Guest Post: The Jobs Plan We’d Get If Leading Growth Economists And Innovation Scholars Weren’t Being Volckerized — Part 2

Tyler Durden's picture

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.

The case draws on work by leading innovation scholars, growth economists
and research organizations (e.g., Clayton
, Paul
, The Nielsen Company, The Census Bureau).

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?

Banks, children.

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

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:

  1. introducing a loan program for CE consumers
  2. 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
  3. becoming a bank, as a means of increasing the
    amount of money the company can lend
  4. 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.

From What
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
others can’t.

...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
correct them.

…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.

From The
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.

From The
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

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
leaves office.

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
[in 2040].

From 2008 book Disrupting
Class: How Disruptive Innovation Will Change the Way the World
, 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
2.0 magazine:

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,
and top venture capital firm Draper Fisher Jurvetson??? The plan is
adapted and expanded on at

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Anonymous's picture

whatever the merits of customized education it does not need sponsorship or favors from the government. that applies to all industry. this article was all about the creation of another favored class and white elephant boondoggle....

Wondering's picture


Besides the industry does not employ enough people and it is impossible to make programs competitively distinguishable (price wars will commoditize it quickly... imho)

Lastly, I think the barrier to greater use are entrenched and significant. The concept has been around since the mid 90's and not made more progress for a reason.

just my 2 cents


Missing_Link's picture


Errr  ...  thirded.

No new subsidies please.  Cut taxes, cut spending, and most importantly, cut the debt.

defender's picture

Agreed Link.  Also the fact that the article looks like it was written by a high schooler doesn't bode well for a person pushing for people to sign up for their education classes.

Anonymous's picture

i take the fifth.

end gov't subsidies for everything and CE would get the capital funding it deserves imho.

the warfare/welfare state is the heart of all the problems the author faces.

time to build a new model.

edupreneur's picture

fwiw, from the entry:

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.

knukles's picture

Would all focus on rectifying problem rather than imposing personal social preferences.

Problem is diminution of current and percieved wealth.  Revert to prior crash levels, give tax credit to repair 401k, etc. balances married with significant tax cuts, lesser regulatory hurdles. 

Confidence and consumption rise, jobs created, economy grows.  Happy, happy, Joy, Joy.

Beats forced proficiency in transcendental phlebology. 

edupreneur's picture

frank ruscica, guest entry author, here.

might be nice to live in a world where the gov isn't a player...

have to play the dealt hand, though...

today, pols are for sale -- either ce entrepreneurs buy 'em or incumbents will -- en route to regulating away ce's opportunity to grow...



JR's picture

More money manipulation, social ordering, collectivization and future forecasting! Now the Krugman Keynesian crowd has come up with “subsidized custom education”!  It’s just more government interference to cut off the power of the individual creative mind that energized the capitalist machinery that built the American miracle. 

"Needless to say, the business model of these banks will center on facilitating genuine wealth creation."  You bet it will, by taking more of our money to give to the banker-government-university crowd. 

The global pattern behind Keynesianism is to keep people dependent on the government and unable to fend for themselves.  The government wants the people to have to come to it for everything.  Its policy on savings points out its conspiracy against freedom and independence, against the equilibrium of supply and demand, and of price discovery.  We’ll provide the health care and the jobs, the money for you to spend, for a house, for a car, for an education…”

That way government can control the population.

That is why government policy is wiping out the ability of most Americans to save, why the Mankiws are calling for negative interest rates while at the same time price inflation of necessities soars, for fuel, housing, property taxes, meals out, services, transportation…  And, now, the government says it must raise taxes… to stimulate jobs.

Because inflation and stagnant wages and negative returns on savings deprive most people of their ability to save or keep their savings, the government is now using wealth transfer to make the down payments on designated big ticket items for various “classes." That’s the essence of spend, spend, spend Keynesianism, as is widespread unemployment.

In Obama’s Orwell world, if you want a house, a car, an education, even health care, the State will decide and may provide.

George Will, in his latest column The Dependency Agenda, writes about a District of Columbia school choice program that’s had a success record of enabling students to better themselves and go on to greater things.  And now the government has refused to fund it.

Writes Will: “Killing this small program, which currently benefits 1,300 mostly poor and minority children, is odious and indicative. It is a small piece of something large -- the Democrats' dependency agenda, which aims to multiply the ways Americans are dependent on government.

“Democrats, in their canine devotion to teachers unions, oppose empowering poor children to escape dependency on even terrible government schools.”

edupreneur's picture

frank ruscica, guest-author of this entry, here.

as you can see at, there are many good reasons to believe that the ce industry will be **entirely** markets-centered. 

i agree the d.c. episode is kinda gruesome (if the facts are as g. will indicates), but obviously that is just the politics of today...

the ce industry **loves** charter schools, vouchers, and all other kinds of market-centered reforms.




edupreneur's picture

the ce industry i anticipate, that is...

edupreneur's picture

[comment deleted (was repeat of above comment)]

Anonymous's picture

Tyler, this guy is crazy talk on stilts:

1. How do the teacher's unions fit into this scenario exactly? You know, that all-powerful union of government employees that is the backbone of the Democrat party and probably which doesn't want to see their lunch eaten by no stinkin' entrepreneurs.

