How high energy prices create new economic 'norms'

Henry CK Liu wrote an interesting article in 2005 in which he outlines the rather dire implications for the US and global economy from rising energy prices. He claims, by the way, that the then quite dramatic rise in the price for gasoline was not the result of peak oil. Rather, he appears to say in this case, it came from high refinery costs. Please correct me if I've misinterpreted that point (and others). It is conceivable that the high cost of debt experienced by the petroleum cartel could also (easily) be added to the price of oil.

I've summarised the ten points Mr Liu has made on the subject below:

Fact 1: Energy prices are so basic to the global economy that, when they rise, the same material quantity in transactions simply involves greater cash flow. Higher oil prices do not take money out of the global economy but shift the profit to different sectors. Foreign oil producers must then shift their dollars back into US Treasury bonds or other dollar assets as part of the rules of the game of US dollar hegemony. A rise in monetary value of assets adds to the monetary wealth of the economy.

Fact 2: High energy costs translates into reduced consumption in other sectors unless higher income can be generated from the increased cash flow. Wage rises have a long time lag behind price increases. Workers may be able to increase their income by working longer hours in the meantime. The latter does not necessarily translate into productivity increases.

Fact 3: As cash flow increases for the same amount of material activities, the GDP rises while the economy stagnates. Purchases and sales amount to the same (maybe less) at a higher price and profit margin and with slightly more employees at lower pay per unit of revenue. The inflation from rapidly rising energy costs resulted in businesses hedging to protect themselves in the expanding structured finance world.

Fact 4: The impact of the sharp rise in energy prices results in asset values – in fact the entire commodity price chain - being in a upward spiral. It becomes possible to carry more debt without affected the debt-to-equity ratio. In effect this gives substance to a debt bubble and represents a defacto depreciation of money that is misidentified as growth.

Fact 5: High energy prices threaten the economic viability of some commercial sectors.

Fact 6: No interest-rate policy from any central bank can contain energy-cost-related inflation. Central banks can and do create debt bubbles.

Fact 7: War is a gluttonous consumer of oil. Waging war will translate therefore into rising dollar interest rates due to a higher US federal budget deficit. This is recessionary for the globalised economy but an economic stimulant in the US as long as collateral damage from the war occurs somewhere else.

Fact 8: In a debt bubble, oil in the ground can be more valuable than oil above ground because it can serve as a monetizable asset through asset-backed securities (ABS) in the wild, wild world of structured finance (derivatives). Also gasoline prices will not come down because there is no economic incentive to fix the shortage of crude oil refinery capacity. Refineries are among the most capital-intensive investments and the return on new investment will need continued high gasoline prices to pay for it.

Fact 9: The reason the US imports oil is that importing is cheaper and cleaner than extracting domestic oil – not because the US has a shortage of proven oil reserves.

Fact 10: Fifty-dollar oil [+] will buy the US debt bubble a little more time. Despite all the grandstand warnings about the need to reduce the US trade deficit, a case can be made that the United States cannot drastically reduce its trade deficit without paying the price of a sharp recession that could trigger a global depression.

From:
The real problems with $50 oil
By Henry C K Liu May 26, 2005
http://www.atimes.com/atimes/Global_Economy/GE26Dj02.html

When Did The US Housing Bubble Begin?

In his most recent post on "Economics and its Discontents" on economic principals, David Warsh asserts that the US housing bubble occurred during 2003-06. In a thread following a post on this on Economist's View, I questioned this and said that it began in 1998, only to get a lot of criticism from others, with alternative beginning points being posed, including 2000 and 2001. I replied by noting that if one looks at the price-to-rent and price-to-income ratios for housing from both of the two indexes available (Case and Shiller and OFHEO, the latter having the bubble peaking in early 2007, while Case and Shiller say mid-2006) that showed these ratios taking off in 1998, although basically nobody noticed at the time because we were nearing the end of the dramatic dot.com bubble that crashed hard in early 2000. One can find a source for the OFHEO one here and for the Case and Shiller one here.

Now, part of what has people nonplussed I think is that both Kindleberger and Minsky used to argue that most bubbles start with some sort of identifiable "fundamentals displacement" that starts some price or prices on an upward path that then turns into a speculative bubble. But it is hard to identify such a displacement for housing in 1998. However, it seems that this is the case for some other of the really large bubbles of history, including the Mississippi one of 1719-20, the South Sea one of 1720, the 1920s stock market bubble, the 1980s one as well, and probably the dot.com bubble also. I wrote about this back in 1991 in my book, From Catastrophe to Chaos: A General Theory of Economic Discontinuities (repeated in second edition, 2000) on p. 61 as follows.

