Education in the United States

We have excerpted the article that follows from Thomas Piketty’s Capital in the Twenty-First Century, our bible in this blog’s examination and exploration of our economic system. It reads to us as an indictment of America today–that is the same America that in the past placed the education of its citizenry foremost. Think of Andrew Carnegie’s public libraries, the agricultural and mechanical colleges established throughout the western states after the civil war, the GI bill. The education of its citizenry had always been the foundation stone of our democracy. But today? Our public school system is falling apart; the charter schools that conservatives are promoting in its lieu have become devices for extorting student loan money from the federal government by the unscrupulous; college tuitions are spiraling,  prohibiting access to the poor and saddling the successful graduate with a lifetime of crushing debt.

What is preventing us from following the example of the Scandinavian countries? Whatever money we have to spend in raising the salaries of our public school teachers, providing scholarships to those students who can’t afford the tuition and vocational training to all those unemployed and hopeless men and women in our workforce whose jobs have become extinct, will come back to us two and threefold as soon as we reestablish a prosperous middle class who can afford the luxuries of the new revived economy. It is also from these well-educated young men and women that will come the technological, scientific and artistic innovations that have in the past distinguished our nation. 

central_campus_2

By THOMAS PIKETTY from his book, Capital in the Twenty First Century

…The educational system is shaped by public policy, criteria of selection for different tracks, the way it is financed, the cost of study for students and their families, and the availability of continuing education. Technological progress depends on the pace of innovation and the rapidity of implementation. It generally increases the demand for new skills and creates new occupations. This leads to the idea of a race between education and technology, then groups whose training is not sufficiently advanced will earn less and be relegated to devalued lines of work, and inequality with respect to labor will increase. In order to avoid this, the educational system must increase its supply of new types of training and output of new skills at a sufficiently rapid pace. If inequality is to decrease, moreover, the supply of new skills must increase even more rapidly, especially for the least well educated. . .

2015-11-12t203222z_01_shn103_rtridsp_3_usa-race-yale

Now consider the US case. Two economists, Claudia Goldin and Lawrence Katz, systematically compared the following two evolutions in the period 1895-2005; on the one hand the wage gap between the workers who graduated from college and those who had only a high school diploma, and on the other the rat of growth of the number of college degrees. For Goldin and Katz, the conclusion is stark: the two curves move in opposite directions. In particular, the wage gap, which decreased fairly regularly until the 1970s, suddenly begins to move in opposite directions. In particular, the wage gap, which decreased fairly regularly until the 1970s, suddenly begins to widen in the 1980s, at precisely the moment when for the first time the number of college graduates stops growing, or at any rate grows much more slowly than before. Goldin and Katz have no doubt that increased wage inequality in the United States is due to the failure to invest sufficiently in higher education. More precisely, too many people failed to receive the necessary training, in part because families could not afford the high cost of tuition. In order to reverse this trend, they conclude, the United States should invest heavily in education so that as many people as possible can attend college.

The lessons of French and US experience thus point in the same in the same direction. In the long run, the best way to reduce inequalities with respect to labor as well as to increase the average productivity of the labor force and the overall growth of the economy is surely to invest in education. If the purchasing power of wages increased fivefold in a century, it was because the improved skills of the work force, coupled with technological progress, increased output per head fivefold. Over the long run, education and technology are the decisive determinants of wage levels.

princeton-university-d9yaxt

By the same token, if the United States (or France) invested more heavily in high-quality professional training and advanced educational opportunities and allowed broader segments of the population to have access to them, this would surely be the most effective way of increasing wages at the low to medium end of the scale and decreasing the upper decile’s share of both wages and total income. All signs are that the Scandinavian countries, where wage inequality is more moderate than elsewhere, owe this result in large part to the fact that their educational system is relatively egalitarian and inclusive. The question of how to pay for education, and in particular how to pay for higher education, is everywhere one of the key issues of the twenty-first century. Unfortunately, the data available for addressing issues of educational cost and access in the United States and France are extremely limited. Both countries attach a great deal of importance to the central role of schools and vocational training in fostering social mobility, yet theoretical discussion of educational issues and meritocracy is often out of touch with reality, and in particular with the fact that the most prestigious schools tend to favor students from privileged social backgrounds. . .

