…it’s the interest, stupid!

By kay.e.strong

That is, the compounding interest rate on student loans—not the debt load per se that’s killing college graduates and the economy!

OWSers got it partially right with their refrain “student debt is too damn high,” but politicians trying to jam the interest rate to 6.8%—double its current rate—are all wrong! 

Student loans weigh in at a hefty $1+ trillion dollars, an amount currently in excess of the collective value of American credit card debt!  A trillion dollars in student loans with compounding interest at rates at or above 6.8% annually!  A banker's dreams, a college graduate's nightmare.

The Minnesota Republican chairing the House Committee on Education and the Workforce has asserted that “[w]e must now choose between allowing interest rates to rise or piling billions of dollars on the backs of taxpayers.” (Source: http://www.nytimes.com/2012/04/20/education/student-loan-interest-rates-loom-as-political-battle.html)

What a simpleton comment…given the billions of taxpayer dollars being doled out to profitable business interests!

Let’s start with the oil industry.  In 2011 oil raked in $4 billion in government subsidies.  What it bought them: historic profits—$80 billion dollars for the three largest U.S. oil companies. Go Big Oil!
(Source: http://www.whitehouse.gov/blog/2012/03/29/repeal-subsidies-oil-companies)

Moving on to the agricultural industry.  Farmers have been milking the taxpayer since 1933. In 2012 farmers pocketed some $5 billion dollars in direct income payments. What it bought us:  “high-fructose corn syrup, factory farming, fast food, a two-soda-a-day habit and its accompanying obesity, the near-demise of family farms, monoculture and a host of other ills.” (Source: Don’t End Agricultural Subsidies, Fix Them)  And that doesn’t even begin to account for the damage that ensues from our dumping of millions of surplus commodities on world markets….bankruptcy of struggling foreign farmers, decimation of their local markets and intensified poverty and widespread global malnutrition.  Let’s add insult to injury: some farmers were actually paid NOT to farm at the tune of another $2.5 billions (2009)!

Student financial aid packages differentiate between subsidized loans awarded on the basis of financial need with interest being charged when repayment begins and unsubsidized loans with capitalized interest accruing from the date of disbursement, i.e., interest compounds during the entire life of the loan. Unsubsidized loans do not require demonstration of need.

Every post-secondary student faces a federal loan limit—both annual and aggregate. For example, a dependent undergraduate student in her first year is limited to $5,500 loan of which no more than $3,500 may be in an interest subsidized Stafford loan. Pit that against the $8,533 average annual pricetag for undergraduate tuition, room and board estimated by the National Center for Education Statistics for 2009-10. (Source: http://nces.ed.gov/fastfacts/display.asp?id=76). How a student meets her remaining educational investment obligation is the student’s problem.Many end up hostage to a commercial loan—an even more untenable situation. An authentic "reverse" Robin Hood ploy—rob from the poorest of the poor, our children, and give to the banking industry—the nation's most recent charity case.

The Congressional Budget Office estimates that freezing the current rate on subsidized Stafford loans at 3.4% will cost $6 billion a year on a program that consistently generates a net profit which is fed into the Pell Grants program to assist low income students.

Contrary to political simpletons, not only should the interest rate not be doubled in July but the government should provide every individual in the country willing to tackle a post-secondary program an interest-free loan! No, better yet, the government can flip the oil and agricultural business subsidies switches off and the human capital investment subsidy switch on.  If we’re going to compete in the world of tomorrow, we need to up our investment ante in our future labor force.

Should Congress find that solution too politically distasteful because it “simply kicks the [wrong] can down the road” then let me advocate another. 

Each year the Federal Reserve, a for-profit entity, voluntarily gives the US Treasury $80 plus billion dollars of its own earnings. As the real steward of the economy, the Federal Reserve is in a prime position to bankroll the educational investment needed to move this nation’s economy into the 21^st century. Allowing post-secondary students to line up for a direct loan from the Federal Reserve is a suggestion with very clear contemporary precedent.

Our nation’s future success in the global economy will be premised on the knowledge wherewithal of our workers.  Tomorrow’s workers must begin investment today.  When the cost to the individual is too high, investment will not occur, making our slide to the bottom a given.  It is in our collective national interest to step up to the plate on this one and make human capital investment our priority #1!   

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Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu

…book a space

By kay.e.strong

Having kicked the idea of a life-time career to the curb (in previous blog), and the rise of “brokers of work,” what more should this generation of undergraduate degree holders expect?  

