The Conference Board Leading Economic Index was released today, jumping 1.4% in March, capping six straight months of increases and reaching what the Conference Board calls “its highest level.”

It’s nice to see a quantitative chart blending multiple data points that ticks up strong strongly.

As is consistently the case in this economic recovery, employment will be a primary driver of continued performance.

Adds Ken Goldstein, economist at The Conference Board: “The indicators point to a slow recovery that should continue over the next few months. The leading, coincident and lagging series are rising. Strength of demand remains the big question going forward. Improvement in employment and income will be the key factors in whether consumers push the recovery on a stronger path.”

Regardless, this is a nice bit of momentum to head into the summer with.

One of my favorite reads is the blog Carpe Diem by the economist Mark Perry. The posts are regular, clear, topical and always advance my understanding complex topics.

Over the past few months, Perry has been sharing observations and links about health care and economic demographics.

Regarding healthcare, he’s communicated his skepticism about the pending legislation by focusing on the market solutions that have developed to provide broad-based affordable health care. One phenomenon he’s looked at closely has been the emergence of stand-alone health clinics.

This weekend, Perry pointed to a loophole in the government plan: for many, the cost of paying a fine will be lower than buying health insurance. What about when you get very ill, you say? Well, the legislation forbids insurers from denying you coverage based on a pre-existing condition, so if you get sick, you’ll just go buy insurance.

In the meantime, Perry points out, you’ll probably go to a stand-alone health clinic to get treated for your occassional illness.

The post is well worth reading, and the comments are even better. Proponents of the health plan rebut Perry’s observation by describing how this loophole can get closed.

At the core of Perry’s observations is the question of whether a comprehensive national solution that attempts to incorporate the embedded biases of existing industries can avoid the emergence of unintended consequences at the local level. His conclusion? It can’t.

The past few weeks, hidden beneath the clamor about healthcare reform (a word I use loosely), there’s been a lot of interesting data and commentary around gender, class, earnings and income.

The highlights: More women are better educated than men, higher earnings accrue to people with more education and less educated people have less job flexibility, higher unemployment and lower lifetime earnings.

These are ultimately more profound realities for our society than healthcare reform. This redistribution of education should ultimately be reflected in a redistribution of roles of responsibility and leadership in our country. Look at Congress, look at executive leadership and today you will see a sea of males, mostly white. That can’t be sustained.

Here’s a look at how the income gap has developed over the past generations.

A happy life is filled with frequent and substantial conversations with others, according to a psychology study reported in Science Daily this morning.

Greater well-being was related to spending less time alone and more
time talking to others: The happiest participants spent 25% less time
alone and 70% more time talking than the unhappiest participants. In
addition to the difference in the amount of social interactions happy
and unhappy people had, there was also a difference in the types of
conversations they took part in: The happiest participants had twice as
many substantive conversations and one third as much small talk as the
unhappiest participants.

These findings suggest that the happy life is social and
conversationally deep rather than solitary and superficial. The
researchers surmise that — though the current findings cannot identify
the causal direction — deep conversations may have the potential to
make people happier. They note, “Just as self-disclosure can instill a
sense of intimacy in a relationship, deep conversations may instill a
sense of meaning in the interaction partners.”

Does this mean that a day on Twitter blocks happiness?

What drives quality of life and how do you assess the circumstances of the middle class?

If quality of life relates to access to sufficient food and shelter to ensure good health, then an overwhelming plurality of American’s have good quality of life.

If quality of life improves when you have access to devices that reduce the time and labor required to maintain your living conditions, and if your circumstances provide tools and devices to make your leisure time more productive, then your average American is living in an era of unparalleled quality.

The chart to the right forms the basis of an argument by W. Michael Cox of AOLNews that suggesting that the American Middle Class is oppressed ignores the remarkable penetration of devices that save time, create connections and entertain in the average American’s life.

My inner technophile loves the chart for the increasing speed of adoption cycles. Note also that the advent of microelectronics has accelerated the adoption of devices that connect people to information and each other. We are in the middle of a second great information revolution, of as much consequence as the proliferation of the popular press in the 18th Century.

