‘American Carnage’: 5 Real Problems In An Otherwise False Narrative

After Donald Trump delivered his inauguration speech, the newly sworn-in President was widely maligned for the rather grim picture he painted of the country he was getting ready to lead.

Specifically, the speech sounded more like the screenplay for the opening scene of Terminator 2 than it did a description of a developed nation. Here’s the passage that raised more than a few eyebrows for the extent to which it sounded like it walked out of the opening monologue from The Road:

Mothers and children trapped in poverty in our inner cities, rusted out factories, scattered like tombstones across the across the landscape of our nation, an education system flush with cash, but which leaves our young and beautiful students deprived of all knowledge, and the crime, and the gangs, and the drugs that have stolen too many lives and robbed our country of so much unrealized potential. This American carnage stops right here and stops right now.

Obviously, that’s absurd. That’s not to say there aren’t kernels of truth in there, but describing the state of America as “carnage” was, to quote George W. Bush, “some weird shit.”

Of course the reason Trump described the state of the union in the most dire terms decorum would permit was precisely because he needed to perpetuate the myth of lost American greatness in order to justify his self-declared role as the leader who could reclaim it. Recall the following passages from Notes From Discgraceland’s “The nostalgia of greatness and the deconstruction of a déjà vu“:

Again is a highly troubling word here. To begin, it implies that the country was great once, but not anymore – the romance with greatness had been sabotaged. Naturally, this begs two questions: why is the country no longer great, and who is responsible for that. In reality, the answer lies somewhere between “us” and “nobody”. Civilizations rise, evolve and disappear. Spontaneously. That is how things are. The Roman Empire was great once. It no longer exists. But, this is a hard sell — one cannot build a political platform based on these facts; this line of thinking has to be abandoned.

Againis the magic word here. It accomplishes three things in one stroke. The first effect is flattery, its purpose eminently seductive — we are the sons and daughters of great ancestors so we are entitled to greatness. Second, it establishes the emotion of self-pity — our greatness has been hijacked. And finally, it automatically provides legitimation for any and all means required to reclaim the lost greatness, and restore the natural order of things.

To borrow one more quote from the same piece, “populism is like pornography: Everything is explicit, but the plot cannot be taken seriously.”

No, the plot cannot be taken seriously – especially not in the case of Donald Trump.

But while Trump’s narrative (largely the product of Steve Bannon’s imagination), is as absurd as the plot of a porn flick, America does have a set of burgeoning problems which Axios enumerated in a not-so-cheery piece out Saturday. Here are the top five from the Axios post:

1. We’re dying sooner
2. Student debt is piling up
3. Homes are out of reach for millennials
4. Mass shootings result in a shrug
5. The opioid crisis is staggering

Obviously, those are not mutually exclusive. The first point is pretty straightforward. Here’s the CDC:

This is the second year in a row life expectancy has declined. Changes in death rates at younger ages have a larger impact on life expectancy than changes at older ages. The increases in death rates at the younger ages from 2015 to 2016 resulted in the decrease in life expectancy observed during that period.

In 2016, life expectancy at birth was 78.6 years for the total U.S. population–a decrease of 0.1 year from 78.7 in 2015 (Figure 1). For males, life expectancy changed from 76.3 in 2015 to 76.1 in 2016–a decrease of 0.2 year. For females, life expectancy remained the same at 81.1.

The other four issues in Axios’s top five list refer to things we’ve discussed at length in these pages in 2017. As this year melts into next, we thought we’d excerpt our discussions of these topics for readers who have a keen interest in the extent to which America, while not the barren, bone-strewn wasteland imagined in Donald Trump’s inauguration speech, does have a set of rather serious issues it needs to address in 2018.

Without further ado, we’ll take them in turn, utilizing our previous posts and passages from other sources.

Student Debt Is Piling Up

Lost in the madness of crowds and obscured by the euphoria accompanying the multitude of bubbles inflated by nearly a decade of accommodative monetary policy, are America’s twin trillion-dollar debt bubbles: auto loans and student loans.

