Audience Questions and Answers

Q: With regard to education, how fast do college degrees become obsolete if you don't continually retrain yourself?

I was a college professor for 10 years, and so I'm a big believer that we’re going to have to change the culture or the mindset of our country. There’s no such thing as you get an education and then say, ‘I’m done. Now, I can go on about my career.’ I think all a college education or an MBA does—I  used to say this to students, executives and MBAs—is get you ready to continue to learn. But most of the learning occurs after you finish college and hopefully, you learn enough basic skills so you’re more equipped to learn. You learn to ask the right questions, you get some basic skills, particularly how to read and write. Students of today—and I include probably all of us in this room—are going to have to get more equipped to update their education, and (it’s going to get) more stressful getting trained and retrained because the world is changing much more rapidly. I don’t think we’re sufficiently communicating that.

We’re big fans of looking at the whole education ecosystem. Somebody asked me, “If you had one extra dollar, where would you spend it?” One extra dollar, I’d go straight to the zero to five-year old group and expand pre-K and upgrade teacher quality in pre-K in the United States. This is so the kids start first grade (and are performing) at least at grade level; currently, too many are not. Improving secondary education and skills training are also good alternatives. A high percentage of students—a shockingly high percentage—are not finishing college even in six years. Some of those students should be going for skills training, and maybe going onto college after. But we need to beef that up and increase awareness. And then, yes, of course we need to improve college readiness.

But after all of that, there’s one other part of the ecosystem, which is in your 20s and 30s and 40s, that we’re not used to. It’s easy to say, hard to do. If you’re in your 40s and your job has been restructured or eliminated and you have to tell your friends that you’re going back for training and starting over, that doesn’t feel very good.

The truth is more companies are having to do the retraining. But it has to be done with junior colleges and high schools (because) there’s a lot of small companies in this country; they’re not equipped to do sufficient training. Automotive technicians would be an example where it’s got to be a community effort, where the community college trains people, and they go off to a lot of different businesses. But the thought that you’re finished with your education at age whatever it is, 22, 23, 24, 25, I think maybe was never true, but it certainly is not true today.

Q: I spent my life in manufacturing. You mentioned Mexico would be (providing) intermediate goods. They’re basically (making) the high-label content stuff, and we make high-value stuff here. You talked about automobile assembly plants. You look at the last 10 years, I think 11 plants were built in the region—nine were built in Mexico, two were built in the U.S.

Right, and a lot of purchasing is moving to Mexico also. I get it. Here’s what’s going on, and this is going on in Asia. It’s going on in Mexico. I think what you were referring to (is that) they’re moving up the value chain. You’re talking about that trend, whereas when it first started—this was true of China, it’s true of Taiwan, Korea—they started off at the low end of the value chain, and then as they got more expertise, they moved up the value chain. And your point is, as they move up the value chain, it takes more of that capability from the United States. The other thing—I spent a lot of time on this when I was at Harvard—if you lose your manufacturing, you eventually lose your R&D also, and we’re very concerned about that.

Here’s the challenge, and that’s why these trade agreements are key. There’s no getting around the fact—and this gets into the adaptability issue—it’s not enough to have a job in the United States if it’s not going to be globally competitive five and 10 years from now. It’s going to be gone. The challenge, and what we’d rather see people focus on in the United States, is how to create a level playing field, which is obviously what we’re doing. It is true that, increasingly, some of these other tasks are going to get outsourced. What’s happening in the United States in today’s job market is a good example of it; we’re going to have to help the labor force be more adaptable.

By the way, forget Mexico. Technology is increasingly replacing a lot of these functions. The part that we’re not doing a very good job of is helping those workers who are getting their job eliminated or restructured. We’re making it hard to go for retraining, but I think we have got to be sensitive to what you said. I’d like to see us invest dramatically more in our human capital to improve the adaptability of our workforce, and to my eye, we are lagging many countries around the world because we’re not investing enough in our workforce. There are no easy answers, but that’s the tension.

