Friday, February 14, 2014

My View

Random ruminations from your resident curmudgeon...

We are all familiar with the term "capital". Capital is simply the assets that are owned by a business or an individual. For instance, the savings, investments, and home are examples of capital owned by individuals; while equipment, technology, and facilities are some of the examples of capital owned by businesses.

Those are easy examples of capital, but there are other types of capital that I would suggest are even more important than those listed above.

Social and educational capital are arguably more important than any form of the physical capital listed above.

And right now, they are in short supply.

What do I mean by "social and educational capital"?

Social capital starts with the values imparted by the family unit.

Now before you get concerned about the imposition of my values on your children, realize that we are not discussing matters of faith or political viewpoints when discussing the social capital imparted by the family.

Instead, the social capital imparted by a healthy family unit is an ethic of achievement based on effort; one that teaches responsibility for personal behavior; one that imparts the value and worth of each individual; and teaches commitment, among other traits.

Educational capital involves the obvious of learning the basics of math and how to read. Perhaps more importantly, educational capital imparts a lifelong desire to learn. Functionally, educational capital equips the student with skills that allow them to find a job and function in a challenging and changing global economy.

Why mention social and educational capital?

And why do I believe they are in short supply?

Take a look at the following chart;

This chart, compiled by Michael Boehm, shows the changes in the various types of jobs in the U.S. since the end of the 1980's. Boehm categorizes low skill jobs as food service, cleaning, security, and personal services, to name a few occupations. High skill jobs are ones that require technical skills or are managerial and professional jobs. Middle skill jobs are skilled labor, production jobs, and sales and administration.

What it shows is that the U.S. economy has added high end, high skill jobs and low skill, low wage jobs. But notice what has happened to middle skill jobs. There has been a significant decline in those jobs. Those are the jobs that have traditionally been filled by workers in the middle class.

This phenomenon is what economists call 'job polarization" and it is a condition where low end jobs are being created along with high skill jobs, but there is a contraction in middle skill jobs.

This situation is dangerous for an economy and for the citizens that live in such an environment. A smaller number of people are working in jobs that will comfortably sustain a family, putting continued economic pressure on those families.

We see this today in our economy, where the real unemployment rate is estimated to be around 12%. An economy that doesn't create an abundance of quality jobs is an economy that will continue to struggle to grow. And families in that type of economy will continue to face financial difficulties.

There is no doubt that our economy has changed and is changing. automation and outsourcing continues to eliminate the prototypical middle skill job that will sustain a family economically. And as our economy continues to lose those types of jobs and fails to create similar jobs, the downward spiral worsens.

So what does this have to do with social and educational capital?

Social and educational capital are transferred from one generation to the next by families and our educational system. Social and educational capital equip the next generation to function successfully in a changing and challenging economic environment.

Our country has an educational system that is not turning out graduates that can compete in this current economic environment. Many tech companies are fighting to loosen the worker visa program so they can employee workers with the skills necessary to function because of a shortage of American workers with the skills necessary to compete in today's economic environment.

Many families fail to impart the work ethic and desire for education as well as personal responsibility that are foundational to a person successfully functioning in a business environment.

Boehm and other economists take a grim view of our future because, in their estimation, families and schools have become dysfunctional and are incapable of transmitting the social and educational capital necessary to allow those entering the work force to compete in the economic environment in which we find ourself.

Obviously, this is a controversial viewpoint. Yet, if you look at the chart above, one can surmise their is something drastically wrong with the economy.

It would be easy to say that cheap labor abroad is the problem, Or that we are going through a temporary slump and the economy will rebound.

The fact is that globalization and changing world economies have created seismic shifts in our economy.

Frankly, it is easy to focus on our increasing national debt or Obamacare or increasing taxes and regulations as the cause of the job slump we are seeing.

By doing that, we are ignoring the larger macro trends that are affecting the ability of our country.

There is no doubt that the job market has changed. The day of abundant middle skilled manufacturing jobs is gone, and fussing about income inequality and taxes and regulations is dancing around the more fundamental issue.

And that is equipping our citizens to compete in this changed economic environment.

Until we change our educational system so that students are equipped with the skills to compete in this economic environment; and until we do a better job of transmitting the social capital that values work, responsibility and ethics, we will continue to struggle economically.

And we will continue to lose good jobs.

And that, my friends, is my view.

*I realize this post has a lot of generalities, and there are many families that do an outstanding job of imparting the necessary social and educational capital to their children. Yet the numbers don't lie- these families are fast falling into the minority.

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