Building On Sand

by Dave Schuler on March 3, 2014

The editors of the New York Times have finally recognized that the economic policies of the last three administrations, founded as they were on increased higher education as the key to economic security, have been built on sand:

Research by three economists — Paul Beaudry, David Green and Benjamin Sand — goes beyond familiar explanations for wage stagnation like global competition and labor-saving technology. Examining the demand for college-educated workers, they found that businesses increased hiring of college graduates in the 1980s and 1990s in adapting to technological changes. But as the information technology revolution matured, employer demand waned for the “cognitive skills” associated with a college education.

As a result, since 2000, many college graduates have taken jobs that do not require college degrees and, in the process, have displaced less-educated lower-skilled workers. “In this maturity stage,” the report says, “having a B.A. is less about obtaining access to high paying managerial and technology jobs and more about beating out less-educated workers for the barista or clerical job.”

The problem with that as a strategy is that the cost of higher education and the way we finance higher education have burdened the new college grads, employed in jobs that don’t actually require college educations and paid commensurately, with high levels of debt which reduces their spending on other things, further slowing the economy. I have some difficuly, however, relating their prescription to their diagnosis:

Increasing the number of high-paying jobs also depends on strategies like enhancing public spending to fix roads and bridges and to hire more teachers, as well as developing new energy and technology industries through government-financed research. Otherwise, the norm may very well be an economy where even college-educated workers cannot thrive.

I, on the other hand, think that fixing roads and building bridges primarily produces jobs that don’t require college educations and hiring more teachers? Please. We’re back to the story of the cat and rat farm.

Mort Zuckerman on the other hand sees things a little differently:

Job losses in the low-wage and minimum-wage category is the critical issue of our day: Too many of the poor are not working full time or at all. Income inequality isn’t so much the problem as income inadequacy. A more robust economy, stoked by growth-oriented policies from Washington, would help produce the jobs and opportunities that millions of Americans need to climb the economic ladder.

A landmark new study by Harvard economics professor Raj Chetty asserts that advances in opportunity provided by expanded social programs have been offset by increased global trade and advanced technology that in turn have limited the traditional sources of middle-income jobs. But there is a simpler reason that the country remains mired in the weakest recovery from a recession since World War II: Government has diminished animal spirits by displaying a hostile attitude toward business.

That attitude is evident in everything from excessive corporate taxes to the incompetence and dishonesty of the ObamaCare rollout. Government is perpetually establishing economic policies and rules that business perceives as overregulation, dampening the willingness to invest—as witnessed by the slowest rate of capital investment in decades on corporate plant equipment and machinery.

but his solution, too, is more education.

I think the solution is more economic activity and that the problem with the present administration’s economic policy is not a “hostile attitude toward business” but a systematic preference for policies that don’t increase economic activity. That includes everything from energy policy to trade policy to tax policy to healthcare policy. It’s not that the administration is opposed to more economic activity but that they want other things more.

{ 7 comments… read them below or add one }

PD Shaw March 3, 2014 at 10:26 am

“In this maturity stage,” the report says, “having a B.A. is less about obtaining access to high paying managerial and technology jobs and more about beating out less-educated workers for the barista or clerical job.”

IOW, education at some point is entirely a positional good. A positional good is subject to spiraling cost increases. In a society that would like to see itself as a meritocracy, its particularly toxic, because those that can afford to play will be able to pay the price, but will still claim their station in life is merited.

Suggestions: Stop jawboning the college path as the only path and make high school adapt to a variety of life paths. Better funding for vocational programs. Use federal student loan program to avoid contributing to spiraling costs.

... March 3, 2014 at 2:07 pm

Our immigration policy isn’t anti-economic activity, but it is definitely anti-low and increasingly anti-middle income worker.

Dave Schuler March 3, 2014 at 2:12 pm

Our immigration policy isn’t anti-economic activity

Sure it is. Importing large numbers of low-skill workers requires more healthcare and education than would otherwise be the case. Since both of those areas long ago entered conditions of bureaucratic displacement in which there are actually fewer outputs produced per input, it results in lower economic growth than would otherwise be the case.

Add the things that grow directly with population like roads, sewers, and law enforcement. These are all examples of deadweight loss created by our immigration policy.

jan March 3, 2014 at 2:21 pm

“It’s not that the administration is opposed to more economic activity but that they want other things more.”

If this is so, why do so many democratic speeches loudly call for more jobs, while bad-mouthing supposed obstructionism from the R’s, whose verbal main frame is to call for less regulation in order for businesses to be encouraged to create more jobs? It’s a tangled web of misspeak, IMO.

Furthermore, while small business optimism index is up this year, the issues remaining problematic for small businesses, remain the ones dealing with taxes, followed closely on it’s heels by rules and red tape.

Single most important small business problems as of January 2014:

Taxes (24), govt, regs & red tape (22), poor sales (14), comp. from large bus (8), quality of labor (8), other (7), cost of labor (4), inflation (3), fin. & interest rates (2)

The final conclusions of the NFIB (National Federation of Independent Business) is:

As noted last time, economic policy will be dominated by vote getting, not sensible strategies to improve economic growth and job creation, to wit, with a 20 percent teen unemployment rate, liberal policy makers want to raise the minimum wage. This will, barring a surge in economic activity that raises the values of these workers, undoubtedly worsen unemployment and job opportunities in the future.

Dave Schuler March 3, 2014 at 2:26 pm

If this is so, why do so many democratic speeches loudly call for more job…

It is possible to want to be physically fit, slim, and active but if you’d rather watch TV, eating fritos and drinking Coke than go to the gym and exercise or eat prudently it tends to get in the way of that. It’s a question of relative priorities.

Red Barchetta March 3, 2014 at 4:28 pm

“It’s not that the administration is opposed to more economic activity but that they want other things more.”

Some want to be cops, some criminals. But when you are looking down the barrel of a loaded gun………what’s the difference?

Andy March 3, 2014 at 8:17 pm

So the NYT solution is simply the same left-leaning policies we hear ad-nauseum, only minus education?

Leave a Comment

Previous post:

Next post: