State and local governments in the United States have a major fiscal disaster on their hands. The obligations of these governments embodied in their pension plans for government employees are not funded and there are no serious plans to fund them. The result: a combination of looming state bankruptcies and drastically reduced pension benefits for covered employees. The biggest single group of pensioners threatened by this looming disaster are public school teachers.
Yesterday, Democratic Governor Pat Quinn of Illinois made a last ditch desperate effort to avoid disaster in Illinois by urging state employees to "voluntarily" accept a shift in the retirement age to 67 and to contribute an additional three percent of salary to their pension funds. This is not a reform, this is an emergency and Quinn is a Democrat elected with strong union support in a traditionally Democratic state. Even if Quinn's suggestion is taken up by public employees, which it won't be, it is only a drop in the bucket compared to the real problem that Illinois' pension fund faces. That tells you how bad things have become.
Illinois is in the vanguard of this coming catastrophe. New York, California, New Jersey are waiting in the wings. South Dakota may be the only state of the 50 states in the US that has a real shot at delivering on their public employee retirement promises. No one else is coming anywhere near close to properly funding their systems. Some states, Virginia is an example, have recently enacted "reforms" that will have minimal impact on the massive funding deficits of their public pension plans. These reforms are notable in their inadequacy.
Inevitably, the younger members of the work force will find little or nothing waiting for them when the time for retirement comes. This parallels the outcome of social security for this same work force demographic. There is simply nothing out there to fund the promises that politicians continue to make and continue to pretend will be there when the time comes.
On this score, the coming retirement disaster is a bi-partisan affair. Republicans as well as Democrats are both complicit in confusing the public as to where this situation is headed. Ultimately, Democrats like Governor Quinn of Illinois and Republicans yet to be named will be forced to tell the truth to their employees, well past the date that these employees could increase their personal savings to offset the abandoned promises of the politicians. Government and politics at its worst.
Sabtu, 21 April 2012
Jumat, 20 April 2012
Slowdown Ahead?
Some regions and sectors of the US economy are moving right along. In the aggregate, though, the economy may be slowing and slipping back into recession. It is not just housing.
The current prosperity has limits. Economic expansion depends upon aggressive entrepreneurial activity and, except in technology, we're not seeing much on the entrepreneurial front. Why?
Some roadblocks to prosperity are "hard" obstacles and some are "soft" obstacles. The "hard" obstacles are excessive government regulation, the government-imposed cost of labor, and sharply rising energy costs. Most of these "hard" obstacles are self-imposed problems for the US economy. We have put these restrictions on our economy and they are now a serious impediment to an economic recovery.
The "soft" obstacles are the almost daily attacks by the White House and its supporters on the business community. These attacks have created a gloomy background that clouds and dampens the American entrepreneurial spirit. Business folks are discouraged. They feel that they are being singled out for political reasons by the current administration. The White House seems to believe that American society is an "unfair" society dominated by greedy and rapacious businesses and the White House trumpets the "unfairness" theme at every opportunity.
These things matter. Both the "hard" and "soft" obstacles are weighing heavily on the economic recovery and dampening the prospects for Americans in the bottom half of the wealth and income pool. The comfortable and the wealthy, who by and large support the policies that have created these obstacles, are largely unaffected and can preoccupy themselves with "fairness" discussions and other irrelevant topics.
What could kick the American economy into a more sustained downturn is the fear of the future. There has been no progress on reducing the fiscal footprint of the various levels of American government. This means that a chaotic fiscal future is becoming inevitable. Politicians have quit discussing the level of government debt in the US, which suggests they have become resigned to this chaotic future. Debt problems in the US are far, far more significant than those currently plaguing the Eurozone and we all watch daily how the Eurozone countries are faring.
The Eurozone is now in recession and things are getting worse. America may not be far behind. If the "Affordable Care Act" is sustained by the courts, which I suspect is more likely than not, and if nothing is done regarding the tax increases due to automatically take place next January, then the US economy will likely fall back into recession in the second half of 2012.
There are bits and pieces of evidence that are beginning to accumulate to suggest that the probability of a second half economic slide in the US is increasingly much more likely. There is almost no shot that real economic prosperity is on the way. With current economic policies, the 3 percent growth days of America's past are a fading memory. The best that we can hope for, and it is growing increasing unlikely, is that the economy can limp through the balance of 2012 at a 2 percent real GDP growth pace. It is a sad state of affairs that 2 percent economic growth is now an "optimistic" scenario.
