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U.S. Economic Performance Examined; Millennials in the Workplace Analyzed; Interview with Niall Ferguson
Aired July 6, 2013 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN ANCHOR: Makers vs. Takers -- hard work versus government handouts, but what if it's not a lack of ambition holding America back? What if it's a lack of opportunity?
I'm Christine Romans. This is YOUR MONEY.
The job market is looking brighter if you've been out of work a very short time, but if you've been jobless for six months or longer it's a different story. More than 4 million Americans are considered long- term unemployed. That accounts for more than a third of the joblessness in this country. The longer you're out of work, the harder it is to get a job.
A fragile recovery is threatening to leave these Americans behind. It's a crisis that's not going away, but what can we do about it? On the left you hear calls for more government stimulus. On the right you hear more government spending isn't the answer. In fact some Republicans say safety net programs like jobless benefits, they add to the problem because they dis-incentivize work. Here's how GOP presidential candidate Romney put it on the campaign trail.
(BEGIN VIDEO CLIP)
MITT ROMNEY, (R) PRESIDENTIAL CANDIDATE: I see an America where poverty is defeated by opportunity, not enabled by a government check.
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ROMANS: It is all about opportunity and getting government out of the way, but now one of the architects of Romney's economic plan is straying from the very conservative dogma. Kevin Hassett is a senior fellow and director of economic policy studies at the American Enterprise Institute. Kevin, welcome to the program. You have a talked about the long-term unemployment issue as a national emergency. A priest, you say, even told you it's a bigger challenge in a parish than a death in the family.
And here's one of your policy suggestions -- the government should just start hiring people. That would seem shocking really coming from a conservative economist who advised Mitt Romney in the last election, no?
KEVIN HASSETT, FORMER ROMNEY ECONOMY ADVISER: Well, I mean, I actually am not so sure. I have lots of ideas of things that we should try. The thing is it's a national crisis these are folks disconnected from the workforce and one study showed they sent out a bunch of resumes, that people couldn't get interviewed if they'd been unemployed for more than six months. And so we're looking at people the government might have to support for a really, really long time unless we all collectively get creative about reconnecting them to society.
And so I think what we need to do is do a bunch of experiments and see what happens if you give somebody a job or hire an employer to give them a job and try other things to reconnect them and then see after that if they can get back into the workforce. There have been a number of studies that are somewhat promising. So, for example, my colleague Dean Baker, has come out with a new analysis that suggests maybe if you have a part-time job that's just for a charity and not being paid that that can keep you from having your skills degrade to the point where employers might actually reach out and give you a job. And so there are some maybe positive steps that you can take.
ROMANS: I think we have seen sort of a retraining crisis. By the time people retrain for something, it's obsolete or they're retraining for the wrong things or there isn't a great connection between these programs and industry. At the same time, though, "stimulus" is a dirty word in Washington. So you have to have direct hiring into government jobs or subsidizing, government subsidizing jobs for example to work at a charity. You're not going to be able to label a stimulus or your colleagues are not going to like it.
HASSETT: Oh, I don't know if even my colleagues. You shouldn't like it, right? But the fact is that if we go back and look at the assertions that were made about how many jobs that were created by the stimulus, you know, we're talking about maybe 2 million jobs, I don't know what the right number is. But if you spent the same amount of money on just giving people jobs or giving employers a certificate where they could let somebody work for them for free for a while, you could have created 25 million jobs. So this indirect job creation is really, really silly.
And not only that. You don't know that you're actually creating a job for a person that doesn't have a job. So if we build a bridge, who is to say the guys who know actually how to build a bridge are going to be unemployed otherwise? You don't know that. So I think this indirect job creation that President Obama has been pursuing hasn't worked and that's why we have the crisis that we have.
