BANKERS' FOLLY

The advice given to governments by bankers, like the advice they gave to industrialists, was consistently good for bankers, but was often disastrous for governments, businessmen, and the people generally.  ~ Carroll Quigley

A fundamental friction that we've been living with for a while is not red states vs. blue states, rock-and-roll vs. hip-hop, or the Giants vs. the A's (or if you're from NYC or Boston, the Yankees vs. the Red Socks) – although these are indeed important. No, it's one that humans have faced for millennia and is at its heart is bankers vs. the rest of us.

Banks and bankers have been at the center of key public decisions for a very long time, way before they have dictated (again) how far the Greeks – and their government – need to bend over to receive precious funding. According to The Economist, banking originated in Mesopotamia around 3000 BC, and the first "central" (national) bank was created in 1668 by Sweden. Ever since governments around the globe have been beholden to "too-big-to-fail" banks (and vice versa). Why else would the US government, in the persons of Treasury Secretaries Henry Paulson (former CEO, Goldman Sachs) and Timothy Geithner (former President, New York Federal Reserve bank), have provided at least $500 billion through the infamous Troubled Asset Relief Program (TARP) to shore up the nation's largest banks (and also included foreign-owned banks and AIG, General Motors and Chrysler) without requiring any substantive "strings" attached? Strings such as, forcing the recipient banks to provide loans to needful individuals and/or firms.

Despite the vast influx of taxpayer funds that re-capitalized the banks, they didn't provide needed loans – home lending is at its lowest level in 12 years. The banks got cleaned up 3 years ago thanks to TARP, but individual loan- and mortgage-holders who went "under-water" due to the banks' shenanigans are still suffering, still going bankrupt and still being foreclosed upon without any meaningful relief. Over 10 million home-owners' mortgages are now underwater; $150 billion in home loans became delinquent at the end of 2011. In large part this is why Main Street now despises Wall Street.

This happened for several reasons, most prominently because provisions of the Glass–Steagall Act  (aka, the Banking Act of 1933) were repealed in 1999 by the Gramm–Leach–Bliley Act. This change effectively removed the separation that previously existed between investment banks which issue securities, and commercial banks which make money through deposits and loans. There were two consequences. First, investment banks purchased commercial banks (and vice versa), increasing banking market consolidation of power even more. And second, after 1999 the banks could once again speculate with "their" money using ever-more complex financial instruments such as mortgage-backed securities (MBSs), collateralized debt obligations (CDOs) and credit default swaps (CDSs). Many argue these investments by banks brought down the US economy in 2008.

In effect, the bankers have become more powerful than political institutions. Given the bankers' influence, it is unsurprising that no meaningful, politically-possible solutions have appeared yet to actually remedy the underlying causes of the bank/credit crisis. But that hasn't stopped Ken Livingstone, former mayor of London (Including the "City of London", one of the world's most important financial centers), from suggesting a constructive reaction to the financial crisis might be to "hang a banker a week until the others improve." Mr. Livingston is now running for mayor once again – guess what institutions are not supporting his campaign.

For a very long time, the power elites' (PEs') ultimate underpinning has been financial institutions (aka, banks and bankers). The banks and the PE's money are even more intertwined thanks to the Supremes' Citizens United decision two years ago. Now, the power elite's chokehold on placing favored politicians in office has increased immeasurably, as we've seen in this year's presidential primaries.

The voices of the supposedly-secure PE have always spoken with a common, money-tinged accent consisting of hypocrisy, conceit and self-righteousness.

Interestingly, with considerable help from the PE, at some not-so-distant point in the past the banks have transformed from being the lubrication system for the engine of our economy to being treated as the engine itself. How did this happen? The banks create nothing in and of themselves, yet they siphon off significant amounts of wealth. [According to the NYTimes, in 2010 the financial sector accounted for 29% of all US private sector business profits; up from 19% 30 years ago.] To no one's surprise, US banks' power is highly concentrated. The five (5) largest banks in the US – out of over 9,000 operating banks and savings & loan institutions – control 45% of the US banking market; concentration in specific markets like the San Francisco area is much higher, the top five (5) banks control over 77% of all bank deposits in the SF area.

Like all too many people, bankers apparently believe (and certainly act like) there is no long-run, no short-term; there is only now. As narrow-minded as this perspective is, it contrasts with Mitt, Rick, Ron and Newt who seem to want to reverse time and go back to those wild, crazy "good old" days, say  in the 18^th century, when government was "small" and average life expectancy at birth in the US was 39 years, about half of what it is today. Where's that stretch DeLorean when we need it?

GREENER STOCKHOLDERS?

I try to buy stock in businesses that are so wonderful that an idiot can run them.

