The Next Big Bust: When? Why? How Big?

Martin Weiss

We live in South Florida; we know what storms are all about.

Torrential downpours are common. But they’re a small sacrifice for living in paradise the rest of the time.

The big danger is the next Big One, a giant Category 5 hurricane like the giant Labor Day Storm of 1935, Andrew (1992) and Irma (2017) all at once.

Ditto for the stock market and the economy…

Temporary dips and stalls are a small price to pay for the double- and triple-digit returns you can reap in a long bull market.

The big concern is the next Big One — a bust akin to 1929, 2000 and 2008 rolled into one.

This is not idle fear-mongering. It’s a real possibility based on undeniable history.

The Tech Bubble and the Housing Bubble

In the past two decades, we’ve experienced two gigantic asset bubbles — first in tech stocks, then in housing.

Both were driven by unbridled financial engineering. Garbage initial public offerings (IPOs) like or Webvan. No-asset, no-income mortgages issued by the likes of soon-to-fail companies like Washington Mutual or Countrywide Financial.

Both were fueled by over-the-top monetary policy.

And both were followed by two of the greatest crashes in modern history: The tech wreck of 2000 to 2003 and the housing bust of 2007 to 2009.

The big difference: Now, the bubble is larger, and the ensuing bust could pack a bigger wallop.

To understand why, set aside fear and hope. Focus strictly on the facts:

Fact No. 1. To combat the early 1990s recession and savings and loan collapse, the Federal Reserve dropped the fed funds target down to a low of 3%. Then it kept it there for 17 months.

The Fed also printed around $70 billion during the policy-easing cycle, boosting the monetary base by 22%.

That was crazy. So crazy, in fact, it was a major factor that inflated the tech bubble that ended in the tech wreck.

Fact No. 2. To combat the tech wreck, the Fed slashed its benchmark rate from 6.5% to 1%, and kept it there for 12 months. It also printed $125 billion, boosting the monetary base 19%.

That was crazier. So much so that it helped create the biggest housing bubble ever, which ended in the worst housing bust, financial crisis and recession since the 1930s.

Fact No. 3. To rescue the economy from that disaster, the folks at the Fed went stark, raving mad. They shoved interest rates to the floor like a sumo wrestler.

They sat on zero rates for 84 months. And they printed more than $3 trillion too, boosting the monetary base by 370%!

Fact No. 4. Federal debt is off the charts. It has exploded 3.5 times since the start of the millennium, from $5.7 trillion to $20.2 trillion, with the lion’s share of that debt buildup coming in the last eight years.

Fact No. 5. More so than anytime in history, the madness has gone global, with a total of 667 interest-rate cuts worldwide and more than $15 trillion of global money printing.

Fact No. 6. Governments have bailed out a lot more kinds of assets than ever before. Not just banks and bonds markets, but also manufacturers, insurance companies, brokerage firms, stocks and exchange-traded funds (ETFs).

This is especially true in Japan, and as a result, its central bank’s balance sheet is now so bloated, it represents nearly 100% of the country’s entire gross domestic product (compared to just 20% before the housing bust).

Fact No. 7. In a stable economy, people’s asset values should rise pretty much in tandem with their income. But that’s not what happens in a bubble economy. Instead, asset values are inflated to kingdom come while their income falls far behind.

When they get too far out of whack, you can almost bet that a big bust is not too far away:

Tech Bubble Housing Bubble

That’s exactly what happened just before the tech wreck of 2000.

It’s also what happened before the housing bust of 2007, only worse.

And it’s also what we’re seeing today — the worst of all.

Never before have we seen a wider gulf between inflated asset values and the rewards of actual sweat-of-our-brows work!

Never before have we seen a global speculative bubble that is so extreme and so broad.

In fact, it’s so widespread, we can find no appropriate words to describe it except perhaps…

The Everything Bubble

It’s like the Blob. It engulfs every asset imaginable.

