You may be familiar with Mike Rowe from his show on the Discovery Channel, Dirty Jobs. Even if you’ve never seen the show (in which case I suggest you catch an episode), you’ve probably seen him shilling cars and trucks for Ford or paper towels for Viva. And if you watch ABC’s World News then you hear his voice every night – he’s the announcer during the opening and commercial breaks.
What you may not realize is that he is also a serious advocate for vocational training. His foundation, mikeroweWORKS, is dedicated to making education in skilled trades something other than a remedial course of study. He understands a point I made several weeks back, that a four-year degree is not the best path for every student. Or for our nation’s future.
Before you say that of course our nation still values the skilled trades as highly as a college education, ask yourself how you would react if your son or daughter announced their intention of becoming a truck driver after high school. Or a plumber, electrician, farmer, or welder. Even thought they are among both the highest paying and most consistently sought after trades by employers, I doubt it would be greeted with the same enthusiasm as an announcement they wanted to become an astrophysicist or surgeon.
Therein lies a major problem, both for the current economy and the economy of the future. Already the news is full of accounts of college graduates queuing up for job applications in the unskilled trades (think retail worker), simply because there isn’t demand for their skill set. At the same time, there is a desperate need for mechanics, welders, riggers, electricians, plumbers, HVAC techs – all you need to do is pick up the help wanted section of any metro newspaper.
Mr. Rowe understands this problem is a problem. To that end, he’s written an open letter to Mitt Romney. He wrote a similar one to Barack Obama during the least election cycle, but based on the President’s education initiatives it fell on deaf ears. You can read the full letter here, but I wanted to lift one line that I thought exemplified the problem:
“I always thought there something ill-fated about the promise of three million “shovel ready jobs” made to a society that no longer encourages people to pick up a shovel.“
In a nutshell, THAT is the biggest problem with getting our nation back to work today. Many of my conservative friends are adamant about making welfare and unemployment recipients work for their benefit checks. I don’t necessarily disagree with that sentiment. But in a nation that no longer values physical or skilled labor, how likely is a program akin to Roosevelt’s CCC or WPA to succeed?
I’m pretty sure everyone reading this has experienced a bad hangover after a night of too much partying. You wake up with an oversized cotton ball in your mouth, your head is ringing like a fire bell, you have strange cravings for McDonald’s French fries and you can’t seem to move faster than a poorly fed snail. You want to kick yourself. Yeah, the party was awesome (and you still can’t find that missing lamp shade), but man, the hangover is more price than you wanted to pay.
I get the feeling many on the left are feeling something like that today. First, after the euphoria of Bill Clinton’s speech Wednesday night, they had to deal with a less than impressive performance from Barack Obama last night. Either Obama’s speechwriting team needs a shake-up or the President is out of ideas; most of what we heard last night is best summed up as “Hey, I want a do-over!” Most media outlets, including admittedly left-leaning publications like the NY Times and Politico, panned the speech as not one of his best efforts.
Then, along came this morning’s jobs report from the Bureau of Labor Statistics. No wonder the president wants a do-over.
By now, you probably read all of the doom-and-gloom reporting about it. Make no mistake, this was a pretty lousy report. But worse than the numbers themselves is what it all means when you actually dig into them a little.
First, the headline numbers: the economy only created 96,000 new positions in August, but the unemployment rate dropped to 8.1%. This should be good news for the President, right? The unemployment rate is dropping (if somewhat unsteadily) and may actually get under the magic 8% mark most pundits think is needed if Mr. Obama is to have a real shot at reelection. And 96,000 new positions is better than no new positions, right?
Well, yes, sort of. For a better picture of why the jobs report is foreshadowing a major problem, see figure 1. This is the raw BLS data for the past year. Before your eyes begin to glaze over, there are three numbers to pay particularly close attention to.
The first number is the increase in the working age population over the past year. The second is the number positions created in the past year. That last one? That’s the number of working age Americans who simply gave up looking for a job in the past year. To put it another way, more of your friends, relatives and neighbors gave up the hope of even finding a job than actually found one. Nearly a million more, in fact. That’s one million American’s who are now dependent on some outside source just for survival, be it a friend, relative or the handout machine that’s become the US government.
Most economists say we need between 110,000 and 175,000 new jobs each month just to keep up with population growth. But when you look at the actual increase in working age population, the average number actually needed is around 330,000. This is very bad news for team Obama, otherwise he could point to the average of 150,000 jobs created over the past year and claim that his policies are working, albeit slowly. But the reality is that his policies are, at best, creating jobs at only half the rate needed to bring the US back to full employment.
