How to Make America Stronger

 

Americans are very fortunate indeed to live in such a strong, prosperous and free society.  But not all of us share in this good fortune.  How can we help the less fortunate among us have a better chance to succeed in life?

Here are several things we can do, in rough order of importance:

  • Grow the economy faster than the 2.1% growth rate which has prevailed since the end of the Great Recession in June 2009. Faster growth means more new jobs are created and higher wages are paid for existing jobs. Success in life for most people includes earning an adequate income to live comfortably without major wants. Appropriate deregulation and tax reform are the best ways to speed up growth.
  • Improve basic education so that more people can qualify for rewarding jobs. Right now too many kids from minority and other low-income families are not graduating from high school with the skills they need to succeed in life. Two promising solutions to this problem are more charter schools and expanded early childhood education, both targeted at kids from low-income families.
  • Alleviate poverty in a productive manner by emphasizing work requirements for most, if not all, welfare programs. Higher work force participation and lower poverty rates are strongly correlated. Work not only provides income but also provides dignity and purpose in life.
  • Promote two parent families. Two parent families are much less likely to be poor than single parent families and also more likely to be supportive of their children’s education. Federal tax policy should always encourage child raising by two parent families for this reason.

Conclusion. America will become an even stronger country than it already is if more people, especially from low-income and minority families, have the education, work training and personal qualities to make a positive contribution to society.

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Addressing Poverty in a Free and Dynamic Society

 

With an unemployment rate now down to 4.2% and the average wage rising 3.1% in the past year, the U.S. is finally recovering from the Great Recession which ended in June 2009. My last several posts have described an optimistic scenario for the U.S. economy going forward.

  • The American idea is thriving.  The U.S. is the world’s most competitive large economy. Amazon, Apple, Facebook and Google are in the process of revolutionizing all aspects of life, all over the world. Productivity growth in the digital industries has grown at the annual rate of 2.7%, much faster than for physical industries. Democracy is mostly flourishing around the world.
  • Ecommerce is one example of a thriving industry.   Fulfillment center weekly wages are 31% higher on average than for brick and mortar retail in the same area. Total ecommerce related jobs have increased much faster in the last two years than have traditional retail jobs been lost.
  • Income inequality can be addressed effectively by speeding up economic growth (with tax and regulatory reform), improving educational (especially with early childhood) opportunities and with better training programs for the unemployed and underemployed to qualify them for the millions of skilled jobs going begging for lack of qualified applicants.

One additional feature needed is “A balanced and sensible anti-poverty program,”  to help many of the down and out get back on their feet.


The way to accomplish this is with:

  • Work requirements as a condition of public assistance. The work first approach has been shown to have better outcomes with regard to attachment to the labor force (see above chart) than even approaches which focus on training and education.

Conclusion. The U.S. economy is basically sound. We lead the world in many industries and especially in digital technology.  There are lots of good jobs going begging for lack of qualified applicants.  The best anti-poverty program is job training.

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The Cost of Higher Education Is Not What Is Holding Us Back

It is well known that the cost of higher education is increasing much faster than inflation and even faster than the cost of healthcare. In turn, student debt is also rising rapidly and creating a financial burden for lots of young people.


The New York Times writer, David Leonhardt, has an article in Sunday’s paper showing that most states have reduced their funding of higher education since 2009, some quite dramatically.  This is not surprising since higher ed has to compete with K-12 education, Medicaid, prison operations, public employee pensions, etc. and states have to balance their budgets.  But it means that the cost of tuition will continue to rise even faster than usual.
However, except for a few specific fields such as computer programming, high school STEM teaching and nursing, there is no overall shortage of college graduates to keep our economy going.  In fact there is a surplus of college graduates in many non-technical areas.


But there is a growing labor shortage more generally, first of all for construction and agriculture workers which can be filled by unskilled immigrants.  Furthermore, there are now millions of job openings for middle skill workers which are going unfilled for lack of qualified applicants.  Training for such jobs as emergency medical technician, robot-heavy factory worker, and wind turbine technician is where states and localities should invest more public resources.
The huge demand for middle- and high-skill blue collar workers provides an opportunity to put laid-off middle-aged (Trump voting!) factory workers back to work in high paying middle class jobs.  A little ingenuity at the local and state level should be able to figure out how to do this.
Conclusion. A college education is not the only path to a productive and satisfying middle class life.  In fact U.S. economic growth is being held back by a lack of qualified middle- and high-skill workers.

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Beating the High Cost of Higher Education and Student Debt

 

This blog addresses America’s too biggest problems:

  • Slow economic growth averaging just 2% since the end of the Great Recession in June 2009. Faster growth means more jobs and better paying jobs.
  • Massive federal debt now 77% of GDP (for the $14 trillion public debt on which we pay interest) and predicted to continue getting worse without a change in policy. As interest rates go back up to normal historical levels the interest payments on this debt will increase greatly and be a huge drag on the federal budget.

As I have reported recently, college costs are growing much faster than healthcare costs which are growing faster than the cost of living in general.  The excessive costs of education and healthcare are, in turn, holding back economic growth.


Regarding the student loan debt problem:

  • For every increased dollar of student aid, college tuition increases 60 cents.
  • Outstanding student loan debt has risen from $200 billion in 1996 to $1.3 trillion today.
  • The highest default rates on student debt occur for community college students (23%) and for-profit college students (18%).

