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

America's Undiagnosed Economic Cancer

Since the 1990s, the Federal Reserve and Washington--under their respective contemporary leadership--have been veritable tumors on the U.S. corpus economicus. The chemical marriage between our nation's central bank and central government has been--undoubtedly--the primary cause of our precipitous and painful decade-and-a-half economic decline. Tragically, the majority of Americans don't understand our economy's chronic disease.

The Undiagnosed Disease

In the 1990s, the Federal Reserve and the federal government--of which Republicans and Democrats shared control--made concurrent terribly-ill-advised policy changes that precipitated the disastrous bubble-bust paradigm that's been disintegrating our economy over the last 15 years.

That decade, the Fed, led by Alan Greenspan, began the modern Fed tradition of pumping liquidity for long periods of time in the wake of recessions. At the same time, the federal government, whose Legislative Branch was controlled by Republicans and whose Executive Branch was controlled by Democrats, passed the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, a law created in the wake of the Great Depression that prohibited deposit banks from "investing" (read: playing with) depositors' money. (Indeed, there are many similarities between the modern Fed and federal government and those of the years preceding--and during--the Depression.) Armed with cheap capital pumped by the Fed and a carte blanche to throw around other peoples' government-insured money, investors went wild, dumping buckets of Dollars into over-valued tech companies and preposterous dot-coms, multiplying their foolish, nearly-risk-free bets hundreds of times over through a derivatives market that had been recently deregulated by said bipartisan-controlled federal government. Not surprisingly, the tech bubble eventually burst, the financial system crashed, and the American economy began to feel the symptoms of its new economic cancer.

During the early 2000s recession, the Fed and federal government attempted to reinvigorate the economy by inflating another bubble, the housing bubble. Greenspan's Fed once again kept interest rates dangerously low to promote borrowing, even though inflation was becoming problematic. By summer 2008, the median price of a gallon of gas in this country had risen to--in 2014 dollars--$4.70, a 400% increase in 10 years! The price only returned to earth when the economy crashed.

Also in the 2000s, the Fed began vigorously enforcing the Community Reinvestment Act, a passable 1970s law made draconian in the 1990s through legislation passed by--once again--the Republican-controlled Congress and signed by the Democrat-controlled White House. The new incarnation of the CRA forced lending institutions to accommodate sub-prime borrowers, a move that was supposed to stimulate the housing market and create equity for the poor. Instead, the CRA created a proliferation of so-called "toxic" mortgages that found their way into investors' portfolios due to legislation sponsored by Democrats Barney Frank and Chris Dodd--and passed by the Republican-controlled Congress and White House--that reduced the mortgage-buying standards of Government Sponsored Enterprises Fannie Mae and Freddie Mac.

With their standards watered-down, Fannie and Freddie began repackaging toxic mortgages as toxic investment vehicles and selling them to institutional investors, who gladly snatched them up with their cheap, nearly-risk-free capital pumped by the Fed and backed by the federal government. (Sound familiar?) Once again, institutional investors multiplied their foolhardy bets hundreds of times over through the newly-deregulated derivative market. Eventually, the housing bubble, the largest asset bubble in the history of the United States (so far), led to the greatest economic collapse the U.S. had suffered since the Great Depression, a collapse whose aftermath is still apparent in the job market 6 years later.

The Overlooked Primary Symptom

The decay of the job market has been--by far--the most painful symptom of our economic cancer. Yet, it's one that's tragically overlooked by the majority of the population, whose employment hasn't been negatively affected and whose comprehension of our jobs crisis is limited by the consistently-unrealistically-optimistic employment data the government spoon-feeds them via the mainstream media. Indeed, one of the many insidious aspects of this economic depression is that the overall malaise has been--for the most part--a function of the suffering of an oft-underestimated and disregarded statistical minority: the long-term unemployed and underemployed, whose earning potential and contribution to consumer spending and investment have been crushed. Recall the following chart I published a while back:

In 2012, America's 28 million unemployed or underemployed workers, who earned a median of $16,000 from unemployment benefits and/or menial employment, forwent OVER A TRILLION DOLLARS in potential earnings. Nothing has been a bigger drag on the economy than lost earnings, which reduce consumer spending--the largest segment of the economy--in the short-term and, in the long-term, delay "life milestone" contributions to the economy such as home ownership and child rearing. The jobs crisis has been--by far--the most acute symptom of our economic cancer, yet its negative influence on the economy as a whole is often overlooked due to its highly-localized nature.

