Thursday, December 16, 2010

Education vs. Income : China proves Bernanke wrong

If you find the current economic situation in America disheartening, and you want to understand "why" things are the way the are with regards to high unemployment and the massive disparity in wealth between the upper few and the rest, do not listen to Federal Reserve chairman Ben Bernanke: he is out of touch with reality! He may be a very smart guy, but he seems to be missing some blatant truths about what is going on at a macro-level in the USA and worldwide.

One of Bernanke's favorite "reasons" for the ills of this economy is: education. I watched him on a TV interview last week where he cited educational differences as one of the core determining factors between the have and have-not groups. I personally beg to differ Mr. Bernanke, and a morning story on CCTV (China Central Television) backed my position completely...

When it comes to Education vs. Income, it is just what I keep saying: a standard supply/demand curve sets salaries and earnings; that is all, nothing more. Education used to place you in a supply-constrained-group; not anymore.

China proves Bernanke wrong...China just proved it. The college-educated Chinese citizens were, just a couple years ago, on average making 4 times what the blue-collar factory workers were making in China. But, China is now experiencing an abundance of persons with degrees in accounting, engineering, technology, etc... and, those same college-educated persons are now making on average only 2 times the blue collar wages. The CCTV news show discussed how it is purely a matter of supply/demand for both sectors (white/blue-collar) that is forcing this narrowing in wages. 

China currently has an increased need for "low skill" labor, which has pushed the wages for the low end up while the college-educated job rates slow, stagnate, and decrease relative to the other group.

OK, Bernanke... how is the USA any different?There is a global glut of educated workers. As such, global wage-equalization is underway.

Makes you want to run out and get an MBA, doesn't it? NOT.

This premise that Chairman Bernanke makes, that lack of education is limiting incomes, is simply absurd in today's global economy. Sure, education *helps*, but it will not help beyond the point where supply exceeds demand for any one group of skilled labor - including college-educated labor.

The fact is, if EVERYONE on the planet had a college degree, and everyone had similar intelligence to back that degree, there would still be a need for "unskilled" labor in factories and in less desirable positions. And, who is going to serve up the Starbucks coffee in the morning... you got it: a college-educated person. And, pay differences are going to emerge like always, with stratification that does not reward education, but rather rewards being lucky enough to get one of the better jobs. 

There will still be the group on Wall Street that rewards themselves handsomely for doing nothing more than moving money around (electronically) and taking a "cut" and calling themselves brilliant investment bankers, private equity managers, and hedge-fund barons. It will have nothing to do with their education... just their position in society that allows them to siphon off huge amounts of cash from the productivity of everyone else in society.

Oh, wait... I just described the current economy in America!

What is REALLY wrong with the economy?
Bottom line: Bernanke needs to wake up and see the real issues of what is going on with the world economy and why this recession is now a supposed "jobless recovery". It has little to do with education. I, and many other people, know people with exemplary employment records and fantastic education credentials (including advanced degrees) that are unable to get work. 60-Minutes did a story where they featured a large roomful (100s) of the unemployed persons in Silicon Valley that were, predominantly over 40 and when asked what education-levels they had obtained, the majority of hands in the room were raised at "Masters" level and a large percentage were still raised at "doctorate/PhD" level.

Bernanke: how can we expect you to HELP this economy when you clearly do not understand the macroeconomic forces at play? Or, are you fully aware and just want simple excuses for the underlying mess that will never be addressed?

That underlying mess I refer to is an economy where:
  • large numbers of college-educated persons can not find employment commensurate with their training or skills; 
  • a *few* at the top of the economic food-chain, or the "top" as they have defined it to be, sit back funneling all the productivity out of this country via their instantaneous intraday flash-trading on Wall Street, whether for the banks they work at or the hedge funds and private equity firms and so forth; 
  • there is "no inflation", but yet the volatile food-and-energy group, and any other thing that one truly *needs*, only goes up in price, and goes up faster than "inflation"; commodity prices are surging worldwide, yet there is "no inflation"... sure!; 
  • there is no way for people to get any return on savings, though we always here how the USA got into this if from "lack of savings". Great, so now anyone who saves can look forward to .1% (yes, a tenth of a percent) or thereabouts on a "savings account" while large banks hit the same people up for 15+% on their credit-card interest rates. That is a 15,000% difference between what "savings" earn and what revolving-debt costs; need I say more? 
  • it is nearly impossible to find ANY USA-MADE ITEMS AT STORES anymore. Period. I search to no avail. How am I to "stimulate the economy" (in the USA) if I can not find a way to spend my money on an item that would employ US workers? It gets worse every day. 
  • Corporate America is moving jobs out of here as fast as they can... whether to dodge environmental code in the USA or to avoid the cost of benefits here or any other potential liability of having workers in the USA, they are rushing to China and other low-cost suppliers because our laws make it easy for them to do so. 
  • IP (Intellectual Property) rights are only enforced when violations affect the largest of the large companies; aside from that, anyone starting a business these days will likely see their work stolen, cloned, or otherwise reproduced within a few months of product-launch, and there will be no repercussions. You will create a new product only to see a cheap Chinese knock-off on the market in no time. So, starting a product/business in the USA becomes even more foolish, and thus jobs do not stay here. 
  • Tax-code that favors the highest-wealth people and our government that is "owned" by those people: I am sick of hearing things like "the uncertainty over taxes is preventing corporations from hiring"... GIVE ME A BREAK. There is no uncertainty! It is certain that, at worst case, taxes will revert to pre-Bush-tax-cut-levels... and, anything else is just a better case. How is a 2yr extension of a tax-cut going to lead to anything beyond another supposed "uncertainty" at the end of THAT 2yr period? Ludicrous argument! 
  • And, we borrow money by the Trillions to pay for the implementation and materialization of the list I just enumerated!

