What You Should Be Reading - College Grads and Jobs

With the U.S. still not increasing the percentage of those employed, today's reading is about jobs and college graduates.

First, the graph above represents the percent of people employed vs the total population.  Notice how well it's doing during this "recovery," statistically unchanged since it bottomed out during Obama's first term.  If you think its bad news that the percentage of people with jobs never recovered, you're right.  On to some insight on the current situation for college grads.

Kirk McDonald, President of an Ad Tech company in Manhattan, explains why he isn't hiring you, if you are a recent U.S. college grad.

Even CNBC pounces on colleges' failure to disclose how well they prepare graduates for the job market.  If you can't read the full article, here is the money quote:

Indeed, the McKinsey study found that a disturbing one-third of graduates "did not feel college prepared them well for employment."

Leslie Eastman, at College Insurrection, wonders who will take the blame for these grads not getting jobs. 

A repeat, but Walter Russell Mead explains why there will be structural shifts in employment in the coming decade.  This has implications for college grads.  Hint: Don't major in an area that can be outsourced or performed by computers. 

The Big Truth - Investors Create Jobs

A friend on facebook recommended an article and video featuring Nick Hanauer, a highly successful investor, THE BIG LIE: “Rich People Create Jobs”. Hanauer assert that it is not the rich who create jobs, but the "ecosystem," which requires thriving middle class willing to spend money so that investors can get rich. He also says that Amazon.com destroyed more jobs than it created. He is an idiot. Here's why.

The real issue isn't jobs, per se, but new jobs. A few minutes worth of thought or reading a standard economics text would reveal that new jobs can only come from investment. Even a primitive economy that consumed all that it produced would have no wealth available to invest. Imagine a simple agrarian economy with farmers and a blacksmith. The blacksmith makes plows for the farmers, which he sells for food. If he wants to make more plows he has to expand his business by using some of the food to pay those same farmers to build a bigger shed. Perhaps he has an idea for a better plow. He has to spend some of his labor on trying out designs that might not work out. He can only do so if he has enough surplus food that he can temporarily forgo making plows. That means he is investing in new technology. Eventually, if the plow helps the farmers be more productive he can charge a higher price, hire a helper, and the farmers can reap more crops. The local economy grows, but only if consumption is temporarily reduced to fund investment.

In a monetary economy, the investment climate matters. The marginal tax rate change will have an effect on marginal behavior. Nick doesn't understand, he thinks only in terms of a single average investor for which there is a single high rate that will cause him to stop investing. This is a common fallacy in economic argument.

Further, he underestimates the effect of foreign investment and its sensitivity to tax rates. The United States has benefited from foreign investment throughout its entire history. Our freedom and rule of law made this land the place to invest. Raising taxes on profits reduces the foreign investment that is so helpful to us now.

Finally, there is no basis for some of Hanauer's assertion. He said that the share of national income goes to the rich is increasing. This was certainly true up until 2007. However, what would you do about it? I would have a tax system that causes the richest to pay slightly more than their share of income in taxes and everyone else to pay slightly less. It might look like this:


Wait, that is a picture of our current tax system, courtesy of the non-partisan CBO.

Hanauer also rails against middle class suffering due to the spiraling costs of health care and education, coincidentally the two areas of heaviest government involvement. Health care is heavily regulated and subsidized and higher education is heavily subsidized, resulting in a bubble.

As to whether Amazon.com destroyed or created jobs, I can't say for sure, but I am certain that Hanauer isn't taking into account the jobs created by Amazon because:

• They provide a new platform for "storefronts" on Amazon.
• They create greater demand for product manufacturers that sell through Amazon.
• They leave greater disposable income that can be used to buy other stuff in the hands of consumers.

The President's Job Speech

Missed the President's speech last night due to black out conditions in San Diego. But all reports indicate that I wouldn't have been surprised. I was just starting a post before the speech to declare it a failure ahead of time, but fate intervened. Anyway, listening to Mark Steyn substituting for Rush this morning and reading some of the reports, I am left with just a few points.

