New Non-Profit Takes On The Federal Reserve

Update  01/10/15: Because I've ceased publishing ECOMINOES, I've removed a great many articles I believe have become less relevant over time. I've deleted as many links that were broken as I could find...I apologize if I missed any. Also, due to the proliferation of spam, I've closed comments and deleted the ECOMINOES Facebook page and Twitter account.

It's been a pleasure promoting economic and individual liberty here on ECOMINOES. Now, I'm taking my passion to the next level by launching Solidus.Center, a 501(c)(3) non-profit that promotes economic strength and stability, sound money, equality of opportunity, and reduced government debt by limiting the Federal Reserve System’s influence on the American economy.

The following is a brief video explaining this new venture:

 

Solidus.Center is currently in the start-up phase, and we're looking for help. If you or anyone you know might be interested in board, fellowship, or volunteer opportunities, please contact me at seth@solidus.center.

Thank you so much for following ECOMINOES! I hope you'll join me on the next level.

Seth Mason, Charleston SC

The Psychological Struggle Of Long-Term UNDERemployment

 I've written dozens of articles about the epidemic of unemployment and underemployment in this country. In the articles, I've cited numerous statistics. We have to keep in mind that those stats represent people.

There are many accounts of the psychological toll of long-term unemployment. But little has been said about the toll of long-term UNDERemployment. Lest we forget that Gallup pegs the underemployment rate at nearly 20%. Nearly 1 in 5 members of the American workforce is working below--sometimes well below--his potential. And that's only if you count people who work part-time but want to work full-time. That doesn't count the millions of Americans working below their potential in full-time jobs. MBAs working retail. Law degree holders filing papers. Mike Alberti of Remapping Debate tells us what that can do to a person psychologically over time. As you read this, keep in mind that getting a breadwinner job in America has become a lottery in which the best and brightest don't get chosen up to 50% of the time and opportunities for promotion have been limited by the large number of people staying in their jobs.

The many impacts of unemployment — including social and psychological ones — have long been catalogued. But much less is known about the consequences of “underemployment.” Millions of Americans — at least as many as are unemployed, and perhaps more — have either been forced to take part-time work because full-time jobs are not available, or are forced to work in jobs for which they are overqualified.

“We have never experienced anything like this,” said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers University. It is “not something that as a society we’re used to dealing with.”

Since the recession, researchers have begun to take more of an interest in the psychological effects of underemployment, and what they have found is not encouraging. In the short-term, it appears that those who are underemployed — like those who are unemployed — have an increased risk of depression, increased stress, and lowered self-esteem.

And there may be long-term negative effects, too. On the psychological side, there are intriguing hints of a downward spiral that might affect underemployed workers in their family, social, and employment relationships. In economic terms, there is already data that show that the effects of being underemployed directly after graduating from college can linger for more than 10 years.

“Unemployment is an emergency,” Van Horn said. “Underemployment is a crisis.” Nevertheless, the United States, unlike other countries, is not gathering the data needed to pinpoint what the full costs of underemployment actually are. Making it difficult to know which policies might be effective in helping those affected.

What’s wrong with me?

Douglas Maynard, an associate professor of psychology at the State University of New York in New Paltz is one of only a few psychologists who has studied the mental health effects of underemployment.

“There are a few things that we know for sure,” he said. “We see very clear evidence of lower self-esteem, greater stress, and less job satisfaction,” he said.

To illustrate those effects, David Pedulla, a doctoral candidate at Princeton who is writing his dissertation on the consequences of underemployment, suggested considering the case of a worker with a degree in accounting who is laid off from an accounting firm and has to take a new job working in retail.

“Imagine going from a situation where you had gained some status and control over your day-to-day life, and then moving into a retail job with a boss with less education than you,” Pedulla said. “That person might feel like he had lost control over his life.” The theme of loss of control is one that numerous experts cited repeatedly.

Pedulla said that the result is often that underemployed workers internalize a sense of shame, and begin to blame themselves for their situation. Psychologists have long recognized that shame is a very powerful emotion, and that people who feel a strong sense of shame tend to cope with it in different ways.

The ex-accountant working retail, Maynard said, “might start blaming himself for it. He might wonder, what’s wrong with me that I’m here?”

That sense of shame intensifies if the individual has been forced to take a pay cut, Maynard said. Underemployed workers will often feel a greater financial strain, which can be exacerbated because their new jobs may not provide the same levels of health or retirement benefits as their old jobs, while at the same time making them ineligible for government assistance programs.

Pedulla said that, for men, the implications of becoming underemployed and earning less money can have profound effects on their perception of their masculinity, especially if they find themselves struggling to provide for their families.

“The breadwinner model is still very present,” he said. Men who feel that their masculinity is being threatened are more likely to lash out at their families. There is evidence that underemployment can cause marital strain, Pedulla said, and that when older children perceive that there has been a reduction in income or status, they may “inherit” the sense of shame.

“Kids may feel like they can no longer have the newest clothes, or that they can’t do certain activities with their friends because their family can’t afford it anymore,” he said.

Social isolation

One of the strongest effects of the shame and lowered self-esteem that can result from underemployment is that the worker may become socially isolated — in the workplace and outside of it — and that the isolation can, in turn, reinforce those feelings because the worker is not receiving social support, experts said.

“Your social interactions might change,” Pedulla said. “If you were laid off from a job where you had friends, you might feel less inclined to see your former co-workers because you might fear that they would look down on you.”

Some research has found that workers who have been laid off and found new jobs that are unsatisfactory are less likely to engage in social activities. In 1988, Katherine Newman, a sociologist and the current dean of the School of Arts and Sciences at Johns Hopkins University, wrote an influential book called Falling from Grace: Downward Mobility in the Age of Affluence, in which she interviewed hundreds of people who had, for various reasons, fallen out of the middle class.