The economist Richard Vedder has made some excellent suggestions for addressing this whole problem:

  • Simplify the entire federal student air system. There should be only two programs, one grant program (Pell grants) and one federal loan program (Plus loans, tuition tax credits, work study, etc.).
  • Give educational vouchers directly to students to empower recipients to weigh costs more closely. These would be strictly limited to low-income students and would be accompanied by modest academic expectations.
  • Require schools to have skin in the game. Schools with abnormally high loan delinquency rates should have to pay a tuition “tax” to the government to help cover costs.

Conclusion. “Financial aid has caused tuition to skyrocket. If we can’t abolish it, we can at least simplify it.”

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Why America Needs Charter Schools

 

“We are the last generation, fighting the last big battle to make true on that – that a child born anywhere in America, from any parents, a child no matter what their race or religion or socio-economic status should have that pathway, should have that equal opportunity, and there is nothing more fundamental to that than education. That is the great liberation.”
U.S. Senator Cory Booker (D, NJ), May 2016
Two days ago Senator Booker voted no on confirming charter school advocate, Betsy DeVos, for Secretary of Education.

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Charter schools are flourishing because poor inner city black parents are desperate to have their children attend a good school and the big city public schools are often very poor quality.
Stanford University recently conducted a study of charter schools in 41 regions around the country and found that:

  • Urban charter schools in the aggregate provide significantly higher levels of annual growth in both math and reading compared to their traditional public school peers.
  • Learning gains for charter school students are larger by significant amounts for Black, Hispanic, low-income and special education students in both math and reading.
  • Despite the overall positive learning impacts, there are urban communities in which the majority of the charter schools lag the learning gains of their traditional public school counterparts, some to distressingly large degrees.

For example, charter schools are very successful in New York City and especially so for African-American and Hispanic students (see chart below).

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Conclusion.  Charter schools work well when they are done right.  They work especially well for minority children in large urban areas.  These are generally the high-risk kids from low-income families who will benefit the most from a little extra help.

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What Is Slowing Down Today’s Economy? II. Three Culprits

 

My last post, “What Is Slowing Down the U.S. Economy,” reports on an interesting analysis by the Gallup economist, Jonathan Rothwell, making an excellent case that three of the biggest drags on the U.S. economy are the costs of:

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  • Healthcare. By far the biggest drag, healthcare costs have increased from 9% of GDP in 1980 to 18% in 2015. Mr. Rothwell notes that the average U.S. physician spends $83,000 per year to process claims and interact with insurance companies compared to $22,000 in Canada which has a single payer system. The solution, in my opinion, is to change the tax treatment of employer provided health insurance (to cover catastrophic coverage only) in order to give individuals more “skin in the game.”
  • Education. Although education costs have risen only from 6% to 7% of GDP over the past 35 years, education overall is 8.9% more expensive in 2015 than in 1980 and higher education is 11.1 times more expensive. Considering the ever increasing need for highly trained workers in today’s high-tech and globally competitive economy, such rapidly increasing cost presents a huge impediment to progress. Foundational K-12 education is also failing to close the achievement gap between low-income minority students and middle-class students. Such disparity in educational outcomes bodes ill for future social harmony. Even overall cognitive performance in math and literacy is now declining (see chart). These are tough problems to solve.

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  • Housing. Again, only a 1% increase (from 11% to 12%) in GDP from 1980 to 2015 but this translates into a rental cost increase of 19% of GDP in 1980 to 28% of GDP in 2015. Also mortgage payment costs increased from 12% of GDP in 1980 to 16% of GDP today. Mr. Rothwell attributes these increases to a tightening of local zoning restrictions. There does not appear to be any general policy solution to such a problem.

Conclusion. The costs of healthcare, education and housing are eating up greater and greater amounts of family income and therefore are retarding economic growth and social progress. What can be done about these problems?  Stay tuned!

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What Is Slowing Down Today’s Economy?

 

We will soon have a new President and, even though his election was somewhat of a fluke, he will obviously want to help the blue-collar workers who elected him.  The best way to do this is to make the economy grow faster.
The Gallup economist, Jonathan Rothwell, has just issued an excellent analysis of some of the major reasons for our current slow economy, “No Recovery: an analysis of long-term U.S. productivity decline.”

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Says Mr. Rothwell:

  • The problem is severe. U.S. GDP growth per capita has declined from 2.6% in 1966 to .5% today. Small differences expand into vast gaps in potential living standards. 1% growth for the next 35 years would expand household income from $56,000 in 2015 to $79,000 in 2050 (inflation adjusted), whereas 1.7% growth would raise household income to $101,000 in 2050.
  • Changes in living standards are fundamentally linked to changes of how the quantity of goods and services relate to their cost. Deterioration in the quality-to-cost ratio for healthcare, housing and education is dragging down economic growth. These three sectors alone have increased from 25% of GDP in 1980 to 36% of GDP in 2015.capture92
  • The cost of healthcare is 4.8 times as high today as in 1980, the cost of education is 8.9 times as high today as in 1980 and the cost of housing is 3.5 times as high today as in 1980. These compare to an overall cost increase of all items of 2.5 times today compared to 1980.
  • These three sectors have all gotten more expensive (without getting more productive), thereby absorbing more of families’ incomes, making it harder to satisfy other wants.

Conclusion.  We all want schools that work, adequate housing, and quality healthcare.  The problem is how to achieve these ends in a much more affordable manner.  Stay tuned!

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