John Maynard Keynes is often given credit for the saying, "When the facts change, I change my mind. What do you do, sir?" Maybe it is time to take this question seriously once again.
The American economy is just about to begin its fifth year of economic expansion. The expansion has not been a very exuberant one, but, none-the-less, the economy is growing.
The past four years has produced the following year-over-year rates of real GDP growth (given the third revision of the first quarter numbers released on Wednesday).
- First quarter 2010 1.9 percent
- First quarter 2011 1.8 percent
- First quarter 2012 2.4 percent
- First quarter 2013 1.6 percent
Not a robust rate of growth among them, but the economy is growing. This performance is not much different than what we have seen in terms of the year-over-year rate of growth of industrial production.
- January 2010 0.5 percent
- January 2011 5.3 percent
- January 2012 3.9 percent
- January 2013 2.0 percent
- May 2013 1.6 percent
Roughly the same trajectory as real GDP. And, with two-thirds of the second quarter numbers in, it doesn't appear as if the second quarter real GDP growth is going to be too very robust!
Over the past four years we have looked for "green shoots" or any other positive sign that we can put our hopes on that might indicate that the economy was going to start growing faster. And, in all cases, we were disappointed.
Maybe this economic recovery is not like the other economic recoveries in the post-World War II era. Maybe there is something else going on that needs to be understood.
Maybe there are structural problems in the economy that must be resolved before the United States economy can get moving more rapidly again. Maybe this is what happens in the longer run after a particular economic structure runs out of steam. Maybe this is what happened in the 1930s that required a radical change in the industrial makeup of the world that only really came about with the advent of a major war.
As in the 1930s and 1940s, America re-structured from an agricultural society to a manufacturing society, maybe the 2000s and 2010s are a period of re-structuring in which the country is going from the manufacturing society of the last half of the twentieth century to the information society of the new century.
The excuse that we have not had enough governmental stimulus for the economy to grow faster is getting boring. How many years of evidence do we need to finally change our view that more government spending and more monetary expansion is going to "goose" the economy sufficiently to get it moving faster? How much longer are we going to comb the data looking desperately for "green shoots"? There is evidence all over the place that the American economy has a structural problem.
I have relied on two major pieces of evidence to argue for the need of re-structuring. The latest effort came on June 20 when I discussed the secular decline in capacity utilization in manufacturing and the decline in the labor force participation rate over the past decade or so.
Capacity utilization has been declining since the 1960s. The peak of every cyclical rise in this rate has been lower than that achieved previously. We now seem to be stuck at around 78 percent of manufacturing capacity. There appears to be no good reason for the rate of capacity utilization to rise in the near future. This secular decline is tied to the declining ability of America's manufacturing base to meet the needs of the current business environment. A re-structuring of the manufacturing sector must take place.
And, we find that the labor force participation rate has dropped into the low 60s, something not seen since the early 1980s. The participation rate began to rise in the 1960s as more and more women began to enter the labor force and as the drive for greater equality progressed and more-and-more women took work outside the home, the labor force participation rate rose into the 1990s.
During the 1990s the labor force participation rate began to decline. But, the decline was not a result of just women leaving the work force. Men were also leaving the labor force in about the same percentage rate as were women. The decline in the labor force participation rate was a result of both men and women leaving. This points to a structural problem that is not gender based.
The facts have changed. The economic structure of America -- and Europe -- is different than it was ten or twenty years ago. A governmental economic policy of just putting unemployed people back to work in the jobs they used to have is not working. Industry and commerce are becoming more information based, more data based and more automated. The structure of manufacturing is changing; the structure of service is changing. And, people that want to work in the future are going to have to be educated to fit this changing structure. In addition, the education is going to have to be life-long because the world of the twenty-first century is not going to stand still.
The facts have changed. Maybe it is time for the arguments about economic policy to change. In my mind we not only have the evidence that the economic recovery is not proceeding as post-World War II recoveries have -- and we have four years of evidence on this. But, we also have forty-plus years of evidence that the structure of the economy is changing, the manufacturing sector needs re-working and the labor force needs to be trained differently and maybe we need to take this into account when assessing what our economic policies might be able to achieve.
But, that would mean that a lot of people would have to "change their minds."