My friend George Scoville wrote a Black Friday-appropriate post on a problem with gift-giving, which touches on a broader point that libertarians should heed.
A microeconomics paper that’s bounced around econ-blogs for several years says gift-giving causes a huge deadweight loss: when someone else picks a gift for you, it may not be what you would have bought for yourself when you would have bought it, which normally implies that goods and services are being distributed inefficiently.
If that’s true, then Christmas is a tremendously wasteful institution, within an order of magnitude of the income tax, and we’d be better off giving each other cash gifts.
First, on a technical note, that paper was written in 1993, before Amazon wish lists and social media made it easier to detect people’s interests and needs, so perhaps we’re getting better at matching gifts with recipients.
More importantly, the paper fell short of meaningfully capturing deadweight loss, because it focused entirely on the value of the goods. Gift economies mostly operate on another kind of supply and demand: the desire for social cohesion, meaning closer relationships with family, friends, and other peers.
This is no trivial matter: relationships with people we can count on make us happier, healthier, and more successful. Anything that helps to build and cement those bonds is valuable, and while some academics and marketers try to quantify that value (it may be more than you’d think), the normal rule is that relationships of trust should not be fungible with cash. All societies have some social taboo against trading off the sacred and the mundane, which sometimes leads to absurdly stupid conclusions, but also allows people to build trust without worrying that anything intimate or of an extremely hard-to-price value (what’s the rest of your life worth?) will be easily sold for any of the mundane things that can be bought with cash.
It’s awkward when people give each other cash as gifts even if the amount is equal, and gift exchanges in which only one side puts any thought into it show unequal empathy. If you put a lot of thought into anticipating someone’s wants, and that person gives you a very generic gift, it’s like being put in the Friend Zone.
The point of gifts is to trip a hardwire in the brains of social mammals: cycles of giving and gratitude that go beyond simple reciprocity. When you’re trading cash, everyone is acutely aware of the value of what’s been exchanged, and there’s no fudge factor in the brain for “the thought that counts.”
That’s something we disagreeable, rationalistic libertarians should keep in mind, because the gift economy is a powerful force in human relations that resists and resents the intrusion of market forces, even if markets efficiently bring us the gifts.
I don’t know how many times we have to point these out or how many ways we have to illustrate that government has no business trying to pick winners and losers, because usually, as with most centralized planning organizations, they get it wrong. Why? Because they’re absolutely blind to signals from the market. Government’s picks are founded more in preference than reality:
Obama touted it in 2010 as evidence “manufacturing jobs are coming back to the United States,” but two years later, a Michigan hybrid battery plant built with $150 million in taxpayer funds is putting workers on furlough before a single battery has been produced.
Workers at the Compact Power manufacturing facilities in Holland, Mich., run by LG Chem, have been placed on rotating furloughs, working only three weeks per month based on lack of demand for lithium-ion cells.
The facility, which was opened in July 2010 with a groundbreaking attended by Obama, has yet to produce a single battery for the Chevrolet Volt, the troubled electric car from General Motors. The plant’s batteries also were intended to be used in Ford’s electric Focus.
The 650,000-square-foot, $300 million facility was slated to produce 15,000 batteries per year, while creating hundreds of new jobs. But to date, only 200 workers are employed at the plant by by the South Korean company. Batteries for the Chevy Volts that have been produced have been made by an LG plant in South Korea.
Talk about outsourcing.
Workers are furloughed for one week every month. And guess who pays for that week?
Boileau pointed out the workers who are on furloughs one week a month are eligible to collect unemployment for that week, and he said the company covers the contributions to their individual benefits during the period.
Reality check commonly ignored when it comes to government:
“Had it been private investors rather than government bureaucrats making the decision, there either would have been a reality check about the industry, or only those who made individual decisions to invest would have lost their money, not taxpayers.”
Instead, government has “socialized” the loss.
The market has moved on – natural gas is cheap and plentiful. It is the future, at least the near future. That’s where everything is going.
Meanwhile, the government continues its near unbroken string of picking losers … not that anyone who knows a thing about economics and markets should be the least surprised. Unlike many other things, this is not “unexpected”.
