2011 December 31 Saturday
Cancer Risk Versus Student Loan Bankruptcy Discharge

A reminder to tell anyone thinking about attending a very expensive college: You have to die to escape student loans. Best not to take them on in the first place.

According to the Educational Credit Management Corp., a guarantee agency that manages the student loans of federal borrowers with an active bankruptcy filing, about 72,000 federal student loan borrowers filed for bankruptcy in 2008, but only 29 succeeded in obtaining a full or partial discharge of their loans. That’s 0.04 percent. You’re more likely to die of cancer or in a car crash than to have your loans discharged in bankruptcy.

A big student loan burden amounts to debt servitude at the beginning of a working career even before taking on a mortgage. For people who didn't major in anything useful (i.e. for the overwhelming majority of college students) starting out with tens of thousands of dollars of debts starts one on a rather bleak pathway thru life.

Necessity is a mother. Alternatives are beginning to emerge. Check out the courses at the Academic Earth website. Few lead to credit now. But that'll change. MIT's new online learning initiative M.I.T.x will let you learn from MIT courseware and test yourself online to earn certificates. They won't grant you college credit from MIT, let alone a degree. But imagine taking their courses without enrolling in college, getting to know the material really well, and only once you know a couple of years of engineering material go enroll for a couple of quarters or a semester with double or more course load to get the ability to take tests for credit. Pay tuition for less than half the time that a regular college student pays tuition (and going for 5 or 6 years to get a bachelors degree is surprisingly common today).

Imagine colleges letting incoming students take a large assortment of finals tests to test out of the first couple of years of materials. Already the SAT Advanced Placement tests let one do that for a number of topics. One could watch online course, take the MIT tests equivalent to AP subjects (and likely tests from other major schools when more schools follow MIT). Then go take the API tests when you are sure you can pass them. I expect we will see a movement beyond the list of subjects offered for SAT AP tests where colleges will offer the ability of students to prove their knowledge to earn credit without taking courses.

I can imagine prospective employers using MIT's tests as part of a job interview. "Here, sit at this computer and take a few MIT course tests while we watch and we will see if you know enough chemical or mechanical engineering to do the job we need done." Smaller companies in particular don't need the credentials as much as they need people who can do the actual work. So why not basically repurpose online tests to use them to evaluate job candidates?

Update: A reminder on Glenn Reynolds' proposal on student loans: make colleges liable if students default.

For higher education, the solution is more value for less money. Student loans, if they are to continue, should be made dischargeable in bankruptcy after five years -- but with the school that received the money on the hook for all or part of the unpaid balance.

What's key here: Incentivize colleges to have students run up less debt and economically do better on graduation. We need reforms that align incentives of colleges toward producing better economic results for students.

By Randall Parker 2011 December 31 09:44 PM  Education Costs
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2011 December 28 Wednesday
$100+ Per Barrel Oil Expected For 2012

The New York Times reports on predictions for continued high oil prices.

With Iran threatening to cut off about a fifth of the world’s oil supply by closing the Strait of Hormuz and unrest in Iraq endangering the ability to increase production there, financial analysts say prices for two important oil benchmarks will average from $100 a barrel to $120 a barrel in 2012.

These prices are high enough to prevent a substantial economic recovery in Western nations. Even if the Iranians do not close the Strait of Hormuz and Iraqi oil field bombs do not get out of hand we could see sharply higher oil prices due to some other political or technical problem in other oil producers. We are one price spike away from another global recession.

In related news, Saudi Arabia canceled plans to raise production to 15 million barrels per day by 2020. I am skeptical that they could have achieved that goal. Their oil fields are old and most are very depleted. Note that with rising internal demand if the Saudis just manage to keep their production even their exports will decline. In fact, Saudi

Saudi Arabia's rate of oil export has probably already peaked back in 2006. In recent years Saudi domestic consumption has grown at over 5% per year. That trend looks set to continue and therefore the Saudis will export progressively less oil.

Jadwa said oil consumption is rising rapidly in Saudi Arabia, with domestic oil use averaging 2.4 million b/d in 2010, up from 1.9 million b/d in 2007 and 1.6 million b/d in 2003.

Occupy Wall Street folks probably don't know it but high oil prices are a bigger cause of their declining living standards than are bankers. Other natural resource constraints are pulling down living standards as well. As Asia industrializes the Western countries are going to get even more outbid for natural resources whose availability they used to take for granted.

By Randall Parker 2011 December 28 09:33 PM  Economics Energy
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2011 December 27 Tuesday
Newt Gingrich On Marriage And Medical Insurance Mandate

Newt Gingrich is such a big supporter of marriage that he's divorced two wives so he could do 2 more marriage ceremonies. With Newt as the front runner for the Presidency in the Republican Party I'm wondering how his supporters square their support of him with his history of adultery and divorce. Newt can't even lie competently about his divorces.

The Republican presidential candidate insists that it was his then-wife, Jackie Battley, who sought a divorce in 1980. After court records showed he filed the action, the Gingrich campaign said he’d done so at her request. Court documents, Gingrich’s own previous explanations and the recollections of two former Gingrich aides refute his current claim.

Surely the Republican Party can come up with someone

Newt actually favored the sort of individual health insurance mandate that Mitt Romney gets criticized for.

Acknowledging that it was, “for a conservative, a little controversial,” Gingrich said in 2008 that he believed, “You’ve got to require everybody to either have insurance or to post a bond.”

Now's he's attacking Romney on a position he supported for years up to as recently as 3 years ago.

The National Review has come out against Newt for President.

By Randall Parker 2011 December 27 09:13 PM  Politics American Presidency
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Violent Venezuela

Writing in Aljazeera (which has surprisingly good articles in English btw) Dorothy Kronick, a former Fulbright scholar in Venezuela, reports on the violent culture in Venezuela.

Before joining the Los Angeles Philharmonic, the conductor Gustavo Dudamel often led Venezuela's celebrated youth symphony in performances at the Central University of Venezuela. The university's concert hall is a rare enclave of architectural loveliness in Caracas: Alexander Calder designed a tremendous sculpture for its ceiling, and murals decorate the surrounding plaza. That prized plaza was damaged last Friday, when armed assailants attacked the university in an outburst of the peculiar violence that has come to define the Venezuelan capital.

The gunmen lit fires just outside the concert hall, attempted to force open its doors and cloaked the entryway in tear gas. Their intent, it appears, was to interrupt the tallying of votes from that day's student-body government elections; the group destroyed machines used for counting and prevented students from delivering ballot boxes to the election committee. The academic departments in which votes were lost scheduled new elections for Wednesday, only to be stopped again with a second volley of tear gas.

