Apr. 11, 2023 3:31 PM ET, Written by John M. Mason
Summary
Unemployment stands at 3.5 percent, the lowest level since 1969.
The economy has changed, and the labor market is showing this change.
The future is going to move more and more in this direction, the digital direction.
Demand-side government policies must give way to supply-side policies, policies that emphasize education and training and re-training.
The Federal Reserve needs to keep fighting inflation, but this effort will just help the U.S. economy move on to a low inflation, supply-side-driven economy.
Paul Krugman ends his opinion piece today in the New York Times, with the statement:
"Biden is presiding over the best job market America has seen in a generation."
To Krugman, there is good news everywhere you look:
"The overall unemployment rate is only 3.5 percent; we haven't had that spirit here since 1969." "Black unemployment is at a record low."
And, the labor force participation rate is not that much lower than it was before the 2020s.
Good news. But, there is a lot of bad or not-so-good news that is hanging around as well.
Of course, inflation is the primary black cloud on the horizon, but there are other weak points in the economy. And, the Federal Reserve has entered into its second year of quantitative tightening.
A recession seems to be looming. But, some companies, like technology companies are seeming to be doing very well.
Until early March, financial firms seemed to be doing very well and this was also the case in health and real estate. And, as I have written about very often recently, there is lots and lots of money "hanging around" in the financial markets due to the trillions of dollars the Federal Reserve pumped into the economy during three rounds of quantitative easing in the 2010s, with a fourth round of quantitative easing used to fight the spreading Covid-19 pandemic in the early 2020s.
All of this activity has resulted in an economy that exhibits lots and lots of disjointed companies, markets, sectors, and regions. One of the major difficulties that an analyst faces in examining the data at this time is all the good signs and all the bad signs that exist almost at every level. The economy is in a huge state of disequilibrium. The future is facing a great deal of radical uncertainty. Hence, the question is almost continuously asked, with the economy so screwed up, how can things in the labor market be so good? This is part of what Mr. Krugman is trying to address.
The Changing Economy
This is what I intended to address, at least in a little way, my post from yesterday.
The economy has changed. The driving force seems to be coming from the technology side of the business world.
The "digital" is spreading. The "digital" is maintaining its leading position in the economy even in relatively "down" times. And, the investment community is recognizing this.
Just three stocks, for example, produced half of the S&P 500's (SP500) returns in the first quarter.
These three stocks were Apple, Inc. (AAPL), Microsoft Corporation (MSFT), and Nvidia Corporation (NVDA).
The digital world is driving the economy through this period of uncertainty. The results of this fact are showing up in the employment world. The past 15 years have set the foundation for this. The low consumer price inflation of that period was connected with a low rate of growth of the economy. Real economic growth from 2009 through to 2020 posted only a 2.2 percent compound rate. All the price action was in asset markets, in stocks, in real estate, and commodities. This set the stage for the current rate of unemployment and the current rate of labor innovation. This set the stage for the supply side to come to dominate the performance of the macro-economy.
And, that is where we are today. The economy is ready for leadership coming from the supply side of the economy. The federal government needs to take this fact into account.
The Future
There is a lot of work that needs to be done between now and when the economy get back into a more stable framework. The Federal Reserve needs to keep up its fight against inflation. But, the federal government needs to "back off" from any idea about building up the fiscal stimulus. The federal government needs to worry less about stimulating aggregate demand, and needs to worry more about supply-side policies that will support and grow the economies integration of the digital world. The future is digital. The future is supply-side. The future is consistent, steady economic growth. The future is low inflation, at least as low as 2.0 percent, the target of the Federal Reserve system. So, I agree with Mr. Krugman. The recent Employment Report was "AWESOME," but not exactly for the reasons Mr. Krugman gives. The economy has changed.
Digital is taking over.
Demand-side economics is becoming less and less important.
The government must take this into account moving forward.
This, to me, is the call of the future.
This article was written by John M. Mason
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.