06/17/10 Laguna Beach, California – The Dow Jones Industrial Average added five points yesterday to close at 10,409 – almost exactly where it closed eleven years ago. Amidst giddy fanfare and high fives, the Dow closed above 10,000 for the very first time on March 29, 1999. One month later, amidst even giddier fanfare and high fives, the Dow closed above 11,000 for the very first time.
The economy was booming, the federal government was running a budget surplus, and Alan Greenspan was becoming an economic demigod. Whenever he wasn’t walking on water – or congratulating himself before Congress – he was pulling just the right monetary levers at just the right time to ensure the nation’s prosperity.
Over in the stock market, therefore, the sky was the limit.
Unfortunately, as the new millennium advanced, the tech stock bubble burst, the housing bubble burst, federal finances deteriorated from hundred-billion dollar surpluses to $1 trillion deficits, and Alan Greenspan’s omnipotence dissolved like the low-budget hologram it had always been.
With the benefit of hindsight, it became obvious that Greenspan’s “benevolent control” over the US economy was a myth. A lie. He was the Munchausen-by-proxy Federal Reserve Chairman – continuously poisoning the economy with recklessly low interest rates, then rushing to its aid with a cocktail of rate hikes and econo-babble, hoping to counteract the ill effects of financial bubbles that he, himself, had nurtured.
Greenspan’s legacy is not the only American myth that is suffering a harsh de-mythologization. Many long-standing perceptions of America’s legendary economic prowess are – How should we say? – “Under review for possible downgrade.”
Many of the most enduring and iconic components of the “American dream” are succumbing to nightmarish realities. The “Land of Opportunity,” for example, has not produced a single net new job in more than a decade. At the end of 1999, 131,402,000 Americans were drawing paychecks. Today, 131,198,000 Americans are drawing paychecks.
Meanwhile, the pride of home ownership has become the shame of mortgage default. As home prices nationwide languish at seven-year lows, an astonishing 14% of mortgage-holders are delinquent or in foreclosure.
What about the value of a college education? Surely, a four-year degree retains the caché and power to elevate aspiring capitalists from the limitations of blue collar labor to the rarefied air of white collar opportunity! Think again.
As we noted in yesterday’s edition of The Daily Reckoning, a college education is “one small part of a vast American myth.” As the US economy continues its non-recovery from the credit debacle of 2008, the dubious utility of a four-year degree is becoming painfully obvious to the nation’s recent college graduates. Unemployment rates for all college graduates – both recent and ancient – have doubled from 2% to 4% during the last year. But this statistic greatly understates the problem because it fails to include the legions of graduates who return to their parent’s houses, apply for the Peace Corps, work at Starbucks or “take a year traveling.”
According to the National Association of Colleges and Employers, more than half of all 2007 college graduates who had applied for a job had received an offer by Graduation Day. In 2008, that percentage tumbled to 26%, and to less than 20% last year. Statistics like these do not inspire confidence in a college degree, but they may have inspired a recent posting at Nakedlaw.avvo.com entitled, “8 Reasons College Tuition is the Next Bubble to Burst.”
Reason #1 is that “tuition is, and has been, increasing at triple the rate of inflation.” Accordingly, therefore, “the number of college students graduating with over $25,000 in student loan debt has [also] tripled in the past decade alone. Today, 66% of students borrow to pay for college, taking on an average of $23,165 in debt. Twelve years ago, 58% borrowed to pay for college, taking on only $13,172 in debt.”
But this “new math” isn’t working as well as the old math. For one thing, as of 2005, a student loan is no longer dischargeable in bankruptcy. (So gone are the days of borrow, default and forget). For another thing, as of 2010, a college degree is no longer an automatic entrée into attractive employment opportunities. As a result of these challenging realities, many young Americans are disdaining the mythological virtues of a college education in favor of tangible paychecks.
“Fed Up With the Economy And White-collar Drudgery,” a recent Washington Post headline declared, “College Grads Turn to Trades.” The story that followed cited several fascinating examples of college graduates who shunned traditional post-collegiate career paths to become electricians or plumbers or whatever else puts dirt under the fingernails.
“Armed with a bachelor’s degree in theology from Notre Dame,” the Post story relates, “Adam Osielski was pondering a route well traveled: law school. He watched his friends work long hours as paralegals while studying law and weighed the all-encompassing commitment. That was five years ago. Today, Osielski, 29, is a journeyman electrician rather than a law firm associate… Osielski is among a small but apparently growing number of the college-educated who are taking up the trades… Ultimately, many earn as much or more as they would in jobs requiring a college degree. Licensed journeymen [plumbers] can expect to be paid $65,000 to $85,000 a year, depending on overtime.”
But even this blue-collar sliver of the American dream provides more nightmares than success stories. “Local apprentice programs, which typically last five years, are swamped with applicants nowadays,” the Post relates. “The electricians’ union program, for example, has 2,500 applications for 100 slots. And nearly 4,000 want to get one of the 300 slots at plumbers and pipe fitters school… Nationwide, 550,000 people are enrolled in registered apprenticeship programs, according to the Labor Department, and the number of students in unregistered programs might be almost as high.
“Brian Jones…studied physics on an academic scholarship to McDaniel College in Westminster, Md.,” the Post continues, “hoping to get a job as an engineer with NASA or an aviation company after he graduated in 2002. He watched friends with lower grades land jobs through family contacts, but he couldn’t find one. Then a friend suggested that he could make as much money as an electrician. He just finished his third year as an apprentice.
“Rateeluck Puvapiromquan, 30, the daughter of two schoolteachers who immigrated to Baltimore…become an electrician when the only jobs she found after graduating from St. Mary’s College in 2001 with a degree in the philosophy of religion were in coffee shops and hotels.”
These non-traditional success stories illustrate very poignantly that the Land of Opportunity is offering fewer opportunities these days. Maybe the legendary American economic engine can dust itself off and resume powering the kinds of entrepreneurial activities that generate significant employment growth and national wealth. But we aren’t holding our breath.
And neither are foreign nationals who obtain post-graduate degrees from American universities. In the recent past, Ninety-two percent of Chinese Ph.D.s in science and engineering would remain in the United States for at least five years after their studies…and 85 percent of Indians.
But according to a recent survey of more than 1,200 foreign-born Ph.D. students, the percentage of Chinese who plan to stay in the US after graduation has tumbled to just 54%, while the number of Indians who expect to remain is only 58%. What’s more, only 7% of Chinese students surveyed and 25% of Indian students believe that the American economy’s best days still lay ahead. But overwhelming majorities of both Indian and Chinese students believe their home countries’ best days still lay ahead.
These survey results do not guarantee that America’s best days are behind her, but neither do these statistics inspire much confidence that America’s best days lie ahead.