Altering US Demographics, Middle Class Contraction, Faltering Public Schooling and Budding Economic Impediments
A Message From Denis A. Salamone '75, Chair, St. Francis College Board of Trustees
Professor John McCabe has inspired thousands of students at St. Francis College for more than 50 years. His combination of academic credentials, teaching ability and business leadership in the Financial Services industry marries the theoretical and practical into a wonderful learning experience which I have witnessed for almost all of those 50 plus years.
In this article, Professor McCabe delivers a sobering analysis of the decline of the middle class and our economic momentum in America due largely to failing public education and changing demographics. His insights are supported by credible research and are constructed to provoke much-needed discussion on the future of the United States as a global economic and military leader.
I strongly encourage you to read this thoughtful piece as it is a wake-up call to American society and our leaders. I hope we can smell the coffee!
- Board Member, M&T Bank Corp. (2015-present)
- Chairman and CEO, Hudson City Bancorp (2001-2015)
- Partner, PricewaterhouseCoopers (1975-2001)
Demographic Shifts, Middle-Class Compression and Teetering Public Schools Diluting US Labor Pool and Economic Momentum
By Professor John J. McCabe '65
September 7, 2021
The ever-changing demographic and economic profiles of the United States a half-century ago were quite different than today. There were for example,120 million fewer citizens in 1971 than at present. Immigrants comprised just 4% of the entire population. The Black population totaled around 11% and the White population approximately 85%. Moreover, close to 90% of all children under eighteen years of age lived in two-parent households.
The military draft was still in effect. All physically and mentally fit young males between the ages of 18 and 25 were required to serve two full years in the armed forces. Just three television networks—ABC, CBS and NBC—were transmitting America’s daily dosage of national and international news. Sixty-one percent of all households were classified as middle income. Family formations were robust and an enormous number of consumers were putting after-tax income aside to purchase their first color television. A 21inch color console cost around $500 or approximately $3,300 in today’s dollars.
The male dominated US economy in the seventies was beginning to flash signs of cracking. Fortunately, the woman’s liberation movement was picking up a healthy head of steam. Numerous highly regarded all-male colleges and universities such as Duke, Princeton and Harvard University and a bundle of lesser known institutions of higher learning were opening their doors to women. Simultaneously, a growing phalanx of economic pundits were forecasting that the US could not corral the growing inflation menace resulting from President Lyndon Johnson’s massive Great Society government spending program. According to some soothsayers, the harsh impact this costly “guns and butter” program would implant on consumer savings and living costs was so overwhelmingly prohibitive that the United States would forfeit its crown to Japan as the globe’s preeminent industrial democracy.
One of the brightest jewels in the US treasure trove fifty years ago was the nation’s superb public school systems. They were the envy of the industrialized world and where almost ninety percent of America’s youth received their primary and secondary schooling. Around the globe, it was universally but perhaps incorrectly perceived, that US industry would forever be bolstered by a continuous and growing flow of highly productive and talented workers.
Whenever experts gathered to debate and analyze Uncle Sam’s enviable economic dynamics and muscularity, their conclusions invariably centered on three findings. One was and still holds true today, is that the US has been blessed with an abundance of wealth bolstering resources such as land, labor, financial capital, technological innovation and management depth. The second was that these assets have been continuously well nurtured. The third finding, also still accurate, is that the entrepreneurial spirit, creativity and inventiveness exhibited by the country’s hard-charging capitalists is without peer.
Choppy Economic Weather Ahead
Unfortunately, the current economic and demographic radar screens are flashing warning signals that a bevy of turbulent storm clouds are lurking on the not too distant horizon. It is clear that the US consumer dominated economy with a median age of 38.2 years, is hitting the “demographic wall.” Births per female of child bearing age are down to 1.6. Demographers espouse that 2.1 births are needed to avoid population erosion. The birth rate for college educated women is also below replacement and is traditionally less than the national average.
It is no mystery why the center of global economic activity is shifting away from North America and Europe toward the population drenched continent of Asia. The US is not the only well-heeled nation bumping up against population pitfalls. The Group of Seven industrialized democracies account for about 45% of the world’s eighty trillion dollar GDP and yet, not one enjoys a positive replacement ratio. Japan, the third largest global economy with a median age of 48.4 years and a birth rate of just 1.4, is in the most challenging demographic position. Caregivers, police officers, firefighters, military personnel and other critical human resources could soon be in short supply.
Although there are 193 member countries in the United Nations, China and India’s combined citizenship of over 2.8 billion totals a hefty forty percent of world population. India, the most populous democracy on the planet, with its 1.4 billion inhabitants posts a median age of about 25 years. It harbors a tiny but growing sixty million plus middle class. The Indian population should exceed China’s within the next five years.
China, the globe’s second largest economy, generates around eighteen percent of global economic output. It’s fast growing middle class already tops 400 million and dwarfs the entire 331 million US population. However, due to its “One Child Per Family” mandate abolished in 2015, the country is also grappling with managing a rapidly aging population. China’s birth rate is a low 1.5 and its median age is already 35 years. It has been estimated that fewer infants were born last year in China than in any year since 1961, a year the nation endured wide spread starvation.
The inability to reverse the thirty year plus slide in American public school education is dangerously impeding our economy’s ability to reach its maximum economic potential. Without a doubt, this failing coupled with the sad fact that that our most highly educated citizens are becoming a smaller percentage of the overall population could translate into a staggering competitive advantage for China and our other trading partners. India and China already house large numbers of English speaking, technology oriented, education-hungry citizens and are well stacked to fill the void.
As previously noted, throughout the economically difficult 1970’s, many academics and corporate chieftains incorrectly surmised that inflation could not be tamed. Some were predicting that by the turn of the century, Japan and if not Japan, Germany would topple the US and become the world’s foremost industrialized powerhouse. No one forecast a half century ago that by 2030, China would have a fair shot at capturing the number one global economy title.
The rallying cry heard often in the late nineteen seventies was “innovate, automate, emigrate or evaporate.” No question, many labor-intensive jobs migrated abroad, but most highly skilled work and key research and development activities remained stateside. Over the last twenty years however, numerous skilled and unskilled work along with various research and development activities have headed overseas.
In today’s globalized economy, where time and distance have been reduced to the push of an on-button, it is neither illogical nor incorrect for corporate managers to argue that since their businesses operate on a 24/7 schedule, hiring activities must “follow the sun” and be ramped up outside the homeland. Given the prolonged inability to reverse the downward slope in American public school education, it is both imprudent and far too irresistible not to transport jobs abroad. The bottom line benefits in terms of productivity, lower wage costs and worker availability must not be passed-up.
Public Schools Floundering in Reverse Gear Far Too Long
With over half our population under forty years of age, an unacceptable number of youthful Americans have already been stigmatized for having attended substandard public grammar and high schools. Inner-city children along with youngsters residing in high poverty and low income neighborhoods, have been particularly shortchanged. Exactly how many public school graduates and dropouts are chronically unprepared for the expanding “knowledge and information based” jobs of the twenty first century remains an open question.