Of course, the jobs crisis has been painful in ways that far transcend negative influence on GDP growth. (GDP growth, by the way, might not be the best measurement of economic progress anyway.) Far worse than deflating GDP, the crisis has crushed dreams, turned lives upside-down, and created a new economically-lost generation. It's been particularly hard on young men, whose unemployment and underemployment rates have been consistently higher than those of women of most any age, yet are biologically hard-wired and socially-conditioned to be breadwinners. Lamentably, that devastating detail is also often overlooked.

(As a side note, I highly recommend Gawker's extensive collection of stories of young male professionals who have been emasculated by the jobs crisis. The series, entitled "Men Talk About Being Unemployed in Their Prime", serves as a poignant reminder that long-term unemployment and underemployment aren't just data sets; they're critical human conditions.)

The Missed Diagnosis

Tragically, most Americans fail to see past their own political myopia to identify our nation's economic cancer. Republicans and Democrats blame each other, of course, and the majority of Americans are too ignorant of economics to realize that the MSM's question "which party is to blame?" is a fallacious one. A web search of "blame for Great Recession" yields tens of thousands of results neatly divided by party line. In reality, both parties contributed to our nation's economic collapse, and no entity contributed more than the Federal Reserve.

Appallingly, the Fed, now under the stewardship of newly-sworn-in Chairwoman Janet Yellen, is perpetuating the carcinogenic Keynesian monetary policy it adopted under Greenspan and continued under Bernanke. The ultra-wealthy, whose net worth is highly-dependent on the success of the Fed-juiced stock market, have been making money hand-over-fist during this depression. Average Americans, on the other hand, have been getting poorer.  New bubbles have been inflated; new malignant tumors have been created. The cancer spreads unbeknownst to most Americans.

Seth Mason, Charleston SC

Paradigm Shift On The Right?

In these times of rampant pessimism in which the majority of Americans believe that the country has been heading in the wrong direction for some time, there exists a ray of hope: the burgeoning liberty movement. Recently, there have been two significant positive developments regarding the movement's influence on the Right:

Although Republicans lag the nation in its change of heart on social issues, more people on the Right are coming to realize the high price of the federal government's marijuana prohibition.

The editors of National Review, arguably the most influential conservative publication in the nation, recently published an editorial arguing for the legalization of cannabis. The conservative publication of record noted the significant cost of marijuana prohibition, both in terms of currency and of human life:

Regardless of whether one accepts the individual-liberty case for legalizing marijuana, the consequentialist case is convincing. That is because the history of marijuana prohibition is a catalogue of unprofitable tradeoffs: billions in enforcement costs, and hundreds of thousands of arrests each year, in a fruitless attempt to control a mostly benign drug the use of which remains widespread despite our energetic attempts at prohibition. We make a lot of criminals while preventing very little crime, and do a great deal of harm in the course of trying to prevent an activity that presents little if any harm in and of itself.

Quite a departure from the Right's "Just Say No" rhetoric of the 1980s.

More people on the Right are also coming around on military interventionism. Rand Paul, whose non-interventionist view of foreign policy and homeland-first view of defense is a 180-degree-turn from a decade of George W. Bush-brand military adventurism, is a serious contender for the 2016 GOP presidential nomination. In fact, according to some polls, he's the leading candidate. In modern history, no Republican nominee for president has had a view of foreign policy anywhere close to Rand's. Even Barry Goldwater was an interventionist.

That's impressive. Even though Rand isn't the civil libertarian his father is.

There's reason to be hopeful in these times of uncertainty: The liberty movement's growing in size and influence, and it appears to be taking the Right in the right direction.

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

Another Biz Reporter Rips Applicant Tracking Systems

As many of you know, I firmly believe that HR hiring software--AKA "applicant tracking systems"--, which far too many American enterprises offer job seekers as their only port-of-entry, exacerbate our nation's unemployment problem and detract from companies' bottom lines (and therefore detract from the economy as a whole). So any article I come across that's critical of ATSes gets my attention.

