The key to America’s economic future?

Over the last week or so Mark Thoma of Economist’s View has posted twice on the “Creative Economy” and its role in America’s economic future, first here and then here. The remainder of this post is devoted to an expansion on a question I asked Mark in the comments of the first post.

For the last two presidential administrations, the Clinton Administration and the Bush Administration, that education is the key to America’s economic health and the future prosperity of American workers, has been a persistent mantra. Is it true?

The usual form that the admonition has taken is an emphasis on “knowledge workers”, a distinction that I find particularly grating since it implicitly distinguishes between people who know something who are prospering and people who don’t know anything who aren’t. I find it grating because it’s so false. Knowledge doesn’t set prices, supply and demand does.

And yet it’s undeniable that those with advanced degrees are doing better than those without them.
Does this translate into education as a secure base for an economic future for American workers? I have my doubts.

There’s an explanation other than education for identifying which workers have benefited over the last twenty years or so and which have not: protection. Professionals are protected by licensing and regulation and, in some cases outright bans e.g. telemedicine. Some industries are so highly regulated that entry is extremely expensive e.g. banking, insurance. Copyrights and patents provide protection from competition. And so on.

Industries and workers who have not been comparably protected have not prospered as those who have. There’s more competition.

I think there are some clues that this is what is actually happening. Consider, for example, college enrollments by high school graduates.

Note in the “Total” line that the greatest increase in growth was 1985 to 1997 or so and in the economy’s greatest period of growth in the late 90’s college enrollments actually went down. Enrollments as a percentage were flat in 2003 and 2004. They actually increased slightly in 2005.

One explanation (a favorite among foreigners commenting on the subject) is that Americans are lazy. This explanation ignores, of course, the reality that American workers work more hours than other workers in comparable economies.

Another explanation is that Americans are stupid. I think that both of these explanations are probably false and that young Americans are shrewd observers of the market and are actively pursuing jobs that offer greater protection which may or may not have anything to do with a college degree. From the article cited in Mark’s post:

Such remarkable job growth goes far beyond technology and engineering. While the U.S. economy will add 950,000 computer jobs and another 195,000 in engineering, the biggest gains by far will be in health care and education, which will add more than 3.5 million. Jobs for college professors alone are projected to increase by more than half a million. Arts, music, culture, and entertainment will contribute some 400,000 new jobs. That’s twice as many as engineering.

Every job in this list is protected by non-portability, licensing, copyright, patent, or cartel. Interesting by their omission from the list are government jobs. The greatest net increase of jobs over the last five years has been in federal, state, and local government jobs and no industry is so protected as the government.

So, again, here’s my question: how do you disaggregate the effects of education from the effects of protection for which workers prosper and which do not? Perhaps some of my amateur or professional economist readers can provide an answer.

The answer to this question is important for policy reasons: it marks the difference between whether increased subsidization or other encouragement of education or revising our attitudes about protection will be of greater help in improving the economic futures of Americans.