No one would argue that is easy to put a pair of pants on an elephant. The same holds true when it comes to wrapping our arms around the drooping outcomes in primary and secondary public school education. Innumerable and costly attempts have been initiated over the last thirty years or more to reverse the situation with only minimal quantifiable success. In 1989 for example, when the first President Bush was in the White House and his successor, former President Clinton was Governor of Arkansas both sat on the National Education Goals Panel. This high powered assemblage of political, business and educational leaders put forth a frothy set of education objectives that were to be accomplished by the year 2000 or sooner. Included among the goals were that all children will start school ready to learn, the high school graduation rate would be ninety percent, every student would leave grades four, eight and twelve showing competence in core subjects such as mathematics and reading. On top of this, all schools would be free of drugs, violence and weapons. To date, not one of these objectives have been fully met.
A powerful case can be established that because of limited parental involvement, a dramatically more diverse student population [over 100 different languages and dialects for example, are spoken in the nine hundred thousand student New York City Public School System] and less classroom decorum, the teaching profession today is more challenging and somewhat less appealing to newcomers than a half century ago. Moreover, the current gene pool for future classroom teachers is smaller and not as solid as it was two generations ago.
Only nine percent of all women held a bachelor’s degree fifty years ago. Back then, not many career opportunities were available to college educated women outside of teaching, nursing, publishing and government work. As a consequence, legions of the “best and brightest” female college graduates went into teaching. The three primary areas of concentration for earning a sheep skin for women were education, English and literature. Today, few from the top female academic ranks enter the public school classroom. The military draft was also the law of the land two generations ago and as the Vietnam War build-up commenced, a surge in highly talented young males became public school teachers. By so doing, these newly minted educators were exempted from mandatory military service.
Despite the enormous psychic rewards of working with children and the appeal of making a much needed contribution to society, many college trained young adults who would love to enter the teaching profession are blocked because of economic realities. Two generations ago, career oriented public school teachers had the financial where-with-all to raise a family, purchase a home and save to pay college tuition costs for their own children. Today, runaway home prices alone in many sought after residential communities are out of reach for numerous young teaching professionals with growing families. Half of all Americans have less than a thousand dollars in personal savings. Tacking on other household and family expenses only makes it more discouraging to become a public school teacher.
Sociologists concur and history documents that a nation’s most educated citizens are traditionally the best nourished, the best read and healthiest of all citizens. These fortunate individuals also produce the most educated offspring, garner the most discretionary income and enjoy the highest living standards. Thousands of concerned parents in this grouping, along with other education oriented but not so well-off parents, have abandoned their local public grammar and high schools for private, parochial and charter schools. For some, this has produced an immense financial hardship. Examining the galloping home values in those zip code areas encompassing the most sought after school districts proves the point. Despite one teacher’s union official declaring that it is akin to child abuse, home schooling has surfaced as a fast paced alternative to sending children to sub-par public schools. Over four million youngsters nationwide or roughly seven percent of all school aged children are now being home schooled. Approximately 275,000 youngsters were taught at home in 1990 and under 12,000 in 1971. Still however, around 85% of all US youths attend one of the nation’s 25,000 public schools.
Inner-City, Impoverished and Minority Children Continuously Getting Clipped
Low income, minority and inner-city youths are especially at risk. Upward mobility for many of these children is almost non-existent. Education authorities reason that by the third grade approximately forty percent of minority children, many of whom are also low income and inner city children, read below grade level. The chances these young folks will catch up to grade level by senior year in high school are slight. The probability of dropping out of high school especially for young males, is alarmingly higher.
The National Assessment of Education Progress in 2019 administered proficiency exams in various subject areas to public school students in grades four, eight and twelve. Mathematics, reading, writing, science and history were among the subject areas tested. As has been the case with previous NAEP examinations, the results were disturbing. Just 24% of twelfth graders tested were considered at or above proficiency in mathematics. In science, it was only 21%. Only 26% of eighth graders placed at or above proficiency in writing while 32% did so in reading. A glimmer of hope may have been demonstrated with the fourth graders. Approximately 44% were at or above proficiency in mathematics and 37% in science. In the short to intermediate term, it is clear that not many high school graduates will go on to college in preparation for careers in the STEM fields of science, technology, engineering and mathematics. Perhaps most discouraging was that not one student group scored above 20% in history.
Chicago, the nation’s third largest city, with over 360,000 pupils is home to the nation’s third largest public school system. It spends heavily on education. The city not unlike other major metropolises including New York, Los Angeles, Saint Louis and Philadelphia, has its share of underperforming public schools. Less than thirty percent of Chicago’s fourth graders are proficient or better in either mathematics or reading. Approximately, three out of ten students do not graduate from high school and just about eight percent of high school grads go on to earn a bachelor’s degree within six years of leaving high school. On top of this, the city is in midst of a teacher shortage. According to published reports, one Chicago school district in 2019 spent $10,851 per pupil on instruction alone. Not including instruction, an additional $16,923 per student was spent on operational expenses. From a cost-benefit perspective alone, much work must be done. According to the Chicago Tribune, thirty-nine percent of Chicago public school teachers send their children to non-public schools.
There is no denying that the heavy burden of work, time and financial pressures most single parents carry is huge. Not everything that should be done can possibly get done. Even though it is a good bet for example, that “today’s readers become tomorrow’s leaders,” studies reveal that less than half of all single parents read to their three to five year old's each day. The number of children living with one parent has catapulted skyward over the last half century. About nineteen million children in 2019 were residing in solo parent households up from roughly eight million in 1970. According to Pew Research, the US at almost twenty-five percent, has more children living in solo parent households than any other nation. Approximately, eighty-eight percent of all single parent households are headed by females. Sadly, an insufficient number of all parents not just solo parents, attend public school “parent teacher nights”. One of four solo parents lives below the poverty line.
Females Keep Bringing Home the Bacon
There are over two million more women enrolled in college than men and continues to increase. They outperform males at all levels of education from elementary school to graduate school. Girls are far more likely than boys to earn higher class rankings, receive better grades and win school honors. Their reading and writing scores consistently trump their male counterparts and more females than males take advanced placement tests. Women earn about 57% of all bachelor degrees and outnumber their brothers in medical, veterinary and law schools. Among full time year round workers, women are more likely than men to have earned a bachelor’s degree. Women also carry about two thirds of all student debt outstanding and are more law abiding than their brothers. Females account for just seven percent of the federal prison population and vote in larger numbers. If current trends continue, in thirty years or so, women most likely will comprise the majority of politicians and social leaders in the US.
While women have been hitting the education ball out of the park, their bothers are finding it more difficult to get on base. Boys are more prone to repeat a grade, drop out of high school, get arrested and be placed in “Special Ed” classes. Boys also have a much higher probability than the distaff side of the equation, to be diagnosed with learning disabilities and to be taking behavior modification medication. Considering that it was only in the late1960’s and early 1970’s that many of the nation’s oldest and most renowned colleges and universities among others, began opening their doors to women, the consistent and ever expanding female contributions to labor force enhancement and rising output per hour of work has been exceptional. US living standards could not be where they are today without the surge in female productivity.
Public school teaching is essentially a female dominated profession. About 77% of all classroom teachers and 90% of all primary school teachers are women. Unfortunately, with so many attractive and financially rewarding career opportunities now available to women, enticing females into the teaching profession is a stiff hurdle. Back in the nineteen seventies about thirty percent of college students were education majors. Today, it hovers around ten percent.
