A Red Hot Labor Market? Don’t Believe It!

We’ve been seeing headlines screaming about low unemployment rates and a red hot job market.

I’m not seeing any of this.

The people I know still struggle along, looking for a decent job and taking any short term low wage job they can get. I’ve got a gig at a community college and don’t see any of my adjunct colleagues quitting the part time adjunct grind for jobs demanding graduate degrees and specialized knowledge — even though that is what they all have because it is required by the college.

An increase in the availability of good jobs would be reflected throughout the economy, but does not seem to be happening.

Historically, inflation increases when economies come out of recession and hiring picks up. That is because people are making more money and catching up on the buying they have deferred wile unemployed, creating demand.

But that’s not happening.

Inflation is edging up just a little, but that might because the Federal Reserve has been increasing interest rates just in case inflation increases.

If people were getting hired and making more money we would also expect a rise in home sales, but that isn’t happening. In fact just the opposite is happening. Since 2017 home sales have been sliding down and seem to be accelerating over the last six months or so.

We would also expect auto sales to increase, but nothing dramatic is happening there either, although there has been a slight uptick since August of 2018.

Real labor shortages also change the way employers hire.

When employers need workers they start lowering barriers to employment like credit and background checks, unrealistic demands for education and experience and start offering training programs.

Most significantly wages start increasing.

Although some of that is happening it isn’t what we could consider an economic trend.

The latest Employment Situation form the Bureau of Labor Statistics is not showing dramatic changes in any of its common measures of labor.

Long term unemployment, discouraged workers and those no longer in the labor force are all tracking steady. The only thing changing are the number of people who hold multiple jobs. That group has risen by about 25% since the beginning of 2014 and although progress has been jittery this seems to be a long term trend.

Quite possibly the rise in employment is mostly attributable to an increase in low paying part time jobs. This would explain the lack of impact in the rest of the economy that we would expect if well paying full time jobs were being filled. It also explains the increase in multiple job holders.

So, no, claims of a red hot job market are not supported by BLS statistics, the Federal Reserve or the National Association of Realtors.

Most likely this is just hype coming from people and organizations with an agenda who spread economic fantasies in hopes they will come true.


U.S. Bureau of Labor Statistics, Multiple Jobholders, Primary Job Full Time, Secondary Job Part Time [LNU02026625], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNU02026625, November 12, 2018. https://fred.stlouisfed.org/series/LNU02026625

National Association of Realtors, Existing Home Sales [EXHOSLUSM495S], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/EXHOSLUSM495S, November 12, 2018. https://fred.stlouisfed.org/series/EXHOSLUSM495S

U.S. Bureau of the Census and U.S. Department of Housing and Urban Development, New One Family Houses Sold: United States [HSN1F], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HSN1F, November 12, 2018. https://fred.stlouisfed.org/series/HSN1F

U.S. Bureau of Economic Analysis, Light Weight Vehicle Sales: Autos and Light Trucks [ALTSALES], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ALTSALES, November 12, 2018. https://fred.stlouisfed.org/series/ALTSALES

An Echo from 2001: A Few Words About Jobs And The Economy

Mark Rasmuson Unsplash.com

This essay was written in January 2001. On the ten year anniversary of the collapse of the old industrial economy it is fitting to take a look back. The industrial economy did not suddenly disappear in 2008; there were signs of big changes long before that, but we had no idea of exactly what was coming our way.

Economic Myths and Fairy Tales

Just as people caught up in the upheaval of the Industrial Revolution knew their economy had been turned upside down and had no idea what might happen next, neither do we. No one really knows what is going on with the economy. Economists in academia who we have traditionally depended upon to unravel economic mysteries and predict future trends can’t seem to agree on what’s happening. While some argue that we are on the verge of an economic Golden Age due to the increasing technical educational of the American work force, others claim that we are facing the same kind of demographically induced calamity that crushed the Japanese economy in the mid 1990’s.

Maybe in another fifty or one hundred years historians will assign a name to the revolution now occurring around us. Although to our eyes the modern economy is a chaotic and unpredictable place, historians of the future will see how our present upheaval merges nicely into the streams of time.

A lot of people who should really know better don’t seem to be aware that basic precepts and standards that applied to economics or employment a few years ago no longer exist. Indeed, employment counselors often tell their new clients that “there’s a place in the job market for everyone”, at the same time that the numbers of long term unemployed is higher than it ever has been and continues to grow.

Just figuring unemployment is challenging. So challenging, in fact, that government statisticians often use six different formulas to figure the state unemployment rate. One of the middle numbers is usually given to newspapers and the public as the “official” unemployment rate. The government isn’t trying to hide anything; it’s just that there is no easy way to define unemployment. And if there isn’t a good way to define unemployment, it’s impossible to put a number on how many people are unemployed. Click here to read all about it.

It’s Nothing New

The truth is that we are in a position similar to that which Americans and Europeans found themselves during the early 1800’s. Although craftsmen of many disciplines existed at that time, the real engine of the worldwide economy was farming. Just about everyone was a farmer — just about everyone had to be because farming was so labor intensive. At that time, economics had been closely tied to agriculture for as long as anyone could remember. A trained economist who knew a little about he weather, growing seasons and transportation could make some pretty accurate predictions about economic trends.

This all began to change in 1781 when James Watt reinvented the steam engine and made it a practical source of power for use in manufacturing plants. It was a much slower world in those days, and at the dawn of the 19th century steam engines were still an expensive curiosity. Gradually though, industry saw the advantages of replacing horses with steam engines. This incredible new technology was much cheaper to maintain and operate than horses, and (unlike water power) could be located just about anywhere.

By 1825 a world shattering transformation was occurring. Thanks to the ever increasing use of steam power agriculture was becoming more efficient, and fewer people were needed to operate the new steam powered grinding and milling machines. At the same time heavy textile industries were flourishing in England and Germany, and the Northern United States began a century long industrial building boom that produced the Steel Belt — that portion of the north central United States that would produce most of the worlds raw steel, trains, railroad tracks, and later, trucks, automobiles and war material.

Young people in Europe and the Eastern United States began leaving farms and moving to cities to work in the new high paying industries. Suddenly craftsmen who had labored for years in order to learn to make beautiful silver and copper dining sets or hand stitched saddles and tack found themselves out of work. With the aide of steam power goods that were once the product of intense and conscientious men patiently creating practical art could be manufactured en mass faster and cheaper than an army of craftsmen. The legend of John Henrys race with the steam engine is a cultural myth invented to explain this bit of economics. (The young ‘uns who entered elementary school after the teaching of American culture became passé can visit the John Henry Homepage to find out about this very relevant allegory.)

