Dear Millennials: If You Want To Escape Minimum Wage Debt-Serfdom...

Tyler Durden's picture

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Those without value-creating human/social capital will be mired in a low/minimum wage environment that will make it difficult to escape debt-serfdom.

Let's start with the sobering reality that the Millennial generation faces economic challenges that are unique to this era: sky-high student loan debt, soaring costs for basics such as rent and healthcare, a stagnant neofeudal crony-cartel economy and an intellectually bankrupt status quo in thrall to failed ideologies: Keynesian Cargo Cult central banking, outdated models of capital and labor and an unthinking worship of debt-funded centralization as the "solution" to all social and economic ills.

The potential solutions are also unique to this era. Never before has humankind had such a wealth of revolutionary decentralizing technologies: nearly friction-free peer-to-peer networks and commerce, decentralized cryptocurrencies and the expansion of what my friend G.F.B. describes as neo-tribalism: opt-in communities that are not bound to geography or central-state imposed identities.

Many smart, well-informed people see massive government stimulus using borrowed money as the "solution" to Millennial impoverishment and under-employment--in other words, more debt-funded centralization.

The idea here is that such debt-funded stimulus will employ millions of Millennials to rebuild America's crumbling infrastructure.

While we all understand the appeal of this proposal, those proposing it have little experience in actually building or repairing infrastructure. The assumption that such massive public spending will create millions of jobs is never examined closely, nor is the impact of adding trillions of dollars in additional public debt considered.

What such schemes boil down to is: Millenials are supposed to borrow trillions from their future earnings and their children's earnings to fund a few years of employment.

But what happens after the bridges get repaired and the homeless housing gets built? In the conventional fantasy, the economy magically moves into a self-sustaining growth cycle because those construction workers will be buying more coffee at Starbucks, more lunches at Mickey D's, and so on.

But the cold reality is: once the money has been spent, those jobs go away. Once the bridge has been repaired with public money, the workers are laid off because there is no private-sector funding for more bridges or homeless housing, etc. Once the construction workers are laid off, sales at coffee shops and fast-food outlets fall back to pre-stimulus levels.

The surge in employment fades as soon as the funding dries up. Additionally, there is little productivity gain from the infrastructure spending: the repaired bridge performs the same service as the aging bridge.

The problem is this: after the government funding dries up, we still have a corrupt crony-cartel economy based on predatory privilege, parasitic rackets and central-state enforced fraud. In other words, we still have an economy that strangles productivity that could benefit the many in order to further enrich the few.

And as Gail Tverberg and Art Berman have explained, we have an economy that is facing lower energy consumption per capita (per person)--even if oil prices remain around $40/barrel.

Oil Prices Lower Forever? Hard Times In A Failing Global Economy

An Updated Version of the “Peak Oil” Story

Central state stimulus funded by debt only creates a brief illusion of prosperity; it changes nothing in our broken system. All it does is burden a heavily indebted generation with more debt--a generation that cannot afford to consume more because so much of their income is already devoted to debt service.

The other fly in the ointment is this sort of spending doesn't create as many jobs as the uninformed assume. If you stop and look at a bridge being repaired, you'll note the crew is small--in many cases, a half-dozen or less. The same is true of road resurfacing crews and other infrastructure repair work.

You'll also notice the crew has skills that take years to acquire: operating a crane, welding, etc. The unskilled are limited to waving the traffic-control flags.

The same is true of new construction. If you count the workers erecting large new residential buildings, you'll note a few dozen workers on site--and the buildings are finished in a matter of months.

Since on-site construction labor has been more expensive than factory labor for decades, construction fabrication has been pushed to the factory. Beams, walls and other components are assembled at the factory, where wages typically remain between $15 and $20/hour. These components are shipped to the site and assembled by small crews of skilled workers.

Much of the expense in construction is now in the financing (private or public, the interest payments and bond sales fees constitute a large percentage of total construction costs), permits/fees and materials. The actual labor component of major construction/repair work is relatively modest.

It makes no financial sense to hire people with little experience for high-skill tasks. What makes sense is to increase the hours of the experienced workers the contractor already employs. What is the payoff for a contractor to spend three years training neophytes to become productive? That only makes sense if you can keep the trained worker, and the intermittent nature of construction work means your workforce shrinks when demand falls. The worker you trained goes off to work for somebody else.

The beneficiaries of infrastructure stimulus will be workers that already have the requisite skills and experience--Gen X and those Millennials who have completed formal or informal apprenticeships.

But even these workers have to look beyond the few years of infrastructure stimulus, and acquire whatever skills the private sector will need.

As I explain in my book Get a Job, Build a Real Career and Defy a Bewildering Economy, whatever is abundant has little scarcity value: that includes unskilled labor and credentials such as college degrees.

