My Two Cents on Education

This country has an education problem. That much has been clear for some time now. What is surprising is how little serious debate and thought seems to go into fixing this problem. An education problem in a democratic society is a bigger problem than most people realize. The very principle of democracy requires that the people be able to make educated decisions at the polls. With our public education system far behind other developed nations it begs the question of how we hope to continue to hold our spot at the top. Health insurance, social security, medicare, the national debt, the federal budget, our economy, the environment, and energy are just a few of the major challenges facing this nation and the world over the next 20-30 years. How can America take care of ourselves and be an active participant in global discussion with a failing education system? The simple truth is we cannot. Many of our biggest problems would be much closer to a solution with an improved education system.

Did you know that most of the new PhD. graduates in America are foreign born, particularly in advanced math and science fields? Not all that surprising when you consider that most foreign public education system better prepare their students for college level courses.

There are four fundamental changes to our educational system that I think would go a long way to addressing these problems:

1. The funding formulas for our schools need to be changed. Education is and should remain primarily a state responsibility with the federal government providing grant and incentive funding. The states should pool all education dollars and give them out to schools at a set per student rate. This would go a long way to leveling the playing field across school districts. Students and parents should be able to pick the school they wish to attend (funding isn't a big issue if every school gets the same per student) even among private schools with parents picking up the difference between the state dollars and the tuition. This will encourage competition among schools. Changing the funding really just provides incentives for schools work hard to meet the same standards for each class of school (more on classes later).
2. The curriculum in our schools should focus more on the basic reading, writing, and math skills that students need to lead functional lives. The other aspects of a well rounded education are really secondary to these considerations - really what good does history do you if you cannot read and understand the credit card contract you got in the mail or the mortgage contract you are about to sign or write a resume? I am not suggesting that we cut all of these other subjects, just that students should be required to show a certain level of proficiency in reading, writing, and math prior to taking these subjects. Also, in our middle schools and high schools we need to include basic economics courses and require them. How can we expect people to make rational and educated choices on matters that affect our economy if they have never taken an economics course? This is an area that is simply too important to our national and individual well being to be left to college level curriculum.
3. We need to stop pretending that everyone is created equal, as in the same. Yes, we are all and should all be treated equally in the eyes of the law. Yes, everyone should have the same basic rights. This does not mean that everyone is the same though. We are pushing more and more students with special needs, whether that be learning disabilities or exceptional aptitudes, into a single class room environment and all we are doing is ensuring that everyone's education is sub-par. Is it more fair to place a student who has a learning disability into a regular classroom environment where he or she will struggle to keep up or to place them with a group of their peers where they can truly develop and grow? This also means that we should ask our students to think about and make choices about their general career paths sooner. Students interested in vocational fields of study should go to high schools that specialize in this, those interested in arts should go to schools that specialize in that, and those interested in math and science should go to schools that specialize in that. Does this place more of a responsibility on the students and parents to make choices? Absolutely, but welcome to life. It's just a simple fact that not everyone is interest in or skilled in physics, chemistry, painting, singing, welding, or carpentry. It's not that any one choice is better than the other, it's simply a matter of interest and aptitude. (Interestingly, they tend to coincide.)
4. Finally, we need to end the tenure practice in our educational system - across the board elementary through university. I know it is a long held educational tradition and teachers will hate me. The whole idea, though, is just dumb - what do you really think is going to happen to performance when you make it almost impossible for someone to be fired? I don't think it really takes a PhD. to figure this one out. Yes, some people will continue to perform and work hard because they have a good work ethic and truly enjoy their career, but most will not. Besides it sets a bad example for our children. When they are most impressionable we send them to a place where the workers can get tenure and then they don't have to work that hard because it is nearly impossible to fire them. That sets an example that is utterly unrealistic for the vast majority of the workforce. I am sure most of us can think of examples from our time in school - I know I can. The truth of the matter is that the teachers that are good at their jobs have nothing to fear they would keep them without tenure - for the rest, well, that's life.

That's my two cents.

Chrysler R.I.P. The Dealers Get Railroaded?

