Archive for the ‘Sustainable Gains’ Category

“Secular Stagnation”, “Beautiful deleveraging”, and long-term growth

Monday, January 6th, 2014

The perennial debate about the health of the U.S. Economy has acquired a new catchphrase, “Secular Stagnation”, which I spotted at Beat the Press responding to an article in the New York Times. Dean Baker apparently agrees with Larry Summers that secular stagnation is real and is not just a consequence of the Great Recession of 2008-2009.

I think a very good case can be made that the secular stagnation clearly began sooner (and Summers evidently would agree albeit for different reasons). Ex debt growth, the U.S. economy’s growth rate has been abysmal for decades, a tale told in many ways including stagnating real median income, real median household income levels, and rising per-capita private-sector debt burdens. The stagnation appears to date back to at least the Clinton administration, in fact.  The economic boom during the Clinton administration was fueled by unsustainable financial practices. The Administration’s economic team included Summers and all the other Rubinites at Treasury and so on, and was complicit in both the creation of both the huge stock market bubble and the evisceration of Glass-Steagall and other sound, but restrictive financial regulations (CFMA comes to mind as well…). The deficit of financial prudence created a tremendous boom while it lasted, but left George W. Bush’s team facing a bust of historical proportions.

Unfortunately the deficit of financial prudence has persisted longer than the boom did, and the Bush team’s policy responses from 2000-2004 created their own dire aftermath in 2008. Feeling snarky, I might even say that the “prudence deficit” persists even today, among folks who claim that there isn’t a debt crisis, when the glut of credit creation (which leads to the low interest rates which these folks believe are okay) IS the problem and WILL BE the source of the next crisis, already brewing. This is not to say that within the credit bubble, there wasn’t also a mass financial mania as illustrated by the consequences of Lehman’s demise. Just that we are not done with all the adverse consequences of the credit bubble, and there is likely to be another great crisis as soon as the Obama Administration is unable or unwilling to kick the can any further.

The secular stagnation issue is aggravated by the reality that neither individuals nor economies thrive when total debt burdens (private, corporate and public) are three or more times the annual production rate… although such conditions are ideal for the rentiers collecting the interest and other rents without needing to be productive – at least until the low interest rates run into high default rates and force rentiers back to work!  But the eventual deleveraging (reduction of debt) punishes everyone, because when growth in credit slows or reverses, it no longer fuels growth in spending or production the way that it previously did.

The best we can hope for at this point is a “beautiful deleveraging”, consisting (per Ray Dalio at Bridgewater) of a combination of debt restructuring, austerity, money-printing and other transfers of wealth from rentiers and savers to debtors and wasters. Where “beauty” is simply that the deflationary side (restructuring and austerity) are balanced by the inflationary money printing. (Dalio did not mention in the link that one may also pursue policies to stimulate organic (debt free) growth in production, which also brings down the economic burden of high debt levels.)

It appears that the writers of the Federal Reserve Reform Act of 1997 were wiser than most of us nowadays, for they mandated this (emphasis added):

The Board of Governors of the Federal Reserve System    
and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates 
commensurate with the economy's long run potential to 
increase production, so as to promote effectively the 
goals of maximum employment, stable prices, and
moderate long-term interest rates.

Today, everyone who watches the Fed remembers the part about “maximum employment and stable prices” (though forgetting both “moderate long-term interest rates” and that inflation at 2%/year is not truly “stable prices”), but we often forget that the real goal is, wisely, to prevent long run credit growth in excess of the economy’s long run potential to increase production. Because excess credit growth over the long run becomes a credit bubble, credit bubbles are not sustainable, and the consequences take decades to resolve.  Which why we have secular stagnation and the best we can hope for is a “beautiful” deleveraging.

Far more beautiful would the world be, had the Federal Reserve and the Clinton, Bush and Obama administrations’ economics teams (including the regulators and the law enforcers as well as the policymakers) done more to help keep the ugliness of high debt out of the economy in the first place!