A rapid expansion of the “contingent” workforce!  Say “good bye” to permanent employment! 

According to Dana Shaw, a Senior Vice President for Staffing Industry Analysts, “Currently, the average mix of contingents in the Fortune 100 is 20-30 percent of the workforce, but it will evolve to 40 to 45 percent of the workforce by 2020 and becoming a majority by 2030.” (Source: The Contingent Workforce and Public Decision Making, Thomas Fisher, 2012)

By definition, a contingent workforce is comprised of non-permanent workers—freelancers, independent professions, consultants, contract workers or accidental entrepreneurs—who work for an organization.  The Bureau of Labor Statistics reports that nearly four out of five employers use some form of nontraditional staffing.  Obviously, the megaforce, TIG, has facilitated the trend toward greater flexible in labor usage by businesses, but so has the growth in knowledge. Companies needing cutting-edge knowledge can purchase discrete units from the most highly-skilled among the contingent workforce.  Having fewer workers on the payroll and no benefit obligation to the contingent worker should make companies lean—more competitive in the global marketplace.  

  

Growing alongside the contingent workforce is a complementary global trend, co-working.  Co-working is a network of loosely joined workspaces that fills the space between working in isolation at home and trudging to the local wified coffee shop.  In essence, co-working implies working alongside, often in collaborating with people you normally would not in “co-working spaces”—think business centers with feng shui!

Co-working began as a social movement to build community, reduce the environmental impact of daily commuting, and lessen worker isolation, according to Steve King, a partner in Emergent Research.  By King’s calculations there are some 760 co-working facilities (2011) up from 405 in 2010.  deskmag reports 1129 coworking spaces worldwide (531 in the US, 467 in Europe) in its 2^nd Global Coworking Survey (2011/12). 

“Their rise [co-working spaces] is fuelled by several things, including technologies such as cloud computing; more women and freelancers in the workforce, which means greater demand for flexible work arrangements; and economic pressure on firms’ property costs. Nor is the trend confined to office workers. An organisation called BioCurious recently opened a community biology lab in California’s Bay Area. Budding chefs share kitchens; communal workshops known as “maker spaces” are springing up too.” (Source: http://www.economist.com/node/21542190)

According to deskmag’s Second Global Coworking Survey, “[t]he average coworker is still 34 years old, and two thirds of them are men – a finding that matches with the First Global Coworking Survey. However, one year later, we find that spaces are attracting more younger and older people. Every twelfth coworker today is over fifty.”

Not surprisingly, the average coworker is compensated well.  “Three out of four coworking space members have a university degree as their minimum qualification. This level of education is extremely high compared to the average population in the surveyed countries. Perhaps this explains their high income. A third of all coworkers report earning above-average wages, when compared to their country’s average income level. 38% of respondents suggested that working in a coworking space directly improved their income – only 2.5% believed their income had decreased since joining.” (Source: http://www.deskmag.com/en/the-members-of-coworking-spaces-survey-203)

More good news for the work refugee of tomorrow. The coworking community has begun to coalesce into an organized professional body.  The community gathered at Austin’s premiere SXSW event last month to talk shop. Raising public awareness, building regional coworking alliances and expanding all kinds of collaborative behaviors (car sharing and cohousing) were hot topics on the second Global Coworking Unconference Conference (GCUC, pronounced “juicy”) agenda.

The future of work is shaping up to be vastly different than the stability of your grandfather’s…twenty-five years standing in the same space, trading loyalty for a yearly pay bump and ending with a company engraved pocket-watch.  

The future of work promises a cornucopia of opportunities for well-disciplined self-starters able to manage ownership of both their time and talent. This is what this generation of undergraduate degree holders should be expecting. 

I wonder…have we dutifully prepared them for their world or just ours?

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Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu

...the Class of 2012

By kay.e.strong

Spring is a most wonderful times of the year—at least for me! Spring brings with it renewal—vibrant flower blooms, tiny green leaf buds, sunnier dispositions, and untainted aspirations from new college graduates.  For the Class of 2012 the National Center for Education Statistics projects 1,781,000 bachelor’s degreed graduates with hope shining in their eye and a promise of reward in their heart.  To each and every one I wish them the best!

