From: The New York Times <nytdirect@nytimes.com>
Date: Sun, Feb 13, 2022, 7:43 AM
Subject: The Morning: The opioid crisis
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Sunday, February 13, 2022
Fwd: The Morning: The opioid crisis
From: The New York Times <nytdirect@nytimes.com>
Date: Sun, Feb 13, 2022, 7:43 AM
Subject: The Morning: The opioid crisis
To: <jcase4218@gmail.com>
Friday, February 11, 2022
Paul Krugman: "Folk Economics"
A few days ago, Tressie McMillan Cottom published an insightful article in The Times about the power of "folk economics" — which she defined as "the very human impulse to describe complex economic processes in lay terms." Her subject was the widespread enthusiasm for cryptocurrency, but her article sent me down memory lane, recalling the role folk economics has played in past policy debates.
Just to be clear, the "folk" who hold plausible-sounding but wrongheaded views of the economy needn't be members of the working class. They can be, and often are, members of the elite: plutocrats, powerful politicians and influential pundits. In fact, elite embrace of folk economics was a large part of what went wrong in the global response to the 2008 financial crisis. And it's starting to have a destructive effect now.
So, memories: When the 2008 financial crisis struck, economists, believe it or not, had an intellectual framework ready to go, pretty much custom-made for that situation — because it was devised in the 1930s during the Great Depression. The "IS-LM model" was introduced by the British economist John Hicks in 1937 as an attempt to encapsulate the insights of John Maynard Keynes, who had published "The General Theory of Employment, Interest and Money" the previous year. There's endless argument about whether Hicks was true to Keynes's vision — which is irrelevant for my discussion now — because Hicks is what economists brought to the table in 2008.
According to IS-LM (which stands for investment-savings, liquidity-money), public policy normally has two tools it can use to fight an economic slump. Loosely speaking, the Fed can print more money to drive interest rates down, or the Treasury can engage in deficit spending to pump up demand. After a financial crisis, however, the economy gets so depressed that monetary policy hits a limit; interest rates can't go below zero. So, large-scale deficit spending is the appropriate and necessary response.
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But folk economics sees deficits as irresponsible and dangerous; if anything, many people have the instinctive feeling that governments should cut back in hard times, not spend more. And this instinct had a big, adverse effect on policy. True, the Obama administration did respond to the slump with fiscal stimulus, but it was underpowered in part because of unwarranted deficit fears. (This isn't hindsight, and I was tearing my hair out at the time.) And by 2010, influential opinion — the opinion of what I used to call Very Serious People — had shifted around to the view that debt, not mass unemployment, was the most important problem facing the United States and other wealthy nations.
This wasn't what conventional economics said, and there was no hint that investors were losing faith in U.S. debt. But deficit scaremongering came to dominate political and media discussions, and governments turned to austerity policies that slowed recovery from the Great Recession.
Did economists unanimously oppose austerity? Hey, have economists ever unanimously agreed on anything? (There's less disagreement within the profession than legend has it, but still.) Indeed, a handful of prominent economists managed to come up with arguments that seemed to support the folk theory that deficits are always bad — an episode that I always think of when I see demands for new economic thinking. You see, during the last crisis the new ideas that actually influenced policy did indeed go against conventional economics — but in ways that supported, rather than challenged, the prejudices of the powerful.
Two papers in particular had a malign influence. One, by Alberto Alesina and Silvia Ardagna, asserted that cutting spending in a depressed economy was actually expansionary, because it would increase confidence. The other, by Carmen Reinhart and Kenneth Rogoff, declared that government debt had big, negative effects on growth when it crossed a critical threshold, around 90 percent of gross domestic product.
Both papers were widely criticized by other economists as soon as they were circulated, and in fairly short order their empirical claims were pretty much demolished by other researchers. But their arguments were eagerly adopted by influential people who liked their message, and a funny thing happened to the discourse in the media: To a large extent, these speculative (and wrong) arguments for austerity were both accepted as fact and presented as the consensus of the economics profession. Back in 2013, I cited a Washington Post editorial that declared "economists" believed that terrible things happen when debt exceeds 90 percent of G.D.P., when in fact this was very much not what the rest of us were saying.
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And I've been hearing echoes of that misrepresentation in some current debates, as people advocating new economic ideas — or at least what they claim are new ideas — assert that conventional economic thinking was responsible for austerity policies after 2008. Um, no: Fiscal austerity was exactly what conventional economics told us not to do in a depressed economy, and it was only the peddlers of unorthodox economics who gave austerity policies intellectual cover.
Which brings us to our current moment. This time around, fiscal stimulus wasn't underpowered, and there's definitely a case to be made that excessive deficit spending in 2021 was a factor in rising inflation (although we can argue about how big a factor, since inflation is also up a lot in countries that didn't engage in much stimulus). But now what?
As I said, the IS-LM model tells us that policymakers have two tools for managing the overall level of demand: fiscal and monetary policy. When you're trying to boost a deeply depressed economy, monetary policy becomes unavailable, because you can't push interest rates below zero. But if you're trying to cool off an overheated economy, monetary policy is available: Interest rates can't go down, but they can go up.