But, electronic media is often called the opiate of the masses.

Perhaps Cox believes that unlimited access to media offsets an unsettling shift in income distribution over the past 20 years.

As the Huffington Post reports:

Beginning in the economic expansion of the early 1990s, Saez argues, the economy began to favor the top tiers American earners, but much of the country missed was left behind. “The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007,” Saes writes.

Yes, all these devices cost less, and the average American consumer can afford more cool devices.

But when 60% of the population makes 40% of the income, that creates a wide swath of people who have no safety net, and who more often than not are borrowing just to keep up.

The question of the state of the Middle Class isn’t as simple as questions of food and shelter. It isn’t as easy to define as the access people have to electronic devices.

The state of the middle class is captured in how secure they feel in the world that they experience. The proliferation of media causes dissonance: Images of luxury clash with the reality of daily struggles. No one thing captures the state of the middle class. When Obama talks about rescuing people from their struggles, he is capturing a key element of the zeitgeist. His weakness is his disposition to using the tools of government as the primary release of stress.

The greater question I find myself coming up against again and again is whether leadership can change the culture of a country, can shift values and redeploy the spirit of the citizenship to advance the greater interests of all.

Yesterday, I ran into a retired economist. We talked briefly about the current economic and political situation. His final comment:

Capitalism is an economic system driven by greed. When every part of the system is looking to maximize profits, there has to be suffering. You can’t have everybody be winners. There have to be losers. We lost sight of that.

Sometimes a confluence of unrelated inputs adjusts one’s perception of current and future circumstance. The adjustment doesn’t always have a re-orienting impact; often, it is more notable for confirming and strengthening a point of view.

At the end of last week, I shared a summary of Bloomberg headlines that seemed to capture a pirouette in the zeitgeist. The political reversal in California, an expedient populist shift on the part of the Administration, increases in the base drivers of economic growth — manufacturing and production — contrasted with a sharp decline in the value of equities driven by a flight away from financials created a sense of a great disconnect, with everyone on the public stage scrambling for survival and opportunity, despite the absence of an overriding plan for health and recovery.

During this cycle I had several informative interactions.

The first came in a note from my mother in reaction to the post I had written about the financial fragility of what the Department of Labor calls the base U.S. Consumer Unit. My mother, who lives in Rhode Island, is a pragmatic soul whose perception of the world is organized by common sense and who is frequently confounded by the absence of common sense she sees around her. Her basic message to me was that reducing the people in the United States to an average loses sight of the real crisis that is unfolding.

She writes:

Whatever you have, if it is leftover, it is a miracle. Please, take people without extra dollars seriously. It is always frightening, especially if there are children. It is not always a choice of what to eliminate if there has never been enough. Discretionary income is a euphemism. I think the Mass. vote (discounting the awful campaign she had) was about unemployment. Voters are hard to rouse on issues – not on lack of jobs. This is a country where poverty is a moral lack. It is humiliating unless you have a welfare mentality … there are many foreclosures here and many new people in the soup kitchens and food pantries.

Around the same time her e-mail crossed my in-box, a colleague called to point me to an interactive map supplied by the New York Times detailing the results of the Massachusetts election. He shares my interest in the impact of social norms and trends on the political process and was struck by the voting pattern on the map. The urban and quasi-rural parts of Massachusetts voted Democratic; the suburban middle-class voted for the Republican candidate.

I grew up in East Bridgewater, MA, a town about 35 miles south of Boston that was founded in the 1600′s. It was a solid lower-middle class enclave in the 1960′s that was a classic Colonial town, rooted in conservative Democratic values, with a long tradition of military service. When I was a kid, it was a town in decline, as its two primary industries — farming and light manufacturing — were eroding. During the 1990′s, East Bridgewater enjoyed an explosion as it became a bedroom community for Boston and other employment centers around Route 128.

The results from this election? More than 70% of the people in East Bridgewater voted for Brown.