What's scarce are value-creating skillsets, most of which are path-dependent, i.e. they must be accumulated over years of work experience.

What creates value? The ability to solve problems and increase productivity.

If you want to know why the economy and Millennial prospects are both stagnating, just look at productivity--it's tanking:

As I explain in the book, the line between labor and capital is becoming blurred. Capital is increasingly intangible: the most productive forms of capital are human, social and intellectual--the knowledge, experience and networks acquired by people.

In contrast, the return on money--a traditional form of capital--is near-zero.

Owning a credential is not the same as owning skills. If we think of human/social capital as an asset, then we see a new line between labor and capital: labor is low-skilled labor with little scarcity value, and capital is high-skilled human/social capital.

Those without value-creating human/social capital will be mired in a low-wage/minimum wage environment that will make it difficult to escape debt-serfdom. To understand why human/social capital is the most important form of capital, we must understand that this capital asset is fundamentally an enterprise.

If we look at what wealthy households own, we note they own enterprises. This is not a coincidence, as wealth is generated by value-creating enterprises.

If you want to escape Minimum Wage Debt-Serfdom, start by developing skills that create value by solving problems and increasing productivity, which is another way of saying doing more with less.

Understand that your human/social capital is fundamentally an enterprise that you own and manage. Taking ownership of your capital and managing that asset as an enterprise is the first step to escaping stagnation.

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balz's picture

Isn't business equity and stocks the same thing?

Infocat's picture

Stupid people have no clue what to own or how to make money, thats why they are poor, sadly. http://www.truthjustice.net/

King Tut's picture
King Tut (not verified) Infocat Aug 31, 2016 2:13 PM

Yeah sure- crony capitalism, crippling govt regulation, massive taxation and healthcare costs, etc has nothing to do with it/s. It's must easier to just say people are stupid.

GeezerGeek's picture

Americans have been very stupid - they haven't rebelled against crony capitalism, crippling govt regulation, massive taxation and healthcare costs, etc. I'd call that being stupid.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) GeezerGeek Aug 31, 2016 4:12 PM

Thank you gubmint "education" system...

If you're not going to get a degree that is marketable, screw college and become a plumber, electrician, or similar.  It takes some skill to do the job so not every moron can jump into the field.  They are regulated by the state so entry takes work/effort.  No ILLEGAL aliens can get licenses.

logicalman's picture

When my son finished with enforced government schooling, he went to college and became a chef. Worked his arse off to get there and finished without debt.

He's a clever guy - school wanted to put him in the 'gifted' bunch, but he found most of those who were in it to be boring farts, so he declined the offer.

He'll always go his own way, and he'll make it through life without selling out.

Technically, He's a millennial.

 

lasvegaspersona's picture

How do you think we got crony capitalism? It was not the product of genius.

chunga's picture

It's a tough decision what's worse, you're constant spamming or your dumb one-liners.

blackholes's picture

The real crime is needing to use "your" twice, but managing a 50% success rate.

 

Quite honestly, it's like you just guessed for both, as there's no way you could have known the proper usage in one case but not the other.

 

 

chunga's picture

Up yours you clever devil.

doctor10's picture

ya know-they're gonna have the last laugh -in a virtual world free of the MIC-banking complex anchor-who knows what will transpire precisely?

Couldn't be particularly worse than the charade the MIC -banking complex is trying to stuff down their craw presently

King Tut's picture
King Tut (not verified) Aug 31, 2016 2:10 PM

So, deflation it is, then. The only reason for the relative boom in world economies since WWII was a result of the rebuilding from the massive destruction that occured as a result of that event- and the US was the largest recipient of the benefits of that boom as we were left unscathed by war and we were awarded the reserve currency by default. All of these other mini-booms(90s tech, housing bubble, last 8 years) have just been the result of CB economic shenanigans through highly inflationary monetary policies.

mosfet's picture

- Give a trillion dollars to a thousand people and you get Deflation

- Give a trillion dollars to a million people and you get Inflation

We currenltly have both and will continue to, but in ever increasing extremes.  The only guarantee is that middle class & poor will suffer the most - and only a few of them will learn to stop blaming everyone else and start taking risks.  Short of being born rich or hitting the lottery, the way up & out is to start taking risks and KEEP taking risks until they pay off.  For instance there's a bull market just getting started in commodities (not just precious metals), while dumb money keeps pouring into tech stocks & real estate at the top of a bubble.  Many people I talk to incorrectly believe that the American dream comes from obsessive saving and being risk adverse.  If I were a millennial, with so many decades ahead of me, I'd be spending every bit of disposable cash & time on trying out ways to make money or at least learning what works and what doesn't.  That said blowing money on trying out financial risks isn't to be confused with ignorantly running up debt.  Whether you feel it's fair or not, being overly risk adverse and obsessivly saving is virtually guaranteed to keep you either poor or confined to a shrinking middle-class.  If that's where you're comfortable - then fine, but accept that those two classes will always be the one's made to pay for everyone else's screw-ups and mistakes thru taxes and inflation.  Yes, crap IS more unfair in many ways now than decades past but whining & hoping it'll change is pointless and self-destructive.  When you're young, money is better spent on chasing risk and learning from mistakes than sitting in a bank or spent on electonic toys. Oh and get out and travel abroad and stop fretting so much over sex & relationships - Life is short, Fuck More / Text Less.

alexcojones's picture

I've been surfing in Debt Serfdom all my life.