In all four of these cases the bubbles emerged after relatively long periods of general economic growth. Thus it may be that the trigger of these bubbles was a critical accumulation of general confidence and enthusiasm without any specific displacement of any fundamental being involved. It may well be that other episodes which have apparently begun with fundamental displacements may in fact have been "misspecified fundamentals" on the part of the participants. They mistakenly forecast that the initial displacement represented the future trend of the fundamental and the collapse of prices came when the illusion vanished. In this respect the lack of a clear initial displacement may be a way of identifying a pure speculative bubble. The pure bubble simply emerges from the swelling sea of boundless optimism, like Aphrodite from the froth.

Fiscal Stimulus Hits (Near To) Home

My oldest daughter, Meagan, who is about to turn 38 and is a single mother with a four and three quarters years old son, Charlie, works with disturbed teenagers in the Bay area in CA for an NGO that depends on public funds. Nearly a year ago her hours were cut back so that she lost her health insurance. She phoned me last night to tell me that thanks to an infusion of federal stimulus money, she will be put back on full time employment with her health insurance restored.

I also note that at James Madison University where I teach, the governor of the state mandated a 15% budget cut to us, which would have entailed layoffs. However, thanks to stimulus funds, it will be only about 8%, which although still entailing furloughs and plenty of cutting, will at least avoid any layoffs.

More on the Ways in Which Economics Fails to Conduct Itself Scientifically

Economics is only now beginning to come to terms with the external consistency demands posed by research in psychology, sociology and other related disciplines.

I’ve been thinking a bit more about science, pure and applied. My two criteria for “science-ness” thus far have been explanation (providing the causal mechanisms that generate outcomes) and giving priority to the minimization of Type I error. These have to do much more with pure science than applied, however. When a geologist assesses whether a site is stable enough to build on, she is concerned quite as much, if not more, with false negatives than false positives.

Where the two overlap, however, is in the role given to what can be called external consistency. Internal consistency is the property of logical coherence. Economists and others use math, for example, to test for it. An argument is externally consistent, however, if it does not contradict claims thought to be true made by other researchers, typically in adjacent fields. For instance, to be externally consistent a geological theory must adhere to the recognized results obtained in physics and chemistry.

The case for external consistency can be seen as a corollary to Type 1 error minimization: if your hypothesis butts up against arguments or evidence with enough credibility elsewhere, you are at heightened risk of being wrong. But what counts as enough credibility? There is no getting away from the fact that this is an elastic criterion. On one end we have the more-or-less indisputable results of real, fully tested sciences: if you violate any of them, you can’t be right. (I once had a student who proposed a project design for urban rainwater collection that would have violated the second law of thermodynamics. This was extreme.) On the other we have plausible results that have not yet been subjected to critical tests. How much credence we give them, and how we trade off this consideration against others, is a matter of judgment—one characteristic of the quality of a practitioner.

Economics is only now beginning to come to terms with the external consistency demands posed by research in psychology, sociology and other related disciplines. A good applied economist is someone who knows this work, can evaluate how compelling it is and how much impact it should have on the validity of economic models and methods.

Casualties of the Crisis

Just in case we are too caught up in the blame game to keep our sense of priorities, here’s the abstract of a recent World Bank working paper (my emphasis):

The human consequences of the current global financial crisis for the developing world are presumed to be severe yet few studies have quantified such impact. The authors estimate the additional number of infant deaths in sub-Saharan Africa likely due to the crisis and discuss possible mitigation strategies. They pool birth-level data as reported in female adult retrospective birth histories from all Demographic and Health Surveys collected in sub-Saharan Africa nations. This results in a data set of 639,000 births to 264,000 women in 30 countries. The authors use regression models with flexible controls for temporal trends to assess an infant’s likelihood of death as a function of fluctuations in national income. They then apply this estimated likelihood to expected growth shortfalls as a result of the crisis. At current growth projections, their estimates suggest there will be 30,000 - 50,000 excess infant deaths in sub-Saharan Africa. Most of these additional deaths are likely to be poorer children (born to women in rural areas and lower education levels) and are overwhelmingly female. If the crisis continues to worsen the number of deaths may grow much larger, especially those to girls. Policies that protect the income of poor households and that maintain critical health services during times of economic contraction should be considered. Interventions targeted at female infants and young girls may be particularly beneficial.