tumblr_my0bwldvbd1qavu48o1_1280

Advertisements

Bleak Outlook for Coal Miners

The fate of the American coal miners has been the subject of wide discussion throughout the recent election, including in this blog. An article in today’s New York Times, from which we extracted  what is written below, pretty well summarizes what that will be, alas. Shouldn’t our government be thinking about retraining these men for fields in which they can once more become useful?

imgres-4    jasonville_mines

By CLIFFORD KRAUSS and MICHAEL CORKERY Nov. 19, 2016

. . . The United States coal industry and the jobs that support it have been in decline for decades as a result of environmental concerns, automation in mining and slowdowns in manufacturing industries that burned coal for power. . .

. . . Coal’s No. 1 rival is cheap, cleaner-burning natural gas — which could become an even more potent competitor under the incoming administration. The probable easing of restrictions on pipeline building and loosening of rules on gas exploration and production would mean more natural gas reaching the market. . .

Despite recent increases, coal’s price has been drifting downward for years. But the price of natural gas has fallen even more sharply.

The collapse of the American steel industry in late 20th century reduced demand for the metallurgical coal that is mined most prominently in Appalachia.

In addition, utilities have been slow to build new coal-fired power plants in recent decades because of air-quality concerns over the burning of the other type of coal — thermal coal — that is used for power plants and is mined across the country. . .

But natural gas may prove unbeatable. The hydraulic fracturing boom in shale fields that began a decade ago flooded the market with cheap natural gas that continues to erode coal’s market share. As recently as early 2008, coal was the source of roughly half of the electricity generated in the United States. Now it is down to about 30 percent. . .

Beyond the declining demand for coal, there has been an even more fundamental factor behind the shift in coal mining employment, which peaked decades ago. As with those in many industries, jobs in mining have fallen victim to automation. High-tech shears can now shave coal from underground seams — work that formerly required hundreds of miners. Surface mining, which has been increasing in recent years, has also replaced many workers with heavy machinery.

As a result, there are now just over 50,000 jobs in the American coal mining industry, down from a peak of more than 250,000 in 1980.

hydrauliccoalminers

Most of the losses have come in Appalachian mines — which produce coal for making steel and electricity — because they are older, deeper and more expensive to operate. But automation is hitting employment in mines across the country. . .

A few years ago coal executives hoped exports — which represent about 8 percent of national production — would boom along with the economies of China and the developing world. But exports peaked in 2012.

Since then, slower economic growth in the developing world, along with climate and pollution concerns, have depressed demand for coal.

The same considerations have prompted international development banks and large investment companies like JPMorgan Chase and Bank of America to pull back on financing new coal-fired plants . . .

The tighter air pollution regulations, which are still under challenge in court, forced utilities to choose between revamping aging coal-fired power plants to make them cleaner, or switching to natural gas or green sources like wind and solar. Utilities across the country typically decided to switch. . .

“All the older power plants that burned Eastern coal have been basically torn down, dismantled, put in mothballs, some of them permanently,” said Robert J. Zik, the now-retired former vice president for operations at TECO Coal . . .

Acknowledging that climate change is an issue . . . Mr. Reavey of Cloud Peak Energy wants federal incentives for utilities to refit existing power plants to burn coal more efficiently and to attach systems to their facilities that will capture carbon emissions and sink them permanently in the ground. Such systems, known as carbon capture and sequestration, are currently so costly that utilities simply prefer to replace coal-fired plants with gas-fired ones. . .

plough4

But the big driver for coal’s price run-up was the dwindling supply, as American producers cut back even as Chinese mines were curbing their own production in recent months. Those price benefits are expected to be short-lived, as demand is depressed both by China’s pivot toward cleaner fuels to address the country’s endemic air pollution and by its new focus on a less energy-intensive consumer economy.

Wall Street Bonuses to Decline

We found this article in today’s Wall Street Journal.

Should we feel sorry for these guys?

jamiedimonjohnmackbankingceotestifycmvedd-lx6xlFrom left to right: Goldman Sachs CEO and Chairman Lloyd Blankfein, J.P.Morgan Chase & Co. CEO and Chairman Jamie Dimon, Bank of New York CEO Robert P. Kelly, Bank of America CEO Ken Lewis, State Street Corporation CEO and Chairman Ronald Logue, Morgan Stanley CEO and Chairman John Mack, Citigroup CEO Vikram Pandit, Wells Fargo CEO and President John Stumpf, at a congressional hearing in 2009.