Because sooner or later, one will. ~ Warren Buffett

A recent New York Times article by Tyler Cowen suggests an alternative to breaking up the "too big to fail" banks; namely, increase the fiscal liability for major financial institutions through their shareholders. Prof. Cowen suggests for every dollar a bank shareholder invests, he/she becomes liable for at least $1.50 worth of losses as insolvency approaches or occurs. He proposes by making shareholders directly liable for the costs that bank failures impose on society, banks could become more adept (and motivated) at sorting out the risks associated with their activities and tactics without having to increase regulatory overview or split up behemoth banks. His idea apparently is gaining some support, although the article does not state how this fundamental change in shareholder responsibility could be enacted.

I think Prof. Cowen's clever idea should be expanded way beyond the finance sector. It should be applied as one solution to the classic problem of how to deal with negative environmental externalities.

But first, some background. Until recently, and in tandem with other market-oriented policies generally favored by Republican policy-makers, the regulatory machinery of government has increasingly focused on using “market” mechanisms to resolve environmental issues like air and water pollution. Public deregulation of the airlines and to a lesser extent of the electric utilities was an early example of such regulatory policy shifts away from traditional, centralized “command and control” mechanisms. In the environmental policy arena the emergence of so-called market-based (M-B) mechanisms for incenting companies to reduce production of environmental effluents, such as greenhouse gases (GHG), gained some prominence.

Two principal M-B mechanisms have been considered, Cap-and-Trade (C&T) and a Carbon Tax (CT), where carbon-based materials (e.g., fossil fuels) are taxed according to their carbon (CO2-producing) content. Cap-and-trade became a favored market-based environmental mechanism for public policy. There are several examples: The Regional Greenhouse Gas Initiative (RGGI), involving states from Maryland to Maine (with Pennsylvania and Canadian provincial governments as “observers”), is a C&T scheme initiated by New York in 2003 to reduce CO2 emissions. The European Union’s Emission Trading scheme, started in Jan 2005, involves each of its 25 nation states, is currently the world’s largest M-B emissions trading market. In Feb 2007, California governor Arnold Schwarzenegger, along with other western governors, created The Western Climate Initiative (WCI) that originally committed California, Arizona, New Mexico, Oregon and Washington to create a C&T-based regional system by Aug 2008 to reduce GHG emissions. As of Jan 2012, the WCI parties include California and four Canadian provinces, British Columbia, Manitoba, Ontario, and Quebec. Every other US state has now dropped out of the WCI.

In various ways these two mechanisms add to the market price of these goods, so that price better reflects environmental impacts. Although it merits no substantive discussion, there is a third policy alternative: to do nothing. This is what the Bush administration followed by myopically and unsustainably assuming it could continue to live in that great Egyptian river, denial. Although during its halcyon, early days the Obama administration stated its interest in following a much more active plan for environmental mitigation. To date nothing significant has come of this to the consternation of many. President Obama cannot be accused of swimming in denial, but has displayed apparent ambivalence (at best) about enacting new M-B environmental mechanisms to counter growing environmental hazards.

As mentioned above, with the notable exception of electricity markets, efforts in the US to make a good's price better reflect the actual environmental costs associated with its production and distribution have failed, in part because of fairness issues. Even advocates of C&T and/or a carbon tax have to conjure up complex means for distributing tax or permit revenues to lower-income folks in order for the M-B mechanisms to not end up having distinctly regressive effects.

Instead of new federal M-B action to relieve continuing environmental degradation, perhaps it's time to engage the Republicans' much-loved equity markets to directly remediate environmental impacts. This could be done by adapting Prof. Cowen's idea of increased shareholder liability to reflect the cost of environmental clean-up.

There would be at least two (2) advantages to significantly broadening firms' stockholder responsibilities to include the social costs (and benefits) of environmental performance. (1) It would elevate the market value of firms that perform better than others – or who take advantage of this new basis of stock value by supplying technology/equipment that contributes to the firm becoming "greener." (2) By its very nature, it would internalize the costs of remaining a polluter and the benefits of becoming greener through the price of firms' equity, rather than other M-T based schemes that would almost exclusively affect the price of the firms' final products. Equity-holders, not just product purchasers, would have a direct stake in a firm's improving environmental performance. Stock prices of "dirty" firms (eg, coal producers) would fall (unless they quickly figured out how to become significantly greener), and that of "clean" companies (eg, renewable energy producers) would rise. Incentives to make our environment healthier would be closely aligned with stock prices, not merely EPA regulations.

All this without direct government regulation of the environment. What could be more beneficial for cleaning up our environment than making stockholders environmentally (not just fiscally) greener?