Stocks of all colors, types and sizes … so-called “safe” government bonds and ultrahigh-risk junk bonds … small homes in Texas and billionaires-row condos in Manhattan … avant-garde artwork and Old World masterpieces … collectibles, trinkets and trophies.

Last November, Leonardo da Vinci’s Salvator Mundi sold for $450 million, more than double the previous auction record for any piece of art in history.

A 31,500-square-foot penthouse in Monaco recently went up for sale at a world record $335 million.

A 1952 Mickey Mantle baseball card hitting the market later in March is estimated to fetch at least $3.5 million, dwarfing the previous record by at least $400,000.

My father used to say: “When the stock market’s about to crash, no one on the exchange is going to ring any bells.” No, maybe not on the exchange.

But for the alert observer, every factoid I’ve given you today is a telltale sign that leads to one singular conclusion…

It’s almost time.

The bear market may take a while to emerge. But the bull market in asset values is on its last legs and could soon begin to die.

A major top in the stock market is forming or about to form.

A new crisis — this time in sovereign debts — is closing in.

Any bear market that follows is bound to be very, very severe.

The good news is that you still have time to prepare.

Donald Trump’s trade follies presage more protectionism

Everybody, even the US, would be damaged by the Balkanisation of the global economy

Martin Wolf

The US president plans to impose tariffs of 25 per cent on steel and 10 per cent on aluminium. This is a purely protectionist policy aimed at saving old industries © AP

Donald Trump really is a protectionist. It is more than mere rhetoric. This is the lesson from last week’s announcement that he would sign an order this week imposing global tariffs of 25 per cent on steel and 10 per cent on aluminium.

These tariffs are not that important in themselves. But the rationale used to justify them, their proposed level and duration, the willingness to target close allies and the president’s statement that “trade wars are good and easy to win” must alarm all informed observers.

This action is unlikely to be the end; it is more likely to be the beginning of the end of the rules-governed multilateral trading order that the US itself created.

This may sound alarmist. It should not. True, the proposed actions target only a little over 2 per cent of US imports. If this is where they end, then the world — and the world economy — will surely take it in its stride.

It is possible that, with someone as inconsistent as Mr Trump in charge, this is where it will end. But we cannot bet on it.

One reason US protectionism is likely to spread is that the proposed action, explicitly intended to last a long time, will tax all users of steel and aluminium. These include industries that employ vastly more people than the 81,000 employed in the US basic steel industry.

The users will suffer “negative effective protection”. One result will be that imported products made of steel and aluminium will become cheaper. The “solution” will surely be to put tariffs on imports of these products, too.

Another reason why this action could spread is that those adversely affected could retaliate against the US in other areas. In practice, however, it is more likely that they will take the US into the dispute settlement process of the World Trade Organization, while imposing so-called safeguard protection on steel and aluminium to forestall diversion of imports on to their markets. In this way, too, protection will spread.

A further reason for protectionism to spread is the US use of the national security loophole. The WTO does indeed allow a member to take “any action which it considers necessary for the protection of its essential security interests . . . taken in time of war or other emergency in international relations”.

But, as Chrystia Freeland, Canada’s foreign minister, suggests: “It is entirely inappropriate to view any trade with Canada as a national security threat to the United States.” Yet once this loophole is used so irresponsibly by the US, of all countries, where might it stop?

A crucial point is that this action is not about China, which accounts for less than 1 per cent of US steel imports. Its victims are friends and allies: Brazil, Canada, the EU, Japan and South Korea. Nor is it a measure taken against some form of unfair trade. This is a purely protectionist policy aimed at saving old industries.

Yet, even on these terms, the rationale is feeble: US steel and aluminium production has been flat for years. If this action really makes sense to Mr Trump, what might not?

For all these reasons, then, we should foresee more protectionist actions by the US and others. Yet a still more important reason exists for expecting this. Mr Trump seems to want a protectionist war. He is sure that a big country with large trade deficits must “win”.

Furthermore, he believes those deficits are proof that the US has been taken for a ride by others. Both beliefs are economically ludicrous.

Yes, the US might be less harmed than others in a protectionist war. But everybody, very much including the US, would be damaged by the Balkanisation of the global economy.

In addition, it is wrong to view trade surpluses as the equivalent of a profit in business, as Mr Trump does. Imports are the goal of trade. Trade surpluses have no intrinsic merit.

Yet this action is ultimately justified by the strong belief that the US has been a victim of the machinations of others. One bit of evidence used to justify this sense of grievance is the idea that the US is “the least protectionist large economy in the world”.

No summary measure of overall protection is ideal. But the least bad one is the weighted-average applied tariff. According to the WTO, Japan’s weighted average tariff in 2015 was 2.1 per cent, that of the US 2.4 per cent and the EU’s 3 per cent. These are very similar. China’s was 4.4 per cent, largely because it has been part of just one global negotiation: its accession to the WTO in 2001, when it was rightly still viewed as a developing country.

Some US policymakers refer instead to the “bound” tariff. On that basis, US protection is relatively low. But a simple average of bound tariffs — the ceilings a country has agreed upon its tariffs — tells one very little about its actual level of protection. Furthermore, the US has bound its tariffs at low levels to obtain concessions from others, notably protection of its intellectual property.

The other grievance is over trade deficits. But these are macroeconomic phenomena, not the result of trade policy. Mr Trump has just signed into law a large increase in the US structural fiscal deficit. Other things equal, this is sure to increase the trade deficit.

This will be particularly true if, as the administration hopes, its tax cuts fuel a large rise in US private investment, while government deficits rise. Does the left hand of US policymaking understand what the right hand is doing? It appears not.

The International Monetary Fund is right to criticise this plan. It will impose substantial costs, disrupt alliances and surely lead to yet more costly protectionism, by the US and others. It is a product of a characteristic blend of self-pity — the world is mean to us — and bombast — we can easily bully others into submission. The result is likely to be further shredding of the fragile fabric of global trade.

Well done, Mr Trump.

The Myth Of Infinite Economic Expansion

Hong Kong

Most experienced investors know the four most dangerous words are: This time is different

It never is. 

And yet one of my key predictions here at Peak Prosperity is that The next twenty years will be completely unlike the last twenty years.

So, am I saying that things really will be different this time?

Yes, I am. But to understand why, you have to look closely at the unprecedented moment in history in which we live, as well as how the Three E’s – the Economy, Energy and Environment – all tie together now in a way they never have before.

For those who prefer their conclusions right up front, the simplest summary I can provide is that everything we think we know about "how things work" is just plain wrong.

This explains why, among many other grotesque distortions, the stock and bond markets are spectacularly overpriced and overvalued right now.

This danger is important to be aware of because when things correct, as they inevitably must, the next crash will be incredibly damaging. It could be as profound as that which dethroned Spain as a world power, permanently.

Peak Prosperity user Gyurash put this risk in context within his comment to our recent podcast on Economics for Independent Thinkers:

The mention of Paul Volker was interesting. I remember listening to a lecture given by Mr. Volker played on public radio in the mid 80s. He talked about the Spanish empire in the 16th century and the easy money train they had coming from South American gold and silver. He said that although it seemed to create great wealth it also made for a false economy in Spain. In addition to creating price bubbles, the Spanish did not use it to build much of anything other than big villas, built by itinerant foreign labor by the way, so when the gold and silver flow slowed when the biggest mines were effectively depleted, their economy crashed so hard that it never recovered, even up to today.

Delusional Thinking

What’s worse than wishful thinking? Delusional thinking. 

The sort of ideas that harm rather than help those who hold them.

Of the many current policy delusions I could rail about, perhaps the greatest of them all is the quite-impossible belief that we can have infinite growth on a finite planet.

I know, I know, refuting this is so brain-dead easy to debunk that it seems pedestrian, if not childishly so, to raise it here again. It’s quite an impossible proposition.