Of course, these dramatic changes created some harsh truths for a lot of people. Suddenly skills and abilities that had ensured economic security and social status for centuries counted for nothing. Workers who had been displaced by this technological advancement would need to learn new ways to fit into an economy driven by the steam engine. People who failed to integrate into the new economy faced major consequences — it was as if they no longer existed for any economically related purpose. Men who had previously been artists in metal, wood and leather now found themselves faced with the ignoble future of either shoveling coal to fuel the steam engines, or if they too old to compete with 18 year olds at the end of a shovel, simply becoming burdens to their children.

Does This Sound Familiar?

It should. We are experiencing the same sort of economic upheaval right now. Computers and the Internet are reshaping the entire economy, and jobs that were once plentiful have now either disappeared, or have become unrecognizable. At the same time, measures of economic health are quickly losing their ability to reflect important aspects of the economy.

For example, the service manager of the biggest auto dealership in my city says that that his biggest headache is finding mechanics. This sounds strange to those who remember the old world of fifteen or twenty years ago when it was easy for garages and dealerships to find mechanics. Back then lots of kids were so fascinated by turning wrenches that they trained themselves to be auto mechanics by working on their friends cars for little or nothing. There was a bottomless reservoir of mechanics anytime one was needed.

Today, though, cars run on software and silicone as much as they do on gasoline and rubber. Modern autos are loaded with computers that control so many aspects of the vehicle that diagnostic computers are consulted before a wrench is ever pulled from a toolbox.

What we used to think of an as a mechanic no longer exists.

Anyone attempting repairs on a modern vehicle needs a formal technical education in order to perform anything more complex than an oil change. In the mechanics place is a highly trained technician who understands the sophisticated interplay of computer chips, circuit boards, and hot moving parts. Young people with the basic skills and talents for this type of job are becoming more and more rare.

That’s because it takes far more than a mechanical aptitude and a desire to work on cars to become a mechanic these days. Candidates must be able to read and write well, have knowledge of basic science, (especially physics and chemistry), be computer and Internet literate, and accept the fact that constant improvements in automotive technology means constant education for automotive technicians. With these basic qualifications a young person might get accepted into a training program at a community college and pay $7500 for a two-year course that will be relevant only for vehicles produced three to five years after graduation.

Not surprisingly, there are few people willing to take this road. Young people possessing the degree of talent, intelligence and academic commitment needed to be an automotive technician tend to be attracted to more glamorous and better paying careers.

Car mechanics aren’t the only ones facing this dilemma. Science and technology is elevating the bar for entry-level positions every year and in every industry. Here’s what the US Department of Labor says in it’s comprehensive report on the state of the economy, Futurework — Trends and Challenges for Work in the 21st Century:

“…A 1996 American Management Association (AMA) survey of mid-sized and larger businesses found that 19 percent of job applicants taking employer-administered tests lacked the math and reading skills necessary in the jobs for which they were applying. The AMA’s 1998 survey, however, found that this percentage had increased to almost 36 percent. The sharp increase in the deficiency rate is due, the 1998 AMA report concluded, not to a ‘‘dumbing down’’ of the incoming workforce but to the higher literacy and math skills required in today’s workplace.”

Futurework: Trends and Challenges for Work in the 21st Century

Chapter 7 — Implications of workplace change

In other words, in just 2 years jobs had become so math and literacy dependant that the number of applicants who did not have the education to qualify for them doubled. Think about that for a moment, and then consider that people generally believe that they have the skills needed to perform the jobs they apply for. This means that according to the AMA survey cited by the Labor Department about one third of applicants at mid size or larger companies did not realize that they were lacking the basic skills needed for the jobs they desired. Necessary job skills had become so sophisticated so quickly that the applicants frequently did not realize they did not qualify for the job.

How could this crazy situation have arisen? Because the constant advances in technology are quickly adopted by businesses in order to remain competitive with other companies who are doing the same thing. Competition has become so fierce that huge, well-known companies with familiar names that were once pillars of the economy are frequently going out of business. Sears, JC Penny, Montgomery Ward, and Rubbermaid have all either gone bankrupt or been forced to reorganize under Court supervision.

The increasingly rapid spiral of competition and technological sophistication means that workers are expected to become competent in constantly narrowing and arcane specialties. The sad irony is that while companies complain about a shortage of qualified workers, there are plenty of well-educated workers looking for jobs. The speed of change has become so fast, however, that they may not even be aware of the special skills needed to perform the work.

Sometimes even the most menial of jobs requires sophisticated technical skills.

The sales manager of one of the largest manufacturers of wood chipping equipment in the Northwest illustrates this problem nicely. He frequently complains about how difficult it is to find laborers to work on the plant floor. Although the sales manager blames the wonderful economy for the shortage of workers, he seems to be missing some important facts.

First, why is a sales manager concerned with hiring laborers to work on the plant floor? The answer to that question is summed up in one word: Reorganization. The economy is so competitive that businesses of all sizes and types are constantly reexamining the way they manage tasks. The era of mid level managers putting their feet on a desktop and reading the newspaper are long gone. Everyone one in an organization, from the president to the guy who empties the wastebaskets, must constantly prove their worth to the company. Failure to do so results in cutting hours or eliminating positions, and distributing tasks to others in the organization.

This sales manager has to remind himself that the Personnel Department was almost completely eliminated two years ago and replaced with a temp agency. In addition to managing sales, he also serves as the liaison for the temp agency.

In an economic environment so competitive that salesmen are involved with personnel matters it’s no surprise that laborers must be able to do more than sweep floors and clean windows. In a company that survives on its ability to fabricate metal into wood chippers even the laborers at the bottom of the organizational chart must have technical metallurgical skills.

That’s why laborers at this company, working for just above minimum wage, are required to have at least one year of experience in a metal fabrications plant, and be able to recognize all metals used in the plant on sight, as well as have knowledge of the properties of the metals used. This way the company does not have to train newly hired laborers in skills needed to sort and stack the valuable and reusable scrap metal produced in the course of manufacturing wood chippers.

At the other end of the wage spectrum is a man we’ll call Dave. Although Dave is bright, educated, and works hard, there is nothing particularly unusual about him. There is one thing setting him apart from the rest of us, however. He is paid between $200 and $300 dollars for every hour he works at his chosen profession.

