Global Economic
Trend Analysis

Recent Posts

Tuesday, July 05, 2011 2:19 PM

Bill Gross' Fatally Flawed Plan to Fix the Education System and the Fractured U.S. Job Market; Mish's 8-Point Alternative Plan

Mish Moved to MishTalk.Com Click to Visit.

Bill Gross has a Plan to Fix the Fractured U.S. Job Market.

However, before you can fix any problem you have to understand what the problem is. Interestingly, Gross seems to have a handle on some aspects the problem. Here are two key points from the article on which I agree with Gross.

If we are to compete globally while maintaining a higher wage base, we must train for “middle” in addition to “high” tech. Philosophy, sociology and liberal arts agendas will no longer suffice. Skill-based education is a must, as is science and math.

The private sector is the source of long-term job creation but in the short term, no rational observer can believe that global or even small businesses will invest here when the labor over there is so much cheaper. That is why trillions of dollars of corporate cash rest impotently on balance sheets awaiting global – non-U.S. – investment opportunities. Our labor force is too expensive and poorly educated for today's marketplace.
Gross also cites several facts about the cost of education in the US that also hit the mark.
Fact: College tuition has increased at a rate 6% higher than the general rate of inflation for the past 25 years, making it four times as expensive relative to other goods and services as it was in 1985. (Click here for a list of the ten most expensive colleges and universities in the U.S.)Subjective explanation: University administrators have a talent for increasing top line revenues via tuition, but lack the spine necessary to upgrade academic productivity. Professorial tenure and outdated curricula focusing on liberal arts instead of a more practical global agenda focusing on math and science are primary culprits.

Fact: The average college graduate now leaves school with $24,000 of debt and total student loans now exceed this nation's credit card debt at $1.0 trillion and counting (7% of our national debt). Subjective explanation: Universities are run for the benefit of the adult establishment, both politically and financially, not students. To radically change the system and to question the sanctity of a college education would be to jeopardize trillions of misdirected investment dollars and financial obligations.

Conclusion to ponder: American citizens and its universities have experienced an ivy-laden ivory tower for the past half century. Students, however, can no longer assume that a four year degree will be the golden ticket to a good job in a global economy that cares little for their social networking skills and more about what their labor is worth on the global marketplace.
5-Point Summary of the Problem

  1. U.S wages are out of line
  2. U.S. education is too expensive
  3. U.S. universities are run for the benefit of teachers, teachers' unions, and administrators, not for the benefit of students
  4. Student loan programs make life-long debt slaves out of students
  5. U.S. tax policy encourages flight of capital and jobs overseas

Bill Gross' Proposed Solution
“We need a program as ambitious as the GI Bill,” but one that focuses on retraining existing unemployed workers and redirecting our future students.

Government must step up to the plate, as it should have in early 2009. An infrastructure bank to fund badly needed reconstruction projects is a commonly accepted idea, despite the limitations of the original “shovel-ready” stimulus program in 2009. Disparate experts such as GE's Jeff Immelt, Fareed Zakaria, Jeffrey Sachs and Paul Krugman believe an infrastructure bank to be an excellent use of deficit funds: a true investment in our future.

In the end, I hearken back to revered economist Hyman Minsky – a modern-day economic godfather who predicted the subprime crisis. “Big Government,” he wrote, should become the “employer of last resort” in a crisis, offering a job to anyone who wants one – for health care, street cleaning, or slum renovation. FDR had a program for it – the CCC, Civilian Conservation Corps, and Barack Obama can do the same. Economist David Rosenberg of Gluskin Sheff sums up my feelings rather well. “I'd have a shovel in the hands of the long-term unemployed from 8am to noon, and from 1pm to 5pm I'd have them studying algebra, physics, and geometry.”

Those who advocate that job creation rests on corporate tax reform (lower taxes) or a return to deregulation of the private economy always fail to address dominant structural headwinds which cannot be dismissed: 1) Labor is much more attractively priced over there than here, and 2) U.S. employment based on asset price appreciation/finance as opposed to manufacturing can no longer be sustained. The “golden” days are over, and it's time our school and jobs “daze” comes to an end to be replaced by programs that do more than mimic failed establishment policies favoring Wall as opposed to Main Street.
Pure Keynesian Nonsense

Gross correctly cited college expense as a problem. He also correctly cited global wage arbitrage as a problem. What proposal did he make to fix either of them?

The answer is he didn't. Instead he cited self-serving clean-energy nonsense from GE.

Of course GE's Jeff Immelt wants a massive energy build-out. Such a program would benefit GE and the value of Immelt's stock options.

Of course Krugram always wants more fiscal stimulus because he is a Keynesian clown, and that's what Keynesian clowns always want.

The golden days are indeed over, but Bill Gross' solution is pure Keynesian nonsense. Neither Gross, nor Immelt, nor Krugman ever say how we are supposed to pay for their proposed "infrastructure bank.

Time to Scrap Davis-Bacon, End Public Union Collective Bargaining

Unlike Krugman, Gross seems to understand one key point: the "U.S. labor force is too expensive".

Logically, that must be the starting point for any discussion.

Before any project can be economically viable, labor costs must be addressed, and that is exactly why we need to scrap Davis-Bacon and all prevailing wage laws. We also need to eliminate collective bargaining of public unions, preferably getting rid of public unions in entirety.

Unless and until we do that, we will dramatically overpay for infrastructure projects and taxpayers will pay through the nose for them.

Government should strive to provide the most services at the least cost. Public unions strive to provide the fewest services at the most cost. Is it any wonder cities and states are broke?

Killing Collective Bargaining the Single Best Thing for Education

The results are in: Union-Busting is a "Godsend"; Elimination of Collective Bargaining is the Single Best Thing one Can do for School Kids
Congratulations to Governor Scott Walker for sticking to his guns. The state of Wisconsin is far better off because of it. So are taxpayers. Most importantly, so are the school kids.