Even the most cursory of reviews of mining data (just one of many possible examples), show that many critical ores and minerals are vastly more difficult and expensive to extract and bring to market than they were just a few decades ago. And the trendlines keep getting worse.

But let’s go through this once again, because it’s such an important point. For those of you already on my side of the boat, please bear with me. Perhaps something new will emerge for you on this next go around.

The Harsh Math

Exponential expansion requires not just some new minerals coming to market, but exponentially more. 

It works out like this. Suppose that 100 units of copper were produced in year 1, and output (as demanded by economic growth) was expanding at a 3 percent rate. How long would it take for production to double? The answer is that after 24 years we’d find that 203 units were being produced. So a 3 percent growth rate means that it takes only 24 years to fully double production.

However, the more interesting fact is that over that same 24-year stretch, if we add up each year’s production into a cumulative total we discover that 3,546 units of copper had been produced. How much copper would you guess was produced over the prior 24-year stretch (the one that got us to 100 units in the first place)? 

The answer is just 1775 units. In other words, half the amount produced during the next doubling. Going back further and adding up all of the doublings of copper production throughout all of history we’d discover that each new doubling produced (and consumed) as much as the sum total of all the prior doubling periods combined.

You can prove this to yourself by looking at a doubling sequence such as 0.25, 0.5, 1, 2, 4, 8, 16, 32 etc. Note that 4 is larger than (0.25 + 0.5 + 1 + 2) and that 8 is larger than (0.25 + 0.5 + 1 + 2 + 4) and that 16 is larger than (0.25 + 0.5 + 1 + 2 + 4 + 8) and so on -- into infinity.

Again, each new doubling involves an increase that is larger than the combined values of all the prior doublings in history.

For the visually-minded, here’s that same idea expressed in an image:

(Click to enlarge)

How Many More Doublings Can We Possibly Have From Here?

Only the most delusional would argue that we can dependably double our extraction of key natural resources forever. 

Every two decades (or so), will we always be able to use twice as much farmland, twice as much fish in the sea, twice as much oil in the ground, as has been used before throughout all of human history?
Of course not. Planet Earth is a finite system.

This is why I claim that everything we think we know about "how things work" is wrong. Our entire economic and financial systems, their associated monetary models and their current financial asset prices, are predicated on the principle of continuous growth. And not just any sort of growth: Exponential growth. Predictable doubling -- forever.

Look, it’s ridiculously easy to prove that there won't always be twice as much copper (or nearly any other key natural resource) as has been extracted throughout all of prior human history. Things run out. They deplete. They become more dilute as the high grades are exploited first.

At some point, doubling becomes impossible. That’s when you're past the point where half has been extracted and half still remains in the ground. After that, there are exactly zero doubling periods remaining! That's just elementary math.

Why care?

Because once the doubling periods are over, every single economic model and financial asset that is predicated on continuous expansion breaks. Our systems stop steadily growing; and instead start increasingly shrinking.

This not a hard concept to grasp, intellectually, for most people with an open mind. But in practice, because it challenges our comfortable understanding of the world, because it collides with an entire Disney World of incompatible social belief systems, it’s pretty much impossible for the many people to even begin to wrestle with. Forget about a mainstream economist or central banker, whose salary requires them to adhere to the status quo.

The warning here is that we our deluding ourselves as a society. We are herding ourselves, lemming-like, straight towards the cliff ledge.

Think Critically!

Very few voices are standing about waving their arms in the air like we are, warning of the approaching cliff. We're aware that the point of no return might still be several decades out into the future, but we also realize that it could already be behind us. It's nearly impossible to know right now given the complex system that is our planet -- but given the existential risks involved, our opinion is that everyone should be mobilizing in response to this arriving (arrived?) crisis.

We often get labeled as narrow-minded “Malthusians”. Or accused of failing to account for human ingenuity. (Neither is accurate, we think.)

But in reality, we're simply data driven. The facts are what they are. Logic is what it is.

And we get it. It's both a factual and a logical nightmare for the infinite growth crowd that the earth is finite.

