One Question

Let’s kick this post off with a snippet from Mohammed El-Erian’s remarks at Bloomberg about the last unemployment report which, presumably, will be equally applicable to the one expected tomorrow:

The prospects for labor-force participation will remain uncertain. Due to accelerating technological changes that alter not just what we do but also how we do it — developments in machine learning, mobility and big data, for example — there is an unusual degree of fluidity in the way the economy functions. This has changed, and will continue to change, the labor intensity of economic cycles. It also amplifies the economic and social costs associated with persistent skill mismatches, lagging educational reform, and the still too-slow spread within the corporate sector of labor tooling and retooling program programs (including through wider use of apprenticeships).

Let’s decompress that a bit. By “unusual degree of fluidity” I assume he means that nobody knows what’s going to happen, there is considerable uncertainty. I have no idea what he means by saying that has changed “the labor intensity of economic cycles”. On the surface it would seem to mean that the marginal productivity of labor has risen. Since there are plenty of measures showing that is not the case, it leaves me puzzled.

I would certainly like to see some empirical measures of “persistent skill mismatches”. The best study of which I am aware, the OECD study analyzed here, did find a particularly aggravated skills mismatch in the United States but it’s probably not what you’re thinking of. The skills mismatch they found is that in the U. S. people are overskilled relative to the jobs that are being created. I’m skeptical that a secondary education system focused “like a laser” as President Clinton might have said on college prep can alleviate that mismatch.

I’m also puzzled by the notion that changes in education or policy (other than immigration policy) can do much to change any skills mismatch on the other side of the equation when a quarter of the working age population are immigrants. Maybe I just don’t have enough imagination.

By “too-slow spread within the corporate sector of labor tooling and retooling program programs” I assume he means that companies aren’t willing to train workers for the skills that they need which I think gets to the crux of the problem. Who should bear the risk? Companies, workers, society? If the answer is not “companies”, companies need to do a much better job of communicating their needs than they do at present. Consider lead time. Neither workers nor school systems have any idea what skills companies will need when they need them.

That brings me around to the “One Question” that Barry Brownstein, writing at the Foundation for Economic Education says that presidents should need to answer for us to determine whether they are “principled”. I can tell him whether presidents are principled (in the sense in which he uses the word) without asking any questions. They aren’t. We haven’t had a principled president for decades and I’m not sure that we want a president who is truly principled.

Here’s his one question: “What is the economic problem that society faces, and how will you help solve it?”. That’s actually two questions but I’ll try to answer it. The economic problem we face is that our economy is increasingly becoming detached from the society at large. That’s a broader way of saying what people mean when they express concern that income inequality has risen. We aren’t creating jobs for people with college educations let alone with PhDs but that’s what we’re subsidizing.

I’m not sure how I’d go about solving it but I think that much of the solution lies in reducing and then eliminating the subsidies we’re presently paying for things that we no longer want or, in some cases. should never have wanted.