Gunmen tried to disrupt a student election. The stakes here weren't about important things like, say, corporate ownership, prices, jobs, or free speech for newspaper reporters. Though the gun men were trying to help pro-Chavez candidates. It illustrates the extent to which the state is complicit in encouraging Venezuela's violent culture.

Read the full article. Venezuela's homicide rate is 3 times Mexico's without Mexico's drug war. Mexico's got an excuse. Hugely wealthy and violent narcotics traffickers have thoroughly corrupted Mexico's political system and intimidated and corrupted their police. What's with Venezuela?

The Mexican Navy has just taken over the 600,000 person municipality of Veracruz-Boca del Rio with 900 police dismissed as too corrupt. A few dozen bodies at a time are turning up dead due to an on-going battle between the Gulf and Zeta cartels. Yet Venezuela has 3 times the murder rate. Mexican gangs are even operating expanding extortion rings in the United States, preying on auto sellers, auto repair shops, and other businesses that employ illegal aliens. Within Mexico cartels have built parallel national radio systems to coordinate defenses against the government. The government's sovereign control of Mexico is being challenged.

The fact that Venezuela is far worse with crime than Mexico shows just how far a culture can decay. We should seek to reverse even smaller amount of such decay within our own borders. It should be US policy to work very hard to keep Mexico's problems out of the US and to eliminate gangs, extortion, and corruption. Federal and local law enforcement should make a big push to deport illegal aliens and lock up and cut off the gangs from Mexico. Furthermore, federal policy should be to come down very hard on organized crime elements operating in the US from all over the world (e.g. Russia). We are rich pickings for organized ruthless gangs an an era of easy air transportation and cheap and rapid telecommunications. We need to make the United States a much harder target for the world's criminals.

By Randall Parker 2011 December 27 08:03 PM  Civilizations Decay
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2011 December 25 Sunday
Outsourced Manufacturing Hobbles Next Gen Development

An article in Technology Review looks at how outsourcing of manufacturing has reduced the ability to innovate to develop next generation products in the United States. In some cases outsourcing has even slowed the rate of technological progress.

It turns out it's not necessarily true that innovative technologies will simply be manufactured elsewhere if it doesn't happen in the United States. According to research by Erica Fuchs, an assistant professor at Carnegie Mellon University, the development of integrated photonics, in which lasers and modulators are squeezed onto a single chip, has been largely abandoned by optoelectronic manufacturers as they have moved production away from the United States. Many telecom firms were forced to seek lower-cost production in East Asia after the industry's collapse in the early 2000s, and differences in manufacturing practices meant that producing integrated photonic chips was not economically viable in those countries. Thus a technology that once appeared to be just a few years away from revolutionizing computers and even biosensors was forsaken. Economists might argue that we don't care where something is produced, says Fuchs, but location can profoundly affect "the products that you choose to make and the technology trajectory itself."

For the computer industry so far the location of factories that make the hardware hasn't have much impact on software development. But the article makes the point that for many industries where materials manipulation techniques are key to how to make better products the engineers who develop the products need access to materials fabrication facilities in order to try out ideas and to tune manufacturing processes. The problems in manufacturing are constraints on what can be designed and there is a tight coupling between product engineering and manufacturing engineering.

Outsourcing cuts labor costs. But higher labor costs are an incentive to develop cheaper ways to manufacture as well as higher value products. Plus, the proximity that manufacturing plants to engineers enable those engineers to do more innovative work.

The United States has been running trade deficits for many years. Contrary to what a confident and cocky economics econ prof taught my macroeconomics class in college, this has not self-corrected. In a very real sense we are going in hock to the world. Worse still, our outsourcing of so much manufacturing undermines our ability to develop high value products we need to sell in order to pay down our debts.

Some call for more government funding of research in universities in order to boost our innovation. But today a substantial portion of basic research done in US universities is more likely to enable Japanese, Chinese, Korean, and German manufacturing companies to develop new products. The connection between academic researchers and local industry was never that strong to begin with. But now that most of that local industry has decamped to distant locales the model of basic research feeding into industrial innovation in the same country is badly broken.

By Randall Parker 2011 December 25 07:54 PM  Economics Trade
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Patrick Buchanan: Sustained European Austerity Implausible

Pat Buchanan makes an argument about Angela Merkel's attempt to commit all European countries to a treaty that prevents them from profligacy: Nationalism in Europe is on the rise and the Mediterraneans won't want to live poorly for a decade to pay off accumulated debts.

Nationalism is on the boil across Europe, and it is impossible to believe the leaders of those 26 EU countries, by cutting some deal with Angela Merkel and Nicolas Sarkozy, can bind their countrymen forever to cede veto power over their future budgets to Brussels.

Will Greeks and Italians really accept a decade of austerity to pay off debts larger than the national economy, to banks and bondholders, for hundreds of billion of euros already spent?

Pat sounds right to me. The southern Europeans aren't going to accept austerity based on some economic theory about how it will be better for them in the long run. It is rather inconsiderate of Europe's elites to keep countries in the euro zone that, for very fundamental reasons, don't belong there. Those reasons have caused southern European labor to become too high priced for southern European exports to compete. This is one of a few reasons the southern Euros can't grow their way out of debt.

Increases in employment costs of all euro nations outpaced Germany’s in the decade through 2010. German hourly labor costs rose an average 1.7 percent per year, while they jumped 2.9 percent in Portugal, 3.2 percent in Italy, 3.4 percent in Greece and 4.1 percent in Spain, the labor union-affiliated IMK institute said Dec. 12.

The causes of those high rates of hourly cost rises aren't easy to fix (see my "fundamental reasons" link above). This was true a when the euro zone was created (making the inclusion of southern Euros in the euro zone an act of lunacy). It was true a few years ago when the financial crises almost turned into a world Great Depression. It is still true today. It will be true next year.

As Tim Duy at Fed Watch points out all of the options for Europe are pretty bad. Some of the theoretical options aren't anywhere near the realm of political plausibility. The resentments between European nations are getting more intense and ruling out more options.

The already low odds of continued full service of all that sovereign debt will go even lower when world oil production goes into permanent decline at some point in this decade. Near flat oil production is already restraining economic recovery. Gail Tverberg gets it right when she argues we can't decouple GDP growth from energy growth (more details here). Since oil as a transportation fuel is hard to replace with other energy sources (at least for the next 10-15 years) I expect declining oil production to pull down the world economy with it. Then heavily indebted European governments will get hit by rising costs and dropping tax revenues.

You hear a lot about renewable energy sources. But as International Energy Agency chief economist Fatih Birol points out, the world's dependence on coal has actually grown over the last 10 years.