ROMANS: We'll set that controversy aside and talk about the kinds of jobs you want to invest in. You want the government to invest in job creation. Where should the government be focusing? What kinds of jobs that can allow somebody to have skills on a resume and to fill the gap on a resume so they look for attractive, because it's something that terrifies me, the longer you're out of the workforce the less desirable by order of magnitude you become when people start hiring.
HASSETT: Right, and the problems that you have, in terms of we know that people turn to drugs, their families fall apart. They have about a 10 percent higher chance of getting divorced. Their kids have a long run negative impact. We look at grownups who are long-term unemployed when they're growing up, and they have lower wages today decades later, so we know it's a serious problem. What I called for in a recent congressional testimony is that we recognize that it's a serious problem and then start to think about what are we going to do about this to learn what might help, because right now we're not doing anything. We're not helping and we're not learning. And so what I proposed in the testimony, and this is where the government jobs program, the other proposals come out, is that we think of maybe 10 or 15 ideas that might work and do some random trials all around the country to see if they do work, and then start to invest in the programs that actually work.
And so maybe the people on the left would think a government job might be the solution or the people on the right might think let's have a private employer do it. Let them both design a trial and then lets evaluate it scientifically and invest in the one that work. I think the long term unemployed in America need our help and we owe it to them to at least do that.
ROMANS: I think you could get some bipartisan agreement. Do you think you could get bipartisan agreement on something like that, trial balloons for how to create jobs for the long-term unemployed?
HASSETT: I do.
ROMANS: Constituents are Republicans and Democrats.
HASSETT: Right. No, I think we can. In fact, you know, at the Joint Economic Committee, which is one of the more important sort of thought-leading committees up on the Hill because it's both the Senate and the House committee, there was a big hearing organized by Kevin Brady, a Republican, and the Democrats, Klobuchar on the Senate side, that looked at this problem. And I don't think it was a contentious hearing at all. There were Republicans and Democrats trying to think hard about how to fix this problem.
So I think there is hope. I know there are a lot of other problems that are front burner right now but, our politicians need to make this front burner because of the real human pain that is suffered by the people that are in this situation.
ROMANS: The economic historian, Niall Ferguson, I spoke with him this week, and I was asking him about this idea of lack of opportunity or lack of ambition. He said he was so concerned six percent of the people in his age group, under 50, six percent of the people are on Social Security disability benefits. He said there is this real concern about the safety net and people, too many people on the safety net. Do you think there's a lack of ambition in this country that we're seeing in these numbers or is it a lack of opportunity requiring people to hold on for too long to the safety net?
HASSETT: You know, I'm sure that if you were to look at this individual or that individual that you might find that maybe there are people that should be more ambitious and then some people that are really ambitious but it's just not working. But scientifically we know in the aggregate that if you've been out for six months, somebody mailed a bunch of resumes around and nobody could get an interview. You couldn't get a callback because you'd been unemployed for six months. And so we know that the lack of opportunity is a serious, serious problem, and we kind of understand why. Once you've been unemployed for a long time then maybe the next employer is wondering, geez, maybe there's something wrong with Kevin Hassett. Maybe I shouldn't hire him because why hasn't he had a job for a year?
And as soon as they start to think like that, then I get depressed, I start to have behaviors that reinforce the negativity, and it's kind of a downward spiral. So we need to step in and think about what we can do to help those folks.
And maybe there are folks that end up in the spiral because they weren't ambitious enough or taking their 99 weeks of unemployment insurance. From the point of view of an economist I don't think that's so relevant at this moment. We have these millions of people that are long-term unemployed, they need our help. How they got there is a sunk cost, as we economists call it, and what we need to do is think about how we can fix it.
ROMANS: And thinking about it as family values, you're thinking about it as a family values issue as well, not just a dollars and cents issue. Kevin Hassett, thanks so much.
Coming up, do you need a guide to manage millennials in the workplace?
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Morgan did exactly what was asked of her, nothing more or less. She expects a raise and promotion.
UNIDENTIFIED FEMALE: Thanks, junior executive manager of data consulting.