There is also no denying that in numerous public school districts, teacher satisfaction has become a human resource nightmare and is in need of a major retooling. Behavioral scientists shout that it is very difficult to satisfy the professional needs of someone without expelling the things that dissatisfy them. There is a growing laundry list of dissatisfaction among teaching professionals at present. Some public school systems have become highly politicized and a growing percentage of classroom teachers counsel their own children not to enter the profession.
There is certainly credibility to the statement that “teaching is the profession that makes all other professions possible.” For some classroom teachers however, teaching has lost some of its luster. Surveys reveal that about twenty percent of all teachers plan to abandon the classroom in three to four years. Over four out of ten exit the profession within the first five years on the job. Moreover, teacher incomes are more a function of length of service than student outcomes. In numerous instances mainly due to union muscle power, underperforming teachers are sent to “rubber rooms” earning full salaries before if and when they are ever dismissed. A growing cadre of classroom teachers also complain that professional advancement is becoming more a function of “who you know not what you know.”
As more females earn undergraduate and advance degrees and embark on intellectually fulfilling and socially rewarding careers, marriage and motherhood get postponed. The typical female marries about age 27. US college educated women however, wait until age 31. Given the biological clock, many college trained women will give birth to only one or two children. If 2.1 births remain the breakeven point and the typical female college grad has under 1.6 children, this enormously productive contingent of the US population is also self-liquidating.
Since the preponderance of the nation’s most highly educated and career oriented females are White, the percentage of the total student population being poor, minority and foreign born will only escalate upward. Educational demographers forecast that within the next decade, sixty percent or more of the country’s twenty-two million college student population will be comprised of immigrants, minorities, children from low income families and products from weak public school systems. By then, if nothing else changes, close to seventy percent of all college students could be female. It is also predictable and supported by the American Association of College Registrars and Admission Officers that college closures, mergers and consolidations are inevitable.
Immigrants Doing Their Part
Between 1982 and this year, US citizens have witnessed the strongest period of wealth creation and capital formation ever recorded. Throughout this elongated time frame, inflation was arrested, monetary and fiscal policy came together and technological innovations roared ahead. The Dow Jones Industrial Average surged over 3,800% and by the year 2000 alone, Uncle Sam had already created more jobs than all of Europe produced throughput the entire twentieth century. It is no secret why with under five percent of the world’s population, the US accomplishes 24% of world economic output.
There is not a chance that middle class Americans could possibly enjoy the suburb living standards they do were it not for the heavy influx of both legal and illegal immigrants. At the bottom end of the economic spectrum, unskilled immigrants are willing to take on the less appealing work that most native born Americans and their children spurn. Lawn and garden maintenance, restaurant kitchen staff, office cleaning, hospital and hotel attendants along with light construction are a few of the job categories that unskilled immigrants gravitate to in droves. According to Pew Research, about half of all immigrants above five years of age are proficient in English.
On the top rung of the economic ladder, the US could not possibly be the technological behemoth it is and own the lion’s share of the world’s technology and technology-related patents, if not for the many mathematics, engineering and science oriented immigrants who were educated on our soil or who migrated here after completing their formal education elsewhere. The sturdy link between patents and prosperity would not be as rock solid as it is if not for legal immigrants. Approximately forty-five percent of all immigrants reside in just three states—California, Texas and Florida.
Thankfully, the US is home to more immigrants than any other country on earth and these new entrants continue to be invaluable contributors to the success of many industries and Silicon Valley in particular. Two of the four microprocessor architects that developed the first Intel 4004 silicon chip in 1971 were immigrants. Over fifty percent of all Silicone Valley startups have been founded by immigrants or children of immigrants. More Silicone Valley workers today were born outside the US than within. Measured by stock market capitalization, of the top five US listed public corporations, Alphabet, the parent of Google, Microsoft and Tesla, are headed by immigrants. The combined market capitalizations of these three tech Goliath's exceeds four trillion dollars and tops the gross domestic product of Germany, the European Union’s largest economy.
To the nation’s benefit, while the majority of native born US college and graduate students shun engineering and the physical sciences, foreign students flock to them. Elon Musk, Tesla’s founder and CEO for example, migrated to the US from South Africa via Canada to study economics and physics at the University of Pennsylvania. He now owns about eighteen percent of Tesla’s common stock and since the first quarter of 2020, this tech titan has witnessed the value of his equity holdings jackknife from $30 billion to over $180 billion. On paper, Elon is the second wealthiest individual in the nation. Amazon Corporation’s founder and former CEO, Jeff Bezos, is number one. Moreover, if Musk achieves the objectives laid out in his current compensation package and agreed upon by Tesla’s board of directors, his wealth could increase by another $55 billion within five years.
A half century ago, about five percent of the US on the books workforce was foreign born. By 2019, it had sailed to over seventeen percent or roughly twenty-eight million workers. Taken into consideration the aging of the baby boomers, the low birth rate of college educated women, the availability of improved birth control techniques, almost one of four US workers could be foreign born within the next ten years. As time progresses and the post Covid-19 world economy garners accelerating velocity, the international competition for highly motivated, self-disciplined immigrants on both the top and lower rungs of the economic ladder will dramatically intensify.
Demographers further surmise that Immigrants and their descendants will account for a whopping eighty-five percent or more of overall US population growth through 2065. Roughly, one million immigrants arrive in the US annually and approximately thirty-seven percent emigrate from only three countries— Mexico, China and India. Demographers further glean that if current trends stay in place, Asians will surpass Hispanics as the largest ethnic group in the US by 2055.
Asian immigrants are a startling twelve times as likely to have graduated college as their non-immigrant counterparts. Fifty-one percent of Chinese immigrants in the US possess a college degree compared to less than ten percent of all adults in China. Children of Chinese immigrants and Vietnamese refugees who have less than a high a school education graduate college at nearly the same rate as their middle class peers. To the benefit of the nation’s economic future, science, healthcare, engineering and entrepreneurship are major career destinations focused on by Asians. In 2019, the American Community Survey revealed that of all ethnic groupings, Indian Americans at $135,705 posted the highest household income. Taiwanese Americans held the second slot at $102,405.
Teacher Union Roadblocks Stifling Competition
Rapid paced, high risk-high reward democratic capitalism as practiced in the US is akin to playing hard serving professional tennis. Other than defaulting, there are essentially just two avenues to defeat. One is to be matched against a more potent and better skilled competitor. The other is a self-inflicted demise. Too many “unforced errors” can deliver victory to the competition. Since there is no more proficient nor potent economic gladiator on this planet than Uncle Sam, the only way the nation can relinquish its superpower status is by inflicting unnecessary harm on itself. Therefore, several questions must be asked, why is neither the private sector nor the public sector putting a full court press on attempting to resuscitate, reform and rejuvenate our underperforming public schools? Why react to a tragedy when it can be anticipated? For how long can the United States remain home to the world’s most renowned and sought after colleges and universities if a galaxy of public feeder schools remain perched on a decline curve?
Jump starting the majority of American citizens to seriously ponder the horrendous social and economic fallout associated with faltering public schools and the dire impact it will have on the country’s human capital has clearly not fully taken hold. Reasons for this shortfall abound. The country’s most privileged, powerful and well-heeled taxpayers for the most part, do not send their children to public schools nor do their offspring become public school teachers. In the country’s most selective colleges, education ranks in the low twenties as the most popular major field of study. In other institutions, education is typically a top ten selection.
