Monday, November 8, 2010

A longer view than false debt injection

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Interior of school on Mileston Plantation
Interior of school on Mileston Plantation; School begins ... by New York Public Library, on Flickr
Back in the summer, Mohamed El-Erian, chief executive of Pimco, wrote an article warning the two government policy camps they were missing part of the issue.

In one corner stands the "growth now" camp, arguing that expansion is a prerequisite to service their debt sustainably. Without it tax receipts implode, investment is turned away, and meeting future debt payments is harder. This camp abhors Europe's shift towards austerity, questions Tuesday's tough UK budget, and urges countries like Germany to adopt expansionary policies. Some advocate additional fiscal stimulus even for high deficit countries, like the US.

Against them stand the "austerity now" camp. They point to worsening sovereign debt ratings, noting especially that (despite Europe's rescue package) Greek and Spanish debt risk is back to worrisome levels. They are concerned a coming sell-off in equity and corporate bond markets will deter new investments and aggravate many countries' debt problems. For this camp America's request that others postpone fiscal adjustment is irresponsible. Instead, they want budget cuts to lower risk premiums and stave off disruptive debt restructurings. / UK - Beyond the false growth vs austerity debate

The two camps miss the fact that they are in the middle of a 'second generation' paradigm shift wherein the nation's initial competitive advantages have eroded and left part of their populations behind. To counter that problem, they need to begin thinking differently.

Squaring the circle of growth and fiscal stability needs policies that focus on long-term productivity gains and immediate help for those left behind. This means first enhancing human capital, including retraining parts of the labour force, and increasing labour mobility. Then new emphasis on infrastructure and technology investment is needed, with greater support for scientific advances that promise increased productivity. Finally all nations must begin an honest assessment of the social frictions coming in the next few years. In some countries (like the US) this means an urgent bolstering of social safety nets.

Unfortunately, the success of government retraining programs is questionable to say the least:

Nonetheless, a little-noticed study the Labor Department released several months ago found that the benefits of the biggest federal job training program were “small or nonexistent” for laid-off workers. It showed little difference in earnings and the chances of being rehired between laid-off people who had been retrained and those who had not.

Job Retraining May Fall Short of High Hopes -

Unfortunately we do not need to inspect retraining programs to realize our education systems need foundational changes; our economic structure can no longer bear to idle human productive capacity and emotional maturity for close to 30 years at exploding costs only to find employment in jobs that have not yet been designed. It is long past time governments rethink their involvement in a bureaucratically stale educational system that measures change in decades while computing power doubles every year.

Currently we have an artificial dearth of expert trades people, giving us plenty of places to begin. And rather than pretending to know what to train and who to subsidize, the government might do much fulfilling its more traditional role of referee, developing relationships and networks between the jobless and prospective private employers and trainers. After all, networking remains the key to finding a job.

A marriage counselor and insurance agent befits the natural role of government much more effectively than trainer or employer. Because the answers to El-Erian's article most assuredly begin by rethinking the government answers which have failed us, beginning first and foremost with our subsidized, bureaucratized education bubble.

The world is moving much too quickly to have governments so deeply involved; they are both driven by ideology and unresponsive to change. Better to have millions of managers and self-autonomous agents making their own decisions on both sides of the teacher's desk even while they drive the cost down.

In the larger milieu, in which our Ponzi scheme approach to welfare and retirement has only bankrupted us, it is absolutely time to consider a bright new path based on sound investment if we are to crawl out of our debt hole and yet reach the stars. Or wherever we might aspire to be going other than back to gravel roads and a barter economy.

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