By LIZ HOFFMAn,  Nov. 6, 2016

Bonus season on Wall Street is going to be a downer. Again.

Year-end bonuses are expected to be an average 5% to 10% smaller than last year, according to consulting firm Johnson Associates Inc.

The declines still leave employees at firms such as Goldman Sachs Group Inc., where the average worker earned $350,000 last year, among the best-paid Americans. But they highlight the challenges facing banks—and the dwindling perks of working at one.

“If you listen to politicians, you’d think bankers are still making money like it’s 2007. They’re not,” said Alan Johnson, who runs the firm and helps banks design compensation programs. “You can make this kind of money working at PepsiCo , and life at PepsiCo is lot more pleasant.”

The bonus pool for banks has dwindled more than 30% since 2009, when record payouts against the backdrop of a worsening economy heaped public and political scorn on big banks.

Since then, regulation has crimped banks’ trading profits, while tepid global growth has hurt their lending and capital-raising arms. Meanwhile, a shift toward simpler, low-fee investment models has reined in the hedge funds that once paid big fees to banks’ stock-trading desks.

The six largest U.S. banks have made less through the first nine months of 2016 than they did last year. Compensation as a percentage of revenue has declined as well at most firms, meaning employees are getting a smaller slice of a shrinking pie.

In Morgan Stanley ’s investment-banking and trading businesses, 36% of revenue this year has been set aside for compensation, down from 44% in 2013. At J.P. Morgan Chase & Co., that figure has fallen to 27% so far this year from 37% in 2009.

Star performers are still “making a ton of money, but not two tons,” and pay is falling faster for those further down, said Mr. Johnson, who relies on public filings, analyst reports and conversations with client banks to make his estimates.

Meanwhile, banks are freer to cut pay without fear of sparking an exodus. Many U.S. firms are slashing head count, while foreign banks and hedge funds, once a home for Wall Streeters unhappy with their compensation, are in retreat.

Initial public offering bankers will be the hardest hit this year, with bonuses expected to fall by as much as 20% from last year’s payouts, according to Johnson Associates. A preference among Silicon Valley startups to stay private longer has led to a drop in stock sales, which are among the highest-margin events for banks.

Bonuses could fall as much as 15% for stock traders and 10% for bond traders, Mr. Johnson said. Last year, Morgan Stanley fired 25% of its fixed-income traders, and Goldman Sachs has made smaller cuts in the division.

The only good news is for those in bread-and-butter businesses like retail and commercial banking, where bonuses could increase as much as 5%. Loans and deposits have risen this year at banks such as J.P. Morgan, Citigroup Inc. and Bank of America Corp. (Which is, of course, just what banks were originally designed to do.)

Monopsony–the Art of Holding Wages Down

An excellent article by two economists from the Wall Street Journal that explains how corporations have colluded recently illegally to keep wages down for workers in the service industries. Why all this vaunting by industrialists today about the importance of retaining a free market when they themselves tamper with it to suit themselves?

Doctors Hospital Corridor Nurse Pushing Gurney Stretcher Bed

By JASON FURMAN and ALAN B. KRUEGER, Nov. 3, 2016

Pat Cason-Merenda had worked as a registered nurse at the Detroit Medical Center for four years, unaware that she was being underpaid. That changed when a class-action lawsuit alleged that her employer, along with seven other hospitals, had colluded to suppress the wages of more than 20,000 nurses. The suit claimed the hospitals conspired to keep pay low by inappropriately sharing information about nurses’ salaries and pay increases. By this year, the hospitals agreed to pay $90 million dollars to settle the wage-fixing case.

Stories like this are too common, thanks to many employers’ exercising monopsony power over workers. A monopsony is the flip side of a monopoly: It occurs when a buyer, rather than a seller, has sufficient market power to set its own price. While economics textbooks often describe the labor market as perfectly competitive, in reality employers often use their power to underpay workers.

In addition to holding down workers’ paychecks, monopsony power can depress overall hiring and output, as employers are unable to find enough workers at the wage they offer. If monopsony power creates barriers to workers switching jobs, it can slow labor turnover, reducing dynamism and innovation. Counteracting monopsony power would lead to higher wages, lower unemployment and stronger economic output.