"We rarely talk about coal," says Birol. "But over the last 10 years, 50% of the growth in global energy consumption has come from coal."

That 50% of growth from coal is rather like a canary in the coal mine. That the world needs to boost coal consumption in order to boost energy consumption is telling in a "Limits To Growth" sort of way. Other energy sources cost more. Oil has about quadrupled in price. Solar and wind still cost too much. While natural gas prices have come down in the US at a global scale dirty coal is still the go to energy source.

Another reason for the heavy weighting toward coal: China consumes most of its energy as electricity and most of its electricity is generated using coal. Plus, China uses a lot of coal for steel making. But as China's demand for cars goes continues to grow China's oil demand will drive up oil prices and squeeze Western economies even harder. Competition for oil and other natural resources is going to become an even greater impediment to economic growth (and therefore tax revenue growth) in the West. So Europe's economies can not return to Business As Usual. Therefore economic growth can not provide Europe with the cash flow needed to pay off its debts. The politicians who are trying to avoid sovereign defaults are making the defaults bigger when they come.

Too many discussions about economics and financial crises ignore the physical world. We face stronger head winds against economic growth in the Western countries and limits in natural resources.

By Randall Parker 2011 December 25 05:14 PM  Economics Sovereign Crises
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2011 December 24 Saturday
Cost And Weight Of Business Class Seats

One of the problems with flying, especially on long distance flights, is limited leg room in economy class. Yet the step up to business class requires spending some multiple of coach fares. I've always wondered why there aren't more steps between economy and business classes. Came across a Businessweek article that sheds some light on the economics of airplane seat costs. A business class seat alone now weights 200 lbs more than coach.

A single business class berth crammed full of entertainment systems and the electronics needed to morph into a bed can weigh 300 pounds, three times its coach class counterpart, and typically costs $80,000 to $100,000.

Just who are the price insensitive buyers who will pay, say, $5400 to go business class from San Francisco to Sydney in 1 hop versus $1800 for Economy? Are they employees? At what corporate rank or in what industries? That's nultiple is a factor of 3. Check out Kayak and try some long haul flights. The multiple between Economy and Premium Economy (like Business?) from NYC to Johannesburg, South Africa is on the order of 4 or 5.

So is there really little demand for adequate leg room by itself? Seems like it. Yet I don't need a 200 lbs greater seat to sit in with lots of electronic gadgetry built in. An extra laptop battery and an extra smart phone battery can keep me in movies, music, and ebooks for all my waking hours even on a 20 hour flight. Does the price gap between economy and business classes indicate a different source of buying power (ability of corp execs to get their employer to pay more) that is much less price sensitive?

Short of business class there are ways to get more leg room, at least on some flights: pay more for exit row seating. As that link to British Airways shows, it can be problematic though. You can try to pay for an exit row seat in in Economy or Premium Economy at 14 days before departure. So do you have to buy your ticket before knowing whether you can pay for the exit row upgrade? Do you have to start your out-bound part of a trip before knowing whether you can buy an exit row seat on the in-bound part?

Is paying for exit row seating a viable strategy for getting more leg room on long haul flights? The answer is unclear to me. A site called Seat Guru has layouts of various aircraft for each airline with seat quality ratings by color. Note a small number of Green (good) seats on this Continental Boeing 737-500. Given that frequent fliers can nab those seats my guess is they are very hard to get. But it can be worse. Take the Continental Boeing 767-400ER (Extended Range - where leg room would be most beneficial) for example, It has no Green good seats. The exits have lavatories galleys next to them. So no seats have extra leg room. By contrast, the Continental 777-200ER has a number of green seats.

United Airlines has Economy Plus which is more what I'm interested in. On a United 777-200 Economy Plus provides "up to" 5 inches of extra leg room. Not sure what is meant by "up to". But on a United 747-400 Economy Plus provides only up to 3 extra inches.

Note that you can hover over seats in Seat Guru to get extra information. A lot of the exit row seats do not have under-seat storage space. This seems problematic if you want to bring along a backpack with laptop and ebook reader. Will you be able to store it nearby and retrieve and store again on a longer flight?

What I'd like: a web search engine on flight availability where one can include leg room minimums in one's search.

By Randall Parker 2011 December 24 01:57 PM  Economics Transportation
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North Korea Follows Steve Jobs' "Stay Hungry, Stay Foolish"

Adam Minter of Bloomberg reports on what Chinese bloggers are saying about the death of Dear Leader Kim Jong Il.

On Dec. 20, Weibo microbloggers began to generate what some on the service quickly labeled China's joke of the year. They took the line from Steve Jobs’s now-famous 2005 Stanford University commencement address -- "Stay hungry. Stay foolish." -- and applied it to North Korea: "Kim Jong Il’s last words to the Korean people: 'Stay hungry. Stay foolish.'"

The full article has lots of variants made by Chinese bloggers. Can you think of any of your own?

While the Chinese government expresses fawning sympathy over Dear Leader's death the Chinese people are a lot more realistic. That bodes well. What goes on inside of North Korea's borders is an abomination. What North Koreans need: More information about what is going on outside their country.

By Randall Parker 2011 December 24 12:03 PM  Korea
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2011 December 18 Sunday
OWS: Leftists Returning To Anarchy?

In a profile of Tyler Cowen by Patrick Corcoran in the Washington Diplomat Tyler takes a rather dismissive position on Occupy Wall Street. (the article's main focus is his "Great Stagnation" argument)

But on the Occupy Wall Street movement, he's equally dismissive. "It seems pointless to me. They don't know what they are doing, they don't know what they want."

While I wouldn't call Tyler a capital "L" Libertarian he certainly continues to be heavily influenced by libertarian thinkers. Yet while he'd like to see a reduction of government regulations in some areas I think it would be fair to say he doesn't see a libertarian utopia as feasible. On OWS his views are similar to my own. If there's something fundamentally wrong with the structure of American governance then the OWS people don't know what it is or how to fix it.

By contrast, Ray Sawhill finds the OWS movement much more appealing (and has visited them in NYC and talked with them for hours). He thinks it is constructive to be against something even if one doesn't propose a workable replacement. He points me to a piece by David Graeber in Al Jazeera (really) about how Occupy Wall Street is animated by an anarchist viewpoint. Now that the big wars and Cold War of the 20th century have ended anarchy as a leftist political program might be making a comeback.

