Forget the Jobless Number, Trump/Sanders Signal Something Amiss

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Friday's "Employment Situation" report from the Bureau of Labor Statistics (BLS) purportedly showed that February was a good month for workers. However, many of those same workers went out and voted for Donald Trump and Bernie Sanders in the first presidential primaries. This is not something that people that were happy with the status quo would do.

During February, payrolls went up by 242,000, but total weekly hours fell by 20.3 million and aggregate weekly earnings declined by $664.6 million. In other words, more people worked fewer total hours, for less per hour, and earned less total money than in the month before. It's not surprising, therefore, that Americans seem to be in something less than a joyous mood.

February was the third month in a row where the employment numbers have been at odds with almost every other measure of economic health, including GDP growth, the inventory-to-sales ratio, industrial production, total S&P 500 revenues, the Baltic Dry Index, and the Cass Freight Index. The jobs numbers have been signaling "growth," while most other indicators have been flashing "recession." No wonder that, when it comes to raising interest rates, Federal Reserve Chair Janet Yellen has been sounding more and more like Hamlet, Shakespeare's vacillating King of Denmark.

During February, the number of FTE* jobs increased by 378,000. This reduced our distance from full employment by 271,000, to 12.7 million. Labor force participation (LFP), which has plunged disastrously under President Obama, increased for the fifth month in a row, to 62.91%. However, this only served to regain the ground lost since July 2014, and to bring us back to the level of April 1978.

So, which is it, boom or bust?

It is certainly possible to have both full employment and economic stagnation at the same time. There have been subsistence farming economies in which everyone, including old people and young children, toiled ceaselessly to fend off starvation. However, in 2016 America, this kind of combination drives people crazy-crazy enough to, say, vote for Bernie Sanders and Donald Trump.

The presidential primary results thus far reflect voters' loss of faith in America's elites. Our leaders are doing well personally, but they haven't delivered for ordinary citizens. "It's the economy, stupid!" and we have had a dysfunctional economy for the past 15 years.

The blame for America's lost decade-and-a-half must be laid at the feet of our economics profession. For the past fifteen years, mainstream political candidates (on both the left and the right) have been offering mainstream economic policies, which have been various permutations of Keynesianism. The results have been disastrous.

Over the past 15 years, real GDP growth has averaged 1.77%. To find a worse 15-year period for growth, you have to go back to 1939. And, to have an adult memory of that period, you would have to be at least 94 years old today.

Given the results, it's not surprising that the voters are looking to shake things up. They want prosperity, and they want it now. And, prosperity is available now (or, at least soon, with new leadership). This is because our experience of the present is heavily influenced by our expectations about the future.

In February 1965, America was experiencing prosperity, even though only 55.74% of the working-age population had jobs (vs. 59.81% in February 2016) and the U-3 unemployment rate was higher than it is today (5.1% vs. 4.9%). However, real GDP (RGDP) grew at 6.50% during 1965, propelled by productivity growth of 3.19%. In contrast, RGDP and productivity growth for 2015 were only 2.40% and 0.68%, respectively.

Things were not as good in absolute terms in 1965 as they are today (RGDP per capita in 1965 was only 40.4% of 2015's level), but they were better than they ever had been before, and they were improving rapidly. This is the combination that produces the experience of prosperity, and makes voters happy with the status quo. Just a few months earlier, in November 1964, Lyndon Johnson had been reelected in a landslide.

Let's define an "Economic Performance Index" (EPI) that is the sum of average RGDP growth and average productivity growth. Then let's rank the nine most recent presidencies in terms of EPI. The results are as follows:

1. Kennedy-Johnson (1961 - 1968): 8.22%
2. Clinton (1991 - 2000): 5.82%
3. Reagan (1981 - 1988): 5.20%
4. Eisenhower (1953 - 1960): 5.19%
5. Nixon-Ford (1969 - 1976): 4.80%
6. Bush 43 (2001 - 2008): 4.50%
7. Bush 41 1989 - 1992): 4.50%
8. Carter (1976 - 1980): 3.92%
9. Obama to date (2009 - 2015): 2.68%

It is interesting to note that the presidential terms with EPIs above 5.00% are generally considered to have been successful in economic terms, and the ones with EPIs below 5.00% are generally considered to have been unsuccessful.

America needs the next president to be successful with respect to the economy. This means that we need to elect someone whose policies will at least double Obama's EPI performance.

Both RGDP growth and productivity growth are driven by the rate at which we accumulate nonresidential assets, and our efficiency in using those assets. This suggests that we ask the following questions when assessing the economic programs being offered by the various presidential candidates:

1. Will the candidate's economic policies result in more capital investment in the U.S., or less?
2. Will the candidate's economic policies promote greater efficiency in the use of capital, or less?

Whatever you tax, you get less of, so it is clear that there would be more capital investment in the U.S. under any of the Republican candidates' tax proposals than there would be under any of the Democratic contenders' tax programs. The Republicans are promising to cut taxes on capital, and the Democrats are promising to raise them.

The critical factor in terms of efficiency in use of capital appears to be monetary stability. If we assess the degree of monetary stability provided during a presidency by the absolute value of the annualized rate of change in the CRB Index*** during the presidency, the top four presidencies in terms of EPI also happen to be the top four in terms of monetary stability, as follows:

1. Kennedy-Johnson (1961 - 1968): -0.09%
2. Clinton (1991 - 2000): 0.83%
3. Eisenhower (1953 - 1960): -1.58%
4. Reagan (1981 - 1988): -2.96%
5. Bush 41 1989 - 1992): -3.98%
6. Bush 43 (2001 - 2008): 6.46%
7. Obama to date (2009 - 2015): -7.70%
8. Nixon-Ford (1969 - 1976): 9.46%
9. Carter (1976 - 1980): 9.78%

In terms of providing stable money, Ted Cruz is the only presidential candidate that is even talking about monetary policy. So, for those whose primary concern is the economy, it appears that the best available choice for president would be Ted Cruz.

*FTE (full-time-equivalent) jobs = full-time jobs + 0.5 part-time jobs
**The Federal Open Market Committee, which is the body that sets monetary policy.
***The CRB Index is a commodity price index comprising: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gasoline, and Wheat.


Louis Woodhill (, an engineer and software entrepreneur, and a RealClearMarkets contributor.  


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