Here’s how markets work. From Toyota:
It said today it will not release its proposed mass-market mini e-car, the eQ. The reason: there’s no demand for it, not while battery technology is failing to provide comparable range to a tank of petrol. The natural gas boom in the US has seen prices of the fuel plummet, in turn reducing the cost of electricity generated by burning it. The Japanese car maker said today it will release 21 hybrid gas-electric models in its line-up by 2015.
“The current capabilities of electric vehicles do not meet society’s needs, whether it may be the distance the cars can run, or the costs, or how it takes a long time to charge,” said, Uchiyamada, who spearheaded Toyota’s development of the Prius hybrid in the 1990s.
Here’s the market not working because of government intrusion (and ownership):
Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.
Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.
It currently costs GM “at least” $75,000 to build the Volt, including development costs, Munro said. That’s nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part ofPresident Barack Obama‘s green energy policy.
A pity these things have to be continually pointed out. But, of course, it won’t stop those who want government to decide what we should be driving instead of consumers and think subsidies will foster that desired behavior.
Two non-partisan government agencies — the Congressional Budget Office in Washington, D.C. and Parliament’s Select Transport Committee — conclude that during the next decade at least, the giveaways will have little impact on sales of plug-in hybrid and all-electric vehicles, or on gasoline consumption and greenhouse-gas emissions. Their main beneficiaries: affluent purchasers who’d buy the vehicles anyway.
“… during the next decade at least …?” Love that caveat, don’t you? They never work if it is something consumers don’t want. See current example for proof. In the case of the market, it’s moved on … and much faster than government can react. As usual, government has backed a loser.
The frenzy over shale gas deep under Ohio and other states has the makings of a different kind of rush on the nation’s highways. Businesses, cities, metropolitan transit systems and even school districts across the nation are edging toward a switch from diesel and gasoline to natural gas. Converting cars and light trucks to use either gasoline or natural gas is expensive. And heavy trucks designed specifically for natural gas also cost more than conventional diesels. But at current prices, engines that can run on natural gas cut fuel bills in half or better.
And GM has the Volt. You have to laugh at the fact that the central planners invariably always get it wrong.
You’d have think we’d have learned that by now, wouldn’t you?
From Professor Luigi Zingales:
“There is not a well-understood distinction between being pro-business and being pro-market. Businessmen like free markets until they get into a market; once they are in it they want to block entry to others. Pro-marketeers want free markets at all times. The more conservative pro-marketeers are fearful of criticising business, because they assume they will be seen as criticising the free market. But we need to stand up and criticise business when business is not helping the cause of free markets.”
We talk a lot about crony capitalism. Well what the good professor is talking about when he says that businessmen like free markets until they get in one and then they try to “block entry to others” is part of what we’re talking about.
One aspect of cronyism is where businesses attempt to use the power of government, if they can so influence it, to give their company sweetheart regulations, raise artificial barriers to entry and to otherwise impede competitors to the point that they have an advantage. I’d like to say advantage in the “market”, but the market, at that point, no longer exists as a free one. It is now a distorted market due to government cronyism.
That’s something that badly needs to stop. Whether at this point that’s even possible and if it is, how we’d actually go about it are some interesting questions to discuss.
However, the primary point is being pro-business does not necessarily being pro-market and it certainly doesn’t mean you are necessarily for free markets.
We need to change the way we discuss this. We nee to talk about free markets and roundly condemn any business that attempts to use the coercive power of government to it’s advantage in markets as well as condemning those in government who use its power for such things.
To date it’s been an attempt that mostly gets fussy about word usage, but my guess is it will get more pointed:
Gov. Romney is talking nonsense. Bipartisanship requires that you not make up the facts. I did not ‘co-lead a piece of legislation.’ I wrote a policy paper on options for Medicare. Several months after the paper came out I spoke and voted against the Medicare provisions in the Ryan budget. Governor Romney needs to learn you don’t protect seniors by makings things up, and his comments today sure won’t help promote real bipartisanship.
That’s obviously in reaction to a statement by Romney in which he talked about legislation, not a policy paper.
So Wyden is right, the quote is incorrect.