"Because health-care resources are assumed to be fixed..."

by the Sandwichman

From an op-ed by Rupert Darwall in the Wall Street Journal today:

"The case for ObamaCare, as with the NHS, rests on what might be termed the "lump of health care" fallacy."

How Seriously Wrong John Cochrane Is

I have stated here already that I have problems with Paul Krugman's analysis of what went wrong with macro, most notably his nearly total ignoring of the analysis made by many heterodox economists. However, the inflamed reply by John Cochrane has been a joke. He presents himself as speaking for "the economics profession" rather than just a narrow group of Chicago-based or inspired economists. He is the expert, and Krugman supposedly makes trivial technical errors such as not distinguishing CAPM from Black-Scholes, etc. So, I decided to see how wise Cochrane is by going back to look at his widely praised (including even by Robert Shiller: "impressive treatise of very high quality" and "can also serve as a textbook in an advanced finance course") 2001 book published by Princeton University Press, _Asset Pricing_. On what has happened in the last few years, it is utterly useless.

In the index I went to find the following words/phrases: "fat tails" "kurtosis" "leptokurtosis." They are not there, even though pretty much all practitioners and a large literature already existed discussing how to explain the ubiquity in practically all asset markets of exactly those phenomena. He has a big fat zero to say about them, nothing.

I did find "bubbles," which he discusses briefly near the end of the book (pp. 399-402). He seems to recognize that they might exist, but his discussion is strictly in terms of "rational bubbles" and cites Peter Garber ("Tulipmania" JPE, 1989) on how they are not econometrically identifiable (and later says they do not explain empirical variations of price/dividend ratios; oh, and Garber). The model of rational bubbles he discusses supposedly must go on forever, which he then sneers at because "Infinity is a long time...The solar system will end at some point." Somehow he ignores the Blanchard-Watson 1983 paper on stochastically crashing bubbles, which indeed crash in finite time after rising at an accelerating rate to provide a risk premium for the ever-rising probability of the inevitable crash. Ironically, this last model lies at the base of the forecasting model used by econophysicist Didier Sornette and his associates, whose not-too-bad recent forecasting record on crashes is ultimately based on estimating the moment that such a process (complicated by oscillations) blows to infinity.

Oh, and Peter Garber is also wrong, see "Complex bubble persistence in closed-end country funds," by Ehsan Ahmed, Roger Koppl, me, and Mark V. White, Journal of Economic Behavior and Organization, Jan. 1997, 32(1), 19-37, although the basic insight that one can identify the fundamental by the net asset value of a closed-end fund and thus can identify increases in price of the fund above its NAV as a bubble had been made by many others prior to us. So, it is simply ridiculous of Cochrane to have ignored this point as well (he does recognize on p. 408 that some such funds trade regularly at discounts but never mentions that some have shown massive increases in price above NAV or that this clearly shows the existence of a bubble).

Earthquakes, Financial and Geological

As Paul Krugman’s diagnosis of the state of economics bounces around the blogosphere, we are being treated once again to the old debate over whether economics can ever be as scientific as the “real” sciences, the hard ones that have big budgets for lab gear.

If you want to talk about hard sciences, talk about geology. They even have hardness tests, which I remember from my freshman course many long years ago. (I did pretty well in it, but would have done better if I could have ID’ed coal on a midterm exam.) Yet when it comes to a crucial task like predicting earthquakes, geologists are not much better than the pseudo-scientists who populate economics departments. They do even worse, actually, when you consider that their margins of error are hundreds of miles, hundreds of years, and an order of magnitude or two. This makes Alan Greenspan look like Nostradamus.

But of course, that’s not what does or does not qualify geology as a science. Rather, scientists are researchers who subject themselves to rigorous falsification testing that, in the long run, weeds out error. What’s important about the study of earthquakes, for instance, is not its predictive power but that it’s based on an understanding derived from plate tectonics. Yet this was not always the case. That freshman course I mentioned was taught by some of the last holdouts against plate theory; we learned about igneous intrusions and isostatic rebound, but not subduction faults.

