“More needs to be done to strengthen the recovery. Too many Americans still can’t find a job and worry how they’ll pay their bills and provide for their family.”
– Janet Yellen, nominee to chair the Federal Reserve Bank

Janet Yellen has supported the Fed’s promise to keep interest rates low until the unemployment rate, now 7.3 percent, falls below 6.5 percent.

She has consistently called for the Fed to respond forcefully to unemployment. As she said in a speech to the AFL-CIO in February, “These are not just statistics to me. We know that long-term unemployment is devastating to workers and their families.”

The Fed possesses a powerful tool to pump up the economy and reduce unemployment: It can print money and use that money to buy securities, which lowers interest rates. And it’s been using these tools: Since 2006, the Fed’s securities holdings have expanded from $750 billion to $3.5 trillion.

Despite the Fed’s aggressive policies over the past four years, the economy has limped along at a skimpy growth rate of around 2 percent. The most recent data from the Census Bureau, released in September, reported that, on an inflation-adjusted basis, the median American household income has not risen for a quarter of a century.

The census report found that median household income was $51,017 in 2012, down about 9 percent from a peak of $56,080 in 1999. (The median divides households into two equal segments, with half earning less than the median household income and the other half earning more.)

It seems to me that people earning $51,000 are scraping by, given the cost of food, energy, housing, education and health care.

Since the recession ended in 2009, the top earners have fared better than the rest of the country. The top 5 percent earned about as much in 2012 as they did before the recession. But those in the bottom 80 percent generally are making considerably less than they did then.

In an Oct. 13 New York Times article entitled “Inequality is a Choice,” Nobel laureate for economics Joseph Stiglitz wrote, “Last year, the top 1 percent of Americans took home 22 percent of the nation’s income. … Ninety-five percent of all income gains since 2009 have gone to the top 1 percent.”

And the shrinking U.S. labor force is worrisome, too.

In 2007, 66 percent of Americans had a job or were actively seeking work. Discouraged by the weak economy, that number now stands at 63.2 percent — the lowest level since 1978. To put this in perspective: If the same percentage of adults were in the workforce today as when President Barack Obama took office, the unemployment rate would be 10.8 percent.

I believe Yellen is well qualified for her promotion. But I worry about her continued advocacy of Quantitative Easing. The tools at her disposal — the Fed’s on-going monthly purchase of $85 billion of government and mortgage-backed securities — might reduce unemployment further. But these policies could trigger inflation.

Just as bad, QE does not rectify stagnating median income.

I suggest a different approach that has three benefits. My policy recommendation increases employment, the participation rate and the median income.

I endorse measures that will broadly improve American workers’ skill sets, which would help American companies fulfill their manpower requirements and better compete in today’s tough global economy.

Let us embark on training to:

Improve statistical analysis in order to help businesses make decisions.

Encourage cross-cultural competency and linguistic skills.

Increase the ability to use sophisticated tools to engage and persuade multi-cultural audiences.

Improve the ability to design the processes that encompass today’s production lines, including everything from robotics to 3D printing.

Protect valuable data and networks with improved cybersecurity.

Originally published in the Sarasota Herald-Tribune