My colleague’s concern echoed my mother’s: the vote for Brown is a vote to change the center of the issues. Jobs is the core, he said. But, Brown doesn’t stand for anything, and there’s no voice in the Republican party that has a pragmatic point of view about what should be done to right the economy. The voters are going to be moved to make a change, but they don’t have anything to change into that is going to be able to make a difference.

Then, John Mauldin’s letter came. As I’ve discussed before, Mauldin’s letter is a good touchpoint. He only writes once a week, so you’re not innundated with his information flow, and he has an exceptional long-term perspective that he makes very relevant to the immediate and short-term. The net net is that because he takes time to think he makes you think.

This week the letter focused on a book that has captured his attention: This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth Rogoff.

Mauldin explains the book’s approach and the impact of its conclusions:

Reinhart and Rogoff have catalogued over 250 financial crises in 66 countries over 800 years and then analyzed them for differences and similarities. This is a VERY sobering book. It does not augur well for the developed world to blithely exit from our woes. The book gives evidence to my adamant statement that we have a lot of pain to experience because of the bad choices we have made.

Look closely at the Reinhart and Rogoff’s research and a pattern develops: economies over-leverage in order to drive expansion and the significant burden of the debt supresses future economic growth. The current U.S. economy, with $3.70 of debt to every $1 of GDP falls into that classic over-leveraged model. The only way out is through deleveraging; there are no silver bullets, the research determines.

In a classic economic model, inflation can help drive down leverage. To generate inflation, an economy needs demand to outstrip supply. But, an economy that has expanded rapidly through the use of leverage has significant execess resources — both in terms of human and physical resources — which augurs a deflationary environment. The way this works is simple: someone without a job will work for whatever they can get, reducing the potential wages for another worker.

Mauldin points to the current imbalance in supply and demand.

Whether the supply curve is in a flat, normal, or upward sloping position depends on the extent of excess resources in the economy. Today it is obvious that the U.S. economy has plentiful excess resources, so any increase in demand will result in little price change. This will be the case until our unemployment rate of over 17% (the U6 measure) drops by a considerable amount and we begin to use our factories well above our current 68% utilization rate.

Thus, our current economic circumstances guarantee there will be no surprise inflation. Employing those who are out of work and fully utilizing our resources will be a slow process. More importantly, it will take time to get the monetary engine reignited. Banks will have to begin lending and people and companies will have to determine that prospects are good enough to take the risk for expansion and investment. It will take years for these processes to get started because of our over-indebtedness and falling asset prices.

The analysis ends with a data point that bears out my mother’s observation about the increasing personal pain she’s seeing around her.

The consequences of excessive debt are already painful at the household level. The civilian employment to population ratio, a highly important barometer of the average household’s standard of living, fell to 58.2% in December, the lowest reading in 26 years and down from a peak of 64.7% in April of 2000 (Chart 5). Thus, the standard of living has worsened as the debt to GDP ratio has marched steadily higher. With debt to GDP still rising, a further deterioration of the standard of living is inescapable.

Mauldin’s assessment of the Massachusetts vote is that voters are getting “increasingly scared.”

While they may not be sophisticated in economics, they understand intuitively that you can’t run deficits at the current levels forever. That risks killing the goose. Obama was elected with a promise of change. McCain was seen as more of the same. The recent elections (Virginia, New Jersey, Massachusetts) were pointedly saying, this is not the change we had in mind.

Three different assessments with one common conclusion: People can see that we’re facing dire straits and they don’t see anyone with resources or power stepping up with a plan that makes them feel confident.

If we were a parliamentary government, I thought, Obama would be standing for election in a blink.

We’re not, though, and so we’re left to our established political cycles to effect change. In the meantime, people worry and pundits commentate.

On Sunday, I did what most good members of the Media Elite do…read The New York Times. Two columns on the Op-Ed page bookended each other in their simplicity and urgency.

First, Tom Friedman in his column made it all about one thing: jobs. To figure out what to do, go talk to the people who are going to create jobs, Friedman says, and ask them what they need.