Dave writes and maintains the software that medical offices use to organize patient affairs. Everything from X-rays to billing, appointments to insurance claims is instantly accessible to anyone in a medical office using the software he maintains. The software makes managing a medical office so efficient and economical that medical professionals are willing to pay premium prices to lease it and keep it running.

Although Dave is a good programmer, there is nothing exceptional about his education, background, or skills. He graduated with a degree in Computer Programming in 1985, and had the good fortune to go to work for a small company just starting to market medical software. Unlike most of the others who stared with the company, Dave remained in Oregon rather than move to Silicone Valley, and now is one of two programmers in the Northwest who are familiar with this software. Because his skills are so rare, and result in such economy for the medical sector, he is paid an unusually large amount of money for his services.

Job Hunting Realities

So, what do these examples tell us about jobs in the Information Age?

What they show is that in order to be competitive in the job market people need to possess very narrow, specialized skills that are directly relevant to the company and position they are applying to. It is no longer enough to have a degree, or training or even experience. Transferable skills mean nothing to employers — getting the work done is the only thing that matters. Employers are looking for people who can be effective and economical from the first hour they walk into their new position.

Here’s an example form the Classified Section of the Statesman Journal:

Drug and Alcohol
Program Manager

Provide clinical supervision for an outpatient drug and alcohol treatment program. Qualifications: Bachelor’s Degree in a relevant field and four years of paid, full time Human Services experience with a minimum of four years direct D & A experience, one year of which must have been in a supervisory and/or administrative capacity. Call 541–396–3173 x232 for a Coos County application packet. Closing Date: January 24, 2001. EOE

Statesman Journal Subclassification: Professional 1/7/2001

There are some interesting things about this very typical advertisement. First, notice that the standard advise touting volunteer or part time positions as a way to building skills and abilities means nothing as far as this position is concerned. The ad specifies that only paid, full time experience counts towards the minimum experience requirement.

Does this mean that the experience needed to do this job can only be learned in paid increments of 7.5 hours each? Of course not. This requirement is arbitrary — it has nothing to do with the skills or abilities needed to perform the job; it was chosen only to eliminate “non-professionals” from the pool of applicants.

The trend among employers today is to marginalize volunteer and part time experience by interpreting it as an indication that the applicant is not dedicated to the field or lacks professional expertise. The inference of working without pay is that the value of the worker is very low — skills given away for free have no value. As one employer puts it, “Why would I consider paying [an applicant with a history of part time volunteer work] when he’s happy working for nothing?”

The same thing is true for the education requirement. Notice that there is no specific field of education specified for this position. As long as a Bachelors Degree is “relevant”, it meets the education requirements. Why would an employer be so vague about education requirements?

Because the academic details don’t matter.

Non technical Bachelor degrees, (like those in Liberal Arts, Humanities and Business), no longer imply that particular skills and abilities have been learned. Non-specific Bachelors Degree requirements are included in job announcements only to exclude applicants without an academic history in a particular interest such as Psychology or Sociology, and to ensure basic literacy and general knowledge ability.

Academic degrees, like part time volunteer experience, are being marginalized by employers who view them as a tool to exclude applicants, rather than as an objective measure of skills, knowledge or expertise.

(Indeed, this trend has been present for some time and is continuing to expand. An admissions director for Phoenix University recently said that the trend on the East Coast for liberal arts and business undergraduates is to forgo job-hunting until they get a Masters or MBA degree. Think about that for a moment — earning a graduate degree just to compete for entry-level positions!)

In addition to this, the employer also requires four years of specific drug and alcohol experience and a year of supervisory experience. This job announcement can be summarized very quickly — the employer wants an individual who has been doing pretty much the same thing at another agency.

This is a common requirement among local social service agencies.

In a moment of rare candor the personnel director for one of the biggest social service agencies in town explained that local agencies tend to trade employees back and forth rather than hire people from “outside the loop”. It seems that most of the social service employers in the this area area hire off the street only to fill the most entry of entry-level positions, and look to each other to share the burden of training for positions beyond that.

In other words, there are so many applicants that social service agencies only hire people who hold similar jobs for other local social service agencies. This ensures that new hires will have the basic skills, knowledge, and training needed by these agencies. People who might have experience from other states or vocational fields are routinely rejected for employment, even when they are highly qualified, because there are so many others who are familiar with local rules, regulations, and methods of client care.

What to Do?

That is fodder for another essay. The first step, though, is to reassess our assumptions about jobs and the economy. Things are changing so fast that what might be true now won’t be in a few months or years. Of course, the corollary is that what was true a few years ago may not be true now. Loyalty — either from employer to employee or vice versa — no longer exists, and the concept of employment is giving way to the necessity of employability.

Anyone who wants to survive in our increasingly turbulent and unpredictable economy has got to make being well informed a priority. Read books about employment and the economy. Talk to people who hire. Call the people who place job announcements and ask them about why they ask for particular skills or word their advertisements as they do.

The best tool we have to make the job market more comprehensible is knowledge. Knowledge is out there; we might not like what we find, and what we find may not be what we think things ought to be, but it’s the only reality we have.


This essay was written in January 2001, seven years before the official onset of the Great Recession. The seeds for our present jobs problem were brewing even than, obvious to anyone who would look below the surface of news stories and rosy assumptions by employment “experts”. Now we must be just as vigilant in our analysis and suspicious of the pronouncements of experts.

If You Want Social Mobility, Choose Your Parents Well!

A few years ago, I was researching the value of bachelor’s degrees and discovered a research study for the Department of Education called Baccalaureate and Beyond (Cataldi, Siegel, Shepherd and Cooney 2014).

It is a longitudinal survey – one that follows a group of individuals over a long period. In this case, researchers looked at subjects four years after earning a bachelor’s degree. The thing I found interesting was that about 30% of the subjects did not have a single full time job.

This caught my attention because the education industry insists that the more education one has the better job prospects become and the more money made. That promise implies that college graduates would have “good” jobs – traditional 40 hour per week positions with some degree of job security.

This study certainly did not support that claim.

Of the thirty percent who did not have a single full time job, about half, or 15%, were working one or more part time jobs and the other half were unemployed. The other half had dropped out of the labor force, either returning to school or becoming a housewife/husband.

I found this so stunning that I called up the lead investigator of the study and asked him, rather bluntly, “If a bachelor degree is not a good predictor of socioeconomic success, what is?”

He didn’t skip a beat.

“Zip Code”

The best indicator of future social status is the social status you happened to have been born into, even more than education. socio-economic status is inherited, it seems.