Anarchism was also a revolutionary ideology, and its emphasis on individual conscience and individual initiative meant that during the first heyday of revolutionary anarchism between roughly 1875 and 1914, many took the fight directly to heads of state and capitalists, with bombings and assassinations. Hence the popular image of the anarchist bomb-thrower. It's worthy of note that anarchists were perhaps the first political movement to realise that terrorism, even if not directed at innocents, doesn't work. For nearly a century now, in fact, anarchism has been one of the very few political philosophies whose exponents never blow anyone up (indeed, the 20th-century political leader who drew most from the anarchist tradition was Mohandas K Gandhi.)

Yet for the period of roughly 1914 to 1989, a period during which the world was continually either fighting or preparing for world wars, anarchism went into something of an eclipse for precisely that reason: To seem "realistic", in such violent times, a political movement had to be capable of organising armies, navies and ballistic missile systems, and that was one thing at which Marxists could often excel. But everyone recognised that anarchists - rather to their credit - would never be able to pull it off. It was only after 1989, when the age of great war mobilisations seemed to have ended, that a global revolutionary movement based on anarchist principles - the global justice movement - promptly reappeared.

It is an interesting idea. One could argue that the era of wars built up the power of governments. World War II enabled the US government to implement income tax withholding that funded the post-WWII welfare state. But such a theory has to contend with Sweden that pretty much sat out the world wars and Cold War and yet still built up a huge state apparatus.

The late Christopher Hitchens was intensely leftist and yet, especially later in life, demonstrated strong libertarian leanings.

I had been interested in libertarian ideas when I was younger. I set aside this interest in the ’60s simply because all the overwhelming political questions seemed to sideline issues of individual liberty in favor of what seemed then to be grander questions. I suppose what would make me different now is that I am much more inclined to stress those issues of individual liberty than I would have been then. And to see that they do possess, with a capital H and a capital I, Historical Importance, the very things that one thought one was looking for.


Karl Marx was possibly the consummate anti-statist in his original writings and believed that the state was not the solution to social problems, but the outcome of them, the forcible resolution in favor of one ruling group. He thought that if you could give a name to utopia, it was the withering away of the state. Certainly those words had a big effect on me.

Keep in mind that Hitchens was a bundle of contradictions. He is someone I wanted to meet and ask some hard questions. Too late now. But perhaps advances in neuroscience will some day explain why some people hold so intensely and invest so much in their faith, whether religious or secular.

So then is left libertarianism going grow in popularity? What about support for anarchy? Will the level of armed conflict between states get so low that human impulses for battle will focus more on battle with their own state?

Since my view of human nature is sufficiently dim I don't see anarchy as workable. We need The Leviathan to protect us against amoral predators.

By Randall Parker 2011 December 18 09:57 PM  Cultural Wars Goodthinker
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Ignorant Humans Behave Like Uninformed Fish

Princeton University researchers believe ignorant voters behave like uninformed fish and go along with the decision-making of the majority. (thanks Lou Pagnucco)

Contrary to the ideal of a completely engaged electorate, individuals who have the least interest in a specific outcome can actually be vital to achieving a democratic consensus. These individuals dilute the influence of powerful minority factions who would otherwise dominate everyone else, according to new research published in the journal Science.

A Princeton University-based research team reports Dec. 16 that this finding — based on group decision-making experiments on fish, as well as mathematical models and computer simulations — can ultimately provide insights into humans' political behavior.

This is not the sort of Panglossian view we hear from TV political commentators on election day about human political behavior in a democracy.

The majority attracts the ignorant.

The researchers report that in animal groups, uninformed individuals — as in those with no prior knowledge or strong feelings on a situation's outcome — tend to side with and embolden the numerical majority. Relating the results to human political activity, the study challenges the common notion that an outspoken minority can manipulate uncommitted voters.

Outspoken minority views are hopelessly outgunned.

These researchers think the ignorant do not help extreme views to proliferate. The ignorant are too apathetic.

"The classic view is that uninformed or uncommitted individuals may allow extreme views to proliferate. We found that might not be the case," said lead author Iain Couzin, a Princeton assistant professor of ecology and evolutionary biology. He and his co-authors found that even a small population of indifferent individuals act as a counterbalance to the minority — whose passion even can cause informed individuals in the majority to waver — and restore majority rule.

"We show that when the uninformed participate, the group can come to a majority decision even in the face of a powerful minority," Couzin said. "They prevent deadlock and fragmentation because the strength of an opinion no longer matters — it comes down to numbers. You can imagine this being a good or bad thing. Either way, a certain number of uninformed individuals keep that minority from dictating or complicating the behavior of the group."

Wondering what this portends for the future? With too many ignorant people (think Idiocracy) the society ceases to function coherently. Noise dominates.

Of course this effect has its limits, Couzin said. He and his co-authors also found that if the number of uninformed becomes too high, a group ceases to function coherently, with neither the majority nor the minority taking the lead. "Eventually, noise dominates because there just aren't enough informed individuals to guide the group," he said.

I'm thinking we need more political fragmentation with break-away states that will contain the smart people. Then those break-away states can make better policies and also create barriers between their mini-states and the states that have most of the uninformed people.

A cult around a leader's personality or charisma is a sign that the ignorant masses are playing too big a role in the electoral process.

A forceful minority can dominate in circumstances that attract the more politically inclined, such as midterm elections and primaries. In more popular elections, however, that influence wanes as less passionate people participate. Situations in which a candidate's personality or personal life takes precedent over policy positions in voters' minds could be an equivalent to the breakdown in direction Couzin and his co-authors found when there is a glut of uninformed individuals, Saari said.

Update: I have an idea for how to cut the harm from the growing ignorant masses: Make primary voting only available to people with more intellectual resources. For example, only party donors could participate in primaries. Or only people who show up at caucuses. Raise the bar for primary participation.

By Randall Parker 2011 December 18 02:50 PM  Human Nature Political Failure
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2011 December 13 Tuesday
Why Did US Medical Costs Surge In 1980s?

Reihan Salam says during the 1980s the US pulled away from other developed countries in terms of medical costs. So what caused this trend? He points to a hypothesis that a change in the Medicare formula for setting treatment costs incentivized physicians to choose treatments that cost more. Reihan makes a number of other interesting observations worth reading.

This raises the question of what exactly changed in the 1980s. Daeho Kim, a graduate student at Brown University, offers a provocative hypothesis in a new working paper. As Kim explains, a 1983 Medicare reform created the prospective payment system, or PPS, which offered fixed reimbursements for the use of a medical technology. If a physician decides to use bypass surgery as a cardiac treatment, she won’t be paid on the basis of what it cost her to perform the surgery. Instead, she’ll be paid the national average cost. This way, there is a strong incentive to beat the national average cost of performing bypass surgeries, thus lowering, in theory, systemwide costs.