MADDIE AND THE MACHINE

The real problem is not whether machines think but whether men do. ~ B.F. Skinner

It's not even just the economy any more; it's jobs, jobs, jobs. Yesterday's announcement that the economy added 243,000 jobs last month and the unemployment rate declined slightly to 8.3% is what passes as good economic news. All economic news stories now seem to require a statement about the proposed action's presumably-positive effect on jobs, be it a tax reduction for the wealthy or a new oil pipeline. These alleged job numbers can be very suspect – do you really think that under Mitt Romney, Bain Capital, a private equity firm, really added 100,000 jobs as a result of its flip and sell actions? Mr. Romney's manufactured number appears quite "shaky," as factcheck.org discusses.

Nevertheless, the pre-eminent emphasis on jobs is both warranted and not surprising in an economy that still suffers from high unemployment. From an historical perspective, having such a significant number of unemployed people for so long remains unusual. Except for the brief recession in 1981-82, one has to go back to 1932-40 amid the trauma of the Great Depression to find unemployment rates comparable or higher.

What is it about this recession that has made high unemployment linger for so long? I believe there are three (3) Inter-related factors: the globalization of product and labor markets; the ever-increasing use of technology that displaces lower-skilled workers; and the failure of education (both by schools and students) to produce workers with skills now needed by employers. Some people – like the Wobblies[1] in the early 20^th century – disparage the substitution of labor with machines. As I mention below, this process is not new; it's been present since at least the Industrial Revolution in virtually all industries, and has been especially prevalent in the US. Workers have long been displaced by machines/automation, and eventually everyone gained, even the dislocated workers, once they learned new skills. The use of automated machines in many industrial and manufacturing processes is now completely commonplace, and regarded as normal. It is workers and machines, not versus machines.

Globalization.  Over the past decade, the international flow of goods and services has steadily increased. According to the World Trade Organization in 2010 (latest year available) total world merchandise trade was $14.350T, which represents a 14% increase from 2009. The US remains the world’s biggest trader in merchandise, totaling $3.247T in 2010. International trade is important to our economy. Increasing exports have certainly been one of the movers of our domestic economic growth. But foreign trade remains a fairly small proportion of US national output – about 14% of GDP – despite the media's barrage of stories saying how we are being decimated by jobs lost to the Chinese. Yes, we have lost many jobs, but the US remains one of the top three exporters and manufacturers of the world. Our merchandise exports are dominated by higher-value goods and services including machinery and equipment, and aircraft and parts. Nevertheless, globalization of markets, especially labor markets, has left all too many lower-skilled wage-earners without opportunities here in the US.

Technological advance.  Virtually all of the technological change that has occurred in the US has been capital-using and labor-saving. Creating better machines remedied our nation's relative lack of manpower. [Although it's no longer true, up until the mid-20^th century, it was mainly men working.] These machines allowed the relatively scarce workers to become much more productive.

Historic examples abound, including those in the agriculture (ag) sector. Harnessing water- and wind-power to mill grains more efficiently had been used since Roman times. Significant American ag improvements began in the 18^th century and have never stopped. The enormous increases in agricultural labor productivity were produced by the adoption of a series of new technologies including hybrid seed; iron/steel plows; mechanical planters, reapers, thrashers, harvesters and combines; barbed wire; and mechanical tractors. [Interestingly, it wasn't until 1954 that farmers used more tractors than horses on the nation's farms.] By 1987, farm labor productivity had increased 100-fold in 150 years. [In 1830, it took 250-300 labor hours to produce 100 bushels (Bu) of wheat on 5 acres of land; by 1987, it took 3 hours to produce 100 Bu of wheat on 3 acres.] These advances allowed ag workers to leave the farms, move to the cities and become industrial workers at the same time as ag output was increasing – in 1930 one farmer supplied 9.8 persons in the US and abroad with their food, by 1970, a single farmer supplied 75.8 people. In 1900, 40% of the US labor force lived on farms; in 1990, less than 2% lived on farms. Similarly dramatic improvements have been made in manufacturing and industrial labor productivity.

As described, agricultural workers were "displaced" by machines that allowed crop production to increase using less labor. This process of substituting machines for labor continues today In the US and elsewhere, as it has for generations. However, unlike times past when the nation's economic growth absorbed dislocated workers in other jobs, such workers (especially lower-skilled folks) now find it far more difficult to secure well-paying full-time jobs. Thus, real wages have stagnated. In essence, our real GDP is now roughly the same as it was in 2007 (before the "Great Recession"), but the US is producing this output with 6 million fewer jobs than in 2007, confirming the significant, continuing increases in labor productivity.

With globalization and technological change, the geographical opportunities for production of goods have again multiplied. The choice of where to produce both high-value and lower-value goods has significant ramifications for current and future jobs. This article, "How the US lost out on iPhone work," illustrates these job consequences, using the example of where and why the iPhone is designed (the US), manufactured (China), and purchased (world-wide).

