I am currently listening to Fed Chair Yellen address Congress in the Committee on Financial Services. A line of questioning just finished regarding social program (welfare) program growth and slowing GDP. Alan Greenspan was quoted by the Congressman saying that you cannot have both entitlement program spending growth and a consistent 3% GDP growth at the same time, as the ‘arithmetic simply does not work’ for both to happen at the same time. It was also noted by Congress that while unemployment is going down, labor force participation is weakening, which translates to fewer people working overall but the government not addressing those people in their policy decisions. This is the essential difference between the U3 and U6 unemployment numbers and why U3 should not be the primary measure of unemployment by the Fed and the government!

The question posed to Yellen was, in light of recent debates about healthcare in the US as an entitlement program, does the Chair see the growth in entitlement spending conflict with the expectation of the GDP growth prospects.

Yellen avoided answering this question directly, and instead said her biggest concern was the retirement of baby boomers in affecting labor force participation. In other words, Yellen just said that baby boomers are the reason for weak labor force participation, and insinuated this affected both the labor force participation weakness and pressures on GDP growth that had just been asked about.

The only problem with this is that labor force participation weakness IS NOT concentrated in seniors, who are in FACT entering the workforce in record numbers due to inability to retire on the savings and investments, see my previous article here. They aren’t supposed to be increasing labor force participation, but rather over time dropping out of the labor force measures completely as retirees who should not be counted in the statistics as ‘willing and able to work’.

Chart courtesy of Advisor Perspectives