In The American Thinker an angry Dodge dealer writes of his frustration. (See this week's Monday Must Read.) While I wholeheartedly agree that the government's involvement in the operations and restructuring of Chrysler is absolutely against everything that makes this nation great, I don't agree with the argument that in a free market society this cannot happen, or should not.

First, if the gentlemen were to check his franchise agreement I would imagine that the contract states something to the effect that Chrysler/Dodge retain ownership of the brand name of the franchise and are leasing it to the dealer. Furthermore, I would also imagine that the agreement spells out certain circumstances and processes by which the automaker can end the contract. If this is true then his outrage at the seizure of his franchise is really just a result of poor contract reading.

Second, even if the contract does not say so our bankruptcy laws currently allow most contractual arrangements to be modified and/or nullified by the court. This modification does hurt some stakeholders, like this unfortunate dealer, but in the long run it is necessary for our economy to be able to clean house and re-tune companies worth saving and liquidate the rest.

Having said these things I think it is outrageous that the government exerted pressure on the bondholders and other parties to accept huge losses in both the GM and Chrysler restructurings. These proceedings should have been allowed to run their natural course without government involvement. The real problem now is that with, the government calling the shots, decisions are made that are not ideal from an economic standpoint.

There is a post on The Lonely Conservative that suggests the closure of dealerships may not be based on economics alone. The post suggests that the Obama administration may be targeting for closure those dealers that donated exclusively to the GOP during this last election cycle. Some of the dealerships supposedly closed for this reason were very profitable! I don't know how much truth there is in this, but if it is true then watch out because this is a window into the true nature of Barrack Obama and Team.

It is truly an outrage to close profitable dealers for political reason, and if the gentleman whose dealership is losing its franchise has been a victim of this then he has every right to be angry. He did not mention in his letter if his dealership is profitable or not....

If it is then perhaps he has a strong case that his dealership should not be closed. If not, then he needs to go take an economics course before complaining that this is against the free market.

The Economy and You

The current recession is the worst since the great depression, and what really makes this recession scary is not so much how far we have to fall, but what will happen as we start heading back up. Two recent Business Week articles touch on two of the biggest challenges to a successful recovery.

The first article discusses the inflation risk inherent in any recovery. This recession was caused by a financial crisis, which severely restricted credit and impaired the functioning of our financial system. In order to prevent another depression (and stave off deflation) the Fed and the Federal Government have pumped enormous sums of money into the economy. Washington has pumped money in through tax credit, tax cuts, and good old fashion fiscal stimulus on an unprecedented scale. The Fed has lowered its target rate to almost 0% while at the same time turning loose a tsunami of government backed credit. In an ordinary recession these two actions would have produced a huge expansion of the money supply and would have caused levels of inflation that could bring an economy to its knees. What was different this time?

The credit crisis cut off the normal flow of funds to businesses and households. This dulled the effects of the economic stimulus, particularly those from the Federal Reserve (in economic-speak the money multiplier was significantly lower than in previous decades). The unique nature of this recession has required such extraordinary steps to prevent a depression because of the reduced flow of credit. The danger now is that the financial system is literally awash in money and as the economy begins to recover the blockages in the system will clear and a flood of money and credit will hit the economy. If this happens the recovery will be swift, but will likely yield another bubble and extremely high inflation. The trick is for the Fed to slowly siphon off the excess money and raise interest rates to prevent the flood of credit from hitting the system like a shot of adrenaline without choking the life out of the recovery. This is a very daunting task that historically has not been performed with precision.

The second article discusses the other side of the recovery equation: unemployment. The article points out that amid the highest unemployment rates in decades there are over 3 million unfilled jobs in the US. How can this be? The answer - structural unemployment.

To economists, not all unemployment is equal; in fact, there are four kinds: seasonal, frictional, structural, and cyclical. Seasonal unemployment is straightforward enough: some industries have seasonal ups and downs. Frictional unemployment represents typical job and labor mobility cycles and is generally very short-term unemployment. Structural unemployment represents unemployment caused by changing economic realities such as the rise and fall of industries and sectors of employment. Seasonal, frictional, and structural unemployment are always a part of any economy and comprise in varied proportions the natural level of unemployment. Cyclical unemployment occurs during the course of business cycles and is caused by recessions. This type of unemployment can be very long lived. A lot of the 8.9% unemployment right now is cyclical.