Please consider Union curbs rescue a Wisconsin school district
The Kaukauna School District, in the Fox River Valley of Wisconsin near Appleton, has about 4,200 students and about 400 employees. It has struggled in recent times and this year faced a deficit of $400,000. But after the law went into effect, at 12:01 a.m. Wednesday, school officials put in place new policies they estimate will turn that $400,000 deficit into a $1.5 million surplus. And it's all because of the very provisions that union leaders predicted would be disastrous.

In the past, teachers and other staff at Kaukauna were required to pay 10 percent of the cost of their health insurance coverage and none of their pension costs. Now, they'll pay 12.6 percent of the cost of their coverage (still well below rates in much of the private sector) and also contribute 5.8 percent of salary to their pensions. The changes will save the school board an estimated $1.2 million this year, according to board President Todd Arnoldussen.

"The monetary part of it is not the entire issue," says Arnoldussen, a political independent who won a spot on the board in a nonpartisan election. Indeed, some of the most important improvements in Kaukauna's outlook are because of the new limits on collective bargaining.

In the past, Kaukauna's agreement with the teachers union required the school district to purchase health insurance coverage from something called WEA Trust -- a company created by the Wisconsin teachers union. "It was in the collective bargaining agreement that we could only negotiate with them," says Arnoldussen. "Well, you know what happens when you can only negotiate with one vendor." This year, WEA Trust told Kaukauna that it would face a significant increase in premiums.

Now, the collective bargaining agreement is gone, and the school district is free to shop around for coverage. And all of a sudden, WEA Trust has changed its position. "With these changes, the schools could go out for bids, and lo and behold, WEA Trust said, 'We can match the lowest bid,'" says Republican state Rep. Jim Steineke, who represents the area and supports the Walker changes.
Ridiculous Cost of Education

Nowhere does Gross address the cost of education other than to cite it as a problem.

The student loan program is a huge price of the problem. It does nothing but make students debt slaves for life. Student loans should be scrapped entirely. Education costs will drop dramatically once that happens.

Moreover, pension benefits of teachers and administrators are outrageous, especially at the university level. Salaries for sports coaches are outrageous.

All of those excesses need to be reined in.

Corporate Tax Law Changes

Every few years one or both parties proposes a corporate tax holiday to repatriate profits held by corporations overseas. Such actions must stop. All repatriation holidays do is encourage more outsourcing of jobs and capital, while corporations bide their time, waiting for the next tax holiday.

US companies that only do business inside the US are at a huge disadvantage to large corporations who can shift profits overseas.

GE is a prime example. Please consider G.E.’s Strategies Let It Avoid Taxes Altogether.

In 2010, GE reported $14.2 billion in profit, $5.1 billion in the US. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

Gross has high praise for GE.

The only thing GE deserves high praise for is an army of lawyers and lobbyists to reduce its tax bill to the detriment of struggling small businesses who cannot compete and get no such breaks.

If we are going to have a corporate tax, we should have a fair one.

Mish's Proposed Plan for Jobs and Education

  1. Scrap Davis-Bacon and all prevailing wage laws
  2. Enact national right-to-work laws
  3. Kill defined benefit plans for public workers
  4. Scrap student loan programs entirely
  5. End all support for for-profit colleges
  6. Revise corporate tax laws
  7. Stop corporate tax repatriation holidays
  8. Slash military spending. The US can no longer afford to be the world's policeman.

Those ideas will increase corporate tax revenues, end corporate tax unfairness to small US businesses, lower infrastructure costs, lower education costs, allow more public workers to be hired at the same costs as before thereby lowering the unemployment rate.

A key reason we have a jobs problem and an education problem is costs are too high. Gross purports to fix the problem via more government spending.

The solution cannot be the same as the problem, yet Gross proposes just that. Unions, untenable wages and benefits, and excessive government spending caused Greece to go bankrupt. Massive public works programs put Japan in a very precarious situation, with nothing but debt to show for its efforts.

History has proven time and time again that public spending proposals cannot and will not work. Gross and Krugman are blind to history. Immelt is talking about what is good for GE, not America.

The bond market forced Greece's hand. If we listen to Gross, Krugman, and Immelt, the US will soon be in the same spot.


Reader "Brian"comments
1. Government doesn't create jobs. Government jobs come at the expense of private sector jobs.

2. Bill Gross' comment "I'd have them studying algebra, physics, and geometry" is wrong. Not everyone needs to learn algebra, physics, and geometry. If money is to be spent in education, it should be where it is needed in trade tech schools. Americans are brainwashed into thinking that getting a four year degree is a path to financial success when a highly skilled tradesman makes more money and is more in demand today than a student with a fluff degree working in an office. We are creating a nation of unskilled workers in debt and ill prepared for the necessary jobs in a diverse economy.

3. Bill Gross won't speak poorly of educators or unions so long as endowments and pension funds make up a large portion of PIMCO investors

Thanks again for the article!
Regarding point number 1 above: Much government "work" is makeshift, and not needed at all.

Regarding point number 2 above: How many math majors do we need? How many PhDs do we need? If everyone has a PhD, then by definition, Walmart greeters and trash collectors will be PhDs. As Brian suggests, much is to be said for learning a trade instead.

Regarding point number 3 above: Clearly PIMCO suffers from the same credibility problem as GE. Of course, one has to look at ideas presented instead of making Ad Hominem attacks, but Gross' proposal was very weak as noted. One cannot help wondering if Gross purposely strove to avoid offending unions and pension plans.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Last 10 Posts

Copyright 2009 Mike Shedlock. All Rights Reserved.
View My Stats