The current prosperity has limits. Economic expansion depends upon aggressive entrepreneurial activity and, except in technology, we're not seeing much on the entrepreneurial front. Why?
Some roadblocks to prosperity are "hard" obstacles and some are "soft" obstacles. The "hard" obstacles are excessive government regulation, the government-imposed cost of labor, and sharply rising energy costs. Most of these "hard" obstacles are self-imposed problems for the US economy. We have put these restrictions on our economy and they are now a serious impediment to an economic recovery.
The "soft" obstacles are the almost daily attacks by the White House and its supporters on the business community. These attacks have created a gloomy background that clouds and dampens the American entrepreneurial spirit. Business folks are discouraged. They feel that they are being singled out for political reasons by the current administration. The White House seems to believe that American society is an "unfair" society dominated by greedy and rapacious businesses and the White House trumpets the "unfairness" theme at every opportunity.
These things matter. Both the "hard" and "soft" obstacles are weighing heavily on the economic recovery and dampening the prospects for Americans in the bottom half of the wealth and income pool. The comfortable and the wealthy, who by and large support the policies that have created these obstacles, are largely unaffected and can preoccupy themselves with "fairness" discussions and other irrelevant topics.
What could kick the American economy into a more sustained downturn is the fear of the future. There has been no progress on reducing the fiscal footprint of the various levels of American government. This means that a chaotic fiscal future is becoming inevitable. Politicians have quit discussing the level of government debt in the US, which suggests they have become resigned to this chaotic future. Debt problems in the US are far, far more significant than those currently plaguing the Eurozone and we all watch daily how the Eurozone countries are faring.
The Eurozone is now in recession and things are getting worse. America may not be far behind. If the "Affordable Care Act" is sustained by the courts, which I suspect is more likely than not, and if nothing is done regarding the tax increases due to automatically take place next January, then the US economy will likely fall back into recession in the second half of 2012.
There are bits and pieces of evidence that are beginning to accumulate to suggest that the probability of a second half economic slide in the US is increasingly much more likely. There is almost no shot that real economic prosperity is on the way. With current economic policies, the 3 percent growth days of America's past are a fading memory. The best that we can hope for, and it is growing increasing unlikely, is that the economy can limp through the balance of 2012 at a 2 percent real GDP growth pace. It is a sad state of affairs that 2 percent economic growth is now an "optimistic" scenario.
Kamis, 19 April 2012
Why Is This a Conundrum?
A conundrum is something that is surprising and unusual and difficult to explain. Sometimes a conundrum is described as a "riddle." Today's conundrum, according to the media, is the "jobless recovery." Really?
Is it truly difficult to find the reasons why employers have scant interest in adding to their work force? The only folks that find that this is a "conundrum" are folks that are not employers. American employers know perfectly well why hiring new employees is of little interest and could pose a major threat to their company's financial security.
The future of the US is to use labor from outside the country. Why? Is it because wages are low? If that were the case the US would have always "imported" it's labor through outsourcing. Why is "outsourcing" a modern phenomenon? Is this really a conundrum, as the media is fond of asserting? Or, is it simply the logical and predictable outcome of the dramatically increased labor costs imposed by various levels of government on employers that have the temerity to have a work force?
A machine can't sue you. An employee in China or India can't sue you if they don't work for you, but work instead for your subcontractor. You don't have to provide various benefits to an employee in Vietnam or Poland who is providing labor services to a company that provides you with a product. So, why should American companies have any "local" employees at all. That is probably the real "conundrum."
It is not a surprise that we have a jobless recovery. The real surprise would be if American employers got enthusiastic about hiring American workers. Based upon current government policies and existing law, that's not likely to happen.
Is it truly difficult to find the reasons why employers have scant interest in adding to their work force? The only folks that find that this is a "conundrum" are folks that are not employers. American employers know perfectly well why hiring new employees is of little interest and could pose a major threat to their company's financial security.
