I caught up with Josh Rosner, New Deal 2.0 contributor and managing director of the independent research consultancy Graham-Fisher, to discuss his ideas about reeducation and job training for the unemployed. His proposals could mean increased global competitiveness for the U.S. economy, national service programs for citizens to give back to the country, and a renewed sense of national purpose.
BC: How did you come to get interested in the subject of educating the unemployed?
I'm a financial services industry analyst; I'm not an education policy analyst. However, most of the past two administrations' stimulus policies demonstrate very little real and sustainable positive economic outcome. Over the weekend, we saw President Obama's announcement of a 100% business tax credit for investment in plant property and equipment, and we saw the proposal of a new infrastructure-building plan. The problem is, if you go and look at the data, US manufacturing capacity utilization is near 40 year lows. Giving tax credits for companies to broadly build new capacity when, in some industries, there's already significant excess capacity, doesn't seem like a very rational approach. What you may need to do is either come up with policies that accelerate the destruction of that excess capacity or, conversely, figure out ways to increase the financial position or wages of populations so that they can, based on income rather than debt, sustainably afford increases in their consumption.
Thus far what we've seen is a strategy that creates artificial and short-term stimulus like the first-time homebuyer tax credit or, on the other side, the investment tax credit. Either temporary, artificial demands for things, like Cash for Clunkers, which doesn't really change the dynamic of the workforce or population, or an increase in the creation of capacity we don't need. What I would propose is we stop and consider that even if we built new manufacturing capacity and the most efficient plants in the world, given a higher cost workforce than so much of the world, manufacturing a car in the U.S. is and likely will remain largely uneconomic. So we must consider the areas where we could gain sustainable advantage in support of higher wages. Theoretically, if we build plants and R&D capabilities for emerging technologies - solar cells, hydrogen cars, alternative energy, biomedical engineering -- maybe that would make sense. But this brings us to the issue of education - even were we to provide business incentives and build the capacity, we don't have a workforce with the necessary training and skills.
A big problem in the economy is that our workforce doesn't have the level of educational and skill attainment necessary to be truly competitive on a global playing field. When I say competitive, I mean enough to compete for skilled jobs that our industrial wages already require. If you were to take the average unskilled worker in the U.S. and look at what he makes relative to the average laborer elsewhere, we're massively uncompetitive. That's going to create a real structural problem for us. So we have to figure out how to transition our workers into higher-skilled areas so they can continue to demand premium wages on a global basis. That's the piece I think that a bold initiative from this administration should focus on - why should we put up barriers to continuing education rather than reduce the barriers and design creative incentives for our population? Just as free primary and secondary school education helped drive the U.S. to a global lead in literacy early in the 20th century, we can support a new competitive push now.
How would I do that? If you are an unemployed auto assembly worker, as an example, and you've been unemployed past your union benefits, past your unemployment benefits, you should have the ability and incentive to go back to the next level of education or training in one of the areas that gets earmarked as an area of need. An area in which we could and should become globally dominant. Think back to 60s. We started creating incentives to be scientists because we were focused on the race to space. And we created incentives and scholarships for students to go into the fields of science and math. We should say similarly, "You are an auto worker without a high school diploma, and if you go back to the next level of school in any of the following areas of need we will offer some significant tuition reimbursement if you attend through a state or community college." It's creating incentives for people to increase educational attainment, which serves the entire country because a more skilled workforce means higher wages going forward. Such an approach also serves to funnel money to communities through the state and community university system, which is a social good and has an immediate impact on communities and state budgets. It will also qualitatively increase competition with private universities and should reduce the increasingly unattainable cost of private education. So I would say during the time you're in that educational program, whether for high school, college, or a masters, you will also be required to work an equal amount of time in a qualified area of need for which we'll pay you. As example, if your unemployment benefits are lapsing, the government will support an extension of your benefits, but you'll have to work a 20 hour work week building bridges, cleaning up the Gulf, in the army corps of engineers, teaching, or whatever public works you are skilled for. In return, we'll give you an appropriate and subsidized loan for 20 hours a week of going to school. After you complete that level of education, if you commit to and maintain a job in that industry for a period of a specified number of years, we will forgive another portion of your student debt.
