Ben Bernanke 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.

Academics 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.”

The third 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 academic economists.

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?

THE LOSS OF MANUFACTURING JOBS

America is moving from a nation of goods producers to a nation of paper-shufflers and digit-shufflers. This has been going since the 1960’s.

This development 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.

Economically 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.

Health care 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 industry.

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.

People pay $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.

As 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 of life.

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?

What kind 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.

Four-year 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 cost.

This “relatively 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.

In 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.

Despite 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 sector.

Education today 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 sector.

Bernanke mentioned 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.

In 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 ago.

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 dirt-poor villages.

EDUCATION FOR DUMMIES

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.

For low-paid 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.

But Bernanke 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.

Bernanke and 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.

The consummate 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 poverty.

Competition 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 this.

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.

THE SCREENING SYSTEM

Higher education 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.

These traits 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.

Businessmen 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.

These systems 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 example.

CONCLUSION

Years ago, 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.

If 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.

December5, 2007

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2007 LewRockwell.com