In this article, CIO's Meridith Levinson describes applicant tracking systems as capricious and fundamentally-flawed. She hammers home the fact that the expensive, unwieldy software American enterprises often "employ" as their exclusive employment gatekeepers arbitrarily reject potentially great employees. As you read the article, keep in mind that half of Americans ages 18-29 are either unemployed or underemployed. Think about how younger Americans who have less experience (and therefore have fewer keywords and numbers on their applicant profiles) and who have a smaller professional network (not that that matters much when hiring managers direct applicants to their ATSes) might be at a significant disadvantage under this hiring paradigm. This is, after all, a paradigm in which even the most talented applicants are judged by poorly-designed computer software based on experiential criteria only. Remember, an ATS will always select someone with more degrees or experience over someone with more accomplishments. Why? Because ATSes CAN'T IDENTIFY ACCOMPLISHMENTS.

Lou Adler, entrepreneur and best-selling author, best summarized this phenomenon 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."

- See more at: http://www.ecominoes.com/2013/05/the-american-hiring-paradigm-is-broken.html#sthash.KkCw7bIz.dpuf

Lest we forget what Lou Adler, entrepreneur and best-selling author, recently stated 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."

In this case, ATSes would always choose candidates with more years of experience over those with more accomplishments that would suggest the capability of reaching the goal of reducing water usage by 50%. In fact, many ATSes require applicants to list "responsibilities". Anyone can have responsibilities. Only a select (read: overlooked) few have bona fide accomplishments. But the people most capable of identifying accomplishments relevant to the job, hiring managers, all too often go out of their way to conceal themselves from the applicant pool. Anyway, on to the article:

Applicant tracking systems are the bane of legions of job seekers. These systems, which employers use to manage job openings across their enterprises and screen incoming resumes from job seekers, kill 75 percent of candidates' chances of landing an interview as soon as they submit their resumes, according to job search services provider Preptel.

The problem with applicant tracking systems, as many job seekers know, is that they are flawed. Very flawed. If a job seeker's resume isn't formatted the right way and doesn't contain the right keywords and phrases, the applicant tracking system will misread it and rank it as a bad match with the job opening, regardless of the candidate's qualifications.

Bersin & Associates, an Oakland, Calif.-based research and advisory services firm specializing in talent management, confirmed the weaknesses of applicant tracking systems. In a test conducted last year, Bersin & Associates created a perfect resume for an ideal candidate for a clinical scientist position. The research firm matched the resume to the job description and submitted the resume to an applicant tracking system from Taleo, arguably the leading maker of these systems.

Taleo is notorious for producing ridiculously buggy software. There used to be a great blog that described in detail the numerous functional problems with Taleo's products. Some of these problems have been fixed with recent releases. Many have not. And the fundamental flaws persist, as they do with all ATSes:

When Bersin & Associates studied how the resume rendered in the applicant tracking system, the company saw that one of the candidate's work experiences was lost entirely because the resume had the date typed before the employer. The applicant tracking system also failed to read several educational degrees the putative candidate held, which would have given a recruiter the impression that the candidate lacked the educational experience necessary for the job. The end result: The resume Bersin & Associates submitted only scored a 43 percent relevance ranking to the job because the applicant tracking system misread it.

Every American hiring manager should read that last sentence.

Josh Bersin, CEO and president of the firm, notes that since all applicant tracking systems use the same parsing software to read resumes, the results his company found would be typical of most systems, not just Taleo's.

The problems with applicant tracking systems beg the question: If they're so flawed and if they filter out good candidates, why do employers bother to use them? The answer is simple: Bersin says they still make recruiters' lives easier. 

Stop right there. American enterprises don't use ATSes to find the best potential employees. They use them to make recruiters' lives easier.  Let's analyze that in terms of risk and reward: To reduce the workload of their recruiters, organizations spend billions of dollars annually on buggy software that arbitrarily eliminates a significant number of talented applicants. Under that paradigm, up to 50% of new hires "don't work out". Does the end of convenience for HR workers justify a unquestionably broken means of hiring? Levinson goes on:

Applicant tracking systems save recruiters days' worth of time by performing the initial evaluation and by narrowing down the candidate pool to the top 10 candidates whose resumes the system ranks as the most relevant. Even if some good candidates get filtered out, recruiters still have a place to start. 