You can’t take a course like that any more, because the reward system for geologists gives lots of points for devising critical tests and takes away even more for failure to pass them. Suppose there were a parallel universe in which geologists acted like economists. You might have a popular school of thought that holds that earthquakes are caused by the differential pressure exerted by topography; that’s why there are more quakes in California than Kansas. You could show that the coefficient on topographical variation is significant at a very low p-value in a pooled cross-section. You could calibrate a model showing how much variation is associated with how many earthquakes. Hell, you could generate hundreds of models with different functional forms and control variables and estimators and build whole careers around nuanced discussions of which one “performs” better.

But none of this has anything to do with science. In the universe we actually live in, geologists looked for critical tests: evidence that decisively discriminated between plate tectonics and competing theories.

If you want to tell me that people formulate lifetime spending plans based on the present value of their expected future stream of real after-tax income, and that because of this any dollar of additional government spending is a dollar less of private spending, fine. But don’t calibrate it or show me results “consistent” with it. Think of a critical test, a real-world situation in which we would get a particular result only if this story is correct, and then live or die by the result. Yes, I know this can be difficult in economics, just as it is in geology, but it’s even harder if you don’t try.

The 'medium' is what you actually do.

In 1970 Charles A Reich wrote his book 'The Greening of America' in praise of the cultural protest movement of the 1960s.. It was one of the most personally influential books I have read.

Over the years since Reich's publication the mainstream media have placed much emphasis on the relative affluence of the young people of '60s generation. Leading journalists and TV hosts often supposed that an unprecedented rise in material wealth was somehow causative of the rebellious spirit that was the hallmark of the youth at that time.

It is clear, however, that great waves of alienation with modern western society had already swelled in the hearts of many individuals that were born in a different time altogether. As much as many former hipsters would hate the thought, the real depths of dissent that shaped the events of the 1960s may have actually come from their parents' and earlier generations. A small, particularly articulate and thoughtful number of people such as the likes of Martin Luther King, Charles Reich (as above), John Kenneth Galbraith, C Wright Mills, John Fitzgerald Kennedy, Robert Kennedy, Lewis Mumford, Laurence J Peter, Barry Commoner, Karl Polanyi and others took the limelight and shaped the thoughts of many a draft-dodger and pot-smoking greenie.

What was new and potentially revolutionary was the new medium of television and the ubiquity of cheap books; these people mostly understood how to use these media to best advantage. They knew well the ways and means by which public consciousness was actively manipulated and sought to explain this predicament to their large audiences.

In 1970, for instance, Charles Reich drew upon the thinking of Marshall McLuhan to explain how the medium of our lives was the real message:

"....let us borrow some thinking frm Marshall McLuhan. A young boy asks his father, "What do you do, Daddy?". Here is how the father might answer:
"I struggle with crowds, traffic jams and parking problems for about an hour. I talk a great deal on the telephone to people I hardly know. I dictate to a secretary and then proof-read what she types. I have all sorts of meetings wtih people I don't know very well or like very much. I eat lunch in a big hurry and can't taste or remember what I've eaten. I hurry, hurry, hurry. I spend my time in very functional offices with very functional furniture, and I never look at the weather or sky or people passing by. I talk but I don't sing or dance or touch people. I spend the last hour, all alone, struggleing with crowds, traffic and parking."

More likely, the father would respond to his son by saying:

"I am a lawyer. I help people and businesses to solve their problems. I help everybody to know the rules that we all have to live by, and to get along according to these rules."

Reich moves his focus onto the trapped realm of the modern 'liberal-intellectual'. No matter how great their sophistication, he says, they still keep to such goals as excellence, approval of colleagues, recognition and achievement. They may have fewer myths or illusions, but their despairing view of life's possibilities bar their way to a new consciousness and their dependence on goals involving outside approval deprives them of courage to be themselves.

To profess freedom without a change in personal consciousness it seems to me is like wanting the thunder and lightening without the rain, to want the sun without the heat and the light.

“No creature can learn that which his heart has no shape to hold.”**

** 'All the Pretty Horses', McCarthy 1992

Why Japanese Health Care is Bad

Harden, Blaine. 2009. "Health Care in Japan: Low-Cost, for Now: Aging Population Could Strain System." Washington Post. (7 September).