Digging in the Wrong Place

Tuesday, December 17th, 2013

[Raiders of the Lost Ark]

… The old wise man reveals writing on the back of the medallion for the Staff of Ra, which states that part of the staff must be removed before using it to locate the Lost Ark …

Indiana: Belloq’s medallion only had writing on one side? You sure about that?

Sallah: Positive!

Indiana: Belloq’s staff is too long.

IndianaSallah: They’re digging in the wrong place!

 

It seems to me that today’s Economics profession is “digging in the wrong place” – misreading the data and pursuing the wrong solutions.

Rather than print credit and deficit spend, what if we just enforced the laws governing competition a bit more strongly?

The Sherman Antitrust Act and related pro-competition laws need to be better enforced across large sections of the U.S. economy.  While there appears to this author to be enough price competition among the various international auto manufacturers (at least for the U.S. market), and also in computers/electronics, the same is not true of the majority of the economy. For many other major durable goods, for telecom services, for a wide variety of nondurable products and services (including TV, Radio and paper-based news!) there are really only a few corporate providers in any given market. (Did you know that just 3 companies control 9/10 of the market in soft drinks? That only 4 Pet Store chains have nearly 2/3 of the market share? And don’t even get me started on healthcare…)  Utilities are already regulated as local monopolies — but is the regulation truly pro-consumer?

A closer look is needed at consumer products, particularly in foods, and even including restaurant chains. A relatively small number of corporations are hiding behind myriad brand names. When one pulls back the veil of brand-name marketing and takes a close look at the corporate ownership and cross-linkages, the true picture is pretty grim. (My kids have earned my respect as good consumers by carefully reading the labels on the packages in the fridge, and saying words to the effect of “Oh no, it’s Kraft again!”) Furthermore, it’s clear from price trends (despite 5 years of very difficult economic conditions) that pricing power is being exploited. There’s also a lot of evidence of corporate titans buying up young upstarts, ostensibly to acquire new capabilities, but also having the net effect of suppressing new competition.

So perhaps economists should reconsider the idea that the U.S. economy might be suffering from a “shortage of competition”, with too many sectors dominated by “pricing cartels”. That idea has tremendous explanatory power to describe the overall economic situation.

Even without explicit cartel or monopoly power, it’s possible for corporations to act cooperatively against the national or consumer interest. (One can look at their industry-based lobbying outfits in Washington for more examples…) When corporations in less-than-competitive industries all push for higher prices (and lower wage expenses) and the result is maximum profits industry-wide, the consequence is that fewer goods (and services) are produced and sold. Supply is constrained by the high prices, and demand constrained by low wages, particularly when large swathes of the economy are affected.

This “high-price/low-demand equilibrium” has many observable consequences. With supply and demand both constrained, total output is below capacity, which means fewer workers are needed and unemployment stays elevated while median income lags. Corporate profits are at record highs as a share of GDP, yet household incomes are not improving. The same economic power which produces high prices and record profits/GDP also produces favorable tax laws for the corporations. With corporations and the very wealthy avoiding taxes, and households earning less federal tax receipts are reduced. The non-rich, suffering from declining standards of living, demand help. So the government deficit-spends to provide that help, and also to bridge the demand and employment gaps. All of these consequences are observed today.

If this is right, then the cure for the economy as a whole is not to be found in monetary or fiscal policy, but simply in nonfinancial policies aimed at increasing competition!

Increasing competition leads to lower cartel profits in the short term, but leads to increased employment and a healthier, more prosperous economy overall. When more companies compete to provide goods and services in a given market, they must provide the goods at lower cost and higher quality. With prices being lower, sales rise, and to produce the increased quantities being sold, more people must be employed. The workers can then afford to purchase more, creating a virtuous loop which results in much greater output and in fact much greater profits in the long run. Those would be Sustainable Gains!