The future of the US is to use labor from outside the country. Why? Is it because wages are low? If that were the case the US would have always "imported" it's labor through outsourcing. Why is "outsourcing" a modern phenomenon? Is this really a conundrum, as the media is fond of asserting? Or, is it simply the logical and predictable outcome of the dramatically increased labor costs imposed by various levels of government on employers that have the temerity to have a work force?
A machine can't sue you. An employee in China or India can't sue you if they don't work for you, but work instead for your subcontractor. You don't have to provide various benefits to an employee in Vietnam or Poland who is providing labor services to a company that provides you with a product. So, why should American companies have any "local" employees at all. That is probably the real "conundrum."
It is not a surprise that we have a jobless recovery. The real surprise would be if American employers got enthusiastic about hiring American workers. Based upon current government policies and existing law, that's not likely to happen.
Rabu, 18 April 2012
Why Jobs are Few and Far Between?
Americans are generous people. They believe in helping others. The Americans for Disability Act, passed by overwhelming bi-partisan Republican and Democratic support, championed both by then Senate Majority Leader Robert Dole and then President Bill Clinton, must have seemed like a good idea at the time. Why not help people with disabilities? Isn't that the right thing to do?
Most Americans would answer the above question in the affirmative. Why not?
But, the reality is the ADA, as the act is known, has a definition of disability that the vast majority of Americans would never agree with. For just one example, chronic alcoholism is a "disabililty" under the ADA. If an employer refuses to hire someone because they are obviously inebriated in the interview and they confess to a severe drinking problem during the job interview, then that employer can be prosecuted under the ADA. Is that what a bi-partisan group of Democrats and Republicans thought they were singing up for? Funny! Neither Bob Dole nor President Clinton brought up the plight of alcoholics as reasons for their support of the ADA when they spoke eloquently for the Disabilities Act.
In the modern University, professors are required to "accomodate" students with disabilities. You might think that would mean students with speech impairments or other physical disabilities. Nope, such accomodations to students with physical disabilities are rare. The vast majority of the "accomodations" in the classroom are for students with "learning disabilities." Such learning disabilities often give such students three to four times as much time to take an examination as the time provided for students without such disabilities. One wonders what future careers this time of "accomodation" is preparing the student for? What are these "learning disabilities?" That's a pretty murky topic. "Inability to focus or concentrate" for lengthy periods of time is one such disability. Did the sponsors of ADA envision this application of the notion of a "protected disability?"
No wonder employers shy away from hiring employees when lawsuits can quickly emerge if a potential job candidate shows up drunk for the interview. Worse, the target of the lawsuit is the potential employer! There are so many reasons not to hire anyone and to economize on the work force. This is just one of many.
Outsourcing looks very attractive when you stop to think that employers in other countries don't face these kinds of lawsuits from the mere act of attempting to give someone a job. America has put itself in a position where offering a job is, more often than not, a prelude to a civil suit or a violation of the criminal code. So, why bother? Employees are toxic and best avoided. That's the message from the US government.
Most Americans would answer the above question in the affirmative. Why not?
But, the reality is the ADA, as the act is known, has a definition of disability that the vast majority of Americans would never agree with. For just one example, chronic alcoholism is a "disabililty" under the ADA. If an employer refuses to hire someone because they are obviously inebriated in the interview and they confess to a severe drinking problem during the job interview, then that employer can be prosecuted under the ADA. Is that what a bi-partisan group of Democrats and Republicans thought they were singing up for? Funny! Neither Bob Dole nor President Clinton brought up the plight of alcoholics as reasons for their support of the ADA when they spoke eloquently for the Disabilities Act.
In the modern University, professors are required to "accomodate" students with disabilities. You might think that would mean students with speech impairments or other physical disabilities. Nope, such accomodations to students with physical disabilities are rare. The vast majority of the "accomodations" in the classroom are for students with "learning disabilities." Such learning disabilities often give such students three to four times as much time to take an examination as the time provided for students without such disabilities. One wonders what future careers this time of "accomodation" is preparing the student for? What are these "learning disabilities?" That's a pretty murky topic. "Inability to focus or concentrate" for lengthy periods of time is one such disability. Did the sponsors of ADA envision this application of the notion of a "protected disability?"
No wonder employers shy away from hiring employees when lawsuits can quickly emerge if a potential job candidate shows up drunk for the interview. Worse, the target of the lawsuit is the potential employer! There are so many reasons not to hire anyone and to economize on the work force. This is just one of many.