Several people reported that the social consequences of underemployment can be particularly challenging.

“If your old friends are going out for drinks or going to the theater or playing golf or doing other things that you can no longer afford to do, then that can be a very isolating experience,” she said.

Berrin Erdogan, an associate professor of management at Portland State University, said that underemployed people might find themselves isolated within the workplace as well. “You would probably feel like a misfit, especially if you are surrounded by people who are less educated than you,” she said.

She used the example of a young worker who graduated from college but could not find a job in her field, and had to start working at a coffee house. “After work, [your co-workers] might go out or spend time together on the weekends, but you might be less inclined to go because you feel like you don’t fit in,” she said. “At the same time, there’s a great chance that your co-workers might feel intimidated by you, and won’t want to invest in a relationship with you.”

Erdogan said that that situation could quickly lead to anger and “self-defeating behavior,” which could affect the way that underemployed workers do their jobs. “If you don’t feel appreciated in your job, and feel like it’s unfair to be there, you might not do your job as well. If you’re working in a coffee house, in the end you may not end up treating your customers very well,” she said.

In his research, Maynard has found that workers who perceive themselves to be overqualified for their jobs report less job satisfaction even than workers who are involuntarily employed part-time.

Erdogan said that evidence also exists that workers who are overqualified for their jobs are more likely to have bad relationships with their managers and co-workers, and that this can make them more likely to get fired from their jobs.

“If you don’t leave a job on good terms,” she said, “that in turn diminishes your chances of finding another job.”

Depression and boredom

Psychologists stress that the duration of underemployment is a very important factor. If a person finds a better job within a few weeks or months, said Daniel Feldman, associate dean of the Terry College of Business at the University of Georgia, the negative psychological impacts are more likely to be limited.

But if the worker remains underemployed for more than six months, Feldman said, it would be a short step from the combination of boredom and self-doubt to clinical depression. Researchers have shown that depression is strongly associated with underemployment, especially if the person is making less money than he or she had come to expect. Others have also found that underemployed workers are just as likely as the unemployed to show signs of depression.

Going back to the example of a worker who went from an accounting job to a retail job, Feldman said that a huge factor would be the dissonance in the worker’s mind between his present situation and the future that he had imagined.

“You went from doing something where you were using your skills to folding shirts,” he said.  “That’s a very strong contradiction [of] the idea that you had of where you were going to end up.”

“You’re going to be constantly bored with that job,” he said. “You’re never going to be happy working there.”

Depression has long been linked to self-destructive behavior such as an increased incidence of alcoholism, drug use, aggression toward family members, and suicide. While little research has been done examining the incidence of these behaviors among underemployed people, the connection between self-destructive behavior and unemployment is quite strong.

“We would expect to see many of the same effects in some underemployment situations,” said Meghna Virick, an associate professor of management at San Jose State University.

Feldman has also found that if workers who are laid off blame themselves for losing their jobs, there is an increased likelihood that they will engage in self-destructive behavior.

Characteristically, people who suffer from depression can have strong feelings of shame, guilt and worthlessness, as well as fatigue and irritability. They can also lose interest in things that were once important to them, such as their families, friends, and hobbies.

“People spend a huge number of their hours at work,” Pedulla said. “It’s central to the construction of their identity. If that work is making them depressed, then it’s easy for that to affect other parts of their lives.”

Unfulfilled hopes and diminished expectations

Though many researchers speculate that underemployment can have long-term psychological effects, it is an issue that has not been studied in depth. But several experts worried that, if the situation does not improve quickly, it could lead to a sense of unfulfilled hopes and diminished expectations, especially among young people.

“If you’re going into the labor market and have a particular idea of what your future is going to look like, and what you actually find is quite different, that has an effect on how you perceive yourself and how you perceive your chances for the future,” said Sarah Anderson, a professor of psychology at the University of South Australia who has long studied underemployment.

Returning to the example of the ex-accountant who works in retail, Feldman said that after a certain amount of time the worker might start to become discouraged. “If you don’t get out of the job after six months, you become increasingly pessimistic that you’re going to get out of it at all,” he said.

That could mean that the worker stops looking for other jobs, or approaches the job search with “less gusto,” Maynard said.  Because the job search can quickly become an exhausting process, especially while an applicant is working at another job, he or she may not put in as much effort after a prolonged period of time, he added.

“Some people might cope with being underemployed by changing their expectations, and saying, ‘I guess this is as good as it gets for me,’” Maynard said.

The job search can reinforce that sense. Several experts in management said that employers might be less likely to hire an applicant for a job if the applicant has been clearly underemployed, leading to a vicious cycle from which the worker cannot extricate him or herself.

If the worker is ensnared in this vicious cycle, Maynard said that he or she might begin to feel a sense of “learned helplessness” in which the person stops trying to actively change his or her situation. “If you’ve been applying to jobs and hearing nothing back, you may start to feel like you have no control over your life,” he said.

And many researchers have noted that the mental health effects of underemployment are most severe if workers feel that they have lost control over their situation — if they begin to feel trapped in their current jobs. “That is the point when we would expect to see the worst mental health outcomes,” Maynard said.

In the current context, that is particularly disturbing. There is some evidence that shows that during a recession, workers are less likely to quit their current jobs, because they are less likely to believe that they will be able to find another one. Before the recession, an average of three million people quit their jobs each month; in September, that number was slightly over two million.

Lack of data

While the understanding of the consequences of underemployment is growing, many of the experts interviewed for this article said that there is still a long way to go.

