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

Part 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 Christensen, Paul Romer, 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 Christensen:

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:

  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 Atlantic:

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 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 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 hikes.

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 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 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 Economics:

“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.

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