UNIDENTIFIED FEMALE: Is that better than assistant manager of junior accounts?
UNIDENTIFIED FEMALE: Yes.
(END VIDEO CLIP)
ROMANS: Lack of opportunities or spoiled and lazy, does America's next generation of workers have answers to what ails the economy or are they just part of the problem?
ROMANS: Overeducated, underemployed, that's the story for Generation Y, the so called millennials. More than a third of recent college grads with jobs are working in a position that doesn't require a degree. In fact in the pool of 3 million new grads, 152,000 are working in retail, 102,000 as clerks and customer service reps, 94,000 are waiters and bartenders. So it might not come as a shock that a huge chunk of the population is checked out at work right now.
A new Gallup poll found that 52 percent are not engaged and another 18 percent are actively disengaged and dragging down productivity, and millennials are more likely than other generations to be just going through the motions. On his FX show comedian Louis C.K. summed up what many think of their younger co-workers.
(BEGIN VIDEO CLIP)
LOUIS C.K., COMEDIAN: Every 20-year-old I encounter behind the counter gives me a look, "This job sucks." Yes, that's why we gave it to you.
C.K.: Because you're 20, which is mathematical guarantee that you have no skills and nothing to offer anybody in the world.
(END VIDEO CLIP)
ROMANS: Brad, I hope you're laughing at that. Brad Karsh the author of "Manager 3.0, a Millennials guide to rewriting the rules of management." You heard Louis C.K.'s take. Are millennials feeling too entitled, are the parents telling them how great they are and buffing up their self-esteem for so many years, and now they're in the real world and they're bored and disappointed?
BRAD KARSH, PRESIDENT, JB TRAINING SOLUTIONS: I love that question. And when I do workshops and we talk about in the book, the biggest single beef that I hear about millennials is that they're so entitled. And "TIME" magazine a couple months ago ran a piece called "The Me, Me, Me Generation," complaining about millennials being entitled and lazy. And one of the things I do in my workshop I show that cover and read a couple quotes. And it says companies are discovering that to win the best talent they have to cater to a young workforce that's overly sensitive at best and lazy. It's a generation that refuses to pay its dues. They'd rather hike in the Himalayas than climb a corporate ladder. Everyone gets a great chuckle.
And then I reveal the issue I just read didn't come out two months ago but it's an issue from 1990.
ROMANS: Generation X.
KARSH: Complaining about Gen X. So everyone's jaws dropped to the ground. They're like no, Brad that, describes millennials. We love complaining about people in their 20s. That's what we do in this country.
ROMANS: I don't know who said it first, but this is the first generation to get a trophy for just showing up for the season for soccer, not for actually winning the games. But let's look at the other side, middle aged comedians offering that perspective, but clips from HBO's "Girls" written for millennials by millennials, it offers the other side of the coin.
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UNIDENTIFIED FEMALE: And then I am busy, trying to become who I am.
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ROMANS: Our generation grew up here and we should follow our dreams but do students seem to be more practical today, Brad?
KARSH: Absolutely. And it's funny, again every generation sort of hears that. I think that's interesting about millennials, you mentioned this earlier they've been told they're special, they're amazing, great, they've been over-trophy-ed. They've heard of all of those things growing up not because that's what they wanted because parenting shifted about 30 years ago. Now they get to the workplace and they realize it's actually not about me even though that's how I've been raised my whole life. So they have to get practical and say every job is not going to be a dream job. It is going to be something where you like some of it and you're not going to like part of it.
ROMANS: When they get into the workplace you made some great remarks in the book about how they ask too many questions and they need to just do it. What is your advice to mille millennials when they get into the workplace?
KARSH: They've grown up with so much structure, more activities, more sports, more clubs, free time is down 37 percent from Gen X to millennial. They're used to having a parent, teacher, coach, chaperone tell them exactly what to do. They come to work and wanted the voice to know what to do. I advise millennials don't ask questions but instead have hypotheses, recommendations, and points of view. Don't blindly ask.