But Wyden is being a bit disingenuous too. You don’t vote for parts of a budget so claiming you voted “against the Medicare provisions” of a budget are a bit of nonsense as well. Democrats voted against the entire Ryan budget, the Medicare provisions being only a part of that.
Even Think Progress has some problems with the attempted delinking driven by the inconvenient politics of having a Democratic Senator’s name on a plan that Democrats have chosen to mischaracterize and demonize:
The plan Sen. Wyden co-authored with Ryan does bear a striking resemblance to the proposed Medicare changes in Ryan’s latest budget for the House GOP. Both keep traditional Medicare as a kind of public option, in an exchange where it would compete with private plans offering insurance to seniors. The government would give seniors support for purchasing these plans, and that support would be benchmarked to the cost of the second-least expensive plan. The plans would also be prohibited from discriminating based on pre-existing conditions.
Where they begin to differ is Paul supports more market based solutions while Wyden wants government based solutions.
But this sort of linkage is inconvenient when you’re claiming the GOP ticket is “trying to end Medicare as we know it” (even though it is ObamaCare which is pulling $700+ billion out of Medicare). Avik Roy has the “bottom line” on that meme:
The bottom line: if Romney and Ryan leave you the option to remain in the 1965-vintage, fee-for-service, traditional Medicare program, and you claim that Medicare has “ended as we know it,” what you’ve really ended is the English language as we know it.
The point? Ron Wyden did indeed “co-author” a Medicare plan with Paul Ryan. There’s no question about that. And it was indeed a bipartisan plan, by definition. In fact the paper is entitled “Bipartisan Options for the Future” and lists both Wyden and Ryan as the authors.
Finally, their plan contains this paragraph:
We are a Democrat and Republican; a Senator and a Representative; senior members of our respective Budget Committees; and members of the committees that have jurisdiction over Medicare and health care costs. As budgeteers, we understand the difficulty presented by demographic changes over the next several decades. As members with policy oversight, we recognize and encourage the potential for innovation to improve care and hold down costs. And most important, as representatives of hardworking Americans in Oregon and Southern Wisconsin, we realize our absolute responsibility to preserve the Medicare guarantee of affordable, accessible health care for every one of the nation’s seniors for decades to come.
Sounds like a pretty bipartisan effort to me.
Here’s the problem for the Democrats. They need badly to demonize Paul Ryan as an extremist who is out to push granny over the Medicare cliff and end Medicare as we know it. That’s because “Medicscaring” seniors is a tried and true method of gaining votes, and Democrats know it. They’ve deployed it many times in the past.
And bipartisan cooperation? No way, no how, can’t let that sort of thing become public knowledge when you have an active campaign beginning to label Ryan as an extremist ideologue.
But the facts don’t support that sort of branding campaign. Not only has Ryan not attempted in any form or fashion to end Medicare, he’s teamed up with a liberal Senator to put forward a plan to actually save it (even while the loudest critic is pulling that $700+ billion from the program via ObamaCare) and make it sustainable.
That is why Wyden is trying his best to delink from Ryan. And you can imagine from whence the pressure to do so is coming. But it’s a hard sale to make when his name is clearly associated with Ryan’s on a plan he claimed will “preserve the Medicare guarantee of affordable, accessible health care for every one of the nation’s seniors for decades to come”, isn’t it?
Not that it will stop them from trying.
Gallup has a new indicator poll out that shows the nation’s national priorities according to its citizens. It’s interesting in many ways, but primarily because one of the highest calls for action is to address “corruption”.
(As an aside, notice the bottom two “priorities).
Notice carefully how the corruption question is phrased – “Reducing corruption in the federal government”. What sort of corruption? Well, one type, that most fair minded people would identify, is that which we call cronyism. As we listen to the uniformed continue to say we’ve been ravaged by the “free market” system, one can only shake their head in wonder that anyone would identify what we have as a “free market system”. Rarely, if ever, are markets allowed to function as they should in this country (or any others for that matter).
What we have is a system of cronyism (I’m removing “capitalist” from the description since there’s nothing “capitalist” about such a system) that is part of what is killing us economically. David Henderson gives us a good description of the system under which we must operate.
