Moneybeat: Jobs up, labor participation down

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

NICK EICHER, HOST: Alright, time now to talk business, markets, and the economy with financial analyst and advisor, David Bahnsen. David is head of the wealth management firm, the Bahnsen Group, and he joins us here now. David, good morning.

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

EICHER: Well, David, just a moment ago, you heard our reporting on the not very high likelihood that the Supreme Court will open the door to a wealth tax. But because we did touch on it, I'd like for you to talk a bit about the economics of a wealth tax. And given that you have devoted an entire book four years ago to the economic ideas of Senator Elizabeth Warren—back then she was running for president and doing quite well. But what do you think a wealth tax would mean, economically, if it ever happened?

BAHNSEN: Well, I think that in the form of a wealth tax as both candidate Warren and candidate Bernie Sanders proposed a number of years ago, there is very close to a 0% probability that it could ever be implemented. Larry Summers, who is a center left economic icon in contemporary American politics, a Neo-Keynesian intellectual, who was the Treasury Secretary under Bill Clinton, he was President Obama's economic council director, and former president of Harvard University, but although not guilty of plagiarism. And Larry Summers has written a fantastic op-ed in the Washington Post, explaining why the wealth tax is simply a terrible idea. And the reasoning comes down to it doesn't work.

Now I make constitutional arguments, I make other ethical arguments against the notion of the state having a vested interest in the growth of family wealth, but the practicality of it kills it because the motive behind it is what to raise revenue. And it won't raise revenue, it'll misallocate resources, it will cause poor behavior, it will incentivize people to hurt the value of their own stock every year at the end of assessment period, before building it back up. It will divert monies into hard to measure hard to value assets, antiques and artwork and jewelry and, and whatnot, there is such an incredible incentive for misallocation.

And like I said, misbehavior with a wealth tax, that it's really stunning that we're even having to have the conversation. But what is really behind it is not a disagreement with anything I just said Bernie Sanders and Elizabeth Warren, are not driven by their belief that a wealth taxes efficient. They're driven by a social justice mantra that says, we just don't like wealthy people. And this is their way of trying to deal with it.

EICHER: Well, David, let's talk jobs because at the end of year figures have come in and they beat expectations. Employers added more than 200,000 jobs in December, the unemployment rate still below 4%, clocking in at 3.7. So for the year, then, a total of 2.7 million jobs added in 2023. They say that is the fifth best since the year 2000. So you saw it anything not to like in the latest jobs report?

BAHNSEN: Yeah, I didn't like the labor participation force dropping again, I think it was 676,000. And I'm obsessed with that number. I do want to be careful, Nick, when we talked about the absolute number of jobs created over a period of time, like 23 years. I don't really believe that's ever the way to measure it, because it's not population adjusted. And so having 200, well, last year, 2.7 million jobs created in a population of 2023, and comparing that to the jobs created and what the population was in 2000, is a real significant apples to oranges. Yet, the point is not wrong, that it was a great year for job growth. It's slowed versus the year prior.

But what people have to remember is that 2022 had a significant amount of jobs coming from the post COVID moment that there were jobs being re-covered in 2022, from the shutdowns and 20 and 2123. That's not the story. And so if you look back a year ago, where the amount of people who were predicting recession amount of people that were predicting significant job deterioration, there's no question 2.7 million is indicative as of a stronger than expected jobs economy. The wage growth is about 4%, meaning real wages grew modestly. And even though I think there's a real concentration of where the job growth is largely coming from now. This wasn't true for the whole year, but for the past few months, there is more in just a couple of sectors health care, government and media. in hospitality, and there's obviously a jobs recession going on in manufacturing. But that is not likely to last either.

I do think that there are certain reshoring and onshoring activities taking place in terms of some of the industrial sides of the economy that are probably see jobs come back there, too. So look, I don't have a partisan answer for anybody here. I think there's stuff in what I believe is empirically true. That might upset either side who's trying to gauge this politically? I'm just not trying to do that. I'm trying to gauge it economically. But if we want a broader, more realistic cultural answer, that's a little more sobering. I maintain my belief that our problem will probably not end up being that there's not enough jobs, it will end up being that there's not enough workers. And that's a totally different thing. And one could argue culturally, it's worse.

EICHER: David, what is your sense, just looking at the disruptions in the Red Sea with the Houthi attacks on commercial shipping? I, I see it's not driven by oil prices. But I keep seeing these headline stories, fears of a wider war related to Israel and Hamas. But what are the markets sensing? Are they sensing any of these fears at all?

BAHNSEN: Well, in a sense, Nick, you answered your own question, because we have to decide what we believe in more: a headline that pops up saying, there's incredible distress and fear and uncertainty happening in the in the streets of, you know, the Red Sea, and this and that, or oil prices, trillions of dollars of real life activity? So oil is still sitting in around $74, as we're talking, it has been in the low 70s. It's been in the high 70s. It's been in a very tight range ever since October 7. And even in the course of this story with Iran, and the company that announced they were going to pull their shipping activity out of the Red Sea temporarily, oil prices went down. So I don't have an explanation.

This is the beauty of hierarchy and price discovery. I don't have to have a story as to why that is. Prices are telling me they are coordinating a lot of knowledge that I don't have, and telling me that they do not anticipate a macro story out of what's happening. That's not to say, by the way, that there's not a permanent macro story of instability in the Middle East of different groups of people, whether it be Jews, Sunnis, Shiites, you know, Christians, west east, political. There's all sorts of people who hate each other in a region that have spent hundreds of years trying to kill each other. There's really bad things going on. And I have very strong opinions about who the good guys and bad guys are morally and politically, but economically, that geopolitical tension has been baked in forever. And do I think there's any particular outlier of geopolitical distress that has risen in the last week or two? The answer clearly is no.

EICHER: Alright, David Bahnsen: founder, managing partner and chief investment officer of the Bahnsen Group. David's very good new year look ahead report will be available this morning. When his staff post it online, you'll find it at dividendcafe.com. We'll hit some of the highlights of that white paper next week. But again, available this morning on dividendcafe.com. David, thank you.

BAHNSEN: Thanks so much, Nick. Great to be with you.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.