Posted by: crudbasher | January 29, 2013

Implications for College If Employment Doesn’t Improve – Part 2

This is post 800 for me so I wanted to shoot high! :)

In Part 1, we looked at how economics and government interact. This matters a lot because the world right now is in continuing economic difficulty and has been since about 2008. Of course the world has been in trouble like this before and will come out of it like it always has before right?

What if this time is different?

When the financial crisis hit business and government reacted in different ways. Business has to make the money coming in at least match the money going out or else it goes out of business. A natural reaction then is when income drops is to cut costs. Typically you can most easily do this by cutting your workforce and making the remaining workers be more productive. So how did they do this? Let’s get back to this in a moment…

(H/T Netrightdaily)

(H/T Netrightdaily)

Government (specifically the US goverment) is being run by people who subscribe to what is known as Keynesian monetary theory. As I understand it this means the government spends money to stimulate economic activity. This will then “jump start” economic activity in the private sector. Now I don’t want to get into a discussion of the efficacy of this theory. Instead I want to focus on the effects so far. When President Obama and congress passed the economic stimulus of $800 Billion dollars in 2009, most people thought it was just a one time emergency measure. However, the way the government budgeting process works is they start with what they spent the year previously and then add on from there. The budget never, ever goes down therefore the stimulus money has been incorporated into the budget ever since. As a result the US has been running deficits well over a Trillion dollars a year ever since. So where does the US get the extra money to make up the deficits? Well typically governments sell bonds therefore borrowing the money from others. The problem is there isn’t enough liquid money in the world to fun the government’s borrowing. Most people think we are borrowing it all from China, and at one point that was largely true but even China doesn’t have this kind of cash. So where is it coming from? Ourselves.

(H/T Factnotfantasy)

(H/T Factnotfantasy)

The Federal Reserve controls the money supply and it has been printing like crazy. Essentially, when the US government is offering bonds and nobody wants them, the Fed prints some money (called Quantitative Easing), takes it over the the Treasury and buys the bonds. Our money supply has expanded by 3 trillion dollars since 2008 and it’s still going on. Have you wondered why the cost of pretty much everything has been steadily rising? It’s because with more dollars in circulation, the value of each dollar is less, therefore it takes more dollars to buy something. That is inflation.

Here’s a graph from 2011 showing what happened. It’s much more now.

Federal Reserve Treasury Holdings

Ok so let me wrap this up and tie it to education.

Because the government has to borrow such a vast amount of money each year from itself, it can give itself a very low interest rate. In fact, interest rates have never been this low for this long. That’s great if you want to buy a house and is also good for businesses. Let’s return to the business problem I setup above. Businesses have a certain amount of work they need to get done. Usually you hire people to do it for you but more and more jobs can be automated with new technology. Therefore, after the crisis of 2008, businesses shed a bunch of job. Then because it was so very cheap to borrow money, the businesses began to automate away those employees. Bottom line: those jobs are gone and aren’t coming back. It’s expensive to hire employees especially now that the government is putting so many regulations on them (such as the new health care law). Technology empowers the creative people in the company who take the risks. The regular workers aren’t needed as much anymore. So the government has actually made the problem worse. The only reason the unemployment rate is dropping is people are giving up working. The actual workforce in the US is now the same percentage as in the early 1970s and a record number of people are on public assistance or outright disability.

Implications for higher education

So here are the implications for higher education. Employment isn’t going to rise any time soon until new industries are created. More likely technology will start eliminating large pools of jobs. That’s why the self driving car is so important.  There are 3.5 millon truck drivers in the US alone. Trucking companies would gladly replace them all with self driving trucks. That’s just the beginning. The other big problem is that older workers aren’t retiring because they don’t feel secure in their futures. If the most experienced workers don’t retire, then there aren’t many entry level positions created.

If there aren’t enough jobs, people will stop going to college. College is so hugely expensive you have to have a good career waiting for you on the other side. If there aren’t any, people will stop taking out the loans. See : (Avoiding Law School)

Ironically, while people are going to be reluctant to take out huge loans for college, there will be a need to retrain large sections of the work force. Some colleges will cling to the model of small campuses and face to face instruction as it has always been done. Some will survive but many will become extinct. I think the future of college looks like this:

  • You will be able to learn almost anything online and for free.
  • The vast majority of the lessons you learn will be machine generated based on your own individual learning tendencies.
  • (Fewer) colleges will still exist and will offer services as a “value added” proposition. Movie theaters do this now. They don’t make money on the movie tickets, they make money on the popcorn and candy they sell. Colleges can offer football teams, dorms, sponsored trips and tutors. They can provide an environment for people who want to learn like that. They can also provide exclusive access to important people.
  • There will still be a need to do original research and I think colleges will focus more on this. Others can deliver the lessons based on the new work.
  • The concept of a degree will become obsolete. Credentialing will be based on reputation, demonstrable skills and work history.
  • Instead of a degree program, every student create their own individual learning plan, with classes from many sources. This plan will last their whole lives (and be changed as they go).

So there are three possibilities with my theory.

  1. I’m completely wrong and in 10 years time college will look exactly how it does today (but with better computers)
  2. I’m completely right and education itself will be forced to dramatically changed.
  3. I’m partially right, there will be some changes but overall most colleges will do ok.

Time will tell. I invite comments below! Am I crazy?

For more see these great pieces:

10 Reasons Why 2013 Will Be The Year You Quit Your Job

Why Employment In the US Isn’t Coming Back

Colleges Lose Pricing Power

Next-Gen State U

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Responses

  1. [...] Part 2 [...]

  2. […] Implications for College If Employment Doesn’t Improve – Part 1 Part 2 […]


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