What we'll end up with, therefore, is a workforce that has increased wage opportunities, increasing global competitiveness as individuals, and benefits to our society. It would result in a reduction of the funding burdens on the states, because the Federal government support will go to local colleges, and a reduction in unemployment levels. In the longer-term, it would increase tax rolls. It will be hard to push back against this because it's workfare, not welfare. It's supportive of the knowledge that we need to fix our infrastructure. It's kind of the GI education bill.
One of the things we forget is that in this country, up until the 1960s generation we had a draft. Doing away with the draft increased the real unemployment rate in the U.S. So maybe we should consider reinstating some sort of compulsory service. It doesn't have to be military, it doesn't have to be holding a gun, but if you serve you will get some benefits, and those should include major education and skill-enhancing benefits. It could also justify a government subsidized mortgage - if you go through the program and give us 20 hours a week building bridges and cleaning up the Gulf, plus going to school, we'll give you an explicitly subsidized 30-year fixed-rate mortgage so you can refinance your existing mortgage. If you don't want to serve, you will get a market rate mortgage, and that real rate is much higher than it actually is today.
These are the paradigm shifts we need to consider in order to build a globally competitive workforce. We continue to be focused on sugar highs: Cash for Clunkers, extending unemployment benefits, the first time homebuyer tax credit, which are all unsustainable. And on the other side tax credits for business, which would be good if they were not across the board but in areas where there's not enough capacity and where we have to be a globally dominant player.
We have to build an educated workforce in order to be a dominant player in a globally high value-add industry. That's the leadership we're looking for. That's the type of change we thought we were getting and what President Obama appears to be forgetting. The Labor Day speech really should have focused on that.
BC: What industries do we need to train people for? Is green energy the right one?
There are clearly people better thought on that answer than I am, but I would think that it's going to be among the highest value-add global industries. It will certainly be alternative energy, biotechnology, medical devices, and information technologies, and there will be domestic industries where people are increasingly finding employment on their own, like eldercare. The real point is education itself. The notion that we should rebuild our traditional manufacturing doesn't make a lot of sense, because at the end of the day even if we build the best cars we can never compete with the low-cost labor that will making those in Korea. We'd all have to take wage cuts. That's not a productive use of money - to give tax credits to build new auto plants. I know the auto union doesn't want to see its membership decline, but for the good of the country they should support workers transitioning to working as hydrogen cell workers, if that's what it is. We really need to transition from a low value-add economy to an intellectual capital economy -- science, research, and high value-add manufacturing and technology.
There is historically a move from a commodity-based economy to an industrial economy, which is the definition of moving from Third World to First. But the truth is we never talk about Second World economies. When I say that, I'm saying there are really two industrial economies. You move from commodities to an industrial economy, i.e. manufacturing, but then you need to move to a science- and research-based and higher value manufacturing economy that can exist within a post-industrial economy. We're being left behind.
BC: What's at stake if this doesn't happen?
There's no question that at this moment we're on our way to becoming a Second or Third World economy. All we're doing now is kicking the can down the road so that the secular decline is hard to recognize as long as whoever is in office is in office - it was Bush kicking the can and now it is Obama kicking the can. That's unfortunate. We don't have a massive redirecting of our economy for a healthy and viable new generation of growth. If no one thinks bold and everyone thinks about short-term sugar highs, everyone tries to kick can down until their term is over. We will have accepted a path not unlike Japan's of slow, agonizing, perpetual decline. So if we don't go down this proactive path, there's no question where we're going.
BC: How is this funded and who pays for this program, the government or the private sector?
