Guest Post: The Jobs Plan We’d Get If Leading Growth Economists And Innovation Scholars Weren’t Being Volckerized — Part 2
Submitted by Frank Ruscica
one makes a case that an ideal way to catalyze job creation in the
U.S. is to subsidize American consumers and producers of customized
education (CE), and American operators of associated online markets.
Part one concludes by speculating about the reasons that said subsidies
are absent from all talk of “jobs stimulus.”
From part one:
A guess? In two words?
Understanding why politically powerful banks would benefit from
suppressing talk of said subsidies starts with knowing about the
so-called problem of collective action.
In their 2006
textbook on International Economics (7th ed.), Paul Krugman and
Maurice Obstfeld define the problem:
While it is in the interests of the group as a whole to press for
favorable policies, it is not in any individual’s interest to do so.
Krugman and Obstfeld continue:
In a now famous book [The
Logic of Collective Action], economist Mancur Olson
pointed out that…the problem of collective action can best be overcome
when a group is small (so that each individual reaps a significant share
of the benefits of favorable policies) and/or well-organized.
The group must have the means to buy changes of policy.
Krugman and Obstfeld, summarizing canonical research findings:
Politicians are, indeed, for sale.
Successful entrepreneurs in a given industry are the small group who
have the motive and means to buy policy changes that disadvantage the
industry’s old guard.
Harvard Business School professor Clayton Christensen is the originator
of the canonical Model of Disruptive Innovation. From a 2009 book co-authored by
Regulations ultimately change in reaction to [disruptive] innovators’
success in those markets.
From elsewhere in the book:
Those disruptors that successfully dismantled the regulations that stood
in their way succeeded by circumventing the regulation -- by innovating
in a disruptive market that was beyond the regulators’ reach or was
peripheral to their vision.
For a banking entrepreneur, a peripheral market that is ideal to disrupt
is one wherein:
- the act of consuming makes customers (more) creditworthy
- a lot of money can be made directly (i.e., independent of banking)
Creditworthiness correlates positively with educational attainment.
Moreover, education is big business, and CE is disruptive to
standardized education (for details, see part one and OpportuniTV.com).
For a banking entrepreneur, the ideal niche to occupy in the CE industry
is owner of a popular online market.
Owners of these markets can expect to increase profits dramatically by:
- introducing a loan program for CE consumers
- making the popularity of the company’s market and loan program
mutually reinforcing, so a borrower who performs well as a student is
rewarded with a lower interest rate
- becoming a bank, as a means of increasing the
amount of money the company can lend
- introducing other loan programs and financial services that
complement the market (e.g., loans to small businesses, so more jobs are
available to CE consumers)
Needless to say, the business model of these banks will center on
facilitating genuine wealth creation.
As such, the owners of these banks will buy changes of regulation that
preclude competitors from leveraging moral hazard to secure economic
rents (e.g., via taxpayer-backed proprietary trading).
Hence my guess that today's politically powerful banks might be working
hard to suppress talk of said jobs stimulus.
Really hard, given:
- how children-friendly this stimulus would be
- how many voters across the ideological spectrum loathe politicians
whose legislative (in)actions are gratuitously harsh to children
From NurtureShock: New Thinking
About Children, a 2009 book that appeared on the New York Times
bestseller list for two months:
“When a child gets to choose, they presumably choose activities they’re
motivated to do [says Dr. Silvia Bunge, a neuroscientist at the
University of California at Berkeley]. Motivation is crucial. Motivation
is experienced in the brain as the release of dopamine. It’s not
released like other neurotransmitters, into the synapses, but rather
it’s sort of spritzed onto large areas of the brain, which enhances the
signaling of neurons.” The motivated brain, literally, operates
better, signals faster.
VERY importantly, the build-out of the CE industry will almost certainly
benefit children who still receive a more or less standardized education
after the build-out is underway. In particular, these children are
likely to benefit from a proliferation of CE offerings for teachers.
