How did we end up here?

Part 1: Many working-age men permanently dropped out of the labor force after 2008

The German word “Ohnmacht” means to be unconscious. But - like many German words - this is a composite of two words that’ve been mashed together: “ohne” and “Macht.” The first word means “without” and the second word means “power.” I often think of this word these days, because it feels like a good description for what’s going on with the US: a country that’s unconsciously drifting towards the abyss, powerless to stop its descent. When that happens, I have to remind myself that there’s perfectly good economic explanations for how the US became so divided. The fact that there’s economic explanations is good, because it means we can design policies to fix what’s wrong. I’ll be devoting this week’s posts to what - in my humble opinion - got us here and what needs to be fixed.

The chart shows labor force participation rates for working-age men across key advanced economies. To be in the labor force, you either have a job or you’re looking for one. As labor force participation rates fall, more and more men in prime working-age (between the ages of 25 -54) are dropping out of the labor force, i.e. are giving up on work. Two things stand out. First, labor force participation for prime-age men in the US (pink line) is very low in international comparison and is rivaled only by Italy (red line), a country that’s famous for its dysfunctional labor market. Second, labor force participation for prime-age men in the US fell sharply after the global financial crisis and never recovered, again very similar to Italy.

The plight of working-age men in the US has been highlighted by Anne Case and Angus Deaton in their work on “deaths of despair.” It shouldn’t come as a surprise to anyone that an economy where more and more prime-age men drop out of the labor force is fertile ground for political polarization and extremism. The good news is that this is eminently fixable. Nobel prize winner

Simon Johnson

’s book “Jump-Starting America,” which proposes building technology hubs in some of the smaller, forgotten cities across the US, would be a good start.