reason4thehope

Thinking about life, faith and the world.

My Theory of Everything

Despite the content of my initial posts, I don’t actually pass all of my days in a monklike state of spiritual contemplation. I spend plenty of time living and thinking in the here and now. For example, I’ve given much thought to how America came to its current state of dislocation.

Not being a conspiracy theorist, I’m not going to claim some grand, evil design is behind it all. It’s just threads of culture, politics and economics intertwining in an especially unfortunate manner – with no clear way to untie the knot. I could start tracing the interconnections in any number of places, but I’ll start with the entitlement mentality:

Somewhere along the way, as politicians pandered, marketers marketed and capitalists sought to enlarge their fortunes, large numbers of Americans bought into the idea that they were virtually entitled to certain things: a college education, which would lead to a well-paid white-collar job rather than – horrors – manual labor. This in turn would lead to a home in a leafy suburb, stocked with all the gadgets and conveniences human ingenuity could conjure, but at Wal-Mart prices – easy financing available!

First, about the college entitlement: This may come as a shock to some, but not everyone should go to college, nor is college a requirement for a successful, fulfilling, reasonably lucrative career. I would give my eye teeth for the ability to even dabble in plumbing, auto mechanics, carpentry, landscaping (beyond lawn mowing and leaf blowing)…the list goes on. There is real talent in doing these things well, and I would be living in a lean-to and riding a bicycle were it not for the people who provide those services. Not to mention where we would all be without the hands that grow the food and assemble the countless goods that we take for granted. But somewhere, these occupations became the victims of snobbery, plain and simple. We accept the fruits of the labor, but few would wish their own children to pursue these careers.

The devaluation of manual labor left businesses with an urgent need for people to fill the factory and service jobs that were beneath the entitled. The factory part was easy: ship the jobs overseas. Plenty of willing workers, few unions and dirt cheap labor afforded a double bonus: manufacturers could both fill demand and cut costs, placing the goods within reach of more consumers at home.

But a Malaysian can’t remotely cut lawns in Sacramento, gut chickens in Arkansas or clean hotel rooms in New York. Hence America’s love/hate relationship with immigrants, who do necessary work at low cost, but draw on public resources while often paying no taxes. And for those Americans still willing to get their hands dirty, immigration equaled competition for jobs, as it always has. Hence the very ugly and never-ending debate.

Meanwhile, back among the entitled, the quest for the white-collar degree continues. The higher education industry (yes, I called it that) found itself in the ultimate seller’s market: the entitled would pay any price for that degree, whether it made sense or not. Too expensive? The government and the capital markets were happy to step in with grants and loans – lots of loans – to keep the higher ed business humming.

Speaking of debt-funded entitlements, how about that housing market? As with education, no subsidy was too great to give everyone a shot at the American Dream. The government leaned on the lenders in the name of equal housing opportunity, and Wall Street was happy to do its part, cycling the same money through the system again and again as investors snapped up securitized mortgages. Securitization also helped to sustain the student loan market, by the way, helping to keep the higher education market similarly flush with cash.

None of this works without borrowers, however, and when the good ones are used up, and the investors are clamoring for more, what’s left to do but lend to not-so-good borrowers? And then to borrowers who have no business borrowing whatsoever. After all, they’re entitled to their shot at the American dream. And so two massive bubbles grew, housing and higher education, inflated by subsidies and increasingly questionable lending.

We’ve all seen the housing bubble pop. And so millions of borrowers are left with more mortgage debt than they can pay, on homes that aren’t worth what was borrowed to buy them.

What’s less visible, unless you’re paying close attention, is the slow leak in the education bubble. College costs are finally, truly soaring out of reach for millions. Community colleges, a relatively cheap alternative, are booming. A handful of four-year schools are starting to respond with tuition cuts, or are digging into their endowments to keep their institutions affordable. I don’t think education costs will collapse as the housing market did; colleges have been living according to the considerable means they accumulated during the boom years, and they can’t slash their expenses overnight. Public colleges, pinched by state budget crises, are especially hard pressed. But this bubble must slowly deflate, or even many of those who ought to go to college will be priced out.

It’s too late for a lot of college grads who, like regretful home buyers, are left with assets – diplomas – that aren’t worth what was borrowed to pay for them. The difference is, they can’t wait for the market to come back and then sell their diplomas like houses. With luck, the job markets in their chosen fields will recover and provide a way to recoup some of that investment, but perhaps not. And so, many grads are left with degrees ill-suited to the job market of the present, much less the future. We’ve trained an army of white-collar workers for an economy that just may need more of a bluish tint.

Setting all of this straight will depend on a number of things that frankly may not be achievable:

— Our willingness to pay for goods at the cost it takes to make them at home, using fairly paid workers.

— The ability to find such workers among our debt-laden, college-educated, underemployed labor force.

— Perhaps least likely of all, the willingness of even one influential manufacturer to take the lead and start bringing manufacturing jobs back home. It could be done, but one look at Apple’s strategy shows which way the wind is blowing.

Wherever these goods are made, we’ll have to be able to afford them. Buying power will take time to come back as we undergo deleveraging – the painful process of paying off or writing off the mass of bad debt. The only quick way to recovery would be a resumption of irresponsible lending and borrowing to artificially stoke demand. It would be a fragile, ultimately phony recovery.

Lenders get to count loans as assets, on the assumption that they’ll be paid back with interest. Right now, many of those “assets” are as illusory as the equity homeowners had amassed at the peak of the housing bubble. There have been a lot of illusions bought and sold over the past several decades, by consumers and constituents hearing what they wanted to hear, and by sellers and politicians with their eyes on short-term gain. Now, the smoke is clearing and we’re finding out what’s real. Let’s hope we can keep our grip on reality, ugly as it is, and work within it.

Photo: Tom Page

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One thought on “My Theory of Everything

  1. 2btrue on said:

    As a printer, I say, Thank You.

    We didn’t pressure our kids to go to college unless their career choice demanded it. We did encourage further schooling or training as on-the-job is nearly impossible to find these days. Well, my son wants to help people with drug addictions and other problems – as of today, he has his A.A.S for Addictions Counseling and will soon start with Rutgers to further his degree. However, if his desire was to be an auto mechanic, we were not about to tell him he needed a 4 year degree and we would not deny him the opportunity to be what God gifted him to be.

    If you want to be a surgeon, I do not recommend Pennco Tech. But, that school would be excellent if you want to be an auto mechanic, HVAC technician, plumber, electrician, etc. But, to be a doctor, lawyer, teacher – yeah, college is the most recommended route.

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