This sort of argument is well-known from classical economics. There is a good explanation (in a historical context) in one of J.K. Galbraith’s books or essays, although I don’t recall which one. The concept goes back at least to Adam Smith, according to the treatment on Wikipedia. It is unfortunate that modern economists appear to neglect the issue. Do they think there is no need for economic policymakers to deliberately foster ample competition among producers?  Or do they simply assume that corporations will find ways to compete effectively without government intervention?  The evidence suggests that corporations, left to their own devices, concentrate more pricing power than is in the national interest.

The Bubble This Time

Tuesday, October 29th, 2013

For those who look, there are many clear signs of credit/housing bubble 2.0:

  1. Extreme levels of student loan debt (and rising rates of delinquency);
  2. NYSE Margin Debt pushing to new extremes;
  3. Covenant-Lite corporate debt issuance (high risk to lenders) hitting new extremes while interest rates remain abnormally low;
  4. Extremely high proportion of houses being bought by investors paying “cash” (aka pre-funded borrowing) rather than resident owners;
  5. House prices pushing back up toward the bubble peak, while affordability metrics drop;
  6. Corporate earnings/GDP well above sustainable levels (at the expense of high trade and government deficits, and low household savings rates;
  7. Rising income and wealth inequality since the newly-minted credit is unevenly distributed.

Taking the list in detail (links only for now; will put up the linked charts later):

(1) Student Loans – U.S. Dept of Education, Sept. 30 press release and FRED Graph of Federal Student Loans

(2) NYSE Margin Debt – Analysis by Doug Short

(3) Covenant-Lite Loans – Bloomberg article on Fed Warning to Lenders

(5) House prices rising in echo of earlier bubble – charts posted by Calculated Risk

(6) Corporate earnings vs. GDP – This is a reflection of unsustainable deficits elsewhere in national income accounting; excess corporate profitability leads to stock price bubbles, since the earnings are not sustainable without genuine median income growth – See the St. Louis Fed’s National Economic Trends report.

Footnote #1:  I haven’t located quality plots for items 4 and 7 at this time.

Footnote #2:  Smart traders can make a lot of money in a bubble.  That’s part of the process by which they happen.  But if the gains aren’t sustainable, the bubble is a net expense to the nation due to malinvestment and maldistribution. And it’s not an ethical time to invest if the outcome is a “negative sum game” (that is, if your gain means someone else loses worse).

 

A possible vicious cycle due to flawed CPI measurements?

Tuesday, March 19th, 2013

Some good folks at the Atlanta Fed’s “Macroblog” recently posted a discussion about the imputed rent of being a homeowner and how housing costs are treated in the consumer price index. Owner’s Equivalent Rent is the answer. The Macroblog article describes a trend-vs-cycle decomposition of OER and a comparison of that with actual home prices. The comparison is far from persuasive.

I have long been skeptical of OER, and propose a simpler hypothesis: the CPI determination of OER is flawed. One might then be concerned that this bad OER measurement distorts the CPI, and that this could lead to serious macro consequences due to the widespread use of a bad CPI.

And indeed, if one takes time to read how OER is actually determined, one is not heartened. The quote is below. The bottom line is that some owners are SURVEYED and asked their OPINION about what their house WOULD rent for, if they rented it! I am flabbergasted by this, because in my experience owners’ responses are horribly biased, and not at all reflective of actual rental market conditions. Owners are usually not market participants. Many owners haven’t even looked at renting for years, decades, etc. Why would someone who emphatically chooses not to participate in the rental market have any expertise on what their home might rent for?  THERE HAS TO BE A BETTER WAY TO MEASURE 24% of the CPI! (The fact that this isn’t being done, despite the weight and importance of this part of CPI, is a significant “tell” that no one in a position to make a difference genuinely cares about getting anything factually right in economics…)

Here is the quote, from the link given in the article cited above:

” ‘ … Owners’ equivalent rent of primary residence (OER) is based on the following question that the Consumer Expenditure Survey asks of consumers who own their primary residence:

“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

… From the responses to these questions, the CPI estimates the total shelter cost to all consumers living in each index area of the urban United States. ‘ “

Now, what happens when a flawed OER distorts the CPI?  Consider the present… There is widespread evidence of ongoing declines in actual housing rental prices right now, in multiple markets nationwide but especially those in the Southwest. The mechanism appears to be this:

  1. Investors seeking higher yields send credit to firms investing in rental real estate.
  2. Firms purchase foreclosed housing (depressing inventory while inflating sales rates and prices and creating “housing boom” headlines).
  3. Firms convert housing to rental property in hopes of earning cash flow from rent and capital appreciation from future price increases.
  4. Rental market is glutted as a result of this reaching for yield, and much of the rental inventory goes unrented.
  5. Investor-driven glut of homes-for-rent depresses rents, even though purchase prices are rising.
  6. Homebuilding firms see rising sale prices and start building even more homes.

However, since median wages are not increasing and total full-time-equivalent employment is lagging badly, the sustainable household formation rate does not appear sufficient to absorb large amounts of additional housing. The current low-interest-rate environment appears to be distorting investment into housing in an unsustainable way.

So we’ve got a lot of poorly invested credit, a glut of rental homes, and another unsustainable building “boom” which is likely to lead to another “bust”.

And of course the OER metric currently being reported fails to capture this effect. (Similarly, during the housing bubble, OER badly lagged the market bubble and held the CPI artificially low, preventing policymakers from raising interest rates early enough to stop the bubble before it became a disaster.)  Even worse, if OER did capture the current “rental bubble” effect, it would appear deflationary (falling rents lower the CPI), suggesting that the “cure” would be to push credit even harder…

The CPI and other consumer-price inflation metrics are supposed to serve as crucial counter-cyclical signals to the Federal Reserve that interest rates need to change.  But the OER portion of CPI was in fact pro-cyclical (or at least neutral) for both the original housing bubble and the new emerging “rental housing bubble”!  Since OER makes up such a large fraction of CPI, this effect is a huge distortion on U.S. monetary policy.

But I suppose, if we carry on down this path for a decade or so, the U.S. can eventually end up with Chinese-style vacant cities of our own! (Or at least vacant neighborhoods… or just millions more vacant structures…)

Beware of Foolish Lenders!

Thursday, July 28th, 2011

Normally I love Dean Baker at CEPR, because he’s correctly figured out that our problem is horribly wasteful policies, such as the worst-in-class Medicare system.  But I don’t like many of his solutions, and I especially hope he stops writing these articles about the National Debt not being a problem.  I hope D.B. realizes at some point that the U.S. can and does have a really bad debt problem, even though lenders are willing to lend to us at low short-term rates.  Sure, we could borrow more money, but would we be spending it wisely to get out of debt in the future? I don’t see evidence of that.  And borrowing money simply to waste it is NEVER a good idea!

Right now the U.S. government makes the proverbial drunken sailor look like a pillar of rectitude!  After all, the drunken sailor can only spend money he already has — no one will lend to him!

In the case of Uncle Sam, just because the bond market is currently offering Uncle Sam what amounts to a teaser option ARM loan with zero interest for the next 6 months (or 3 for 10 years even), does not mean we should borrow the funds! The relevant timescale is far greater than 10 years, the bulk of our debt burden is on the short end, and the bond market is a fickle creature.  We could be cut off in less than a year — just ask the countries that have gone belly up in the last 100 years!  We shouldn’t borrow without a _really_, _really_ careful re-examination of what we are buying with the added debt, and an assurance that the marginal loan will produce a real improvement in our economy. Congress isn’t doing that, so the people need to force the issue.  We need to raise the price for our future debt servitude!