“There is much less empirical research than we would like,” said Pedulla. “Before we know how to respond effectively, we need to understand the contours of the problem better.”

“In Europe,” said Portland State’s Berrin Erdogan, “underemployment is treated as a social problem. We don’t even pay attention to it that much.”

One reason why so little research is done on underemployment is that it is important to have what’s called a “longitudinal” data source to draw from, which means data that follows individuals through time to measure what effects result from changes in their situations.

While the U.S. does have a few longitudinal data sources, they are generally limited in the amount of information they contain. Much of what is known comes from data from other countries, especially in regard to mental health and to more subjective measures like perceived well being.

Longitudinal data collection is more expensive and more time-consuming than normal survey studies, and while a few universities have the resources to conduct them, the responsibility generally falls to the government to provide the funding and support. Virick of the San Jose State University said that the recession should have served as a wake-up call to policy makers that this is an issue that demands attention.

“We haven’t had any kind of organized response to this,” she said.

According to Erdogan, the United States is paying much less attention to the issue than European countries. “In Europe, underemployment is treated as a social problem. We don’t even pay attention to it that much.”

Whose fault is it, really?

Few people would suggest that mass underemployment is somehow the “fault” of the people who are underemployed.

“Underemployment is now a structural feature of our society,” said Newman of Johns Hopkins. “Structural problems demand structural solutions.”

Nevertheless, several researchers said that, in the United States, there is a strong impulse for underemployed workers to blame themselves for their situation, which is the source of many of the negative mental health effects associated with underemployment.

“If people don’t understand that there is a way that the system has become rigged against them, they may start feeling like they’re to blame for their issues,” said Anderson of the University of South Australia.

Anderson said that appreciating the broader structures that created underemployment was an important part of a strategy to avoid falling into the trap of self-blame.

“I like to hope that we’re starting to see people realize that the ways the workplace has changed in the last few decades have not been positive for most workers, and to try to change that” she said.

Newman agreed. Seeking to address the systemic causes of problems “can be a very healthy coping strategy,” she said.

"Underemployment is now a structural feature of our society." Truly tragic. The result of the wicked trifecta of impediments to prosperity that have been the modern Fed, federal government, and American hiring paradigm.

Seth Mason, Charleston SC

The Student Debt Crisis: Meet The Monster

Washington has shown little concern about the destructive potential of its next economic monster, America's ballooning student debt burden. Although the Financial Crisis should have taught the feds a thing or two about the perils of indiscriminate lending, Uncle Sam continues to invigorate his latest Frankenstein by lending to nearly any aspiring student for nearly any degree program (continuing to drive-up the cost of tuition in the process). And he has a perverse incentive to continue his reckless lending policies: he's pocketing tens of billions of dollars annually from financially-strapped student loan holders.

But Washington better start considering the potential economic fury of its latest monster. Nearly half (41%) of student loan holders have been behind on their payments over the last 5 years, and, last year, a full 12% of borrowers were in outright default on their student loans. At the current rate of growth, the student loan default rate will eclipse the historic maximum default rate for home loans, 14%, by mid-2015.

The mortgage crisis, of course, put us in this terrible economic condition in the first place.

As a testament to the insufficiency of this seemingly-endless economic "recovery", the rate of default on student loans has grown steadily since the 2009 economic bottom, even as the default rates on other types of loans have begun to decline. (Article continues after chart.)

Here are some more unsettling facts about the student debt monster from Kyle McCarthy, contributor to the Huffington Post's college section:

Seven Million Defaulted:

Out of the nearly 40 million borrowers, about seven million have defaulted on these student debts. Translation: 7 million (or about 2 percent of the population of the United States) have had their credit trashed as a result of their student loans and can have 25 percent in penalties added onto their total student loan debts. To add insult to injury, about 60 percent of employers run credit checks on applicants before hiring or promoting, making it close to impossible for millions to get a higher paying job to actually repay these debts.

Average Student Debt Increases While Wages Decrease:

Since 1999, student debt has increased more than 500 percent. Unfortunately, average salaries for young people have not. In fact, since 2000, the average salary for young people has decreased by 10 percent. It's no wonder that we are seeing millennials delaying starting families, making car purchases and buying homes.

Delayed life milestones create opportunity costs for the economy.

According to the non-profit American Student Assistance, the origin of student borrowers' repayment difficulties has been the persistently-high unemployment and underemployment caused by the Fed and federal government's last monster, the housing bubble.

As a side note, a buddy of mine recently asked me why student loans aren't dischargeable by bankruptcy like other kinds of loans. I told him that it's because indebted students--unlike investment bankers--have little lobbying power in Dr. Frankenstein's laboratory on the Potomac.

Seth Mason, Charleston SC

College Value Alert: Many "G.E.D. Jobs" Pay More

Higher education in this country has become a questionable investment. Tuition inflation runs rampant, primarily because the federal government guarantees loans to nearly any aspiring student for nearly any degree program. Financial guru Karl Denninger, a frequent guest of ECOMINOES Radio, once told me that he paid for his college in the '70s by flipping pizzas. You absolutely can't do that today. (Nor could you, as a non-unionized blue collar worker with a stay-at-home wife, send 2 children to college like my grandfather did.)

Not only does college in today's America often yield a negative return on investment; it often carries large opportunity costs. Instead of rolling the dice on higher education, one could get on-the-job training and real life experience working one of the numerous well-paying skilled labor jobs. Many of these jobs don't even require a high school diploma. From Bloomberg:

Granted, there are some unquantifiable benefits of attending college. Higher education can be an enriching life experience. But so can careers that offer on-the-job training and real world experience. 