Makes a Great Teacher?, an article in the January 2010 issue of The
Teach for America [a nonprofit that recruits college graduates to spend
two years teaching in low-income schools] has been…for more than a
decade…tracking hundreds of thousands of kids, and analyzing why some
teachers can move those kids three grade levels ahead in one year and
...Those who have been accepted [as TFA teachers] will go to a Teach for
America training institute. That’s when Steven Farr, the in-house
professor, and his colleagues take over. For them, the challenge is not
to pick the perfect teacher but to diagnose strengths and weaknesses
early and provide intense, customized training to
…This year, D.C. public schools have begun using a new evaluation system
for all faculty and staff, from teachers to custodians…Throughout the
year, teachers will receive customized training. The
handbook for the new system looks eerily similar to the Teach for
America model, which is not a coincidence.
Death and Life of the Great American School System, a forthcoming
2010 book by Diane Ravitch, a former U.S. Assistant Secretary of Education:
TFA sends fewer than 10,000 new teachers each year into a profession
with nearly 4 million members.
So, again, said jobs stimulus would be very children-friendly.
If this fact was known to a critical mass of voters, politicians across
the ideological spectrum who did not support the stimulus would be
taking a huge career risk.
Sandbox Investment: The Preschool Movement and Kids-First Politics,
a 2007 book by David Kirp, a professor of public policy at the
University of California at Berkeley:
The Seventeenth Congressional District [in Texas]…is among the most
lopsidedly Republican in the nation. More than 60 percent of the voters
are registered Republicans; 64 percent call themselves conservatives and
just 12 percent describe themselves as liberals. In 2004, president Bush
carried the district with nearly 70 percent of the vote — not an
unexpected outcome, especially since Crawford, where the president has
his ranch, is located there. But in the race for a seat in the U.S.
House of Representatives that same year, a Democrat named Chet Edwards
bucked long odds and won, running 37 percent ahead of the national ticket.
...Edwards’s opponent [was] Texas state legislator Arlene Wohlgemuth…The
conservative establishment went all out to get her elected. Three
million dollars from the Club for Growth, a GOP fund-raising behemoth,
went for attack ads in the three weeks before the election, more than
Edwards spent on his entire campaign. Vice president Dick Cheney and
Republican strategist Karl Rove came calling. The district was plastered
with posters showing Wohlgemuth together with president Bush, standing
on the steps of Air Force One and waving to an imaginary crowd.
Wohlgemuth ran a vintage Karl Rove campaign. She went after Edwards as
being more liberal than Ted Kennedy…Wohlgemuth’s big selling point was
her diehard fiscal conservatism. Her crowning achievement was the 2003
revamping of the state’s health and human services agencies, which saved
Texas taxpayers $1 billion. Edwards used political jujitsu to turn this
supposed strength into her biggest vulnerability. What undid her were
the cuts she’d inflicted on the budget of the Children’s Health
Insurance Program, generally known as CHIP — 150,000 youngsters removed
from the rolls, half a million denied any dental and eye care, all in
the name of lean government. “Children were never my primary concern,”
she said. It was a remark she grew to regret.
…As expected, Wohlgemuth had the early lead in the polls. But Chet
Edwards’s first TV ad changed everything, because it powerfully
illustrated how real people were being hurt by the CHIP cuts. Staring
straight into the camera, in a black and white image that’s as evocative
as a Walker Evans photo, a woman named Jamie Jones held her daughter
Bailey in her lap while she told her story. Jamie was a hardworking
woman, widowed when her husband died in a house fire, who worked every
day to support her child, but now the state had cut off her daughter’s
health care coverage. “I love my daughter more than anything in the
world,” she said, “and if she gets sick I don’t know what I’ll do.” The
commercial didn’t mention Anne Wohlgemuth by name. There was no need.
…The Jamie Jones ad damaged Wohlgemuth’s credibility and stirred
criticism from the press. Wohlgemuth was forced to go on the defensive —
instead of bragging about the budget cuts, she tried to minimize their
effects — but to no avail.
…According to the exit polls, 11 percent of the voters — enough to swing
the election — said that Wohlgemuth’s record on children had made up
their minds. A quarter of those who supported Edwards said they were
thinking foremost of children. “Wohlgemuth had to justify her vote to
cut CHIP, but she couldn’t,” the Dallas Morning News editorialized.
Then again, America's kleptobankers may be wholly aware of the fledgling
CE industry, and not the least bit wary.
The kleptobanks' best risk managers may figure that Obama will never
abandon their banks.