And because changing monetary policy is easy, conventional analysis says that monetary tightening is the way to go. Indeed, the Fed has made it clear that it intends to do just that. Getting the pace and size of rate hikes right will be tricky, but conceptually it isn't hard.
But the folk economics position — where by "folk," I mainly mean Senator Joe Manchin — is that excessive government spending caused inflation, so now we have to call off any new spending, even if it's more or less paid for with new revenue.
Well, that's not what conventional economics says; on the contrary, the standard model says that the Fed can handle this while we deal with other priorities.
And while conventional economics isn't always right, anyone attacking it now should ask themselves whether they're doing so in a constructive way. In particular, I'm seeing a lot of denigration of monetary policy from people who don't seem to realize that they are, de facto, giving aid and comfort to politicians who don't want to invest in America's children and the fight against climate change.
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Tuesday, February 8, 2022
Matthew Yglesias: Breakdown of the Jan Jobs Report
The Biden administration spent a couple of weeks lowering expectations in advance of last week's Employment Situation Report from the Bureau of Labor Statistics, warning that after a year of mostly good news on job creation, we would likely see a loss of jobs in January due to Omicron. In these reports, an entire month is represented by a "reference week," and the survey asks respondents very literally if they worked that week. A "no, I didn't" can be the result of layoffs or the inability of a previously non-employed person to find a job. But not going to work due to a snowstorm, a bad hurricane, or a strike also count as not working, so temporary, non-macroeconomic events like a May 2016 strike at Verizon or the 2012 superstorm Sandy sometimes have a large impact on jobs numbers. Even among those who were not gravely ill, Omicron seems to have made a large number of people too sick to come to work for at least a few days in January. Airlines canceled many flights due to shortages of available crews. Some restaurants in my neighborhood had to close or temporarily switch to takeout-only. We saw disrupted deliveries to grocery stores around the country. It seemed like a lot of people missed work at least temporarily, and the January report was expected to reflect this. But then the actual numbers came in:
So what happened? One natural interpretation of these numbers is that the fears of an Omicron impact on the economy were wrong. But this is incorrect. What actually happened is that Omicron had a large negative influence on the economy in January, but the January jobs report included good news about prior months. These revisions not only added to our estimate of how robust the recovery was across 2021, but they also gave us a somewhat different impression of its shape. Altogether, they tell a tale of an economy in which both the virus itself and virus-related fears remain a, if not the, major constraint on growth. January jobs reports are oddToday's post relies largely on the work of two other excellent Substackers. Joey Politano and Matt Klein have both done fantastic analyses of this report, and I'd encourage anyone who's consistently interested in labor market data to subscribe to their 'stacks. I'm going to offer a somewhat less technical and somewhat more opinionated account of what happened, but all credit to the two of them for digging into the report to explain what really happened. It's helpful to know a little about how the monthly jobs report comes together. On the most basic level, it's a combination of two surveys:
The establishment survey is generally considered more accurate and is the canonical source of information for the questions that it answers, but to understand the labor market, we also need information that doesn't show up in the establishment survey. Calculating the unemployment rate or more a sophisticated measure like the employment-population ratio, for example, requires knowing how many non-employed people say they're looking for work. Talking to employers doesn't tell you that, so we also need the household survey. But surveys rely on statistical samples of the population. To go from survey data to a point estimate about the level of employment, you need to make some background assumptions about the population you are surveying. Each month's report is revised the next month and then revised a second time as those assumptions are updated. There is also a seasonal adjustment that is applied to each report to try to extract the macroeconomic signal from the underlying noise. On top of this, January happens to be the month when the BLS does an annual update of some of its models. As part of this process, they use administrative data from the Unemployment Insurance system to check to see whether their survey-based estimates from a few months ago were accurate. They also use updated census data to change their estimate of how many people there are or what age they are. With updated data, they're able to generate new and better estimates. The January jobs gains came entirely from these changes. Population revisions create tons of jobs in JanuaryNear the end of the report, the BLS explains that with new Census data, they now think there are more people in the country but fewer old people than they previously believed. This increases the size of the labor force by a lot, raising the employment-population ratio. They also specifically say, "Data users are cautioned that these annual population adjustments can affect the comparability of household data series over time." But when we talk about job growth, we are specifically talking about comparisons over time. If you scroll down further to Table C, they show how the altered population estimates change the reported month-of-month change. And it says that if you apply the new population estimate to December 2021, you would have seen a loss of jobs between December 2021 and January 2022. The growth of jobs is purely a reflection of the changed population estimate.
That doesn't mean the jobs aren't real. But they are jobs we had all along. Using consistent household survey data, employment fell in January. And not only did it fall, but it fell for precisely the reason the Biden administration was worried it would fall: lots of people missed work because they were sick.
The economy is a complicated chain of dependencies. Robust labor demand is good for workers, but constraining labor supply is bad, so while some people missed work because they were sick, other people who weren't necessarily sick missed work due to temporary closures induced by other people being sick.