Since 1906 just one President, Jimmy Carter, has sent a child to public school. Starting in 1977, the former President’s daughter Amy, was enrolled in the Washington DC public school system throughout her dad’s four years in office. The DC school system by several measures, has much overhauling to do. Former President Obama was the most recent Chief Executive since former President Carter, to have school age children residing in the White House. The Obama’s elected to send their two daughters to a private school.
The well-positioned and gifted hierarchy in the US also prefer cocooning and gated enclaves to local community involvement. Further compounding the education puzzle is that the overwhelming majority of personal wealth resides in the portfolios of Americans fifty-five years of age or older. The offspring for many in this grouping are post school age and their well-established parents have yet to seriously research the education conundrum. In addition, the shortfall in public school education is not a pressing issue for a majority of voting Americans. Heavily funded headline grabbing “Gray Power” issues including Social Security, health care and prescription drug costs overshadow public education. Moreover, the sad fact remains that too few parents of school age children and especially those in low income and minority communities, are sufficiently organized to win constructive change.
The National Education Association [NEA] founded in1857 followed by the American Federation OF Teachers [AFT] born in 1916 are the two largest teacher unions in the land. Their combined membership tallies over three million educators. The members interact daily with over fifty million grammar and high school students. The NEA is also the largest public sector union in the nation and along with the AFT are deeply connected to the Democrat Party. At the margin, in the nation’s one party monopoly blue cities and states, teacher unions pretty much hold the keys to city hall and the governor’s mansion. Annually in many of these locations, teacher unions unleash the largest battalions of the “get out the vote” foot soldiers.
Including outlays for lobbying, NEA alone spends over forty million dollars per annum on political activities. Given that only about seven percent of school funding dollars come from the federal government, publicly funded union dues are primarily directed at state and local office seekers and issues. Teacher union political clout is enormous. Rahm Emmanuel for example, failed to win the Chicago Teacher’s Union endorsement and his reelection bid failed. Antonia Villareigosa expressing some good feelings toward charter schools, lost the political backing of the California Teachers Union and never became mayor of Los Angeles.
To highlight how interwoven the teacher unions are with the Democrat Party, the nation’s teacher population equates with only one percent of the US citizenry and just two percent of entire US workforce. Yet, at last year’s Democratic National Convention, approximately ten percent of the 4,749 delegates were related to teacher unions. Education Next noted that it was “the single largest organizational bloc of Democrat Party Activists.” It has also been reported that ninety-eight percent of all teacher union political contributions and endorsements in 2020 went to Democrat candidates and causes. The number has been above ninety percent since 1995. To boot, just a few days after the Senate approved Miguel Cardona as Secretary of Education in March, he and the First Lady, Jill Biden traveled to the Secretary’s home state of Connecticut to visit public schools. Also on board for the visits was Randi Weingarten, President of the American Federation of Teachers Union.
Were it not for Samuel Gompers and the labor unionization movement that got underway on his watch in the lower east side of Manhattan in1875 with the formation of the Cigar Makers Union, the US middle class would not be the size it is today. In theory, there is no reason for having a union if management is doing its utmost to satisfy the legitimate and proper needs of the workforce. Prior to the Robber Barron Era, the US was essentially an agrarian society with a plethora of small individual family run businesses and farms. Most folks worked either for themselves or on the family farm. As the economy tilted toward evolving into a manufacturing oriented society, workers began migrating to company towns. Once laborers started reporting to hardnosed profit driven capitalists, they quickly discerned that not all bosses and business owners were employee sensitive. Many workers quickly recognized they were being exploited. Gompers knew that “in unity there is strength.” He and his acolytes pushed for better working conditions, less working hours and collective bargaining. They were successful in forming the American Federation of Labor. It later merged with The Congress of Industrial Workers to form the AFL-CIO.
Public school education however, as presently delivered is akin to a government sponsored monopoly. Free market competition does not exist and for the most part, public grammar and high schools have been overtaken by organized labor. Inefficiencies are glaring, innovations are in short supply and student outcomes should be higher. Moreover, politics can override student needs. Teacher unions are particularly powerful in the inner cities where pay is often the highest and student outcomes the lowest. The Reverend Jesse Jackson has questioned the “teachers right to strike for more money when the employer—a tax paying parent—holds the tax receipts in one hand and the test results in the other that proves he is paying more and more for less and less.”
According to the Department of Labor, less than twenty-five percent of teacher union dues are devoted to contract adjustments, grievances and discipline. Over three quarters of revenues however, center on executive and non-executive salaries, overhead, political spending, getting out the vote drives etc. Union big wigs recognize that politicians listen more to them than parents and politicos must be nurtured. Higher salaries, larger education budgets and increased funding are typically front burner issues. More money is currently being spent nationwide on kindergarten through twelfth grade than ever before. Unfortunately, serious challenges promoting competing alternatives to traditional public schooling including vouchers, charter schools, home schooling and direct cash payments to parents have yet to truly be perceived as monopoly crushers. The granite like linkage and interdependence between teacher unions and the Democrat Party coupled with the four-year presidential election cycle implies that little beneficial transformation will soon be forthcoming.
The Golden Era for Public Schooling and Upward Mobility
Almost two and a half centuries ago when the US founding fathers determined that a self-governing constitutional republic was the way this country should be governed, most other nations were run by monarchies, autocrats and despots. Our nation’s early leaders also surmised that public schooling would be a necessary prerequisite for insuring a continuous flow of well-schooled and highly motivated social, political and economic leaders. Public education would also help harvest a highly energized citizenry willing to engage in civic life and protect the rights and freedoms guaranteed by the constitution. Little did they know, this infant democracy with one room school houses would morph into the globe’s most productive and dominant world power. One whose per capita gross national product now tops $63,000. By comparison, China’s per capita GDP hovers around $11,000.
Two of the most significant pieces of federal legislation ever passed occurred within just twelve years of one another. The Serviceman’s Readjustment Act also known as the GI Bill of Rights, was signed into law in 1944 by President Franklin D. Roosevelt, a year before the Japanese surrendered ending World War II. President Dwight D. Eisenhower penned The Federal Highway-Aid Act into law in the summer of 1956. Both legislative actions were enormous human capital propellants resulting in a startling and sustained expansion of the nation’s middle class, a staunch rise in US living standards and a monumental demand for additional learning at all levels. Various historians and economists proclaim it was the halcyon era for public school learning and the “Golden Age of the Middle Class.” United States GDP was two and a half times larger in 1960 than it was in 1945.
World War II was a gargantuan capital and labor intensive conflict that ran on for over four years. Going into the hostility the unemployment rate still reflecting the aftershocks of the Great Depression, totaled about 14%. By 1945, unemployment had plummeted to 2.1%. The annual defense budget slingshotted in 1940 from $1.9 billion to almost $60 billion in1945.A plethora of battle supporting manufacturing facilities were operating around the clock at full capacity. WWII by far, was our nation’s costliest conflagration. The total tab in today’s dollars, comes in around $4.1trillion. If it were not for this confrontation and the Korean War that followed, some economists deduce that it might have taken until the Kennedy Administration before the entire fallout from the Great Depression would have totally dissipated.