In his still very relevant and interesting 2003 book, Somebodies and Nobodies, physicist and college president, Robert Fuller argues that social hierarchies are natural and needed but takes special aim at the unfairness inherent in them.

In one passage he shares the divergent life courses taken by him and his childhood friend, Gerald, whose family owned a chicken farm. Both boys were interested in math and they enjoyed a friendly competition for twelve years that sharpened their math skills.

“At a high school reunion a few years ago, I asked Gerald whether he regretted not developing his talent for math…With an unmistakable wistfulness, he explained that it had always been assumed he’d work the farm. None of his teachers took his mathematical talent seriously. No one ever encouraged him to aim higher. He never even considered anything beyond high school. I’m sure he could have become a college math professor…” (Fuller 2003, p. 36).

Both men started at the same place with the same interests and talents, one becomes a physicist and college president, while the other spends his life driving an egg truck. The only difference between the two was the social status of their families.

If your parents were wealthy and went to elite universities you will likely follow that path. On the other hand, if your parents went to land grant colleges and end up in the working class that is probably your fate as well.

That just rubs me the wrong way. So I started researching academic studies in order to bring some sense and clarity to the issue of the value of education.

Here is Alison Wolf, (2009), a leading UK professor writing in Change: The Magazine of Higher Learning:

“In Britain, returns to degrees have already dipped badly for specific groups, especially those majoring in the liberal arts or attending low-status schools… You earn more…if you go to a highly selective institution, particularly if you go on to advanced academic or professional education and even more if is a world-renowned university (Harvard, Oxford).” (Wolf, 2009, p. 14).

There is no doubt that the choice of major has a lot to do with earnings, but notice that Wolf has added something new – the status of schools.

So, if the status of schools influences future earnings, what happens when aspiring students compete for entry into highly respected schools?

Just this month the Federal Reserve of Minneapolis released a study asking this very question. Hendricks, Herrington, and Schoellman, (July 2018), performed a meta-study of 42 previous research papers and data sets going all the way back the early 20th century.

A meta-study does not involve any original research. The investigators combine all the data from previous studies and subject it to statistical analyses. The goal is to aggregate data from a range of previous studies to look for long-term trends or consistent results.

Here is what these investigators say about how intense competition for high quality education affects US colleges and universities:

“The key intuition is that although the rising demand for college accepts all types of students equally, it sets off a chain reaction …”

“…The result is a transition from an equilibrium where all students had access to colleges of roughly the same quality to an equilibrium where high-ability students had access to better colleges but low-ability students had access to worse colleges…” (Hendricks, Herrington, and Schoellman, July 2018, p. 36)

In other words, the competition between colleges for good students has created a hierarchy of school quality. People aspiring to college try to get into the best schools, but the schools are “sorting” students by ability. Elite schools accept people with the best student skills, while people with lesser student skills go to less respected schools.

The path one takes to a bachelor’s degree signals social status to employers and graduate programs. A path starting with community college and transfer to a land grant college signals something much different from four years at an elite university or notable local institution.

This starts making sense.

If you know anything about social psychology or sociology you are aware of one very basic truth about human beings – we always arrange ourselves in a social hierarchy. It is such an automatic and inherent ability that we barely take notice. Our social circle usually consists of people very much like us – and that means people with similar socio-economic status.

So, what is it about our family of origin that anchors us so permanently into its socio-economic status?

Annette Lareau tells us all about it in her eye-opening book, Unequal Childhoods (2003). Lareau is a sociologist at the University of Pennsylvania who took on a monumental study of how parents transmit social values related to class their children. She and her graduate student assistants observed interactions of poor, working class and middle class families over a period of years and came to some sobering conclusions.

Lareau identified two general differences in the way parents socialized their children, “concert cultivation” and “natural growth”.

Middle class families and “concerted cultivation”.

According to the observations Lareau and her team made, middle class families tend to see their role as nurturing their children. They have the resources to dominate and control their children’s lives with all sorts of structured experiences intended to enrich their lives. These parents are highly involved in managing their children’s after school time, with organized sports, music and dance lessons and other highly structured activities.

They interact with their children much like adults, explaining why things are best done in certain ways, reminding the kids about chores and homework, and negotiating conflicts with reason, logic and compromise rather than using their authority to end them.

According to Lareau, these middle class children tend to develop a sense of entitlement, but also learn sophisticated methods of interacting with adults who are in positions of authority, such as teachers and doctors.

Middle class children, even in the fourth grade, frequently succeed in requesting special attention and privileges from teachers and other adults in positions of authority. They learn this from seeing their parents reminding teachers to respect their children’s learning style, or encouraging their children to ask doctors or dentists specific questions. Lareau contends this grows out the sense of entitlement middle class children develop.

They learn middle class “rules of the game”.

Poor and working class families and “natural growth”.

Lacking the resources of middle class families, poor and working class parents see themselves as authorities keeping their children on the proper path to adulthood. They are less concerned with feelings, opinions and thoughts, and more concerned with compliance and respect.

Their parents are working overtime, or on a second job or using time consuming public transportation and do not have the time or resources to closely shepherd their children. For these families the focus is on simply staying on top of things such as jobs and transportation instead of teaching the “rules of the game” like middle class.

Poor and working class children have far more unstructured time. They spend far more time playing with other children, interacting with extended family like aunts and cousins, and considerable time in cooperative activity with siblings and other children.

School structure is very rigid compared to structure found at home. Poor and working class children very quickly developed a sense of constraint in schools. They readily accept directives by adult authorities such as teachers, but resent the loss of autonomy and self-direction they enjoy at home.

The result is “neck down compliance” – going through the motions of compliance, but not integrating into the education system. For these kids there is no value in school and the point of learning is lost to them.

According to Lareau, poor and working class parents teach their children powerlessness in the face of schools because they don’t know how to assert themselves to authorities any more than their children do.

Putting it all together

So what does all this mean?

First, we find that bachelor’s degrees don’t return the level of value promised by the education industry, at least not for everyone. A researcher reveals a variable – zip code – that seems to influence the outcome of education.

Next, Robert Fuller, physicist and college president, shares a story illustrating how powerful the socio-economic status of the family of origin can be in determining the course of ones life.

After that, an observation from a UK academic about how much more valuable a degree from an elite university is than a degree from lesser-valued schools.