This is particularly troubling, given that every other indicator says we should have been creating jobs at a much faster pace over the past 24 months. If you look at hourly wages, those increased by an average of 3 cents per month between March 2010 and June 2012. Although not at the level of increase seen during the Reagan, Clinton or Bush recoveries, it is still stronger than historic wage growth. Worker productivity across all sectors is also nearing an all-time high and produced solid gains during the same period. Taken together, high wage growth and productivity gains always produced significant jumps in employment before – but not now. What could possibly be holding back the “jobs engine”?
The BLS publishes an “Employee Cost Index” on a quarterly basis, and a large part of the answer can be found there. While wages and productivity show considerable growth, the ECI is also growing – in fact, it’s grown by nearly 11% since March 2010. Of that, change only 18% is represented by increased wages and a 12% drop in non-cash benefits (things like health coverage and gym memberships) counterbalances that number. So, where is the additional 10.3% in employee cost coming from? The answer is a combination of regulatory costs and taxes, the results of 3 years of this administration’s ceaseless efforts to tie nearly every industry into a Gordian knot of inefficiency. New regulations and business taxes now exceed the productivity gains made by our nation’s workforce by a 4:1 ratio, effectively wiping out the need to hire. Indeed, those costs are probably now the single biggest impediment to real employment growth our nation faces. After all, if you owned a business, you would need to be looking at explosive growth potential, not just modest growth, before bringing that much excess on board.
Many of my friends on the left insist that breakneck pace of regulations passed by the Obama administration are not having a negative effect on the economy. I submit they’re not only negatively impacting the economy, but giving business owners throughout all 57 50 states a hangover of our own.
So, here I was winding down my little vacation and getting ready to enjoy the weekend when I opened up my email and immediately got pummeled with the headlines about the June Jobs Report. Of all the ones I saw, though, this one about sums up the employment situation best:
- Wall Street
- Some combo of all the above
He’ll express some sentiment about how terrible all of this unemployment is and how, of course, he’s blameless. But hey, if I could tour closed and shuttered places of business from a tank-proof, taxpayer funded tour bus, shout out “This sucks!” to a few hundred folks and revel in the glory of being the Rock Star President – who’s to say I wouldn’t do the same?
Ok, well – back to my vaca. See you on Monday. After looking over these numbers, it looks like there’s a lot of you who’ll be able to join me for coffee without worrying you’ll be late for work. And yeah, that sucks…
You may recall that earlier this month I did a two-part series on the issue of college costs. Apparently, I’m not the only person who believes the underlying cause for skyrocketing tuition and housing costs is the sheer number of undergraduate students currently enrolled in two- and four-year programs.
I came across this article last night by Richard Vedder, Professor of Economics at Ohio University. Professor Vedder describes in much more detail than I allotted the cause-and-effect of increased enrollment, and also goes into quite a bit of detail about how the federal government’s subsidies only exacerbate the situation, not alleviate it. Given that word broke yesterday that the Senate did what everyone expected and came to an agreement about how to use creative accounting to extend the student loan program at current interest rates, I thought it made sense to revisit the topic. Feel free to hit the link and post your comments.
Yesterday, I dissected the underlying problem with higher education, as it currently exists. A college education costs far more than it is actually worth.
Today’s students pay far too much and receive far too little benefit to justify the expense. What’s more, in most cases they are strapping themselves with insane amounts of debt in the process. It is a debt that hampers their ability to fully function in modern society. The resulting lack of disposable income for the first decade or more after graduation results in a generation that is incapable of financially supporting themselves. If there is an economic downturn (like now), that lack of spending power means that upwards of 40% of the labor force is unable to do those things which define a middle class lifestyle: own a home, own a car, start a family. Instead of college leading to the middle class, college results in poorly educated people (who mistakenly believe they’re highly educated) reliant on the government or their extended families for support.
So, what’s the solution? We constantly hear that without college, young people have no hope of starting in a good career, that their prospects for future advancement are limited and they will be limited in their ability to fully participate in the American Dream. And so we end up focusing on ways to make college more affordable, without actually looking at the reasons for the high costs involved.
As I pointed out, the principle reason for the inflated cost of higher education boils down to the number of people enrolled. There are 3 times as many college students today as there were 30 years ago – are we really surprised that tuition and fees are also three times higher than 30 years ago? The real question is why we are funneling so many people into colleges. If it is to prepare them for post-academic life, then there can be little doubt that we’re failing in a big way.