Back in 2015, there was no shortage of commentary on the extent to which subprime auto lending and the massive student debt overhang were imperiling the financial system and erecting barriers to household formation, respectively.

Perhaps my take on this is colored by the fact that during 2015, I myself covered these topics extensively, so maybe the reporting hasn’t in fact dissipated or otherwise taken a backseat to more pressing matters such as Bitcoin, the Nasdaq, and the fact that since 2015, America has been careening down the path to authoritarianism.

Whatever the case, we shouldn’t lose sight of these two trillion-dollar bubbles because, well, because they are trillion-dollar bubbles and generally speaking, trillion-dollar bubbles do not just go gentle into that good night.

To be sure, neither of these bubbles pose the same systemic risk as the housing bubble and there is a vociferous debate about the extent to which the subprime auto issue has been blown out of proportion by those who have seen “The Big Short” eighteen too many times. Still, as Bloomberg noted early last month, “nearly 9.7% of subprime car loans made by non-bank lenders – including private-equity-backed firms catering to car dealers – became 90 or more days past due in the third quarter, the highest annualized rate in more than seven years.” Lending standards appear to be deteriorating and the usual suspects are of course front and center in the debate (e.g. Santander Consumer, American Credit Acceptance, etc.).

Meanwhile, the student debt situation is particularly worrisome, if not for the financial system, then for the economy, for the government and by extension, for taxpayers.

“The delinquency rates on student loans are much higher than for other types of consumer credit, as student loan programs have relatively looser underwriting, student loans are unsecured, and because non-performing student loans cannot be charged off even in bankruptcy,” Goldman writes, in a note dated Tuesday.

Have a look at the following chart which shows the rate at which student loans and mortgage loans transition into serious (90+ day) delinquency:

As Goldman notes, “the quarterly transition rate is 9.6% for student loans vs. 1.2% for mortgages.”

And have a look at everyone’s favorite (or “least favorite”, depending on your penchant for delighting in things that are sad) charts which depict how fast college tuition is rising compared to core inflation and GDP:

Here’s the thing: you can’t completely separate this from the central bank-inspired hunt for yield that’s part and parcel of the post-crisis policy response because that hunt for yield drives appetite for student loan ABS. Mercifully, the stock of securitized student loan paper has actually contracted since the crisis.

The good news for the financial sector is that out of the $190 billion in securitized student debt, $150 billion of it is guaranteed by the government. The majority of student debt not securitized is also guaranteed by the government and so, there’s limited risk for the financial system. I guess.

The bad news is that this massive burden of student debt has implications for all kinds of things, not the least of which is household formation (as mentioned above) and as Goldman goes on to note, “the substantial majority of student loan default risk is borne by the US Treasury.” So it’s borne by taxpayers.

Meanwhile, the Trump administration and House Republicans are working towards a revamp of the entire system. Needless to say, much of the proposal is controversial. As The Hill notes, “the House GOP bill to reauthorize the Higher Education Act would undo an Obama-era rule requiring career preparation programs at for-profit colleges actually prepare students to get jobs with incomes that allow them to pay off their student loans.”

And as the Journal details, the bill would “also end loan-forgiveness programs for public-service employees, who currently can make 10 years of payments and then have their remaining debt forgiven, tax-free.”

Education Secretary Betsy DeVos (one of the more controversial figures in an administration that’s defined by controversy), has already come under fire on a multitude of occasions this year. Back in October, AP reported that The Education Department was considering only partially forgiving federal loans for students defrauded by for-profit-colleges, a move we mocked in light of Trump himself having run a for-profit college that was compelled to pay out $25 million earlier this year for defrauding thousands of students.

Consider this from Politico:

For-profit colleges are winning their battle to dismantle Obama-era restrictions as Education Secretary Betsy DeVos rolls back regulations, grants reprieves to schools at risk of losing their federal funding and stocks her agency with industry insiders.

