Author Topic: The Great Stagflation  (Read 5142 times)

LC

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Re: The Great Stagflation
« Reply #10 on: February 22, 2021, 10:16:25 AM »
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A topic not often discussed is how come there is such a high number of people who have quit the labor force and maybe the underlying reasons help to understand the secular trends in interest rates and inflation.

Do we have demographic information on this group?

A theory that is worth investigating in my opinion is an aging population that was working longer into their lifetime, who "finally decided to retire" in response to an extreme stimulus (COVID).
"Lethargy bordering on sloth remains the cornerstone of our investment style."


TwoCitiesCapital

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Re: The Great Stagflation
« Reply #11 on: February 22, 2021, 01:23:43 PM »
Quote
A topic not often discussed is how come there is such a high number of people who have quit the labor force and maybe the underlying reasons help to understand the secular trends in interest rates and inflation.

Do we have demographic information on this group?

A theory that is worth investigating in my opinion is an aging population that was working longer into their lifetime, who "finally decided to retire" in response to an extreme stimulus (COVID).

PIMCO did demographics work while I was there. Ultimately, their opinion at the time was demographics were likely to be a headwind into the mid-2020s and then change to a tailwind after that.

Maybe Covid accelerated that a hair since it primarily impacted older generations, but I'd still expecting demographics to be a drag until 2023-2024.

Cigarbutt

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Re: The Great Stagflation
« Reply #12 on: February 22, 2021, 06:10:25 PM »
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A topic not often discussed is how come there is such a high number of people who have quit the labor force and maybe the underlying reasons help to understand the secular trends in interest rates and inflation.
Do we have demographic information on this group?
A theory that is worth investigating in my opinion is an aging population that was working longer into their lifetime, who "finally decided to retire" in response to an extreme stimulus (COVID).
A small addition as the topic has been an opportunity for me and it may have some relevance to this thread.
As you likely know, while the labor participation rate (LPR) has come down significantly for the entire 'group', for the age 55+ group, LPR has gone up significantly, at least up to the 2020 pandemic. With Covid (i think it was the potential exposure to the virus more than exposure to the stimulus), the 55+ age group's LPR has gone down a little (very small decrease compared to the huge rise over many years and, from anecdotal stuff mostly, this group is likely to go back to previous trends once it feels 'safe' out there). The big question that remains (and which is relevant for the deflation/inflation question) is why such an enduring and significant decrease in LPR. Most of the decrease over the last few years has happened in the younger cohorts and the decrease has been inversely correlated to education (or skill) level.
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In relation to the question that disappeared, when dealing with the LPR question, just like the inflation question, those in the know divide the potential causes into push and pull categories. The tightness of the safety net and high taxes on working wages will tend to pull people away from work. Also, over time, the residual pool of jobs has become relatively less attractive for the residual population left for those jobs, pushing them away from the work force. There are some mild differences between the US and Canada but the developing pattern of decreasing participation has been overall quite similar. The disincentives to work have historically been higher in Canada but the stimulus response by the US in 2020 and beyond left everybody else in the dust.
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This topic has some importance for me. In the late 90s, i studied the LPR and expected significant declines over time and developed some private business ideas, with the main one around disability evaluation (asset-lite, high returns on intangibles etc). It seemed somewhat irrelevant for a while but what seems irrelevant is sometimes devoid of competition. Anyways, the way it worked is that people who left the work force were typically young and after long-term unemployment insurance often ended up on 'disability'. This does not seem to be a much talked about topic but the issue is very significant. What has become discovered is that people who become long-term unemployed (even more so if 'disabled) are unlikely to go back to work when/if economic conditions improve (hysteresis at work).
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The bottom line here (apart from business ideas) is that a low (especially a declining trend) LPR will tend to be highly deflationary. Dependence to benefits, over time, may lead to overheating of the printing press.
https://fred.stlouisfed.org/series/CIVPART

cherzeca

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Re: The Great Stagflation
« Reply #13 on: February 22, 2021, 08:13:01 PM »
disability insurance is an interesting and somewhat taboo topic. there are a lot of people on disability insurance who one might think are able bodied but there is difficulty to get them off of disability (lots of SS benefits lawyers and the SSA is somewhat disinclined to get people off rolls once they are on them). plus there is a lot of outright fraud.

I had a long discussion about this with a guy who wanted to buy my old Land Rover about 10 years back. very entitled guy, I had to come to him rather than he to me to look at car. he was on disability but when we compared medical records it was clear I was more "disabled" than he was. he essentially admitted he was a slacker but the gig was too good to give up. at the end of discussion, he wanted me to lower price on car, and I left saying the price had just gone up.

the safety net is pervasive and that is either a feature or a bug, I am not here at this point to argue it...but now add in forbearance on mortgages and student loans, and work ethic takes the hindmost.  I just see an economy that is becoming increasingly fragile for too many people. 