FDR was a popular President and had received much credit for the New Deal legislation. He was also up for re-election in 1944 and did not want to be saddled with having over fifteen million soldiers return home from battle without a strategy in place helping to guarantee their financial future. While some troopers would go back to the jobs they held prior to entering the conflict most would not. The GI Bill offered a menu of opportunities that would keep the economy humming including putting the full faith and credit of the country in the form of loan guarantees behind those who wished to purchase a home or start either a business or farm. The legislation also offered comprehensive medical care and panoply of incentives for veterans to improve their skill sets and attain further education.
Human capital received a quantum leap higher with the signing of the G.I. Bill. Over two million veterans galloped to college campuses. By 1947, half of all college students were vets. Between 1940 and1950 bachelor degree holders zoomed up to five hundred thousand from two hundred thousand. Not all college administrators however, were enamored by the demand surge for higher education. The president of the University of Chicago, obviously an elitist, bellowed that “education is not a device for coping with unemployment...colleges and universities will find themselves converted to hobo jungles.”
As a valuable consequence of President Eisenhower’s Federal Highway-Aid Act, the bustling US post war industrial economy along with the accelerating demands for higher education and vocational training gained another turbocharged boost. As consumers became ever more confident in their economic wellbeing, the G.I. Bill launched “baby boom” picked up the pace. More than fifty million infants were born during the Eisenhower Era. New school construction particularly in rapidly developing suburban environments also flipped into high gear. Blue collar worker demand rocketed and in 1954, union membership reached an all-time peak of 34.8%.
Nicknamed Ike, Dwight Eisenhower was a career military professional and retired as a five-star general. He also served as Supreme Commander of the Allied Expeditionary Force in Europe. As Commander in Chief and for a host of reasons, Ike aggressively supported the need for 41,000 thousand miles of interstate highway construction. In the1956 State of the Union Message, he informed Congress that “the country urgently needs a modernized interstate highway system to relieve existing congestions, to provide for expected growth in motor vehicle traffic, to strengthen the nation’s defenses, to reduce the toll of human deaths each year in highway accidents, and promote economic development.”
Same as with the G.I. Bill, growth in productivity, living standards and employment evoked from this monumental public works initiative exceeded almost all expectations. Business and leisure travel became more efficient. Just-in-time inventory management began replacing the costlier just-in-case method. Shopping malls joined the march to suburbia and were marketed as “a downtown away from downtown.” Furthermore, workers were able to reside closer to home and police, fire and other first responders could get to emergencies at a faster clip. The high school graduation rate continued advancing and topped sixty-five percent in 1960. College enrollments also flourished as citizens become more aware of the lifelong monetary and quality of life benefits of a college education.
Inflation Crimps Economic Progress and Upward Mobility
With annual GDP averaging a healthy 4.4%, American prosperity and living standards throughout the 1960s continued on ascending trajectories. Sadly, although high school graduation rates and college enrollments continued to rise, runaway wealth impinging inflation blanketed the nation throughout the1970s into the early 1980s. It was to a large degree, a consequence of the Great Society’s frothy “guns and butter” spending outlays along with hikes in crude oil and refined product prices. It took a major toll on the economy. Consumer purchasing power, consumption, and savings all suffered. Unemployment rose, wealth building slowed as the term “stagflation” entered the economic lexicon. Inflation was no match for the Dow Jones Industrial Average. The index could only manage a paltry 1.2% average annual gain for the eighteen years from 1963 to 1981.
Capitalism performs its best magic when inflation is subdued, consumer confidence is high and the economy is operating at optimum capacity. President Carter toward the end of his presidency was grappling with the Iranian Hostage Crisis and double digit inflation. Somewhat flabbergasted and without concrete solutions for either the troubled economy or the boiling international firestorm did not exude voter confidence by announcing that the US was stuck in a “national malaise.”
One superlative economic move former President Carter made in 1979 was the proposing of Paul Volcker to become Chairman of the Federal Reserve Board. Volcker was a highly regarded financial and economic executive known to both Democrats and Republicans alike. During the 1980 presidential election, the consumer price index peaked at 14.8% and candidate Ronald Reagan shrewdly let it be known if he was elected, he might want to keep Chairman Volcker on the job.
Soon after the Reagan victory and the announcement that Paul Volcker was staying in place both men met to discuss the horrendous inflationary environment. Given that the Republicans controlled the Senate and the Democrats held the majority in the House of Representatives, Volcker informed Reagan that he had little faith that any fiscal policy legislation passed by the Congress would be sufficient enough to cram the inflation genie back into the bottle. Bold monetary policy initiatives had to be the solution. The President agreed.
Volcker recognized that the quickest and most assured way to flush the excess borrowing and speculation out of the system and also give some modest relief to savers was to immediately invoke an oppressively tight monetary policy. The Fed funds rate was pushed up to 20%. The prime rate of interest skyrocketed to an all-time high of 21.5% as did the fixed thirty-year mortgage rate at 18.63%. On the downside, the economy slumped into an abysmal fifteen-month long recession with the unemployment rate topping out at a debilitating 10.8%. The strategy worked. By 1983, inflation already had fallen back to 3.8% and for the last thirty-eight years the CPI has averaged a non-threatening 2.5%.
Wealth and Income Gaps Are Unacceptably Wide
Ever since the 1983 inflation squashing, the consumer drenched US cyclical economy has been operating in a classic textbook fashion. Despite battling three recessions including the eighteenth month long Great Recession, the worst downturn since the Great Depression, the US economy has delivered the strongest period of wealth appreciation and capital formation ever recorded. GDP zoomed in 2020 for example, to $20.9 trillion from $3.6 trillion while the workforce advanced to over 160 million from approximately 87 million. Median family income rose handsomely from $24,580 to $78,500. Hard assets also perform well in low inflationary environments. According to Zillow.com, median US home values currently hover around $269,000 or over three and a half times greater than in 1983. The ninety percent high school graduation rate is at an all-time peak and higher education demand has been on an uptick. Slightly under eleven million students thirty-four years old or younger were enrolled in college in the Fall of1983. Last Fall, nineteen point seven million students were matriculated.
Finance professors like to shock their students by proclaiming “there are two types of people in this world. Those who work for their money and those who have their money working for them. It’s best for you to get into the second grouping.” Some also stimulate the thought process by expounding that capitalism is a “loser’s game.” A loser’s contest in the sense that if one cuts their loses, the momentum of the competitive free market system can still help guide them to the winner’s circle. Risks and rewards however, are obviously not evenly distributed in a competitive capitalistic society. Some people were born on third base and others have whale of a time just getting into the batter’s box. Eighty percent of the wealth in the country was created by hard working capitalists. Twenty percent has been inherited.
Even though the nation’s drawn out macro-economic performance results have been spellbinding, wealth and income advancement has been progressively concentrated in the hands of a few. The middle class has been losing ground. Adjusted for inflation, hordes of working class and lower income citizens who do not have any money working for them, have not enjoyed a healthy bump up in wages in over twenty years. The middle class compression in large measure, results from the fact that many individuals in the higher income range of this tier have put their investment dollars efficiently to work. Long term investments in common stocks, residential and commercial real estate and other risk assets have handsomely escalated in value. Many wealth enriched citizens in the upper middle income bracket have already marched into the upper income bracket. Simultaneously, upward mobility has slowed and the American Dream has diminished for legions of financially insecure workers in the bottom of the income distribution. Fewer of these breadwinners have climbed into the middle income bracket than those who sailed into the upper income bracket.
