 It's really my pleasure to introduce the F.A. Hayek Memorial Lecture, very generously sponsored by Greg and Joy Moran. Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute, where he researches and writes extensively on demographics and economic development. Domestically, he focuses on poverty and social well-being. Dr. Eberstadt is also a senior advisor to the National Bureau of Asian Research. His many books and monographs include Poverty in China, The End of North Korea, The Tyranny of Numbers, Measurement and Misrule, The Poverty Rate, Measure and Mismeasure of Material Deprivation in Modern America, and most recently and very interestingly, Men Without Work, America's Invisible Crisis. He has presented invited testimony before the U.S. Congress on numerous occasions and has served as a consultant or advisor to several units within the U.S. government. In 2012, Dr. Eberstadt was awarded the prestigious Bradley Prize and he delivered the Irving Crystal Lecture in 2020. Dr. Eberstadt earned a Bachelor of Arts from Harvard University, a Master of Science from the London School of Economics, a Master of Public Administration from the Kennedy School of Government at Harvard University, and a Ph.D. in Political Economy and Government from Harvard University. He will address this this morning on the other COVID crisis, Prospects for Recovery from Pandemic Policies. Would you please help me welcome Dr. Eberstadt. Thank you and thank you ladies and gentlemen. It's a pleasure to be here and it's an honor to be awarded the lecture named after that great man. I'm not going to let the cat out of the bag but nobody can fill his shoes so I'll do my best. So this morning I'm going to discuss some problems that were hiding in plain sight before the pandemic but seem to have worsened and intensified under the pandemic and don't seem to have gone away since the pandemic has receded. These are problems that we see in the labor market in the United States. We've seen a long-term flight from work in post-war America and the problem has not only intensified in recent years but it has taken on a whole new dimension as new parts of the population seem to be dropping out of the workforce and entering the pool that is neither working nor looking for work. This is the paradox here that attracted my attention originally back in 2016 when I did my first edition of the book Men Without Work, America's Invisible Crisis. What this chart shows is the post-war friend for the proportion of what labor economists call prime age men, the guys 25 to 54 years of age, I guess the term is kind of self-explanatory. They're not just the backbone of the economy but they have some other kind of important functions in society including the whole question during the life cycle of forming family and raising kids. And what you see is that from the mid-1960s to the present there has been this eerie but relentless increase in the proportion of prime age men in the United States who have no paid labor. And it's actually reached a level which kind of parallels that of the late depression. We didn't have any good measurements for unemployment back in the depression itself. We only started to try to measure labor in a sort of a statistical manner in the late 30s and early 40s. The 1940 census was the first time we used the techniques that we have today to try to quantify this. That red line there shows you the proportion of guys, prime age guys back in 1940 who had no paid work. Now you have to remember that in early 1940 the unemployment rate in the United States was almost 15%. It was a different time and place from where we are today. Today, with higher income levels than we've ever had before, with more education than we've ever had before, with more prosperity than we've ever had before, we have had a 20th century in which the average level of unworking men in our country is higher than it was at the tail end of the Great Depression. So when I say that this is a depression scale problem that we're confronted with right now, I'm not being hyperbolic. And I always try to keep my sources at the bottom of these slides so that you won't think that this is Nick's fake news. So when the feds developed the framework for employment statistics and unemployment statistics back shortly before Pearl Harbor, the system itself wasn't actually unveiled until after World War II, I don't think it really could have been on anyone's mind that if a man didn't have a job, he wouldn't be looking for one. There was the depression mentality. But what we have seen steadily in the post-war era has been a flight from work by prime age men, labor force dropouts. Men who don't have a job and are looking for work are called unemployed. Men who are neither working nor looking for work, I suppose they're called many things, but one of the things that they're called technically by the fire statisticians is not in labor force. And if you look at those lines, this is just the head count of guys who were unemployed versus guys who were neither working nor looking for work. That gray line is the latter. And you'll see that those two lines haven't touched for 30 years. They didn't touch during the Great Recession. They didn't touch during the worst month of the pandemic. And today, let's say 2022, close enough to today, for every prime age man who is unemployed, there are four over four guys who are neither working nor looking for work. Now this curious paradox helps to explain why you can hear happy talk from the Fed or from Washington or from Wall Street about how we are at or very near full employment at the same time that we have depression era work rates for guys. If you are measuring economic well-being or economic policy by the unemployment rate, you can see here you are missing four-fifths of the problem, right? So in economic circles, as you know, and in policy circles, as you know, there is a received storyline. I hate the word narrative, but the storyline that one hears about this gradual flight from work by prime age men is really a tale of economic and structural transformation. And the sorts of the keywords that you'll hear are declining demand for less skilled labor, decline in manufacturing, globalization, China enters WTO, offshoring and so on and so on and so on. And there is truth there. The problem, I think, is that it's not the whole truth and I don't think it's really even most of the story. And I'll show you what I mean from this graph here. Taking into account the fact that we're talking about human beings, I would call this a social science straight line. People are a little bit unruly, so it's not like the orbit of the planets or the geological changes in the Earth, but that's a pretty straight line