Kim argues that physicians responded to this new pricing environment by focusing on treatments where they could provide services where they could get their costs well below the national Medicare price. These preferred treatments tended to have high average national costs. PPS backfired.

If this is true then government distortions of the market created the high prices which today are used to justify even bigger government interventions in the market.

We need to get more market incentives back into health care. It is far too expensive and medical care costs are lowering living standards. We need people to want to shop around and more visible market prices. Incentives need to work on patients and not just on medical service providers.

By Randall Parker 2011 December 13 08:47 PM  Economics Health
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2011 December 10 Saturday
Higher Ed Increasingly Portrayed As Con Game

As this Bloomberg piece by Janet Lorin demonstrates in its title, "Trapped by $50,000 Degree in Low-Paying Job", people who spend a lot of money on higher education are increasingly portrayed as foolish marks in educational con games. Love this one:

Ellis, 28, took about $160,000 in federal loans to attend Fordham Law School. Because his student debt is so high compared to his salary, Ellis said he expects to qualify for a plan that would let him pay 15 percent of his salary for 25 years, and whatever debt is left after that is forgiven.

Think about. He's going to be paying for college for 25 years! The ROI on education is dropping and students increasingly major in low ROI subjects even while paying much higher prices.

Virginia Postrel says government loans have driven up the costs of higher education by increasing demand.

As veteran education-policy consultant Arthur M. Hauptman notes in a recent essay: “There is a strong correlation over time between student and parent loan availability and rapidly rising tuitions. Common sense suggests that growing availability of student loans at reasonable rates has made it easier for many institutions to raise their prices, just as the mortgage interest deduction contributes to higher housing prices.”

It’s a phenomenon familiar to economists. If you offer people a subsidy to pursue some activity requiring an input that’s in more-or-less fixed supply, the price of that input goes up. Much of the value of the subsidy will go not to the intended recipients but to whoever owns the input. The classic example is farm subsidies, which increase the price of farmland.

So the US government subsidizes con artists who lure young Americans into debt peonage. Parasitism is such a pervasive and growing problem. Even America's most revered institutions practice it. If the Occupy Wall Street movement wanted to do something constructive it would push for the end of this subsidy. To get an appreciation for just how thoroughly prospective college students get conned read the Voldemort View: the View That Must Not Be Named.

People who want a more cost effective education should look online and aim to get skills useful in the marketplace. That does not get skills that are marginally useful but appealing. Don't delude yourself just so you can study what's fun and easy.

By Randall Parker 2011 December 10 04:53 PM  Education Returns On Investment
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2011 December 08 Thursday
America's Most Affluent Concentrating Into Fewer Places

The wealthiest neighborhoods are growing in population as America increasingly breaks up into zones based around economic class.

As the income gap has grown, America's wealthy families seem to be concentrating in the most-affluent neighborhoods

The article also reports that the poorest neighborhoods are becoming more purely poor. People are stratifying into economic classes. Liberal elites have helped accelerate this process by promoting immigration policies that brought in lots of poor people and drove down incomes at the bottom. This has increased concentrations of poor people. A poor person is better off around more affluent people. So this demographic change increasing the ranks of the poor has also effectively has raised the costs of being poor.

There's less of a shared national experience because people differ for more overlapping reasons. This means less feeling of common interests and, not surprisingly, every class moves away from the classes beneath it. This isn't just a migration of the very rich away from everyone else.

While many zip codes in the U.S. have been battered by the economic downturn, neighborhoods around Palo Alto are among a small group of expanding rich areas. In a new OECD report, the top 10 percent of the country?s income earners made nearly 15 times more than the bottom 10 percent in 2008, up from a multiple of 12 in the mid-1990s. As is often the case, the rich are grouping near golf courses, beaches, upscale boutiques, and schools.

People raising kids are going to try to live as close to the most successful as possible. Living near more successful people means sending your kids to schools who have fewer children of the poor and dysfunctional.

If you want to see how much income inequality is mapping to divisions between neighborhoods by income check out these graphics from the New York Times on Philadelphia and surrounding counties in 1970, 1990, and 2007. Note how the higher and lower income levels are growing and separating from each other while the middle income areas are shrinking.

American living standards in decline:

Nationwide, median household income fell to $51,914, a $2,678 drop over the decade when adjusted for inflation. Black households lost the most, with median household income falling 8 percent to $35,194. Hispanics reported $41,354, a 5.5 percent drop. The figure for white, non-Hispanic households fell to $56,466, a 4.3 percent decrease over the decade. Asian households reported $68,950, a 2.2 percent gain.

The middle is shrinking. My advice: try harder. Try to learn more. Look for a better job. Look for ways to excel in your current job. Create a bigger buffer between you and personal poverty and between you and the swelling ranks of the poor.

Update: Half Sigma's response to this post got me to thinking: We are looking at market failure. There's a clear large unmet need for cheaper ways for smarter people to raise families and get their kids well educated while living near dumber and poorer people. That need is only going to rise in the next couple of decades. So I'm wondering: how to do this?

I'm not talking about how multi-millionaires can raise their kids. They can afford private schools and tutors. It is the highly skilled husband-wife team that met at a first or second tier college or even a better state school that I'm thinking of. How can they separate their kids from the kids of single moms who made babies with 2 or 3 men? How to get their kids away from these lower class women who manage to get housing vouchers that put them in apartments or run down houses in the same school district? Seriously, the upper middle class (i.e. the people who still can afford to live middle class lifestyles) needs to be able to create safe and cheap environments for child raising.

I don't see telecommuting as an answer. Brainy people need to be geographically concentrated. A different solution is needed. So here are some ideas to create livable towns for smart people with children:

  • Break towns up into smaller towns in order to create smaller school districts. If that suburban neighborhood can get itself put into a different school district than all those apartments on the other side of the highway then lots of smarter kids don't go to school with lots of dumber kids.
  • Strategically convert certain apartment complexes in select towns into retirement communities. Suddenly no supply of dumb kids to mess up the local school. Hey, the ranks of the elderly are swelling and expensive. At least use them as buffers between the smart and the dumb kids. Don't waste the elderly in pure old communities in Florida. Get them into apartment complexes near engineering families in tech centers.
  • In key towns that are attempting to shift the balance of power against the poor claim budget problems and get rid of free ride school rides.
  • More zoning ordinances that limit the number of people per dwelling.
  • Get apartment building owners in key towns to require large deposits. The poor and the voucher programs won't come up with cash.

I welcome more ideas on this subject.