Education.  If the issue at hand is our nation's enduring unemployment in the midst of globalization and technological change, and it is, we should critically assess both how our educational system can help alleviate this issue and enact public policies to reduce unemployment. I have mentioned before that implementing public policies now to promote robust and broad economic growth – namely targeted, expansionary fiscal policies together with policies to lessen our structural deficit – are an absolute imperative for reducing unemployment.

But in the midst of significant unemployment, numerous industries have noted they are finding it increasingly difficult to hire qualified workers with the skills they require, especially in science, technology and engineering.

What can we do? Unlike the vapid – "don't bother me with the facts" – Republican pronouncements (especially those of Mitt, Newt, Ron and Rick), there is no simple answer to this key question. I believe a solution must be based on improving our nation's human capital – the skills, talents and knowledge of our people and workers. However, improving our human capital takes time and focus that is in very short supply. Increasing funding into our existing educational system is not sufficient, although it is probably necessary. The focus and effectiveness of education must be altered to emphasize producing high-quality "middle-skilled" workers along with needed "higher-skilled" graduates who achieve college degrees. Middle-skilled workers are those that do not require a bachelor’s degree, but do require some education or training following high school. Ideally, workers could receive such skills with re-focused curricula at community and junior colleges. Tragically, in California (and other fiscally-challenged states) these 2-year colleges have been hard hit by state budget cuts, $502 million in cuts just this year, which represents almost 9% of their budget.

Projections from the Bureau of Labor Statistics indicate that during the next decade, 45% of job openings will be in middle-skill positions. What skills are these? These jobs encompass a broad range of professions from construction supervisors and machinists to dental hygienists and paralegals. However, experts believe that many students in our educational system are not attaining the skills needed for these highly-demanded jobs.

An insightful commentary in The Atlantic, "Making it in America," looks at Standard Motor Products, based in Queens, NY, and Madelyn “Maddie” Parlier, one of Standard's middle-skilled workers. It's well worth reading. Standard manufactures after-market (replacement) precision fuel injectors used in internal combustion engines. The article uses this American firm as an example of how modern manufacturing has dramatically evolved. It is now a computer-controlled, machine intensive process, requiring particular labor skills. From the article, Ms. Parlier states, “What worries people in factories is electronics, robots. If you don’t know jack about computers and electronics, then you don’t have anything in this life anymore. One day, they’re not going to need people; the machines will take over. People like me; we’re not going to be around forever.” For now though she is around, through a lot of hard work, determination and some luck. Her future is by no means guaranteed at Standard, as the firm fiercely competes with other auto parts businesses across the globe.

The article mentions that higher-value manufacturing that US firms seek (and compete against  foreign firms with lower labor costs) needs workers who have skills that are much more specialized than those 40 (or even 15) years ago. Unlike what happened in the much of the 20^th century, very few new US manufacturing jobs will go to workers who are unskilled or low-skilled – those with just a high-school education. Now, manufacturing requires middle- or higher-skilled workers, especially in technical tasks like interacting with machines. The more skilled, intelligent and flexible these workers are, the more likely they will continue to hold industrial/manufacturing jobs in America. But, these talents are far less broadly distributed than typified industrial job entrants in decades gone by. Finding a job in industry with just a high-school degree that can lead to a middle-class existence will be doubtful, due to globalization and technological change.

US students need to recognize that in order to succeed in the globalized work place, they must be disciplined and focused in their efforts and perform well. And, despite President Obama's and others' exhortations, a significant surge in US manufacturing jobs while possible, is not that likely – it's not 1950 anymore when the US's industrial and economic might was without peer (due in large part because our industrial and educational infrastructure hadn't been destroyed by bombs and battles in WWII).

Nevertheless, making public investments are worth the risks simply because the opportunity cost of not investing is so large. Re-forming and re-focusing post-high-school education programs to offer students the opportunity to learn employable middle-level and higher skills is essential. Such motivated, skilled workers will be an indispensable ingredient for our economy's broad and sustainable growth. Can we do this? It's hard to believe it will be straightforward, given the riven nature of not only our politics, but our collective sense of what needs to be done to secure a meaningful future for ourselves and our children.

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[1] The Industrial Workers of the World, or Wobblies, is a labor union founded originally by socialists, anarchists and radical trade unionists in 1905. Of local note, the city of Berkeley's recycling is picked up, sorted, processed and sent out all through two different IWW-organized enterprises. And according to Wikipedia, in 2006 the IWW Bay Area Branch organized the Landmark Shattuck Cinemas in Berkeley. The Union has been negotiating for a contract and hopes to gain one through workplace democracy and organizing directly and taking action when necessary.

PREVAILING PRINCIPLES OF ECONOMICS AND MODERN LIFE: 2011 Edition

The study of economics usually reveals that the best time to buy anything is last year. ~ Marty Allen

With 2012 fast approaching, here are some notions that provide me with a bit of guidance for living in this tumultuous, tenuous time.