upward. And if we were to think that the main factor influencing this collapse of work for prime age men was demand driven economic and structural change, we would have expected that there would be big bounces when we had business cycles here, right? Show me the bounce. I can't see it. Maybe my glasses are bad. We'd have expected that around 2001 when China entered the World Trade Organization that we'd seen a shock, I don't see the shock, technological disruption, I mean we've all got these horrible little devices, any sign of it, I don't think so. And that's a great challenge, I think, to the received wisdom about what has been underway for the last now more than two generations. Now, my parents told me that I should not do or talk econometrics in mixed company or polite society. And so I will not. But I promise you that this chart here shows that there is no correspondence between tighter or looser labor markets and people moving out of this pool of unworking prime age men and women. At least that has been true since the turn of the century at the very least. There's a lot of movement between if you're unemployed you get back into the labor market pretty quick usually. If you are a labor force dropout in the year between 25 and 54, especially if you're a guy, you tend to be a long-termer. And why that would be the case is a very important question for our nation today. Something funny happened during the COVID catastrophe. We as a country came to experience a labor shortage that was a peacetime labor shortage. We haven't had a peacetime labor shortage in this country before. And it's an unusual thing, I believe, to find in any affluent society. But you can see it here. This is the Bureau of Labor Statistics estimates of job openings in the United States. And may not be perfectly accurate. But I think that anybody who goes anywhere in the United States at this moment knows that employers are practically begging for job applicants despite the fact that job applicants have more bargaining power now than at any time in living memory. Part of this, I think, can be explained here. When we look at the pre-COVID trend in workforce, men and women who are either working or looking for work. And continue that trend and compare it to actual labor force manpower in the United States in the COVID period and shortly thereafter. We are almost four million men and women short, shy, of where we would have expected to be if we were still on pre-COVID trends. Recovering a bit but still really short. I'll show you something curious here. I studied economics shortly after the end of the Stone Age. And back then they taught us that there was a fallacy called the lump of labor fallacy. And briefly, the fallacy was that the good Lord didn't sprinkle a certain number of hours of work on every continent in the planet. And that human action creates demand for labor. And so we shouldn't simply assume that there's a fixed demand for work in the United States or anywhere else. But you'll see the increase in job openings strangely mirrors the shortfall in manpower here. It is almost as if the lump of labor fallacy has been incarnated. And I don't have a good explanation for you yet. I've got some thoughts about it, but it's a paradox to bear in mind. So what is with this almost four million shortfall in workers in the United States today? Well, we have to start by looking at the elephant in the room, which is the COVID catastrophe. We've lost more than a million of our fellow citizens to the coronavirus pandemic. Most of those, though, were not people who were in the workforce. Overwhelmingly, these were older people and even among those who were not the elderly, elderly, most of those were not in the workforce. So the impact on American manpower was very, very small. There seems to have been an impact from the disruption of immigration in 2020 and 2021. Not going to say anything about what's happened since then with the chaos at the southern border. But in those two years, it looks as if maybe almost a million fewer people of working age came to the United States than we would have previously expected. Immigration statistics are notoriously inaccurate, so I have to be a little bit cherry about this. They're kind of estimated as residual from things that we're a little more confident in. But no more than a million of this four million deficit can be explained by the immigration disruption in the first two years of 2020, 2021. Then, of course, bless you, then there's the long COVID problem, which we also all know about. And as you are well aware, there are many, many millions of people in the United States who suffer or say they suffer from long COVID. And in fact, the U.S. government has started tracking that. And the Census Bureau's guesses, relatively recent guesses, are that about five and a half million adults in the U.S. are suffering from or self reported suffering from long COVID and out of the workforce. But suffering from long COVID and being out of the workforce does not mean that you are out of the workforce because you are suffering from long COVID. There are people who are in the workforce who are suffering from long COVID. When you ask people in the same survey, are you not in the workforce because you're suffering from long COVID? Only about a tenth of this group describes themselves as being out of the workforce because of the effects of COVID. That's about half a million people and that's a whole lot of people. It's a whole lot of people. But that's not a whole lot of people in comparison to about four million people. You can only account for a relatively small proportion of that. We put these two components together and we're still talking, we still need to explain over two and a half million other labor force dropouts, what's going on there. Well, part of the answer is that there is a new face to the flight from work in modern America. It's no longer just the prime age man and to some degree the prime age women. Before the pandemic, really the only ray of sunshine in the U.S. labor tableau was what was going on with older men and women with the 55 plus. They were the only group from the mid-1990s to the eve of the pandemic, whose work rates and whose workforce participation rates were increasing. This is kind of like a QVC channel. This is kind of like, help, I've fallen down, I can't get up. Where are we? The vaccine rollouts occurred about there. And yet, despite the vaccine rollouts, despite everything else, the labor force participation of older men and women in the United States hasn't recovered. And this is something that has to be addressed and explained. And I think that the answer to this part of the puzzle has to do largely with the COVID pandemic, but