More College Does Not Beget More Economic Prosperity

In a recent Forbes column George Leef of the John William Pope Center for Higher Education Policy points out that, contrary to President Obama's claim, higher education does not improve economic performance.  The claim that it does improve the economy arises from an error: the belief that correlation implies causation.  Countries with more wealth have more college graduates because they can afford to send more students to college.  They are not more wealthy because they have more graduates, for college attendance is a consumption good.  My guess is that the number of automobiles per capita contributes more to national wealth than do college degrees.

The claim that education leads to wealth is based on human capital theory. Human capital theory goes back to Adam Smith''s 1776 Wealth of Nations and Alfred Marshall's 1890 Principles of Economics.  The economist most closely associated with the human capital theory is Gary Becker, who won the Nobel Prize in economics.

Labor economists contrast the human capital theory with  Michael Spence's signaling theory, to which Leef alludes in his article.  Spence also won a Nobel Prize in economics.  Signaling theory suggests that ability is correlated with education, so years of education signal underlying ability.  A difference between human capital theory and signaling theory is that the former suggests that the material learned in school is relevant to economic performance while signaling theory does not.  Completion of a course in abstract mathematics suggests a high level of underlying ability even if the graduate ends up working in an unrelated field.  If signaling theory is right, then a simple IQ test and completion of a US Marines or Navy Seals boot camp training will predict as much as a college degree, maybe more.

I prefer a third alternative:  institutionalist theory.  Institutionalist  thinking places weight on mimesis in the creation of cultural patterns that are often irrational.  College is popular because of imitation.  In his 1978 book Culture of Professionalism, Burton Bledenstein shows that the impulse toward professionalism was a crucial foundation of the Progressive movement and that Americans have had a preference for professional status over and above wealth, fame, and learning.  Education is a sign of professionalism, so it is desired as a consumer good.  Likewise, American firms have preferred college graduates because degrees imbue their managements with professional status.  There is no evidence that higher education has contributed to firms' economic success.  To the contrary, the rise in the number of college graduates in America after World War II paralleled the ascendance of Japanese industry and the decline of Detroit.  

In his important work on productivity differences around the world, William Lewis of the McKinsey consulting firm showed, in the early 1990s, that production workers in the third world could be made to be about as productive as American workers through improvement in the organization of work and workplace training.  Third world workers can produce economic results that equal those of high school and college graduates.  Producing them requires insight as to the organization of work.  This was achieved in postwar Japan through innovative thinking at Toyota.  More generally, the individuals most responsible for workplace innovation have been Frederick Winslow Taylor, who chose not to attend college, Henry Ford, who did not go to college, W Edwards Deming, who held a Ph.D. in physics but never got a job related to his degree, and Taiichi Ohno, the inventor of lean manufacturing and the Toyota production system.  Ohno held a degree from Nagoya Technical High School. An exception is Sam Walton, who held a BA from the University of Missouri.

The chief contributions of business schools to business practice have been through the human relations movement, job redesign, the marketing concept, the capital asset pricing model, and other financial theories.  These are minor contributions.  The human relations school, for example, has contributed to Japanese management practice, but it has been ignored in the US as the Marxist critic (and Brooklyn College dropout) Harry Braverman points out in his Labor and Monopoly Capital.  The finance field, which is the one to which academics have made the most contributions, has been a canker sore on the American economy, requiring a multitrillion dollar bailout and ongoing subsidization from the Federal Reserve Bank; it has produced little of value in return.  Without college education Henry Ford invented the assembly line; Taiichi Ohno reinvented it.

In After Virtue, a classic work on ethics, Alisdair MacIntyre claims that there are three fraudulent figures of the modern world:  the aesthete, the psychiatrist, and the manager.  There is a fourth: the business professor who claims to raise productivity but knows nothing about the substance of management.  I am not the first to make this claim:  Abraham Zaleznik, in his Managerial Mystique, argues that business schools have lost touch with the substance of business.  As a critique of business education, Zaleznik's point is right, but its implications go further.  If business schools do not teach students how to succeed in business, why do they exist?

During America's period of most innovative and rapid economic growth, from 1840 to 1920, only about five percent of Americans attended college.  There is no evidence that much of the innovation of that period, chronicled in David Ames Wells's 1889 Recent Economic Changes, came from people with college degrees.  During that period college degrees were associated with professional careers, notably law, although doctors and lawyers often lacked undergraduate degrees. College was mostly associated with careers in the clergy until the 20th century.  It wasn't until well into the Progressive era that the claim that college education had anything to do with business success gained traction.  By then, most of the innovation associated with the modern world had occurred; even television and radio had been invented, by Nikola Tesla, in the 19th century.   Tesla, incidentally, had thought of AC electricity before attending a technological college in Europe, and his professor discouraged his pursuit of the AC motor, which created the modern world.