Seth Mason, Charleston SC

NSA, Section 215, And The Endangered 4th Amendment

In light of the continuously-developing NSA spying story, it's important to look at how substantial the government's legal justification is for its overreaching domestic surveillance policy and how said policy can impact the lives of ordinary citizens who supposedly have "nothing to hide".

First, let's look at government's legal argument. Earlier this month, The Guardian released the NSA order which compels Verizon to deliver customers' call information to the agency on an "ongoing, daily basis". Since that time, a plethora of additional information has come to light which demonstrates that the size and scope of federal domestic spying policy goes far beyond the NSA and Verizon. Nevertheless, the NSA Verizon order demonstrates how the government uses Section 215 of the Patriot Act to trounce the Constitution. Indeed, the order references the highly-controversial section in the very first line.

The ACLU has come to the conclusion that Section 215 of the Patriot Act is the specific legal order that authorizes the federal government to surveil the electronic communications of ordinary Americans. This section, according to the organization, enables the government to apply to the Foreign Intelligence Surveillance Court--which NPR's Dina Temple-Raston calls a domestic spying "rubber stamp"--to obtain legal clearance to circumvent 4th Amendment protections. In other words, the feds are granted permission to violate Americans' civil liberties as per the rulings of an autonomous, opaque court system that justified the existence of Section 215 in the first place! The section, according to the ACLU:

...authorizes the government to obtain "any tangible thing" relevant to a terrorism investigation, even if there is no showing that the "thing" pertains to suspected terrorists or terrorist activities. This provision is contrary to traditional notions of search and seizure, which require the government to show reasonable suspicion or probable cause before undertaking an investigation that infringes upon a person's privacy. 

"Any tangible thing" means ANY form of Americans' electronic communication, domestic or international. That should be extremely concerning to everyone, irrespective of ideology and if one has "nothing to hide".

So, why, then, should someone who supposedly has nothing to hide be concerned about Section 215 or federal domestic spying at all?

"Nothing to hide" is a myth that's built on certain false assumptions that are rarely--if ever-- considered when draconian surveillance measures are being pushed. Toby Stevens of Computer Weekly characterizes these assumptions as continuity, context, control, and consistency:

• Continuity: When a large data gathering exercise is started, the lifespan of the system will almost always be greater than that of its instigators. The most benign and caring government, authority or private company is inevitably subject to a change of management, and if the new executive does not share their moral stance, then data can be reused for very dangerous purposes. Those who provided data believing they had nothing to fear may find that data is misused in the future.

So, change of management--continuity--means that draconian laws can be abused by future regimes. I suspect that some enterprising bureaucrats already use sensitive data gathered in the name of the "War on Terror" to further political agendas. While such abuse may be isolated today, it could become widespread in the future.

• Context: Those who use the NTHNTF argument most commonly use it in the context of government collecting information about individuals. In the information age, the idea of a single entity holding that information does not hold true. The massive pressures to share information within and beyond government mean that information is constantly on the move. Sooner or later, information held by the government will be shared across the government and with the private sector.

Sensitive data gathered in the name of the "War on Terror" may remain within the Department of Homeland Security and the FBI today, but, eventually, they might be accessed by other government agencies or leak out to private sector organizations that have the ability to disrupt ordinary citizens' lives: credit bureaus, current or potential employers, etc.

• Control: Whether through a sharing agreement, aggregation of databases or simply leaving a memory stick in a pub car park, information is always shared sooner or later. Information security professionals always assume a system to be insecure, and plan for when - not if - data is lost or corrupted.

Sensitive data gathered in the name of the "War on Terror" could also be accessed by hackers, who could sell it or use it to intimidate or blackmail.

• Consistency: The most important issue is that of consistent use of accurate information across all authorities and all individuals.

The recent IRS scandal demonstrates that some enterprising bureaucrats can--and will--use sensitive data inconsistently based on political agenda. Again, while such abuse may be isolated today, it could become widespread in the future.

The government's legal justification for its overreaching domestic surveillance policy and how said policy can impact the lives of ordinary Americans are two issues of paramount importance in this period of U.S. history. We must demand that our elected officials rethink the existence of the FISA court, revise Section 215 of the Patriot Act, and expunge sensitive information gathered in the name of the "War on Terror".

Seth Mason, Charleston SC

No Recovery For "Breadwinner" Jobs

Former Reagan budget director David Stockman has been quite outspoken about the Federal Reserve's role in collapsing the economy. Much of his new book, The Great Deformation, explains how the Fed led us into this economic depression and how our central bank is now inflating an asset bubble that will eclipse the mid-2000s housing bubble. This new, larger bubble, Stockman says, will eventually burst and crash the economy once more.
 
In The Great Deformation, Stockman frequently notes that the post-Great Recession "recovery" has been nothing but rampant Fed-fueled asset speculation. In Chapter 31, the former budget director explains that, while the speculation has been a windfall for the wealthiest among us, it's done next to nothing to improve the atrocious job market:

After the US economy liquidated excess inventory and labor and hit its natural bottom in June 2009, it embarked upon a halting but wholly unnatural “recovery.” The artificial prolongation of the Bush tax cuts, the 2 percent payroll tax abatement and the spend-out of the Obama stimulus pilfered several trillions from future taxpayers in order to gift America’s present day “consumption units” with the wherewithal to buy more shoes and soda pop.

But there has been no recovery of the Main Street economy where it counts; that is, no revival of breadwinner jobs and earned incomes on the free market.

What we have once again is faux prosperity. In fact, the current Bernanke Bubble is an even sketchier version of the last one and consists essentially of the deliberate and relentless reflation of financial asset prices.