with the part of the COVID pandemic, which has to do with anti-COVID policies, with the unintended consequences of COVID rescue policies. And I'm going to try to show you what I mean by that here. The U.S. government tried, and I guess we'd have to say arguably succeeded, absent evidence to the contrary, in preventing a second Great Depression or a collapse of the world economy or a U.S. economic shutdown with the lockdowns, when the lockdowns occurred in early 2020. And both monetary and fiscal policy went into a sort of an overdrive, which we had never seen before. You all deal a lot with monetary economics, and I'm not going to tell you anything that you don't see in this chart if you aren't experiencing in the grocery store already. But that's a big monetary shock. And we had a number of problems before that. We were living in an era of free-fed money for a very long time before this. But this is a big shock, and this has had, I think, enduring reverberations, and will continue to for some perhaps very long period of time. Of course, the government threw fiscal resources at the lockdown problem, and that means borrowed public money. This isn't a new story, but the transfers of borrowed public money during the COVID pandemic itself were absolutely extraordinary. So if you take a look at this chart, this is disposable public income. This is personal consumption. This is personal savings. Something really does look different here, doesn't it? So the COVID pandemic was the, I think, the only economic crisis in history in which personal consumption and personal disposable income went up. And of course it went up on borrowed transfers, right? And the government transferred, the government so overshot in this effort that people had more transferred money in their pockets than they cared to spend. And so we had a doubling, we had a more than doubling of the personal savings rate in the United States in 2020 and 2021. And if you do a few calculations, that means that a transfer nest egg of about $2.5 trillion was transmitted to U.S. households by the end of the pandemic period. Even among friends, $2.5 million is a fair amount of money. It works out to about $25,000 per household. And this, I think, is the key, one of the keys to part of what we've seen in the changing face of worklessness in the United States today. I think you all will remember the pandemic unemployment benefits for $600 and $300 a week. These were benefits that you didn't actually have to be unemployed to receive. You could qualify if you had up to about a six-figure income. And for much of the pandemic, these little dots are the estimate of how many Americans were out of work. This gray line is the estimate for the number of people receiving benefits. For much of the pandemic, unlike any previous period in U.S. history, there were more recipients of pandemic and insurance benefits than there were people who were unemployed. So in effect, Uncle Sam was test driving a universal basic income here, a UBI. We can talk about the macroeconomic implications of UBI, and we can talk about the microeconomic implications of UBI. But I don't think there's a reason to assume that even this relatively brief state of dance with UBI leave the United States entirely unaffected. And we do see some evidence, even during the pandemic, that people, prospective workers, workers were responding to economic incentives and disincentives. I tried to show that with this chart here. I don't know if it's as clear as I hoped it would be. This is really, the blue line is the pre-pandemic friend in workforce. The orange line is the actual count of men and women in the workforce. This is really where the vaccine rollout began. And you'll see that over the roughly nine months until pandemic unemployment insurance benefits were ended altogether, the return to the workforce was anemic, tepid, I don't know what the right word is. But then once the pandemic benefits ended, there was a much more dramatic return to the workforce. It wasn't 100%, it wasn't a full snapback, but it was about three times more significant in magnitude than beforehand. There's obviously a very crude illustration, there are other things going on, but I think the point probably stands. Here's, I think, this is, I think, Sherlock Holmes' dog, but it's barking here. Okay, so something to me very troubling was occurring in American society before the COVID pandemic. We were facing some serious difficulties in generating wealth for the bottom half of households in the United States. These are data from the Fed, from Federal Reserve Bank. Between the time that the Berlin Wall fell and the eve of the COVID pandemic, the real net worth of households in the bottom half of the United States wealth distribution didn't increase at all. We did have, enjoy a fair amount of increase in wealth in the US during that period of time, you'll recall. These faltering trends, I think, deserve much more attention and much more examination. I think they may help us to understand part of the populist reaction in the United States in recent decades. Be that as it may. You'll see that the real net worth of this bottom half of homes basically doubled during the COVID pandemic. And that jump in net worth, all transfer payments, all wealth effects from transfer payments from borrowed public money. Now, $25,000 may not seem like a whole lot of cash to some people, but if your net worth up until then has been only $25,000, it's going to seem like a whole lot of money. And it may even seem like enough money to make some decisions about leaving the workforce or staying out of the workforce. About almost a quarter of the homes in the United States, headed by householders between the age of 55 and 74, had net worth on the eve of the pandemic of less than $25,000, according to our Census Bureau friends. And that group, I think, may include a large number of the people in this 55-plus group who have taken leave from the workforce in what I surmise, which I would describe as a premature retirement, and which I surmise may turn out to be a temporary retirement. We're going to be living with the consequences of both COVID and the COVID policies for a long time. We may hope that many of the Americans who've left the workforce will return, but actually I would be more optimistic about the return of our older Americans than some of the young men that I've described here. These older Americans had decades and decades of experience in the workforce and know their way around there. There are too many of the pool of 7 million prime age American men who can't say the same thing. So I'll stop here. Thank you very much for your attention. I'm happy to address any questions that I can. Thank you.