I could continue enumerating all the (real) issues with the economy, but it will make no difference unless some people with influence start standing up to fix this mess.  And, fixing it is not just extending a tax-cut that favors the top one or two percent of the population.  Fixing it requires some serious change.

If we do not start creating jobs to provide educated workers with opportunity in-line with their skills, things are only going to get worse.  And, when China is already showing signs of a glut of educated workers, get ready for further wage-pressures here in the USA and even more unemployment among those educated persons that Bernanke seems to think do not exist in large enough quantities already.


DED said...

There was an article in the last print issue of U.S. News And World Report that stated the unemployment numbers broke down as follows:

Education Level | Unemployment Rate
College Degree | 5%
HS Diploma | 9%
HS dropout | 14%

Finding American made products is extremely difficult, I agree. Occasionally, one can find stuff. New Balance is your best for shoes. Scotch Tape is American made. Sometimes I find American made stuff in my local True Value hardware store.

I don't know if the country is going to pull out of this mess. I think everyone needs to think of finding other ways of surviving, whether it be growing some of their own food, providing their own electricity, learning a trade (plumber, electrician, mechanic), etc. in order to be of some value if things do get worse.

On that cheery note, have a Merry Christmas and a Prosperous New Year!

Mike Eberhart said...

HaAve a good holiday too! :)

Sorry you burnt out on blogging about all the stuff that is going wrong with the USA (and world). I hope I don't burn out TOO early... I like writing (yet).

Thanks for the education-breakdown numbers. I agree: college persons are more employed; what I question is whether their employment is in-line with their education and associated skills. I know all too many college-educated persons in positions not commensurate with their educations. I also know a fair number that just gave up finding positions in their field. Quite a few find it beyond annoying that: a "celebrity" that can throw a ball, catch a ball, etc... or "sing" (with computer pitch-alteration to help them) because they *look* right for Hollywood... these people, regardless of education, make a fortune though we keep telling our kids to get educated in order to succeed. Well, I sure hope we find ways to provide jobs in line with educations (soon!)

I have a pair of NB tennis shoes on right now (1yr old pair), and the "Made in China" label is still there. Got me... maybe *some* are made here?? Just got back from Kohl's (department store) with my wife/daughter, and I was just annoyed to no end about all the "USA" brands that were laden with "Made in China" stickers: Gloria Vanderbilt, Lee, Daisy Fuentes (endorsed junk), and on and on and on. Wonder how much Daisy gets per-pair to put her name on products that employ nearly ZERO of her neighbors here in the USA? But, if she didn't put her name on them, another celeb would. Ughghgh.

I want a windmill to go with that power-generation thing you mentioned, but now I have no property to put it on. ARghgh.

OK, 'nuff said... here's hoping for change in the New Year (while expecting nothing but the same. heh). Later. m

DED said...

I know all too many college-educated persons in positions not commensurate with their educations.

Not surprising. After the recession of 91, college graduates were working the assembly lines for Saturn.

Quite a few find it beyond annoying that: a "celebrity" that can throw a ball, catch a ball, etc... or "sing" ....

Absolutely. And that makes American Idol so popular because it allegedly gives average people a shot at celebrity status.

I have a pair of NB tennis shoes on right now (1yr old pair), and the "Made in China" label is still there. Got me... maybe *some* are made here??

Yes, exactly. And in many cases the materials come from China and are assembled here. I think it's on a shoe by shoe basis. I have three pairs of NB (in various stages of wear and tear) and they're different styles. One says Made in China but the other two claim that they were Made in USA from foreign materials.

The New Year isn't off to a great start. Evergreen Solar just announced that they were shutting down their American manufacturing facility and letting their Chinese facility do it all. They said that their American facility just couldn't stay competitive. It's depressing.