But as Einstein famously quipped:

And as you wrap your brain around the limits to growth, remember that you're subject to the same comprehensive programming that envelops us all. The messaging that constantly reinforces the idea that endless growth is what we need, and what we can expect.

This programming is subtle, reassuring and ubiquitous; which makes it hard to resist. Here’s a prime example:

(Click to enlarge)

To an economist like Bernanke, there are only virtuous expansions. Of course, the sort of expansion he refers to is exponential growth. Which is absolutely destined to fail in the long run (and now, maybe, the short).

And when that happens, the fallout will be spectacular and highly destructive to the hopes and dreams of literally billions of people.

Make Your Choice: Change By Pain Or Insight

What’s unclear to me is if there can be any meaningful recovery from this next crash, whenever it happens and however long it takes. 

To return to the opening piece of this article, while I know that this time is different are dangerous words for investors to believe, the impending collision between delusional infinite growth thinking and resource limits and other realities will appear to the average observer like a gigantic change. But, in fact, it simply will mean that humans are subject to the same limits as any other life form on earth. 

In other words, it really won’t be different this time. 

In boy-meets-girl story form, the plot line of the natural process for all forms of life is:
  1. organism finds tasty energy source
  2. organism expands exponentially into that energy source
  3. energy source dwindles even as organism continues into population overshoot, and then
  4. happy times turn into tough times, and organism population plummets

Given that literally everything we hold dear and take for granted, such as well-stocked supermarkets, 24/7 electricity, and an appreciating retirement portfolio are all themselves dependent on an economic model that requires perpetual exponential expansion, several questions emerge.

How can I protect myself, my family and those I care about? How can I secure a prosperous future?

What do I need to do to develop the right mental models and belief system to deal effectively with the coming challenges?

You can either address these questions head-on now, while the world still works the way we're accustomed to. Or later, under crisis conditions.

We've learned that there are two ways that people change their beliefs and then their actions: by pain or by insight.

Most people go the pain route. And in the process, they waste a lot of valuable time that could have been spent constructively. It’s only after the heart attack, the divorce, the backing over the family dog while drunk—moments of extreme pain—that most people will begin to actively face the idea that they need to make different decisions in life.

But it doesn't have to be that way. Part of the beauty of being human is that we can learn from observation, reflection and experience, and can adapt. Critical thinkers have this ability to change by insight. They use new information to put new behaviors into practice until those practices become new habits. And with better habits, we achieve better destinies.

So which route will you choose? Pain or insight?

The story told by the Three E’s is loaded with the potential for plenty of painful moments over the next few decades. Sadly, a lot of people will not take precautionary steps far enough in advance to matter. They’re just not focusing on the risks right now. As a result, much of the world will be forced to change its behavior via the pain route.

Use this awareness as a sense of urgency to prepare now. To secure your future prosperity, as well as to help those regretting that they didn’t follow your lead.

Reagan’s Cure for America's Debt Disease

Two programs, Medicare and Social Security, are the bulk of the problem. Here’s how to fix them.

By Martin Feldstein

The federal government’s most urgent domestic challenge is the exploding debt and deficit.

America’s debt nearly doubled during the Obama years, reaching 76% of gross domestic product in 2017. If nothing is done it will surpass 100% of GDP within a decade. The U.S. will then have one of the highest debt ratios in the industrial world—topped only by countries like Greece, Italy and Japan.

Most of the projected debt increase over the next 10 years is a result of the recent cuts to the personal income tax, including the lower rates, the big increase in the child credit, and the doubling of the standard deduction. The personal tax cuts were included in the legislation to get the congressional votes necessary to enact corporate tax reform, which was economically more important.

Those corporate provisions, including cutting the rate from 35% to 21% and changing the tax treatment of profits earned by foreign subsidiaries of U.S. companies, will spur higher productivity and raise real wages. They are not the main driver of the debt problem. Also not to blame, despite what many Trump critics have argued, is January’s boost to military spending, which will contribute relatively little to the increased debt. Instead this was a long-overdue correction to a military budget that had become dangerously low. It was important to enact both these priorities—corporate tax reform and increased military spending—while there was a political opportunity to do so.