·         Because everything is ultimately related to everything else, it's wise to remember that the Law of Unintended Consequences reigns supreme. All other economic "laws" – such as the Law of Demand, of Supply, of Diminishing Returns –pale in significance.

·         Make sure to distinguish between correlation and causality. Failure to do so is called the "post hoc fallacy," the mistaken notion that just because one thing happens after another, the first event was a cause of the second event. Post hoc reasoning is the basis for many erroneous beliefs and superstitions that are espoused all too often.

·         Daily "explanations" in the media of what caused yesterday's changes in some stock/bond market index are vacuous. At best, they reflect flawed post hoc reasoning about the index (Dow Jones or whatever) and some prominent, but essentially unrelated event(s) during the day. As one trader put it, "I cannot explain today's action in the market… it's head-scratching." So much for verbal efficiency of markets.

·         Objective data and analysis don't exist (and never have). All data and analysis contain some bias either explicitly or implicitly. Remember this apt saying, "Why are statistics like a bathing suit? Because what they reveal is enticing, what they hide is essential." Or this one by Paul Krugman, "All economic statistics are best seen as a particularly boring form of science fiction." You don't believe that objective data and analysis have been extinct? See, "The Myth of Objectivity" in The Atlantic .

·         Doddering Democrats and truculent Republicans have emasculated fiscal policy mechanisms (changes in govt spending and/or taxes) to counter macro-economic imbalance (like the current, continuing recession). Total political dysfunction has removed one of the two most effective and proven mechanisms of Federal macro-economic policy. With no meaningful fiscal policy possible, what's happened? The Federal Reserve, home of monetary policy (the other principal macro policy mechanism), has had to step into the fiscal vacuum. Thus the Fed has been forced to continue its essential and very aggressive expansionary monetary policy to get the economy moving forward. Is this good? Time will tell. But don't be fooled, the Congress (and the President) have abdicated their roles as purveyors of timely,  appropriately expansive fiscal policy during this period of deficient aggregate demand – the stubbornly high unemployment rate (8.6% in Nov) is but one prime indicator. In this time of mounting need, politicians won't meaningfully increase govt expenditures and/or meaningfully reduce taxes (for the lower 99% of us anyway – 2 months of payroll tax cuts, wow!) due to fallacious, unyielding political ideology. I hope Ben Bernanke and his cohorts can, with a moderate amount of luck, pull it off. As one of the millions of concerned voter plankton, I'm counting on him.

·         Whenever you hear that some semi-important person is leaving his/her job to "spend more time with my family," should you believe it? Not for a nanosecond. The real reason(s) for the departure have nothing to do with family interests. Sorry kids.

·         The more emphatically and more often an official denies (or agrees) with a particular position – e.g., Nixon stating "I'm not a crook" or the head of the National Association of Realtors saying "Housing prices are now headed upwards." – the more likely that stated position is bogus and/or soon to change.

·         The 80/20 rule holds true in a wide variety of circumstances. For example, in many markets 20% of customers account for 80% of revenues. Why is it that this 20% minority really rules? And should we be glad it's 20% and not 1%, like it is in income or wealth "markets"?

·         The process of becoming educated is akin to flowing down a funnel: you begin at the widest-top by knowing virtually nothing about everything, you end up (especially those of us with PhD's) by knowing pretty much everything about next to nothing. And yet, I remain exhilarated by again being part of this dynamic, necessary process for personal and economic growth.

·         Temporary is forever. Despite their rhetoric, politicians never, ever allow "temporary" tax cuts or subsidies to be transient. Witness what's now happening (once again) in Congress with President Obama's desire to "extend" the "temporary" payroll-tax cut. Thus, "temporary tax cut" is one of the highest-order political oxymorons. A close variant of this principle is allegedly short-term subsidies offered to "infant" (new) industries – e.g., ethanol, solar and oil & gas producers. Like virtually all other interim subsidies, these folks (remember, corporations are now people) continue to enjoy the benefits of sizeable taxpayer-provided funding for years and years and years. Subsidies, like tax cuts, are forever even when they stop making economic sense.

·         The "good old days," although rarely as uniformly superior as we romantically remember, nevertheless offer a nostalgic foundation for progress.

On that note, I hope the days of 2012 prove to be good for you and everyone else. Happy New Year!



FINDING A FUTURE FOR OUR CHILDREN

Education is the most powerful weapon which you can use to change the world. ~ Nelson Mandela

Now that the super-committee's decision-makers (what an oxymoronic phrase that is) have thrown in their towels and declared failure (blaming everyone else), the rest of us are left facing a probably bleak fiscal future to be dictated at some point by international bond markets. These 12 politicians now have been added to my growing list of cowards – afraid to solve pressing problems, like our lack of adequate growth and economic imbalance, with solutions that may either go against their rigid political orthodoxy or upset folks that fund their campaigns. I'm convinced members of Congress and virtually every other politician no longer have any idea about what really constitutes the public interest. They don't care; they only seek to serve narrow, private interests, not the broader, longer-term public interest. Our children are ultimately going to suffer most from this breakdown.

