Economics

Why The Bull Market May Be A Jedi Mind Trick

The Bureau of Labor Statistics reported Friday that over 300,000 jobs were created in February, making it the best single-month total since July 2016. And unless you’ve been exploring the Arctic Circle or were kicked off Twitter for expressing politically incorrect views, you know that’s just the latest “great” news about the booming economy, bull market in stocks, and, best of all, the significant new job creation since Donald Trump became president.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

See 2017 Hedge Fund Letters.

Bull Market
werner22brigitte / Pixabay

Certainly, there is no denying that the stock market has continued to rise, with the S&P 500 up over 27 percent since 11/7/2016, as of this writing. But as for the overall economy and, specifically, job creation, even the Trump-hating liberal media seems to have fallen for an economic Jedi mind trick. Regardless of single-month spikes like the one that occurred last month, it only takes one click of the mouse to see that job creation continued to fall in 2017, as it had the previous two years. Looking at yearly totals over the past ten years, job creation looks a lot more like a protracted version of the last business cycle leading up to the 2008 crash.

YearJanFebMarAprMayJunJulAugSepOctNovDecTotal*
20088-81-55-229-184-154-213-277-443-475-759-707-3569
2009-787-704-802-704-354-469-342-196-229-20912-277-5061
201018-73193221522-140-78-16-63267129731053
20114418225432381234721122332091452012090
201234823326472117681561731941531302432151
2013207265156179240158111260201210221932301
20141741822613112523061962262842553072513005
201521126778282326191256164883512642342712
2016103257235174342853251752641401721802344
201725920073175155239190221142712161752188
2018239313
*Total column added to BLS data

A spreadsheet can be worth a thousand words, can’t it? What we’re really seeing isn’t the effects of the policies of either Donald Trump or Barack Obama. Instead, it looks like the predictable pattern of job creation during the recovery after a Federal Reserve inflationary bubble pops. There is a period of annual job losses, followed by a period of steadily increasing job creation, followed by a period of decreasing job creation, and finally another crash. At that point, job losses recur and the cycle repeats.

This particular cycle has simply been drawn out over a longer period by unprecedented monetary intervention by the Fed, including Quantitative Easing and keeping interest rates near zero for the better part of a decade.

Here is another spreadsheet that may be worth two thousand words. It’s the BLS jobs numbers, with the addition of annualized totals, for the years leading up to the 2000 NASDAQ and 2008 Housing Bubble crashes, respectively.

YearJanFebMarAprMayJunJulAugSepOctNovDecTotal*
1995327198219162-17240922522521521461322155
1996-134252651653262812511852132612951712825
1997231308312292263264303-224993442993183411
19982721981452804022231303402182012733673049
19991174101073722112643281542253942893103181
2000218131467293219-36173-15144-152221371938
2001-2574-28-279-41-121-108-146-250-328-297-177-1726
2002-149-128-17-831751-77-7-671136-170-511
2003107-146-208-4911-719-461102053121120
2004167583282542978245116157348631262041
200514724413835817224737119666863371552517
20062823122971683179206179148122081732095
2007234852145915377-30-2896781061041148
20088-81-55-229-184-154-213-277-443-475-759-707-3569
*Total Column added to BLS data

Are you seeing a familiar pattern? During the lead-up to the 2000 crash, job creation increased to a peak in 1997, began declining and turned to job losses after the crash. After the early 2000s recession, job creation increased to a peak in 2005, then began declining and turned to job losses after the crash.

The Politicization of Economic Data

The Federal Reserve’s activities have significantly more effect on economic outcomes than anything a particular president or Congress may do.

There is no reason to believe the present cycle is any different, other than being longer for the aforementioned reasons. Job creation appears to have peaked in 2014 and began declining, relatively unaffected by the change in presidents. That’s also consistent with the position long-held by this writer that the Federal Reserve’s activities have significantly more effect on economic outcomes than anything a particular president or Congress may do.

That politicians ignore reality is not surprising. What is surprising is the extent to which the American public is willing to believe political narratives that fly in the face of reality and recent memory. Even within the canard that presidents “manage the economy” and outcomes are significantly affected by their policies, there is selective amnesia about how they supposedly performed.

It is now accepted truth across a majority of the mediasphere that Bill Clinton managed the economy well, George W. Bush contributed significantly to its collapse, and Barack Obama inherited a deep recession and steered the economy through a dramatic recovery. That’s a nice story but for a few facts that aren’t in dispute.

For starters, the 2000 NASDAQ crash occurred while Clinton was still president. George W. Bush also inherited a deep recession that everyone seems to have forgotten about. And economic data during Obama’s tenure look almost identical to those during Clinton’s and Bush’s, apart from the cycle being longer.

But perhaps the most bizarre politicization of economic data may be courtesy of President Donald Trump, who seems to vehemently disagree with Candidate Donald Trump in terms of just what is going on.

That politicians ignore reality is not surprising. What is surprising is the extent to which the American public is willing to believe political narratives.

Candidate Promises

In 2016, Candidate Trump correctly called the stock market a big, fat, ugly bubble, blown up by a politicized Federal Reserve. Just months later, he was taking victory laps over the bubble continuing to expand.

He called the jobs and unemployment numbers “phony” while they improved during President Obama’s presidency, but now tweets an end zone dance every time a monthly number looks momentarily encouraging. This in the face of clearly decreasing job creation year-over-year.

During the entire Obama presidency, we heard unemployment claims were decreasing not because the economy was recovering, but because “more and more people were giving up looking for work,” as supposedly shown in the Civilian Labor Force Participation Rate. There was a decline in that rate after the 2008 crash, but it has held steady around 63 percent since 2013.

Suddenly, we don’t hear about it anymore.

Why haven’t any of those who supposedly gave up looking for work during the Obama presidency come back into the labor force? Probably because they didn’t give up looking for work at all. They retired. The participation rate includes everyone 16 years old and older who aren’t employed. And as everyone knows, we’re right in the thick of the baby boomer retirement years. So, one would expect the labor participation rate, including retirees, to decline.

Politicians aren’t the only ones proficient at ignoring reality. Largely, they merely reflect the public’s propensity to do likewise. Donald Trump campaigned on not touching Social Security or Medicare and increasing military spending. Hillary Clinton campaigned on spending even more. No candidate who talks about cutting anything significant stands a prayer of winning a primary anymore.

The Next Chapter

In the relatively near future, several long-term trends will come to a head. The ratio of workers paying into federal entitlements vs. those drawing benefits will reach the critical stage. It’s already fallen from over 41:1 to less than 3:1 between 1945 and 2010. Retiring baby boomers will decrease it even more. Yet, any mention of cutting these entitlements is electoral suicide.

Interest rates have been artificially lowered for so many decades that we now have no idea what the real market rate is. But we’re likely to find out as the rest of the world continues moving away from the dollar as the world’s reserve currency. That, combined with the Federal Reserve’s plan, already underway, to try to normalize interest rates by their standards, and the return of trillion-dollar-plus federal deficits, portends a massive economic correction that may dwarf what happened in 2008.

If the American public continues to respond by merely replacing the current president with one pitching the same size government, with a slightly different distribution of the largesse, it could turn into a long century in the “land of the free.”

Tom Mullen


Tom Mullen

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom's writing, visit www.tommullen.net.

This article was originally published on FEE.org. Read the original article.