After all, why would Obama care that he can probably go a looong way
toward winning a second term by fighting hard for said jobs stimulus,
and by supporting America's CE industry more generally?
Why would Obama care that, with his vigorous support, America's CE
industry is almost certain to be wildly ascendant by the end of his
second term? (For details, see part one and OpportuniTV.com.)
Of course, a thriving CE industry will want all lawmakers to understand
how much their support is -- and will be -- appreciated.
Obama's vigorous support for the industry, then, would make leading CE
companies eager to present him with lucrative opportunities after he
Opportunities with upside potential that is proportional to Obama's
support, it stands to reason.
But why would Obama care that, by securing a lot of CE upside,
he would be at least a decent bet to become one of the richest private
citizens the free world has ever known?
Maybe even the richest.
From the July 7, 2003 issue of The New Yorker:
Generally, productivity growth is a boon, but it creates problems for
non-productive enterprises like classical music, education, and car
repair: to keep luring talent, they have to increase wages, or else
people eventually migrate to businesses that pay better. Instead of
becoming nurses or mechanics, they become telecom engineers or
machinists. That’s why teachers are getting paid a lot more than they
were twenty years ago. (The average salary for an associate college
professor has risen almost seventy per cent since the early eighties,
and that’s if you adjust for inflation.) To pay those wages, schools and
hospitals have to raise prices. The result is that in industries where
productivity is flat costs and prices keep going up. Economists call
this phenomenon ‘Baumol’s cost disease,’ after William Baumol, the
N.Y.U. economist who first made the diagnosis, using the Mozart analogy,
in the sixties. As anyone with kids knows, cost disease is alive and
well. A recent study by the economists Jack Triplett and Barry Bosworth
demonstrates that among the service businesses that have been least
productive in recent years you’ll find education, insurance, health
care, and entertainment. These are the ones that have seen steep price
From the January/February 2004 issue of The Atlantic:
Baumol has predicted that the share of [U.S.] gross domestic
product...spent on education will rise from 6.7 percent to 29 percent
From 2008 book Disrupting
Class: How Disruptive Innovation Will Change the Way the World
Learns, co-authored by Clayton Christensen, which posits a business
case for an online CE market:
The data suggest that by 2019, about 50 percent of high school courses
will be delivered online.
...80 percent of courses taken in 2024 will have been taught online.
From a May 20, 2004 article in The Economist:
"There has been a huge swing to custom programmes," says Fiona van
Haeringen of IESE, who attended a recent annual conference of
business-education providers in America…Looking to this year, most saw
growth coming mainly from customised education.
Peter Drucker -- the "king of the management gurus," says the November
19, 2009 issue of The Economist -- from a 2000 interview in Business
The continuing professional education of adults is the No. 1 gross
industry in the next 30 years, but not in the traditional form...We will
deliver most of our executive management programs online.
Stanford economist Paul Romer is the originator of New Growth Theory,
which updates growth economics for the information age. From Romer’s entry on
Economic Growth in the 2007 edition of The Concise Encyclopedia of
“The country that takes the lead in the twenty-first century will be the
one that implements an innovation that more effectively supports the
production of new ideas in the private sector.”
“Perhaps the most important ideas of all are…ideas about how to support
the production and transmission of other ideas…North Americans invented
the modern research university…As national markets for talent and
education merge into unified global markets, opportunities for important
policy innovation will surely emerge.”
Still, the kleptobanks’ best risk managers may not be concerned at all about Obama flipping.
After all, why would Obama be interested in the surest bet he can make to earn a mega-fortune, when doing nothing assures him a tidy sum from kleptobanking?
Making the bet would require Obama to oversee a more expeditious build-out of America's CE industry, remember.
Of course, he can delegate as much of the day-to-day overseeing as he wants -- but delegating can only asymptotically approach doing nothing...
About guest blogger Frank Ruscica:
Set out to become a comedy writer, recognized the need to develop a
comic persona, settled on an approach for doing so. A byproduct of
taking said approach: a business plan for establishing a popular CE
market. The plan has been praised by analysts at Microsoft, Amazon.com
and top venture capital firm Draper Fisher Jurvetson??? The plan is
adapted and expanded on at OpportuniTV.com.