Barack Obama has done much harm to the nation through his  ill-conceived health reform and common core.  His claims about higher education, as Leef points out, will contribute to American economic decline.

No One Wants to Teach Writing

My piece "No One Wants to Teach Writing" appears in the John William Pope Center for Higher Education Policy website commentaries section. 

Investing in '14: Coping with 100 Years of Fed Blundering

On the 100th anniversary of the founding of the Federal Reserve Bank, the coming year's investment climate is complicated by the residue of historical interest rate policy.  The low interest rates that have been favored from Nixon through Obama subsidize asset holders, business interests, and the wealthy, and they penalize savers, pensioners, and workers. The Obama bailout of 2008-10 has pushed real interest rates to historically low levels; such levels are unlikely in market-based economic systems.  They have resulted in misallocation of wealth, increased income inequality, excessive risk seeking by the elderly, bullishness in the stock market, and volatility in the gold market.

Gold 

I pulled out of gold in April 2013 because the gold market was reacting to the tripling of the nation's money supply much as it reacted to the monetary expansion of the Volcker-and-Greenspan Fed.  As the Fed pushed down interest rates in both periods (1983-2000 and 2008-2010) gold production expanded.  In both periods production also expanded in response to rising gold prices.  Paradoxically, though, increased commodity exploration and production  cause lower prices. Declines  in the gold price occurred in 1983-2000 and 2012 even though both were periods of monetary expansion. The 2008-2011 period was still riding the prior cycle, but the monetary expansion of 2008-2013 has been so large as to create an entirely new cycle in a short period of time.


As gold producers collapse during the current period, the scene is set for a new increase in commodity prices.  Nevertheless, the gold market has yet to capitulate. That might occur in 2014.  I currently have a small short position in gold and am otherwise out of gold and silver.  I am hoping for a sharp downturn in gold prices sometime in 2014. 

MLPs

The recent past has seen advances in energy technology, notably hydraulic fracturing or fracking. That has led to a sharp decline in natural gas prices for the past few years (see chart, courtesy of Google):

15 Years Later Natural Gas Prices at 1999 Level

As fracking proceeds, the price can fall even further, leading to the potential for exports of energy from America.  Hence, natural gas infrastructure investments through Master Limited Partnerships (MLPs) have an intriguing outlook, except for the matter of interest rates.  MLPs, the vehicles by which investors invest in natural gas pipelines, tankers, and depots, are leveraged. That creates interest-rate risk. However, the good-quality MLPs have pricing flexibility and earn significantly more than their interest cost.  As a result,the long-term risk is limited.  When the stock market tanks, so will the MLPs, though.

I listened to a conference call for Legg Mason's Clearbridge American MLP Fund.  The price had fallen sharply, ostensibly in reaction to concern about rising interest rates in response to the Fed's tapering of its monetary expansion program.  The fund's representatives made a convincing case that the underlying MLPs have good coverage ratios and that they have flexibility to increase payouts in case interest rates rise.  The fund's managers claimed that part of the recent declines have been due to end-of-year, tax-loss selling.  Within a few days  after the conference call the price has risen several percent.I am eager to see the fund's performance in January.  If it continues to rise, then the representatives' point is proven.

For now, I am still positive about MLPs.  I am also positive about tech stocks and health care stocks, at least for the beginning of 2014.  I am also bullish about real estate into 2014. The information about interest rates is already built into the stock market, and the monetary expansion that has already occurred contributes to bullishness.  Of course, the bailout and quantitative easing will result in unhappy monetary results, but who cares if the average American goes hungry?  The stock market is going up!

Hedging Rising Real Interest Rates

At the same time, low real interest rates give me pause about stocks, MLPs, and real estate because rates are going to rise, which causes declines in financial markets.  Princeton economist, Nobel prize winner, and former ethics consultant to Enron, Paul Krugman, did a quick-and-dirty pictorial estimate of historical real interest rates in his column in The Times:

Enron Consultant Paul Krugman's Quick Estimate of Real Interest Rates

 Notice a few things:  First, there was a slight increase in real rate volatility following Nixon's election in 1968.  Second, when the international gold standard was eliminated in 1971, the volatility in real interest rates heated up.  Nixon was manipulating rates by influencing Columbia economist and Fed chief Arthur Burns.  Third, there was a sharp downturn in rates in response to Nixon's reelection bid.  Fourth, there was a sharp upturn as the Fed under Paul Volcker raised rates (tightened the money supply) to squeeze out inflation. That resulted in an economic downturn, but by 1983 Volcker reopened the monetary spigot, initiating a 30-year decline in real rates, the modestly high inflation rate of 1983-2008 (see chart), the impetus for military aggression in the Middle East in the millennial period, the rising stock market of the 1983-2000 period, the millennial bubbles, and current economic volatility.

