Friday, June 7, 2013

The Good Deficit

You already know we're in Oz.  The government manages the federal deficit by making across the board cuts everyone thought would be so extreme that both Democrats and Republicans would work together to find a more rational solution.  Ha ha ha.  The joke's on us.  The government manages the debt ceiling by kicking the can down the road every few months.  The can is getting awfully dented.  And most tellingly, a surprisingly large number of the members of Congress bear a distinct resemblance to the flying monkeys in the movie.

But even as there were bad witches in the movie, there were also good witches.  There are good deficits as well.  Government spending for things that government is particularly good at is generally desirable, even if it requires deficit spending.  For example, government is good at national defense, education, law enforcement, and building or subsidizing transportation systems.  Government is also very good at funding basic research.  Deficit spending to pursue these goals is money well spent because it fills gaps that the private sector leaves open.  These kinds of spending protect and enhance the national wealth and welfare.

There's another problem that should be tackled, even if it requires deficit spending.  The unemployment rate for Gen Y (a/k/a the Millenials) is much too high.  It's generally about twice the level for Baby Boomers, and the less educated Millenials have even higher rates of unemployment.  Those that are African-American and lack college degrees need not apply, especially if they are male.  Large numbers of the better educated Millenials are burdened with heavy educational debts.  The ones with debts of $100,000 or more could face decades of 21st Century-style indentured servitude to their creditors, whose claims they cannot oust in bankruptcy proceedings except in extremely distressed circumstances. 

Millenials who are unemployed and underemployed represent wasted human capital. Modern economies are knowledge based, and human capital is the most important form of national wealth.  A vivid example of the overarching importance of human capital can be found in the aftermath of World War II.  Germany and Japan, the devastated losers (who deserved to lose), had only limited industrial capacity and not enough food to feed their populations.  But they also retained the advanced industrial knowledge they had acquired in building and supporting their massive and highly capable war machines.  Required by Allied occupation authorities to turn that knowledge to peaceful purposes, the two losing nations rebuilt their economies rapidly, and within three decades became industrial powerhouses.  Because they still had their human capital after the war, they could rebuild their tangible assets and prosper.

As a nation, we can't afford to let the human capital of Gen Y atrophy.  They are starting their working lives now, a crucial time for developing the skills of a self-supporting adult.  It's in your twenties and thirties that you learn how to apply all your book learning to the practical needs and purposes of the working world.  Learn those lessons well, and you'll be productive for 40 or more years.  Failing to learn them can result in permanent stunting of one's career.

Add a heavy load of school debt to the mix, and we can see how unemployed and underemployed Millenials could become a permanent economic underclass, unable to escape a shadow world of part-time jobs and episodic contract work, trailed by the baying of creditors hounding them at every turn. 

It's time to revive the Civilian Conservation Corps, 21st Century style.  The CCC of the 1930s employed some 3 million young Americans over the course of its decade of existence.  They were paid very modest wages, most of which were given to their parents (although the employees also received food and housing in addition to their pay).  They did mostly physical labor, as such work was integral to America's 1930s industrial economy.  The program was very popular with the American public, as it gave young people a chance to develop work skills and get a start in adult life.

A comparable program today could include jobs requiring manual labor.  America's highways, bridges and other infrastructure need a lot of maintenance.  America's cities need to be cleaned up, and abandoned buildings torn down, so that redevelopment can begin.  But there are many white collar jobs that need to be done as well.  Rural areas and inner cities lack physicians and other health care providers.  Many school districts are strapped for funding and need more teachers and staff for everything ranging from special education to music and drama.  Many jurisdictions have gravely inadequate funding for public defenders.  Criminal defendants, whom the law in its majesty presumes innocent until proven guilty, have little means to defend themselves and give their presumption of innocence tangible effect.  The poor need legal services for civil matters as well, such as battling indifferent landlords.  The list could go on.

CCC-21st Century jobs should be real jobs, not make work.  We can't ask taxpayers to pay people to dig holes and fill them up.  The pay should be low, because these aren't meant to be career jobs.  They are a way to give young people a start.  Part of the compensation should include generous provisions for government assistance in repaying school debt.  In effect, the government would help young people offload their school debt so they can get a fresh start in life.  Yes, yes, yes, there are countervailing considerations about holding people responsible for their debts and not bailing people out, etc., etc.  But we let egregious spendthrifts stiff their creditors for non-education debt as a matter of course in bankruptcy.  And we bail out really large financial institutions run by millionaire executives.  The burden of educational debt is getting to be too much.  As some guy put it about 400 years ago, the quality of mercy is not strained.  Let's be realistic instead of Puritanically moralistic.

Those CCC-21st Century employees who haven't gone to college could be compensated with the right to educational subsidies, akin to the GI Bill.  These young people could then go to college with less need for debt.  Their human capital would be enriched.

This isn't a perfect solution, and won't solve all the problems of Gen Y.  But it would give many of them a start.  And that's what they need.  Deficit spending for another CCC would be money well-spent.  The private sector isn't helping these people.  Government action is the only alternative.  We don't need more stimulus in the form of Federal Reserve money printing.  We could benefit greatly from stimulus in the form of deficit spending invested in our young adults.

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