Q: I own a manufacturing company in Mexico and produce for 12 U.S. companies. I’d like to know or if you could give a little perspective to the 63 percent (U.S.) workforce participation rate and the employment report of hundreds of thousands of jobs today that are currently available.

Here’s what’s really tricky about these jobs numbers. You’ve got a headline unemployment rate of 3.7 percent. The other thing we look at even more deeply is something called the U-6, which is unemployed plus discouraged workers who’ve given up, plus people who work part time, though they prefer to work full time. Even that measure, it’s higher, but that’s at 7.1 percent, well below its prerecession low. That tells us that the job market is tight.

The other thing we look at is within this participation rate, namely prime-age participation of workers ages 25 to 54. And prime-age participation is now getting back to where it was prerecession.

So, we’ve got a very tight labor market. So, then what’s the problem? One of the biggest problems I see is the lack of skilled workers, and we’re not educating enough skilled workers. And I can tell you, there’s probably not a week that goes by that we don’t talk to people, either in high schools, junior college presidents, workforce development boards or businesses. You know why? We convene a lot of groups to try to encourage this (job training), and I’d say the biggest response I get is a lack of awareness. It’s not like these partnerships aren’t being created. (There is a) lack of awareness and a little bit of a stigma, social stigma for taking some of these jobs.

Want an example? Ten years ago, on automotive, if you went and bought a car at a car dealership, the highest paid person in the car dealership was the salesperson. And that person who made the most usually negotiated most, not a pleasant experience some of the time. Roll forward to today, that person is now called a product specialist. He or she makes half of what they used to make. There are fewer of them, but there is one person that is the highest paid person now, and that’s the automotive technician. That person, in some cases, makes $150,000 or more and you can’t find them. There aren’t enough of them.

That’s a giant change over, maybe, 10 to 12 years, but I don’t think the public is aware of it. So,  we think there’s an awareness issue. There’s a lot more communication. Our leaders broadly should be flagging us, talking about an alternate career path. I think the answer is probably not to forgive all college debt, it’s instead to think through alternative paths to improve this ecosystem.

So, the problem is, to your point, why can’t you just fix this damn thing in the next six months?  The kinds of things I’m talking about, if you start now, (it will take) years and years. It has to be done locally. Worker mobility is historically low. You’re going to improve the skills gap; it has to be done in a bunch of cities and towns all through the United States.

I was just in Corpus Christi at the end of last week. They have a big skills gap in Corpus Christi. They got all this infrastructure, the port, petrochemicals, etc., and they can’t attract workers. The other trend that’s going on, which is concerning, is there’s a cultural trend of young people moving out of smaller cities to bigger cities, and a lot of the skilled jobs are in these smaller cities.

It’s a complicated issue. We just try to pound a way out of every element of the ecosystem and talk about it. The problem is technology and technology-enabled disruption is going on like this and the improvements in education are kind of going maybe like this, and the gap is actually widening.

Q: I wanted to pick up your point about climate change. Mark Carney, governor of the Bank of England, has spoken quite a bit about the systemic challenges of climate risk for the financial sector, both in terms of the actual sort of outcomes—more heat waves, events that are costly to companies, that are not being priced appropriately—and also in regulatory risk terms. What’s your view of that? How is the Fed thinking about that (topic)? Do you think the financial sector in the U.S. is sort of thinking about these risks systemically or where we are we on it?

As you said, the Bank of England, on the one hand, has taken up this topic, but it focused most specifically on systemic risk, financial stability. I think that’s worth looking at. If you’re an insurance company or other financial intermediary—and I talk to a lot of them and to their chief executives—they’re actively taking this into account and it's affecting pricing in the catastrophe market and the reinsurance market and all that.

At the Dallas Fed, we’ve taken up the other aspects of this a little bit more; what’s the effect on economic performance, even though right now it does not appear to be as material. Our worry is if the frequency and intensity of these weather events increase, you may actually start to see it affect where businesses domicile and migration patterns. It certainly affects investments that have to be made right now in infrastructure to protect against these (weather events).