Now back to the original point, 3 million jobs remain open when unemployment is at nearly 9% reflects the fact that the landscape of our economy is changing with this recession. Too many professionals existed in fields such as construction and finance and they are now unemployed and will remain so for some time. At the same time fields like education and health care are still growing and they cannot fill all the jobs. This occurs because these are professional fields that require years of training and the newly unemployed financiers and contractors simply don't have the skills to fill these positions. The process itself is actually healthy for the economy in the long-run. We are matching employment to economic reality. The effect of this will be to prolong the high unemployment rate as the displaced workers get retrained. It is very likely that the natural rate of unemployment (NAIRU for all you economics students out there) is going to be reset to a higher level for a least a while.

What do these two factors mean for you? First and foremost, expect unemployment to continue to climb even as the economy bottoms out and then to fall slowly as workers are retrained. (If you have a child in college suggest a degree in education, medicine, engineering, or chemistry over finance.) Second, expect the recovery itself to be extremely slow. The Fed is likely to start pulling credit out of the system sooner rather than later keeping the recovery slow to avert disaster. The pain is likely to stop getting worse soon, but it's going to ache for a while!

Monday Must Read

5/25/2009

"When Even Failure Stops Working," Business Week May 25th, 2009. This article looks at the failures of current bankruptcy law, especially when it comes to dealing with the current economic crisis. The article also points out why this could spell the end of the beginning of the next economic boom.

"Can China Clean Up Its Act?," Business Week May 25th, 2009. This is an excellent article on how China's government is steering the country into advanced eco-friendly technologies and what that means for American businesses in this industry. This is a great first step into a larger conversation - more on this later.

"Letter from a Dodge Dealer," The American Thinker May 24th, 2009. In this letter a dealer laments the current situation with Chrysler. Read up because this is the new American way under Obama!

Shifting Demographics

This is an interesting video commentary on population shift. I cannot say I am convinced the numbers are all correct - to get the figures a lot of assumptions must have been made. Interesting nonetheless...

Monday Must Read

5/18/2009

"Is French Health System a Model for U.S.?" from the Dallas Morning News discusses some of the differences and pros and cons of the American and French health care systems. The article doesn't get into the details or economics of either approach, but it is a good starting point for a conversation this nation desperately needs.

"How Can We Escape This Mess," from this month's Kiplinger's is an interview with Robert Shiller. You may recognize him from the Case-Shiller Home Price Index. Shiller is a interesting and experienced economist, and while I don't really agree with everything he stands for, it is worth a read anyway.

GM a Division of the U.S. Treasury - Part II

This week's Monday Must Read mentions "Inside GM, With the G-Men in Charge," from Business Week. The article looks at how deeply the government has involved itself in GM's day-to-day operations. Interestingly, the Obama administration initially stated it had no interest in running GM's day-to-day operations. The government has done everything from pressuring bondholders to take losses to deciding which brands live or die. The changes are certain to improve GM's short-term financial position by ensuring a steady stream of goverment money, but will likely do nothing to improve the long-term viability of the firm.

The government has shown a willingness to pressure anyone that gets in their way. Bondholders will be all but wiped out by the current restructuring plan and the administration is pressuring them take these losses willingly rather than go for bankruptcy. The insane thing is that many of these bond holders are institutional investors that represent teachers' or firefighters' pension trust funds. They are asking the managers to take huge losses on securities bought with the hard earned retirement funds of middle class Americans. So much for helping out the little guy. Simultaneously, the Obama administration has called for tighter regulation of the financial industry including stronger requirements to act in shareholder interests while at the same time pressuring these funds to volunteer to take huge losses. Something smells foul to me.