Outsourcing looks very attractive when you stop to think that employers in other countries don't face these kinds of lawsuits from the mere act of attempting to give someone a job. America has put itself in a position where offering a job is, more often than not, a prelude to a civil suit or a violation of the criminal code. So, why bother? Employees are toxic and best avoided. That's the message from the US government.
Senin, 16 April 2012
The Cost of Higher Education
One of the predictable outcomes of the technology revolution is that the cost of providing education should gradually fall to zero. In time, the marginal cost of providing most aspects of education, especially "higher education," should be negligible.
Why?
First of all, the body of knowledge that is imparted in higher education grows only glacially. From year to year, you can think of it as almost constant. We also know a lot about how people learn and we know that people can learn from using computers, ebooks, and the like. These things are cheap and getting cheaper.
Does it help to have classrooms? Yes, but only marginally. Often computer programs and well crafted films can provide better instruction than the classroom. Businesses, like the Teaching Company, have exploited the idea that courses on CDs can teach as effectively, perhaps more effectively, than herding students into classrooms.
We know that the really great teachers spend less and less time in the classroom of American higher education institutions. This is a blanket recognition that the classroom may not be a high priority for American higher education institutions. Indeed, we know that classroom instruction has not been a major priority of the so-called elite higher education institutions for many years.
We know that one-on-one mentorship can help in higher education. But, over time, there is less and less one-on-one mentorship in American higher education, especially at elite schools. The more "elite" the school, the less likely a student will ever receive any educational mentoring in the school.
So, if you think about the higher education that students actually receive in the modern American institutions of higher education, the vast bulk of that education can be produced at virtually no cost and made available to the masses. Indeed, some of this is already being done -- AcademicEarth.com is just such an example.
Why, then, is the cost of higher education spiraling out of control in America? This is a question that is rarely asked. Most of the discussion of the economics of higher education focuses on how to generate more taxpayer funding for higher education or how to provide more loan funding for students who face the massive costs of modern American higher education. But, the really interesting question is why, if providing the actual education costs little or nothing, is the cost of higher education exploding beyond the cost of producing anything else in the economy?
The answer is that modern higher education is increasingly about providing three things:
1) an active social environment that students can really enjoy -- including fitness centers, semesters in exotic foreign locations, elimination of hard, core curriculum in favor of "relevant" topics, almost complete abandonment of science and mathematics, dramatic expansion in semi-professional and pre-professional athletic programs, and the ascendancy of "soft" business majors and "inter-disciplinary curricula." This means that higher education has become more fun, less demanding, and less effective;
2) political education -- provided through centers for this and centers for that focusing on race, ethnic, gender, environment. These centers, which are extremely costly, often provide misinformation as opposed to education and are usually staffed by people whose academic credentials would make them ineligible to be faculty members in any normal academic department, even at non-elite schools. A strong pro-government orientation toward attacking alleged ills of society dovetails neatly with higher education's support for more taxpayer funding. It may not be educational, but it is useful to those who run these institutions, who spend enormous hours and dollars lobbying various levels of government for more funding;
3) certification -- the idea that a degree conveys the message that a student possessing the degree has a minimum level of education. This idea is gradually losing traction as businesses across America have discovered that degrees even from elite institutions do not mean literacy, competency or work ethic. Businesses have become much more skeptical about the qualifications possessed by the graduates of the American higher education system.
So, while American higher education institutions do a bang up job of providing the first two items above, the "certification" is increasingly seen as a hollow shell.
In short, higher education is less and less about education. It is about social and political indoctrination and unlike education, social and political indoctrination is a very expensive proposition. It is not cheap to provide a "Club-Med" environment on a University campus and to constantly update it with more and more expensive features. As the "education model" is supplanted by the "resort model" in higher education, it becomes increasingly expensive to compete with other "resorts."
If you want to develop your social skills and learn networking skills, find your way to an elite higher education institution. But, if you want an education, go online. The former path is absurdly expensive, while the latter path is almost costless.
Given these dynamics, the future is pretty easy to read. Education, real education, will ultimately be provided in an inexpensive fashion by modern technology and what currently passes for higher education will continue to morph into an elaborate, expensive, four year form of a summer vacation with mostly political content.