It is an investment in our population, our labor force and our future. It will also result in an increased tax base in out years as an increasingly skilled workforce results in higher wage jobs. Most of what we've done in this crisis, from TARP to HAMP to Cash for Clunkers to the ballooning of the Fed's balance sheet by acquisition of troubled assets, is not investment. Look, back to my world of financial services, part of the problem with the rating agencies approach to sovereign credit ratings is that they give countries a single rating tied to a series of retrospective criteria, rather than recognizing that governments are asset managers. I am suggesting that our federal government see our workforce as an asset to manage and our educational infrastructure as an asset to manage. Assets require investment and management or they depreciate. So yes it's spending, but it's an investment rather than being just spending.
Secondly, there's certainly room for business to fund this as well with similar programs and extensions of these program. The auto assembly line, instead of firing people and paying unemployment benefits and COBRA for them, could be given options and credits if they were to reduce those people to 20 hour weeks and offer them a subsidized benefit of a transitional 20 hour a week reeducation program. They could be paying in a portion and the government would match that with a portion, keeping people on the job while they're reeducated.
On top of that, we've got unemployment benefits extenders that now appear to happen every 6 months. Does it make sense to have the unemployed paid to sit on their butt while state governments fire and furlough teachers, firefighters and police? To say that another way, we should require the unemployed to earn their unemployment benefits. If you can't find another job, the only way you'll get those benefits is doing work to build roads, infrastructure, highways, volunteering at a school if you have the educational ability, giving your skills back to society. Reeducate and require service with incentives and disincentives so people aren't perpetually on the government tab. You want them to be able to transition from unemployment to cleaning up the Gulf to another job for which they are not currently skilled. They should be in school the other 20 hours getting trained for something they can find a job in afterwards.
It's largely about once again creating a sense of civics, a national purpose and national unity. We have to understand that the reason we were such a vibrant economy for so long was we were one of innovation, one of educational attainment, and we can do that again. We made it to the moon first for a reason, and it was this sense of a type of investment.
BC: How likely do you think a plan like this is to happen?
Unfortunately, if no one is talking about longer-term investment in out national assets and nobody is thinking creatively, you can be 100% certain it will not occur. What you need to do is at least start a dialogue.
It's sort of the way I feel about the financial services industry. No one talks about the fact that the entire financial underpinning of the economy has been built on workers taking on debt. As an example, the mortgage interest deduction - which is treated like a sacrosanct and inviolable right -- needs to be reconsidered. It actually is a benefit to the lender and not the borrower, as it creates incentives for consumers to take on the obligation of more debt. The only way that a bank can survive is increasing interest income and avoidance of borrower prepayments. They win if you are forever encumbered with such a large amount of debt that you are always able to pay the minimum payment due and never able to prepay more than that amount. That allows the banks to have a stable stream of cash flows.
From a public policy perspective, it has more worrisome implications because it creates an indentured society and the enslavement of an entire society to debt service. We have to frame the public debate as: are you working to build savings, to build equity, so you can start your own business, fund your own retirement, invest for your own prosperity, or are you working so you can pay interest to the banks? This is about a nation of free people versus a nation of financially indentured slaves. We need to reframe the debates; otherwise we continue to walk down the same dangerous road that has brought us to crisis. In February 2009, during his State of the Union Address, the President stood up and stated, "I don't like bailing out the banks any more than you do, but we need to make sure the banks can lend." I wanted to jump through the TV set and scream, "Don't you understand that a banking system that is only viable by the ever-increasing debts of its customer base is not working in the interest of that population?"
Start changing the rules. Replace incentives for you to be more indebted with equity tax credits, tax credits for paying down your principle obligation on your mortgage, for saving, building equity. This is more critical now than ever, as it will reduce the strains on the Treasury's social safety net programs as our largest generation moves to retirement with little savings. Are you for the individual or for the institution? If you're for the individual, let's have a dialogue about how to get the individual to live a life where he has enough savings to say, "I hate this job and I've always dreamed of starting a ‘fill in the blank'." That was the past basis of American vibrancy, the American ideal of the entrepreneur. In a world where we're all slaves to debt service, no one can take the risk of reeducating or becoming an entrepreneur. That's what's killing us.