ROMANS: More than a third of people who are unemployed have been out of a job for at least six months, low wage jobs replacing traditional middle class jobs. If this generation is cynical, diminished opportunity is probably a big part of that, right?
KARSH: It is a big part of that for them because they also have role models out there, the Mark Zuckerbergs of the world, this guy at 25 was worth $1 billion. Why not me?
ROMANS: You want something between bartender and billionaire, a few choices along the way would be nice. We get that. All right, ask questions on the job and I guess we Gen X'ers have to be more tolerant of them. Nice to see you. The book is great.
The U.S. economic recovery isn't growing as fast as we thought or as fast as we need for a real recovery, but that could all change next year. I'm going to give you three big reasons to feel hopeful about the economy, next.
ROMANS: All right, 2014, that's when the economic recovery will finally take off. We've been hearing that for six months now, right, that the economy is poised for a comeback? But there are reasons to feel hopeful. For a genuine recovery the economy needs to be growing at around four percent annually. Today the U.S. economy is growing at less than half that rate. The Congress department recently revised GDP growth down to 1.8 percent in the first quarter of this year. But that could turn around sometime in 2014. Some economists expect the economy to grow between 3.5 percent and four percent next year. Businesses blame Washington for creating uncertainty, and 2012 and 2013 were years of uncertainty with fights over the sequester and Obamacare and financial reform. But the effects of those laws will become clear over the next year, and that means businesses that have held off on hiring may feel confident enough to start adding workers. The unemployment rate is already down from its peak of 10 percent during the recession, and the Federal Reserve says it could hit 6.5 percent next year.
The Fed hasn't been standing still. Ben Bernanke has been pumping $85 billion into this economy every month in order to bring down the unemployment rate to grow the economy. But one economist I spoke with says that's not enough. Niall Ferguson is a Harvard professor and author of a new book "The Great Degeneration, How Institutions Decay and Economies Die." He says there are fundamental problems with the U.S. economy.
NIALL FERGUSON, HARVARD PROFESSOR: While we've been focused on the endless macro debates, a lot of micro things are going wrong, and that is I think that is why we're not seeing a more rapid recovery. That's why small businesses are staying small. You can do all the stimulus you like, but if there are fundamental institutional problems and structural problems in the way of growth the fiscal and monetary stimulus just won't work.
ROMANS: Let's talk about that fiscal and monetary. The monetary stimulus, particularly the Fed, what should the Fed do?
FERGUSON: This is the sort of policy we've only ever seen before in World War II but it's being applied at a peacetime, an economy without all the controls that we saw during the war. So can this go on forever? Clearly not. This is an emergency policy for an emergency situation and all Ben Bernanke has ever said is when the recovery is clearly established, when we've achieved what we're happy with, then we will have to dial this down.
The taper means not stopping the policy, it means just buying a little less than $85 billion a month, maybe $84 billion or $83 billion or maybe even less. But that's going to happen at some point unless you are one of these people who imagines the policy goes on forever, which I don't think any serious person does.
The problem is, and this is really crucial, whatever Ben Bernanke says, whatever his successor may say, will be interpreted with a kind of manic intensity by markets because it appears as if central banks are, quote, "the only game in town."
ROMANS: You mention this period after World War II was the last time we saw debt-to-GDP ratio was as high. The U.S. we have 84 percent debt to GDP ratio. It's actually been coming down because of the sequester and improving economy. Does it give policymakers breathing space or --
FERGUSON: False hope.
ROMANS: False hope?
FERGUSON: It gives them false hope. Part of it is we planned 10 years ahead. The congressional budget office will tell you the deficit will be smaller, come down between 2.5 percent, 3.5 percent in 2015 but goes back up again. The entitlements explosion lies beyond that horizon and we do not have even the beginnings of an answer to the question of what we do about that. If we do nothing the problem gets worse.