What is the difference between free markets and cronyism? In free markets, buyers and sellers are free to agree on price; no government agency restricts who can buy or sell, and no one is told how or what to produce. In contrast, under cronyism the government rigs the market for the benefit of government officials’ cronies. This takes various forms. Governments sometimes grant monopolies to one firm or limit the number of firms that can compete. For example, most U.S. municipalities allow only one cable company to operate in their area even though there is no technological reason more could not exist. The same is true for most other utilities.
Governments sometimes use quotas or tariffs to limit imports with the goal of protecting the wealth and jobs of domestic producers who compete with those imports. President George W. Bush did this in 2002, for example, when he imposed tariffs ranging from 8 to 30 percent on some types of imported steel. Governments sometimes subsidize favored producers, as the Obama administration did with the politically connected solar-energy firm Solyndra. Governments may use antitrust laws to prevent companies from cutting prices so that other, less-efficient companies can prosper: For example, beginning in 1958, the U.S. government prevented Safeway from cutting prices for a quarter of a century.
The entities governments help with special regulations or subsidies are not always businesses; sometimes they are unions. The federal government’s National Labor Relations Board’s (NLRB) complained against Boeing in April 2011, for example. In response to a complaint from the International Association of Machinists and Aerospace Workers (IAM), the NLRB sought to require Boeing to produce its 787 Dreamliner in Washington State rather than in Boeing’s chosen location of South Carolina. According to the NLRB, by saying that “it would remove or had removed work from the [Puget Sound and Portland] Unit because employees had struck” and by threatening that “the Unit would lose additional work in the event of future strikes,” Boeing was making “coercive” statements to its employees. As a matter of fact, it was not. Boeing was simply telling the employees some likely consequences of the union’s actions.
The Boeing-IAM case is not as simple as most of the press implied. It turns out there was a prior case of cronyism. The government of South Carolina promised Boeing “$900 million in tax relief and other incentives” in exchange for moving production to South Carolina. Such is the tangled world of cronyism.
As we discussed on the podcast last night, we have given, or at least allowed government to amass, power to do what it is doing. We have, over the years, allowed them to use tax exemptions and other favors, etc. to lure businesses to our states (and we’re then thankful for the jobs created) not understanding that by doing so, we empower politicians to be the decision makers in areas that should be the function of markets. And what does that foster? A culture that is incentivized to seek out politicians to grant such favors. To ask for, and receive, subsidies. To allow politicians to leverage that power into favoring businesses that fit their political agendas. They become the focus because we have given them the power necessary to grant those favors.
We see the same sort of game played at a national level as described by Henderson. That has nothing to do with capitalism folks. It has nothing at all to do with “free markets”. In fact, it is the antithesis of both.
Probably the most blatant and disturbing example of cronyism came in the auto bailout:
Of course, a much larger instance of cronyism under the Obama administration, one that makes the Solyndra case tiny by comparison, is the bailout of General Motors (GM) and Chrysler. Bush and Obama together diverted $77 billion in TARP funds to GM and Chrysler. In organizing their bailouts and bankruptcies, Obama violated the rights of Chrysler’s creditors and gave a sweetheart deal to the United Auto Workers union.
Law professor Todd Zywicki provides the details:
In the years leading up to the economic crisis, Chrysler had been unable to acquire routine financing and so had been forced to turn to so-called secured debt in order to fund its operations. Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the “absolute priority” rule— since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers—unsecured creditors, but possessed of better political connections—received more than 40 cents on the dollar.
Pure cronyism. The bankruptcy rules were thrown out by government in order to pay a favored constituency – labor. Henderson explains:
Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a “deficiency claim”—the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the creditors. Were bankruptcy experts to comb through American history, they would be hard-pressed to identify any bankruptcy case with similar terms.20
Why did the Chrysler bondholders not object? Many did. But, Zywicki notes, the federal government (in this case, the U.S. treasury secretary) had enormous power over financial institutions through TARP, and these institutions owned much of Chrysler’s secured debt.
While this has been going on for quite some time, never has it been as blatant as with this administration. And that blatancy is what has pushed the corruption priority up the list to where it stands second to job creation in this horrific economy.