Obama should make the centerpiece of his presidency mobilizing a million new start-up companies that won’t just give us temporary highway jobs, but lasting good jobs that keep America on the cutting edge. The best way to counter the Tea Party movement, which is all about stopping things, is with an Innovation Movement, which is all about starting things. Without inventing more new products and services that make people more productive, healthier or entertained — that we can sell around the world — we’ll never be able to afford the health care our people need, let alone pay off our debts.

Frank Rich, in a passionate column that picked apart the popular unrest, Obama’s off-base focus and the consistent impression that the administration is captive to special interests, not to the interests of the people on the street, pointed to a signature moment in John F. Kennedy’s administration, when he faced down U.S. Steel over an unpopular anti-labor move. Where’s that moment now from Obama, Rich wondered?

Can anyone picture Obama exerting such take-no-prisoners leadership to challenge those who threaten our own economic recovery and stability at a time of deep recession and war? That we can’t is a powerful indicator of why what happened in Massachusetts will not stay in Massachusetts if this White House fails to reboot.

Which brings me back to my initial observation: Sometimes, a shift in perception strengthens a point of view.

A protracted period of economic stress, driven by the distorted economic balance sheet, means that as a business owner I have to remain cautious. The markets that I serve aren’t going to expand. Recovery will mean stabilization. Rebounds in production will accompany that stabilization, but won’t be the harbingers of revised trend lines. Competition in every market will stay high and the participants who are most efficient in managing costs and who are oriented towards reducing their leverage will have the most flexibility in pricing. But, pricing will not be the primary determinant in market success: Service and results will be an equally important, and sometimes dominant, factor in the decisions customers make.

Business planning has to be aggressive, but cautious.

Any downturn has to be reacted to quickly and decisively.

When thinking about creating value in an enterprise, the horizon needs to be set over a long period of time, with an expectation that growth will come through a series of hard-earned transactions.

It’s inevitable that these tactics will be executed in a climate of increased taxes.  As a result, businesses will be cautious about hiring.

I’m left with an even stronger sense of what I thought before.   The best we can do is approach the challenge with confidence and determination.  Do as good a job as we can.  Focus as intently as we can on our customers and what they need to do to be successful.  Don’t try to answer the unanswerable.  And step up as a voting populace to demand that the real issues get real attention.  The voters in Massachusetts have fired one of the first salvos; now, our political and economic leaders have to respond by focusing on handling the tough issues, not just playing to win in the short term.

The highlights of the holiday season are being presented in dribs and drabs. Earning seasons will tell us a lot. The consumer was clearly trying to generate energy in fits and starts. Spending was still tamped down.

But within the story about overall spending, there’s another significant trend: More and more buying went online.

The table to the right from eMarketer shows the change in retail e-commerce during the holiday season from 2008 to 2009. The figures suggest that a significant portion of consumers are incorporating their e-commerce behaviors into a multi-channel shopping strategy.

My experience reflects that. On December 20th or so, my wife and I went online and ordered about 80% of what we needed for our five kids for Christmas. The few days before Christmas, we shopped locally to get a couple of bigger gifts and to fill around the edges. I’d estimate that 75% of our Holiday shopping happened online and in the last week of the season.

The traditional metrics of Holiday tracking, which get huge coverage in the news, don’t capture this real economic activity.

I’ve been doing some family research this past year, trying to uncover my mother’s father’s heritage. One of the most powerful tools has been the online editions of the U.S. Census from the late 19th and early 20th Century. Looking at these forms closely, you’re able to piece together the mosaic of a person’s life. The research has been rich and engaging.

In 2083 (when the 2010 Census is scheduled to be released to the public), my great-great-grandchild won’t be able to pull the same richness of information from the Census. This year, the form has been reduced to 10 questions. Here it is.

Search the blogosphere and you’ll find a lot of discussion about the Census, the political process of generating the form and assorted levels of disappointment about how little information there is.