Better said, recruiters have a good "place to start" with the applicants who are lucky enough to win the ATS lottery and get through to a hiring manager. Those applicants may or may not be the best candidates.

PBS's "Ask the Headhunter" Nick Corcodilos said it best:

Unemployment is made in America by employers who have given up control over their competitive edge -- recruiting and hiring -- to a handful of database jockeys who are funded by HR executives, who in turn have no idea how to recruit or hire themselves.

Seth Mason, Charleston SC

The Post-1990s Federal Reserve: Enemy Of The Middle Class

One need not delve into hardcore economic research to reach the conclusion that the Fed is largely responsible for our country's economic woes. One need only have common sense and possess the ability to read charts.

In the mid-1990s, Alan Greenspan's Fed began our central bank's tradition of pumping massive amounts of liquidity. Since that time, stocks and other assets typically held in large quantities by the wealthy have done--for the most part--very well. But, for middle class Americans, who rely on "breadwinner" jobs for their livelihoods, the past 15 or so years have been a period of economic decline, the past 6 years a period of economic free-fall.

Since peaking at around 67.5% in the late 1990s, the labor force participation rate has declined to 63%, the lowest level since the 1970s, when households rarely sent more than one member into the workforce. The S&P 500, on the other hand, has more than doubled:

Corporate profits and labor force participation also decoupled in the late 1990s. Today, there is little correlation between the two:

What's more, part-time jobs have been replacing full-time jobs since the Fed's tech bubble:

And, since the late 1990s, real wages (adjusted for inflation) have been in decline:

Capricious Mandatory Minimum Sentencing Hurting America's Future

Mandatory minimum sentencing, sentencing requirements imposed by state legislatures and the Legislative Branch of the federal government, is a clear violation of the principle of "separation of powers" that strips judges of their fundamental duty of administering justice considering the circumstances surrounding the cases they oversee. Mandatory minimum sentencing is infamous for being unfair to minorities, but it also harms a disproportionate number of young people of all races. Each year, tens of thousands of young Americans are imprisoned and tens of thousands more lose their student aid eligibility due to capricious mandatory minimum sentences, mostly for minor drug offenses.

Mandatory minimum sentences ruin the educational and economic opportunities of young Americans in a number of outrageous ways. Consider the following tragic stories:

• A 17 year-old student with special needs was given prison time after being pressured by an undercover police officer to sell marijuana
• A 24 year-old college student was sentenced to life in prison for being present at a drug transaction
• A 26 year-old single mother of three was sentenced to life after allowing her boyfriend to store cocaine at her house
• 200,000 American college students have lost their financial aid eligibility due to prison time from mandatory minimum sentences

Truly tragic. Fortunately, Alex Kreit, Associate Professor at Thomas Jefferson School of Law, is providing a free web-based program to equip participants with the knowledge and the tools they need to help end the injustice of mandatory minimum sentencing. You can find out more about Professor Kreit's program, part of the Learn Liberty Academy at The Institute for Humane Studies, by visiting the program's registration page.

Empowered by the education Professor Kreit provides, you can then work with organizations such as Families Against Mandatory Minimums and Students for Sensible Drug Policy to help end mandatory minimum sentencing.

Seth Mason, Charleston SC

PBS's "Ask the Headhunter" Blasts Applicant Tracking Systems

I recently wrote an article critical of American companies' tendencies to use applicant tracking systems to seek keywords rather than allowing candidates to demonstrate potential added value to their bottom lines. I noted that the current hiring paradigm suffers a failure rate of up to 50%.

Today, ambitious job seekers have scant opportunities to walk into a company and make a pitch directly to a hiring manager. The personable aspect of hiring has been replaced with buggy software programs and cookie cutter online psychological exams that stigmatize creativity and innovative thinking.

Clearly, the American hiring paradigm is broken. PBS's "Ask the Headhunter" Nick Corcodilos has been quite outspoken on the subject. Here's one of his most thoughtful articles:

Last week, I published the 500th edition of my weekly Ask The Headhunter Newsletter, which I started in 2002. (Check the footer of this column if you'd like to subscribe. It's free.) Why does the newsletter keep going? Because America's employment system still doesn't work, and employers are clueless about why.

The emperor still has no clothes, and that's a big part of why over 25 million Americans are unemployed or under-employed. (According to the Business Desk, that's how many Americans say they want but can't find a full-time job.) Meanwhile, according to the U.S. Department of Labor, 3.9 million jobs were vacant in September.

HR executives have a special term for this 6:1 market advantage when they're trying to fill jobs today: They call it a "talent shortage."

Gimme a break.

Human resources executives run around in their corporate offices with their eyes closed, throwing billions of dollars at applicant tracking systems (ATSes) and job boards like Taleo, Monster.com and LinkedIn, and they pretend no one can see they are dancing in circles buck naked. HR keeps talking about a talent shortage, but the only talent shortage is in the HR offices. HR executives need to learn how to match up the 3.9 million vacancies with some of the 25 million under-employed.

What's going on?

The economy is certainly one factor, but businesses, the media and the federal government continue to ignore the structural problems in our employment system. I'll tell you what I think the main problems are.

Companies Don't Hire Anymore

Employers don't do their own hiring, and that's the number one problem. They outsource their competitive edge (recruiting and hiring) to third parties like Taleo, Kenexa, LinkedIn, Monster.com and CareerBuilder. Monster and LinkedIn alone sucked almost $2 billion out of the employment system in 2012. These vendors offer little more than trivial technologies and cheap string-search routines masquerading as "algorithms" for finding "hidden talent" and "matching people to jobs."

HR executives are spending billions on those systems, so why are almost 4 million jobs vacant? Because these vendors sell databases -- not recruiting, not headhunting, not jobs, not hires and not matchmaking.

Somewhere, right now, the chairman of the board of some corporation is pounding the podium at a shareholders' meeting, exclaiming, "People are our most important asset!"

Meanwhile, HR executives are funding programs that mingle their companies' most important assets in databases shared with all their competitors via a handful of applicant tracking systems that can't get the job done.

Heads-up to boards of directors: Where is your competitive edge? Take control of your hiring again, like it matters!

Employers Don't Know How to Recruit

Here's how human resources departments across America "recruit." They put impossible mixes of keywords about jobs into a computer. They press a button and pay billions of dollars for a chance that Prince Charming will materialize on their computer displays. When the prince fails to appear, they double their bets and keep gambling. (Last year, companies polled said just 1.3 percent of their hires came from Monster.com and 1.2 percent from CareerBuilder. See "Is LinkedIn Cheating Employers and Job Seekers Alike?")

Meanwhile, in the real world, over 25 million people, many of them immensely talented and capable of quickly learning how to do new jobs, are ready to work.

Employers need to get away from their desks, remove the ATS straps from around their necks, and go outside to actually find, meet, recruit, cajole, seduce and convince good workers to come work for them.

The Employment System Vendors Are Lying

The big job boards and the ATSes tell employers that sophisticated database technology will find the perfect hire.

• "Don't settle for teaching a good worker anything about doing a job. Hire only the perfect fit!"
• "We make that possible when you use more keywords for a job!"
• "The database handles it all!"

When matches fail to appear, these vendors blame "the talent shortage" and contend that job seekers lack the specific skills employers need.

Except that's a lie. Job descriptions heavily larded with keywords make it virtually impossible to find acceptable candidates. Wharton researcher Peter Cappelli tells about an employer that got 25,000 applicants for a routine engineering position. The ATS rejected every single one of them. Every day that an impossible job requisition remains unfilled, the employment system vendors make more money while companies keep advertising for the perfect hires.

Millions of jobs are vacant, thanks to the empty promises of algorithms. Ignoring the role of the systems behind this failure is a costly mistake.

If the U.S. Congress wants answers about the jobs crisis, it should launch an investigation into the workings of America's employment system infrastructure, which is effectively controlled by a handful of companies.

Employers Have No Business Plan

Employers claim job applicants lack the requisite skills and talents for today's jobs. But in "Why Good People Can't Get Jobs," Peter Cappelli reports that they are wrong. The quality of the American worker pool has not diminished. Rather, American companies:

• Don't want to pay market value to hire the right workers.
• Don't want to train talented workers to do a new job.
• Are content to keep using ATSes that don't get the job done.

