Gene Ludwig served as the 27th Comptroller of the Currency of the U.S. under President Bill Clinton. As a seasoned bank executive, he had an inside seat managing the impact of fiscal policy, risks, and regulation on bank operations. Now a champion for improving the economic well-being of low- and middle-class Americans, he runs the Ludwig Institute for Shared Economic Prosperity (LISEP), continues to advise the banking industry through his firm, Ludwig Advisors, and helps bring financial innovation to market through his work with the Cari Network and Canapi Ventures.
ProSight Financial sat down with Ludwig to discuss his new book, “The Mismeasurement of America,” an analysis of government statistics and how the failure to modernize them obscures the economic struggles of U.S. residents and creates blind spots for banks on systemic risk and consumer stresses.
The Data
ProSight Financial: What’s wrong with the headline economic statistics that define our understanding of the economy?
Ludwig: They rely on definitions created in the 1930s or earlier and are rooted in concepts from a very different economy. The structure of employment was different then, built largely around stable, full-time work. In most cases, you either had a job, or you didn’t.
But today’s economy looks very different. The rise of gig work, contract labor, and part-time employment make those older definitions especially misleading. Under current rules for measuring unemployment, for example, someone who worked just an hour in the last week is still counted as employed, even if they’re living in a tent and unable to afford food. Many people counted as “employed” are in fact, by LISEP’s definition, functionally unemployed.
ProSight Financial: You argue in your book that when you adapt the data to the realities of today’s economy, a very different story of U.S. prosperity emerges. Is the nation in uniformly worse condition than the data shows?
Ludwig: Local anomalies exist across the United States. Some metropolitan statistical areas (MSAs) are doing better, and some are doing worse. My book uses primarily national data, because headline statistics usually focus on the national figures. When I visited my hometown of York, Pa., I observed steep economic decline: industries that once anchored the town were gone, factories closed, and well-paying jobs disappeared.
Nearby Lancaster, also a once thriving industrial town, is doing better. It has certain advantages, including a top college/university, businesses unwilling to sell out, and tourism tied to the Amish. York’s decline illustrated to me that national statistics weren’t matching lived realities.
ProSight Financial: To this point, how reliable are wage statistics, and can we accurately say that real wages are rising?
Ludwig: Headline wage statistics only include full-time workers, not part-time workers or unemployed jobseekers, so they skew the picture. They can even rise during recessions because lower-paid workers are the first to be fired. Moreover, “real wage” calculations use the Consumer Price Index (CPI), which reflects a basket of 80,000 goods, many irrelevant to middle and lower-income Americans. The basket of essential goods they buy—such as food, housing, healthcare, and transportation, as captured by LISEP’s True Living Cost (TLC) index—has inflated faster than CPI. When adjusted by the TLC, real wages for middle America have gone down since 2001, even if nominal wages have risen.
ProSight Financial: Portfolio manager Michael Green raised debate recently by pegging the real poverty line in the U.S. at about $140,000 in household income. How does your approach handle the poverty line?
Ludwig: We agree conceptually with Michael Green’s argument in that the poverty line does not come close to capturing the cost of survival. In our work, we estimate that the cost-of-living for a family of four is closer to $100,000. But the cost of achieving even a modest standard of living, which we define through our Minimal Quality of Life (MQL) index, is closer to $120,000 for a family of four. This isn’t about luxuries; it’s about things like being able to eat out occasionally, going to a movie a few times a year, or seting aside a small amount of money for college savings. The official government poverty line is inadequate anywhere, including in the poorest states. Costs differ by region, so we also analyze MSA-level data.
ProSight Financial: Does your research suggest the K-shaped economy is even more extreme than we think?
Ludwig: Yes. Our data shows a sharper, more vertical K shape: the top is rising, and the bottom is falling. Many lower and middle-income families are not only living paycheck to paycheck but increasingly in a situation where they’re living from debt to debt. That has consequences for lenders and for social stability.
Impact on Banks
ProSight Financial: How might it affect banks if the data create a misleading picture of the economy?
Ludwig: Borrowers’ real financial stress affects credit risk. Banks may mistakenly believe things are stronger than they are. Lower-income borrowers are extremely interest-rate sensitive, and deteriorating economic conditions can lead to rising defaults. Banks rely on government data, but misleading headline numbers obscure actual borrower vulnerability.
ProSight Financial: Is declining data quality forcing banks to become better data aggregators and analysts?
Ludwig: Partly. If government data degrades, banks will try to compensate. But gathering aggregated national- and MSA-level data without federal support is extremely difficult. Large banks may manage it, and community banks, with local insight but limited resources, have some advantages. This contributes to a barbell effect: very large and very small institutions survive, while midsized banks get squeezed.
ProSight Financial: Can technology, especially AI, help regional and community banks compete?
Ludwig: Yes. Modern AI tools can help regional and community banks analyze data, understand their markets, and operate efficiently. AI may pose risks, but in the near term it offers huge benefits for smaller institutions trying to stay competitive.
ProSight Financial: Could AI also worsen the economic issues you’ve identified?
Ludwig: AI will reshape work, but I’m optimistic. There’s enormous work to do in America—clean streets, safe infrastructure, schools, healthcare, rail, and energy. Technology won’t do all of that. If we pay people decently, there will be plenty of employment. We must revive a shared civic spirit, teach younger generations to face facts, and pursue good ideas from all sides. But we can’t make progress unless policymakers confront the real numbers.
Our relationship with ProSight is through LA but perhaps we want to mention both Cari and Canapi?
By: Michael Bender