Still waiting for that One Big Wave

Spungo's picture

How dare they suggest infrastructure spending. We have that money ear marked for wars and single mothers.

GeezerGeek's picture

The Millenials are going to take construction jobs and rebuild American infrastructure? Perhaps the Mexican ones that come here, but not the native-born. The only labor this cadre of American millenials is doing is digging its own grave. Not all Millenials are thus, but far too many are. Unless, of course, they are drafted into a Federal Construction Corps.

Yeah, that's it: get all those snowflakes out of their parents' basements and let them live in tents - mixed gender, of course - while they fill in all the potholes.

King Tut's picture
King Tut (not verified) GeezerGeek Aug 31, 2016 2:20 PM

Why go bust your balls in 90 degree heat and compete with $10 an hour illegals? You should try it some time, tough guy. I worked concrete as a union laborer 20 years ago and we made $25 an hour back then- good luck making more than $15/hr with no benis now

vq1's picture

really is a rock and a hard place isnt it? As an office worker I know I lack the human durability for construction. Construction is very hard on the body but 8 hours sitting is bad for the heart. I am frustrated with the "intangibleness" or "measureability" of my work. I run more and more projects of increasing difficulty as the years go on, for the same pay. I have to prove all the work i have done in my reviews and prove how I have profited the company. I, naively, long for the ability to build something and point to it and say, "now pay me, or argue that I did not, in fact, build this for you at your request."

WoodMizer's picture

Preaching to the choir, I am a furniture/cabinet maker.  Graduated undergrad (bio) in 2006 , and I wasn't willing to sign onto med school debt.  Now I make $25 an hr and manage four apprentices in a no AC shop in Texas.  I live debt free and happy.

I have practiced woodworking since high school (2002) and I know only 4 people my age and younger in cabinetry.

Skills are dying quickly in Amerika.

Consuelo's picture

 

 

'An updated version of the Peak Oil story'...?

 

Uh, here it is in layman's terms:

 

Oh SHIT - My story just fell apart...!!!  WTF to do now...??!!   Wait - i Know...   Re-invent myself (and my story, And all the countless paragraph's I've written about it, And my slavish devotion to the theory when it was riding high as a thoroughly believable fairy tale...)   Now I can paint myself as a 'visionary' who saw it all along, but just didn't quite have the right measure of Marxism mixed in - but I do now...!!!  

 

 

hxc's picture

Yup yup yup. Lazy idiots without any practical skills get nowhere. Basically anyone could've told you this.

Hapte's picture

You must work in finance.

chunga's picture

A good jobs initiative for Millennials would be to go out and kill the cronies.

lasvegaspersona's picture

The MFH (murder for hire) index is worse than the Baltic Dry. Even criminals can't get work...and for them turning to crime is not an option...they get twisted 180 degrees and wind up doing honest labor. Life can be cruel like that.

Spungo's picture

I would also like to point out that infrastructure spending does have long term returns after the spending stops. This is something anarchist libertarians never seem to grasp. Companies like UPS exist because there are roads. Companies like Google exist because there is internet. Developing the internet didn't just provide jobs while the grid was being installed. It provided jobs long after it was installed, and it has dramatically improved worker efficiency. We won't get companies like Google starting up if we don't have the infrastructure to support them. Companies trying to build factories in shit countries experience this all the time. They want to build a factory, but the power grid is not reliable. They want to do some kind of process like mining, but there's no water infrastructure to support a mining operation.

We should look at existing problems and pour tons of money into fixing them. Having water shortages in California is ultimately bad for their economy, which is bad for America as a whole. Why can't we get our shit together and try to fix that problem? A billion dollars invested might return several billion in economic activity because it allows other businesses to thrive.

vq1's picture

yes, agree. But isnt it easier to start a business, utilize the infrastructure to get materials and employees to your location and then just leave when the resource dries up (roads wear from use). 

 

path of least resistance is a bitch to sustainability. 

Spungo's picture

It's also easier to borrow money to buy back company stock instead of expanding the business ;)

brushhog's picture

If that were true, then all of our manufacturing would not have gone to 3rd world countries with little infrastructure spending. The biggest economic boom that this country ever saw was during the years BEFORE our infrastructure was anywhere near as developed as it is now.

