By James McCusker
For The Bellingham Business Journal
The Christmas story would have been different if the world hadn’t been changing at the time. If there had been stability there wouldn’t have been a need for a census or special tax collection, no need to travel to Bethlehem in winter, no inn, and no manger. These are just circumstances, certainly, but they are part of the story as Charlie Brown’s friend, Linus, knew and remembered it.
Our world is changing, too, and many of the changes either begin in the economy or show up there — immediately or eventually. And as we grow near to the end of 2015, the changed picture over the past 12 months comes into focus.
One dimension of the changing economy can be seen in the employment picture — not in the weekly or monthly ups and downs that capture the headlines and roil the financial markets, but in the fullness of the year’s trajectory.
The U.S. Commerce Department, for example, recently reported that over the past year (November 2014 to November 2015) the economy added 638,000 jobs in the education and health care sectors. Most of these were in the health care industry and were the resultant of two factors: increased availability of funds; and increased demand.
The increase in the health care industry’s available funds probably stemmed from the rising payments for health insurance, and the increased demand is one of the consequences of our aging population. Pew Research analysts estimate that approximately 10,000 people in the U.S. reach age 65 each and every day — just one product of the “geezerization” process that is gradually but relentlessly reshaping our economy. These forces will undoubtedly reshape health care in our country but it is not certain just what the end result will look like. Much of the health care industry is still going through the motions of being a market-driven, free enterprise system. But at present it has the headaches and the risks without the freedom which is increasingly constrained by the government’s bureaucratic edicts.
The education industry is experiencing the flip side of this demographic change, as fewer young children are being added to our population. This will gradually be felt as a decreased demand for public schools, first in the primary grades, and gradually working its way through to the college and university level.
Another major change with long lasting consequences is the hollowing out of the middle class. Its share of our economy’s total personal income shrank from 62 percent in 1970 to 43 percent in 2014.
Exactly why, and how, the middle class has contracted is not known with certainty, although some key factors have been identified. One of those is the loss of middle income jobs, first and most visibly in manufacturing, which was, and still is, a target for outsourcing offshore. More broadly throughout the economy though, there has been a shrinking of the number of middle management positions.
We normally don’t think of inflation as a major change since price shifts, large and small, up and down, have been with us from the very beginning of our country. And what is different today goes beyond the obvious inadequacies of our inflation measures, which can understate the impact of price rises on specific groups — older Americans, for just one example.
What is different now is that inflation is an integral part of our economic policy. Economists have convinced policy-makers that our economy cannot prosper and grow without inflation. The Federal Reserve’s monetary policy targets 2 percent as the inflation rate most consistent with our growth and price stability goals.
Still, it has effects. At a 2 percent inflation rate, for example, the federal government can pay off a 20-year Treasury at with money that is worth about half the money it originally borrowed. Over that same period, though, individuals paid annual income taxes as if the dollar had a constant value, which erodes the value of our take-home pay and lowers the value of the government’s tax receipts. Both household and federal budget-writers are left chasing phantom costs created by our own economic policy.
Employment patterns, our aging population, the shrinking middle class, and inflation are all powerful changes, each capable by itself of reshaping our lives, our economy, and our country. Certainly that is especially true of the shrinking middle class, the group that has traditionally been the vault where American values were stored. If our values seem to be changing, or under siege, one contributing cause may very well be the class’s diminished numbers.
The core value of the Christmas story survives even though surrounded by change. And if we remain true to our nation’s values we will survive even the worst that powerful changes can throw at us. Take heart.
James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Everett Herald Business Journal.