is an academic. He possesses the biases of almost all academics.
He trusts formal education to solve the problems of society. This
mindset leads him to trust the Federal Reserve’s press releases,
which all rest on a single assumption: the superior wisdom of a
committee of salaried academics to set the federal funds rate, rather
than let bankers decide what overnight rate to charge other banks.
argue that it is America’s system of formal, mostly tax-funded education
that, above any other single factor, has produced America’s economic
growth. It never ceases to amaze me that free market economists
could still believe this. The heart of economic production is a
combination of (1) entrepreneurial economic foresight, which has
no known positive relationship to the classroom education offered
by salaried, Ph.D-holding bureaucrats (it may have a negative relationship);
(2) a system of sanctions imposed by consumers: profit-and-loss;
(3) private property.
In a November
29 speech to the Chamber of Commerce of Charlotte, North Carolina,
Bernanke delivered the usual blah-blah-blah on the state of the
national economy. By now, his speeches are mostly boilerplate: the
FED doesn’t have enough data to be sure of anything; there are still
latent inflationary pressures; but — all things considered
— the economy is doing reasonably well. “Please stay tuned.”
section of his speech, on the economy of North Carolina, is really
very useful — completely wrongheaded, but useful. It reveals
Bernanke’s mindset, and the mindset of most academics, including
He also mentioned
something I had not known. His maternal grandfather was named Friedman.
I ask: Is there no escape from monetary policy designed by the Friedmans?
LOSS OF MANUFACTURING JOBS
moving from a nation of goods producers to a nation of paper-shufflers
and digit-shufflers. This has been going since the 1960′s.
is usually blamed on price competition from Asian workers. This
development is widely heralded by free market economists as a positive
economic benefit. I am not one of them.
The move to
paper-shuffling has been a direct effect of the bureaucratization
of the American economy. The Federal government is the prime mover
here, not the free market. The free market has responded to changing
economic incentives. As the state has claimed ever-greater control
over the American economy, profit-seeking businessmen have shifted
production to meet the economic demand of the government. The government
taxes money, borrows money, and prints money. Then it spends it.
Entrepreneurs follow the money.
Here is Bernanke’s
assessment of what has been going on in North Carolina.
speaking, Carolinians have faced the same challenge confronting
many other parts of the country, that is, to replace jobs lost
in old-line manufacturing industries by creating jobs in services
such as health care and hospitality while simultaneously adapting
to globalization and advancing technology.
is today the premier growth industry in the United States. Why?
One word: Medicare. As the Federal government has spent an ever-growing
percentage of its budget on Medicare, health care has become a boom
I drive up
my main street. It connects three small towns. There is a Walgreens
every couple of miles. Close by is a CVS or other competitor. A
CVS opened across the street from a Walgreens recently, and the
Walgreens is only a year old.
I went on
Medicare recently. I had little choice. When you reach age 65, you
automatically get pushed out of private health insurance programs.
In discussing the situation in northern Mississippi, America’s most
poverty-stricken state, I was told by an insurance company representative
that the average annual bill per person on Part B supplemental care
in my region is around $7,000. What do I pay? Under $1,500 a year.
$1,500 for services worth $7,000. Is this program likely to grow?
Is it likely to bankrupt the Federal government? Will this lead
to mass inflation and long lines in clinics with waiting rooms filled
with old people? Count on it.
If you wonder
why there is a boom in health care services, cease wondering. It
is not simply that Americans are aging. It is that the Federal government
has created a bureaucratic monster based on subsidized health care
services. Today, the unfunded liability of Medicare in present dollars
is in the range of $70 trillion.
Let us return
to Bernanke’s analysis.
I’ve stressed on previous occasions, the quality of the workforce
is the single most important factor in an economy’s success. In
a rapidly changing world, economically valuable skills can be maintained
only through learning that extends beyond traditional schooling
to encompass training and re-training well into the middle years
Does he think
that China is beating the socks off of us — in Sock
City — because of the well-educated labor force? Or is it
beating us because of China’s rapidly growing investment in tools
and equipment, coupled with a billion non-unionized, low-paid workers
who are willing to work 12 hours a day, six days a week?
of learning is he talking about? Not on-the-job training —
not in the worldview of a Ph.D.-holding economist. He is referring
to the training provided mostly by the state’s schools.
institutions play an important role in meeting that challenge, but
they are not the sole means for developing workforce skills. For
example, in the 2004—05 school year, the North Carolina Community
College System served nearly 780,000 students in fifty-eight institutions.