From another angle:  Just because the bond market is overflowing with rentiers who are desperate for safe “investments”, does not mean the U.S. can afford to borrow more. Federal debt-to-revenue already vastly exceeds sustainable levels, and there’s absolutely no Keynesian cushion for the next recession!! (Which, if we are back to the classic 4-year business cycle, is due in only a few months, given that the last recession started in Q4 of 2007…)

It makes no sense to borrow more funds for imperial wars, for wasteful tax breaks for people who are already very well-off, for wasteful tax policies that stimulate malinvestment in nonproductive assets, for a medical system that is grossly wasteful – the worst in the developed world. Etc. Dean, why should we lend THIS Congress another dime, without structural policy reforms?  What good will it do?

We need a smarter federal spending prioritization. We need better policies — policies that boost job creation without adding to the deficit. We need to encourage all the spare cash sitting on the sidelines to purchase tangible products rather than financial “investments”. Negative real rates ought to do it… and that would also push out some inflation to bring the nominal debt back to a reasonable proportion of the economy.

I’d be a lot more comfortable with this debt ceiling hike if Congress showed even an ounce of financial sense in terms of how to spend the money to fix the nation’s problems! I see no reason to give Congress more money if all it will do is continue to line the pockets of gluttonous special interests.  What we need is federal investments that deliver… sustainable gains.

Blindly borrowing more is just feeding the squid…

Debtors vs. Bankers: The Only Winning Move Is Not To Play?

Wednesday, June 15th, 2011

De-financialization:  To beat the squid, we may have to quit the game!

It is hard to fathom that during today’s episode of Bankrupt Greeks vs. Bankrupt Bankers, the herd fled into Treasuries, gold and silver, dumping the Euro, stocks and oil.  Given the unsustainable debt levels here, the long-term U.S. economic picture has to include either severe deflation or severe inflation (or both in alternating sequences).  But apparently Greece is on fire now and our own conflagration remains in the future, so the herd has moved here for temporary safe haven.

But isn’t this a bit like hiking to the stern of the Titanic, to avoid going down first with the bow, only to be sunk later?

In an over-financialized world, it’s unlikely that either the debtors or the lenders will win. Deleveraging means de-financialization, and that means less net interest going to the lenders. Some lenders have to lose.

Meanwhile, the lack of new credit means that not only do the ponzi borrowers go broke (those who require fresh loans even to pay interest), but even the speculative ones (who can cover interest but not principal) start to have real trouble rolling over their debts.  And in the maelstrom of inflation, deflation and unemployment, nearly everyone loses something.

It reminds me of the classic line from the movie War Games, when the insane computer finally learns the truth about the nuclear war “game”:  “The only winning move is not to play.

So how does one “invest for sustainable gains” in this environment?  Shakespeare’s line comes to mind next:  “Neither borrower nor lender be.”

In practical terms, that’s not completely possible, but it does provide a sense of direction when considering options and choosing the next path.  The first move is to minimize fees to the financial sector, and to bring loans (bonds) into balance with debts (mortgage and other leverage). Second is to identify low-debt, high-tangible-value stocks and funds, that should hold their real value regardless of inflation or deflation.

Here we now have a portfolio with an overall 0.25% annual average expense ratio, and we’re closing on on zero net debt holdings (while allowing some room to make contrary rate-spread plays as the herd runs back and forth on the Titanic). The challenge of which tangible-value investments to hold is more challenging…

And, as this grows long, more about that later…

Cleaning Up: Thoughts on Muni Bond Market

Friday, December 10th, 2010

Thoughts on this:

http://seekingalpha.com/article/241172-stay-away-from-muni-bonds

Thanks for the fearmongering, but I don’t think it’s quite so bad.

Four points:

(1) The pension problem has been festering for a long time, and I just don’t see a kill-the-market catalyst or crisis other than the banking system having another liquidity crisis (like 2008).  But Bernanke has made it clear liquidity will be unlimited (for at least the next 3 years, eh) and the banks still own Congress behind-the-scenes and will not vote their own suicides. So unlike 2008, the market is unlikely to crash this time.