Now attention must turn to deficit reduction. Shrinking future deficits without an economy-damaging tax increase means slowing the growth of government spending. Policy makers looking for savings must focus on two programs. Excluding interest on the debt, Social Security and Medicare account for two-thirds of the projected increase in outlays during the next decade.

Reagan’s Cure for America's Debt Disease
Photo: istock/getty images 

Between 2018 and 2027, Social Security outlays are projected to grow by 1% of GDP, and Medicare by 1.4% of GDP. Together they would account for the entire 2.4% rise in the deficit as a share of GDP. Cutting their growth in half would reduce the 2027 deficit from 5.2% of GDP to 4% of GDP. That would start to shrink the future debt ratio from more than 100% of GDP back to today’s 76%. That isn’t good enough, but it’s a shift in the right direction. 

Slowing the growth of Social Security and Medicare doesn’t mean cutting actual benefits. It would therefore not violate President Trump’s campaign promise to “save Medicare, Medicaid and Social Security without cuts.”

President Reagan showed a politically viable way to slow the growth of Social Security benefits. In 1983 Congress raised the age for receiving full benefits from 65 to 67. That increase was designed to begin only after a long delay, so that no one then approaching retirement was affected. Even after the delayed start, the increases proceeded very slowly; they won’t take full effect until 2027. As a result of this gradual approach, there have been neither public protests of the plan nor legislative attempts to repeal it.

Since 1983, the average life expectancy for people in their mid-60s has increased by about three years. Raising the retirement age for full benefits by three years, from 67 to 70, would cut the future outlay for Social Security by about one-fifth, or 1% of GDP. It would be even better to pass a law that automatically raises the age for full benefits as life expectancy improves. Exceptions could be made for people in strenuous occupations or for those whose Social Security records show low lifetime earnings.

Mr. Trump has already shown a willingness to act on Medicare. The White House’s fiscal 2019 budget called explicitly for slowing the rise in Medicare outlays by $500 billion over 10 years, or about 5% of the program’s budget. Much more is needed.

Medicare receives a portion of the payroll tax, as well as premiums that patients are charged for outpatient and drug coverage. But these funds cover only about half of Medicare’s total outlays. Beneficiaries pay no premiums for inpatient coverage under Medicare Part A, regardless of their incomes. Why should I receive Medicare hospital benefits without paying any premium if I am still working and well-paid?

Under current law, about 95% of enrollees in Medicare’s outpatient and drug coverage pay a “standard” premium that covers only about 25% of the cost of their benefits. Starting in 2019, those with incomes of $500,000 or higher will be required to pay premiums that cover 85% of their costs. But that affects fewer than 1% of enrollees. 

The premiums most Medicare enrollees pay for outpatient coverage could be gradually increased. At the same time, premiums could be extended to cover inpatient coverage. Low-income retirees could be exempted, or the premium increases could be scaled to income.

There are many other options for slowing the rise in government outlays for Social Security and Medicare. Congress and the Trump administration must develop a plan to reduce the long-run cost of these programs before the national debt threatens the stability of the economy.

Mr. Feldstein, chairman of the Council of Economic Advisers under President Reagan, is a professor at Harvard and a member of the Journal’s board of contributors.

The Full Employment Mirage

By Patrick Watson

Judging by the official 4.1% unemployment rate, US workers appear to be doing pretty well. Unlike a few years ago, almost everyone who wants a job has one. That’s an improvement.

Having “a job” isn’t the same as having a good job, of course, one that pays enough to cover your needs and lets you feel worthy and productive. Those are more elusive, although the situation is far better than it was during the recession.

But these conclusions come from data that looks at averages, and few people are average.

I thought about this because recently I’ve been helping John Mauldin write about the problems with economic data. That low unemployment rate is a key reason the Federal Reserve plans to hike interest rates three times this year (some people even think it will be four times).