2. Obama doesn't care about becoming rich, he cares about realizing a United States and world run by a group of centralized, all-powerful government decision makers that control every aspect of everyone's lives. This is the guy who killed the charter program at his kids' own DC school for Krissakes.

3. Fantastic, enlightened teachers, customized curriculums and throwing money at schools doesn't do a damn thing. Sorry. Check out the $2bil spent on Kansas City MO schools in the late 70's and what good it did. Every fantasy edu-biz bell and whistle there was got poured into KC and it didn't move the needle one bit.

The world (and history) is filled with examples of kids who go through unimpressive looking and resource poor schools systems and manage to acquire a first rate education. What matters is parents who care and a system that doesn't force schools to cater to deadbeats and expend most of it's time on feel-good, PC fluff.

The best way to subsidize American consumers and producers of education is to let us all the hell out of the public school racket and let the marketplace compete for all those freed-up funds. Obama is not the person who is going to make that happen my friend.

Anonymous's picture

Amen X 1000! Bust the public school monopoly before it's too late...unless it already is (too late).

Anonymous's picture

Isn't there a DVD I can order RIGHT NOW to get started on my Customized Education with instructions on to how to make my own CE Website and take advantage of this stimulating offer?!

Good laugh had TD, cheers!

wackyquacker's picture

yikes!! A hoot, I guess?

Anonymous's picture

well, you're passion is obvious, fwiw, some marketing advice

you're presenting a solution, and then giving back up data, which, fwiw, most folks don't care about

you need too promote the problem, if the problem is accepted, the solution is usually obvious

and the problem is not what we are doing sucks or doesn't work.........that requires changing belief systems, what educators are doing now is because they believe in it

edupreneur's picture

frank ruscica, guest entry author, here.

thx for your thoughts.

no doubt, big banks and providers of standardized education "believe" in preserving their respective status quos.

but edu consumers and taxpayers already know that each status quo is a problem...

imho, there is reason to believe ce entrepreneurs will solve these problems...

but i haven't seen this connection/prescription made elsewhere...

hopefully, the first part of the entry is a decent first step toward making the c/p obvious... :-)






Anonymous's picture

Here it is ....

Ask anybody this question....

If one had a $Billion dollars.....and wanted the value of the $Billion dollars to grow efficiently and effectively....

Which of the two parties would one give it to ?

1) The Government

2) 10 Highly proven entrepreneurs


In 1000 of 1000 responses .....Entrepreneurs would be elected....and they are right....


What if an entrepreneur had a partner....?
The partner did nothing but demand 50% of the profits of the firm.....Thus this partner who did nothing costs the firm 50% for doing nothing....and thus prices have to be increased 50% just to pay the nonperforming partner....

My friends....the nonperforming partner's name IS Government.....The performing partner has to come up with the innovation....the sales ....and production....while the govt. does nothing....


Thus...if the problem at hand is to IMPROVE economic conditions.....then what must the government do ?
That's right ....dramatically reduce itself....

What is the government currently doing ? Increasing itself....and dramatically Venezuela....Just the opposite of what it really should be doing....


Thus what would be an appropriate structure of government that would best blend in with the economy ?

1) A government whereby 60% of the population does not pay any taxes ....but yet demands the majority of its services ? And also has very little prospect of gainful and sustainable employment....

2) A government whereby all individuals pay a very small
amount relative to what they actually consume.....which would be comprised of a 15% Consumption tax only on tangible items only....

Also if 1) was employed by one population ....and 2) was employed by another popultion .....which population would have an economy 10X greater than the other in 10 years ?

Which of the two approaches would see actual tax revenues decline because of the increase in taxes ?


This cannot be made any clearer....

So what are the troubled countries waiting for ?

Or do the troubled countries ....just want to become even more troubled ? This must be the answer because of their immediate responses to date....


So what is the name for a group of leaders that insist that the population proceed in a troubling manner ?

SMFS would be too kind of a label ....

edupreneur's picture

frank ruscica, guest entry author, here.

would be nice to live in that world...

have to play the dealt hand, though...

today, pols are for sale -- either ce entrepreneurs buy 'em or incumbents will -- en route to regulating away ce's opportunity to grow...



glenlloyd's picture

While I think the author makes some relevant points I believe that there shouldn't be any need to incentivize a product / service that clearly has room for growth and returns.

Anonymous's picture

Drivel. Why in God's name would ZH publish this?

Anonymous's picture

"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."

Thanks for the laugh Frank.

"Education? Half my education came from making mistakes and the other half came from fixing them"

-Anonymous multimillionaire high school drop out.

Hammer59's picture

The Chinese are eating our lunch. Did they learn that from CE, or did they roll up their sleeves, reverse engineer our inventions, and work with their hands to end up owning us?

American children are merely mirror reflections of their parents. One third are already obese. No ambition, no discipline. More concerned with facebook/rap musak/i-pods/trash culture than science and math. All the money in the world wont change that.

Obama couldnt find his ass with both hands, and his ass. Everyday jobs continue to be outsourced, and he is not stopping that. Those that cant do teach. Or become politicians.

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