I’m struck by a different angle: We’re seduced by the easy digitization of identity and history. For any of us living a digital life, we’ve got a remarkable chronicle of the current time. But almost none of it is tangible, like the old, wrinkled photos my mother had of her father in Arkansas in the early 1900′s. Those five or six artifacts helped to organize the parameters of a rich dive into the archives.

We’re living a kind of constant state of Jung’s collective unconscious, where we all share awareness through the stream, molding perception, archetype and reality. But we’ve consigned our archives to the stream as well, up in the cloud, or in fragile digital bits. In 100 years, what will be know about today will depend on the ability of institutions and individuals to archive this new storage format. I’m skeptical.

“If necessity knows no law, then neither does power”

I’ve been musing over the state of our national discourse a lot recently.

The stakes of our socioeconomic quandary feel very stark. Mountains of debt and millions of unemployed putting pressure on a systems of goods, services and production that looks like what philosophers call a self-contained system, which only functions with internal logic and is easily proved fallible by external logic.

So, common sense says that smart people would be working together with an acknowledgment of what the biggest priorities are in order to create a new approach, right?

Wrong. Instead, we appear to be in the midst of one of the most cynical periods in modern political and economic history. Break the world down into three groups: Vox Politic, Vox Populi and Vox Media. The way people are feeling, the way politicians are acting and the way that the media is interpreting is creating more alienation, disaffection and confusion that ever before.

Paul Krugman today in the Times had a very balanced column suggesting that the issues facing the Obama administration don’t have to do with scope, as popularly suggested, but with faulty policy. Whether you agree with him or not, the column attempts to move the dialogue to issues and solutions away from ad hominen attacks of ability and motivation.

I witnessed another discourse recently that reinforced my sense that concern about the partisan bias of the media and the political forum is removing some of the partisan intensity of private conversations.

Here’s a sample of a Facebook dialogue between two former high school classmates. A bit of background: I went to an all-boys Catholic boarding school in Rhode Island run by Benedictine Monks. My dad was a teacher there. The kids at the school were smart, were taught with intellectual rigor and came from all over. For such a small school, the alumni body has remarkable diversity of interests, views and life choices. This dialogue is between two men who represents what on the surface would appear to be highly divergent choices about life, the role of money, the role of culture and the importance of political discourse.

Call them Frick & Frack. I encourage you to read through the dialogue. What I find interesting is how resonant each argument is. How polarized these arguments appear in public discourse. And, how aligned both contributors are by their concern and interest.

Frick: Might this cover be implying that Barack is not only incompetent but also living in la-la land? The proof is in in the pudding and, according most credible, unbiased and objective takes on reality, not tainted by ideology or emotion, Obama has failed miserably on all the crucial counts: the economy, Iran, health care a…

Frack: Question the received opinion. As you are no doubt aware, Obama has also had to contend with some of the most difficult challenges any recent president has faced. A near meltdown of the housing market. Bankruptcy of the auto companies. A quagmire in Afghanistan. Possible meltdown of the Chinese economy. Historically speaking, a year is far too soon to make a reasoned assessment.

Frick: … failed so far… with more than 3 million jobs lost in the last year alone, an Iran that, without Israeli intervention, will soon be a nuclear power and unparalleled deficit (borrowing) spending that puts us, literally, at the mercy of China, Obama has put policies in place that point America in a downward direction instead of up, back in the … See Moreblue and in a more powerful position. It’s possible that Obama can still right the ship and turn things around, but right now the smart money says the economy is in for a double dip and that a new wave of foreclosures could very well be right around the corner. If that occurs, or if there is another successful terrorist attack on the mainland, Obama will be a one term President and his place, right alongside Jimmy, will be a foregone conclusion. I hope, for all of our sakes, that time and history prove me wrong. I would much rather have a robust economy and no more innocent life lost at the hands of Islamic extremist.

Frack: What do you expect him to do? Adopt the Ron Paul solution to all our woes and print a 10 trillion dollar banknote, hand it to the Chinese, and say “Here. Debt paid. Now go to hell”? Complex problems take time-consuming consensus building to solve. Obama has smarts that Carter didn’t have. Give him a chance, bwah, and your fondest hopes may come true, even if later rather than sooner.

