Wednesday, May 10, 2017

"What is your motto here?"

From University of Maryland research.
From Bloomberg. 
About half of American voters have realized their political system isn't working and are willing to do whatever it takes to be heard.  While many Americans, including myself, mention police unions as part of the problem, the entire system has become so convoluted, little accountability or efficiency exists in politics--not in public education, not in public policing, and not in public transportation. (Fun fact: our local "bullet" train was built by Japan in 1986 and takes about an hour and a half on its normal route to go 50 miles. I live in one of the largest, most affluent cities in California.)

Ideological adherence, regardless of results, has destroyed America's ability to think logically or attain an agreed-upon national character.  Lee Kuan Yew once remarked, "The [Singaporean] system works regardless of your race, language or religion because otherwise we'd have divisions. We are pragmatists. We don't stick to any ideology. Does it work? Let's try it and if it does work, fine, let's continue it. If it doesn't work, toss it out, try another one. We are not enamored with any ideology."  In short, Singapore's ideology is not having one. Singaporeans pledge allegiance to practicality: does it work?  Is it sustainable?  Will it improve lives for the majority of our citizens?  Such an approach requires government to be citizenry-facing and pro-efficiency, admittedly much easier to do in smaller countries with only one border, but even with such advantages, "The bigger they are, the more corrupt they must be," shouldn't be an automatic motto.

America's tried-and-true formula has broken down.  With its vast natural resources, mighty Navy, low population density, two oceans protecting it from invasion, and advanced technology, the stage was set for perpetual success--as long as existing residents didn't get too greedy or selfish. Historically, America's expanding economy has relied on immigrants and treating their children--not the immigrants themselves--fairly so they assimilate and sustain not only productivity growth but retirement programs.  I wrote about this phenomenon earlier:

To summarize, the natural progression of modern successful societies is as follows: industrialization; women receive equal rights; birthrates decline; unions are eventually formed; taxes are increased to support government union jobs [and tax or other benefits primarily accruing to natives]; native-born citizens refuse to do certain work, requiring the importation of poor people; the new immigrants create cultural tensions; and either society adapts and is able to welcome the new immigrants like the United States has done, or it fails to assimilate the new immigrants and begins a slow, steady decline.  

I should have added that an inefficient or outdated education system also requires the importation of skilled immigrants, not just poor ones. Being a bit naive, I never expected so many American voters to conflate giving more money to K-12 schools--no strings attached--with better education ipso facto.  Setting aside voter gullibility, why is a good, practical, and cost-effective education so important these days?

First, a bachelor's degree is required to get on track to get a decent-paying job, even if the skills taught in school confer no practical value.  Yet, in most service-based or knowledge-based careers, people learn on the job--just like they did decades ago, although back then, an apprenticeship might have been just as good as a college degree.  (It's not just K-12 that has issues--I graduated law school not knowing where the courthouse clerk's office was or how to file a complaint in either state or federal court.)

Second, most college-educated people marry other college-educated people.  In fact, the most relevant factors in whether a marriage will last are age (the older, the better, but not after 32) and a bachelor's degree.  What percentage of Americans over the age of 25 do not have bachelor's degrees?  About 68%.

Now check out the second picture at the beginning of this post.  That's $1.2 trillion--yes, trillion with a "t"--in outstanding student loans.  So let's say you're in the lucky 32% with a bachelor's degree.  If you're ambitious and lucky and find a spouse in college and graduate, you could have non-dischargeable debt--debt you can't clear in bankruptcy court--of about $50,000 at the age of 30 and no assets other than a used car.  And still, college degrees are so in demand, my law school now charges $55,000 tuition for a single year.  Whom exactly does this educational set-up help?

It helps the federal government--which receives interest on student loans it issues directly, even ones targeted to lower income students like Perkins Loans; debt collection agencies and lawyers; consumer lawyers to assist against debt collection agencies; banks, which offer private student loans; universities, which are non-profits; and university employees.  It does not help an ambitious child from a hard-working immigrant family who has not had the benefit of asset appreciation during a time when prices for essential items were much lower, and the gap between wages and such prices much narrower.

Cost matters.  For example, a college education costing $5,000 a year with median entry wages at $5/hr is a much different hurdle to jump than one costing $55,000 a year with median entry wages at $15/hr.  At some point, the number of years required to be in debt delays important economic activity, especially the ability to save, which in turn delays the ability to rely on compound interest to build assets and disposable income.

If prices for essential items are increasing faster than wages, and the ticket to getting a higher wage requires $30,000 or more in debt, then without parental, grandparental, and/or scholarship assistance, the virtuous cycle of debt, sacrifice, hard work, and success is no longer available to a broad spectrum of people.  Even for the most well-meaning participants, the process changes from providing valuable solutions or services to getting along with the people in power so you can get into their club--or at least get a scholarship.

When reaching the middle class requires $30,000 to $50,000 in debt--not including opportunity costs--most people will try to find loopholes and exemptions because "gaming the system" appears moral when the default is financial slavery.  Naturally, people will lobby politicians to help, but because the system is so profitable for almost everyone, no politician will try to implement fundamental changes.  Over time, the same problems multiply, such as tuition increases, and eventually the only people doing well are the ones who've convinced the government to give them a loophole, or the ones who've benefited from generational asset inflation and transfers, allowing them to keep up.  Moreover, absent predictable paths to success, cities become hubs of short-term thinking, unable to tame nomads, removing yet another potential check and balance on consolidation of power. In short, the Establishment wins every time, and immigrants and outsiders aren't able to shake up the joint in meaningful ways without being connected to the government's pre-existing objectives.

Welcome to America in 2017: "Here's Charlie facing the fire and there's George hiding in Big Daddy's pocket. And what are you [politicians and vested interests] doing? You're gonna reward [connected, listless] George and destroy [hardworking, middle class] Charlie... Now I have come to the crossroads in my life. I always knew what the right path was. Without exception, I knew. But I never took it. You know why? It was too damn hard."  

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