Drugs & Demographics – National Tragedy, But Where From?

Authored by Jeffrey Snider via Alhambra Investment Partners,

In 1928, the fertility rate of American females (aged 15 to 44) was 93.8 per 100,000. By 1931, the first year of full Great Depression and collapse, the rate had declined to 84.6. It would bottom out, unsurprisingly, around 1933 and 1935 and the end of the contraction part of the depression. But what made that economic event “great” wasn’t just that one forward piece. It was instead the fact that it lingered on and on for more than a full decade.

As such, fertility rates in America would remain subdued until the later years of WWII. It was one reason economist Alvin Hansen conjured his (incorrect) secular stagnation thesis. Without the demographic tailwind, he surmised, growth would be exceedingly difficult as a baseline matter.

But what if it was the other way around? What if growth came first and then came the babies, as they did following WWII and the restoration of economic function after sixteen years of pent up demand and persisting unwanted pessimism (plus more than a little stabilization to the global monetary system).

Fertility rates during the Baby Boomer years, defined as 1946 through 1964, were an impressive and wholly unexpected 113.4.

There are always grave social and political consequences to prolonged stagnation or depression. It goes way beyond mere statistics of output and labor utilization. The US came out of the Great Depression in many ways nothing like how it went into it. People accepted a very different form of political arrangement (New Deal, to put it simply) because the old way clearly didn’t work – even if nobody could agree what it was, exactly, that constituted the old way.

We have, of course, experienced already these social symptoms during our lost decade. The economy starting in August 2007 shrank, and never recovered. For Americans, the cost in terms of labor has been huge, some 15 or 16 million who don’t fit in the official definitions for the labor force, not because of their choice but because they linger in the slack the mainstream narrative wants to omit. Economists attempt to ignore them for their huge blot on the official record.

As a society, of course, we increasingly cannot overlook what has become perhaps the first major social disruption of the Lost Decade; the opioid crisis. As Alvin Hansen in the thirties, economists today have it backward, trying to fit the drug problem as the cause instead of the effect. They desperately want to do so because that would legitimize the unemployment rate which doesn’t include those 15 or 16 million, and therefore would explain the Lost Decade as a non-economic or non-monetary factor.

Today, President Trump announced that he was declaring it a National Emergency. By “it” I don’t mean the economy, unfortunately, but rather the symptom drug epidemic. I can’t help but wonder if this is the wrong approach:

I don’t mean to make light of the situation because this is serious business and a national tragedy. But we are looking, as we so often do, in the wrong place for blame and therefore solution. The answer to such despair that might engender so much escapism is the satisfying hope that only economic opportunity can afford.

I firmly believe that someday there will be such growth again. I also believe that there is lingering at the contours of all this another Baby Boom should (when) it happen(s). It’s been so long that I feel it practically inevitable, an entire generation of Americans, bordering on two, who have come of age under some level of atrocious economic conditions (not quite 1930’s, but not that far off, either, as time progresses). How might they respond to what we all once took for granted?

The variables are how long it might be before we see it happen, and in what form the transformation takes. I think we all would prefer to skip repeating the first half of the 1940’s to get on with what followed (including the monetary stabilization piece). Time, however, isn’t a charitable factor when stretched out for so long. The clock, for good and bad, is ticking. There is nothing secular about that long ago stagnation, just as there isn’t about this one.