Frick: That’s pretty much what he has done. He took a deficit that Bush was responsible for and, instead of trying to turn things around, turned to the Chinese and compounded Bush’s folly by borrowing far, by far, more than Bush or any other US President for that matter. It’s not a question of me giving him a chance that will determine his success.  It’s a question of the policies he has put in place and, so far, I don’t see any policies that offer, in a fundamental, core or pivotal way, any reason to believe there is hope or positive change in the air. What I see is old style Chicago politics with corruption, back room deals and bribery being the coin of the realm. He’s proving to be the biggest flim-flam man of all time by promising us one thing and delivering something altogether different. What happened to being above board, transparent and bi-partisan? The country is more divided now than it was just a year ago and more is done behind closed doors than under any administration in recent memory.

Frack: I just hate to see him fail, and feel that attacks on his policies are more partisan in nature than not.

Frick: You may be right, and I may be being partisan without knowing it, but I believe, above all and even more, that I am giving and have given him a fair chance. So far the results haven’t been good and, when you get past the double talk, spin and mumbo jumbo, there is no reason to think they are going to get much better anytime soon. Key economic indicators in housing, commercial real estate and the general economy don’t look good. Further, evidence that a bubble, due to cheap money and overvalued assets, may be what has pumped up the markets thus far. Again, I hope I am wrong. Believe me, I have nothing to gain and everything to lose of there is a double dip in the economy or if there is another successful terrorist attack in the US. My family was fortunate enough and lucky enough to weather the last storm. I’m not sure more government is the answer. I’m concerned for my families ability to withstand any more inclement weather.

Frack: Yah, the financial DEW line was talking of a double dip as far back as April of ’08. And it could happen. I just hope the prognosticators are correct about commercial real estate not being quite as over-extended as housing.

Frack: What irks me most is people making pre-judgments so they can be first in line to say I told you so. I’m more interested in full-spectrum analyses which offer an array of probabilities right up to sigma 10.

Frick: Yeah, but don’t you have to wait until the game is all but over for that? At that point you won’t be able to have any hand in the outcome and will just have to live with what is rather than squeal like a pig and, hopefully, at least get a little oil while holding on to your ankles for dear life.

Frack: Heh. If you got some sharp boys on your staff, you can do the spadework, pile up your Fuck You money, and not spend your golden years working at Aardvark Body Rub Studios, scrounging for chump change and slapping hot oil on the backs of men who look and smell like Ferlin Husky.

http://www.amazon.com/Greatest-Trade-Ever-Behind-Scenes/dp/0385529910

Me: Ok. This was alarmingly smart and civilized. Must be the product of a rigorous Benedictine education. Can’t figure which point of view is right. The mess we’re in has been building for 15 years, when the borrowing capacity of consumers and businesses was reached and the only was to boost consumption and spur growth was to lower the cost of money and increase leverage. Bingo: you get bubbles. Obama has no choice but to play the hand he’s dealt. So, the option is to keep a fundamentally corrupt financial system on life support by providing a federal subsidy. That’s all fine, and while it’s unfortunate, the outsized compensation of the players in finance is a non-central issue.

What is central is what else to do. The one thing that has to happen is job creation — at any short-term cost, provided that the jobs are sustainable. The second thing is that the cost structure of social well-being (health and entitlement) needs to be lowered, so as to reduce the drain on the economy and create more resources for new development.

So, the measure of Obama is whether he is helping to stimulate activty that addresses our two biggest domestic priorities, and whether he is communicating in a clear and consistent fashion what we are doing, why it matters and what our expectation is about the results.

He’s doing miserably on the second front.

On the first front he’s put a ton of stuff in motion, but appears too willing to dilute key elements, sacrificing principal to expedience.

I don’t know that any of us know enough about what’s going on behind closed doors to know whether he’s gotuch choice but to comprise. The country is in a pretty tight spot. But we can confidently say that he’s providing none of the clarity and perspective that the country needs from him.