According to Pew Research and based on 2020 annual income, fifty-two percent of US households comprise the middle class. Approximately, 42.6% of the128 million US households that encompass the lower income bracket have annual incomes of $49,999 or less. Upper income households account for 10.6% of all households with yearly incomes of at least $200,000. Given the monumental rise in personal income and wealth within the last forty years for the top decile of all households, mathematical averages alone no longer paint a clear picture of household wealth. The top one percent of wage earners for example, amass roughly twenty percent of all take home pay. The peak one percent of households reaps around fifteen times the combined wealth of the bottom fifty percent. Furthermore, according to the Federal Reserve, the top decile of equity investors clinches over eighty-five percent of all common stock. A more vivid example of the bounce in wealth for the top earners is that the average net worth for a citizen in the 55-64 age category amounts to $1,175,900 yet, the median net worth is just $212,500. Two thirds of household wealth is generated from home ownership.
An unacceptable number of workers continue to languish at the lower margins of the economy. Almost thirteen percent of all households currently struggle at or below the poverty line. Another twenty-five million or so, amounting to roughly twenty percent, are considered low income. Despite being the most robust wealth construction and prosperity launching power train on the planet, the bottom fifty percent of all US families possess less than three percent of total household wealth. On top of this, net worth for the bottom quarter of the population is less than seven hundred dollars. By the same token, approximately two thirds of all private industry workers have access to an employer provided retirement savings plan such as a 401k or 403b. Sadly however, only half of all eligible employees participate.
It is foolhardy to surmise that fixing the failures of the nation’s public school apparatus alone is a panacea for healing the debilitating wealth and income gaps. It is no mystery according to historian Rutgers Bergman that poor people “borrow more, save less, smoke more, exercise less, drink more and eat less healthy” than others. Typically, these unfortunate citizens also suffer the most throughout economic downturns and benefit the least during upswings. Some in this framework still have not fully recovered from the Great Recession and have also been molested by the Covid-19 reversal. Spiraling housing, healthcare and education outlays coupled with uncertain job security, have made it ever more challenging for struggling families and the working poor to enter the middle income populace and believe in the American Dream. The Economic Innovation Group reports that the number of high poverty US neighborhoods many of which include a large number of deficient public schools, more than doubled between1980 and 2018. Sixty-nine percent of the neighborhoods dubbed high poverty in 1980 are still identified as such. Moving lower income families into the middle class presents the added benefit of placing their offspring in better performing public schools.
Some Sunlight Ahead!
Winston Churchill is famous for espousing “the inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries. “For the last forty years the clear beneficiaries of capitalism have been older more highly educated Americans with money to invest along with large capitalization public corporations and their equity holders. Since the ending of the Great Recession in 2009, home values have increased almost fifty percent. Even though the harsh downturn’s gingerly paced recovery was the slowest since World War II, the last dozen years have been extraordinarily rewarding for common stock investors. As measured by the Dow Jones Industrial Average, common equities are up over four hundred and fifty percent since the March 2009 bottom.
For many of the 72 million millennials born between 1981 and 1996, the largest and most diverse component of the US workforce, capitalism has not done the trick. Average hourly wages have hardly budged in the past twenty years. Adjusted for inflation, the bottom sixty percent of college graduates are earning less than the group in 2000. Two in five hourly workers between twenty-six and thirty-two years of age get to know their work schedule less than a week in advance.
This the largest living adult generation might be the unluckiest of all generations. Over the last two decades, certain millennials have incurred meaningful payroll shocks associated not only with the Great Recession but also Covid-19 and the Dot-Com reversal. It is not terribly stunning that a substantial number of millennials believe their living standards will not match those of their parents nor will their job status. A recent Gallop Poll revealed that enthusiasm for socialism is on the rise among younger Americans.
The 1990-1991 Gulf War Recession, the 2000-2001 Dot-Com Recession and the 2007-2009 Great Recession were all high unemployment downturns saddled with hefty consumer retrenchment only to be followed by recoveries burdened with minor improvements in real wages. Given the unprecedented nature of the Covid-19 pullback and its rapid recovery, time is needed for the National Bureau of Economic Research to define the true boundaries for this unparalleled downturn. By the fourth quarter of this year, the time range surrounding this downturn should be officially documented.
One common definition for an economic recession is “two back to back quarters of negative GDP growth.” In the second quarter of 2020, the economy was shut down by government mandate for non-economic reasons and millions of consumers moved into home lockdown mode. GDP on an annualized basis, weathered an historic and unprecedented single quarter plunge of 32.9%. Only to be followed by a compelling atypical brisk 33.1% recovery in the third quarter. Full year 2020 GDP however, sank by 3.5%.
Assuming Covid-19 deaths continue to fall, vaccinations remain on the upswing and if the virus does not return, economic momentum is strongly positioned to ramp up well into next year and perhaps beyond. Trillions of stimulus dollars have already been pumped into the system and the personal savings rate is far above normal. Rising consumer confidence combined with excessive lockdown spawned pent up demand for products and services point to beefy economic progress. The low cost of debt and equity capital only adds to the positive momentum.
Prior to the pandemic, the slow paced recovery of The Great Recession had been picking up an accelerating tailwind. Durable goods demand was advancing, capital expenditure programs were expanding, consumer confidence was uplifting and the unemployment rate was bouncing around a fifty-year low of three and a half percent. Few signs of overspending, over borrowing and outlandish speculation were flashing. All are signals that typically point to an oncoming recession.
Free market capitalism does not promote equality of opportunity. It does however, allocate resources far better than government planners and stimulates risk taking. In capitalist societies the law of supply and demand is the primary determinant of resource allocation. This competitive mechanism rather consistently leads to growing profitability, new product innovation, private sector efficiency and improved living standards.
Due essentially to globalization and a cluster of technological innovations, the US labor supply has exceeded demand for decades. As a consequence, some employers have incorrectly viewed labor simply as an easy to acquire expense item that appears on the income statement. Labor was not perceived as a fixed asset that had to be nurtured and given room to expand. With only six percent of the private sector workforce unionized, labor has only minimal negotiation wiggle room. Fortunately, signs are now flashing that the bond between employers and employees is bending in favor of the workforce.
One can argue whether or not demography is destiny but one thing is for sure, population growth in 2020 for the first time in US history turned negative for Americans between 20 and 64 years of age. If the assumptions presented above hold true and infrastructure improvement legislation is passed by Congress and signed into law by the President, labor could mutate into an expanding and demanding sellers’ market. The aging US workforce from 2000 to last year grew annually by less than one percent. For the rest of this decade, it is projected that the annual growth rate will be less than one half of one percent. During the Golden Era of American Capitalism which ran from 1945 through the early 1970’s, annual GDP growth was averaging around three percent. The workforce was expanding around one percent annually and labor productivity about two percent.