But…yup, there is a but.  McKinsey & Company reported that worldwide 200 million people are out of work with 40 million of those in the advanced economies. (Source: Help wanted: The future of work in advanced economies)  And the idea that governments can simply ramp up aggregate demand sufficiently to absorb the unemployed is foolhardy. A megaforce, technology-information-globalization (TIG), has changed the world of work forever.  By enabling a world of costless connection and free flowing information, TIG has refashioned the world to make “right next door” a ubiquitous phenomenon!  So, while our politicians have indulged in fiddling with divvying up the “revenue” pile, TIG has burned the world of work as we once knew it.  

Five trends are shaping the landscape of employment: the impact of technology, the widening skills gap, structural mismatches in geography, growing pools of untapped talent and disparity in income growth, according to McKinsey & Company. Their discussion paper provides sobering evidence that the only way to clear our employment deficit is to institute national policies that address the impact of each of these trends.  

Let’s focus on the first trend.  Technology changes everything. 

The median number of years at a job has plunged from the traditional 20-year career to 4.4 years since the 1970s.  Your parents had careers; you will not! So what does this mean for those caught in the revolving door of disposable jobs?  

First, recognize the certain types of employment have longer staying power. Between 2000 and 2009 five million “interaction” jobs were created, while more than three million production and transaction jobs disappeared (BLS). In essence, interaction jobs require a “human touch”—involving complex problem solving and experience in a specific context. Think social workers or massage therapists. If an algorithm can be set to a job or any portion of it, expect it to be automated…from the inner office to the surgical operating room. This process is known as “off-peopling.”  Machines can and do do it with more precision and less cost. 

Second, purge yourself of the notion of “preparing for a career.” Worker churn is the new reality. TIG gives employers the advantages of shopping the world for the best-in-class skills, not unlike TIG gives shoppers the low-cost shopping experience of world markets.  Workers must mentally prepare for maintaining continuous employment rather than a one-time career.  That bachelor’s degree has limited shelf-life. 

Now, toss in the idea of hyperspecialization. Hyperspecialization is the process of parceling work into smaller and smaller units that are slung to the far corners of the globe for completion.  It’s not all bad news.  Professor Tom Malone of MIT Sloan School of Management argues that hyperspecialization offers workers the promise of choosing their hours and tasks, while companies cost save through better use of their own employees’ time.  To connect workers with work, Malone anticipates the rise of a new class of intermediaries—“brokers of work.” Think temp agencies on steroids that connect companies with tasks to complete to communities of hyperspecialized workers.

“If these niche start-ups can mature into larger-scale and more trusted suppliers of work, hyperspecialization will go mainstream.  They will grow by ratcheting up their worker communities and client bases in tandem, ensuring that the former have ample projects to choose from and the latter have sufficient pools of talent to draw on.”   (Source: The Age of Hyperspecialization in HBR)

So where does that leave the Class of 2012?

As new explorers in an emerging world of work! A world redefined by renewable employment rather than a lifetime career. A world in which flexibility, adaptability and continuous learning are highly rewarded. And a world in which the corners of the globe work shoulder to shoulder.   

What an awesome gift for the Class of 2012!

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Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu

…literally, driving up prices

By kay.e.strong

It’s curious how something as seemingly innocent as a morning-mocha latte-run can be connected to widespread food insecurity, food riots and growing global social instability!

For decades Americans have lived in a fuzzy cocoon of denial, believing that the world’s hunger problems and social unrest belonged to the world’s ineptitude—over breeding, local conflict, poor agricultural infrastructure, over exploitation of the environment—and not our own. 

Last month the New England Complex Systems Institute (NECSI) released a report entitled The Food Crises.  NECSI researchers successfully created a dynamic model fitting the volatility inherent in the UN Food and Agricultural Organization’s (FAO) Food Price Index time series from 2004-2011.  Source: http://necsi.edu/research/social/foodprices/update/index.html

“In 2008 and 2011 increases in global food prices triggered hunger, food riots and social unrest in North Africa, the Middle East, and elsewhere, at a cost to global stability which policy makers can no longer ignore. Over the past decade, world unrest has sharply increased at time of peak food prices; now the long-term price trend is getting close to what used to be episodic peaks.”

NECSI researchers predict the next food price bubble—a year away. “In 2013 we expect prices to be even higher and may lead to major social disruptions," according to Professor Bar-Yam President of NECSI in his remarks on speculation in global commodity markets to the World Economic Forum.