The average community college student in the state is thirty years
old and likely working while attending school (North Carolina Community
College System, 2006). Because they offer education closely tailored
to employer demands in the local workplace, community colleges in
North Carolina, as elsewhere, play an essential role in training
and retraining workers. Moreover, they do so at a relatively low
low cost” means “tax-subsidized costs imposed on local property owners.”
This is what keeps tuition low. Furthermore, this cost would be lower
if the state did not restrict the number of schools. How does it do
this? Through the system of academic licensing, known as academic
accreditation. So, the answer is two-year colleges.
general, we must move beyond the view that education is something
that takes place only in K-through-12 schools and four-year colleges,
as important as those are.
He has extended
his wide-ranging view to tax-funded community colleges. What a vision!
On a clear day, he can see for about three miles.
What do students
learn in community colleges? Whatever their part-time, $15 an hour
instructors can teach them. These are liberal arts institutions,
mostly, and to get an AA degree, a student must take half his courses
in the liberal arts. By the academic standards of the public schools
in my day, let alone my parents’ day, these courses are high school
courses — tax-funded, dumbed down high schools — for
students who did not do well in high school.
losing an average of 25,000 manufacturing jobs each year over the
past decade, North Carolina has managed a net increase of 44,000
jobs per year in total nonfarm employment over the same period.
Those two numbers together imply that, on average, North Carolina
has enjoyed an annual net gain of 69,000 non-manufacturing jobs.
The largest net increases have been in education and health care,
professional and business services, and the leisure and hospitality
is overwhelmingly funded by taxes. Health care is increasingly funded
by taxes. The hospitality sector relies on consumers with discretionary
income to spend. But what will happen to the hospitality sector in
a major recession? What will happen when foreign central banks cease
buying half of the U.S. Treasury’s debt? Interest rates will rise,
a recession will hit, the dollar will fall, and the cost of imported
goods, especially oil, will rise.
At that point,
Americans will have to re-structure their household budgets. They
will have to cut spending on non-essentials. That will be the hospitality
professional and business services. These are areas of growth, at
least compared to the others, once the red ink overwhelms the health
and education sectors. But when compared to health, education, and
hospitality, business services are not major factors.
the past decade, the state has lost about one-third of the manufacturing
jobs it had at the beginning of the decade — a loss of about
250,000 jobs. About 60 percent of the losses occurred in the textile
and apparel industries. In the textile mills in particular, employment
across the state is down two-thirds from the level of ten years
This is news?
North Carolina’s textile sector has been dying for a generation. It
could not compete with tiny Hong Kong 40 years ago. It has been undercapitalized,
overunionized, and inefficient for my entire adult lifetime. Sally
Field won an Oscar for “Norma Rae,” but the movie’s basic pitch —
what the workers needed was a stronger trade union — missed the
point. What the workers needed was to get out of an industry that
faced ever-increasing competition from Asians recently arrived from
The “For Dummies”
books have been incredibly successful. It is a cottage industry.
You can get
an education in so many ways today: on the Web, from specialized
books, from newsletters and specialized trade journals. But is this
what we find in a local tax-funded library? No. What we find is
a room full of shelves of novels nobody ever read and old non-fiction
books nobody reads. The library has old people reading leisure magazines,
teenagers exchanging email, and people checking out DVDs of movies.
Have you ever
walked into a library and seen a section on “Job Training”? I never
have. Is there any indication that people are coming in to get materials
on career enhancement? No. How do I know? Because the local library
closes at 5 p.m., before people get off work. If public libraries
were serving people looking to improve their job skills, they would
open at noon and close at 8.
people who work in industries facing competition from Asians, there
is little hope, other than to work for lower wages still. The only
way for these industries to survive is for the government to quit
regulating them and for the Congress to cease taxing corporate profits.