Some employers act as monopsonists by illegally colluding, as alleged in the case of Detroit hospitals. Others require employees to sign noncompete agreements that prevent them from working for a competitor in the future. And nearly all employment arrangements involve a degree of implicit monopsony power: Frictions, such as finding new child-care arrangements or spending time searching for work, can make it costly for workers to change jobs. Many companies exercise monopsony power even though they are not the only employer in town.

Evidence suggests monopsony power is restricting pay increases. Job openings have steadily risen in recent years, but hiring has not kept pace. Some employers cite this as evidence of a shortage of skilled workers. In a competitive labor market, however, employers would bid up workers’ compensation until vacancies were filled. Yet wages have not grown faster in sectors with rising job openings, according to the Washington Center for Equitable Growth, suggesting that companies are resisting raising wages.

New research also highlights excessive use of noncompete clauses. Nearly 20% of American workers have signed a noncompete agreement, according to economic researchers. This is far higher than any plausible estimate of the share of workers with access to trade secrets that could harm their employers if taken to a competitor. Even in states where noncompete agreements are effectively banned, they remain prevalent, suggesting a blanket approach to their use by employers. There is no reason why employers would require fast-food workers and retail salespeople to sign a noncompete clause—other than to restrict competition and weaken worker bargaining power.

scratchbar

The trend toward greater concentration among businesses in recent decades could be exacerbating these problems. Large corporate mergers make it easier for the remaining firms to explicitly or implicitly collude and enforce noncompete agreements.

Last week, the Obama administration called on states to adopt a set of best practices ensuring that noncompete agreements are narrowly targeted and appropriately used. The White House also announced commitments to initiate the largest-ever data collection of its kind on noncompete usage.

The Justice Department and Federal Trade Commission last month released new guidance for human resources professionals to help identify and report wage collusion among employers, including information about a reporting hotline. And allegations of companies engaging in illegal wage-collusion will now be criminally investigated by the Justice Department.

A strong voice for workers and robust labor standards can also help counteract monopsony power and lift wages. Congress should raise the federal minimum wage, which has been stuck at $7.25 an hour since 2009. Supporting collective-bargaining rights also helps workers negotiate with employers on a more level playing field. To assure adequate benefits, the Labor Department recently acted to modernize overtime regulations, and Congress should follow suit by expanding paid leave.

adamsmith-and-quatation1

The idea that employers take steps to suppress pay is not new. Adam Smith wrote in The Wealth of Nations that employers were “always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate.”

Hundreds of years later, the U.S. needs policies that prevent and counteract monopsony power. Greater labor-market competition can help the entire U.S. economy—and ensure that workers like Ms. Cason-Merenda in Detroit share in the economic growth they help create.

Mr. Furman is the chairman of President Obama’s Council of Economic Advisers. Mr. Krueger, a former chairman of the council (2011-13), is a professor of economics at Princeton University.

Elizabeth Warren Opposes Expansion of Charter Schools in Massachusetts. Why?

images-20

A recent article in the Wall Street Journal criticizing Sen. Elizabeth Warren for opposing a state ballot initiative in her home state to expand the existing 120 charter schools by an additional twelve has provoked in us the curiosity to look into the whole issue of charter schools and the situation in Massachusetts in particular.

According to the Wall Street Journal Sen. Warren has said that many of the existing charter schools “are producing extraordinary results” with some of their students. So why has she come out against their expansion?

We soon found out. In another article by Jeff Bryant published by the Education Opportunity Network she is quoted as having said, “Public officials have a responsibility not just to a small subset of children [those that are doing very well] but to all of the children, to make sure that they receive a first-rate education.”

The article goes on to quote a council member from Northampton, “Public school districts across the state are losing more than $408 million [to charters] this year alone—a loss of funds that is undermining the ability of districts to provide all students with the educational services to which they are entitled.”

The article continues: “Research studies have shown that the current model for financing charters harms the education of public school students. As a public school loses a percentage of its students to charters, the school can’t simply cut fixed costs for things like transportation and physical plant proportionally. That would increase class sizes and leave the remaining students under served. So instead, the school cuts a program or support service—a reading specialist, a special education teacher, a librarian, an art or music teacher—to offset the loss of funding.”