What can be done to remedy this cronyism “corruption”. Only one thing, and unfortunately, those enjoying the power are where the remedy must come:
There is only one way to end, or at least to reduce, the amount of cronyism, and that is to reduce government power. To reduce cronyism, we must abolish regulations and cut or abolish special government subsidies. That way, there is nothing to fight about. For example, the government should not bail out companies or give special subsidies and low-interest loans to companies like Solyndra that use technologies or produce products that the government favors. It should have unilateral free trade rather than tariffs, import quotas, and other restrictions on imports.
Will it happen? No. Those who tout the power of markets and demand they be given priority are now considered “radicals”. Just listen to President Obama talk about the former administration and try to convince you “we tried their way before and look where it led”. Spinning a regime prior to his that was as wrapped up in cronyism as is his and claiming it represented free markets is standard, disingenuous, leftist boilerplate with nary a leg to be found standing in reality. It is pure, fatuous BS.
The “corruption in the federal government” isn’t lobbyists. They’re a symptom of that corruption. The problem resides under the Capital dome and within the offices of the executive branch. They have the power that is sought by the lobbyists. No power and there would be no petitioners. Instead, we see the number of petitioners for favorable treatment by government (usually at the detriment to their competitors) continuing to expand.
So while the public has finally identified a major problem (thanks to the blatancy of this administration) it has a long way to go before it realizes the means by which it must be fixed. Stripping the federal government of its power to grant favors to its cronies is almost an impossible task, given we have the fox in charge of the hen house.
I see nothing in the future that says those who must fix this are willing to divest themselves of the power to grant favors (see recent farm bill, an orgy of subsidies and pay offs (earmarks), for a perfect example). Show me when they’ve ever divested themselves of any meaningful power they’ve accrued.
And so cronyism will continue and we will continue to circle the drain of economic collapse. Meanwhile, Coke and Pepsi will fight about the marginal nonsense that won’t make a significant difference and make all the usual promises about being the panacea for all our ills that voters have been pining for so long.
Or it is “kick the can down the road” politics as usual.
We’re talking Japan of “the lost decade” (now a couple of decades old). We harp about markets and government intrusions here and explain why they’re almost always “a bad thing”. Well, this is about market intrusion on a grand scale:
One of the consequences of all the stimulus and subsequent QE is that long time traders of our markets know they are screwed up. Consistent printing of money and 0% interest rates world wide have created their own economic imbalances. As the saying goes, there is no free lunch.
The government stimulus had a multiplier effect of 0. It did nothing for job growth or GDP growth in the US. Combine the inefficiency of US fiscal policy with the continued implosion of Europe, and you have a world wide malaise. In China, because of macro economic effects, wages are rising, costs to produce are increasing. Companies are also wary of both the poor property rights system and the lengthened supply chain. China is slowing down.
Remember all the talk about the multiplier effect of the stimulus? Yeah, disregard.
Meanwhile in the rest of the world the effects of all these market intrusions/manipulations are having their effect.
As the title says, we’re all Japan now.
The Wall Street Journal provides an interesting infographic which fairly well outlines what the market for college graduates is looking for. Or said another way, employers determine what majors they’ll hire, not college students.
So we have college recruiting picking up – a good sign – and we have a buyers market. Bottom left tells us all what they’re interested in and, more importantly, what they’re not interested in. Of course that’s of the 160 employers surveyed. That obviously doesn’t mean that the bottom five can’t and won’t find employment. It’s just likely they won’t find it with those 160 surveyed. They indicated, however, a trend we’ve talked about quite often. Hard skills or business related skills.
Bottom right shows us how the market for college graduates has changed in the last few years. Only 25% are hired while still in college, most, one would suppose, in those top 5 categories. The huge difference, however, comes in the last number for 2009-2011 graduates. 45% still have no “first full-time job”. That means some are going on 3 years. That adds more credence to the last chart on this post.
As for this year’s college grads, they face even tougher prospects when it comes to finding a job. They not only have to compete against their peers, but against the graduates from from previous years still seeking their “first full-time job”.
Which brings us to the politics of this situation. In 2008, Obama charmed the college age crowd who treated him like a combination of a rock-star and the second coming.