If investors could invest without paying taxes on gains until such
gains are distributed as dividends or sold for income, we would
see an increase in investment. That is what low-wage workers need:
more investment in tools of production.
is typical of the academic mindset. He sees economic redemption
in remedial education, labeled “higher education,” delivered by
state-licensed institutions that are funded by tax money. He sees
personal liberation in terms of low-wage, low-initiative, present-oriented
workers who are now ready to turn off their TV’s and go to night
school for three years, to be taught by part-time, low-wage, low-initiative,
state-certified holders of M.A. degrees in the liberal arts.
the other certified graduates of state-certified institutions of
higher learning are the inevitable products of an education system
governed by bureaucrats. They see knowledge primarily as information
imparted in a classroom environment, an environment as old as ancient
Egypt, and just as bureaucratic. This is priestly education taught
by a self-certified priesthood whose funding comes from someone
other than students.
example of the utter lunacy of this view of education is the Harvard
Law Review, which is the most prestigious academic journal for
lawyers or law professors. It is edited by students at the Harvard
Law School who have yet to be certified, either academically or
by the bar.
In Asia, low-IQ
people hold low-productivity jobs. They are paid little money. This
assumes they get to a city. The really low-IQ people, low-initiative
people stay on the tiny family farms and spend their lives in extreme
from these people is threatening to low-IQ Americans who work in
low-paid jobs here. Their pay is far higher than the pay of low-wage
Asians. The only things that can change this in a free society is
for these people to get training on high-tech equipment designed
to be operated by low-IQ people. There are not many careers like
There is always
work to be done. There are always tasks that are suitable for low-initiative
workers. But these jobs do not pay much. That is because consumers
don’t care about the hard times facing producers. They care about
what they want. What else should we expect? Consumers buy from sellers
who deliver what consumers want to buy. Producers must compete against
other producers. In today’s high-competition world market, there
are no government-provided safety nets that do not involve restrictions
on the efficiency of producers in general to compete against imports.
serves the business world as a screening system. They can hire people
knowing that these people have displayed these valuable traits:
(1) an unwillingness to assess the long-term alternative economic
returns from their use of time; (2) their psychological ability
to spend many hours a week listening to economically useless lectures;
(3) their willingness to leap through a series of bureaucratic hoops
that have no justification other than maintaining the existing bureaucracy’s
authority. These are the traits desired by businesses in a world
where the government regulates the marketplace. They are the traits
of bureaucrats. This is the world aimed at by government regulators.
It is a world remade in their image.
have little to do with successful entrepreneurship. Businessmen
make use of this system because it produces obedient middle managers.
Also, it screens indirectly for IQ. Only people with IQ’s above
100 are likely to get through college with a degree.
know that entrepreneurship is as entrepreneurship does. They can
cull the hot-shots in terms of actually performance on the job.
Will Smith’s movie, The
Pursuit of Happyness, is an artistically compelling description
of this system. It is a true story.
To think that
America’s tax-subsidized system of education is the source of America’s
economic growth is to confuse cause with effect. It is only because
of rising productivity that governments can afford to build and
fund the self-regulated, insulated, and monopolistic industry known
as formal education.
get what they pay for: graduates who believe that the state is the
source of economic growth. I offer Bernanke’s speech is a typical
there was radio comedy show, “It Pays to Be Ignorant.” I can even
sing its theme song today, which shows how well jingles work. “It
PAYS to be ignorant — whoopdie-dumb, whoopdie do, to be ignorant.”
The living proof of this assertion is the assessment by the academic
world regarding the primary cause of economic growth, namely, money
spent on classroom education. These people are ignorant of the causes
of economic growth, few of which are taught in the bureaucratic
classroom, whose model extends back to the priests of Egypt.
you want to advance your career in the world of academia, by all
means, spend more time in some state-licensed institution of formal
education. It is a glutted world and has been ever since 1969, but
the system continues to crank out legions of certified holders of
degrees. But you may get lucky. One of those tenured posts may open
up for you. Meanwhile, you may be able to find part-time work at
a local community college at $15 an hour — no pension, no health
insurance, and no future.
You may even
get a job at the Federal Reserve System.