Real rates are at historically low levels.  According to the chart, there was a brief period in the early-to-mid 1970s when Nixon and Burns pushed them lower, but by the late 1970s inflation was in the teens.  It is the monetary expansion rather than the interest rate that potentially causes inflation. An uptick in inflation will motivate the Fed to raise interest rates.  That will probably harm the MLPs I mention above as well as bonds, fixed income securities, and likely the stock and real estate markets.  In other words, there is a narrow course of tapering that the Fed has outlined, but if there is an uptick in inflation, then there can be a spike in rates.  That will be unpleasant for people holding financial assets.

There is reason to be concerned about the financial markets as 2014 winds down and 2015 begins.  In a 2010 blog, the colorful Larry McDonald, author of A Colossal Failure of Common Sense, blogged about how to bet on rising rates. 

McDonald suggests these funds, which are mostly at all-time lows:

RRPIX  Profunds Rising Rates Opportunity Fund

RTPIX Profunds Rising Rates Opportunity Fund 10 Investor

RYJUX Rydex Inverse Government Long Bond Stratgegy

TBT Ultrashort 20+ Year Treasury Proshares

Ultrashort 7-10 Year Treasury Proshares PST

Horizon BetaPro 30 year Bond Bear HTD (on the TSX, not HTD on the American exchanges)


It seems to me that a partial hedge with one or two of these funds is a good idea at this point or in the near future.

Earl Key Calls for April Jones's Freedom, Judge Tanya Walton Pratt's Impeachment

I previously wrote about April Jones's battle with authoritarian public health officials in Indiana.  Earl Key has filed for a stay in federal court.  He sent me the following email:

Due to the drugging and injuries, April's capabilities have declined significantly since she spoke to you on the phone, but now the U.S. Court of Appeals has ordered her to prove she is competent to continue to proceed. Back in front of the same federal judge who took 8 months to rule on her case and would not stop the drugging when she could. This is so unfair, so wrong, that I simply had to take a long shot at getting Justice Kagan to stop it.

I have attached the Application for Stay. It's not perfect, and I understand that you may not understand some of the legal jargon, but the first 12 pages are primarily factual, so I hope you get an opportunity to read it.

Thank you for listening and for your writings on April.

This is Key's pro se motion:              

Three weeks ago Key had sent this message:

What a long struggle this has been. April's case has now been thrown back to the district court, to determine April's"capacity". This is grotesquely unfair to her because her capacity is deteriorating due to her disease, the length of the proceedings, and the drugging and injuries incurred during her captivity. So I am preparing to ask the U.S. Supreme Court for a stay and writ of mandamus to force the lower courts to follow the law. This case will not remain under the public's radar much longer.

Additionally, I will send a letter tomorrow to the U.S. Congress asking for the impeachment of federal district court Judge Tanya Walton Pratt. That letter is attached and should explain why I feel so strongly about how the federal courts have abused April's right to liberty. Feel free to use it as you see fit.

The Honorable Mitch McConnell

317 Russell Senate Office Building

United States Senate

Washington, DC 20510

Cc: Representative Eric Cantor, House Republican Leader

House of Representatives

Washington, DC 20515

(202) 224-3121

November 30th, 2013

Dear Senator McConnell:

This letter is to ask for impeachment proceedings against U.S. District Court Judge

Tanya Walton Pratt.

Judge Pratt, an appointee of President Obama, sits on the bench of the Southern District of Indiana. This request is being made due to Judge Pratt’s violations of Indiana state law and federal law, and because she has usurped the will of the U.S.Congress and the common law of the U.S. Supreme Court. This request is pursuant to Article III of the U.S. Constitution.

On January 20th and January 27th, 2012, Judge Pratt, a citizen and resident of the State of Indiana, was notified of injuries due to the drugging and neglect of a disabled adult, April Dawn Jones. Ms. Jones is in the custody of an unlawful guardianship mill being run by one of Judge Pratt’s Democratic colleagues on the state bench of Indiana. The state judge has openly admitted to a reporter that he is running a “team” of Democrats that ensnare disabled persons and hand them off to a so-called guardian. Although this clearly violates separation of powers, Judge Pratt has gone out of her way to “validate” this unlawful and unholy team of actors.Included within the verified reports submitted to Judge Pratt were photos of the injuries to Ms. Jones (a 38-year old woman who I had been assisting for many years across State lines before she was “granny-napped” by the Indiana guardianship team).  