With the sort of situation the chart depicts now being the reality and with the youngest demographic (which includes these college age job seekers) the worst hit by the still staggering economy, one has to wonder whether or not he can pull them back into his orbit again in any significant numbers with the promise of saving them $7 a month on college loans.
I’m guessing the answer is “no”.
Economist Dr. Mark Perry has a series of posts at his blog Carpe Diem which makes the case that “speculators” play and key and positive role in commodities markets.
One of the more intriguing posts deals with onions and oil. Oh, and corn. Perry quotes a 2008 Fortune magazine article:
"Before the government starts scrutinizing the role that speculators may have played in driving up fuel and food prices, investigators may want to take a look at price swings in a commodity not in today’s news: onions.
The bulbous root is the only commodity for which futures trading is banned. Back in 1958, onion growers convinced themselves that futures traders were responsible for falling onion prices, so they lobbied an up-and-coming Michigan Congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.
And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings."
The proof is in the charts. The first chart compares the volatility in the onion market, in which futures trading was banned, with that of the oil market.
Compare the mean and standard deviation differences in the two markets. Remember blue – no futures trading. Red – futures trading.
So, you say, comparing onions and oil is like, well, comparing onions and oil! OK, how about onions an corn. Again the same difference applies. No futures trading for onions but there is with corn.
Result? The same:
The point, of course, is those futures contracts help moderate a market. Or as Perry says:
The fact that the volatility of onion prices is so much greater than the volatility of corn prices lends further statistical support to the notion that markets with futures trading like corn have lower price volatility than markets without futures contracts like onions.
Bingo. So, the President’s war on “oil speculators” is an obvious distraction. But here’s the other side of that – if successful, you may end up seeing oil act like onions. Is that something most of us would prefer? Given these facts, it seems the height of folly to attempt to regulate or ban futures trading in oil, doesn’t it?
A few more charts to finish the point. First, futures trading in natural gas:
If oil speculation (or, as implied, greed) is the cause of rising oil prices, why aren’t natural gas prices rising as well in futures trades (not as “greedy”)?
In fact, it is because of “speculators” that we’ve seen the price of natural gas go down. So futures markets do what? They react to market signals on supply and demand. What this tells us is we most likely have an over abundance of natural gas.
So what does the market do? It adjusts the price to the reality of the supply v demand – in this case, the price goes down. And it also does things like this:
When natural gas price were up and oil prices down, more drilling rigs were allocated by those markets to natural gas. As oil prices have risen dramatically recently, while natural gas prices have fallen, there’s been just as dramatic a shift in the allocation of drilling rigs from natural gas to oil.
The success in the natural gas sector has driven supply up while demand has yet to increase proportionately. Meanwhile, we’d had an abundant supply of oil, which has now become very tight (geopolitics, folks – governments at work and war) driving up the price of crude. The market is reacting.
And as it reacts, guess what?
Crude futures are down as they obviously see future supply growing as the market adjusts and reacts. All driven by “speculators” who are, right now, in the middle of moderating the market.
So, as President Obama continues with his “blame the speculators” nonsense, you have a choice.
Onions or corn?
Markets or bureaucrats?
PS – if you’d like to read some academic pieces on why “speculators” are a key to a market economy, read this.
And it isn’t what they expected or hoped it would be:
A weak labor market already has left half of young college graduates either jobless or underemployed in positions that don’t fully use their skills and knowledge.
Young adults with bachelor’s degrees are increasingly scraping by in lower-wage jobs — waiter or waitress, bartender, retail clerk or receptionist, for example — and that’s confounding their hopes a degree would pay off despite higher tuition and mounting student loans.
An analysis of government data conducted for The Associated Press lays bare the highly uneven prospects for holders of bachelor’s degrees.
We continue to hear that we’re in a recovery, that we’re seeing better times, that all is now well.
Of course, it’s not. In fact, as we mentioned in the podcast last night, we’re not seeing anywhere near the growth necessary to shake this recession. Instead, we’ve found and are bouncing along the bottom (or at least what is the bottom for now – believe it or not, it could again get worse).
Unemployment numbers for the last two months have “unexpectedly” worse. And while the official rate is 8.2%, most realize the real unemployment rate is much higher and in double digits.