Employers will eventually ignore the "certification" conveyed by higher education institutions, as the value of such certification withers away. Instead employers will find other ways to ascertain the skills and qualifications of "educated" employees. Higher education will never lose its charm, but it will, in time, lose its relevance as the costs continue to explode beyond its value.
Why?
First of all, the body of knowledge that is imparted in higher education grows only glacially. From year to year, you can think of it as almost constant. We also know a lot about how people learn and we know that people can learn from using computers, ebooks, and the like. These things are cheap and getting cheaper.
Does it help to have classrooms? Yes, but only marginally. Often computer programs and well crafted films can provide better instruction than the classroom. Businesses, like the Teaching Company, have exploited the idea that courses on CDs can teach as effectively, perhaps more effectively, than herding students into classrooms.
We know that the really great teachers spend less and less time in the classroom of American higher education institutions. This is a blanket recognition that the classroom may not be a high priority for American higher education institutions. Indeed, we know that classroom instruction has not been a major priority of the so-called elite higher education institutions for many years.
We know that one-on-one mentorship can help in higher education. But, over time, there is less and less one-on-one mentorship in American higher education, especially at elite schools. The more "elite" the school, the less likely a student will ever receive any educational mentoring in the school.
So, if you think about the higher education that students actually receive in the modern American institutions of higher education, the vast bulk of that education can be produced at virtually no cost and made available to the masses. Indeed, some of this is already being done -- AcademicEarth.com is just such an example.
Why, then, is the cost of higher education spiraling out of control in America? This is a question that is rarely asked. Most of the discussion of the economics of higher education focuses on how to generate more taxpayer funding for higher education or how to provide more loan funding for students who face the massive costs of modern American higher education. But, the really interesting question is why, if providing the actual education costs little or nothing, is the cost of higher education exploding beyond the cost of producing anything else in the economy?
The answer is that modern higher education is increasingly about providing three things:
1) an active social environment that students can really enjoy -- including fitness centers, semesters in exotic foreign locations, elimination of hard, core curriculum in favor of "relevant" topics, almost complete abandonment of science and mathematics, dramatic expansion in semi-professional and pre-professional athletic programs, and the ascendancy of "soft" business majors and "inter-disciplinary curricula." This means that higher education has become more fun, less demanding, and less effective;
2) political education -- provided through centers for this and centers for that focusing on race, ethnic, gender, environment. These centers, which are extremely costly, often provide misinformation as opposed to education and are usually staffed by people whose academic credentials would make them ineligible to be faculty members in any normal academic department, even at non-elite schools. A strong pro-government orientation toward attacking alleged ills of society dovetails neatly with higher education's support for more taxpayer funding. It may not be educational, but it is useful to those who run these institutions, who spend enormous hours and dollars lobbying various levels of government for more funding;
3) certification -- the idea that a degree conveys the message that a student possessing the degree has a minimum level of education. This idea is gradually losing traction as businesses across America have discovered that degrees even from elite institutions do not mean literacy, competency or work ethic. Businesses have become much more skeptical about the qualifications possessed by the graduates of the American higher education system.
So, while American higher education institutions do a bang up job of providing the first two items above, the "certification" is increasingly seen as a hollow shell.
In short, higher education is less and less about education. It is about social and political indoctrination and unlike education, social and political indoctrination is a very expensive proposition. It is not cheap to provide a "Club-Med" environment on a University campus and to constantly update it with more and more expensive features. As the "education model" is supplanted by the "resort model" in higher education, it becomes increasingly expensive to compete with other "resorts."
If you want to develop your social skills and learn networking skills, find your way to an elite higher education institution. But, if you want an education, go online. The former path is absurdly expensive, while the latter path is almost costless.
Given these dynamics, the future is pretty easy to read. Education, real education, will ultimately be provided in an inexpensive fashion by modern technology and what currently passes for higher education will continue to morph into an elaborate, expensive, four year form of a summer vacation with mostly political content.
Employers will eventually ignore the "certification" conveyed by higher education institutions, as the value of such certification withers away. Instead employers will find other ways to ascertain the skills and qualifications of "educated" employees. Higher education will never lose its charm, but it will, in time, lose its relevance as the costs continue to explode beyond its value.
Kamis, 12 April 2012
Politics Masquerading as Economics
The NY Times strikes again!
