1. The American Labor Force Is Working Less
Economists are still scratching their heads over this. Writing for The Conversation, professor Michael Klein notes that the Participation Rate has declined. The Participation Rate represents the percentage of people of working age who are physically able to work and who are either employed or seeking gainful employment. That rate is estimated to be just below 63% today.
That means about 1/3 of all potential or eligible American workers do not have jobs. They aren't even looking. As I said, economists are scratching their head over this statistic. It's an important measurement because it suggests that we could, in theory, increase our productivity by about 50% just by putting all these people to work. That would result in the creation of a lot of wealth. It would also increase the government's tax revenue base.
We have never had full employment, although before there were economists and statistics most households were rural. Farm wives didn't sit around doing nothing all day. They worked as hard as their husbands. It could be that we had something close to full employment when most of the country was still a rural population. That would have ended in the early 1800s.
I think that unless something significant develops - and I don't mean Trump will bring factory jobs back to America - our Participation Rate will continue to drop gradually.
2. The United States Has Been Using Modern Monetary Theory
If you have heard anything at all about economic arguments lately, it is probably about whether the United States should "adopt" Modern Monetary Theory. One reason why liberal politicians are talking about Modern Monetary Theory (aka MMT) is that the United States could pay off the federal deficit with the press of a button. The government creates money all the time. After the Great Recession the government created an immense amount of money to pay for bailout programs.
Conservative economics theory holds that the more money a government prints the more likely inflation is to set in. If too much inflation occurs then it builds up into hyperinflation. The economy collapses like it did in Venezuela. But that didn't happen in the United States. Indeed, our economy grew stronger. And as this article from Barron's argues, China's economy has exploded because of their use of MMT.
The name "Modern Monetary Theory" is a bit misleading. It's not something new. Economists began discussing the ideas folded into MMT around 100 years ago. The U.S. government has implemented ideas from MMT many times over the past century. Our society did not collapse.
The proponents of MMT say that the government can pay for goods and services without borrowing money. They also say the government can ensure full employment for everyone who wants to work without borrowing money. MMT also explains that if too much money is pushed into the economy the government can "destroy" some of it by levying taxes. The existing taxes already pull money out of the economy.
Conservatives who demand balanced budgets from the federal government don't accept the reality of the situation, which is that sometimes the government needs to pull more money out of the economy than it needs to pay for goods and services. This is how and why inflation is held down. The Trump tax cut of 2017 was supposed to inject more money into the economy but that didn't happen.
3. The 2017 Tax Cut Failed to Stimulate Economic Growth
Critics of so-called "trickle down" economics or "Reaganomics" have always despised the idea of lowering corporate taxes. Workers and small investors have never benefited from these kinds of government rollbacks. The 2017 tax law change was controversial for that among other reasons.
However, earlier tax code revisions had created a loophole that allowed American companies to stash trillions of dollars overseas. The money wasn't doing anything. It was just collecting interest. No one paid taxes on it. No one cashed it in. In a way, the overseas investments acted like a sort of self-imposed corporate tax.
The 2017 law gave those companies a chance to "bring that money home" and put it to work. The idea was that they would build new factories, create more jobs, and give existing employees better pay and benefits. Instead the companies gave most of the money back to their shareholders. Thanks to share buybacks the stock market exploded, wealthy investors became wealthier, and everyone else was left a little bit worse off.
Although it's not clear where the investors put their money after being paid, at least they didn't use it to buy up everything in sight. The Federal Reserve Board has struggled to trigger new rounds of inflation, which economists believe would help the economy grow.
And even though the tax cuts mostly benefited corporations and large investors, they did reduce middle class payroll taxes a little bit. But now it turns out that President Trump's trade wars (enacted through arbitrary tariffs) are erasing the little benefit that average Americans gained from the tax cuts.
4. We No Longer Enjoy Shopping at the Mall
Did you ever enjoy shopping at the mall? I think I had more fun as a kid than as an adult. As a kid I looked forward to eating at the food court, seeing a movie at the cinema, and browsing the latest toys and cool gifts. At Christmas there might be a show or Santa Claus.
As an adult I got to carry all the packages, hunt for the last remaining parking space, and manage the shopping budget as our weekly mall allowance dwindled. I dreaded eating "mall food" one more time and I could only hope there was a movie at the theater everyone wanted to watch.
Thanks to the Amazon Effect we don't have that problem any more. Thousands of mall stores have closed in recent years and hundreds of shopping malls have fallen into decline. Some have been abandoned and torn down. I drive by one old mall where I spent many interesting hours in college and I wonder what happened to it. We used to drive over there in the summer to escape the heat, or during big rain storms so we could walk around. My local park has more people in it than that mall but there is no air conditioning and we get drenched every time we are caught in the rain.
The decline of the American retail store is called the Retail Apocalypse and experts believe as many as 75,000 stores will be closed in the next 7 years. Over 1 million jobs will vanish.
We've seen how this change in our shopping habits affects the video industry. Do you remember going to Blockbuster or Hollywood video and renting movies? We usually spent an hour or more browsing the huge video collections. There were once thousands of video rental stores across America. Now there is only 1 Blockbuster video remaining in the world. The times they are a'changing, and I'm not sure it's all for the better.
5. Traditional American Industries are In Decline
When I was growing up people used to talk about American industry like it was some unassailable economic giant. There were the auto manufacturers, the ship builders, the steel founderies, and the great malls. Coal-fired power plants generated electricity for all these industries and our homes. The demand for raw materials meant that our mining industries were also strong.
Now coal and steel are in decline. The last great American shipyard is about the close. And the American coal industry is also in decline. Demand for coal has dropped so precipitously that despite Donald Trump's promises to rebuild the coal industry it is even smaller today than when he took office 2 years ago.
Perhaps the most dramatic change in American industry is a phenomenon dubbed "peak car". Last August AutoNews published an article speculating that the automobile industry would soon hit its all-time historical peak production. From that point forward demand will drop off and never recover.
Automobile manufacturing goes into decline during a recession because people stop buying new cars. But when the economy recovers they start buying new vehicles again. The "Peak Car" phenomenon will be different. Demand for new vehicles will never recover. Alternative forms of transportation, especially in crowded cities, are making cars too expensive to own.
And already some journalists are reporting that 2019 may be the Year of Peak Car. Unless manufacturers find something else to do with their factories and workers, they will dwindle away to nothing and become memories of a distant economic past.
We have seen similar declines in transportation. There was once a time when horse-drawn carriages and buggies were the primary mode of travel. And passenger trains were the first means of mass trans-continental transportation across the world. As the automobile sent those industries into decline so new transportation methods are sending the combustion automobile industry into decline.
Self-driving vehicles, efficient electric vehicles, ride-sharing services, and better mass transportation are all contributing to declining demand for family or individual vehicles. In some cities you can even rent a vehicle for a day with less hassle and expense than at traditional car rental companies. They, too, will have to adapt or vanish.