More than seven months into the Trump administration, DeVos has:

– Moved to gut two major Obama-era regulations reviled by the industry that would have cut off funding to low-performing programs and made it easier for defrauded students to wipe out their loans;

– Appointed a former for-profit college official, Julian Schmoke Jr., to lead the team charged with policing fraud in higher education – one of a slew of industry insiders installed in key positions. Schmoke is a former dean at DeVry University, whose parent company agreed last year to pay $100 million to resolve allegations the company misled students about their job and salary prospects;

– Stopped approving new student-fraud claims brought against for-profit schools. The Education Department has a backlog of more than 65,000 applications from students seeking to have their loans forgiven on the grounds they were defrauded, some of which date to the previous administration.

So while America’s student debt debacle is obviously an issue that predates the Trump administration, it’s not at all clear that this President and a GOP-controlled Congress are the ones for the job when it comes to defusing this ticking, $1.3 trillion time bomb.

Whatever the case, the bottom line is that this debt is never going to be repaid one way or another, so it’s difficult to understand how taxpayers aren’t going to end up on the hook.

Homes Are Out Of Reach For Millennials

When last we checked in on America’s enormous student debt bubble it was … well … it was still an enormous bubble.

Specifically, the amount of outstanding student debt in America is now larger than the entire USD junk bond market:

So you know, that’s a shitshow and by that we mean all of those student loans are never — ever — going to be paid off. As in you can just forget about it. It’s not going to happen.

The question then, is not “how are current and former students ever going to pay this off?” (again, they’re not). Rather, the question is precisely that posed in the piece we ran three weeks ago. Namely this: Who’s Going To Defuse The $1.3 Trillion Student Loan Bubble?

Implicit in that title is the idea that this is a ticking time bomb, but not necessarily for the financial system because after all, most of this debt is guaranteed by the government.

The good news for the financial sector is that out of the $190 billion in securitized student debt, $150 billion of it is backed by Uncle Sam. The majority of student debt not securitized is also guaranteed by the government and so, there’s limited risk for the financial system. I guess.

The bad news is that this massive burden of student debt has implications for all kinds of things, not the least of which is household formation and as Goldman recently wrote, “the substantial majority of student loan default risk is borne by the US Treasury.” So it’s borne by taxpayers.

That household formation bit is critical. Consider this chart from Wells Fargo:

“The transition to homeownership continues to face a number of hurdles. Most immediately, a lack of starter homes on the market has limited buying opportunities and driven prices up faster than incomes,” the bank writes, in a note dated earlier this month, before adding that “student loan debt remains an even more formidable challenge to ownership [as] college goers who graduated with student debt have lower rates of homeownership than their peers who graduated without student loan debt.”

With that in mind, have a look at this rather disconcerting chart:

If you don’t think that has something to do with student debt, well then we would gently suggest that you talk to some Millennials, because it most assuredly does.

As we also noted in the post linked above, it’s not at all clear what the solution to this is, because barring an across-the-board loan forgiveness program, pretty much every idea that gets floated is insufficient to address the problem. Ultimately, this is probably going to come down to taxpayers having to eat this in order to ensure it doesn’t turn into a long-running hinderance to economic growth.

That is a bitter pill to swallow and to be sure, we’re big believers in personal responsibility (i.e. we do think it’s incumbent upon people who took out loans to try and repay them assuming the borrowers in question weren’t the victims of for-profit college fraud in which case the debt should be forgiven no questions asked contrary to what Betsy DeVos wants to do). That said, recall these charts:

There’s an argument to be made that the chart in the left pane is to a certain extent attributable to the government being too willing to extend copious amounts of credit to prospective students, but the bottom line is that what you see in that visual is entirely out of hand. In other words: it doesn’t matter what’s causing it at this point. If tuition is going to continue to outpace inflation to a degree that is as absurd as that chart suggests, well then you either have to make public college tuition free or else you have to forgive the existing stock of student debt that’s been incurred as that chart went parabolic and put new rules in place that limit the scope of government-backed borrowing and thereby discourage colleges from effectively piggybacking on the easy availability of credit to jack up tuition costs.