Sounded good though.

SomethingSomethingDarkSide's picture

If you went to college and didn't graduate, the smart decision is to move away and never pay the debts back.  You heard me.

JuliaS's picture

I know a former colleague in his mid 30's who did just that. Refused to pay back debts without defaulting on them or declaring bankruptcy. The IRS chases him around. He works for a few months, then they put in a garnishing order. He quits and goes working for another company until the government finds him again. And the process repeats. His debt, that wasn't that big initially, keeps growing through interest and penalties. He wants to "stick it to the man". Meanwhile he can't explain what forced him to borrow money in first place. He's actually one of the lucky few who ended up working in his field of study. School taught him things he didn't know and landed him a well paid job he wouldn't have had otherwise. He made what he spent on education many times over. Yet he prefers to spend money. As simple as that.

Regardless of what I think of "the man", the government and the banks, I do not condone that type of behavior. This is not an act of ideological commitment, but a sign of plain irresponsibility.

A satirical piece by Rob Newman comes to mind:

CIA distributed educational pamphlets to citizens in Nicaragua instructing people on how to stage a revolution. Among many items were: "Don't come in to work. Call in Sick." Think of that! You do your usual thing, and the next thing you know the government has fallen. They'd have to erect statues to people like you!

taketheredpill's picture

The book does a good job of explaining why the old system isn't working.  When I graduated from undergrad my degree was a golden ticket that got me in the door and I started my (first) career.  When I went into finance my mba was another golden ticket, since I only knew 5% of what I would require in that career.

Today, new grads come out with a degree but the jobs aren't there unless you have experience.  hence degree inflation as grads go back in for masters and then phds.

The book talks towards forgetting about the "golden ticket" approach and developing employable skills whenever and wherever possible and developing a network of contacts that know what skills you have and can get you decent employment and potenially in the door at a career location.  Bought it to try to understand the career hell my nieces and nephews are currently struggling through.  

 

JuliaS's picture

Many jobs today have a technical component to them that evolves as fast as hardware and software. A store shelf life of a hardware unit these days is about 6 months. Software revision cycles are annual.

How many courses for high-level professional work take less time than it requires for the teaching material to go obsolete? Not many. And it's only going to get worse.

You'll have a diploma tomorrow for job that existed yesterday.

How does one keep up? Definitely not through school. One has to work for himself/herself from the get go. And that doesn't mean borrowing outrageous sums to rent office space and begin hiring employees. No. I mean one has to treat education as if it was a job already. One has to be his/her own teacher and his/her own boss up until the job becomes a real business, or a potential employer recognizes talents through portfolio work. My background is in engineering. In that area self-education does work out (look up Jeri Ellsworth), if you plan on heading into the private sector. If you want to go into public sector, you're pretty much forced to take a gamble with the education monopoly. To become a successful parasite you have to go through a bunch of them yourself.

csmith's picture

"It makes no financial sense to hire people with little experience for high-skill tasks."

Not from the perspective of the "stimulus" jockeys, because their goal is simply more jobs and more nominal incomes. Unskilled people who "work" longer (no matter how unskilled or unproductive they are) are EXACTLY what they want. They vote Democratic too. Bonus.

Wilcox1's picture

Dear Millennials: If you want to escape debt-serfdom, make sure that you inherit the means to get that done.

JustPastPeacefield's picture

"Mexico is not yours to play with."  Fox is the world's biggest hypocrite. When we put up out wall, all we're saying is that America is not yours to play with. 

 

No exporting your poverty.

No subverting our culture.

No stealing our jobs.

No dumping of drugs.

No transit for African invaders.

No transit for Central American invad.

... It's quite a long list.

 

silverer's picture

Step one: skip college. They know everything, but they can't help you. Educate yourself. You can pay yourself back instead of the college.

FringeHead's picture

Lol.  Credit score can get busted while a person is still earning a decen income.

Let's say they need a cheap/free divorce and the contract market kinda slows.

Easy peasy, one can go on jobseekers, file for bankruptsy, get divorced on legal aid and get help with housing too :D 

What debt serfdom?  No one was lending anyway :D 

Swamidon's picture

Be sure to rush out to buy this guys book, not.   Millennials are all the same version and understanding this reality is the Key for any who hope to succeed.   The best solution is to stop competing for peanuts and focus your energy instead on helping yourself to major riches, or at least begin to prepare for future opportunities available ten years down the road, and use present downtime to become better than your peers by working on your own re-education and psychological reorientation.  Believe me, it's not difficult to be better than the other Millennials. 

dogismycopilot's picture

Construction is hard work. I don't see generation snow flake doing much out there.

But for the hot, young snowflake chicks, there are plenty of 'seeking-arrangment' websites out there.