Wednesday, August 27, 2008
We Owe a Lot of Money: The United States is mired in the worst national debt hole, particularly relative to the GDP, in its recorded history. We are creeping up on $10 trillion! The litany of horribles associated with that debt is seemingly endless: foreign countries (like Saudi Arabia, China, Japan, etc.) have supplied the cash and hence have economic power over us, we generated that debt by holding taxes low (with over 60% of the tax benefits going to the top 2% of taxpayers) and borrowing 100% of the cost of the Iraq War, our annual federal budget is consumed with debt payments reducing funding for need projects, we are most certainly not living within our means, our currency is falling because of this massive debt load, etc., etc., etc.
That said, so what? If I owe a lot of money but I have great earning power, I and the lender that gets the interest have a good thang goin’ on. Even if I don’t pay back the loan, if my collateral – my net worth – is growing quickly, then my debt becomes decreasingly significant as time passes. Countries are not particularly different from individuals on that level, although the ability to print money is exclusive to governments (think piles of worthless paper).
Since we have the debt, it’s fairly obvious we need to manage our economy accordingly. Some say we are in a crisis and the debt is clearly necessary at this time of horrid external threats. If this is indeed the case – that’s not the subject of this message – then Americans should be willing to pay for this “defense” themselves, by “buying bonds” (also national debt) and paying higher taxes (shouldering a vastly larger share of the cost). But since we didn’t do that when the debt was incurred, we need to address the same questions that people do when they have debt: how do we grow our value (i.e., the true value of our economy) or increase our earning power (really the same thing) without leveraging or selling off our basic assets?
What “Grows” a Country? A country generates economic growth in two basic ways: selling natural resources that are harvested (renewable) or mined (not renewable) and value added services. You can sell real estate and build on property, but except for selling our land to foreigners, that really is a zero sum gain for the country. Since we consume most of our own natural resources (yes, we do export agricultural products), the main method that Americans have used in recent years to generate money is that “value added” category.
“Value added” generally is the impact of labor – through a manufacturing process (that may deploy capital equipment) or the application of skilled labor. In fact, since capital equipment is also the product of turning natural materials into machines through human skill and effort, “value added” basically comes down to the quality of the aggregation of your national skills. Nations with low skill levels generate less income than nations with high skill levels; the reasons are obvious. “It’s the productivity stupid.”
Sure, you can generate financial power and invest your money in the growth of industries overseas, but while that might create some powerful minorities in the U.S. financial community, which in and of itself has some benefits, it doesn’t build or grow the businesses in this country, which provides the local jobs and consumers.
How are We Doing to Prepare for the Future? In a world where emerging nations are rapidly upgrading their schools, where many advanced nations are emphasizing increasingly sophisticated higher education, what happens to a country whose educational standards are dropping like a stone? How well are we doing? Well, here is an excerpt from my book, Handbook for an Informed American (Amazon Kindle, 2008, page 159): "On December 6, 2004 (reported the next day in the New York Times), the Organization for Economic Cooperation and Development, a group based in Paris representing 30 nations (England was not part of the group), issued a report on academic standing looking at test scores of 15 year olds. According to the Times, the report indicated that: “The United States was … cited as having the poorest outcomes per dollar spent on education. It ranked 28th of 40 countries in math and 18th in reading.” But the American educated elite fared vastly better, suggesting the educational polarization that is occurring in this country as we continue to fail to prioritize public education: “In the United States, 10 percent of the students were in one of the top two groups, less than half as many as in Canada and a third the total of the leader, Hong Kong, which had 30.7 percent of its students in the top two categories.” As we continue to struggle to make our children competitive, other nations are investing even greater recourses in their educational systems, often creating a greater relative disparity with Americans. While our productivity index has risen, numbers furnished in September of 2006 from the Bureau of Labor Statistics indicate that this has come at the expense of wages and average earning power, which have not kept up with the increase in the cost of living."
So as educational standards in the United States fall, and those same skills can be accessed overseas for lower cost, the underlying overall value of the country as a whole is also falling. Our growth is slow, our currency under attack, and we must service this humongous debt load by the future value of our citizens’ skill sets, which skill sets are falling behind the rest of the world because of a decrepit and unresponsive public school system.
Government Expenditures as Investments or Consumables: Here’s a little aside: there are two kinds of government disbursements – those that are investments capable of paying back the investment (infrastructure, education, scientific research, etc.) and those that provide consumable but often necessary services to the populace (national defense, police force, welfare support, etc.). Some expenditures fall somewhere in between (environmental controls, healthcare, etc.). People should not fear spending government money on investments that will produce a better and more productive future, and survival may well dictate which consumables we need to preserve.