Population estimates don't impact the establishment survey, which did show strong job growth, particularly in the revisions to the November and December numbers. But what normally happens during a period of fast job growth (and certainly what happened consistently in 2021) is that the establishment survey misses a bunch of jobs early on that show up in the household survey. They're then discovered in revisions. We also need to note another specific piece of January weirdness. Normally a lot of companies add extra staff in the lead-up to Christmas, then lay them off in January. The unadjusted data shows a catastrophic recession every January, but the seasonal adjustment algorithm makes it go away. Every 12 months there's a sharp downward jag in employment, and every January is the worst employment month of the year. Seasonal adjustment takes a January that was better than the average January and calls it job growth.
Now to be clear, seasonal adjustment isn't some kind of scam or trick. We want to know how the labor market is doing. And what happens in a strong labor market is you see a below-average number of January layoffs. The official data is telling us what we wanted to know — demand for workers remained robust in January 2022. But in terms of "labor market data vs. your lying eyes," both surveys are saying the same thing, which is that the economy hit January 2022 with a lot of momentum but there really was an Omicron disruption. Beyond that, though, the revisions also show us that the pandemic weighed harder than we knew on the labor market all year. Restaurants are in worse shape than we knewThe pandemic pretty clearly boosted employment in warehouse and logistics work while hurting employment in hotels, bars, and restaurants. I think if you spent all of last year ignoring labor market data, that's what you would have guessed — leisure and hospitality are still pretty depressed, while transportation and warehousing are booming. That is broadly what the data showed, with a fair amount of nuance. But as Klein's chart here shows, revisions basically eliminated a lot of that nuance; there really was a huge structural shift in demand for workers out of leisure and hospitality and into warehouses. In particular, a collapse in film production and air transportation now seem to have not happened,¹ and the warehouse surge was just enormous.
This doesn't radically alter our understanding of the overall state of the labor market, but it means that the pandemic was weighing more heavily on the economy than the non-revised data showed. So what's up with restaurants? Well, for eight states (and Ontario), OpenTable can give us information on restaurant bookings now compared to two years ago. And it showed January restaurant demand staying very strong in Florida and kind of strong in Texas and California, but really hurting in New York, Illinois, Pennsylvania, and Massachusetts.
This seems like a mix of blue/red effects and warm/cold effects. We've had unusually harsh weather this January in D.C., and I have seen people braving the outdoor dining scene in freezing temperatures. Common sense is that if we had California's weather, all those outdoor dining structures would've been packed. But a lot of Covid-cautious people stayed home rather than shiver or brave Omicron indoors. And I think this is going to be a tough policy nut to crack. The restaurants aren't closed in blue America — the cautious people are avoiding them either altogether or during waves. And eating out in restaurants, even though it's something that I personally enjoy a lot, is an extremely discretionary activity. It's not like skipping doctor's appointments or taking your kid out of school. If you don't want to go out to dinner except when the weather is good, you can live that way basically indefinitely. That being said, as I wrote in my piece on normalcy, I do think Democratic policymakers should consider the interplay between school quarantine rules and other behavior. Saying a kid needs to quarantine for at least 10 days if he gets Covid-19 rather than applying the normal "don't come to school if you feel sick" rule significantly raises the stakes around the virus beyond its actual health impact on children. One point of view is that inducing fully vaccinated families to be more cautious in their behavior is a benefit of these quarantine rules because caution per se is a good idea. But from an economic point of view, it's counterproductive, and it would be helpful to nudge people into dining out if they can. Good short-term newsMy bottom line on all of this is that a correct understanding of the January jobs report should make you more optimistic about the short-term. There really was a significant Omicron effect on the economy in January, but we can expect that to taper in February. That will be a nice supply-side boost to the economy. And since restaurants in the northeast appear to be a seriously depressed sector, reduced pandemic concerns in February and then better weather come springtime should generate a further economic tailwind. But beyond the big, obvious questions about inflation, the Fed, the stock market, energy prices, etc., I wonder to an extent how robust American society will prove to be against future waves of the virus. The availability of vaccines and boosters and the accumulated antibodies from prior infections all mean that the virus is becoming less deadly over time. But vaccine protection does wane, the virus seems to keep evolving, and I don't think we'll be able to say this is "over" any time soon. So I think the Biden administration needs to ponder, not just as a matter of policy but as a matter of rhetoric and signaling, what outcome they are looking for. Unvaccinated people getting vaccinated is clearly good. People getting boosters as needed is clearly good. But if boosted people refrain from travel and indoor dining during Covid-19 waves, is that good? It strikes me as a large economic burden for a minimal public health gain, and among a population that is much more likely to be persuadable by the Biden administration than the hard-core Covid-19 denialists. As Omicron wanes, it'll be easy for the administration to do some cheerleading. But while there's no guarantee there will be another severe wave, there's a very strong possibility that there will be, and they ought to make a plan for it. Do they want to take a Fauci-led approach that emphasizes the virtue of precaution or do they prefer an economy-focused approach that emphasizes building confidence and the virtues of normalcy? Right now, I think they'd be likely to default toward the former. But they ought to be taking advantage of the opportunity to build up national stockpiles of tests and Paxlovid and preparing a message of "it's good and appropriate to keep traveling and dining with friends and family and living life" because the cost to the economy of doing otherwise is quite real. 1 My best guess is that the rise of streaming services is changing who is employing people in film production just as the shift from business to leisure demand is changing where air transportation workers are. This is the kind of thing you need the administrative data to catch. |
Monday, February 7, 2022
Ezra Klein Show: How Bizarre the Supreme Court Is
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"Getting race wrong early has led courts to get everything else wrong since," writes Jamal Greene. But he probably doesn't mean what you think he means.
