies enacted, such as policies contained in Sarbanes Oxley, that could be considered more damaging to the economy than beneficial, from a supply-sider point of view, particularly in the form of the investment paternalism it contained, while, in addition, the central bank shifted its implicit focus from nominal GDP stability to inflation, two economic policies that in if viewed in a simple economy likely would conflict.

Unfortunately, most of my waking hours are consumed by gainful employment and I would not be able to complete such a study in a timely manner, and for now, I will have to be at least somewhat satisfied with conjectures of my own.

Advertisements