(2) The ongoing budget problems can and will (eventually) be met with rational cuts to “fluff” services, plus tax increases on those willing to put up with them.  Not to mention the monetary inflation that Bernanke is pumping into the system on a weekly basis!

(3) The ongoing, happening-right-now solution to the pension underfunding issue — once people wake up to the problem — has been (1) stop the bleeding – cease enrolling new employees in the troubled pension system and (2) make the workers pay for the pension – force current members of the plan to contribute to the pension out of salary (e.g. “your 2% COLA raise is now your pension contribution”).  This wave hasn’t reached all shores yet, but it’s visible — even in California (e.g. the University retirement system).  And retiree medical is just gone, at least until this nation gets serious about having a first-world medical system.  The public unions are still kicking, but the writing is on the wall… even in California.

(4) You claimed “My best guess is that two states go down — Illinois and California…” and then “If you have to own munis, own the better-quality states – in fact, own bonds that have first claim on revenues rather than general obligation debt.”  But you neglected to mention that in many states, including California, debt service payments are protected in the state’s Constitution.  Therefore a CA general-obligation bond is in fact quite like a revenue bond, protected by the tax revenues of the entire state.  That doesn’t make them risk-free, but they could well be lower-risk bonds than those issued (at currently lower rates!) by states which currently appear “better-quality” (short-term)!  Because those other states may have a more vulnerable (less diversified) economic base and lack the constitutional default protection…

In short, it might be quite profitable to do your own due diligence here, and wait for these fearful guys to bid up your preferred market after the crisis passes.

Comments on “Scary New Wage Data”

Monday, October 25th, 2010

Over at tax.com, David Cay Johnson follows up on a Social Security Administration report with some “Scary New Wage Data“:

“Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar … Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold.”

“Not a single news organization reported this data when it was released October 15, searches of Google and the Nexis databases show. Nor did any blog, so the citizen journalists and professional economists did no better than the newsroom pros in reporting this basic information about our economy.”

Ouch.

Corroborating this Scary New Wage Data is the chart on Page 21 of the National Economic Trends report put out monthly by the St. Louis Fed (a small PDF: http://research.stlouisfed.org/publications/net/page21.pdf )

Proprietors’ Income and employee “Compensation”, as a share of GDP, have been in decline. Only corporate profits have increased as a share of GDP. The latter have returned to pre-crash historically high “bubble” levels. Compensation is approaching series lows last set in 2006. Proprietors’ Income is declining from a peak in 2004-2005, which may reflect the heyday of many small housing bubble businesses. But it is still above historical norms.

I share David Cay Johnson’s (that is, the original author’s) concern that this information received minimal media coverage. But I suppose that one cannot expect corporate media, funded by corporate advertisers, to publish news which would suggest that actions should be taken to rebuild wages and proprietor’s income at the expense of corporate profits?

It would also appear that the Obama administration has been a great friend to business, given that corporate profits as a share of GDP have increased nearly 4% since he took office.

Mean reversion of corporate profits/GDP to historical norms is to be expected, and implies a 30-50% reduction in the ratio (with magnified impact on equity prices since P/E ratios will contract as well) … but by what mechanism?

Do NOT Feed The Squid!

Friday, October 15th, 2010

I’d like to welcome my readers (all 2 of them?) from my other blog, Do Not Feed The Squid!  “DNFTS” was a great idea (and still is, so I’ve put it in the tagline above!) but I do not have time to keep up two blogs.  Also, the idea behind “Do NOT Feed The Squid”, that we’re going to have to take personal actions to stop the large financial corporations from continuing to abuse the legal system and destroy the public trust, is no longer as politically radical as it used to be.  It’s no longer a distraction from the “Ethical Investing” and “Sustainable Gains” themes here.  In fact, it’s pretty clear that investors in the mortgage lending apparatus have failed to invest ethically and are discovering that their fraudulent gains are not sustainable.  (Whether they continue to succeed in ripping off the taxpayers, only time will tell… but hopefully the public will not put up with this any longer!)