Greene is a professor at Columbia Law School, and his book "How Rights Went Wrong" is filled with examples of just how bizarre American Supreme Court outcomes have become. An information processing company claims the right to sell its patients' data to drug companies — it wins. A group of San Antonio parents whose children attend a school with no air-conditioning, uncertified teachers and a falling apart school building sue for the right to an equal education — they lose. A man from Long Island claims the right to use his homemade nunchucks to teach the "Shafan Ha Lavan" karate style, which he made up, to his children — he wins.
Greene's argument is that in America, for specific reasons rooted in our ugly past, the way we think about rights has gone terribly awry. We don't do constitutional law the way other countries do it. Rather, we recognize too few rights, and we protect them too strongly. That's created a race to get everything ruled as a right, because once it's a right, it's unassailable. And that's made the stakes of our constitutional conflicts too high. "If only one side can win, it might as well be mine," Greene writes. "Conflict over rights can encourage us to take aim at our political opponents instead of speaking to them. And we shoot to kill."
[You can listen to this episode of "The Ezra Klein Show" on Apple, Spotify, Google or wherever you get your podcasts.]
It's a grim diagnosis. But, for Greene, it's a hopeful one, too. Because it doesn't have to be this way. Supreme Court decisions don't have to feel so existential. Rights like food and shelter and education need not be wholly ignored by the courts. Other countries do things differently, and so can we.
This is a crucial moment for the court. Stephen Breyer is retiring. And in this term alone, the 6-3 conservative court is expected to hand down crucial decisions on some of the most divisive issues in American life: abortion, affirmative action, guns. So this is, in part, a conversation about the court we have and the decisions it is likely to make. But it's also about what a radically different court system could look like.
We discuss the Supreme Court's recent decisions on vaccine mandates, why Greene thinks judicial decision-making is closer to punditry than constitutional interpretation, the stark differences in how the German and American Supreme Courts handled the issue of abortion, Greene's case for appointing nearly 200 justices to the U.S. Supreme Court, why we even have courts in the first place and much more.
You can listen to our whole conversation by following "The Ezra Klein Show" on Apple, Spotify, Google or wherever you get your podcasts. View a list of book recommendations from our guests here.
(A full transcript of the episode is available here.)
I
"The Ezra Klein Show" is produced by Annie Galvin, Jeff Geld and Rogé Karma; fact-checking by Michelle Harris and Kristina Samulewski; original music by Isaac Jones; mixing by Jeff Geld; audience strategy by Shannon Busta. Our executive producer is Irene Noguchi. Special thanks to Kristin Lin.
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John Case
Harpers Ferry, WV
Enlighten Radio
Socialist Economics
Friday, February 4, 2022
Bloomberg: America Is Facing a Great Talent Recession
America Is Facing a Great Talent Recession
If the U.S. is to stand up to a resurgent China, it needs to think as hard about finding top talent as it does about promoting equity.
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Another monthly jobs report finds employers across the U.S. still crying out in vain for workers. Goods are undelivered for want of truckers. Code is unwritten for want of coders. Hotel beds are unmade for want of bed makers, with both Hilton Worldwide Holdings Inc. and Marriott International Inc. dispensing with automatic daily housekeeping at their nonluxury properties. Even the Internal Revenue Service's struggle to have enough people to deal with taxes on time is bordering on the apocalyptic.
The obvious reason for all of this, of course, is the coronavirus pandemic, supercharged by the omicron strain. Yet in many ways the impact of the Covid-19 crisis on the workforce, whether through workers calling in sick or choosing to drop out, merely highlights problems that were already in place or at least on the horizon. What has been eagerly dubbed the Great Resignation has hastened a demographic squeeze that was the inevitable consequence of the retirement of the baby boomers and the decline in the birthrate.
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The deeper problem is that the talent model that has served America so well, especially since World War II, is breaking down. Korn Ferry, a human resources consultancy, warns that "the United States faces one of the most alarming talent crunches of any country" in its 20-country study. The institutions, practices and mind-set that enabled the U.S. to create a workforce capable of powering the world's biggest and most dynamic economy are threatened by decay, disarray and disruption. And that is happening while China, a rival hostile power that poses an even greater challenge than the USSR once did, pulls ahead of it in world-defining technology. Once galvanized to action by the USSR's launch of Sputnik, the U.S. now witnesses the equivalent of the launch of a dozen Sputniks from Beijing every year, with no corresponding response.
In that respect, the Covid pandemic provides both a timely warning and a spur: a warning of what happens to a historically rumbustious economy when workers become scarce, and a spur to fixing America's long-term talent and labor-supply problems while there is still time.
The case for action is particularly urgent with top talent. After so many decades of economic and military supremacy, the U.S. has fallen into the habit of thinking that it has easy access to all the intellectual excellence it needs. The country's great universities will always be able to find geniuses hidden in the Great Plains or the swarming cities, the thinking goes, and if, by some chance, there aren't enough of those, then it can always raid the rest of the world. Yet today the demand for top talent in the corporate world and elsewhere is exploding just at a time when the supply is threatened, as the public school system allows exceptional talent to molder and other countries do more to retain their own exceptional performers. The country needs to add a new strand to educational reform: not just giving a helping hand to the poor or average performers but also identifying and nurturing the superstars who will help the U.S. beat back the challenge from Xi Jinping's China.
The American Talent Economy...
In 1958, historian David Potter published a book whose title captured the spirit of his country, at least as it appeared to the prosperous majority: "People of Plenty." The "plenty" refers not only to the U.S.'s relative material abundance compared with other countries but also to demographic and educational abundance: America has thrived in the long term because of a generous supply of both people and skills, delivered by a combination of high fertility and immigration. In the 19th century, the population multiplied by a factor of almost 15, to 76 million from 5.3 million. By 1890, some 80% of New York's citizens were immigrants or the children of immigrants, as were 87% of Chicago's.
Two Centuries of Immigration Flows
New legal permanent residents as a percentage of U.S. population
Sources: U.S. Department of Homeland Security; U.S. Census Bureau
Note: Fiscal years for immigration figures; 1976 includes the 15 months from July 1, 1975 to Sept. 30, 1976 because the end date of fiscal years changed from June 30 to Sept. 30. Share of population calculated using 10-year census figures.
There have been exceptions to this pattern. The 1924 Immigration Act choked off immigration for decades, and the Great Depression suppressed fertility sharply. But they have not been enough to block the swelling demographic tide. The postwar baby boom sent the population soaring once again. In the 1960s, women began to enter the workforce in large numbers. In the 1970s, high immigration resumed. From the 1980s onward, a succession of presidents celebrated demographic abundance.
The U.S. led the world in three great revolutions in education — creating a mass primary school system in the 19th century, and then mass high school and university systems in the 20th. The proportion of 17-year-olds who completed high school rose from 6.4% in 1900 to 77% in 1970. The proportion of high school graduates who enrolled in universities rose from 45% in 1960 to 63% in 2000. Claudia Goldin and Lawrence Katz of Harvard University estimate that the mean educational attainment of the U.S. workforce increased by 0.7 years per decade over the nine decades from 1915 to 2005, and that the improvement in educational attainment contributed almost 0.5 percentage points per year to the growth of productivity and output per person.
America was in a strong position in job-related skills, particularly in comparison with the world's former hegemonic power, Great Britain, where the educational world had an ingrained disdain for all things vocational. America's leadership in the creation of a mass educational system stood it in good stead for the industrialization of the late 19th century and the mass-production boom of the postwar era. America also had a due respect for practical education. Legislation in 1862 and 1890 established land-grant colleges, which were focused on science, engineering and agriculture. Technology- and science-centered institutions such as the Massachusetts Institute of Technology were designed to rival elite colleges such as Harvard in the practical world.
America's advantage was particularly marked in the realm of high-level cognitive skills, thanks to its elite universities and its ability to attract intellectual stars from across the world. It pulled off the remarkable (some thought impossible) feat of creating a mass university system while also perfecting the German model of the elite research university — creating what Clark Kerr, the president of the University of California from 1957 to 1967, called a multiversity. It also turned immigration policy into a tool of intellectual supremacy. Great universities like Berkeley attracted the world's best scholars through the sheer force of their excellence, while the federal government went out of its way to recruit scientists who could contribute to military research, even to the extent of getting its hands on former Nazi scientists after World War II.
… Hits the Buffers
The age of plenty is now drawing to a close.
The United States is belatedly following the rest of the rich world into a low-fertility future. The 2020 census showed that the previous decade had the slowest growth rate since the Great Depression. And the 2020s don't look as if they will be any better: The population grew by just 0.1% in 2021, the slowest rate since the nation's founding.
Slow Growth Ahead
Change in U.S. population ages 20 through 64
Sources: Calculations based on data from U.S. Bureau of Labor Statistics and U.S. Census Bureau
Note: Annual change is averaged over three years and are for the civilian noninstitutional population; projections are for total 20 to 64 population.
There is little sign that the waning of the pandemic will lead to a new age of optimism and surging fertility like in the 1950s. Younger Americans are opting not to have children, whether because the cost of child-raising is so prohibitive or because they are worried about climate change. Indeed, San Francisco, the capital of the new tech economy, reportedly has far more dogs than children.