In practice, this amounts to a monetary version of “trickle down” economics. By September 2012, personal consumption expenditure (PCE) was up by $1.2 trillion from the prior peak, representing a modest 2.2 percent per year (0.6 percent after inflation) gain from the level of late 2007. Yet half of this gain—more than $600 billion—reflected the massive growth of government transfer payments, and much of the rebound which did occur in private consumption spending was concentrated in the top 10–20 percent of households. In short, the Fed’s financial repression policies enabled Uncle Sam to fund transfer payments for the bottom rungs of society at virtually no carry cost on the debt, while they juiced the top rungs with a wealth effects tonic that boosted spending at Nordstrom’s and Coach.

The Fed’s post-Lehman money printing spree has thus failed to revive Main Street, but it has ignited yet another round of rampant speculation in the risk asset classes. Accordingly, the net worth of the 1 percent is temporarily back to the pre-crisis status quo ante.

Conservatives often scoff at the phrase "1 percent". But it's absolutely true that Fed liquidity pumping has been great for the wealthiest Americans but bad for the rest of us. The reason is simple: 1) inflation--a natural byproduct of liquidity pumping--is good for most investment classes but bad for nearly every other sector of the economy, and 2) the wealthiest among us have the majority of their net worth in investments that benefit most from inflation: equities, commodities, and real estate.

Needless to say, successful speculation in the fast money complex is not a sign of honest economic recovery: it merely marks the prelude to another spectacular meltdown in the canyons of Wall Street next time the music stops.

In the following subsection, Stockman details the sunset of American "breadwinner" jobs:

The precarious foundation of the Bernanke Bubble is starkly evident in the internal composition of the jobs numbers. At the time the US economy peaked in December 2007, there were 71.8 million “breadwinner” jobs in construction, manufacturing, white-collar professions, government, and full-time private services. These jobs accounted for more than half of the nation’s 138 million total payroll and on average paid about $50,000 per year—just enough to support a family.

Breadwinner jobs also generated more than 65 percent of earned wage and salary income and are thus the foundation of the Main Street economy. Yet after a brutal 5.6 million loss of breadwinner jobs during the Great Recession, a startling fact stands out: less than 4 percent of that loss had been recovered after 40 months of so-called recovery.

The 3 million jobs recovered since the recession ended in June 2009, in fact, have been entirely concentrated in the two far more marginal categories that comprise the balance of the national payroll. More than half of the recovery (1.6 million jobs) occurred in what is essentially the “part-time economy.” It presently includes 36.4 million jobs in retail, hotels, restaurants, shoe-shine stands, and temporary help agencies where average annualized compensation was only $19,000. This vast swath of the jobs economy—27 percent of the total—is thus comprised of entry level, second earner, and episodic jobs that enable their holders to barely scrape by.

The April jobs report exemplifies the dearth of good jobs. While April is historically the strongest month for hiring, this April saw a woefully insufficient number of jobs created, more than half of the new jobs in either the hospitality industry (think: bartenders, waitresses, etc.) or temp jobs. Again, that was in the strongest month for hiring 5 years after Lehman.

The balance of the pick-up (1.1 million jobs) was in the HES Complex, which consists of 30.7 million jobs in health, education, and social services. Average compensation is slightly better at about $35,000 annually and this category has grown steadily for years. Its increasingly salient disability, however, is that it is almost entirely dependent on government spending and tax subsidies, and thus faces the headwind of the nation’s growing fiscal insolvency.

When viewed in this three category framework, the nation’s job picture reveals a lopsided aspect that thoroughly belies the headline claims of recovery. A healthy Main Street economy self-evidently depends upon growth in breadwinner jobs, but there has been none, even during the bubble years before the financial crisis. The Bureau of Labor Statistics (BLS) reported 71.8 million breadwinner jobs in January 2000, yet seven years later in December 2007—after the huge boom in housing, real estate, household consumption, and the stock market—the number was still exactly 71.8 million.

Stockman is saying what I've been saying all along: the economy hasn't been "right" since the Fed's tech bubble burst in the early 2000s. He's saying that all we've seen in the new millennium has been cycles of artificial booms and busts built on shaky fundamentals that have never allowed a full recovery of the job market. Stockman elaborates on the shaky fundamentals in the concluding paragraphs of the subsection:

The faux prosperity of the Fed’s bubble finance is thus starkly evident. This is the single most important metric of Main Street economic health, and not only had there been zero new breadwinner jobs on a peak-to-peak basis, but that alarming fact had been completely ignored by the smugly confident monetary politburo.

Alas, the latter was blithely tracking a feedback loop of its own making. Flooding Wall Street with easy money, it saw the stock averages soar and pronounced itself pleased with the resulting “wealth effects.” Turning the nation’s homes into debt-dispensing ATMs, it witnessed a household consumption spree and marveled that the “incoming” macroeconomic data was better than expected. That these deformations were mistaken for prosperity and sustainable economic growth gives witness to the everlasting folly of the monetary doctrines now in vogue in the Eccles Building.

To be sure, nominal GDP did grow by 40 percent, or about $4 trillion, between 2000 and 2007. Yet there should be no mystery as to how it happened. As has been noted, total debt outstanding grew by $20 trillion during that same period. The American economy was thus being pushed forward by a bow wave of debt, not pulled higher by rising productivity and earned income.