Next, the meta-study from scholars at Minneapolis Federal Reserve supporting the observation that universities have a hierarchy of value. Further, they conclude that schools and students “sort” themselves into hierarchies with poor students attending poor schools at the bottom and excellent students attending excellent schools at the top.

Finally, Annette Lareau identifies the mechanism parents use to transmit assumptions of how the world works into values that determine socio-economic status.

If any of this is an accurate explanation of how socio-economic status passes from one generation to the next, it brings in to question how much influence we have over the course of our lives. See what Robert Sapolosky thinks here, and share a comment.

Here are the sources cited in this article:

Cataldi, E. F., Siegel, P., Shepherd, B., & Cooney, J. (2014). Baccalaureate and Beyond: A First Look at the Employment Experiences and Lives of College Graduates, 4 Years On (B&B: 08/12).

Fuller, R. W. (2003). Somebodies and nobodies: Overcoming the abuse of rank. Gabriola Island, Canada: New Society Publishers.

Hendricks, L., Herrington, C., & Schoellman, T. (July 2018). College Access and Attendance Patterns. Minneapolis, MN: Federal Reserve Bank of Minneapolis.

Lareau, A. (2003). Unequal childhoods: Class, race, and family life. Berkeley: University of California Press.

Wolf, A. (2009). Misunderstanding Education: Why Increasing College Enrollments Can’t and Won’t Fix the Economy. Change: The Magazine of Higher Learning, 41(4), 10-17.

Thanks for reading! You can fine more like this at www.OnwardThroughTheFog.com


Central Bankers Don’t Know Any More Than the Rest of Us

“Your faith that central bankers know “where they are” is a little surprising (“Central banks correctly go their separate ways”, editorial, June 16). Since the crisis nadir, inflation and growth outcomes have consistently fallen short of what was expected by the central bankers of major market economies despite an unprecedented period of low policy rates alongside outsized balance sheets. Current policy may be moving in different directions for reasons that seem logical today but the reality is that no one knows how smooth or bumpy the path will be from this point forward.”

Quin Casey, Letter to the Editor, Financial Times, June 22, 2018


Jerome Powell, our new Federal Reserve Chairman replacing Janet Yellin, delivered a revealing speech to the European Central Bank Forum in Portugal recently.

The speech is illuminating and important because it shows how out of touch our central bankers are with the economy. It is stunning to see statements of purported fact followed by another that contradicts it. Equally baffling, the Chair does not seem to be aware of the information released in the most recent Employment Situation, the official government report on employment released monthly by the Bureau of labor Statistics, (BLS)

For example, first statement:

“Today, most Americans who want jobs can find them.”

Next statement:

“High demand for workers should support wage growth and labor force participation–the latter a measure on which the United States now lags most other advanced economies.”

Yes, high demand for workers should promote wage increases, but it wages have barely increased in the last decade. The BLS data contained in The Employment Situation tells us that wages have risen only 2.7% in the last year.  According to Trading Economics, wage growth has been declining since 1979 and now is about as low as it ever has been. There does not seem to be any pressure on wages at all.

So, no, there hasn’t been any wage growth, bringing into question whether there really is a high demand for workers.

What about labor force participation?

Trading Economics shows that labor force participation is now about what it was in the late 1970’s when women were just beginning to enter the labor force. Again high demand for workers would draw people back into the labor market, but that does not seem to be happening. Powell seems to have some understanding of this because he points out that our labor force participation rate is lower than other industrialized economies with which we compete.

A little later in the speech, another contradiction…

First sentence:

“As is often the case, in the current environment, significant uncertainty attends the process of making monetary policy.

Note the term “significant uncertainty”.

The economy is not recovering. Saying that it does implies that we are going back to something like what we had before, Things have changed so much that it is more accurate to say that we are building a brand new economy. That is why there is “significant uncertainty” – old concepts and metrics don’t work in the emerging economy as they did in the old industrial economy.

For example, there is the “Phillips Curve” that measures the relationship between employment and inflation. As people go back to work following a recession, they have more money, creating demand, which causes prices to increase. That is why a little inflation is a good thing.

However, unemployment is at 3.8% and there is little sign of inflation, implying that people don’t have enough money to create a demand strong enough to fuel inflation, even though they count as employed. That might be because of low wages in the gig economy.

Contingent workers make a lot less than people do in traditional jobs. We don’t know what the effect of contingent labor market has on other parts of the economy because we haven’t figured out a way to measure contingent employment.

Second sentence:

“Today, with the economy strong and risks to the outlook balanced, the case for continued gradual increases in the federal funds rate remains strong and broadly supported among FOMC participants.”

Powell sounds very confident in light of his previous comment about the significant uncertainty supporting monetary policymaking.

Finally, this:

“Unfortunately, with the passage of a half-century and important changes in the structure of our economy and in central bank practices, in my view the historical comparison does not shed as much light as we might have hoped.”

Here he mentions “structure”. Structural changes in the economy mean permanent change, not just normal cyclical changes.

Examples of this might be the end of mass employment in industry. It’s not that industry has left the United States; there is more than ever right now. It’s just that robots and software do most of the work.

The shift of traditional well-paying 40 hour a week jobs to low paying contingent employment is another example. Now we have to remember that just because someone has a job does not mean they can afford food and shelter.

So why is Powell running in circles? Reading between the lines, as we have been doing here, reveals a much different picture than taking the speech at face value.

I’ve been a little harsh on him, really. He’s in a tough position. The integrity of the banking system has as much to do with perception as reality. When people stop having faith in the financial health of a bank, they withdraw their money. When people see others withdrawing money the safety of their deposits come into question and they are inclined to withdraw as well. This is what a “run on the bank” is – panicked withdrawals that may or may not be necessary.

When this happens to one bank, people tend to lose faith in all banks. This is what social psychologists call “social proof”. This is one of many heuristics, or shortcuts to decision making. When we see many other people doing a particular thing we tend to trust their judgment and join in, usually without thinking.

James Surowiecki has written a wonderful book about heuristics in economics and finances, (and many other settings), in his book Wisdom of Crowds. I highly recommend it.

It may come as a surprise, but banks do not have enough cash on hand to cover all their debts to customers. Deposits go out the door in the form of loans, or during the collapse of the industrial economy in 2008, in the form of loans to other banks buying blocks of risky home mortgages. This is where the Federal Deposit Insurance Corporation (FDIC) and central banks, like the Federal Reserve come in.

The FDIC insures consumer deposits for up to $250,000 and central banks stand by to infuse troubled banks with huge amounts of cash to forestall a run and maintain faith in the banking system.