Fewer Babies On the Way
Since 2010, the U.S. has lost its fertility advantage
Source: World Bank
Compounding the fertility problem is the withdrawal of so many working-age people from the workforce. America's total civilian labor force participation rate, which measures the share of working-age Americans who are either employed or looking for work, declined from 67% in 2000 to 62% in December 2021. By contrast, Britain's rate stands at 77% and Germany's at 76%. "We lag all of our peers in labor force participation now," Federal Reserve Chair Jerome Powell told a Senate banking committee meeting in July 2021, "which is not where we want to be as a nation."
Less of the U.S. Is Working Than Its Peers
Percentage of 25 to 64-year-olds employed or looking for work
Source: OECD
A key driver of this depressing trend is the choice by so many men to drop out of the labor force. In 1961, the labor force participation rate for prime-age men was 97%; today it is 88%, lower than during the Great Depression. In other words, 1 in 10 men ages 25 to 54 is neither employed nor looking for work.
A Whole Lot of Quitting Going On
Quits as a share of nonfarm payroll employment, seasonally adjusted
Source: U.S. Bureau of Labor Statistics
America's triumphant educational story has taken a darker turn. High school graduation rates have stagnated: America is the only member country of the Organization for Economic Cooperation and Development in which the graduation rate for those ages 24 to 34 is no higher than for those ages 55 to 64. The expansion of college education is hitting the twin buffers of debt and utility: Americans owe $1.75 trillion in student loan debt, spread out among some 43 million borrowers, yet according to the Federal Reserve Bank of New York, more than 40% of recent graduates are underemployed in jobs that don't require a college education. That's a lot of money to spend on creating Nietzsche-reading baristas.
The Rise and Plateauing of College Enrollment
Percentage of U.S. 18- to 24-year-olds enrolled in college or graduate school
Source: U.S. Census Bureau Current Population Survey
Note: As of October of each year.
America faces a growing problem with vocational education — that is, with the training of workers, particularly those who don't complete four-year college degrees, in job-related skills. People who leave school at 16 can't access a clear, well-designed training system as exists in many European countries. And if they are lucky enough to get a job, they don't have access to continuing education: Whereas you could once be promoted from the shop floor to, eventually, the executive suite, almost all the top jobs now go to people with college degrees. The result is a frustrating mess. More than 50 million Americans are stuck in low-wage jobs without much prospect of acquiring the skills that they need to climb out of poverty; at the same time, three-quarters of employers say that they can't hire people with the requisite skills. This is the equivalent of "the last mile" hurdle in supply chains where getting goods over the last mile of the journey is the most perilous and costly part of the whole undertaking.
At first glance, America retains a wide lead when it comes to top talent. Fourteen of the world's 20 top universities as measured by research output are located in the United States. More than half of U.S. billion-dollar startups were founded by people who were born abroad. Look more closely, however, and that lead is less solid. China is on track to produce twice as many Ph.D.s in STEM subjects as the U.S. by 2025. America's best universities are in danger of becoming finishing schools for the already privileged rather than efficient capacity-catching machines: Harvard, for example, has more students from the richest 10% of the population than it does from the bottom 90%. Only about 20% of undergraduate places are awarded on the basis of pure intellectual merit (the others are awarded on a preferential basis to athletes and children of alumni and big donors); the U.S. Supreme Court has just agreed to take up a case examining whether the university's admissions policies discriminate against talented Asians. Similar problems can be found across the Ivy League.
At the same time, the tradition of relying on foreign talent might turn out to be a bear trap. A growing proportion of foreign-born Ph.D.s now return to their native countries either to teach or, more frequently, to start their own companies. From 1978 to 2007, only 25% of the 1.2 million Chinese who went abroad to study returned; from 2007 to 2017, that proportion had risen to 80%.
America's hold over top talent is under threat at a time when top talent is growing ever more important. Silicon Valley has famously applied the "10X" rule to programmers: The best programmers are 10 times more productive than the merely average programmers. Now, with the advance of technology, the "10X" rule is turning into the "100X rule." Marc Andreessen, the venture capitalist and founder of Netscape, claims that "the gap between what a highly productive person can do and what an average person can do is getting bigger and bigger. Five great programmers can completely outperform 1,000 mediocre programmers."
How Do You Fix a Talent Shortage?
The most obvious way for companies to address the crisis is to raise their wages or improve their working conditions. Apple Inc. recently surprised some of its engineers with unscheduled bonuses ranging from $50,000 to $180,000, presumably to prevent them from jumping ship to talent-hungry Meta Platforms Inc. Intel Corp. is moving to a "hybrid first" work model in order to attract and retain employees. Amazon.com Inc. and Walmart Inc. are covering college tuition costs for some of their employees. That option is plainly available more to fat incumbents than to scrawny startups.