I’ve always felt the primary purpose of education – whether primary, secondary or post-secondary – should be a dual mission: first, basic facts and skills (the “3 R’s”) and second, developing critical thinking skills. In American education, we’ve focused primary and secondary education on the former while nearly ignoring the latter. This trend is now extending into post-secondary education. A prime example is the dreaded research paper. I shudder at the memory of writing exhaustive, well-researched papers on a weekly basis while in college. The amount of time I spent developing a final paper for each class was measured in weeks, not days. Yet, today’s students often are tasked with only one paper at term’s end and drilled in preparing for weekly quizzes – an approach similar to the high school experience. The original purpose of higher education in the American system, developing one’s mind to sift through tons of data, determine which pieces are relevant and create a cohesive argument from them, is being lost. In other words, we’re graduating millions of kids prepared for an extended stay on “Jeopardy!” but not ready for the types of jobs that traditionally require a college degree.
This is also a result of herding high school students into college. I think the best way to tackle the costs associated with college stem from rethinking the way we handle primary and secondary education. Current elementary and secondary school curricula are leftovers from the days when the United States was principally an agricultural society, and recent reforms have done little to address that fundamental flaw. If anything, the recent and increasing emphasis on standardized testing and evaluation of student and teacher achievement is a step backward and fails to address the real world situations most young people face after graduating from high school. Because our education system now deemphasizes critical thinking skills in favor of rote memorization and socialization, most kids enter into adulthood knowing a set of facts that are essentially meaningless – unless preparing for life as a game show contestant.
The best course of action, I believe, is to reintroduce vocational training during high school and reemphasize critical thinking skills, beginning in primary school.
Vocational education programs, where they do exist, are often maligned, snubbed and underfunded. However, I see nothing wrong with providing basic education in critical skills developing courses (math, the sciences, history, English) while also providing 2-3 hours per day of vocational instruction to those students who prefer that track. This is a similar education structure to the German model, essentially – only instead of four tracks of study, I would streamline it to two and I wouldn’t begin the vocational track until the age of 13 or 14, not 10. Along with making vocational education an acceptable option, though, we need to reconsider the courses available. Traditional “vo-tech” professions such as auto mechanic and machinist should continue to be included, certainly. But many professions that currently require a bachelor’s degree only require it because it signifies the holder has developed basic critical thinking skills, along with the basic technical skills required. Professions like LPN or Network Engineer do not require the job holder to have in-depth conversations on the merits of St. Thomas Aquinas’ views of married clergy; there is no reason that learning how to create such a dissertation should be part of the education process to enter those fields.
As I said, the current emphasis on standardized testing results in less classroom time devoted to developing critical thinking skills. In extreme cases, it is turning our teachers into nothing more than room monitors and test graders. The practice grew from concerns that education standards in the US lagged other first-world nations in education achievement. While the goal was and remains laudable, the prescribed cure is making things worse. As a nation, we’ve fallen further behind in academic achievement. Somebody, somewhere decided that rather than measuring academic achievement in terms of how well students think, measuring how many arcane facts and figures they memorized was important. Don’t get me wrong, a basic knowledge set is important. But without the ability to turn those facts and figures into a thought, they are nothing more than bytes of data. We need to empower teachers to create thinking students and reward those students for developing their thought processes. The notion that those skills can wait until college to fully develop is proving wrong-headed.
Of course, there are challenges associated with this type of program. The biggest is probably changing the mindset we currently have regarding education. That requires buy-in from multiple stakeholders. Teachers unions, who’ve proven resistant to change in the past. School administrators, beholden as they are to current power structures. The federal government, still trying to figure out how “No Child Left Behind” left so many kids behind. Most importantly, it requires not only acceptance but a demand from parents, who likely will be confused by the changes.
The other option is to simply continue on the current course and leave another generation of kids ill-prepared for adulthood, in three phases of their development: their academic achievement, their career preparation and the amount of debt they’re saddled with before they ever earn a dime.
I’ve heard from some of you, insisting I MUST have my facts wrong. After all, government spending has gone down over the past 3 years – not up. You know this because the esteemed Paul Krugman drills on this in every other column he writes and blogs about it daily. Besides, The Annointed One of 1600 Pennsylvania Avenue would NEVER LIE!!!