Cappelli points out that employers believe they save money when they leave jobs vacant because their accounting systems track the cost of having workers on the payroll, but they fail to track the cost of leaving work undone. Employers run the numbers, and they seem to come up with junk profitability: Fewer Employees = Lower Costs = Higher Profits.

Employers who believe this are misguided or downright foolish. They should stop regarding workers as a cost, start treating them as investments and ensure that each worker pays off in higher profits.
Employers should get a business plan and make their employment systems accountable.

America Counts Jobs, Not Profitable Work

The federal government tracks the number of people who have jobs and the number of vacant jobs. But tallying jobs to assess the economy is like counting chickens before they hatch. The federal government has no idea which jobs or which work is actually profitable and contributing to a healthy economy.

It's no secret that the weekly employment figures are questionable and misleading. The definitions of jobs and "who is employed" are so manipulated that no one knows what is going on.

It's time to re-think how companies find and pay people to do work that produces profit. A better indicator of economic success would be the measure of how profitable all the work in America actually is -- and how much profit is left behind on the table each month when work is left undone.

People Must Stop Begging for Jobs

It's time for people to stop thinking about jobs, and high time to start thinking about how -- and where -- they can create profit.

For example, if I run a company, I'll hire you to do work -- if it pays off more than what I pay you to do it. Today, few employers know which jobs actually pay off. That's why you need to know how to walk into a manager's office and demonstrate, hands down, how you will contribute profit to the manager's business. That's right: Be smarter than the manager about his own business. Stop begging for jobs. Start offering profit.

If you can't do that, you have no business applying for any job, in any company. In the book "Fearless Job Hunting: The Interview -- Be The Profitable Hire" (available in the Ask The Headhunter Bookstore), I explain it like this:

A good employer wants to see what you can do. If he doesn't ask, help him out and show him. It'll turn your interview into a working meeting where you both roll up your sleeves, and during which the employer can do a direct assessment of your worth to his business. Here's how to say it:

"Please lay out a live problem you'd want me to handle if you hired me. I'll do my best to show you how I'd do the work so it will pay off for both of us."

Think you can generate lots of profit without working for someone else? Then bet your future on your plan, and start your own business.

What Is Going On

Here's the simple truth: Unemployment is made in America by employers who have given up control over their competitive edge -- recruiting and hiring -- to a handful of database jockeys who are funded by HR executives, who in turn have no idea how to recruit or hire themselves.

American ingenuity starts with the individual who has an idea, blossoms with a plan that will produce profit -- for yourself and your boss and your customer -- and results in more money for everybody.

So to be truly competitive, American employers must themselves do the hard work of identifying, attracting, recruiting, hiring and further training workers who can ride a fast learning curve without falling off. Outsourcing these critical tasks dulls a company's competitive edge.

Business leaders, the media and the government must revisit their assumptions that automated employment systems are the answer and that the problem is with American workers. Until the structural problems with these systems are addressed, those 3.9 million vacant jobs point to the harsh truth that American employers are a leading cause of unemployment.

"Unemployment is made in America by employers who have given up control over their competitive edge -- recruiting and hiring -- to a handful of database jockeys who are funded by HR executives, who in turn have no idea how to recruit or hire themselves." I couldn't have said it better myself. The American hiring paradigm is broken indeed.

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

State Marijuana Legalization Approaching Critical Mass

The push to legalize marijuana on the state level has been spreading like wildfire. In the course of 2 years, 20 states and the District of Columbia have legalized cannabis for medical use, and 2 states have legalized it for recreational use. Here's what the scoreboard looks like as of today:

There's a "high" probability that, this year, 2 of the light-green states on the preceding map (Oregon and Alaska) will turn dark green as state legislatures in the Beaver State and The Last Frontier approve possession of cannabis for recreational use. Outright legalization in 2014 is also a possibility in Maine, Vermont, New Hampshire, Rhode Island and Massachusetts. Additionally, 6 states (Kentucky, Ohio, Minnesota, Pennsylvania, New York, and Tennessee) will consider bills this year to legalize medical marijuana. And get this: this year, even Alabama will consider a bill to decriminalize!