This is why Chairman Powell has to be so careful about what he says. On the one hand, he can’t just make outright falsehoods about the economy because the first time someone catches him in a lie will be the last time anyone believes him. He can’t be brutally honest about the economy, either, without undermining faith in the future.

So you have to listen carefully, take note of what he does not say, and examine exactly what he does say. Powell is saying that things are better than they were, we aren’t sure why, and we’ll move ahead cautiously.

But bank customers aren’t the only ones for whom Powell is designing his messages. He is the Chair of the Federal Reserve and one of 11 members of the Feds Board of Governors. The Federal Reserve consists of 12 of the largest banks in the United States.

The Board of Governors are the presidents of those banks and they creates monetary policy as a group. Most of their influence lies in inter-bank standards, like how much interest these banks charge one another, and agreements on length and volume of bond sales.

Remember Qualitative Easing? That was when the Fed was buying back bonds. Bonds are debt instruments – when you buy a bond you are loaning money to the bond issuer. Buying back Treasury bonds – like savings bonds except a lot bigger—is a way for banks to shed debt, but it also a way to pump money back into the economy.

For more than a year following the crash of 2008, the Fed was pumping $80 billion a month into the economy. It was the only thing keeping the economy solvent.

Yes, things were that bad.

You can read all about it in Mohamed El-Erian’s detailed and very readable account of the 2008 financial crisis, The Only Game in Town.

The challenge for Powell as Chair of the Fed is to get all 12 members of the Fed to agree on monetary policy. It sounds like dull and boring issues to most of us, but members of the Federal Reserve are passionate about economics – they all have PhDs from leading universities – and they are very ambitious and driven.

Powell has to get these all people to agree on specific and detailed monetary policy. Think about the last time you tried to get a few of your friends to decide on where to go for lunch or dinner. That’s hard enough.

Getting intelligent, personally ambitious and driven people to agree with one another is a herculean task. Getting them to agree on something the President supports and Congress might tolerate compounds the challenge, but this is at the core of Powell’s job description.

So no, the Fed chair can’t just make outright lies, but he can’t be brutally honest either. He has to construct a narrative that fits the facts and doesn’t get anyone upset while using data that is incomplete and uncertain.

That is why it is so important to listen carefully to what he says, and look for nuance and veiled meaning. It is also important to remember that the Federal Reserve doesn’t know everything. As Powell tells us repeatedly, we are in an entirely new emerging economy and there is “significant uncertainty”.

After all central banks don’t know any more than anyone else.


Sources used in this article:

El-Erian, M. A. (2017). The only game in town: Central banks, instability, and avoiding the next collapse. New York: Random House.

Surowiecki, J. (2004). The wisdom of crowds: Why the many are smarter than the few and how collective wisdom shapes business, economies, societies, and nations (1st ed.). New York: Doubleday.


The Employment Situation June 2018

The Bureau of labor Statistics, (BLS), released labor market statistics for June 2018 today, Friday, July 6, 2018.

The bottom line:

Nothing much has changed.

Although the media is making a big deal about the unemployment rate and employers are shedding crocodile tears about a tight labor market, wages are stagnant, part time jobs are not converting to full time, and the average workweek is stalled at 34 hours.

There is not much encouragement, but neither are things getting any worse.

We’ve been hearing a lot about how tight the labor market is, and that employers are having a difficult time finding workers. The data does not support that contention.

When labor markets are tight, employment is very high and labor is hard to find. Demand for labor is so high that part time jobs turn into full time jobs, and part time jobs become hard to find. High quality employees are likely already working, so employers raise wages to attract them, lower barriers to employment like drug tests and credit checks, and the average workweek approaches 40 hours per week.

None of that is happening.

In June, there was no change in the number of involuntary part time workers. There just wasn’t enough work to offer these people full time employment.

The average workweek for all employees is only 34 hours. That is far from full capacity and implies there are far more idle potential workers than there are people drawing a steady full time paycheck.

Something else that happens in a tight labor market is wage increases. When employers compete for workers they offer higher wages to convince them to return to the labor market from whatever refuge has provided protection.

Wages are just about keeping pace with inflation at an annual rate of 2.7%. In other words, employers are not so in need of workers that they are offering higher wages.

There a number of things in The Employment Situation that you will not see the media crowing about because they don’t support the meme that everything is getting better.

One is the long-term unemployment rate. These people have been unemployed for six months or more. The six-month mark is significant because people have a much more difficult time finding a job after being unemployed for six months or more.

And guess what?

The long-term unemployment rate increased in June by 289,000 to 1.5 million, or 23% of the total unemployed. Remember, the BLS considers these people to still be attached to the labor force; they want a job, but may not have actively looked for one in the in the last 12 months. This group is getting bigger.

This brings up another statistical group, the Labor Force Participation Rate or the percentage of the population either working or desiring work.

The Labor Force Participation Rate has been at historically low levels since the Crash of 2008, but edged up by two tenths of a percent this month. Apparently, the good news about jobs convinced some people not in the labor force to try the job market again. Keep an eye on this number in future Situation reports. Continued increases might indicate an improving labor market.

People not in the labor force consist of those who have found ways other than a traditional job to survive. They might be doing things like making a career of going to school on student loans, blogging, grey market side work and outright illegal means of making a living. People in prison, the military the retired are also included in this group.

If you read many of my articles about statistics, you are familiar with my mantra “What are you measuring and how are you measuring it?” The BLS has a wonderful website explaining their methodology and definitions, How the Government Measures Unemployment

The definition of employed is straightforward – if you worked and were paid during the last week you are employed. There is no minimum wage or income requirement. This brings into question what a job really is.

Most people think that employment means being self-sufficient. With a job, you can rent an apartment and sign a note for a car. But this is not the way the BLS defines a job. If you make any amount of money in exchange for labor, you count as employed.

You raked your neighbor’s leaves for an hour last weekend and got $20 bucks? You’re employed.

In some cases, you don’t even have to make any money to count as employed. For instance, if you help your husband with the bookkeeping on his online business the BLS considers you employed even though you did not get a paycheck. Same with farms. Help Gramps out with the milking and the BLS considers you employed, even if you and your grandfather do not. (The rationale is that you benefit from your work, even though you don’t see a paycheck.)

More than ever, it is important to understand how the labor market is measured. At one time, it might have been enough to focus on the unemployment rate in order to understand the general health of the labor market, and larger economy.

Not anymore.

