The indefatigability of the ‘unparticipatory’ economic boom

To understand why our economy is so strong, we need to better understand how the modern American economy works. Thanks to the liberal media talking points and an ignorance of modern economics, many people assume a fast growing GDP and robust job creation are the necessary conditions of a strong economy, but this isn’t necessarily true. Profits & earnings, living standards, government & multinational borrowing rates, exports, technological innovation, low valuations, rising stock prices, and fed policy are more reliable economic indicators that are more applicable to the world today. These cannot be easily captured by GDP and employment alone. So even if the labor force participation is at historic lows, people are whining about ‘tough times’, and GDP is anemic – by the aforementioned indicators – the economy is still strong. We’re in an economic boom, but as we said a few days ago, not everyone can or will participate in it – except those who bring value to society.

Some are slow to pick up on this concept of an ‘unparticipatory’ economy, which perhaps includes Aaron Clarey who writes that the 50’s were a period unprecedented economic health:

Practically all economic measures showed the economy firing on all cylinders and everybody, and I mean EVERYBODY (blacks included) benefited from this great general economic climate.

What happens when the economy is deemed to be firing on all cylinders and everybody has a job and feels happy? Well, interest rates go up. They keep going up. Eventually the economy enters a recession. Asset prices crash, and many people are unhappy. Now compare that to today where the economy is doing well by certain indicators like listed above, but everyone feels unhappy, and many people don’t have jobs. The indicators that the fed uses to regulate policy (employment, lending, home building, etc) are still weak, and that’s one important reason (there are others) of why we’re in such a prolonged boom period and one that will continue, because the fed will never raise interest rates again. The best economic boom is one where certain cylinders are firing and others are turned off. That’s where we are today and will be for a long time.

During the 20 year period which most would consider the halcyon days of America (1940’s-1960’s) economic growth was nearly twice what it is today. Unemployment a half. Underemployment, non existent. And debt decreasing.

This is similar to how liberals hold the 90’s as economically sacrosanct. Both are wrong in that these decades were characterized by falling corporate profits, rising valuations, speculative lending to main street, high inflation, and lots of corporate waste such as too many jobs. What happens when everyone thinks the economy is doing great is they expect more from employers and being that the unemployment rate is very low and the job market is uncompetitive, employers have little leverage and have to acquiesce and raise real wages. Speculative spending for projects such as skyscrapers surges, further eroding profits. Now compare that to today where employers have the uncontested upper-hand and have the luxury to hire only the best and brightest. This is great for profits, not so great for job seekers. And let’s not forget the economy entered a recession on the Clinton surplus. Since 2008, corporations have gotten much, much better at making profits as shown below:

During the 1940-1960’s, profits didn’t grow. So much for that ‘boom’. Also profit margins were very volatile:

In the 50’s, profit margins were about 10% less than today.

Rather than having too much haphazard growth like in earlier decades, we have steadier, smoother growth thanks to financial innovation and globalization, which means longer periods of expansion and much fewer busts, or what some call the great moderation. We’re turned the boom/bust cycle into a perpetual boom.

Although the 50’s and 90’s did have a lot of technological innovation, all decades do, and especially this one as indicated by all the huge gains being made in physics, social media, finance, web 2.0, e-commerce, media, drones, and so on. Snapchat and Uber didn’t need ‘full employment’ and 6% GDP growth to be hugely popular.