Funny, but I think those of you following that line of thinking are either (a) hoodwinked by the President or (b) Obama sycophants. The chart below was compiled by the Federal Reserve, and like most FEBR data, excludes inflation. But you’ll note that the increase in government spending as a share of GDP (and therefore, the commensurate reduction in GNP) eerily match the curve I developed.
So…..phhhhbbt. Stop listening to the liar-in-chief and his apologists. Learn how to do a little basic research on your own, people.
There are many things that puzzle me. For instance, why is the cold water tap always on the right-hand side of the faucet? It’s as if the guy who invented indoor plumbing arbitrarily decided to that cold water should come from the right and everyone since has followed suit. There’s no real reason for it. We could just as easily have cold water coming from the left and nobody would be any wiser for it.
A similar thought process seems to have occurred in regards to including government spending as part of a nation’s economic health, currently expressed as GDP. Once upon a time, we didn’t calculate GDP. We calculated GNP; the gross national product. That figure didn’t include government spending – because economists were interested in determining the productivity of a country’s economy. Governments simply do not produce anything; no goods, no services. In fact, government spending used to be regarded as a negative economic indicator. After all, the more governments spent, the more they had to raise revenue by confiscation (and yes, taxation is still confiscation – just with a prettier name). That pulled capital from the real economy – which lowers a nation’s GNP.
GNP remained the way the government and most economists measured economic output until 1993. The Clinton administration, swept to power on the mantra of “It’s the economy, stupid” was looking for a way to juice up the headlines. By switching from GNP to GDP, they found their way to reinforce the perception that the economy was improving. It didn’t matter that actual economic output barely increased from 1992 to 1993. By including government spending in the measure of the nation’ economic health, it seemed as if the economy had rebounded.
The Obama administration is relying on similar hocus-pocus to fool the American public in 2012. Yes, GDP is growing – but only because government consumes more of the national economy than at any time in history. Yes, more than during the New Deal of the 1930’s, more than the war spending of the 1940’s and more than during the profligate 80’s. In 2011, the US Treasury spent in excess of $6 trillion dollars and accounted for 41% of all economic activity recorded in the US GDP. By comparison, at the peak of World War II spending in 1944, the Treasury only accounted for 28% of GDP. Even at the height of the last major recession in 1983, the Reagan treasury only accounted for 36% of GDP. Yet, during the Obama administration, we’ve jumped from 36% in 2008 to 40% in 2009 – and haven’t fallen below that mark since.
Of course, there’s a flip-side to this coin: if government spending is what is driving perceived economic expansion, the reality must be that the real economy is shrinking. And after adjusting for inflation, that’s exactly the case: in 2008, GNP totaled $9.1 trillion dollars (that represented a $31 billion drop from 2007). But economic activity has continued to decline under the current administration’s tutelage. In 2009, GNP totaled $8.9 trillion and it has continued to drop since, all the way to $8.4 trillion in 2011.
This is the principle reason why job growth remains a real negative. The Obama team loves to pat itself on the back for “creating 4 million jobs over the past 18 months.” The sad truth is that the economy should have produced about 4.3 million jobs over the past 18 months just to keep pace with population growth. But the jobs picture makes sense when you compare it to actual economic growth. As the economy continues to contract, the demand for workers continues to decline. The only difference between 2012 and 2008 is that businesses don’t need to lay off workers to accommodate the reduced demand. They just simply don’t hire new employees.
I can summarize this with a very simple statement: if it seems to you that the recovery we hear so much about hasn’t ended the Great Recession, that’s because it hasn’t. There hasn’t been a recovery, except for those with direct ties to government spending. That’s the one component of GDP that has increased: by over $1 trillion over the past three years.
So, the next time you see a GDP number that trumpets economic growth, remember to dig into the numbers a bit. And remember, this is White House that replaced managing economic growth with managing spin.
Face it, you just went to fill up your tank this morning and discovered that it cost you $2 more this week than last to put 12 gallons into the tank. Last week, it was $1.80 more than the week before. And so on, all the way back to the first week in January.
You complain. You gripe. Your neighbors are equally disgusted. One of your coworkers seems to bring up the topic of exploding gas prices every day. In the meantime, you noticed that your wife spent $30 more on groceries this week but brought home less food. She’s half-heartedly joking that at this rate, it will be PB&J for dinner by summertime.
Everyone seems to be talking about the way prices are skyrocketing, but nobody seems to be doing anything about it. And I’m going to let you in on a little secret: there isn’t anything anyone can do about it.