Half a world away from the U.S. health-care debate, Japan has a system that costs half as much and often achieves better medical outcomes than its American counterpart. It does so by banning insurance company profits, limiting doctor fees and accepting shortcomings in care that many well-insured Americans would find intolerable.

But many health-care economists say Japan's low-cost system is probably not sustainable without significant change. Japan already has the world's oldest population; by 2050, 40 percent will be 65 or older. The disease mix is becoming more expensive to treat.

So, public intervention of the medical system is obviously bad. The problem is that the Japanese health system makes the mistake of failing to let enough people die. The article does admit that a healthy lifestyle is also a factor, but let's hope that the US does not follow Japan.

Why Capitalism Fails... and Minsky Punts!

by the Sandwichman

The Boston Globe today carries an op-ed by Stephen Mihm, a history professor at the University of Georgia, highlighting the aptness of Hyman Minsky's financial instability hypothesis:

Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. "Instability," he wrote, "is an inherent and inescapable flaw of capitalism."

"But does Minsky’s work offer us any practical help?" Mihm asks. Part of the solution, he continues, is to have the Federal Reserve act as a lender of last resort to distressed firms. Nothing new there. But the other part is more radical: to have the government act as employer of last resort, guaranteeing a job to anyone who wanted one.

The political objections to the latter policy would seem at first glance to be insurmountable. But hold on a minute. A few years ago, the "house-price bubble" only existed in the fevered rantings of a smattering of chronic doomsayers. Today, who has heard of the "youth jobs crisis"? No one. Crisis? What crisis? Here's the chart again. Read it and weep.

Employment-Population Ratio - 16-24 yrs. Seasonally Adjusted
Digging deeper into the data, it gets worse. Long story short: youth employment has been COLLAPSING since the bursting of the dot.com bubble in 2000. There was no recovery for youth employment during the last "boom" -- only a leveling off. In the context of the youth employment crisis -- which will not be solved by a traditional bastard Keynesian fiscal-spending stimulus -- a far-reaching government jobs program might become politically feasible. But would it be economically feasible? Sandwichman doubts it. (to be continued...)

The Futility of Financial Regulation: Lessons from Science and Professional Football

The Wall Street Journal does not make the connection explicit, the editors must realize that the sophisticated investors, who own luxury boxes (or even professional football teams), will get the message: financial regulation is futile. The offense has a scientific advantage over the defense. No matter what strategy the defense uses, the offense can find a way to overpower it. The Journal even gives scientific analysis to make this point. Of course, the possibility remains, of moving from a competitive capitalistic game to a more cooperative system will eliminate the need for offenses and defenses. Notice the similarity between the analysis of football and neoclassical descriptions of the economy.

Futterman, Matthew. 2009. "Behind the NFL's Touchdown Binge As Scoring Soars, One Professor Sees Parallels in Nature; the 'River Basin' Theory." Wall Street Journal (10 September).

The NFL has become so fast and efficient that last season, teams each scored 22.03 points per game, the highest since 1967, while all the league's 32 teams combined for 11,279 points—the most in NFL history.

The game has become less cluttered. Offenses averaged just 3.09 turnovers (interceptions and fumbles) per game, the lowest of all time by more than 10%, and offensive lines allowed just 4.04 sacks per game—also the lowest ever. Even place kickers set a new mark: They made a record-high 84.5% of their field-goal attempts.

Adrian Bejan a professor of mechanical engineering at Duke University, likens the NFL's evolution to a river's effect on its basin. (Stay with us, here.) Over time, a river relentlessly wears away its banks and, as a result, water flows faster and faster toward its mouth. When obstacles fall in its way, say, a tree, or a boulder -- or in the case of an NFL offense, beefy linebackers like the Baltimore Ravens' Ray Lewis or the Chicago Bears' Brian Urlacher -- it will figure out how to wear those away, too.

"The game is a flow system, a river basin of bodies that are milling around trying to find the most effective and easiest way to move," says Prof. Bejan. "Over time you will end up with the right way to play the game, with the patterns that are the most efficient."

In 1996, Prof. Bejan, who began following the NFL after coming to the U.S. from Romania to attend college, came up with a theory about natural phenomena known as the Constructal Law. The theory, he says, can be used to explain the evolution of efficiency in everything from river basins to mechanical design. By extension, he says, it could also be applied to the explosion of offense in the NFL.