And ultimately what it means, and this is a central argument of my book "The Great Degeneration," is that the next generation is going to be clobbered by much higher taxes plus probably also far fewer entitlements than the baby boomers. That's the reality of fiscal policy, and nothing that has happened, including the sequester, fundamentally changes that.
ROMANS: You talk about this next generation, almost as if America in some cases is eating its young. When you look at the high student loan debt, the fact that so many kids are underemployed, all of these majors at one time would have been a path to middle class life are not anymore. The kids are underemployed. They're not even working in jobs.
ROMANS: A large share of graduates are not working at jobs that require a college education.
FERGUSON: Exactly. There is a huge generational imbalance. It's like we've broken the contract between the generations. We spend in terms of government spending roughly twice on the elderly what we spend on the young. That's mostly because of health care but it also reflects really chronic underfunding of education.
The piece of education we spent a lot on is the degree programs, very, very expensive tuition for college, but the benefits of that look economically questionable. We'd be better off improving our high schools, which for most people in the U.S. deliver a subprime education. And the further down you go the income distribution until you get to the really poor zip codes the worse the schools get.
It's very interesting mobility, social mobility has declined in the U.S. We talk endlessly about inequality but we should worry about social immobility. If you're born into the Boston quintile chances are you're stuck there. That wasn't the American way in the past. What happened to the American dream?
ROMANS: Even though he says the U.S. has its structural problems, Ferguson said he is hopeful about the future and gives the U.S. economy an overall economy a B-plus. If you want to see the grades from all the economists and business leaders we've spoken with, please visit our blog at CNN.com/yourmoney.
Coming up, men's underwear, lipstick, shark attacks, and hot waitresses, you probably can't guess what they have in common. The common thread and why it matters to your money, next.
ROMANS: The Federal Reserve is looking for signs of economic strength so it can pull back its historic stimulus. That means every single piece of economic data getting heightened scrutiny on Wall Street. But there are also some unconventional ways to read the economy. So forget the monthly jobs report, forget gross domestic product and the consumer price index, and check out these economic readings.
ROMANS: What do shark attacks, hot waitresses, and men's underwear have in common? They're economic indicators, of course. Why men's underwear? The theory, said to count Alan Greenspan among its believers, undies are the first thing men stop buying when times are tough. So if sales bottom out, there goes the economy. This shows a skivvies recovery.
Another theory, the hemline index, it's been around since the 1920s. The shorter the skirt, the better the economy. Two Dutch economists studied it and their conclusion hemlines can't predict the economy, but recessions do lead to longer skirts after a three-year lag time. Today's maxi-dresses are perhaps sign of a financial crisis hangover.
Connie Francis only had part of the story. Lipstick may tell a tale on the economy. This indicator says when money is tight women indulge in small luxuries instead of big ones. But lipstick sales fell during the last recession so maybe we kiss this indicator good-bye. And from lips to jaws, in the movie Amity Island was packed, and according to the shark attack indicator, that's a sign of a strong economy. More people vacationing means more people in the water and more shark attacks. Since the end of the recession the numbers have been trending upwards.
Then there's the hot waitress index illustrated by the show "Two Broke Girls."
UNIDENTIFIED FEMALE: Please I really need this job. We lost all our money.
ROMANS: They theory goes, the hotter your waitress the worse the economy. Why? Because in boom times beautiful women are more likely to work as promotional models, product reps, and other jobs where hotness helps. Ridiculous? Yes. But it gets worse. Sugardaddy.com surveys its clients on the economy, the dating site that pairs wealthy men and women with attractive sugar babies. In a survey those daddies are predicting a downturn. If they stop buying themselves underwear we should really be worried.
ROMANS: Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday 2:00 p.m. Eastern and Sunday at 3:00. Until then you can find me on Facebook and on Twitter. And check out our blog, see what our letter grades are for the economy, CNN.com/yourmoney.