The government has had a big impact on which brands will survive. While dropping brands like Saab, Saturn, and Pontiac is probably good for GM, the government pressured them to drop GMC and Buick despite the fact that these are the two most profitable business lines. Buick is a big seller in growing markets like China. Why would the government make such requests? GMC is primarily large trucks, which don't fit with Obama's green thumb. In the middle of trying to help make GM viable the government tried to kill it's most profitable business segment because of political goals. I doubt this ends well. Luckily management held its ground and kept GMC and Buick - though I wonder how long that will last with the ousting of CEO Waggoner.

Actually all Obama has to do is wait if he wants the authority to run GM into the ground. Under the current plans for a post-bankruptcy/work-out GM the government would own 50% of the firm and the UAW as much as 39%. I find it very odd that the government would want to give 89% ownership of GM to the two groups with the worst competitive record in America.

GM might have failed on its own and the result would have been well deserved, but under a combined Obama/UAW ownership GM may indeed live on. The only catch is that it will always be on tax payer life-support, just another federal budget leech.

This all started with a "small" government loan and will end up with nationalization, piece-by-piece. You know what else starts out small and grows steadily worse - a virus.

Monday Must Read

5/11/09

"Inside GM, with the G-Men in Charge" Business Week May 11th Edition.

This article describes how the Obama administration has inserted itself into the daily workings of GM. When the government started its assistance program to GM the White House clearly stated that it had no desire to run a car maker. The truth of the matter is shocking, from strong arming bondholders to axing brands, the White House is involved in every decision. This is how Obama views capitalism and companies.

"Hints of Recovery - And Fears of Inflation" Business Week May 11th Edition.

This week's business outlook column looks to the near- and medium-term future of our economy. Is it possible we are nearing a bottom? What might happen next? All this and more is addressed.

"Help Wanted" Business Week May 11th Edition.

This article looks at the structural changes in the U.S. economy that are being ushered in by this recession. These changes are having profound impacts on both the rate of and length of unemployment. These trends will rule the job markets for many professions and alter long-term income potentials for hundreds of thousands of professionals. You simply must read this article!

Education Anyone?

In "The Lonely Conservative" there was an interesting post about Obama's proposal to end the Washington D.C. school voucher program. (Click here to read it or watcht the video below.) This program was actually showing promise, student test scores were up and the cycle of under performance seemed to be broken. It is interesting that Obama would decide to scrap such a successful program so quietly, perhaps it is related to the teacher's union opposing the program (they were big Obama supporters during the campaign).

American schools are so far behind the rest of the developed world that it is not only embarrassing, but actually threatens to undermine our competitiveness and economic success. The D.C. voucher program was proving that school vouchers could work not just to send public school students to private schools, but also in spurring public schools to catch up. I think it is telling that most congressmen send their children to private schools.

Oh, well, what is the educational future of America's youth when compared to political campaign spoils!

Fun Video

Click here to see this funny little clip.

Glen Beck Vs. ACORN

Maybe you remember the voter registration scandal in Nevada surounding ACORN. It didn't really make big news, but it probably should have. This organization is now a partner with the Census bureau to count Americans. Despite the fact that they are facing charges of voter registration fraud in at least 14 states! Glen Beck had the ACORN national spokesperson on his show and well this you just gotta see...

Monday Must Read

Today is the first edition of a new weekly feature called Monday Must Read. This feature will include a few of the more interesting articles I find during the course of the week that you must read.

May 5, 2009:

"The Good News in a Shrinking GDP," Business Week May 4th Edition

This article gives a pretty good summation of where the economy stands going forward. It is interesting reading and I find the assumptions and foundations to be sound. In general I would recommend this weekly series called the "Business Outlook."

"The Dubious Promise of Digital Medicine," Business Week May 4th Edition

This article is one of the feature stories in this edition of Business Week. It gives a pretty thorough look at the industry surrounding digital medical records and systems. The author points out some of the dubious assumptions being made in predicted savings numbers. This is something everyone should read given our President's affinity for this industry. If we are expected to foot the bill for this digital make over we should be asking some tough and critical questions. Remember, when the dust settles the taxpayer will be left holding the bill!