Bottom line: we think anyone who was not defrauded should, under normal circumstances, have to pay back what they borrowed. That’s called personal responsibility and it’s how the world works.

BUT — and this is a big “but” — these are not normal circumstances. So someone in Washington is going to have to figure this shit out.

Unless of course every Millennial becomes a Bitcoin millionaire, in which case I suppose all of this debt will be paid off within the next 12-24 months.

Mass Shootings Result In A Shrug

From Notes From Disgracedland’s Bjarne Knausgaard  who regular readers will recall pens some of the best political/economic color around.  

Three years ago (in 2013), I came across an interesting book, 1913: Der Sommer des Jahrhunderts. The original (The Summer of the Century) and its English version title (The Year before the Storm) give a complementary summary of its importance for the rest of the century. There has never been a year like 1913, a true big-bang for arts and culture. Vienna was the cultural capital of the world and Berlin was just emerging on the scene. Everybody was there, Freud, Schönberg, Wittgenstein, Arthur Schnitzler, Egon Schiele, and Alma Mahler, while young guns, Hitler, Stalin, Trotsky and Tito made a brief appearance on the scene. Elsewhere in Europe, things were happening as well, although somewhat less concentrated. The first and second Balkan wars were over, the Ottoman Empire had been driven out of nearly all of Europe, King George I of Greece was assassinated. On the New Continent things were developing fast. The Mexican revolution started in February, and the US made its voice heard in the art world with the Armory show, while, at the same time, undergoing significant institutional and political transformation with an Amendment to the US Constitution authorizing the government to impose and collect income taxes and the creation of the Federal reserve System. Louis Armstrong and Charlie Chaplin had their first public appearances. The first assembly line as well as the Camel cigarette brand were introduced , stainless steel invented, MDMA (aka ecstasy) synthesized for the first time, and the all-purpose zipper patented. The world was buzzing. Creative forces were building up together with (positive) political tensions. Things could hardly look better. The world appeared to be in balance, only to fall apart a year later. The rest was silence.

While reading the book, a short paragraph caught my attention commenting on the only two mass killings that took place in that year. This is the factual summary of the two events:

• The Bremen school shooting occurred on June 20, 1913 at St. Mary’s Catholic School. The gunman, 29-year-old unemployed teacher Heinz Schmidt, indiscriminately shot at students and teachers, causing the death of five girls and wounding more than 20 other people, before being subdued by school staff. He was never tried for the crime and sent directly to an asylum where he died in 1932.
• On September 4, 1913 Ernst August Wagner, killed his wife and four children in Degerloch and subsequently drove to Mühlhausen an der Enz where he set several fires and shot 20 people, of whom at least 9 died, before he was beaten unconscious by furious villagers and left for dead. After several psychiatric assessments diagnosed him to suffer from paranoia, and thus becoming the first person in Wüttemberg to be found not guilty by reason of insanity, he was brought to an asylum in Winnenthal, where he died there of tuberculosis in 1938.

Mass murder has become so commonplace that having only two such occurrences within a year strike us as odd. For comparison, in 2013 there were close to 80 mass murders (they had to be alphabetized by the place of occurrence – on the average about three for each letter of the alphabet).

Intrigued by this comparison, I collected the data on mass killings in the last 100+ years looking for some clues about the trend. The data reveal a rather disturbing pattern. Since WWII, the number of mass killings (defined as an idiosyncratic, not state-sanctioned, killing spree with multiple victims) has been growing exponentially at a rate of 5% every year. This means that every 20 years or so, the number of mass killings triples (1.05²⁰ = 3). For example, between the 1970s and 1990s, the average number went from 10 to 30, and between the 1990s and 2010s it went from 30 to 90. In 2013, when I looked at the numbers for the last time, we had around 80-90 mass killings, or one for every third business day. Allowing this trend to continue would take another 20 years for this number to triple, which meant that by the mid 2030s there would be one mass killing every business day.