As I've said before, everyone of us 312 million US residents has a stake in resolving the over-riding issue of getting our country back in balance with equitable growth. However, as a parent with a son now in college, I have a particular concern about what can be done to prevent his generation (the Millennials) from becoming lost in the undertow of our persistent recession and political dysfunction. The Millennials' welfare is vital if the rest of us want to realize a sustainable future.

His generation has begun to show the rest of us how upsetting the lack of equitable opportunity can be; most clearly in venues with the Occupiers. In my view it's principally set off by three inter-related trends – the lack of sufficient economic growth, the unswervingly ideological basis for politicians' hypocritical non-decisions and the consequences of crony/predatory capitalism.

These trends have considerably weakened the axiom held by generations of Americans, "Going to college will guarantee you a good job." The table below shows the steady rise in the proportion of young adults who have received a college B.A. degree since the beginning of the 20^th century, based on Census data. College has been an intimate part of realizing opportunity and achieving "the American Dream." As parents we've promised our kids that by working hard and graduating from college, they will prosper by having a good job and an adult life better than ours. This promise is the same one my parents, and their peers, offered me and countless other young people.

Year	Proportion of Young Adults with a College B.A.
1905	2%
1930	4%
1950	5%
1960	10%
1970	11%
1980	20%
1990	24%
2000	24%
2003	27%
2009	30%

Except now it isn't working out that way. Our children have been graduating from college in ever-increasing numbers, but real wages have been stagnant and "good jobs" have become an ever-distant prospect. I'm feeling the very disturbing prospect that my promise about post-college success may turn out to be baseless.

Here's my family history regarding college. I grew up in a household where there was never any doubt what I would be doing after graduating from high school: I was going to college. Beginning more than 50 years ago, many parents like mine have spoken this mantra to insure their kids' hopeful triumph as adults. Our kids are the fourth generation of my family who have gone to and graduated from college. When my grandfather graduated in 1905 from what would later become the University of Massachusetts, less than 2% of young adults – YA's – (then meaning almost exclusively men) got college degrees. When my mother and father graduated from their colleges in the early 1930's (not an especially propitious time), less than 4% had college degrees. The B.A. my mother received in 1932 truly distinguished herself, only 1% of females graduated from college. My, have times changed; last year more women attended college than men and received nearly 60% of the B.A.'s awarded.

I received my B.A. in 1967 when about 10% of YA's had college degrees. In the 1990's, when our daughters finished college, 21% of YA's had a college degree. By 2010, about 33% of high-school graduates entered college. Currently, more than one-half of children from higher-income families complete college, up from one-third 20 years ago. As the table shows, college-graduating has steadily broadened in the US for a long, long time. This has been a very good thing from many perspectives.

But now that 30%+ of YA's have college degrees there may be some downside consequences, especially when macro-economic growth is woefully inadequate. Unemployment rates of teenagers (16-19 yrs old) and young adults (20-24 yrs old) remain alarmingly high: the Oct 2011 rates are 24.1% and 14.0%, respectively.

In the moribund labor market, having a B.A. no longer assures young people of the "meaningful" jobs we parents (and their teachers) have been promising throughout their lives. Instead, more and more newly-minted B.A.'s are under-employed, waiting tables, selling shoes, flipping burgers or whatever – if they find a job at all. Competition for jobs by college graduates has become more intense. Thus, employers have become increasingly demanding about who they hire, even among college graduates. This naturally creates deep distress and resentment – a likely contributing factor to the advent of Occupiers.

In effect, having a B.A. is becoming the "new normal" minimum requirement for a broader number of jobs, some of which may not really require this skill level at all. This requirement wasn't present when a smaller minority of job market entrants had B.A.'s until the 1990's, when the US economy was growing strongly, and when roughly one-in-five young adults were college educated. But now things are different because having a B.A. is less distinguishing.

Does it remain true that an individual receiving a B.A. is a good thing when applied to ever more young adults? Most certainly, the US has long benefited from having more YA's receive B.A.'s. and will continue to. Nevertheless, from a macro perspective, the relative value of completing college is probably diminishing. The law of diminishing returns holds for B.A.'s as well as virtually every other good or service people purchase. This is in part why employers can be more choosy about job requirements – continued high unemployment magnifies this further.