• Where's the bill? The President, as usual, did no heavy lifting. He demanded that Congress take action, but where is the bill he proposes? Legislation usually requires, well, legislation, as in legal prose.
• Where's the money? Are we really proposing to add almost a half trillion in new debt? The AP fisked the speech moments after it was given: It will only be paid for if a committee he can't control does his bidding, if Congress puts that into law and if leaders in the future -- the ones who will feel the fiscal pinch of his proposals -- don't roll it back. . . .Essentially, the jobs plan is an IOU from a president and lawmakers who may not even be in office down the road when the bills come due.
• Everything is temporary. Temporary tax credits and temporary tax cuts do nothing to encourage new hiring.
  
• Roads and bridges? Really? This worked so well in the first stimulus package. Good luck getting the projects past the increasingly zealous EPA.
• Congress gets the blame for the lack of jobs? Whose party decided that healthcare was more important for the first two years of the administration. Nice tone. Way to encourage Republicans to work with you. Bottom line this was a campaign speech. Now we know Obama's campaign game plan, blame the Republicans.

My sympathies go out to the Republicans who sat through the speech. Like Job, they found that you needn't necessarily sin to be punished.

A Real Jobs Program

With Obama set to address the nation Thursday, we can hopefully have the excuse of the NFL season opener to avoid his joint address to Congress. He'll probably schedule around it, but maybe I won't watch. We know what he'll say already, more temporary tax cuts and bridges. Maybe some more high speed choo-choos and some training programs thrown in. Then he'll demand that we the people force Congress to "do its job" and pass this legislation. Which is really rich, considering that there is no actual legislation and that Obama never does his job of leading. Here is part of an email the President sent me:

Friend --
Today I asked for a joint session of Congress where I will lay out a clear plan to get Americans back to work. Next week, I will deliver the details of the plan and call on lawmakers to pass it.
Whether they will do the job they were elected to do is ultimately up to them.
But both you and I can pressure them to do the right thing. We can send the message that the American people are playing by the rules and meeting their responsibilities -- and it's time for our leaders in Congress to meet theirs.
And we must hold them accountable if they don't.

Of course the right thing is always to pass something, anything so that Obama can claim victory.

We already know that temporary changes to the tax code aren't very productive. People and businesses want to plan for the long term. The reduction in social security taxes has been a disaster, as no one is hiring more people, because they know their long term costs will go up when the tax reprieve is lifted. It has increased the deficit at the same time.

Here's what a real jobs program looks like, and I caveat that any tax code changes have to be permanent. Most of this proposal comes from Jon Huntsman, of all people. Mr. Huntsman is unlikely to ever be a Tea Party favorite, but this is why having a lot of candidates in the race is good for the nation. Looking at his plan from the Tea Party perspective shows a lot to like.

• Streamline the individual tax rates to three brackets — 8%, 14% and 23%.
• Reduce the top corporate tax rate to 25% from 35%.
• Get rid of taxes on capital gains and dividends and eliminating the alternative minimum tax.
• To pay for changes, scrap all the tax breaks, even mortgage interest and municipal bonds.
• Repeal Obamacare.
• Repeal Dodd-Frank. (Codifies "too big to fail.")
  
• Repeal Sarbanes-Oxley.
  
• Reign in excessive regulation at NLRB, FDA, and the EPA.
• Open Alaska and Gulf of Mexico for oil exploration.

This shows why almost any Republican President would be preferable to Obama, Huntsman is certainly not the most conservative or libertarian candidate in the race, but has released a pretty bold proposal.

B-Daddy would add the following

• Liquidate Fannie Mae and Freddie Mac, divest the federal government of responsibility and spin them off into smaller corporations. This would rapidly return the housing market to equilibrium and bring investors.
• Make serious progress on entitlement reform. (Block funding Medicare, raising retirement age, means testing SS and Medicare, etc.) This will let the markets know we are serious about tackling long term issues and restore investor confidence.
  

The picture at the top is a screen capture of the Obama Clock app, available for iPhone. Explanation of the indicators is found here. I am really disappointed it is not on the Android yet.