Aged to Perdition

Greece is still a mess and will continue go be a mess. The bottom line is that the growth rate of the country is not sufficiently robust to support the generous entitlements to which the Greek people have become accustomed. The draconian austerity measures needed to keep Greece out of default are economically and culturally unfeasible. One would be asking to Greek people to cease being Greek (the same can be said for austerity measures needed to save Portugal, Spain and, possibly, Italy). Greece will default. It may conduct an orderly default by negotiating with creditors or it may default in a disorderly fashion and leave the Eurozone. Greece may default now, in December or next year, but default it will. The sooner the investor community, banks and European regulators acknowledge the better.


Economic troubles are not unique to Europe. The United States has its own issues, as evidenced by Friday’s Nonfarm Payrolls report. I am not referring to the latest print of 80,000, but to the upward revisions of the prior data. How can upward revisions be bad news? If the revisions just get you up to about the replacement rate when population expansion is accounted for, that is not very good. There is a current phenomenon which can make the data seem better than it might really be.

At one time 200,000 new jobs were needed every month to keep pace with the growing population. Last year 150,000 new jobs became the benchmark. Now, some are saying it may only take 125,000 jobs to keep pace with the population. The result could be that the unemployment rate falls more rapidly than what many economists and the Fed predict. However, this does little for economic activity.

The unemployment rate had been in the past a good indicator of current prevailing economic conditions. However, increased productivity and slowing population growth may erode the reliability of the unemployment rate. Increased productivity and outsourcing have reduced the need for workers. This has helped to keep the unemployment rate stubbornly high during the current recovery. Now we may see the unemployment rate because the number of U.S. workers is shrinking. This addition by subtraction may cause the unemployment rate to fall. However, with fewer workers (for whatever reason) economic activity must slow.

Fewer workers mean fewer consumers, fewer home buyers, fewer car buyers, etc. Currently, there are more than enough homes to meet the needs of the U.S. population growth for more than a decade. If population growth slows further, it could even take longer for housing and the remainder of the economy to recover. Slowing population growth means an aging population. One only needs to look at Europe where the ratio of workers versus the number of retirees is about one to one.

This does not mean that the best days of the U.S. are behind us. It only means as conditions, trends and phenomena change we must change with it. This is why using the words “always” and “never” in economic forecasting and economic strategies is very dangerous (and foolish).