DooDiligence

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Re: The Great Stagflation
« Reply #14 on: February 23, 2021, 06:43:52 AM »
Entitlement is big business:

Statistics on Title II Direct Payments to Claimant Representatives

www.ssa.gov/representation/statistics.htm#2019

https://secure.ssa.gov/apps10/poms.nsf/lnx/0203920017

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I couldn't find anything on ad spend by disability attorneys but I found plenty of marketing info describing expected returns vs. spend. This ATRA page shows some older statistics for trial attorney spend.

Trial Lawyer Ad Spend Coast to Coast July to Sep 2018:

www.atra.org/2019/01/10/study-226-million-spent-trial-lawyers-advertising-quarter-3-2018/

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Who says trickle down economics doesn't work? The most entitled segment of our society is creating a well lit path for the rest of us. Tort reform? Pfffft...
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Morgan

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Re: The Great Stagflation
« Reply #15 on: February 23, 2021, 04:05:43 PM »
disability insurance is an interesting and somewhat taboo topic. there are a lot of people on disability insurance who one might think are able bodied but there is difficulty to get them off of disability (lots of SS benefits lawyers and the SSA is somewhat disinclined to get people off rolls once they are on them). plus there is a lot of outright fraud.

Why is the SSA disinclined to get people off the rolls?

I live in WV and a lot of people here are on disability and I think it’s really a problem. Sometimes the entire family, even the young kids, will be on some kind of government disability plan and between the 3-5 people they’ll make a nice little bundle. Some people surely need disability, but many look like they’re cheating the system. I suppose the only thing to do is make it harder to get and review edge cases. 

cherzeca

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Re: The Great Stagflation
« Reply #16 on: February 23, 2021, 04:31:48 PM »
disability insurance is an interesting and somewhat taboo topic. there are a lot of people on disability insurance who one might think are able bodied but there is difficulty to get them off of disability (lots of SS benefits lawyers and the SSA is somewhat disinclined to get people off rolls once they are on them). plus there is a lot of outright fraud.

Why is the SSA disinclined to get people off the rolls?

I live in WV and a lot of people here are on disability and I think it’s really a problem. Sometimes the entire family, even the young kids, will be on some kind of government disability plan and between the 3-5 people they’ll make a nice little bundle. Some people surely need disability, but many look like they’re cheating the system. I suppose the only thing to do is make it harder to get and review edge cases.

there is a certain mentality, prevalent imo at SSA and many other areas of our society/culture, that moving people off the dole and into self-agency and individual responsibility is a bad thing...that people are entitled to their entitlements. the other view is that this the worst thing for people...cf fishes v fisherman

Morgan

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Re: The Great Stagflation
« Reply #17 on: February 23, 2021, 07:03:09 PM »
disability insurance is an interesting and somewhat taboo topic. there are a lot of people on disability insurance who one might think are able bodied but there is difficulty to get them off of disability (lots of SS benefits lawyers and the SSA is somewhat disinclined to get people off rolls once they are on them). plus there is a lot of outright fraud.

Why is the SSA disinclined to get people off the rolls?

I live in WV and a lot of people here are on disability and I think it’s really a problem. Sometimes the entire family, even the young kids, will be on some kind of government disability plan and between the 3-5 people they’ll make a nice little bundle. Some people surely need disability, but many look like they’re cheating the system. I suppose the only thing to do is make it harder to get and review edge cases.

there is a certain mentality, prevalent imo at SSA and many other areas of our society/culture, that moving people off the dole and into self-agency and individual responsibility is a bad thing...that people are entitled to their entitlements. the other view is that this the worst thing for people...cf fishes v fisherman

Hmm. That very well may be true. This kind of thinking leads to a Beggars in Spain type situation.
 
In my view, and yours is probably similar, the percentage of people on government programs relative to the population would hopefully decline over time. Recipients should use the time to improve them selves so as to provide for themselves at some point. Some recipients of course are permanently disabled and we should help them.

Do you think there’s a way to change the culture around government programs so a smaller percentage of people use them over time? 

cherzeca

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Re: The Great Stagflation
« Reply #18 on: February 23, 2021, 07:06:43 PM »
disability insurance is an interesting and somewhat taboo topic. there are a lot of people on disability insurance who one might think are able bodied but there is difficulty to get them off of disability (lots of SS benefits lawyers and the SSA is somewhat disinclined to get people off rolls once they are on them). plus there is a lot of outright fraud.