The arrival of 2015 has announced something new! We have achieved this rate in less than two years: from 90 in 2013 to over 350 in the last year.The number of mass killings in 2015 exceeded the number of calendar days — every day somewhere someone’s fuse went off! This was not supposed to happen before the 2030s. This is how crazy the world has become. The future came too soon — we have already reached the point of self-intoxication when inner contradictions of the system, which previously could have been ignored, are taking over. The destabilizing forces are becoming stronger than those responsible for restoring the equilibrium.

But, nothing surprises me any more after subjecting myself to the ordeal of watching the republican debate in the last weeks, something I had never attempted before (and am unlikely to repeat again). The obscene spectacle of this year’s presidential elections is a real game-changer, a true political big bang that will set the template for future public discourse everywhere. Its consequences will be studied for years to come. The political landscape will never be the same. Are these men really the best this country (of 350 million people) has to offer?

For several decades now, modernity has been operating between two fatal modes: Carnival and Cannibal — it has been transfixed by the spectacle of its own creation and self-annihilation [1]. The current republican campaign is a culmination of of this trend which has finally reached alarming proportions where the system can no longer bear it and which, by the force of its own absurdity, has made an illegible long-running process instantaneously legible by the sheer power of the event.

Current political discourse no longer has a solid empirical backbone. Nothing is binding. Politics exists mostly in the kingdom of words. It creates parallel narratives and fragmented reality. As a consequence, society has become disoriented and confused due to the gradual loss of all frames of reference and distorted cognitive coordinates. It suffers from loss of shared reality and a chronic inability to form consensus, which becomes its main cultural dimension. The political body is afflicted with split personality – collective mental disorder in need of shock therapy. This collective “mental instability” becomes its intrinsic cultural determinant and enters the center stage of public life.

Watching this bizarre orgy, this unabashed display of vulgarity I am beginning to converge towards the realization that the biggest collateral damage of this century has been empathy – not really a natural emotion but a cultural concept and a psychological condition that is cultivated and refined and which, in the absence of cultivation or under ideological pressure, can disappear or be completely extinguished [2]. Most certainly, there can be no room for it in the winner-takes-all environments.

Early attempts at creating conditions for social atomization started in the 80s with sustained camping to turn material poverty and absence of luck in general into something shameful and repellent. The anti-war movement, pacifism and public empathy together with conditions nurturing these currents had to be eliminated and replaced in all areas with culture of aggression and violence. Through the appropriation of public spaces and resources into the logic of the marketplace, individuals were dispossessed of many collective forms of mutual support of sharing. A simple and pervasive cooperative practice like hitchhiking, for example, had to be transformed into a filled act with fearful, even lethal consequences [3].

The result of this state of affairs, and its purpose, if one wants to attribute it to a particular ideological design, is to prevent us from hearing each other, sharing our pain and expressing our underlying discontent through a single voice that can be heard. The net effect is anger, frustration and withdrawal of libidinal energy. Depression becomes the only adequate emotional response to this state of affairs, a privileged position of anyone capable of reflective thinking.

Since the beginning of the crisis I struggled to understand why in the times of epochal crisis, when change appeared inevitable, trillions of dollars have been spent on preventing change. The escalation of violence, which gained new momentum in the last years, is not due to reaction of the oppressed (e.g. revolution), but is the flip side of the resistance to change. When change is as necessary as it is politically impossible, rage capital becomes the new political currency and the systemic rise of violence becomes the price to pay for forcing the acceptance of the unacceptable. Mass killing becomes a suicide in displaced mode, a somatic response, a reaction of the physical body, to increasing precarity, hopelessness and fragmentation of the social body. A depressed and desensitized subject, no longer burdened by empathy, transforms personal lack of courage required to pull the trigger of the gun pointing at his own head into a high stakes video-game type spectacle with the practical certainty of being killed in the end.