The economy, and especially the labor market, has changed so much that we need to understand the nuances of the Employment Situation and look at measures we have ignored in the past.

For example, the unemployment rate means something very different when average hours worked are very low and part time jobs are either increasing or staying the same. The BLS is not lying or intentionally misleading, but in order to understand labor trends it is imperative to understand what the statistics mean.

I hope this article helps people understand the numbers the media pulls out of the Employment Situation.



Degree Inflation, Credentialing and Signaling: Employers Now Demand Over Qualification

A new report out today from the Philadelphia Federal Reserve examines the recent trend of employers inflating requirements for jobs. “Addressing Bias and Equity in Hiring” is a literature review by Ashley Putnam, director of Economic Growth and Mobility Project at the Philadelphia Federal Reserve. Literature reviews are a way for scientists to condense current knowledge on particular topic. Putnam didn’t do any original research; instead, she summarizes previous work on the topic.

“Upcredentialing” usually means demanding a college degree for jobs that do not require one. It’s expensive for both job seekers and employers, but the sort term gain is a powerful seduction for employers.

Economists measure upcredentialing by comparing education levels of people currently in a particular job with education levels required in job postings. For example, Putnam cites a 2014 study in which 64% of job posts for executive assistants required a college degree, but only 19% of executive assistants on the job at the time had one.

President Obama gave his first inauguration speech in the mist of the collapse of the industrial economy in 2008. In it, he urged Americans to go to school in order to be ready for the eventual recovery.

That recovery never came, of course. Instead, we find ourselves in a decade’s long project of building a new economy with little resemblance to the previous one. While the 3.8% unemployment rate is wall papered all over the media, the Bureau of Labor Statistics, (BLS), reports that record numbers of people are not in the workforce, the average workweek is only 33 hours and wages continue to stagnate.

The Great Recession was a boom time for the education industry. Admissions shot up by about 30% and there was a bumper crop of college graduates during President Obamas first term.

Unfortunately, the jobs of the 20th century no longer exist for these new graduates.

Katz and Krueger (2017) estimated that 94% of the jobs created between 2005 and 2015 were contingent jobs – “gigs” that generally do not pay a living wage. The National Employment Law Project finds that 60% of newly created jobs are low wage, low skill service positions. These are not the jobs that people responding to President Obamas call for education had in mind.

Old-fashioned jobs that legitimately required skills that a bachelor’s degree conferred have been in short supply, while at the same time the United States has a higher proportion of bachelor degree holders than ever before. About one third of Americans have a bachelor’s degree, and more than half have a two-year degree or certificate.

In spite of record numbers of Americans holding bachelor and technical degrees, employers complain of a “skills gap”. Potential employees do not have the technical skills needed in the workplace.

Peter Cappelli has studied this issue at length in his book, Why Good People Can’t Get Jobs, and finds a number of reasons the “skills gap” is largely a myth. Cappelli points out that many of the skills employers have trouble finding are not the kind learned in a bachelors program. As surprising as it might be, most colleges and universities do not have basic computer skills as a general education requirement.

Often employers look for specialized skills; say the ability to code in Python, or WordPress experience. These skills are mostly self-taught, and consequently have no certificate associated with them.

Another trend among employers is to condense several technical jobs into one position. Cappelli gives the example of an engineer with thirty years’ experience, a master’s degree and a Professional Engineer certificate who could not get a position with an engineering firm because he could not type 65 words per minute.

“David Altig, research director at the Federal Reserve Bank of Atlanta, notes that this broadening of skill requirements is now commonplace. Where in the past a company may have had three positions and only one required computer skills, now ‘one person is doing all three of those jobs—and every job you fill has to have computer skills,’”  (Cappelli, 2013, Kindle Locations 553-555).

Another under the radar development has been the success with which American companies have shifted the expense of education to employees. Like retirement and health care, employees are now largely responsible for financing their education. Education costs are one of the fringe benefits that disappeared with the industrial economy.

On the job training, apprenticeships and learning how to do a new job are outdated. We are now in an era of “onboarding” new employees with the expectation that they must be productive from day one on the job.

Both Putnam and Cappelli point to the bachelor’s degree as a “signaling” device. It may not confer specific technical skills needed to perform a job, but implies the holder has certain characteristics. Employers can infer race, social class and cultural values by a bachelor’s degree and not be concerned with charges of racism or elitism.

Academic studies on the relationship between bachelor degree holders and productivity have been inconclusive. However, recent studies show that “upcredentialing” and using education as a signaling device cost employers a good deal of money.

Adding unnecessary requirements makes it more difficult and time consuming to find candidates whose knowledge, skills and abilities, (KSAs), meet the inflated requirements of employers. Putnam cites sties a study indicating that IT help desk positons requiring a college degree take 40% more time to fill than the same position without the college requirement. Front line construction mangers require 119% more time to fill a vacancy with a bachelor’s degree is required

This translates into huge amounts of money. The Centre for Economic Research estimates that unfilled openings cost the economy $160 billion a year. Degree inflation also increases employee turnover. While one might argue that college graduates deserve a pay differential compared to non-grads, Harvard Business School contends that non-degree holders perform just as well on specific technical needs for particular jobs. Adding a requirement for a degree adds costs but does not seem to have a matching effect on productivity or quality of work.

Entry-level employees bear a disproportionate cost of upcredentialing. According to Putnam, costs at four-year institutions increased by 129% between 1987 and 2017 – far more than wages for degree holders, which have stagnated.

But not everyone who enters college completes it — only a few more than half of students who enter college actually graduate. The remainder has no degree, but carries student debt. The most common reason for dropping out of college is to keep a job; the second most common reasons are lack of affordability of higher education.

None of this will change any time soon. The glut of degree holders will remain as long as the economy does not expand enough to provide jobs for people who have left the labor force.


References used in this article:

Cappelli, P. (2013). Why good people can’t get jobs: The skills gap and what companies can do about it. (Kindle ed.). Philadelphia: Wharton Digital Press.

Fuller, J. B., & Raman, M. (2017). Dismissed by Degrees: How Degree Inflation is Undermining US Competitiveness and Hurting America’s Middle Class. Accenture, Grads of Life, Harvard Business School.

Katz, L. F. & Krueger, A. B. (2017). The rise and nature of alternative work arrangements in the United States, 1995–2015 (2016). The Global Talent Competitiveness Index, 2016.

National Employment Law Project, “The Low-Wage Recovery and Growing Inequality”, August 2012, available at http://www.nelp.org/content/uploads/2015/03/LowWageRecovery2012.pdf.