Why is the SSA disinclined to get people off the rolls?

I live in WV and a lot of people here are on disability and I think it’s really a problem. Sometimes the entire family, even the young kids, will be on some kind of government disability plan and between the 3-5 people they’ll make a nice little bundle. Some people surely need disability, but many look like they’re cheating the system. I suppose the only thing to do is make it harder to get and review edge cases.

there is a certain mentality, prevalent imo at SSA and many other areas of our society/culture, that moving people off the dole and into self-agency and individual responsibility is a bad thing...that people are entitled to their entitlements. the other view is that this the worst thing for people...cf fishes v fisherman

Hmm. That very well may be true. This kind of thinking leads to a Beggars in Spain type situation.
 
In my view, and yours is probably similar, the percentage of people on government programs relative to the population would hopefully decline over time. Recipients should use the time to improve them selves so as to provide for themselves at some point. Some recipients of course are permanently disabled and we should help them.

Do you think there’s a way to change the culture around government programs so a smaller percentage of people use them over time?

of course. sunset them.

Cigarbutt

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Re: The Great Stagflation
« Reply #19 on: February 24, 2021, 06:34:57 AM »
^Morgan and cherzeca, thank you for the discussion about various government-sponsored enterprises and the sunset option. Entitlement spending is bound to remain a hot topic.
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The opening poster suggested pockets of labor tightness, a very unusual topic given the very large pool of ‘non-participants’ in comparison to the much smaller ‘unemployed’ group. As the US is about to enter an era of net negative labor force growth (Japan is the leading the way), this may be an area worthy of some soul searching. When Keynes came up with his expectations of a leisure society, he assumed the Beggars in Spain story line would apply ie the ‘productives’ would more than compensate for the ‘non-productives’. He did not envision an entitled and unproductive rentier elite with a bunch of ‘disableds’, financed with debt.

The monetary tools, for the employment mandate, are mostly geared to the headline unemployment number and, like the consensus view, the Fed expects inflation on that front in the short to mid-term (Waiting for Godot style). The monetary minds have looked at the declining labor participation and have concluded that it was, essentially, a secular trend (i agree), not a cyclical one, so out of their control or purview. So the Feds won’t interfere with secular trends here, at least not directly.

Central bankers are very bright people but often come to interesting conclusions when out of public office. For example, in 2016, Mr. Alan “The Maestro” Greenspan suggested the following:
•   Entitlements now probably require a three to four percent growth rate in the United States.
•   Rate cuts, negative interest rates, buying corporate debt is no part of the solution.
•   Gross domestic savings as a percent of GDP has been declining over the years largely because entitlements have dug into them.
•   You just can’t print money and buy the infrastructure. Productivity will only increase if there is savings behind the investment.
•   We should be more concerned about inflation than we appear to be.
•   The issue is how long can we maintain long-term interest rates by continuously pushing money into the system, at rates which I would say, human psychology doesn’t “continence”.

The fiscal tools used to deal with the growing disability problem has been to fund the payments with growing debt (Mr. Greenspan is more politically correct by saying that increasing entitlement spending has been funded by decreasing national savings) and, with present trends firmly entrenched (and incredibly bipartisan), it’s hard to see how this will change. But it will, somehow, when restructuring becomes possible.

Japan is an interesting example in relation to this ‘labor shortage’ question. Since 1990, Japan has been a champion of reform delay and lately has been able to delay the eventual day of reckoning by adapting their labor profile. Older Japanese citizens, including the much older ones, have shown impressive resilience with a growing ability (as documented by rising teeth count and walking speed per individual, age-controlled) to participate in the labor force. Japan also has come up with an unusual degree of innovation to make care of the poorly functional elderlies more productive (helping slightly with the overall declining productivity trends (since the 80s, Japan total productivity has been a story of  ‘productive’ sectors more than compensating the ‘non-productive’ ones, at least until recently and in spades)).

i’m not sure what this means about the stock market today but interesting and real business opportunities (one related to continence or the absence thereof) are shaping up in my local area in this respect.
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For those getting excited by rising rates, yesterday the US Treasury did something for the very first time. It sold ($60 billion of them) two-year notes at a yield of 0.119%. Because Treasury notes and bonds by regulation have a minimum coupon rate of 0.125%, the yield below that level means the notes were sold at a premium (!) above 100 cents on the dollar -- 100.011965, to be precise, a record. A weird world, we live. Somebody putting a million into the stuff would get about 3$ per day and they say inflation is coming.  My bet is ‘we’ can’t have interest rates rise meaningfully and/or for any length of time. Famous last words.