It is not easy to kill another human being. It is a deeply traumatizing experience, for a killer, of course, especially if it is his first kill. 100 years ago, mass murders were result of an idiosyncratic mental disorder – killers always ended in an insane asylum. In contrast, 21st century mass killings have acquired strong systemic overtones with high degree of commonality across different occurrences and individuals, and have become an integral part of the spectacle. Contemporary mass murderers, when seen in hindsight, show a strikingly similar pattern. Depending on the vantage point, they can be seen both as heroes and as antiheroes. They are all ticking time bombs whose trigger could have been anticipated and possibly prevented were it not for the lack of resources. Unlike their early 20^th century peers, contemporary mass murderers are largely rational individuals or people on a planned mission (murder or suicide), perfectly aware of what they are doing at the time of killing. For the most part, their behavior can be argued, reasoned or explained by underlying social factors.

102 years later, we are undoing the cultural big bang of 1913 with a cultural collapse and symbolic annihilation — a continuation of the general debasement that has dominated the political landscape of the last four decades. This is a full blown explosion of Carnival & Cannibal, a cultural mass murder and eventual cultural suicide. It is depression externalized through aggressiveness, a typical male reaction (we are yet to see the emergence of female mass killers on the scene). Collateral damage? A split on the political right, fascisization of the political body and the barbarization of the social landscape.

If some 20 years ago I saw a sci-fi movie with these images of the future, I would have walked out of the theatre. Today, I want to do exactly that, to walk out of the spectacle, only I wouldn’t know how to find my way home.

[1] Jean Baudrillard, Carnival and Cannibal, Seagull Books 2010

[2] Franco Berrardi, Heroes, London, Verso 2015

[3] Jonathan Crary, 24/7 – Terminal Capitalism and the End of Sleep, London, Verso 2014

The Opioid Crisis Is Staggering

America is slowly waking up to the opioid epidemic.

And it’s been a long time coming.

Opioid painkillers have been an epidemic for more than two decades in some parts of America. In Appalachia, for instance, oxycodone and hydrocodone have been ruining lives since at least the late nineties. One common treatment (suboxone) is almost as bad as the problem. An entire black market has grown up around it and the process for obtaining it if you’re an addict is akin to a racket.

And it’s not just opioids. There’s a benzodiazepine problem that in many ways parallels the opioid issue. Again, this has been prevalent in Appalachia for longer than you probably care to imagine.

Contrary to what you’ll read in the papers, almost none of this has anything to do with Mexican drug cartels and indicting “El Chapo” won’t do one goddamn thing to stop it. Indeed, in many cases heroin addiction is a consequence — not a proximate cause.

Earlier this year, Goldman was out with a note called “The Opioid Epidemic And The US Economy,” excerpts from which can be found below…

Via Goldman:

By now most people have seen at least one astonishing headline about the opioid epidemic: Opioid abuse kills about 100 Americans per day. There are as many opioid prescriptions written annually in the US as there are adults. With just 5% of the world’s population, the US consumes 80% of its opioids. In today’s note, we ask what this crisis means for the US economy and the labor market in particular.

The National Survey of Drug Use and Health reports that 97.5mn Americans used prescription pain relievers in 2015, of whom 12.5mn misused them during the year and 3.8mn were currently misusing them. Misuse is more common among men, non-Hispanic whites, and those below the poverty line.

Opioid abuse has been the main contributor to the sharp increase in the rate of drug deaths since 2000, as shown in Exhibit 1. Initially, most of the increase came from misuse of prescription opioids. But the spike over the last five years instead came mostly from heroin and illicit fentanyl users, most of whom previously used prescription opioids, but switched to these cheaper, more accessible drugs. This has resulted in a tripling of the age-adjusted rate of drug deaths since 2000 to unprecedented levels.