Tom Lemming, the recruiting expert and analyst for CBS College Sports, says no one on the college level has figured out how to neutralize the speed of the spread offense, either. "The offense always sets the agenda, and the defense plays catch-up," Mr. Lemming says.

Considered more broadly, Constructal Law may be the closest thing to a grand unified theory for the evolution of sports. In a sports context, the river is the relentless search for the easiest way to score or win more often. In soccer, there is the indefensible through-ball, passed between two defenders to a striker sprinting into open space. In basketball, the two-handed set shot eventually gave way to finding the tallest, fastest players who could jump the highest and dunk.

Cochrane's Complaint

by the Sandwichman

Paul Krugman has no interesting ideas whatsoever about what caused our current financial and economic problems, what policies might have prevented it, or what might help us in the future, and he has no contact with people who do. "Irrationality" and advice to spend like a drunken sailor are pretty superficial compared to all the fascinating things economists are writing about it these days.

How sad.

How sad, indeed. All the fascinating things economists are writing about "it" these days! What does the word "it" refer to? What caused our current financial and economic problems? What policies might have prevented it? What might help us in the future? Perhaps a little math would help:

Math in economics serves to keep the logic straight, to make sure that the "then" really does follow the "if," which it so frequently does not if you just write prose.

That depends on what the meaning of the word "if" is. Or the word "it". And "what". Professor Cochrane's mistake was not waiting a week before uncorking his rant and giving himself the opportunity of filing it in the unsent-rants file where it belongs.

I did learn this from Cochrane's essay: "the central empirical prediction of the efficient markets hypothesis is precisely that nobody can tell where markets are going.... . This is probably the best-tested proposition in all the social sciences." Hello? That is indeed a fascinating thing. Markets are efficient because nobody can tell where they are going. That is to say, if nobody can tell where they are going; then markets are efficient. Or, to put it more bluntly, if there is a Goldman, Sachs; then there is no such thing as an efficient market. Notwithstanding the non-trivial detail that the term "efficient" in the proposition is either a non sequitur or a tautolgy. What are efficient markets efficient at? Being inscrutable!

The catch is there will always be a Goldman, Sachs. The inherent tendency of all markets is toward monopolization and manipulation. It is precisely because people will not settle for the "nobody can tell" fairy tale that markets get rigged. To pretend that actually existing markets are somehow almost the same thing as efficient markets is no different than pretending that actually existing socialism was virtually a workers' paradise or that the moon is made of green cheese and the central bank is a green cheese factory. It's all dress up and make believe.

Like Paul Krugman, John Cochran has no interesting ideas whatsoever about what caused our current financial and economic problems, what policies might have prevented it, or what might help us in the future, and he has no contact with people who do.

Aftermath

A comment on Krugman's blog:

As an Economics graduate student and tutor of first year economics, I’d have to say Maths has helped me a lot come to grips and simplify into english with a lot of economic concepts for my own benefit and that of my students.

Job-Market Slack as "Leading Indicator"

by the Sandwichman

A couple of days ago, the Sandwichman characterized the employment-as-a-lagging-indicator meme as a prescription for doing nothing. Yesterday, over on Macroblog, David Altig contemplated, "Economists got it wrong, but why?" concluding, "I've yet to see the evidence that progress requires moving beyond the intellectual boundaries in which most economists already live." That comment sent the S-man down memory lane to a WSJ debate on job market slack Max Sawicky and Sandwichman had with David Altig back in the boom times of August, 2005.

Max and I were of the opinion that the job market was then slack in spite of a nominal 5% unemployment rate. David Altig leaned toward the interpretation that changes in labor force participation were being driven by demographic trends and the informed choice of participants and non-participants. In hindsight, I wish we had followed up on the demographic clue. Decomposing the employment-population ratio by age groups produces the following arresting picture:

Employment-Population Ratio - 16-24 yrs. Seasonally Adjusted
While the drop-off since September 2008 has been steep, the decline began in December 2006, three months before unemployment bottomed out for 16-24 year olds. Perhaps more auspicious, the "peak" employment-population ratio for 16-24 year olds during the last recovery barely climbed above it's trough following the 2001 recession. As they say, the youth of today is the future -- or the canary in the coal mine. The above chart is "evidence that progress requires moving beyond the intellectual boundaries in which most economists already live" whether David Altig sees it that way or not.