Instead of taking injunctive action or notifying Indiana authorities as required by Indiana state law, Ind. Code 12-10-3-9, Judge Pratt sat on the reports for another 4months then attempted to cover up the scheme and the neglect by dismissing the case containing the verified facts and exhibits. Within the dismissal opinion, Judge Pratt attempted to intimidate me from assisting Ms. Jones by disparaging me to the public and the higher courts with the language “whether well-intentioned or not.” The willful delay, cover up, and the disparagement are all contrary to the will of  Congress in passing 42 U.S.C. § 12203 (part of the ADA), which protects those who assist disabled persons in defending their rights, by providing that:It shall be unlawful to coerce, intimidate, threaten, or interfere with any individual... on account of his or her having aided or encouraged any other individual in the exercise or enjoyment of, any right granted or protected by this chapter.

As part of her opinion, Judge Pratt falsified the parties involved in the suit, by revising the caption to make me the real party in interest and then by relabeling the respondent as “Lamar”. Were these two issues taken separately from the opinion as a whole, one might see them as mere typographical mistakes.Regardless, this is a specific violation of 18 U.S.C. 2071 (b): (b) Whoever, having the custody of any such record, proceeding, map,book, document, paper, or other thing, willfully and unlawfully conceals, removes, mutilates, obliterates, falsifies, or destroys the same, shall be fined under this title or imprisoned not more than three years, or both; and shall forfeit his office and be disqualified from holding any office under the United States.

Also within the dismissal opinion, Judge Pratt usurped the common law of the U.S.Supreme Court by steering around significant Supreme Court case law, all in an obvious but misguided attempt to cover up for the malfeasance of a fellow state judge in Indiana (Judge Pratt is also a 20-year veteran of the Indiana state trial court bench).

Upon seeing the convoluted manner in which Judge Pratt’s opinion misstates theparties and steers around controlling law, one who was familiar with the applicablefederal statutory and common law in this case would come only to the conclusionthat she is not qualified to sit on the federal bench, neither by temperament norability. I cannot prove but do believe that Judge Pratt initiated or used ex parte communications with other Democratic members of Indiana’s legal community to make her decision, all in violation of the Code of Conduct for federal judges.From the research of all of Judge Pratt’s cases over a 2-year span, Judge Pratt’s writings show a particular interest and bias in cases involving abortion rights cases(of which she favors), with bias against white persons, males, and against disabled persons, all contrary to federal law and the U.S. Constitution. (While Ms. Jones was dying awaiting Judge Pratt’s decision, Judge Pratt was instead working to approvemore of Planned Parenthood’s agenda, e.g., Planned Parenthood of Ind., Inc. v. Comm'r of Ind. State Dep't of Health, 794 F. Supp. 2d 892 (S.D. Ind. 2011).)

One might draw the conclusion that Judge Pratt favors the death of the unborn and the disabled. Judge Pratt’s techniques in implementing her agenda is not the “good behavior” required of an Article III judge, particularly one whose obsequious writings in finance cases appears to point to higher aspirations.The guardian and judge in control of Ms. Jones have allowed fraud to be committed against the United States by allowing the nursing home to bill the Medicaid and Medicare programs for Ms. Jones care and rehabilitation, when that care and rehabilitation had not been provided to Ms. Jones. Judge Pratt, herself an attorney as well as judge, could not have been unaware that her failure to report the injuriesto Ms. Jones might be aiding and abetting a fraud being perpetrated against the United States of America, contrary to the will of Congress in passing the False Claims Act, 31 U.S.C. §§ 3729-3733.

Due to Judge Pratt’s incompetent, unlawful, and neglectful handling, Ms. Jones’ case has been drawn out for more than two years and she now faces an accelerated death while being drugged and injured at the hands of an unlawful guardianship team.

This request is not in any way to ask the U.S. Congress to intervene in the legal proceedings of the underlying case but rather to take action against Judge Pratt for her violations of Indiana law, federal law, and for usurping the will of the U.S.Congress and the U.S. Supreme Court.

Ms. Jones case is now pending before the Seventh Circuit of the U.S. Court of Appeals, case no. 12-2094, and may be used to independently verify the lower court documents, exhibits, and chronology of events discussed in this letter.From discussing this case with my fellow coworkers and neighbors, I can assure you that reasonable Americans are aghast at this behavior by a federal judge. I I thankyou for your assistance in this matter.