By Randall Parker 2011 December 08 10:20 PM  Economics Living Standards
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2011 December 07 Wednesday
Greeks Continue To Pull Out Of Their Banks

Entering the euro zone hasn't worked out well for Greece. With an unemployment rate already at 18.4% the outflow of deposits from Greek banks puts their banking system at risk of collapse. This is a silent bank run. How do the Greek banks avoid collapse even before the Greek government defaults on the government bonds held by the Greek banks?

At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion -- by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum. Savings fell by a further €5.4 billion in September and by an estimated €8.5 billion in October -- the biggest monthly outflow of funds since the start of the debt crisis in late 2009.

The Greek central bank estimates that around a fifth of the deposits withdrawn have been moved out of the country.

Imagine you lived in a country where the government was at risk of defaulting and causing massive bank failures and unemployment was at depression levels and the economy was still going to contract for another year. Surely a nightmare for the Greeks.

Ernst & Young estimates Greek GDP is dropping 6% in 2011 and 3% in 2012. OECD agrees with that forecast.

Greece still has a lot of down side risk. The next global oil price spike could prevent a projected drop in the Greek sovereign debt level.

The United States also faces a worrisome debt-to-GDP ratio. Imagine a huge oil spike lays the economy low in, say, 2013. The debt-to-GDP ratio would get scary.

If the current 335% ratio of household, business and government debt-to-GDP sounds bad now, just imagine if GDP were to contract. A 3% drop in nominal GDP from current levels would push that ratio up by more than seven percentage points to 342%. This is the trouble with austerity measures, and is why Greece's debt-to-GDP has soared, not

By Randall Parker 2011 December 07 09:49 PM  Economics Sovereign Crises
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China Capital Misallocation Not Sustainable

Essentially in agreement with Jim Chanos on diminishing ROIs for capital investment in China, Michael Pettis argues China is misallocating capital on a massive scale.

But I think there are more formal reasons to believe that China is misallocating capital.  Common sense suggests that when there is massive investment with

  • very little accountability,
  • severely distorted prices,
  • an incentive structure that concentrates the benefits of investment in specific jurisdictions and over a short time period while spreading the costs throughout the national banking system and over the debt repayment period (which can be decades),
  • no or very limited budget constraints,
  • factional and regional conflicts, and
  • shifts in responsibility as the instigators of the investment are promoted (often because of the positive impact of their own investment initiatives),

It would be a rare system in history that did not tend towards substantial capital misallocation.

Certainly the evidence on SOE investment suggests that this is indeed what happened.  A number of studies have suggested that if over the past decade you add up direct subsidies, the impact of monopoly pricing (which is of course simply a tax on households) and the interest rate subsidy, they total anywhere from six to ten times the aggregate profitability of the SOE sector.  This means that unless the externalities associated with the SOEs are also at least six to ten times their aggregate profitability, they are actually value destroyers.

SOE means State Owned Enterprise. The communists are predictably wasting lots of capital in SOEs.

A couple of months ago Chanos said China's hard landing has already begun.

NEW YORK (MarketWatch) — China is heading into an economic storm, and the much-feared hard-landing of the world’s second-largest economy has already started, warned celebrated hedge-fund manager and China-bear Jim Chanos of Kynikos Associates on Monday.

On the bright side: Since China doesn't buy a lot from us we aren't as vulnerable to their economy going into the ditch as we would be if they didn't manipulate our currency and engage in such mercantilist trade practices. Also, we'll get some relief on natural resource prices if China's big construction boom and factory building boom takes a big dip. They'll eventually recover and I am still expecting them to eventually demand even more minerals and other natural resources in the long term. But we might get to grow for a while as their economy slows.

A Bloomberg poll of professional investors finds them predicting a bank crisis in China.

Most global investors predict China will face a banking crisis within the next five years, paring their appetite for the nation’s shares and eroding confidence in its leadership, a Bloomberg Global Poll indicated.

But Goldman Sachs remains very bullish about China and expects growth rates over 8% per year the next two years. Who is right?

By Randall Parker 2011 December 07 08:04 PM  China Economy
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2011 December 04 Sunday
Glenn Reynolds: Make Colleges Guarantee Student Loans

Even a partial guarantee would provide colleges a great incentive to make students more useful to the job market.

For higher education, the solution is more value for less money. Student loans, if they are to continue, should be made dischargeable in bankruptcy after five years -- but with the school that received the money on the hook for all or part of the unpaid balance.

Up until now, the loan guarantees have meant that colleges, like the writers of subprime mortgages a few years ago, got their money up front, with any problems in payment falling on someone else.

Make defaults expensive to colleges, and they'll become much more careful about how much they lend and what kinds of programs they offer.

Such a reform would make colleges extremely focused on imparting useful skills to students. Even if the colleges were on the hook to refund 5% of the default they'd become selective in who they admitted, what majors they steered students toward, how they responded to poor student performance, and what career advice they gave students. I would do this: use both carrots and sticks. Provide colleges bonus money if students pay back their loans. At the same time, make colleges pay when students default. Use part of that payment to use as rewards to colleges when the students don't default.

The Dwindling Power of a College Degree

One of the greatest changes is that a college degree is no longer the guarantor of a middle-class existence. Until the early 1970s, less than 11 percent of the adult population graduated from college, and most of them could get a decent job.

Hey, get less choosy on who gets into college and quality drops.

Today nearly a third have college degrees, and a higher percentage of them graduated from nonelite schools. A bachelor’s degree on its own no longer conveys intelligence and capability. To get a good job, you have to have some special skill — charm, by the way, counts — that employers value. But there’s also a pretty good chance that by some point in the next few years, your boss will find that some new technology or some worker overseas can replace you.

You need skills to make more money. Who knew?

Though it’s no guarantee, a B.A. or some kind of technical training is at least a prerequisite for a decent salary.

The future looks grim for most of those who can't handle college-level material. Surely an argument for building up a big border wall and deporting illegal aliens:

It’s hard to see any great future for high-school dropouts or high-school graduates with no technical skills.

But you can make lots of money without a college degree if you are very smart, self starting, self teaching, and willing to spend long hours learning what is valuable and working your way up. I've seen it happen. Unfortunately, few people have all those attributes. Even most of the people capable of learning technically useful skills in college don't have the sense or the patience to do so. Unfortunately, we live in an era of declining incomes with a 7% drop since 2000. The lower ranks aren't getting much of income growth when income grows and even future economic growth is in question. People need much more competitive skills to succeed in today's labor market.

Alex Tabarrok pointed out something extremely important about college education in America: In the last 25 years colleges have increased overall enrollments by 50% while increasing STEM (science, technology, engineering, math) enrollments by 0. If colleges were held financially responsible for producing useful graduates that sort of wasteful nonsense would stop in a hurry. Less would be spent on education and the money spent would be spent in far more constructive ways.