That could be a serious mistake because millions of people aren’t as secure and stable as the unemployment rate implies.

The Fed should know this… because the Fed itself says so.

Photo: Getty Images

Not-So-Quality Jobs

The Federal Reserve Board has vast resources to give it every possible bit of useful data. One such resource: The Community Advisory Council (CAC). Its role is to give the Board “diverse perspectives on the economic circumstances and financial services needs of consumers and communities, with a particular focus on the concerns of low- and moderate-income populations.”

That sounds useful. If wages are the key to 2018, as I wrote recently, the Fed should hear from average wage-earners as well as bankers and politicians.

This is particularly important on job and wage issues. Like inflation, the unemployment rate doesn’t reflect everyone’s situation. If people are “employed” but still in terrible conditions, the Fed may charge ahead with the wrong policies.

The CAC’s input should reduce that risk—but apparently, it’s not.

The Fed’s Board of Governors met with the CAC on November 3, 2017. You can read the official record here. And here’s part of the council’s jobs input. (I’ve split it into bullet points for clarity, but this is a direct quote.)

• “The data indicate that despite the drop in unemployment, there has not been an increase in the number of quality jobs—those that pay enough to cover expenses and enable workers to save for the future.”

• “The 2017 Scorecard reports that one in four jobs in the U.S. is in a low-wage occupation, which means that at the median salary, these jobs pay below the poverty threshold for a family of four.”

• “The rate of low-wage jobs has remained relatively stagnant since 2012, and in six states (Alabama, Arkansas, Louisiana, Mississippi, New Mexico, and West Virginia), more than one in three jobs is in a low-wage occupation.”

So according to the Fed’s own advisory council, lower unemployment isn’t bringing “quality jobs” to everyone, or even most people.

The number in that second bullet is startling: one in four US jobs doesn’t pay enough to keep a family of four above the poverty line. It’s even worse in some states… but that doesn’t necessarily show up in state-level unemployment data.

Image: Bureau of Labor Statistics

As of December 2017, two the states the CAC named (Alabama and Arkansas) had lower unemployment rates than the national average, yet one of three jobs in those states were in the “low-wage” category. But if all you saw was is the unemployment rate, you might think they were doing fine.

Federal Reserve officials know this, or should know it, because their own advisors are telling them about it. Yet all indications are they will proceed with another rate hike this month, and probably two or three more this year, in part because the US is at full employment.

See a problem? This “full employment” is one of those desert mirages: cool, refreshing water that isn’t really there.

Photo: Getty Images

Driving to Poverty

It’s true that the economy is changing. People have new opportunities that old data methods don’t capture.

However, the data we do have isn’t always encouraging. Consider the “gig economy” jobs, like driving for Uber or Lyft, which give people a way to make extra income. Maybe it helps, but not much.

Drivers for the ride-sharing services have to pay their own expenses. According to an MIT study released last month, the median driver profit is $3.37 per hour before taxes. And that’s the median, so half the drivers make even less.

MIT found that 74% of Uber and Lyft drivers earn less than the minimum wage in their state, and 30% actually lose money when you add in vehicle expenses.

For some, the loss might have helped reduce their taxes on other income. But the higher standard deduction that takes effect this year may reduce or eliminate that benefit for many.

Clearly, the gig economy isn’t as miracle-producing as some people think.

Photo: Getty Images

Incoming Data

This Friday, we’ll get another round of jobs data, and it will probably look good on the surface. For some people, it probably is good—but not for everyone.

Nonetheless, the Fed is plodding ahead on its balance-sheet reduction plan and raising short-term interest rates too. Listen carefully and you’ll notice a shift in language: Officials have been describing economic “tailwinds” instead of headwinds.

Right or wrong, they think this economy, in which their own experts say one in four jobs pay only poverty-level wages, is growing just fine and needs no stimulus. If anything, they want to slow it down.

I doubt this will end happily, but we’ll find out soon.