“According to the new study, the next food price peak will take place in about a year. The results will be dramatically higher prices than we have encountered thus far. The study warns that should ethanol production continue to grow according to multiyear trends, even the underlying trend will reach social-crisis levels in just one year.”

The two key drivers behind the rise in food prices are investor speculation—shifting portfolios between commodities, equities and bonds—and the rush to convert corn into fuel ethanol.

Expectations of increased food price volatility over the next decade are tied to stronger linkages between more frequent extreme weather events and between agricultural and energy markets.

The EPA acknowledges that the composition of the atmosphere is being altered as a result of human activities and that the climate is changing. Human-induced climate change has the potential to alter the prevalence and severity of extremes such as heat waves, cold waves, storms, floods and droughts.  And bad weather is key to commodity speculation.  Over this past year, almost every single major agricultural commodity has experienced a dramatic leap in price—with corn futures contracts up 94% since June, soybeans are up 51% since June, and wheat is up 80% since June 2010 (USDA).  FAO food price index for February 2012 reported cereal price index had increased to 227 from 85 in 2000—the year before US energy policy began prompting biomass production (corn ethanol).

Wonder why your consumer dollar buys less at the grocery store?

Thanks to our “alternative energy” policy, primary food commodities once reserved for human and animal consumption are being mainlined into our gas tanks. A refresher for those not “from down on the farm”—corn is used to feed chickens, cows, and pigs, so higher corn prices lead to higher prices for chicken, beef, pork, milk, cheese and any processed food derived from corn—fruit drinks (HFCS), corn oil, gluten, breakfast cereal, breads, tortillas, ice cream, as well as non-food products including aspirin, cough syrup, toothpaste and vitamins. 

Mobility and the Western diet—loosely defined as one high in saturated fats, red meats, ‘empty’ carbohydrates—are the envy of the world!  Four out of seven billion people live in Asia. China with a population of 1.3 billion and economic growth rates of 9-10% annually surpassed Japan in 2010 to become the world’s second largest economy. India has the world’s second largest population (1.2 b.) and annualized economic growth rates on par with China.  By 2015, Brazil (205 m.) and Russia (138 m.) are projected to move into fifth and eighth place among world economies. Growing incomes portend growing demand for meat and automobiles.

Current trends of economic growth and motorization will significantly increase demand for higher efficiency fuels (oil, gas, and electric power). Global energy demand projections from 2008 through 2035 are anticipated to increase by 53 percent, with China and India accounting for half of the growth. US International Energy Outlook expects China and India to consume 31 percent of the world’s energy by 2035, up from 21 percent in 2008. In 2035, Chinese energy demand will exceed that of the United States by 68 percent. Source: http://www.nytimes.com/2011/09/20/business/energy-environment/energy-demand-is-expected-to-rise-53-by-2035.html

The US Energy Information Administration projects that the transportation sector will account for 73 percent of total liquid fuels consumption in 2035. In 2008 eighteen percent of our grain output and 25 percent of the whole corn crop (2009) went to ethanol.  Ethanol production is projected to displace approximately [only!] 12 percent of gasoline demand in 2035 on an energy-equivalent basis. Source: http://www.eia.gov/forecasts/aeo/MT_liquidfuels.cfm

In case you got this far and are still feeling properly smug, economists will remind you: TANSTAFL, even, with ethanol.

That cup-of-joe run now spews formaldehyde into the atmosphere leading to significantly larger photochemical reactivity that generates much more ground level ozone. The Clean Fuels Report comparing fuel emissions shows that ethanol exhaust generates 2.14 times as much ozone as gasoline exhaust.  When added into the custom Localised Pollution Index (LPI) of The Clean Fuels Report, the local pollution (pollution that contributes to smog) is 1.7 on a scale where gasoline is 1.0 and higher numbers signify greater pollution. The California Air Resource Board formalized this issue in 2008 by recognizing control standards for formaldehydes as an emissions control group, much like the conventional NOx and Reactive Organic Gases (ROGs). Source: http://en.wikipedia.org/wiki/Ethanol

Americans constitute less than 5 percent of the world’s population. Yet, we act as though the other 95% do not matter.  Our everyday actions have huge repercussions for every man, woman and child on the planet.  With every passing mile, we literally drive up the cost of life’s most basic necessity, food. 

We’ve learned to “share the road.” Now, let’s move onto learning how to “share the planet”—one less mile at a time!

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Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu