Moneybeat: Interest rates, labor participation, and economic policy

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen.

He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

DAVID BAHNSEN, GUEST: Good morning, Nick, good to be with you.

EICHER: Well, hey, we're in year-in-review mode this week on The World and Everything in It. So let's do the same here and and talk a bit about what you think are the top stories of the year in a few different areas? And maybe let's begin with the markets. That's your work. What did you consider kind of the top story of the year in the markets and 2022, David?

BAHNSEN: Well, I think that there's no question it was the impact of rising interest rates. And then that story, if you just headline it that way, carries with it a number of different kinds of sub stories, you know, the fact that the stock market and bond market were negative in the same year, it's an incredibly rare event, the degree to which the bond market was negative now that that did change a lot in the last six weeks, the bond market has had quite a comeback. But I mean, it was it's still significantly down, even if it's not down as much as it was. And then I think just the way in which the rising interest rate environment went with the bursting of the bubble around some of the silliest and frothiest of assets. So you know, the s&p being down 15 to 20%. That happens, on average, every four years, the NASDAQ being down over 30%. That's a more significant story. But then you have things like all of those kind of COVID stocks that were down 70 or 80%, things in the cloud things that were kind of work from home related. Obviously, we know about the whole crypto implosion. So you had a lot of assets that were really bubbled up out of 2020 and 2021. That just got destroyed and 22. And so all of these stories kind of, in a way, come back to rising interest rates. But I think it was a year in which the markets did what markets do, they purged out what we call malinvestment, a mis allocation of capital that had to kind of get righted. And I think that capital right now is better resource than it was a year ago. And I see that as a good thing going forward.

EICHER: What about in the economy overall, David? There's that's got to be kind of a difficult one. You mentioned the rising interest rates. And there was a lot of—you've called it an unhealthy obsession with the Fed for awhile. But that story, the Fed story, got a lot of ink in 2022. I wonder whether that labor force story, though, is the bigger one in the economy overall, because that goes to the heart of your view on economics, beginning with that imperative of work and production. What about that?

BAHNSEN: Yeah, I mean, I would argue that the story of our declining labor force is the story of the last 15 years, it began rather aggressively post financial crisis out of 2008 were like in any recession, let alone a really bad recession, you lose a ton of jobs, and you lose people out of the workforce. But the difference was they didn't come back, there was a significant amount of people that left the workforce permanently. That was beginning, just to put some numbers around that we had somewhere around 68% of our population in the workforce, pretty consistently, it went up or down less than a point from like, 2000 to 2009, then all of a sudden, that number dipped to 62%. And really stayed there. And you talked about a 567 percent difference in a population, our size, it's massive. And near the end of 2019, all of a sudden, we were in a two year period, 2018 and 19 have a slow, but not good enough, but still right direction of improving labor force, and then COVID came. And so then the reason that story has come back, Nick is that obviously, a ton of people left the labor force during COVID. And then a ton came back right away. But the number went up about half. It didn't come back to pre COVID levels. Jobs came back, the economy came back profits came back, but the labor force stayed one to 2%. And it sits there now about one and a half percent below where it was pre COVID. That's three to 4 million people. And so I think that that is not necessarily the key economic story of 2022 Because certainly the Fed is going to be wrapped into all of that, but it's a key economic story of the decade we just came out of and the decade where We're now in this is going to prove to be a 20 year cultural and economic story. And it's largely centered around men, but not exclusively, and largely centered around very young men, you know, kind of late teenager, early 20s, that normally it would be entering the workforce and or delaying it. And then it's a lot of people in between 55 and 65, that are still theoretically in a very able portion of their career, and I think valuable time of life to provide mentorship to, you know, bring an apprentice under them and share three decades of work experience and skill. They're leaving the workforce. So I have an article on this that is coming out this week on National Review, it's this whole subject is the subject of my next book, that book won't be out for a year, but it's what I'm working on writing over the next six months. And it's kind of a major topic economically. But also, I believe, spiritually, I think that there is such an incredibly forgotten theology of work. And now we're seeing the fruits of that play out in the data.

EICHER: David, before we go, I do want to hit policy. Because I'm thinking about that in light of what the Congress did at the end of the year with the passage of another one of these omnibus bills, $1.7 trillion, in one 4,000-plus page swipe that nobody read. That seems like a significant policy story. But what was your sense of policy overall in 2022?

BAHNSEN: Well, I think we got the benefits of divided government. That was a huge story in 2021, that build back better died four or $5 trillion spending package died. There just really wasn't a lot that got done. Now, legislatively, they did that smaller act that they very cynically ended up calling the inflation Reduction Act. And there are a few climate things in there and other social benefits I don't believe in but it was really more of a posture than an actual significant piece of legislation. This omnibus bill, I think there's a lot of misunderstanding about it's an atrocity. And I'm vehemently against it both in the methodology and the content. But I just think people have to understand they were debating as to whether or not they were going to pass this now or in a few weeks, they were not going to not fund the government. And so as long as you have a bunch of people in government that want to spend, they're going to be spending and the only debate was whether they did it now in the lame duck, or did it later. But any of those past attempts where folks say we're going to shut down government, it never lasts very long, and it never usually goes very well. So the politics of that whole thing are very tricky. People say, Well, what would you like to see? Well, of course, what I like to see as a smaller government, and a larger self government, meaning a more virtuous discipline, responsible citizenry. So what I want out of spending in government is going to take decades, I want a balanced budget, I don't want to spend more than we generate, I want to chip away at the national debt, I want to do a whole bunch of things that neither party wants to do. Now, one party does seem to like talking about it. That's the Republicans when a Democrat is president, but they don't seem to care much about it when a Republican is president. So there's my little bipartisan jab here, but it's factual. So this omnibus bill is an atrocity. But nevertheless, we have a large government right now, because this is the nature of the relationship between citizen and state that we have created for about 75 years in our country.

EICHER: So I'm old enough to remember appropriations bills, the appropriations process, my first job out of college was on Capitol Hill. So I'll put in my little commercial for regular legislative order. But, you know...

BAHNSEN: Yeah, that requires, Nick, a Congress that wants to legislate, right, and we have a Congress that doesn't want to legislate. Now, they're really some of them have gotten good at doing interviews, and saying everything that they think is bad. It's more performative. But the hard sausage-making the legislative process that leads to appropriations and debate and specific decision making and trade offs, there's absolutely no will for that whatsoever in the Congress, none.

EICHER: David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group. His personal website is Bahnsen.com. David, thank you.

BAHNSEN: Thanks so much, Nick.

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