The obvious backward-looking economic question is whether the drug crisis is a product of the Great Recession. The short answer is that the recession likely made it worse, but the relationship between the economy and the opioid epidemic is more complex.

Exhibit 2 shows that the increase in the rate of drug deaths since before the recession is only modestly correlated with the average unemployment rate since then, though the correlation is stronger for opioid deaths. Carpenter et al. find mixed evidence on the cyclicality of drug abuse but stronger evidence that prescription pain reliever abuse rises in downturns, and Hollingsworth et al. find that a 1pp increase in the state unemployment rate raises the opioid death rate by 0.33 per 100,000. This would imply that the cycle explains at best a minority of the increase in drug deaths.

The state-level data suggest that economic factors, or at least the unemployment rate alone, are only part of the story. As recent Nobel laureate Angus Deaton noted, “There are many documented links between the economy and health, not always in the same direction, but neither the opioid epidemic nor the broader epidemic of deaths of despair can be matched to patterns of unemployment or income over the past 20 years. In particular, opioid deaths, and deaths of despair more broadly were increasing year on year prior to the Great Recession, and continued to increase year on year afterwards.

The key forward-looking economic question is what the drug crisis means for the employment prospects of US workers. Does the drug epidemic imply that many of the remaining pool of non-working Americans are nearly unemployable? Could the unemployment rate now overstate true slack?

The increase in the number of prime-age people, especially men, who are not in the labor force is well-known, and this story does intersect with the growth of opioid use. Krause and Sawhill find that counties with more “deaths of despair” have lower prime-age male participation, and Alan Krueger has shown that nearly half of prime-age men who are not in the labor force take pain medication daily, two-thirds of whom take prescription pain medications. Data on substance abuse treatment episodes also reinforce the narrative: of admissions of individuals not in the labor force, 58% described themselves as being out of the labor force for “other” reasons–meaning they are not students, disabled, retired, inmates, or homemakers–and 47% of these admissions were for opioids, well above the average rate.

It is tempting to assume that drug abuse must also be a rising barrier to work for the remaining pool of unemployed workers. The Fed’s May Beige Book offered a hint in this direction, noting that several contacts reported that job applicants were unable to pass drug tests.

In fact, however, we see drug problems as at most a modestly larger barrier to employment for unemployed workers, for three reasons. First, the rise in the drug death rate gives an exaggerated sense of the prevalence of illicit drug use. The spike in deaths is mostly due to drugs that account for a small share of all drug use, but are much more likely to cause overdose deaths. Illicit drug use–including misuse of prescriptions drugs–has not risen dramatically, as shown on the left side of Exhibit 3.

Second, drug test data show only a modest increase in the percentage of positive results. Data from Quest Diagnostics show that positivity rates on pre-employment tests have risen only slightly and that the increase in positive results for opiates has been very small. At least for applicants who make it to the drug test, passing does not seem to be a massively higher hurdle than in the past.

Third, data on both illegal drug use and legal prescription pain reliever use by the unemployed suggest at most a modestly larger problem. While one might expect the share of the unemployed who use illicit drugs to rise as the unemployment rate falls due to composition effects, the increase from the recession through 2015 was less than 2pp, as shown on the left side of Exhibit 3. In addition, the right side of Exhibit 3 shows that medical use of prescription pain relievers is only slightly more common for the unemployed than for the employed.

In short, the relationship between the opioid epidemic and the labor market is complex. Use of both legal prescription pain relievers and illegal drugs is part of the story of declining prime-age participation, especially for men, and this reinforces our doubts about a rebound in the participation rate. However, we see little basis for writing off the remaining pool of unemployed, whose rate of drug use has not risen nearly as much as one might think from the surge in drug deaths.