Boris Groysberg of Harvard Business School suggests some more subtle techniques that companies can use to find talent. They can look more closely at underrepresented groups such as women, ethnic minorities and people who live in out-of-the-way places. They can make more use of freelancers and part-time workers. They can rehire former workers who have moved on ("boomerangs"). They can recruit top graduates from state schools rather than scrambling over middle-ranking candidates from Ivy League schools: Domino's Pizza Inc. is hiring recent tech graduates from Michigan State University and Wayne State University to improve its technological capabilities. Companies can cut down on labor by installing automatic checkouts or redesigning work processes.
Groysberg points out that companies sabotage themselves by screening out potential recruits. The automated recruitment systems that most companies now use routinely reject candidates for formulaic reasons — for example, because they have committed a minor offense in the past or because they don't have exactly the right qualifications. They could be reset. Many companies unthinkingly demand a college education as a condition for employment despite the fact that more than 60% of the population doesn't have a degree, and that many degrees don't have any relevance to the job. Companies can "shift the supply curve dramatically," Groysberg says, if they simply "get rid of this filter."
Still, even the most enlightened companies can only do so much unless America addresses the structural problems that underlie the shortages. America needs to start thinking about "talent" differently, not as a problem that can be solved but as a supply chain that needs to be sustained. Just as car companies think in terms of years when planning their supply of car parts rather than rely on the spot market, so America needs to think in terms of decades when considering its supply of people. Companies also need to take a more constructive interest in public policy. Rather than trying to buy their way out of the crisis with higher wages, they will have to band together to address the systemic problem. Overcoming supply-chain disruptions will involve taking on both the Republican right and the Democratic left. It will also require reexamining some of the most ingrained assumptions of the broader American political tradition.
Expanding the Workforce
America's problem with its labor force participation rate starts with its failure to raise the retirement age. The average American can still retire at 65 despite the 19.5 years of life ahead of them, compared with 13.7 years after the retirement system was introduced in the 1930s. Swedes and Brits by contrast have to wait until they are 70.
When it comes to prime-age workers, two problems need to be addressed: drugs and disability. A 2018 paper published by the Federal Reserve Bank of Cleveland estimated that 44% of the decrease in labor force participation observed since 2001 could be ascribed to prescription opioids. The share of working-age Americans claiming Social Security Disability Insurance has roughly doubled in the past half-century, from 2.2% in 1977 to 4.3% last year. Local governments have a financial incentive to classify people as disabled because they then become the federal government's responsibility, even as disability programs provide scant training and work placement to people who are thus classified.
Improving Vocational Training
Some companies are responding to the shortage of job-related skills with innovative solutions. Capital One Financial Corp., in banking IT, and DaVita Inc., in kidney dialysis, are establishing internal boot camps where they pay their employees to learn for a month or so and then quickly move them to a job. Others are reengineering work to reduce the amount of human labor it requires, building up the army of checkout machines that beep at us in shops or the tablets in restaurants that allow us to order without seeing a member of staff. Revature LLC, based in Reston, Virginia, blends training and temporary staffing into an "earn and learn" business: It takes on recent college graduates, trains them in high-demand software skills, and then hires them out, for a consideration, to its corporate clients. Recruits have to work for Revature for two years, by which time they have plenty of experience to put on their resumes.
Still, why not address skills shortages earlier in the educational system so that students come out of school ready to work rather than having to spend four years in college only to find themselves unemployable? Why not reinvent America's great tradition of providing technical education at school rather than expecting everybody to go to college?
Over recent decades, America's training system has been sacrificed to the cult of the university. Schools have focused overwhelmingly on getting their students into college while empire-building universities have taken over as much of post-school education as they can, from nursing to journalism training. Professors are selected on the basis of their ability to advance research rather than transmit market-ready skills. This has reduced the number of educational on-ramps into the middle class into just one, marked "college" and with a hefty toll. It has simultaneously created a mismatch between the labor market and the educational system: However well designed to produce recruits to the learned professions, universities are ill-suited to training people in practical skills, particularly in fast-changing ones such as new programming languages.
Germany's system provides a successful alternative to the U.S.'s college-first model: technical schools that enjoy "parity of esteem" with academic schools, and apprenticeships that give young people a chance to earn a living (and avoid accumulating debt) while at the same time learning a useful trade. Far from ignoring general principles, Germany's vocational education provides a different way of teaching them, starting with the particular and working to the general — an approach that appeals to many practical-minded young people. And Germany's system does more to integrate non-academically-inclined young people into the labor market than one that confronts students with a choice between loading themselves down with student debt in return for a degree that might not render them employable, or being treated as a failure because they haven't been to college.
Can China Surpass the U.S.?
America is also confronting a problem of unprecedented historical scale: a fast-growing rival power forging ahead of it in critical sectors. In each of the foundational technologies of the 21st century — artificial intelligence, semiconductors, 5G wireless, quantum information science, biotechnology and green energy — China is either competitive with the U.S. or outstripping it. The National Science Foundation just confirmed that China has overtaken the U.S. in several key scientific metrics, including the overall number of papers published and patents awarded. China has five times more 5G base stations than the U.S., for example, and produces four times as many electric cars.