The reason prices are taking off is the dirtiest word in economics: inflation (okay, maybe the second dirtiest word after recession). Why? People automatically assume inflation means rising prices. But rising prices are the symptom, not the problem. Inflation occurs when the money supply outgrows the demand for that money. It is classical, John Smith economics at work in its most basic form: supply and demand. When supply outstrips demand, prices fall. That’s true of any product. Build more cars than the public wants and the price of cars drops. Grow more wheat than you can sell and you slash the price to where you’re virtually giving it away. In those cases, the fix is relatively simple but usually takes time to implement. Build fewer cars. Grow less wheat. Of course, you’ll need to wait a full manufacturing cycle for production to drop to a point where the supply of cars matches the demand. You need to wait an entire year before wheat prices correct.
But what happens when you print too much money? Well, basically the same thing: you shrink the availability of money. You raise interest rates on the purchase of new capital, to make it less palatable to prospective buyers. You restrict international trade of currency. You can also do things to tinker around the edges, like demand banks hold more cash in reserve and prevent corporations from dumping cash into the market. But the reality is all of these things take time to work – a lot of time. In the meantime, the hangover effect of inflation – raising prices – hits everyone hard.
And again, the reason is simple. Wages are tied to productivity, not the price of money. In fact, inflationary periods result in reduced wage pressure because as money sloshes around in the economy, productivity declines. Not because people are working less (they’re usually working more, and harder) but because the value of work is declining along with the value of the currency. The net result is you work harder to bring home the same amount of money you were before – but that money has reduced purchasing power.
Now here’s why nothing can be done about inflation in the near term: the inflationary bubble was created between 2008 and 2010 and we’re just now beginning to feel the effects. Picture the way a tsunami moves – if you’re out on the ocean, you’ll hardly notice a ripple. As you get closer to shore, the pressure builds. Enough of a wave will swamp everything for miles inland once it reaches shore. Inflation is similar in that the pressure is created much further away than when the effects are felt – and like a tsunami, there is no way to stop the momentum once it’s put into motion. We created the current inflationary bubble when we decided to print money in order to escape the Great Recession. Most Keynesian economists (guys like Paul Krugman and Robert Reich) cheered on the printing presses and have been vocal in their calls for cranking them up even faster. They’ve pointed to the short-term pain felt throughout economies that chose to choke down on the money supply while disregarding the damage to our economy rampant inflation will cause. In short, they’ve forgotten the lessons of the 1970’s in the US and the 1990’s in Japan.
Under ordinary circumstances, their calls for greater government borrowing would make sense – given the insanely low current interest rates. But they either ignore or fail to understand how that borrowing is financed. In ordinary times, governments issue bonds which guarantee a certain return on the initial investment. Private markets purchase those bonds and new money is generated (i.e., printed) to cover the interest earned on the bonds. So long as the increase in the money supply roughly matches real growth in the economy, inflation is kept minimal. But the current spending spree ignored those basic rules of supply and demand. First, The US Treasury dumped about $3 trillion of the $5 trillion borrowed over that time directly into the finance sector. Besides the bank bailouts in 2008 and 09, there wasn’t enough demand for US Treasuries to absorb all of the new bond that were floated. So the Federal Reserve purchased them and then resold them through two round of “quantitative easing.” That direct infusion of currency outpaced real GDP growth by 5.6% alone. It doesn’t factor in the interest owed on those bonds or the effects of the nearly $2 trillion in cash the Federal Reserve created on its own. When you add all of it up, the economy now has roughly $2.5 trillion more in cash than needed to meet demand. That equates to 17% inflation – 17% more money supply than demand would allow.
This isn’t to say that we’ll actually see 17% inflation before all is said and done – there are other things that could keep the number lower. For instance, if the world’s other major currencies remain weak then the dollar will retain a semblance of strength and that would mitigate the effects of inflation. At the same time, a country with a relatively weak currency that holds large reserves of dollars (say, China) could decide they need to strengthen their currency’s relative strength against the dollar and start dumping our currency.
But until then we can conserve, or drill, or do some combination. While it will have a short-term effect of mitigating the price at the pump, the end result will be the same: gas (along with everything else) will cost more this time next year than it does today. The problem with gas prices is not supply (we have more than at any time in the past 40 years) or demand (the world is using less gasoline than at any time in the past decade). In fact, the cost per gallon of gas has actually decreased, relative to actual dollar value, over the past 5 years. But because the cost hasn’t dropped as fast as inflation has risen, the price continues to move upwards.
THAT is the dirty little secret no politician in either party wants to tell you.