The 6 posts from “Do NOT Feed the Squid” have been moved over here verbatim, without any updates to their timestamps.

For those who may not have reviewed the “Do NOT Feed The Squid” site, here’s a list of the 6 posts in, reverse chronological order:

Post-Squid Investing Attitude Shift

Squid-Free Investing (small victories)

Preventing the Next Crisis? Automatic Stabilizers?

Restoring the Federal “Reserve”

A Quick Guide to Squid-Free Banking

What is the Squid?

More Mouths to Feed, Fewer Workers

Friday, October 8th, 2010

A recent post by Calculated Risk reminded me to comment that the Federal Reserve’s “EMRATIO” metric is worse than it looks (and it looks bad already).  EMRATIO is frequently misreported as being “the employment to population ratio”. Sometimes the writer aims to be less inaccurate and says it’s the “fraction of adults who are employed”.  EMRATIO is really meant to measure how much of the potential labor force is currently working, and typically runs around 0.6, meaning 60% of the “adult population” is “employed”. EMRATIO has recently been declining as a result of job losses during the recession, which is bad enough.  But there is a demographic issue in play as well, because of the aging population, and EMRATIO doesn’t capture this very well.  In EMRATIO, the “population” not only excludes children, it also excludes “institutionalized” adults (who still need to be fed … and many of whom could be productive).  EMRATIO doesn’t include the military – it’s just “civilian” employment. And EMRATIO also appears to include working teens in the employment number, but not in the “adult population” number.  So EMRATIO is really an approximate “civilian employment to adult workforce ratio”.  Which is fine, but not if everyone thinks it’s the actual employed workforce divided by the total population… because that number is substantially lower!  The employed workforce has to feed not only the unemployed adults but also the children, the military and the “institutionalized” adults (including criminals and more).

So EMRATIO is useful, but misleading.  I think what really matters is the “Mouths To Feed Ratio”, that is the number of “mouths to be fed” divided by the “number of workers” – and there’s a way to generate that using the Federal Reserve’s FRED graphs database:
More Mouths to Feed

What this shows is that during the Baby Boom years of the 50’s and 60’s, when there were a lot of single-worker households and a lot of children, there were 2.6 to 2.8 people per worker.  From the early 60s until 2000 or so, that number trended down.  Each worker had fewer and fewer mouths to feed, as demographics became more and more favorable.  But that situation has reversed.  The 2003-2008 boom failed to bring in enough workers to bring the MTF ratio back down, and the Great Recession’s job losses, together with older workers retiring, have sent the MTF ratio back up to levels last seen in the early 1980s.

In fact, if we invert the MTF ratio, we can compare it directly to EMRATIO, and we see that the MTF ratio is about 13% lower than EMRATIO.  I am surprised that this ratio isn’t smaller still, since there should be enough children to take it down 20-25%.  But clearly less than half of the nation is currently employed:

“EMRATIO” and the Actual “Civilian Employment” to “Total Population” Ratio

Finally, the last plot below shows the two components of the MTF ratio (but beware the suppressed zero in the graph).  Both have trended upwards and basically doubled in the past 60 years, but in the last decade the population growth has outstripped the employment growth.

Total Population and Civilian Employment

If population growth continues to exceed employment growth, there will be ever more Mouths To Feed per worker.  This in turn puts pressure on workers to lower their savings rates and defer retirement, or to lower their personal standards of living in order to support household dependents. It also creates pressure on both workers and employers to pay more in taxes, to maintain benefits for an increasing number of non-workers, via Social Security, Medicare, education and so on.  This will be a major challenge for public policy, and it also has major implications on the sustainability of economic growth and the current high level of corporate profits relative to GDP.

Footnote:  My data is from the FRED site; I would appreciate clarifications if anyone who reads this has some good links.