Given this, you might argue that to really distinguish themselves YA's now need to get a post-graduate degree (a masters or OMG, a Ph.D.) – the way Boomers like me did with a B.A. in the 1960's and 1970's. Predictably, applications to graduate schools have been progressively increasing. In 2009, almost 8% of adults had received master's degrees; almost 3% have Ph.D.s. I'm not saying your typical YA needs to get a post-graduate degree to get a job; I am saying that as more and more YA's receive B.A.'s the relative value of this achievement will diminish as a distinguishing part of a resume.

Nevertheless, the formidable education industry still shouts from the tops of its classroom buildings, "You need a college degree to get a good job." And YA's and their parents understandably believe it, because there are a myriad of statistics that back this claim up. As an example, household income is strongly correlated to educational attainment; 2009 median weekly earnings for a college graduate were 64% more than that for a high-school graduate. But this increased expected income is now paired with much increased costs of getting that degree.

How can we adults help our children's generation secure a satisfying, remunerative future and not become "lost"? In the most general sense, we can do everything possible to increase macro-economic growth. [This week the Dept of Commerce reduced its estimate of 3^rd quarter GDP growth to an abysmal 2.0%, from the previously-stated 2.5%.] With higher growth, more jobs will be needed and more Millennials will be hired. Growth of at least 3.5% will do wonders for everyone's economic well-being.

We also can invest in them, provide opportunities for them and insist that spending more funds on prisons than higher education is not a recipe for social or economic progress. Boomers must pressure politicians to increase the availability of Pell Grant and other federal and state college- and vocational-training funding. I don't have much issue when college tuitions increase at the same rate as inflation, but recent increases at the University of California and Cal State campuses (and many other public and private colleges) are up to four (4) times as great as inflation. This level of unjustified tuition increase has been all too normal and illustrates the significant inefficiency (and audacity) of many higher-education institutions.

Boomers should adopt an uncharacteristically magnanimous approach to insuring more balanced growth by agreeing to lessen our public retirement costs (see my Nov 11 post) as a means of funding the Millennial-targeted benefits discussed above. Why should we do this? Because Millennials will soon be paying for our public retirement and Medicare expenses. And because Millennials are our future; the better off they are, the more secure we Boomers (and the rest of the US) will be.

GETTING TO BALANCE

"Action is at bottom a swinging and flailing of the arms to regain one's balance and keep afloat." ~ Eric Hoffer

What actions can we take to get the Bottom 50% (or even up to 80%) of our citizens back afloat and to put our nation more in balance?

The dictionary defines balance as: a state in which various parts form a satisfying and harmonious whole and nothing is out of proportion or unduly emphasized at the expense of the rest. Sign me up for balance. It seems like a utopian goal, and totally divorced from what has been and still is happening in our political realm.

A Greek citizen was recently quoted as saying, "The politicians are playing games with the people." This applies to us as well. Our politicians are not telling us the truth about the current and future state of our economy – that due to too slow growth, our aging population and crony capitalism, soon we won't be able to afford the fiscal commitments we've promised ourselves and others. It's not just the politicians though; it's us as well who refuse to acknowledge (and accept) these eventualities. We seem all too content to keep treading in the river of denial. What we need is more balance, perspective and unselfish action.

Although it seems next to impossible now, what can we do to renew and regain balance? Could each side – the Distracted Democrats and Ranting Republicans –come in from the cold and somehow cast aside their narrow, petty vituperativeness and become harmonious enough to create economic policies designed to move the nation forward towards higher growth with more genuine opportunity for 100% of US citizens? Impossible? Hopefully not.

Here's my suggestion for how this could happen with the following 6 actionable steps.

1.      Each political party and its members agree to behave reasonably with each other. This represents a colossal change from current manners, I admit. Why would they change their negative behavior? Because we would have the nation's political leaders be required to meet with their young children under 12 years old (or their grandkids). The children, having purer hearts and minds than their parents/grandparents, would look them straight in the eye and demand the leaders (the dads/moms and grand-fathers/grand-mothers) pledge, promise and cross their hearts to start acting as responsible grown-ups, be nice to everyone and don't hold grudges or pick fights. In other words, stop throwing sand in the sandbox making life difficult for others, and start doing their jobs (making difficult decisions to serve the broad, long-term public interest). Am I being woefully naive that our politicians would lie to their own children or grandkids? I hope not. In this sense, our leaders need to be K-5 children-like humans with a natural, unadorned sense of fairness and cooperation. They immediately need to stop acting like feckless, self-righteous middle-school bullies. As re-emerged children, Congressional leaders and the President agree to be bound by the decisions made in the following 5 sets of activities. If they don't agree to be harmonious to each other and pass the 2012 New Balance Act (see below), they will receive the following "fiscal timeout": salaries of Congress members and the President will be immediately reduced by 6.4% (the same reduction that US median household income has fallen since 2007). In the future, these leaders' salaries will continue to be adjusted yearly by the change in median household income, not the cost of living.