By Randall Parker 2011 December 04 06:31 PM  Education Incentives
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Sam Harris On Responding To Criminals

Sam Harris makes a number of practical and sensible suggestions about what to do when confronted by criminals.

Imagine: You are loading groceries into your car and man appears at your side with a gun.

“Get in the car, and you won’t get hurt.”

Your instincts are probably bad here: Getting in the car is the last thing you should do.

“Get in the car, or I’ll blow your head off.” 

However bad your options may appear in the moment, complying with the demands of a person who is seeking to control your movements is a terrible idea. Yes, there are criminals whose only goal is to steal your property. But anyone who attempts to control you—by moving you to another room, putting you in a car, tying you up—probably intends to kill you (or worse). And you must understand in advance that your natural reaction to this situation—to freeze, to comply with instructions—will be the wrong one. 

Harris has thought hard about how to best respond to criminals in different situations. The article is worth a read. Better to walk your mind thru the reasoning now since most people make wrong decisions when finally faced with criminals in real life.

One obvious point: Don't be where criminals are likely to be. Don't take unnecessary risks, especially when alone. I state this point because it bares repeating. Don't become complacent.

By Randall Parker 2011 December 04 06:30 PM  Economics Crime
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How To Prepare For Economic Apocalypse?

Mina Kimes and Reihan Salam take a look at A Harold and Kumar Recession and discuss (with a humorous note) whether working and saving make sense if economic apocalypse is approaching.

Humor aside, I think they offer up a false choice: a continuation of business as usual in which savings and investment makes sense versus an approaching apocalypse that justifies living in the present because the approaching financial disaster will destroy accumulations of wealth. Even if financial götterdämmerung approaches I want to take a more triumphant approach with my own life. But seriously, if you think the economy is going to collapse then spend your money to buy stuff that will be valuable after the collapse. Save up to buy a ranch or a hand pump for your back yard or photovoltaics for your house or a buried treasury of dried foods in an underground room. There are plenty of ways to prepare for assorted disasters (economic or otherwise) when the economy is still functioning.

Chris Martenson thinks resource limitations are going bring an end economic growth and he outlines why in a talk entitled Unfixable: Welcome to the new abnormal. Martenson advocates preparing for the approaching economic hard times. I agree.

I think business as usual is viewable only in our rear view mirrors. The technological advances needed to adjust to Peak Oil aren't coming fast enough. I can't tell you how long Peak Oil and other problems will cause hard times and declining living standards. But at least the next 10 years look bleak and probably much longer.

Before world oil production goes into terminal decline Europe's handling of the euro zone solvency crisis could bring about a pretty bad depression if the dominoes fall thru the entire dollar-denominated banking system. After all, OWS and the Tea Partiers oppose bank bail-outs. So if the populists get their way what prevents an economic depression from coming sooner than necessary?

This is the worst-case scenario from Europe, and it just might come true: Italy defaults on its debts. Every major Italian bank collapses. Recession grips the eurozone. Sovereign defaults and bank failures ripple across the Continent. Saddled with bad loans to nations and lenders in Europe, American banks hemorrhage cash. Credit freezes in the United States. Multinational companies, unable to raise money, curb U.S. investment and hiring. Wall Street demands, but fails to get, new bailouts. The entire developed world plummets into recession and, quite possibly, depression

Tim Duy says the Fed should be ready to prevent falling European economic dominoes from bringing down the US financial system. I agree. But plenty of Tea Party and Occupy Wall Street populists both oppose bank bail-outs. So time to have another depression in order to refresh everyone's memory?

The Fed is responsible for protecting the US financial sector, and needs to do so, when possible, even if the threat is eminating from overseas. US banks may not be in need of dollar liquidity, but their foreign counterparties might be - and failure to provide it would more rapidly turn a European problem into a US problem.

I ask the people who are angry about the huge loans the Fed lent out to financial institutions during the 2008-2009 crisis: Want the Fed to hold back next time? Let those banks fail?

By Randall Parker 2011 December 04 06:20 PM  Economics Disasters
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US Postal Service To Slow First Class Mail

A newly proposed plan to cost half the US Postal Service's mail processing centers and a small percentage of local post offices will only save $3 billion out of an expected $14 billion deficit next year. No more next day mail. That makes first class less valuable of course and will further hasten its decline.

WASHINGTON — Facing bankruptcy, the U.S. Postal Service is pushing ahead with unprecedented cuts to first-class mail next spring that will slow delivery and, for the first time in 40 years, eliminate the chance for stamped letters to arrive the next day.

A more rational approach would be to close the vast majority of local post offices and move their services into pharmacies, Wal-Marts, K-Marts, and other stores. That way employees of the stores can do postal transactions when needed with much lower labor costs. European countries have adopted this approach. So why not the US? Congressional representatives are more interested in satisfying postal union workers and other groups that want the status quo.

The focus on measures that slow the delivery of mail is being done because the USPS has more latitude to make changes in this area without Congressional approval. But slower delivery lowers the value of mail which will of course accelerate the decline in usage of mail. That's got upsides though: The USPS financial crisis will intensify and so Congress might feel enough pressure to vote authority to the USPS to shut down most local post offices.

The head of the USPS wants to escape from no-layoff contract clauses it foolishly agreed to with unions.

Donahoe is calling for emergency legislation to remove the USPS from layoff protection agreements it has entered into with unions.

The postal workers are spending about $12 per employee to buy influence with Democrats in Congress.

Unions for postal workers contributed $7 million in the 2010 elections, 90 percent to Democrats, according to the Center for Responsive Politics, a Washington-based research group.

I'm surprised they don't spend even more. Though the demand for their services is dropping so rapidly that the best they can do is delay their layoffs. Still a whole year of delay is worth more to each employee than $12.

My advice: Make your personal contribution postal service cost cutting. Move more billing online. Every time something comes in the physical mail ask how you can stop that source from sending you more mail. Here are ways to cut the flow of junk mail:

Update: Hey, some web sites provide easy ways to opt out of junk mail and catalogs for your physical mail box. Some associations of direct mailers have online forms for turning off the junk. I just went thru and listed myself on DirectMail.com's Mail Preference Registry. Opting out there is easy to do. I also registered (more steps required) for the DMAchoice.org mail preference service of the Direct Marketing Association (which one web page claims can cut your junk mail by 75%). Once you've registered and logged back in from the email response you need to go into each category and click on the bottom right button on each category to opt out of the entire category. You can also selectively do steps for individual companies listed there. Those are my first two steps to cut back on junk mail. If you are like me and rarely find anything useful in junk mail I suggest you do likewise.