Going forward, as corporations and other business entities formulate their strategic plans and reflect on human resource requirements, it should become ever more noticeable that the employee base is the organization’s most crucial long term asset. A resource that must be nurtured, assuaged and rewarded. The US economy’s momentum is coming close to where it was prior to the onset of the pandemic. As the burgeoning post Covid-19 global goods and services demands put further pressure on the available labor pool, the price tag for replacing productive employees could become excruciatingly higher than current outlays. By the same token, even though higher wages fatten consumer wallets, during mounting labor shortages better take home pay alone may not be sufficient to keep workers on the job.
History confirms that during prolonged periods of economic prosperity, particularly when labor has a firm seat at the table, quality of life issues are negotiated, wealth and income gaps dwindle and middle income household wealth expands. Getting into the middle income category affords many citizens the wherewithal to buy a home, typically their first wealth appreciating asset purchase. The value of human capital also gains ground as workers move into the middle class. Aristotle postulated “the most perfect political community is one in which the middle class is in control and outnumbers both the other classes.” The middle class is the circle that drives the economy. Its inhabitants strive to improve their lot in life and take on the investment risks required to achieve topmost success. Upper income households have already achieved meaningful investment accomplishments and for the most part, have less motivation in assuming greater risk.
Transferring to the New Normal
Hourly workers account for over half of the US workforce. One glaring outcome emanating from the pandemic is a keen awareness of how undervalued and essential legions of poorly paid workers are to the nation. Especially, those with daily face to face contact with the public. The same is true for those blue collar and skilled workers who keep our homes warm, safe and dry. The US now finds itself with over ten million job openings. A staggering one million alone are concentrated in manufacturing and construction. Furthermore, according to the Wall Street Journal, the number of workers quitting their jobs is the highest in two decades. Some have made the best of the lockdown experience and given the favorable returns in the equity and real estate markets over the last decade have chosen to exit the workforce entirely. Others are entering retirement out of fear of catching the virus.
Clearly politics can be messy, inefficient and illogical. The barrage of stimulus money poured into the economy over the last fifteen months has added, at least temporarily, to the worker deficit. Some previously employed nine-to-fivers have been unattached from the labor pool for over fifteen months and are still receiving more in unemployment payments and other pandemic related benefits than if they were working. The Committee to Unleash Prosperity revealed in a recent study that in twenty-one states and the District of Columbia, households can receive the wage equivalent of $25 an hour in benefits with no one working. If two parents are unemployed, in nineteen states the benefits are tantamount to $100,000 a year for a family of four. Median household income in the US totals approximately $78,500.
No one can repeal the law of supply and demand and no one recognizes this fact more than practicing capitalists. Employees are gaining the upper hand and have more leverage in negotiating compensation packages. A recent survey conducted by Morning Consult for the Prudential Insurance Company, disclosed that over twenty-five percent of all workers and thirty-four percent of millennials are planning to search for new jobs as the pandemic subsides.
Workers are manifestly moving into position not just to gain wage and salary hikes but also better control over home life and work life. Although the “all clear” has not been sounded, the economy’s reopening is underway. Employers do not want to lose stride with the recovery and surrender market share to competitors as a result of unfilled job openings.
Assuming no economic implosions nor nasty systemic developments, the rising worker shortage could last for quite some time. Moreover, a swarm of demographers are signaling that a “gray tsunami” is on the way. The seventy-three million baby boomers many of whom are millennial parents, will be almost fully retired by the end of the decade. Although beyond their peak spending years, this aging cluster of citizens born between 1946 and 1964, remains the wealthiest, most active, most driven and most competitive of all generations. Boomers comprise about thirty-three percent of total households and have a solid grip on fifty-seven percent of household net worth. Millennials are the largest, most diverse and most educated of all generations and account for around thirty percent of all households. At only five percent, they report a small sliver of household net worth relative to the boomers. The median net worth for a millennial age 34 or younger is just below $14,000. For millennials between 35 and 44, the number leaps to slightly over $91,000.
An Inverted Population Pyramid
Longer life spans and lower replacement birth rates are the two prerequisites necessary to being labeled an aging population. The United States has been classified as such for quite some time. The situation from a consumer led economy prospective however, is getting closer to the critical stage. In 2010 for example, for every twenty 65 and older Americans, there were one hundred 15 to 64-year-old working age citizens. Last year at twenty-six, the number per hundred working age citizens was thirty percent higher. Demographers now predict that by 2038, there will be more than another thirty percent hike in the number of 65 plus seniors per one hundred working age citizens.
Unless a gigantic spike in the fertility ratio materializes or a huge immigration influx unfolds, it is a given that there will be an insufficient number of workforce replacements to offset the full retirement of the baby boom generation. For the past six consecutive years births were below the prior year. Last year, the replacement birth ratio sunk to a record low of 1.6. Back in the 1950’s, the decade in which the majority of the baby boomers were born, the ratio averaged a robust 3.6 births.
Rising life expectancy bestows an abundance of social and economic advantages on a nation. Deeper family bonds, more volunteering, higher educational attainment, strong emphasis on experience and improved mentorships for younger citizens to list a few. On the downside, pension and health care costs expand, alterations in consumption, savings and investment patterns surface as does possible shortfalls in productivity and economic growth. By 2035, there will be over seventy-eight million Americans aged 65 and older up from fifty-six million currently. By then, the US senior citizen population will outnumber dwellers eighteen years old or younger.
Strides in technology, medical care, diet, pharmaceuticals and healthier life styles constitute key longevity catalysts. The fastest flourishing segment within the senior citizen population are the 85 and older participants. This group should triple in size to nineteen million within the next thirty years. In 2000, fifty thousand centenarians were residing in the US. Over ninety-seven thousand are on board today and should approach four hundred thousand by mid-century.
The pressure on government to provide adequate resources for the elderly in general and Medicare and Social Security in particular, will only magnify. Social Security is a “pay-as-you-go’ entitlement whose viability is dependent on a growing workforce. The system needs 2.8 workers which is where it is presently, contributing to the fund to match the dollar value of benefits currently being paid out to over sixty million recipients. Ten thousand baby boomers turn 65 each day and by 2035 the worker to beneficiary ratio will descend to 2.3. By 2030, the average American will be older than what the average Floridian is today.
The roughly sixty-five million Generation X contingent has been labeled the “sandwich generation” and sometimes the “latch key generation.” Sandwich generation because they are wedged in between the millennial and the baby boom generations. Their arrival on the scene between 1965 and 1984 coincided with women entering the work force and a doubling of the divorce rate. Numerous “latch key” children were left to supervise themselves upon leaving school daily until their parents returned home from work. Many X’s are currently in the middle of their working years and are approaching peak earnings. Just like the millennials they also suffered through the dot-com bust and the Great Recession. Unfortunately, this generation possesses the highest average debt of all generations. Most of the indebtedness centers on mortgage, automobile, credit card and children’s college tuition loans. Sadly, these incumbents are also not as well prepared for their retirement years as the baby boomers were at the same age. Boomers, millennials and X’s comprise over ninety percent of the workforce.