That is the world today’s college grads are facing. It is a buyers market, for those that are actually hiring college grads and so they are able to select among the best. Guess what majors are faring best?
While there’s strong demand in science, education and health fields, arts and humanities flounder.
Majors with immediate applicability in still growing fields of course. Meanwhile, there’s not much demand for the softer and less applicable fields. And even in the majors where demand is still high, entry level jobs are of a lower type:
Median wages for those with bachelor’s degrees are down from 2000, hit by technological changes that are eliminating midlevel jobs such as bank tellers. Most future job openings are projected to be in lower-skilled positions such as home health aides, who can provide personalized attention as the U.S. population ages.
This is one of those teachable moments. A sheepskin is no longer a guarantee to a high paying job. And that’s certainly true of those who indulge themselves in a humanities or art degree, etc.
College graduates who majored in zoology, anthropology, philosophy, art history and humanities were among the least likely to find jobs appropriate to their education level; those with nursing, teaching, accounting or computer science degrees were among the most likely.
While perhaps the brightest and best in those areas will indeed find good paying jobs coming out of the chute, the vast majority are going to be taking jobs, if they can find them, well outside their major field of study.
By the way, I use the term “indulge” above purposefully. It would be nice to indulge yourself in something you might enjoy in college and major in it. But then don’t whine when you find out that all of the companies you feel should have the benefit of your august presence aren’t as excited about your degree in gender studies as you are.
That gets down to the purpose of college to each person. Is it a means of achieving a job and a life style to which one aspires and a willingness to do what is necessary to accomplish that? Or is it a place one indulges themselves giving little or no thought to the reality that awaits them at graduation?
What we are seeing is the market for college grads making a very definitive statement. It is sending signals. It is telling everyone what type of degrees are being sought and which aren’t. And because of the tightness of the market, it is making decisions on merit, with the brightest and best capturing jobs and the also ran’s waiting tables.
"I don’t even know what I’m looking for," says Michael Bledsoe, who described months of fruitless job searches as he served customers at a Seattle coffeehouse. The 23-year-old graduated in 2010 with a creative writing degree.
Imagine that … creative writing degree. Wonderful stuff, but not to the market for those with college degrees. One would think that a person pursuing that sort of degree would have probably researched that and have a plan which might not include someone else hiring them first (i.e. selling their work on a freelance basis, etc. and knowing how to do that).
Had Mr. Bldsoe had a degree in physics or accounting or engineering, he’d stand a much better chance of being employed in his field of study. Then he could indulge himself in his creative writing passion. In fact, it would likely give him the means to do that.
Instead … “you want a tall or a grande?”
I still haven’t yet figured out why supposedly bright people can’t figure that little thing out. Markets are talking. Markets are sending signals. When you choose something as your major that these markets have no interest in, what do you suppose is going to happen unless you have a plan to go out on your own immediately?
They’re not going to hire you just because you feel your major is important. You’re going to hire someone if they feel the major is important and you have demonstrated competence in that field at a level they require.
This is the reality that, for the first time, many recent college grads are coming to grips with.
One thing this recession may finally do is drive home the idea that indulging yourself is a useless degree is not very bright or productive.
Want to study creative writing? Fine. They have minors as well in colleges. Make it your minor. But for heaven sake, take a clue and look at what is being demanded out there before declaring a major. Certainly it may not be your passion, but then unless you want to spend your days immediately after college waiting tables or hoping for a labor sellers market, where jobs are plentiful, you had better commit to a useful major.
I know, I know, that supply and demand thingy again. Gender studies majors aren’t into “markets” and “supply and demand” stuff. What’s wrong with me? They have a college degree, the world should be beating a pathway to their door, no?
Welcome to reality … and reality includes the immutable laws of economics whether one likes them or not. And right now, those with useless degrees find themselves on the wrong side of the demand curve.
Don’t like economics?
Then content yourself with making frappes.
Otherwise, it’s time to wise up, use that superior brain for what it was designed and “indulge” yourself in something the job market finds useful and valuable. Refusal to do that means a guaranteed rough transition into the real world, especially now.