Update II: To get rid of credit card or insurance mail offers use OptOutPrescreen.com which tells Equifax, Experian, Innovis, and TransUnion credit report firms not to use your credit info to help credit card and insurance companies know to mail to you.

Also, you can turn off Valassis Red Plum and Cox Target Media ValPak. For other web pages and also email addresses to send opt-out junk mail requests to see the Ecycycle.org opt-out suggestion list, the WikiHow Get Rid Of Junk Mail,and the Privacy Rights Clearinghouse fact sheet on junk mail.

Less mail means fewer distractions from life.

By Randall Parker 2011 December 04 09:08 AM  Economics Government Effectiveness
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2011 December 03 Saturday
End Game For Euro: Fiscal Union Or Partial Break-Up

The "muddling thru" of the last 3 years is drawing to an end according to the European representative of the biggest bond investing firm.

European governments must rapidly commit to fiscal union or a partial break-up of the euro to prevent a "fundamental erosion" in demand for the region's debt, Pimco, the world's biggest bond investor, has warned.

I don't see the Germans opting for a real fiscal union. Do you? It seems imprudent.

The euro currency's father says it was flawed from the start. Um, so now he tells us.

The euro project was flawed from the start and the current generation of European leaders has failed to address its fundamental problems, Jacques Delors, the architect of the single currency, declares today.

Laurence Copeland gets it exactly right: the members of the euro zone are fundamentally incompatible and should get a divorce.

There is in the end no way of squaring this circle. The euro zone ties a country with a deeply-ingrained fear of inflation and a longstanding commitment to thrift to a bunch of neighbours most of whom have a historic tolerance of inflation and feckless spending. It is a wonder this marriage has lasted as long as it has. Now that the time has come for divorce, you can’t help thinking it is a pity they didn’t think to draw up a prenup.

Ambrose Evans-Pritchard holds the European Central Bank responsible for causing a contraction of the money supply of Southern European countries and precipitating the current solvency crisis for European banks. I think this demonstrates that the ECB shouldn't serve as the central bank of Greece, Italy, Spain, and Portugal. These countries need a central bank dedicated to the conditions of their economies.

The US Federal Reserve is trying to stop the liquidity crisis gripping European banks. Which shows you how weird things have gotten given that the Fed is not the central bank for Europe. The Europeans should use this breathing space to organize replacement currencies for the southern European countries. It is time to act to break up the euro zone.

The euro as presently constituted is not going to be saved. Angela Merkel doesn't want to admit it. But so far it is hard to see the German position as leading to anything but a euro break-up. So time to get on with it. Ignore Merkel's rhetoric about wanting to save the full euro zone. Look at the actions of her government and of the ECB. The only option possible is break-up.

Break-up is sensible anyway. There's no way to either grow out of the crisis. Southern Europe is headed back into recession. Southern European sovereign defaults threaten to cause a massive wave of bank defaults. The southern Europeans need to do defaults in their own currencies. Also, southern European labor markets are incompatible with the euro.

By Randall Parker 2011 December 03 09:57 PM  Europe Monetary Union
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Conspicuous Consumption By China Elite Breeds Resentment

A Wall Street Journal article relates out "princeling" sons of the Chinese elite engage in conspicuous consumption such as driving a red Ferrari even as popular resentment rises and this conspicuous consumption and corruption undermines the legitimacy of the Chinese government.

The car, though, was a surprise. The driver's father, Bo Xilai, was in the midst of a controversial campaign to revive the spirit of Mao Zedong through mass renditions of old revolutionary anthems, known as "red singing." He had ordered students and officials to work stints on farms to reconnect with the countryside. His son, meanwhile, was driving a car worth hundreds of thousands of dollars and as red as the Chinese flag, in a country where the average household income last year was about $3,300.

The driver of the Ferrari, Bo Guagua, is the grandson of a guy who fought alongside Mao Zedong to bring the communists to power. If the top leadership of China wanted to reduce public resentment while still remaining corrupt it should force the "princelings" (sons of high government and military officials) to hide their consumption. Houses should look poor on the outside and well hidden. Families of government officials shouldn't be allowed to drive anything more conspicuous than a Buick. No BMWs. No Ferraris or Lamborghinis

How does the Chinese elite maintain their legitimacy? Can they maintain power in spite of unpopularity? China's economic growth is decelerating. Growth by running larger and larger trade surpluses is not a sustainable model. Much of the lower hanging fruit of industrialization has been picked and ROI on incremental capital investment has plummeted.

The international financial crisis threatens to undermine even the weaker rate of growth that China might otherwise be able to maintain.

"The current crisis, to some extent, is more serious and challenging than the international financial crisis following the fall of Lehman Brothers," he said.

China's manufacturing might even be contracting as the effects of Europe's financial crisis cut into demand for Chinese products.

If Chris Martenson is right about resource limitations then economic growth isn't going to be available as a way to generate rising incomes and largesse to buy off populations and factions.

By Randall Parker 2011 December 03 07:44 PM  China Control Internal
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Expensive Data Centers Bring Few Jobs

The people of Maiden North Carolina can be forgiven for expecting that a $1 billion investment in a data center near town would have produced a lot of jobs. Surely in the old economy a $1 billion factory would have employed thousands of people. But, as an article in the Washington Post illustrates, in the new economy capital has little need for labor.

Just off Startown Road, on the edge of town, Apple recently completed a massive $1 billion data center to help power its cloud computing products.

Total new full-time jobs running the facility: 50.

Sounds like some contract workers for security are supposed to work there too. But this little town's people don't seem to be among them.

Apple’s data center is also supposed to create 250 indirect contracting jobs for maintenance and security. But many in this close-knit town of about 3,400 people — it essentially shuts down Friday nights for high school football — do not know anyone working at Apple.

I am reminded of an article about manufacturing by former Intel CEO Andy Grove in he observed that for every Apple employee in the United States Apple supplier Foxconn employs 10 in China making stuff for Apple. Many supply chains have migrated to East Asia.

The future for low skilled workers in America looks bleak. Yet American immigration policy for decades has been to let in tens of millions of low skilled workers on the theory that they are key to economic growth. Instead, these immigrants drive down wages for Americans on the left half of the Bell Curve. Those wages have gone down even lower than would have been the case with only outsourcing and automation as causes. The coming years will see lower class wages go down even further with changing American demographics. I also think that resource limitations will push wages even lower still.

By Randall Parker 2011 December 03 01:15 PM  Economics Living Standards
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