Indeed, the modest gain of 7.5 million jobs during those seven years reflected exactly this debt-driven dynamic and explains why none of these job gains were in the breadwinner categories. Instead, about 2.5 million were accounted for by the part-time economy jobs described above. On an income-equivalent basis these were actually “40 percent jobs” because they represented an average of twenty-five hours per week and paid $14 per hour, compared to a standard forty-hour work week and a national average wage rate of $22 per hour. Thus, spending their trillions of MEW windfalls at malls, bars, restaurants, vacation spots, and athletic clubs, homeowners and the prosperous classes, in effect, temporarily hired the renters and the increasing legions of marginal workers left behind.

Likewise, another 5 million jobs were generated in the HES (health, education, and social services) complex. Here the job count grew by 20 percent, but it was mainly due to the fact that the sector’s paymasters - government budgets and tax-preferred employer health plans - were temporarily flush.

However, these, too, were “debt-push” jobs that paid modest wages. While the steady 2.6 percent annual growth of HES jobs during the second Greenspan Bubble did flatter the monthly employment “print,” it was possible only so long as government and health plans could keep spending at rates far higher than the growth rate of the national economy.

Fed-fueled rampant asset speculation inflated the housing bubble, which burst and crashed the economy, making the prospect of securing a "breadwinner" job but a dream for many intelligent, educated, perfectly employable Americans. Now, the Fed is enabling what notable economist Nouriel Roubini is calling the "mother of all bubbles".

Seth Mason, Charleston SC

Lindsey Graham Is The Defense Industry's Man

South Carolina's senior senator, Lindsey Graham, loves the "War on Terror". He told Fox and Friends this morning that he's "glad" Verizon is turning over to the NSA phone records of average Americans:

I’m glad the NSA is trying to find out what the terrorists are up to overseas and in our country...I’m a Verizon customer. I don’t mind Verizon turning over records to the government if the government is going to make sure that they try to match up a known terrorist phone with somebody in the United States. I don’t think you’re talking to the terrorists. I know you’re not. I know I’m not. So we don’t have anything to worry about.

Senator Graham vehemently defends his favorite war. After learning that Rand Paul called the Verizon/NSA partnership a "an astounding assault on the Constitution", Senator Graham took to attacking libertarians:

Sen. Rand Paul, he's a libertarian, and in Rand Paul's world you have almost no defenses against terrorists...I see the threat to our nation differently.

Indeed he does. Graham continues to support nearly every federal "War on Terror" initiative--no matter how invasive--, even though the erosion of civil liberties has become a "hot topic" among conservatives. Perhaps one can better understand why he's such a strong advocate of controversial defense programs by looking at his top campaign contributors. From OpenSecrets:

4 of Graham's top 5 contributors from 2007 to 2012 have profited greatly from the senator's favorite war. SCANA is a major Department of Defense supplier. Nelson Mullins, et al. is a law firm that specializes in DoD procurement contracts. Motley Rice, LLC is a law firm that specializes in "War on Terror" litigation. And Boeing is one of the nation's largest DoD vendors.

Seth Mason, Charleston SC

Tremendous Opportunity For Libertarian Talk Radio

I previously noted that the demand for libertarian terrestrial talk radio is increasing, and the supply of libertarian hosts on terrestrial talk radio is far lower than demand. Today, I've come across additional data that suggest that libertarian talk radio has great potential.

Terrestrial music radio is hemorrhaging listeners, and many under-performing music stations are switching to the relatively-more popular news/talk format. In other words, the demand for news/talk programming is increasing.

While demand for news/talk programming is increasing, terrestrial news/talk radio as a whole, which is currently dominated by conservative hosts, is losing listeners. According to RadioInsights, more than half of news/talk stations lost market share in each of the last 3 years. News/talk listenership has been flat for years: the format has approximately the same number of listeners today as it had in 2007.

The conservative-dominated terrestrial news/talk format also has a less-than-optimal distribution of listeners by age group. According to Arbitron, listeners of the format are getting older, and the majority already age out of the key 25-54 demographic:

The majority of libertarians, on the other hand, are young--and therefore more valuable--to advertisers.
  
Libertarian talk has great potential in the online format as well as on terrestrial radio. While terrestrial radio is losing listeners, Internet radio is rapidly gaining listeners, and the number of listeners of online radio is expected to equal that of terrestrial radio in the next few years. The online talk radio format is better suited to libertarians than conservatives, as the former tend to be younger and more tech-savvy than the latter.

Seth Mason, Charleston SC

The American Hiring Paradigm Is Broken

Central banking has made a mess of the economy, and increasingly onerous jobs-killing federal legislation has impeded hiring and thus has impeded economic recovery. But the Fed and Washington aren't the only vectors of the nation's continued economic malaise. The American hiring paradigm is also to blame.

With few exceptions, hiring managers at mid to large-sized American organizations offer job seekers but one port-of-entry: buggy, unwieldy applicant tracking systems (AKA "talent management systems"), which pitiable job seekers must wrestle online. Under this paradigm, robots judge applicants based on experiential demands with little regard to the applicants' potential to add value to their organizations' bottom lines. Lou Adler, entrepreneur and best-selling author, summarized this disconnect in an article he recently published on LinkedIn:

"Successful candidate will develop a new approach for reducing water usage by 50%" is a lot better than saying “Must have 5-10 years of environmental engineering background including 3-5 years of wastewater management."

Correct. But ATSes can't judge applicants based on successes. Clearly, organizational leaders should spearhead searches for candidates in their fields of expertise. Tragically, a great many talented candidates are stonewalled before they even get a chance to make their cases to a decision maker. Consider the following anecdote from Yahoo! Finance:

I'm a technical Product Manager. I've launched about ten big products. This is all I do. I work for technology companies. I got laid off in September, and I applied for a job online yesterday afternoon.