Which brings us back to what investments we can make now, what can we do to increase our ability to pay back debt or grow so much that it no longer matters, and how do we pay for them?
The Necessity of Education to Generate Growth: If we can’t find a massive reserve of new unexploited natural resources, we really have to focus on generating an educational edge – to have the skills necessary to create the new ideas, the new products and services and to create increasing economic value for Americans for generations to come. Not only will this manage our current debt load, it also provides a very real defensive shield against the massive educational efforts that are currently pushing so many other countries to accelerating economic growth, often at the expense of our own consumer-driven economy. Simply, we need better schools. My premise is that we need to create a new prioritized national educational policy, starting in the public school systems (primary and secondary schools), not because it’s a noble cause – BECAUSE IT’S THE ONLY WAY THE UNITED STATES CAN SURVIVE EVEN REMOTELY AT ITS CURRENT OR BETTER LEVEL!
As our earlier educational years produce better students, the colleges and universities, a discussion for a separate occasion, will also produce better-educated and creative graduates. Without this effort, we can sit and watch as one Asian, one more eastern European, etc. nation overtakes us on test scores, educational achievements, and productivity. We can claim that we are still “the idea originators” and that China and these other nations are simply “servicing economies.” That was true; it is changing and most certainly will not be true in the next very few years. China, for example, has set out a new national policy of creating and originating the values, the patents, the designs… And if you saw the recent 2008 Olympic show, you know what China can do.
They’re taking even the high-end jobs away from us with equal or better skill-sets than we currently teach to majority of our youth. Back to my book (page 154): "The November 24, 2005 New York Times provided an accurate if painful summary: “For example, deficits have led to cuts in federal financing for basic scientific research, even as the United States' share of global patents granted continues to decline. Such cuts threaten the very basis of our long-term economic prosperity.” As Senator Pete Domenici, Republican from New Mexico, said: " ‘We thought we'd keep the high-end jobs, and others would take the low-end jobs. We're now on track to a second-rate economy and a second-rate country.’" This is hardly a partisan political issue. It represents our quality of life in a huge way. Our government’s spending habits are eroding our future at an alarming rate."
What We Need to Do to Fix Public Education:
We need to make teachers special, stop saying “those who can do, those who can’t teach.” That’s just wrong. The Japanese add a much revered title of “sensei” to a teacher’s name; we need to do the same. They need protection in the classroom, corporate discounts and even the right to pay lower taxes (since their pay scales are absurdly lower than people with vastly lesser skills). I would recommend a relief from federal (state too) income tax for any monies paid for teaching primary or secondary schools (private, religious or public) of up to $40,000 a year (inflation indexed) starting now. It’s a drop in the bucket for our tax base, but it might just make teaching the hot new job and keep teachers in place instead of leaving disillusioned to find work elsewhere.
Corporate America, which draws its future employees and consumers from our educational system, needs to get vastly more proactive in “adopting schools,” particularly in the inner city of major cities where high school dropout rates average 50%. They need to repair broken structures, shoddy classrooms, and disgusting bathrooms. We need new computers, more books, additional technology, additional special teachers, and support for after school arts and athletics and mentors.
We need to increase the approximately $9,000 we spend per public student a year (prisoners cost four to five times as much to house!) to more like $13,000. For a country the represents 5% of the earth’s population that houses 25% of the planet’s incarcerated inmates, we seem to prioritize prisons over schools, a message that clearly resonates in the inner city. That money needs to be an investment in our future by the federal government.
Class size has to come down to a manageable 25 students per classroom within five years and down to 22 within five years thereafter. Modern programmed learning technology should allow teachers to move the bright students forward at their pace while focusing on those students that need special attention to keep them from falling hopelessly behind. For students in isolated communities, fully interactive video conferencing technology should put an end to the one room school house that still exists in this country.
And this last one – I know a lot of high school athletes who are going to hate this one – well… we need more classroom instruction a day, phased in with an extra half hour as soon as possible in the primary grades and a full hour starting with the secondary years. More emphasis on science and math, perhaps with alternatives in hard-skill alternatives in high school (ranging from blueprint drafting to machine shop skills).
Conclusion: In the end, we are only as good as our future, and our future is only as good as our schools. We can ignore the problem, engage in “deferred maintenance” of our intellectual capital and overall productivity, but the world will pass us by, our standard of living will plummet, and by the time we notice the change, we will not have the money or the ability to fix the problem – our nation will be polarized between an elite, well-educated class and the vast majority of Americans who will struggle to survive. And even then we will still be making massive interest payments from a dwindling economic base. That’s not the America I know, and that’s most certainly not the America I want for my son and my grandchildren.
I’m Peter Dekom, and I approve this message.