Putnam, A. (Spring 2018). Addressing Bias and Equity in Hiring. Federal Reserve Bank of Philadelphia, Economic Insights, Cascade, 1(98), 9

Financialism leads to agony for GE and Sears

The internet has been buzzing with the news that General Electric lost its standing on the Dow Jones Industrial Average (DJIA) this week. That does not mean General Electric will no longer be traded, as some posts seem to claim. It means that General Electric is no longer one of the 30 firms that economists measure to calculate the Dow average.

Walgreens will replace GE on the DJIA, making this a bitter blow to the prestige of General Electric and signaling the increasing wealth and prominence of insurance related companies.

David Blitzer of Dow Jones had this to say about the current business environment:

“General Electric was an original member of the DJIA in 1896 and a member continuously since 1907. Since then the U.S. economy has changed: Consumer, finance, health care and technology companies are more prominent today and the relative importance of industrial companies is less.”

Only a few years ago General Electric was the most valuable publicly traded company. General Electric joined the DOW in 1907 and gained fame as an innovative company aggressive snaring the best engineers and scientists and making remarkable contributions to the industrial economy in the 20th century. General Electric built its fortunes on invention manufacture and sale of consumer electronics in the early 20th century and later moved onto big ticket industrial goods..

Robert J Gordon has written an explosive book offering a convincing argument for what has happened to our economy. In The Rise and Fall of American Growth Gordon argues that the century spanning 1870 to 1970 was an era in which “Great Inventions” powered by electricity and gasoline disrupted the economy and created great wealth. Since 1970 or so, the economy has moved ahead by the slow evolution of improvements to the inventions of the previous era.

A good metaphor might be the Interstate Highway System. The federally funded, high speed, all weather highway system replaced the interlocking network of two lane state funded highways.

Constructing the Interstate Highway Stems was costly, but created many jobs and funded many businesses and industries everywhere the system was built. Once built, however it became a static part of the economy and transportation systems. Incremental improvements were made over the years, but there was no opportunity for additional disruptive change that might create great wealth.

Here is how Gordon puts it:

Progress after 1970 continued but focused more narrowly on entertainment, communication, and information technology, in which areas progress did not arrive with a great and sudden burst as had the by-products of the Great Inventions. Instead, changes have been evolutionary and continuous. (Gordon, 2016, p. 23).

After 1970, the business climate became more competitive. Corporation began to look for new niches for expansion. At about the same time Wall Street “arbitrage artists” realized that many industrial companies were worth more for their assets than their future value. They constructed complex deals using borrowed money to buy old name American companies like US Steel and Rubbermaid, tear out anything of value and sell it to emerging economies in Asia, Africa and South America.

Called “hostile takeovers” these deals caused a great deal of emotional consternation. Most Americans did not understand the cold economics of “creative destruction” – the natural evolution of business – and the arbitrage artists became villains of Wall Street.

The best personification of these Wall Street entrepreneurs is the amoral corporate raider Gordon Gekko, played by Michael Douglas in the drama Wall Street, for which Douglas won the Academy Award for Best Actor and uttered the catchphrase, heard even today, “Greed is Good”.

The threat of financial creativity was not lost on large corporations in the last quarter of the 20th centuries. Although General Electric had established GE Capital in the 1932 to manage the new consumer product of credit, purchasing it now expanded into many other areas of consumer and corporate finance.

Rana Foroohar details General Electric decent into financialism in her excellent book, Makers and Takers.

When Jack Welch became CEO of GE in 1981 and immediately shifted from sales of jet engines, nuclear reactors and mining equipment to buying and selling other companies and even its own divisions in order to increase its stock price.

Acquiring debt was a large part of this shift, and GE Capital became the largest issuer of commercial paper – short-term loans to large corporations – in the world. GE Capital became a major profit center for General Electric and the company began to focus on “Not making, but taking, across every possible era of finance from equipment leasing to leveraged buyouts and even subprime mortgages”, (Foroohar, 2016, p. 154).

When the industrial economy finally crashed in 2008, General Electric’s new CEO, Jeffery Immelt, was forced to make a personal visit to Warren Buffet asking for $3 billion to save the company. Six years later in April 2015 Immelt announced that GE would be leaving the finance sector and the company would return to its original mission of invention and manufacture.

Another big name traditional American company, Sears, has been moving down a similar path.

If you have been following business news for the last couple of years, you know that Sears has been struggling to maintain its place in consumer sales. Its retail operations have been shedding cash for years and it has been running on borrowed money to survive. Sears has been selling its real estate – its stores – to offset the cost of borrowing essential to its survival. The details make for interesting reading.

For example, in 2015 Sears bundled 235 of its stores into a Real Estate Investment Trust (REIT), then leased the same stores back to itself. Its retail divisions, already losing money at an astonishing rate, now has the added burden of lease payments to Sears Holdings Corporation.

Sears borrows its money from ESL Investments, a hedge fund owned by Sears Holding CEO Eddie Lampert. (Yes, Lampert is CEO of both companies.) Every time Lampert injects money or lays off employees, Sears stock price increases a bit, and every time he closes another store, ESL gains another property.

There is a perverse secret to making money in real estate – debt financing. Most of us think of debt as something to avoid because there is no real upside. That isn’t true for big players, though. There are huge tax advantages to debt financing. Money a company borrows can be written off as businesses expenses and at the same time, an REIT is generating cash through the leases on property. It’s a win-win.

This is just one small example of how the economy has changed at a very basic level. The idea that debt can be an advantage to a company is difficult for most of us to accept, and that illustrates a larger issue – nobody is quite sure how to measure and manage this new economy.

In The Only Game in Town, Mohamed El-Erians’ interesting and very readable book on modern economics, quotes William Dudley, New York Federal Reserve President on the state of knowledge of our financial leaders in this era of financialism:

“We still don’t have well developed macro-models that incorporate a realistic financial sector”, (El-Erian, 2017, p. 33).

In other words, the Federal Reserve doesn’t really know how to measure economic consequences of large companies moving away from traditional trade and towards debt financing.



These books re referenced in this article:

El-Erian, M. A. (2017). The only game in town: Central banks, instability, and avoiding the next collapse. New York: Random House.

Foroohar, R. (2016). Makers and takers: The rise of finance and the fall of American business (First edition. ed.). New York: Crown Business.

Gordon, R. J. (2016). The rise and fall of American growth: The U.S. standard of living since the Civil War. Princeton: Princeton University Press.