Last night at ten p.m. I received an auto-responder message back from the employer. It said that I wasn't chosen to move forward for the product manager job I had applied for. I was surprised, but those things happen. The auto-responder message said that I'd be notified of any other job openings that are a closer fit to my background.

I got another auto-responder message from the same company early this morning. They sent me another job opening. Guess what kind of job it was? It was a food service job in their company lunchroom.

The RECRUITER who had the product manager opening on her desk told me why I'd been rejected by the company's careers website. She told me that she gets so many unsuitable resumes through the company careers portal that she set the parameters to Reject All Resumes. Every single person who applies through the site the way I did gets a no-thanks message. Because the company's job-posting system asks for a default -- they require the recruiter to direct those rejected applicants somewhere, that is -- she set it up to send every rejected person all the new job openings that are posted for any job in the company. That's why I got the food service job.

Instead of forcing talented applicants to contend with ridiculousness such as this, hiring managers should take the lead in determining which applicants could best add value to their organizations. Robots can never replace the judgement of organizational leaders, no matter how "well-programmed" they are. Not surprisingly, the current ATS-centric American hiring paradigm has a failure rate of up to 50%, according to ERE Recruiting Intelligence, a prominent HR industry analyst.

April Employment Increase: Nothing But Menial Jobs

Readers of this blog know that Washington's employment data should be scrutinized. The Bureau of Labor Statistics is notorious for crushing down the labor force participation rate in order to make it appear that the unemployment rate is falling, and the agency's survey methodology is fundamentally-flawed, according to a former BLS leader. But, even if you take the government's word on unemployment as the "Gospel truth", a 50,000-150,000 monthly net increase in jobs--as Uncle Sam has been reporting for years--is woefully insufficient. At this rate of increase--with the unemployment rate dropping by a tenth of a percent each month--, it would take until 2017 to get back to the lower end of the "full employment" range. And that's IF the economy has no additional difficulties and WITH the help of a crushed-down labor participation rate. And, that's if you consider 5% unemployment and 10% underemployment "full employment".

But the raw jobs numbers don't tell the full story anyway. What does it matter if 50,000 or 150,000 or even 1,000,000 jobs are created each month if the jobs are menial in nature? And make no mistake: we've been seeing for years little but a monthly increase in low-wage, low-skill jobs. The April jobs report showed more of the same.

The overwhelming majority of jobs created last month were in leisure and hospitality (waiters, bartenders, hotel employees, etc.) and temp jobs. Industries that actually produce something, whether it be information or physical goods, actually lost jobs:

There was a net decrease in jobs for Americans of prime working age, i.e. there was a net decrease in "career" jobs. But there was a net increase in jobs for Americans of prime restaurant worker and Walmart greeter ages:

In fact, the number of jobs for Americans of prime working age (i.e. career age) has been flat since the economy collapsed:

Seth Mason, Charleston SC

The New, Bigger Housing Bubble In 4 Charts

Federal Reserve Chairman Ben Bernanke's "solution" to the country's economic woes, a new, even larger asset bubble, is becoming evident in several sectors of the economy, from equities to real estate. The following charts suggest that the bubble the Fed is inflating in the housing market will eclipse the last one, which was big enough to plunge the country into an economic depression when it burst.

First, the year-over-year increase in home prices since 2008 has been steeper than the YoY during the last housing bubble:

Second, the inversely proportional decrease in mortgage standards and increase in demand for mortgages has been starker than it was during the last bubble:

Third, apartment and condo starts have been skyrocketing at a rate far eclipsing that of the last bubble:

Fourth, investors are throwing cheap, Fed-provided money at housing at a rate far exceeding that of the last bubble:

Libertarian Talk Radio: It's A Matter Of Differentiation

I recently wrote about how libertarianism is growing and how conservatives, terrestrial talk radio's bread-and-butter demographic, are becoming more libertarian. In the article, I argued that there's a growing under-served demand for libertarian terrestrial talk radio. Today, I'd like to add to that argument from another perspective, that of differentiation.

Fox News, the only television news provider gearing to those on the right side of the political spectrum, enjoys strong ratings for the simple fact that it's the only conservative news alternative. (Fox Business is a business news--not "news news" network.) As you can see in the following graphic, most television news clusters around the left side of the political spectrum. Fox News, on the other hand, enjoys a monopoly on the right.

The same principal applies to political talk show hosts on terrestrial radio. As you can see in this graphic, most hosts cluster around the social conservative/neoconservative side of the conservative political spectrum. There's only one prominent host on the libertarian side of the spectrum, Dennis Miller, and his show doesn't get particularly good ratings.

The previous 2 graphics, combined with the changing political landscape on the Right, suggest that it's time for program directors to put more libertarians on the air.

Seth Mason, Charleston SC

Libertarian Talk Radio: If You Build It, Ratings Will Come

Terrestrial talk radio's key demographic, conservatives, are becoming more libertarian. However, there are few libertarian hosts in terrestrial talk radio. Program directors would be wise to air more of them.

According to Gallup, an increasing number of Americans describe themselves as "conservative", terrestrial talk radio's bread-and-butter political ideology:

However, a decreasing number of conservatives identify with "traditional values":

On the other hand, also according to Gallup, an increasing number of Americans consider themselves "libertarian":

And, today, nearly 60% of Americans share some libertarian views:

However, there are only a handful of libertarian hosts in terrestrial talk radio. This suggests there's a growing under-served demand.

Fed Liquidity Pumping Good For Wealthy, Bad For Rest

The premise is simple: the wealthy have a disproportionate amount of their net worth in investments, and the Fed has been propping up the stock market and inflating asset bubbles. Therefore, the price inflation-driven economic recovery has been robust for the richest 7% and weak to non-existent for everyone else. And never forget, wealth and exposure to inflation are inversely-proportional. In other words, those with less money spend a greater percentage of their incomes on essentials--food, energy, etc.--whose prices have been rising as a result of the asset bubble. From Pew Research:

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.

Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

From the end of the recession in 2009 through 2011 (the last year for which Census Bureau wealth data are available), the 8 million households in the U.S. with a net worth above $836,033 saw their aggregate wealth rise by an estimated $5.6 trillion, while the 111 million households with a net worth at or below that level saw their aggregate wealth decline by an estimated $0.6 trillion.¹

Because of these differences, wealth inequality increased during the first two years of the recovery. The upper 7% of households saw their aggregate share of the nation’s overall household wealth pie rise to 63% in 2011, up from 56% in 2009. On an individual household basis, the mean wealth of households in this more affluent group was almost 24 times that of those in the less affluent group in 2011. At the start of the recovery in 2009, that ratio had been less than 18-to-1.

(The focus in this report on the upper 7% of households rather than some other share of high wealth households reflects the limits of the tabulations published by the Census Bureau. The boundaries of its wealth categories dictated the split of households analyzed in this report.)

Overall, the wealth of America’s households rose by $5 trillion, or 14%, during this period, from $35.2 trillion in 2009 to $40.2 trillion in 2011.² Household wealth is the sum of all assets, such as a home, car, real property, a 401(k), stocks and other financial holdings, minus the sum of all debts, such as a mortgage, car loan, credit card debt and student loans.

During the period under study, the S&P 500 rose by 34% (and has since risen by an additional 26%), while the S&P/Case-Shiller home price index fell by 5%, continuing a steep slide that began with the crash of the housing market in 2006. (Housing prices have slowly started to rebound in the past year but remain 29% below their 2006 peak.)

The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65% of their wealth comes from financial holdings, such as stocks, bonds and 401(k) accounts, and 17% comes from their home. Among households with net worth of less than $500,000, just 33% of their wealth comes from financial assets and 50% comes from their home.



The Census Bureau data also indicate that among less affluent households, fewer directly owned stocks and mutual fund shares in 2011 (13%) than in 2009 (16%), meaning a smaller share enjoyed the fruits of the stock market rally. Likewise, fewer had individual retirement accounts (IRAs) or Keogh accounts (22% in 2011 versus 24% in 2009) and the same share had 401(k) or Thrift Savings Plan accounts (39% in both years). Among affluent households, there was also a decline in the share directly owning stock and mutual fund shares during this period (59% in 2011 versus 62% in 2009), but a slight increase in the share with IRAs or Keogh accounts (70% versus 68%) and a larger increase in the share with 401(k) or Thrift Savings Plan accounts (65% versus 61%).

Overall, net worth per household in the U.S. in 2011 made up nearly all the ground it had lost since 2005—$338,950 versus $340,252 in 2005, the latest pre-recession data published by the Census Bureau. (Total household wealth doubtless rose for a period after 2005 before falling precipitously during the Great Recession of 2007-2009 and rebounding since then. However, no household wealth data are available from the Census Bureau for the years between 2005 and 2009, so it is not possible to pinpoint when, or at what level, the peak in wealth per household occurred.)

Looking at the period from 2005 to 2009, Census Bureau data show that mean net worth declined by 12% for households as a whole but remained unchanged for households with a net worth of $500,000 and over. Households in that top wealth category had a mean of $1,590,075 in wealth in 2005, $1,585,441 in 2009 and $1,920,956 in 2011.³

Seth Mason, Charleston SC

Economy Creating Lost Generation

I don't seek out bad economic data; bad economic data find me. I gather data from numerous reputable sources, and, sometimes, reputable sources send them to me. One of these reputable sources is John Lounsbury, Founding Partner and Managing Editor at Econintersect LLC. This morning, John sent me the following article about the lost generation that the current economic depression has been creating:

The inordinate growth of student loans – and its effect on the economy – is killing consumption (autos) and the housing sector.  This is no short term dynamic, but will effect the economy for decades.

The USA is a consumer driven economy.  A study released this week authored by Meta Brown and Sydnee Caldwell stated:

As a result of tighter underwriting standards, higher delinquency rates, and lower credit scores, consumers with educational debt may have more limited access to housing and auto debt and, as a result, more limited options in the housing and vehicle markets, despite their comparatively high earning potential.

Both these factors—lowered expectations of future earnings and more limited access to credit—may have broad implications for the ongoing recovery of the housing and vehicle markets, and of U.S. consumer spending more generally. While highly skilled young workers have traditionally provided a vital influx of new, affluent consumers to U.S. housing and auto markets, unprecedented student debt may dampen their influence in today’s marketplace.

Some believe the lack of jobs is causing a higher than normal attendance in schools – but historical data from the BLS shows attendance appears moderating.

And there seems little correlation between the ability of the young to get jobs and enrollment in colleges / universities.

The student loan growth phenomenon seems to be directly related to cost inflation of education outstripping the general rate of inflation by significant multiples.  The following table is from a study by Jordan Bowersox and Jonathan Breazeale.

Yearly Cost of Colleges / Universities

This study appears to correlate well with the associated BLS education cost index.

It is interesting to this author that economists talk about the economic drag by the baby boomers on the economy, but yet ignore the built in drag of higher education on the economy.  The young are historically higher consumers than the old – yet the cost of education is weakening the ability of the young to consume.

It's important to note that ever-expensive higher education not leading to good-paying jobs not only prevents younger people from contributing to the economy as consumers; it impedes their ability to achieve life milestones that contribute to the economy: getting married, having children, etc.

Seth Mason, Charleston SC