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In this Barron’s episode, we’ll discuss fixing the economy. What’s wrong? What are the solutions? Tune in to find out.

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Overview

When you have a hammer, everything is a nail.
With Central Bankers, their tool is money and it’s becoming apparent their trillions can’t fix everything; but that doesn’t stop them from trying.
Fed Chair Janet Yellen suggested recently that creating a “high pressure economy” could help with the sluggish recovery, most notably the unprecedented number of Americans who not only aren’t working, but aren’t even in the labor force.
In a speech at the Boston Fed, Yellen said that pushing economic growth could counter the lingering effects of the great recession.
The backdrop is the widely anticipated .25% Fed rate hike in Dec of this year.
Yellen offered a defense for going slow with the rate hikes saying it has been in order to keep the pressure on the economy.
This stronger economic growth would motivate businesses to invest more in expansion, especially if they could be more confident in the future.
This could spur more R&D and faster growing start-ups.
If you’re not in the labor market (aka looking for a job), then you’re not officially unemployed.
The participation rate is currently at 62.4% of the adult population, lowest since 1978 (before women were fully integrated in workforce).
Alan Krueger from Princeton has found that there has been little improvement in the labor force participation rate, even as the jobless rate has declined to 5%.
- In other words: the idea that many labor force dropouts are returning to the labor force is unsupported by the data.
The reasons for this seem unrelated to economics.
Among younger men (21-30) the labor force participation rate fell 7.6% from 89.9 to 82.3% from 2004-2014.