Frack: Throw the rascals out. ALL of them. The lobbyists first and foremost. (Like that will ever happen….)

Frick: Hey Dan, Thanks for coming in, summing it up, giving an overview and tying a ribbon on it. It’s good to know we made some sense even if none of us are quite sure what’s coming down the road.

Me: I wouldn’t call it a bow! Just thinking out loud. And Frack, we’ve tried throwing assorted clusters of the rascals out a few times over the past 25 years. It’s like Zombie-fluid: the idealists turn rascally once they are exposed. I’m wondering where the better idea is.

Frack: 25 years? “Throw the Rascals out” goes back to 1828! And you’re right; reformers tend to take on the attributes of the machine they work inside of. Because by the time they make it to the top, they’ve internalized the ethics of their profession–or lack thereof.

It strikes me that if necessity knows no law, than neither does power.

A steady meme over the past month has been the zero sum game that comprised the U.S. economy over the past decade. Net job creation was at zero; GDP, adjusted for inflation, grew less than 20%; and, household net worth (through November 2009) was down 4%.

The Washington Post ran a great graphic contrasting the performance of the last decade to the previous six decades. The contrast is astounding: the last 10 years were the least productive by a wide margin.

A cursory look at the chart makes you wonder whether we hit the top for the U.S. economy and are at the beginning of a long decline, or whether we’re simply poised at a critical inflection point for change. The disconnect for me is reconciling the sense that we’ve experienced remarkable changes in tools, processes and outcomes over the past decade, but have experiences virtually no  net tangible economic benefit.

One theme is that changing nature of work in our economy. A lot has been written about how we’ve transitioned from a manufacturing to a service base. The trend has been significant over that past 40 years, with manufacturing jobs dipping to below 10% of total employment this past March.

Economies have to make something in order for its participants to consume things. Our service economy relies on Americans having enough money to buy things — fast food, flat screen TVs, clothing, cars, homes and everything else. A lot of people spending money creates a lot of jobs for people, creating more people who can spend money.

But somewhere in our economy we have to make something. The shift away from manufacturing over the past 40 years has been partly offset by the shift towards creating information products — technology and media primarily — that are broadly consumed, at home and abroad.

After a decade of standing still, a disproportionate amount of hardship falls on groups that traditionally are less qualified to participate in the information economy.

From the Bureau of Labor Statistics:

In November, both the number of unemployed persons, at 15.4 million, and the unemployment rate, at 10.0 percent, edged down. At the start of the recession in December 2007, the number of unemployed persons was 7.5 million, and the jobless rate was 4.9 percent.

Among the major worker groups, unemployment rates for adult men (10.5 percent), adult women (7.9 percent), teenagers (26.7 percent), whites (9.3 percent), blacks (15.6 percent), and Hispanics (12.7 percent) showed little
change in November. The unemployment rate for Asians was 7.3 percent, not seasonally adjusted.

One characteristic of the lost decade is the stagnation of educational levels. The chart below shows the change in the percentage of people who have graduated high school and college from 1947 to 2003.

There’s clearly incentive for getting an education. The economy provides higher rewards and security to people who have more education. (The chart below shows the figures for 2006 from the Bureau of Labor Statistics.)

It’s striking that since 1970, when higher-paying jobs for unskilled labor (read manufacturing) began to decline as a portion of the overall economy, the level of educational attainment has shown relatively little growth.

Our economy is paying the price right now for an absence of vision and commitment to creating a workforce with the skills to push and innovate on an even wider margin than we have before.

The test of the next 10 years will be our ability as an economy to find new ways to make things and to put people in the position to do the work.

The technology skills of the newly educated are formidable. The broad absorption of social media tools into the population is an ultimate benefit for creating real-time training in the kind of skills and interactions that are going to be needed to these new ways of making things.

Take a look at one Millenium’s take on the lost decade of music

www.youtube.com/watch?v=-GeD3wUy48o