We are in a depression. It started 20 years ago.

Since 2000, the US labor participation rate has been in decline.

The descent is even starker for the male workforce, which has been in decline since the 1950s.

After decades of women making up for the decline in the male workforce, they too steadily saw decreases in participation since 2000.

Rising drug addiction, suicide, and incarceration are some of the indirect consequences of declining workforce participation.

But what about the stock market?

When adjusting for inflation, the stock market has risen only modestly over the last 20 years in comparison to the preceding 20 years.

Source Macrotrends (commentary my own): https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

These modest stock market gains happened as the Fed unleashed the largest stimulus in history.

The Fed’s balance sheet increased 7x in recent history to buy distressed assets that the “free market” wouldn’t.

Fed Balance Sheet. Board of Governors of the Federal Reserve System (US), Assets: Total Assets: Total Assets (Less Eliminations From Consolidation): Wednesday Level [WALCL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WALCL, May 12, 2020.

The Fed also steadily decreased interest rates, which contributed to a massive rise in debt.

Federal Funds Rate. Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/FEDFUNDS, May 12, 2020.

Some of this debt was used by corporations to buy back their stock to increase its price.

Aggregate public and private debt combined 1870–2010. Source: http://www.bea.gov/, Author: Bureau of Economic Analysis, Federal Reserve

Nearly all of the benefits of the rise in the stock market went to a small sliver of individuals at the top of the wealth spectrum as inequality increased to levels not seen since the 1920s.

Over 20% of the share of total income went to the top 1% of the population in the 1920s and 2010s.

The stock market is also at extreme levels of concentration as a small number of information technology corporations benefit from the economic environment.

But what about productivity growth?

Most of the labor productivity gains from the information technology revolution were realized by 2007. However, economic output continues to rise as people are automated out of the equation.

Source: https://www.bls.gov/lpc/prodybar.htm

Automation will likely continue as the world emerges from the forced economic lockdown, and many job losses will be permanent.

But who will buy the goods that automation produces if workers don’t have an income?

Blame the virus

The economy was really messed up before the global economic lockdown. Now society has a scapegoat to enact reforms.

The United States might be able to reverse some of the disturbing trends covered in this article by taking advantage of its exorbitant privilege to unleash massive spending programs. Everything can be blamed on the virus to enact needed initiatives to change the economic tide.

Money could be put directly into ordinary American’s hands—indefinitely, with infrastructure upgraded and universal healthcare funded.

These initiatives will have costs, but the cost of not doing it might be much higher.




Building @mockvisual (YC S19) • Formerly @Flexport @Google @Intuit • Interested in platforms

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Andrew Coyle

Andrew Coyle

Building @mockvisual (YC S19) • Formerly @Flexport @Google @Intuit • Interested in platforms

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