It's possible that, by year's end, more than half of the states will have either legalized or decriminalized marijuana.

As "purple" and "red" states start to embrace legalization or decriminalization, the building momentum will become unstoppable. At that point, Washington will have no choice to but to anger its Big Pharma financiers--who spend millions of dollars annually to lobby Uncle Sam to keep marijuana illegal--and consider legalization on a federal level.

And that, my friends, will be a huge blow to crony capitalism and spell the beginning of the end of the disastrous War on Drugs.

Seth Mason, Charleston SC

Jobs Depression Year 6: More Americans Worse Off Financially

Gallup reports that, in the last year, more Americans have become worse off financially than better off. This revelation--five and a half years after the fall of Lehman--is just the latest evidence that our jobs depression continues. (Article continues after chart.)

For years, I've been calling this period of American history a jobs depression. Before calling me a Chicken Little for using the "D" word, please keep in mind that, while there's no official definition for "depression" in an economic sense, most economists call protracted periods of economic malaise "depressions".

And the last 6 years have absolutely been a protracted period of economic malaise.

Years after the economy bottomed in 2009, the epidemic of long-term unemployment and underemployment continues to afflict the American workforce. Incredibly, 5 years into "recovery", fewer jobs were created last year than the year before. And, as has been the case throughout this depression, the vast majority of jobs created last year were menial in nature. Very few new "breadwinner" jobs.

Keep in mind that the unacceptably tepid jobs recovery that we have had has been merely a result of the inflation of the Fed's latest asset bubble. The Fed's balance sheet just passed $4 trillion...that's 22% of the entire economy! The Fed has been feigning healthy economic growth for years by inflating what Nouriel Roubini is calling the "mother of all bubbles".

Seth Mason, Charleston SC

More Bureau Of Labor Statistics Data Manipulation?

Last month, I predicted that the Bureau of Labor Statistics would remove from the workforce many of the 1.3 million Americans who lost their unemployment benefits this month. And that's exactly what happened. According to the BLS, 5 people left the workforce for every job added last month. And yet, the unemployment rate mysteriously fell from 7% to 6.7%.

The BLS, which is under investigation for data manipulation, has been proven wrong before. According to ZeroHedge, here's what the "headline" unemployment rate would look like if the bureau used the 30-year average labor force participation rate as opposed to its current 1970s rate. Keep in mind that this chart DOESN'T COUNT the tens of millions of UNDERemployed Americans. Lest we forget, a woefully insufficient number of "breadwinner" jobs have been created since the economy crashed.

Using the 30 year average labor force participation rate, we get a headline unemployment rate hovering between 11 and 12 percent. And, again, that doesn't count the tens of millions of Americans working below their capabilities. Gallup pegs the UNDERemployment rate at 17.2%. Recalculating the underemployment rate using the 30-year average participation rate, we get a number closer to 20%.

The BLS, of course, has been crushing down the headline unemployment rate by crushing down the labor force participation rate, as evidenced by the following chart:

Considering this next chart, it's highly unlikely that unemployment has dropped from 10% to 6% over the last few years, as the BLS has been reporting.

Evidence That The Fed Prints For Wall Street (Not Main Street)

Here's some compelling evidence that the Federal Reserve is looking out for Wall Street investors instead of the Main Street economy: S&P and GDP expectations have been inversely proportional since the Fed announced "Operation Twist" (a bond buying scheme) in October, 2011. As you can see on this chart from Bloomberg, Operation Twist has greatly benefited those whose incomes are strongly tied to the market. But, for the tens of millions of middle class Americans who were unfortunate enough to lose their financial standing after the bursting of the Fed's housing bubble, economic prospects haven't been looking so good.

On the other hand, the Fed's liquidity pumping has juiced the stock market like crazy throughout this economic depression. Every time the Fed has either announced or implemented a new liquidity pumping scheme, the market has risen. Every time one of the Fed's schemes has ended, the market has declined. The economy simply hasn't been strong enough to support the market without the Fed's help. But these actions aren't indefinitely sustainable, and they certainly aren't without long-term consequences.