2.      Both political parties each agree to provide numeric values for three macroeconomic objectives; (1) the US's nominal GDP growth rate for 2012Q4 (It should higher than this past quarter's 2.5% rate), (2) the overall unemployment rate for 2012Q4 (Hint: it should be lower than October's 9.0%), and (3) FY2013 federal deficit, as a percent of expected 2013Q4 GDP, (Hint: it should be no higher than the 8.6% level, now estimated by the Congressional Budget Office - CBO). A 5-person Panel of Expert Economists (PEEs) – 2 named by each party, 1 by the CBO – will "arbitrate" these GDP growth, unemployment and deficit numbers and will decide the numeric value of these 3 objectives within 2 weeks (after all these people are practicing, knowledgeable economists; they've been thinking about this for a long time).

3.      The PEEs decision about these 3 objectives will be submitted to a 12-member Jury of Citizens (JoCs), picked at random from people who voted in the 2008 Presidential election (with 3 members from each of the 4 Census regions and an equal over-all balance between registered Republicans, Democrats and Independents/Other parties), for their review. The JoCs will meet with the PEEs in either Winnemucca, NV or Weed, CA [Because they're way far away from Washington, DC, have cool names and (based on personal experience visiting and/or staying in each) are typical, small (less than 10,000 population) American cities where real folks live.]. The JoCs will have 1 week to prepare their review comments to the PEEs, the Congress, the President and the public.

4.      After receiving the JoCs review at the retreat's conclusion and within 1 week, the PEEs will provide their concluding decisions regarding their final assigned growth rate, unemployment rate and deficit objectives to the President, the Congressional leaders, both political parties, the JoCs and the public.

5.      Once these objectives have been specified, the PEEs will utilize the nonpartisan CBO's macroeconomic forecasting model to run a series of simulations assessing annual forecasts over the next 3 years for GDP, unemployment and deficit and related parameters. The PEEs will report within 2 weeks describing these detailed results. Their final report will be submitted to Congressional leaders, the President, both political parties, the JoCs and the public within 2 weeks.

6.      Within 2 weeks, the Congressional leaders from both parties will jointly submit for passage the 2012 New Balance Act, which presents economic policies to achieve the agreed-upon economic objectives consistent with more balanced growth.

I would hope Congress (with the President's active support) will include at least the following 9 initial actions within the 2012 New Balance Act. These actions will get the US moving in the "right direction" and will spread the pain sufficiently broadly so no germane interested groups are excluded from realizing that moving together towards balance means everyone must make changes and sacrifices.
1. The Bush income tax cuts will be ended; on Dec. 31,, 2011 (as now planned) for folks making more than $200,000, and on Dec. 31, 2012 for the rest of us. The social security (FICA) tax will apply to all earned income, not capped at $106,800 as it is now. The carried-interest loophole will be closed, effective Jan 1st, 2012. Other tax loophole closings are welcome, as long as income tax progressivity is strengthened.	2. Medicare/Medicaid and Social Security benefits-payments beginning in December 2012 will be reduced by 4% for all people earning more than $70,000, by 2% for people earning less than $70,000. Qualifying retirement age will be increased to 67. These entitlements will become fully means-tested in 2013. State and local governments will re-balance their under-funded pension and health-care programs (by reducing benefits, increasing employee contributions and raising the qualifying age), if they want to continue receiving federal funds for other programs.
3. Investment tax credits will be increased by 10% for firms who have 500 or less than employees and 5% for firms who have more than 500 employees, provided each firm increases its full-time work force by at least 3%.	4. The Dept of Defense budget will be reduced by 8% each year beginning in Oct 2012 for 3 years.
5. The Food Stamp program benefits will be increased by 5% for qualifying participants for up to 2 years.	6. Federal subsidies to the private sector (e.g., agriculture subsidies, energy company subsidies) will be cut 8%. Any other cuts in government spending (beyond DOD and subsidies) cited in the Act will require an 8% cut in Congress' operating costs (including staff salaries) and an 8% cut in the Office of the President's expenses (including staff salaries).
7. Payroll taxes for employees and independent contractors with incomes less than $70,000 will be cut by 4% for up to 2 years.	8. Home-owners with "underwater" mortgages will be allowed to reduce their outstanding principal by up to 25%.
9. All financial institutions with more than $500M in assets and/or have received government bailout funds (even if they've "paid" them off) will be required to increase personal and small business loans by 10% at non-usurious rates within 2 months, and will reduce yearly total bonuses and deferred compensation to no more than 2% of deposits for "small-ish" banks (less than $500M in assets) and 0.02% of deposits for larger banks.

After passage, the President will execute the Act into Law within 24 hours of receiving it.

Will passage of such an Act cause concern and upset? Certainly. Nevertheless, our fingers will be collectively crossed in hopes of a more balanced, productive, and growing future. Onward…