Where Have You Gone, Thomas Edison?
Percentage of international patents granted to inventors, by selected country
Source: National Science Board
What can be done about this challenge? Graham Allison, of Harvard University, argues that America needs a "million talents" program to match China's "thousand talents" program. In particular, the U.S. should make it easier for foreign students earning advanced degrees in STEM fields to get a green card.
The Backbone of U.S. Science
Share of full-time graduate students from overseas
Source: Insider Higher Ed
But it's not enough. Remaining dependent on foreign sources of talent at a time when other countries are offering better opportunities for their best talent — and as China threatens to turn off its talent spigot — is risky. The sine qua non for reviving America's economic and technological dynamism is improving its ability to generate more top-class talent internally: first by spotting talent that is currently lying fallow, then by cultivating it more carefully and, it is important to add, more lovingly. That will require reorienting its educational system away from equality of results and toward equality of opportunity.
America has always had two rival traditions when it comes to its foundational doctrine of equality of opportunity. The first emphasizes the opportunity part of the formula: Everybody should be provided with equal opportunities to reach their natural level, but those natural levels will be unequal. The Founding Fathers, particularly Thomas Jefferson and Alexander Hamilton, talked of "natural aristocrats." W.E.B. Du Bois, a founding father of the civil rights movement, wrote about "the talented tenth." Cold War warriors stressed the importance of recruiting talent to beat Russia in the intellectual arms race. In his address to Amherst College in October 1963, John F. Kennedy said that "I look forward to a world which is safe not only for democracy and diversity but also for personal distinction."
The second tradition puts its emphasis on the equality part of the formula. Populists from Andrew Jackson to William Jennings Bryan to Donald Trump have led rebellions against the fancy-pants "sneering elite." Horace Mann declared that common schools would be "the great equalizer of the conditions of men — the balance-wheel of the social machinery." Recent educational reform movements, most notably George W. Bush's No Child Left Behind, have all focused on improving the performance of the disadvantaged.
The American public education system has been profoundly shaped by the second tradition. Out of some 24,000 public high schools, only 165 admit students on the basis of academic promise rather than catchment area. Twenty states don't have a single such school. The country's only federal program for the gifted received all of $12 million in 2019, a tiny fraction of the money spent on the disadvantaged. The progressive wing of the Democratic Party, particularly the Black Lives Matter movement, is convinced that even this nugatory provision is too much. In one of his last acts as New York City mayor, Bill de Blasio tried to close down both the city's elite schools and its gifted education programs. The city governments of both San Francisco and Boston are trying to kill off their leading selective high schools (Lowell High School and Boston Latin School, respectively) by forcing them to replace entrance examinations with lotteries. Universities across the country are replacing standardized tests with "holistic assessments," which rely on things like teacher evaluations and extracurricular activities.
This one-size-fits-all tradition is actually not very good at promoting its stated aim of equality. Parents of the middle class and higher can do everything in their power to stretch their (sometimes talented) children to the maximum — algebra classes in the evening, academic summer camps, weekend violin lessons. Gifted children from more humble backgrounds can expect none of this and may be destined to turn into what the poet Thomas Gray called "mute inglorious Miltons" and economists now call "lost Einsteins." Though the one-size-fits-all approach might have been well-suited to the age of mass production and identikit managers, it is incompatible with one in which high ability drives a disproportionate amount of economic growth.
The U.S. responded to Sputnik's 1957 launch with a raft of initiatives from both the public and private sector to counter the USSR's success. Congress declared "an educational emergency." The federal government passed the National Defense Education Act to increase the supply of brainpower and established the National Aeronautics and Space Administration in 1958 to reassert America's mastery of the heavens. Funding for the National Science Foundation more than tripled. John Gardner, the president of the Carnegie Corporation of New York, noted in 1962 that gifted children who had once been treated with "an almost savage rejection" were now feted as agents of national survival.
Sputnik delivers its wake-up call. Photographer: Donaldson Collection/Michael Ochs Archives
Today, in the face of the multifaceted economic and technological challenges posed by the ascent of an autocratic China, the U.S. needs to adopt the same seriousness about intellectual leadership that it mustered following the beep, beep, beep heard round the world. Massively increase spending on gifted children. Improve selection into gifted programs so that they choose the truly able rather than the socially advantaged. Expand the academically selective schools like Lowell that did such a formidable job of providing opportunities for poor immigrants after the great wave of immigration in the late 19th century. Understand that diversity is a tool of excellence, not its antithesis. Force universities to broaden their social catchment as a condition of keeping federal money.
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Official America seems to have concluded that the pandemic is over: CEOs are preparing assaults on the "work from home" culture; central bankers are preparing to raise interest rates; the federal government is removing income support. But normality is likely to prove illusive. Workers have more power now than they have had for decades. The immigration spigot is harder to turn than before. Universities are not churning out enough homegrown first-rate technologists. The age of unearned plenty is over. To thrive in the coming age of talent shortages and meet the challenge posed by China, America will have to reengineer what first made it great.
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