The ports? They’re a great example where there’s multibillion-dollar investment that needs to be made along the Gulf to protect against the next weather event. We’re sort of broadening the aperture of it. I’m not going to come out on which part is most important, but we’ll take it up a little bit more before you even get to financial stability. You would hope stress testing, and a lot of the good regulatory practices, will take that into account, and we should be able to manage it. I worry. We need to do things to improve the other parts of the ecosystem and call out that climate change is more than a nice thing to look at. It’s a business thing. It’s an economic thing. It’s going to affect growth and peoples’ lives and where they live and everything else.

Q: There are some people who believe that your four drivers are lacking or missing one. There should be a fifth driver: monetary policy. Monetary policy should have, as one of its objectives, economic growth. And you see that coming out of the current administration. What do you say to that?

I want to differentiate between a driver and a policy response to a driver. So monetary policy is a policy response to a driver, and here’s my take on it.

Obviously, I went from the private sector to come be a central banker. When I came here, I wanted to believe that monetary policy is very, very important. I think humility might be the wrong word, but I think these drivers help us put monetary policy in context. Monetary policy has a key role to play in helping with the adjustment process, to set the stage for better growth. But my own view is—and we can talk about it at this conference—monetary policy by itself can encourage risk taking and debt during down periods and other things. By itself, it’s not a substitute for labor force growth. Structural reforms improve productivity, like good policy decisions on globalization. The fundamental drivers of growth, many of the prescriptions to improve them, are a way for monetary policy (to aid the economy).

I think it’s very important to flag that. Here’s why: If I look at the ECB (European Central Bank)—I have great respect for (ECB President) Mario Draghi and what they’ve done—they haven’t had a lot of fiscal policy (among ECB countries)—there’s talk maybe Germany might (use fiscal policy)—so it’s been heavily on them (monetary policy makers). I think the last thing you’re going to hear me say at the Dallas Fed is, “Don’t worry, monetary policy, we got this,” because it’s actually not the right message or the right analysis. We think it takes a broad menu. So back to the ECB, they have done extraordinary things to try to stimulate the economy and tighten credit spreads. But you can see they need fiscal policy and other structural reforms if they’re going to grow faster.

Monetary policy by itself can’t do it all, and if monetary policy is the key alone, my worry is you’re going to make decisions that distort markets, hurt savers, and I think it shouldn’t be a substitute for broader economic policy. And I think it’s part of my job to call that out.

Q: Many immigrants in Texas face challenges. What could be leveraged to provide more access to capital to immigrants and also to let immigrants open bank accounts? What is your view on that?

There’s a bunch of issues in there. Let me just untangle them. One is a broad issue of access to financial services, and we (at the Dallas Fed) spend a lot of time on this. We do a conference every year called RAISE Texas. We think we have a disproportionate percentage of our population that doesn’t have access to financial services. A disproportionate percentage of our population doesn’t have access to Wi-Fi, so we spend a lot of time on that too. And I think that a disproportionate percentage of these fastest-growing demographic groups are reading behind grade level.

What we’re trying to do here is encourage policies—and by the way, it may not take the government to fix these. We formed a partnership in McAllen with local business people and the mayor. They created a public Wi-Fi (network); they now have Wi-Fi. It didn’t cost that much money, and it cost very little government money. There’s a whole bunch of parts to this ecosystem, but it starts with identifying all the gaps.

We have to work to get it done. This is why it’s hard. It can’t be mandated from D.C. or even from Austin. If the local mayor in McAllen did not say, “I want to solve this problem,” I actually don't know how they would have solved this problem. It took local leaders, local business people and the Community Reinvestment Act and banks being part of it. But it takes partnerships to address these issues. I think the banks are ready and willing, but it takes more than just the banks. It takes local leadership; it takes partnerships being formed.

We work to try to intermediate, and we think one of the great distinctive competencies we have at the Dallas Fed is we can be a convener. If we call a meeting of all these groups, people will actually come. We try to use that convening power, and hope (that when) we talk about these things, other cities call and say, “You know what? We heard what you did in McAllen, we’re going to do it in our town.” I know that sounds like nibbling away—and if it does sound like that, it’s probably because you have got to just work at it, and that’s the way we go at this.