Burdened with declining fertility, a shrinking workforce and a ballooning retirement congregation all indicate that the contour of the US population resembles an inverted pyramid. An inversion that portends inevitable alterations in a heavily dominated consumer economy. Unless changes are implemented, fewer births eventually lead to decreased consumption, stalling productivity and minor growth in living standards. Moreover, as older citizens enter the retirement phase of life, one that could last thirty years or more, a portion of their consumption needs must be sustained by younger workforce participants. The National Institute for Retirement Security reported in 2020 for example, that “a plurality of older Americans, 40.2 percent, only receive income from Social Security in retirement.”
Considering the reshaping US population dynamics and the pressures to be placed on the after tax income of working age families, it is becoming more apparent that the private sector whether it be on a solo basis or through public private partnerships, will be playing a more substantial role in delivering health care and retirement fringe benefits. Government outlays in 2019, the last full year before Covid-19 expenses began to mount already totaled a substantial twenty percent of GDP. If the federal government, through higher taxation, increased regulation and additional borrowing, financed the oncoming surge in costs associated with Social Security, Medicare and other government assistance programs, without private sector support, it could rattle the capital markets. Fear of rising budget deficits, higher interest rates and a weaker US dollar would drain investor confidence.
The demand for talent is already heating up. Fortunately, more and more employers are on top of the situation and have begun rethinking their human resource strategies relevant to attracting, motivating, training, compensating, rewarding and maintaining a highly productive low turnover workforce. Although not yet at the “what can you do for me” phase, customizing compensation packages for individual workers not just senior officials, is becoming more commonplace. Unpaid days off, tuition refund programs, flexible scheduling, remote work and health insurance preferences are popular negotiating elements. Some employers are also reviewing whether a four-year college degree is vital or not for various job descriptions. Others are offering employment to individuals with no prior work experience. Furthermore, gig and hourly workers have become talent targets for a variety of corporations while teaching English onsite is an ascending fringe benefit.
The challenges lackadaisical fertility poses for Uncle Sam whose $22 trillion GDP is seventy percent linked to consumer spending are disproportionate and complicated. Trying to compensate for reduced productivity and less workforce participation without hampering living standards is formidable. The urgency placed on further technological innovations, enhancements and transformations to gin up productivity is paramount. GDP growth during the “The Golden Era of Capitalism” was compounding around three percent annually, meaning that living standards could double within a quarter century. If the compound growth of GDP was to falter to one percent, it would take over seventy years to enjoy a doubling in living standards.
Looking forward, the direction of US prosperity is a “Good News, Bad News” narrative. The positive news centers on the bevy of burgeoning middle class consumers now ensconced in various population soaked emerging markets. Total population within the emerging world is estimated at six billion. Moreover, such countries as India, China, Indonesia and Nigeria are far too dependent on the cyclicality and volatility associated with the exportation of commodities and other products. More GDP diversification toward consumer consumption is needed. The flourishing middle class populations in these countries concur and are pressing for higher living standards. These demanding consumers long for many of the products and services produced by the Group of Seven and other industrialized nations. Surveys continue to reveal that when emerging country middle class citizens are polled as to which nation’s way of life they wish to emulate the US is always near or at the top of the list. Net exports account for roughly eleven percent of US GDP. In the near to intermediate term, export growth should be sufficient to balance out any short fall in consumer demand. Obviously, the quicker the emerging world chalks up economic advancement, the better it is for US living standards.
Time for Action!
Political self-interest is perhaps the most daunting impediment swarming around the United States wherewithal to effectively adapt to the realities that accompany an extended fertility drought and simultaneously, maintain its position as the globe’s sole superpower. When a nation runs low on births, it also runs low on consumers. Not to mention the burdens placed on the existing workforce to be more productive. To boot, tensions on the country’s educational apparatus to continually assemble, cultivate and produce top notch human capital becomes ever more compelling.
The culmination of the middle class “golden era” a half century ago, coincided with the upsurge in living costs and the disruption of living standards linked to the 1970’s wealth depleting runaway inflation. Something else began permeating American society around the same time. The long standing intergenerational legacy of bequeathing a value packed public school education from one generation to the next started to tread water. Public school education while still a generational predictor has clearly become much less treasured. With so many students cemented in underperforming public schools, it can no longer be truly recognized as a passport to the middle class.
Self-crippling wounds reeling around academic curriculums are putting the nation at risk. In this highly competitive global economy, China harboring a population almost five times larger than the US, is challenging Uncle Sam for military, economic and technological superiority. Illustrations flourish evidencing a noxious watering down of academic standards. Princeton University for example, is no longer requiring Greek or Latin when majoring in the classics. California has eliminated advanced mathematics courses until the eleventh grade. In Chicago, where the majority of public school students are not proficient in mathematics, questions relating to mathematics on various teacher certification and licensing examinations have been reduced or eliminated. The state of Oregon’s Education Department has deduced that math instruction “places too much emphasis on the right answer.” Mediocrity is not an economic propellant.
Why reduce the rewards of self-discipline, hard work, open debate and the search for truth? A decade from now when most of the baby boom generation will be retired, the inverted US population pyramid could be dangerously top heavy. Also, the caliber of our labor force bench strength ten years down road remains an open question. Human capital is the driving force that boosts innovation, augments productivity and sparks entrepreneurship. It is also the most essential element for attracting the necessary financial capital compulsory to stimulate long term fixed asset investment and expedite economic growth.
Not long ago, a task force sponsored by the Council On Foreign Relations headed by former Secretary of State Condoleezza Rice and Joel I. Klein, former New York City Chancellor of Education entitled: U.S. Education Reform and National Security, concluded that “The United States failure to educate its students leaves them unprepared to compete and threatens the country’s ability to thrive in a global economy and maintain its leadership role.” It also surmised that “The large undereducated swaths of the population damage the ability of the United States to physically defend itself, protect its secure information, conduct diplomacy and grow its economy.” The task went on to deem that “human capital will determine power in the current century, and the failure to produce the capital will undermine America’s security.”
The task force did not pull any punches and chastised the country’s political leadership at all levels both past and present, for not issuing an “all hands on deck” order to solve the multi decade long education fiasco. While recognizing the US has a healthy quotient of well performing public grammar and high schools, task force members identified several shortfalls that demanded immediate attention. More than twenty-five percent of high school students and close to forty percent of Hispanic and African American students fail to graduate from high school in four years was one. According to the College Board, just forty-three percent of college bound high school seniors meet college-ready standards was another. Two additional disheartening facts presented by the education group Act were that only twenty-two percent of incoming college students meet college-ready standards in all their core subjects and the second, even though the United States is a country of immigrants only two out of ten Americans speak a second language.
With the public school education monopoly being controlled by the teacher unions with political cover, the assemblers maintain far more control over the finished product than parents and students. Eliminating potential competitors, cajoling their benefactors and reinforcing job security can take precedence over student development. We will never know how many poor and underprivileged graduates and dropouts of underperforming public schools would have been the first one in their family to graduate college or become a licensed plumber, welder or electrician were it not for the luck of the draw of being assigned to a deadbeat public school. The same holds true for some who wound up in the criminal justice system or became wards of the state.
We all can agree that “the mind is a terrible thing to waste.” Yet, going on for almost a half century, the world’s sole surviving superpower has not been able to find the necessary blueprint to bring quality schooling back to the exhaled status it once held. “An investment in knowledge pays the best interest” - Benjamin Franklin.
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