In today's times,MIT's Simon Johnson, has put his name on one of the most absurd articles about the modern economy that has yet to find its way into print. It's worth reading, if only for its absurdity.
Johnson has decided that America's banks are responsible for Medicare's funding problems. Medicare has a $ 66 trillion unfunded liability. The entire US GDP is slightly more than $ 15 trillion and the bank sector is a small fraction of that number. So, how did the mouse fell the elephant?
You would have to read the argument to believe it. Johnson teaches entrepreneurship at MIT, so I guess he can be forgiven. If you want to be treated to a good laugh, read Johnson's "perspective" in today's NY Times.
The NY Times must roam the world looking for folks that will say these kinds of things in print.
In today's times,MIT's Simon Johnson, has put his name on one of the most absurd articles about the modern economy that has yet to find its way into print. It's worth reading, if only for its absurdity.
Johnson has decided that America's banks are responsible for Medicare's funding problems. Medicare has a $ 66 trillion unfunded liability. The entire US GDP is slightly more than $ 15 trillion and the bank sector is a small fraction of that number. So, how did the mouse fell the elephant?
You would have to read the argument to believe it. Johnson teaches entrepreneurship at MIT, so I guess he can be forgiven. If you want to be treated to a good laugh, read Johnson's "perspective" in today's NY Times.
The NY Times must roam the world looking for folks that will say these kinds of things in print.
Walker versus McDonnell
Republicans often do the work of their opponents. Virginia's Bob McDonnell is a case in point. When McDonnell was sworn into office as Virginia's new governor in early 2010 his very first action was to undermine the state's public employee retirement system. The prior governor, Democrat Tim Kaine, had put in the 2010 budget, that McDonnell inherited, a provision that would begin the process of employees contributing to their own pension funds. All McDonnell had to do was accept this provision and a bi-partisan beginning to reforming public pension funding would have begun, at zero cost to taxpayers. But, no.
McDonnell could not wait to strike the employee contributions, amounting to a meagre one percent of compensation (an amount that would be increased to two percent in year two), from his budget. Loudly proclaiming his desire not to raise taxes, his actions guaranteed massively higher taxes on future generations of Virginia taxpayers.
In his second year, McDonnell seemed to begin to see the error of his ways but by that time the funding status of the state's retirement system was beginning to spin out of control. Belatedly, McDonnell proposed a bizarre, Rube Goldberg set of reforms, that fail to deliver either adequate retirement income for public employees or a reasonable method of financing such income. The crazy, convoluted set of reforms was mainly designed to appease every possible interest group and anger no one. This is not an uncommon path for Republicans, regardless of rhetoric.
Wisconsin Governor Scott Walker, on the other hand, risked the wrath of the public employee unions by going right to the heart of the problem and making serious, major, and easy to understand reforms. And they work. Now, Walker, is battling a recall movement. Why? Because Walker's reforms are for real. When real reforms take place, there is opposition. McDonnell's program is not real reform. It is simply another example of Republicans expanding the role of government and adding more obligations for future taxpayers, while striking a pose for fiscal restraint. But, it is only a pose.
McDonnell could not wait to strike the employee contributions, amounting to a meagre one percent of compensation (an amount that would be increased to two percent in year two), from his budget. Loudly proclaiming his desire not to raise taxes, his actions guaranteed massively higher taxes on future generations of Virginia taxpayers.
In his second year, McDonnell seemed to begin to see the error of his ways but by that time the funding status of the state's retirement system was beginning to spin out of control. Belatedly, McDonnell proposed a bizarre, Rube Goldberg set of reforms, that fail to deliver either adequate retirement income for public employees or a reasonable method of financing such income. The crazy, convoluted set of reforms was mainly designed to appease every possible interest group and anger no one. This is not an uncommon path for Republicans, regardless of rhetoric.
Wisconsin Governor Scott Walker, on the other hand, risked the wrath of the public employee unions by going right to the heart of the problem and making serious, major, and easy to understand reforms. And they work. Now, Walker, is battling a recall movement. Why? Because Walker's reforms are for real. When real reforms take place, there is opposition. McDonnell's program is not real reform. It is simply another example of Republicans expanding the role of government and adding more obligations for future taxpayers, while striking a pose for fiscal restraint. But, it is only a pose.
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