The economic consequences of the opioid epidemic extend beyond the labor market. Recent studies by Birnbaum et al., Rice et al., and Florence et al. estimate sizeable costs of health care, criminal justice, and lost worker productivity. The most recent study put the total cost at $78.5bn in 2013 and the crisis has grown significantly since then, implying substantial costs to both employers and the public sector.

*******************************

There’s been no shortage of discussion over the past several years with regard to the labor force participation rate. I’m absolutely not interested in getting into a high level debate about that right now and I’ll bet you aren’t either (suffice to say the obvious “answer” to the “question” is: demographics).

But what I am interested in talking about is this chart or actually, why this chart looks like it does:

So it’s not “news” that men have not returned to the labor force and there have been all manner of belabored (get it?) attempts to explain why. Well, BofAML has identified some possible explanations and those explanations stem from the bank’s observation that “weakness among men is particularly acute among 25-34 years old where the rate has continued to slip lower.”

Ok, so you can explain that by resorting to the same old boring excuses like stagnant wages (damn those Chinese!), but that’s not very creative and neither is it fun to read about. So instead, BofAML has come up with three alternative explanations for Millennial men being MIA when it comes to punching the clock and those explanations are:

1. Oxy
2. prison
3. Xbox

Note: 1 and 3 are not mutually exclusive and 1 and 2 are probably correlated.

“Recent work from Alan Krueger found that the rise in opioid prescriptions from 1999 to 2015 could account for about 20% of the decline in the male labor force participation rate during that same period,” the bank wrote, in a November note.

According to a 2013 American Time Use Survey — Well-being Supplement (ATUS-WB), some 43% of NLF prime age men said they were in fair or poor health, compared to just 12% for men who had a job. Apparently, that same cohort is in a tremendous amount of pain because 44% of them said they had taken pain killers on one of the reference days.

BofAML does note that it’s “hard to prove causality” here, primarily because it isn’t clear whether these guys were in pain and scored some scripts which they then became addicted to thus reducing their motivation and ability to work or whether, frustrated at the lack of job opportunities, they decided to pursue careers in snorting Oxy. It’s like the old adage: “Which came first: the pain, the percs or the lack of participation?”

The prison factor is a little more straightforward. Here’s BofAML:

The rising number of incarcerations imposes another issue. Although prisoners are not counted toward the total civilian non-institutional population when calculating the LFPR, the problem associated with the labor market goes beyond prisons. The growing number of incarcerations has left more people with criminal records, making it difficult for them to reenter the workplace. Indeed, the share of male adult population of former prisoners has increased from 1.8% in 1980 to 5.8% in 2010.

One way we, as a society, could go about addressing that is to reform the draconian criminal justice system and when it comes to that effort, we need an Attorney General like Jeff Sessions about like we need a hole in the head.

As far as the Xbox goes, this is just down to laziness and stupidity or I guess “escapism” if you want to be really — really — generous about it. “Why work when you can play video games?,” BofAML asks, before noting that “according to the ATUS (time use survey), between 2004-07 and 2012-15, the average amount of time men aged 21-30 worked declined by 3.13 hours while the number of hours playing games increased by 1.67 and the hours using computers rose by 0.6.” Here’s the chart on that:

The bank acknowledges a similar chicken-egg problem there. That is, are people playing more “Call Of Duty” because “duty” isn’t “calling” in the jobs market or is it simply more fun to mow down enemy combatants on the virtual beaches of Normandy than it is to punch a clock?

The upshot here from where BofAML is sitting is that this is creating labor shortages which should eventually translate into upward pressure on wages, but the far more important question is whether any of the three explanations posited above have any merit. Because if they do, we are in deep shit as a society.

While our spin on these numbers is obviously dripping with cynicism, we would note that the opioid epidemic is something that is far more serious than anyone gave it credit for up until recently. This is not a new phenomenon. Far from it. The fact that it’s taken as long as it has for America to wake up to what’s going on is a testament to … I don’t know … to something. And whatever that something is, it isn’t good.