Further on we read that charter schools have a tendency to exclude certain students that are more difficult to teach. “Massachusetts charter schools in particular have had a history of cherry picking students. . .

“Another exclusionary tactic charters often employ is to use harsh discipline codes and out-of-school suspensions to push out students who exhibit behavior problems or who struggle with school rules and academic work.” (One Boston charter school had suspended 60 percent of its students, we are told.)

Winslow_Homer_-_The_Country_SchoolThe traditional one-room American schoolhouse of the 19th century. Painting by Winslow Homer

“Students who are frequently suspended are much more apt to leave, and once they leave, charter schools are not required to fill the empty seats with new students. As students progress from grade-level to grade-level, this allows the charters to sort out “the chaff” among its students until the entering grade class is reduced to only those students who are more apt to score well on tests and eventually graduate. This filtering process shows up in the high student attrition in charters.”

Thus, the freshman class that had enrolled in the school originally eroded in size by the time of graduation. In one case, a charter school’s freshman class shrank by more than half by the time they were seniors.

Finally let us find out who is financing this ballot initiative. Who is behind it? We learn that foremost among its sponsors are the two Walmart billionaires, Jim and Alice Walton, from Arkansas. From Arkansas? What are they doing in Massachusetts?

Other funders of the campaign include New York-based Families for Excellent Schools Advocacy and Education Reform Now Advocacy, both of which have strong ties to the hedge fund industry. These two groups, along with New York City Mayor Michael Bloomberg, put in $6,240,000. Political scientist Maurice Cunningham explains that funding to support this ballot measure is driven by a handful of wealthy families that . . . largely give to Republicans, and they represent the financial industry.

Why are they trying to destroy the public school system in this country? Is it the powerful teachers’ union they are afraid of? Charter schools won’t hire union members.

Yes, there is great room for improvement within that closed shop. But the way to fix it is to work within it, not to try to wreck it as they are our national health system.

More Collateral Damage from Globalization–Container-Shipping Companies

The over-optimism by business for globalization has scored another victim, this time a very rich one–the huge container-shipping lines that were designed to transport this world trade.

Costa Paris reports for Wall Street Journal today:

bn-qn785_1031fr_gr_20161031115756 Rodolphe-Saadè

By COSTAS PARIS, Oct. 31, 2016

None of the world’s biggest container-shipping companies is likely to post a profit this year,[Rodolphe Saadé,] a top executive of French shipping giant CMA CGM said Monday. . .

Container shipping, which moves things as diverse as tablet computers, clothes, heavy machinery and food, has been strangled by two years of rock-bottom freight rates that have caused some operators to go bankrupt and others to seek partnerships to stay afloat.

“Consolidation will continue because small shipping lines will not be able to survive,” Mr. Saadé said. “The small to medium operators will be looking for a big brother to acquire them.”

hanjin-shipping-tianjinHanjin, the South Korean container-shipping line, has declared bankruptcy.

Mr. Saadé said Hanjin’s collapse had somewhat stabilized tumbling freight rates that have averaged less than $700 a container a month since the start of last year on the benchmark Asia-to-Europe trade route. Dozens of Hanjin ships have been idled, removing capacity that has pushed freight rates slightly higher. But many of those vessels are being bought by other operators, and analysts say they will soon start sailing again, causing freight rates to start falling.

Shipping executives estimate the top 20 operators will post combined losses of as much as $10 billion this year as a glut of tonnage in the water continues to depress freight rates so much they barely cover fuel costs. They say $1,400 per container is the break-even point.

Mr. Saadé said he sees growth in moving seaborne cargo to the U.S. as “the economy is doing well and they import quite a lot.” Other areas of growth include Australia and Southeast Asian countries such as Vietnam, Malaysia, Indonesia and Thailand—as their low labor costs gradually entice makers of clothes, shoes and household goods to shift their production bases away from China. (Turnabout is fair play, eh?)

He said African and South American oil-exporting countries are importing less because of falling oil revenue, with no clear growth prospects in sight. European trade remains anemic, but prospects are getting better, Mr. Saadé said. He added that Chinese growth is likely to be moderate. “There is a slowdown, but the world [trade] is not collapsing” he said.