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What We Read Today 28 December 2014

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

Causes and consequences of China’s contagious case of deflation (George Magnus, Financial Times)  Yes China and deflation.  GEI News has been following this for 2 1/2 years - producer prices have fallen by 10% over the past three years with the annual change negative for 33 consecutive months.  Consumer prices have followed with inflation shrinking to 1.4% annual gain for the CPI (Consumer Price Index) in November 2014.  The deflation is structural, driven by over-capacity in manufacturing and property development, accompanied by one of the world's highest debt to GDP ratios.

The situation fits the pattern that the Great Depression era economist Irving Fisher called debt deflation, the contraction of economic activity resulting from the liquidation of debt and the resulting decline in the money supply (yes Fisher recognized that debt was money).  Presumably monetary policy actions, or increase in fiscal deficits so that government debt replaces some of the liquidated private debt, can mitigate the general decline in prices (and therefore production) as well as falling private wealth - but this remains a matter of debate among economic "philosophers" to this day.  The debate is encouraged by the fact that no "pure" execution of any of the competing "philosophies" has ever been conducted to support or refute any of the theories.

In recent times the debt deflation theory of depressions (or recessions) has been developed further by a few economists, including Richard Koo (who calls the condition "balance sheet recessions") and Steve Keen who preserves the original Fisher designation.

Trading Economics has a graphical summary of the year-over-year deflation in China:

China-ppi-2014-nov

GEI News has had 26 reports on the developing deflation story in China, starting 30 months ago with China: Economic Numbers Weaken, Inflation Slows. Does Deflation Await? (GEI News, 09 June 2012)

In the GEI News series the question was asked if deflation in other parts of the world could be spreading to China.  In the FT article George Magnus argues that the real risk now is that Chinese deflation will spread to the rest of the world.  He writes:

The consequences of China’s deflation problems are ubiquitous and spilling into the rest of the world. Slower economic growth and a steady decline in the economy’s commodity intensity is already affecting commodity producers from Perth to Peru, with negative multiplier effects arising from lower revenues and reduced capital spending by resource companies. Moreover, as Chinese companies cut prices to clear excess supply, global competitive pressures intensify, forcing foreign manufacturers to do so too. 

Articles about events, conflicts and disease around the world
Another special topic today:  Space


Discussion behind the wall today addresses the state of higher education in the U.S. and the needs of the economy for educational system output over the next decade.

The Diploma Deficit (Rachel Fishman, Washington Monthly)  The author's analysis indicates that the college debt default problem and higher education systemic problems in the U.S. are not college debt itself, but rather low graduation rates.  Over the last 20 years more than 31 million Americans have earned college credits but have not received a degree or certificate.  As of 2012 0nly 59% of students seeking a bachelor's degree had graduated within six years.  For all two-year college attendees over that time period only 31% graduated.

An analysis of job requirements by Georgetown University is referenced.  That study found that the number of jobs requiring a post-secondary certificate or degree is rising and by 2020 that will be required for 57% of all jobs.  The article states that there will a shortfall of 5 million credentials to meet labor market demands.  The result of that would be an economy that will grow by far less than it would were those people available.  The author says that this problem presents an opportunity and gives specifics about programs moving to address the problem.

Some interesting data is presented that supports the author's contention that college loan defaults and failure to complete college are likely related.  In so doing the author castigates the disproportionate contributions to student loan defaults by for-profit colleges.  In reviewing the data graphics below, consider the data from The Graduation Rate of For-Profit Colleges is Shocking.... (Lindsey Haskell, attn.com):

Here are Rachel Fishman's graphics:

college-loan-defaults-1college-loan-defaults-2


Here's the real job killer (Peter J. Tanous, CNBC)  Technology is the real jobs killer.  The author cites Facebook (8,000 employees) doing more photographic processing than Kodak did 20 years ago with 147,000.  He says that Blockbuster in 2005 had 60,000 employees and has been replaced ("arguably") by Netflix with 2,000.

These changes in the American economy have deep economic and social consequences. We are now entering the Smart Age, where the United States is the clear leader. But at what cost? When you look at the soaring market value of companies like Google, Twitter, Facebook, and Netflix and their low number of employees, the widening income gap in America becomes easier to explain.

Tanous goes on to say:

We are living through a major transformation of labor in the new Smart Age. The old 40-hour week may still be around, but many Americans will opt out of it for a new working lifestyle of variable hours, more independence, and no long commutes. So the old jobs may be gone forever, but the new Smart Age may portend a new, more satisfying work experience for many Americans and force a major reexamination of the political, social, and investment implications of this new way of working.

Econintersect:  Thus many of the jobs that have been lost are gone forever.  For the new world, the education requirements mentioned in the preceding article are now easily understood.  Consider an analogy to the situation about a century ago:  All the jobs lost making buggy whips have left behind an unemployed population that has no idea how to make parts for horseless carriages.


Job Growth and Education Requirements Through 2020 (Center on Education and the Workforce, Georgetown University)  This was linked in a discussion above, but it is repeated here to be sure you don't miss it.  In the report 55 million job openings for people not currently in the labor force (as of first half 2013)  are expected by 2020:  24 million will be needed for entirely new positions and 31 million to replace retiring baby boomers.  By 2020 this report says 65% of all jobs will require post secondary education (four-year degrees and beyond, some college or an Associates Degree, or certification in a field).

education-requirements-2020-georgetown


 A Stronger Nation through Higher Education (Lumina Foundation)  This report estimates that the job market of 2025 will require 60% of the labor force to have at least a bachelor's degree.  That level of education has been obtained by just under 40% of the labor force as of 2012.  This report establishes a current trend line using percentage of the labor force with at least a bachelor's degree every year from 2008 through 2012 and extrapolates that to less than 50% by 2025.  A linear "need" is plotted to show how the current trend, if not improved, will fall short of requirements between now and 2025.

college-degrees-needed-by-2025-lumina-foundation


Selecting the Right College Major in the Age of Chaos, the Global Internet Age (Hershey H. Friedman, Linda Weiser Freidman and William Hampton-Sosa, Social Science Research Network)   This paper describes the skills and attributes needed in the global Internet age. If these skills are provided, students will be successful and colleges will never become irrelevant since individuals with these abilities can help an organization thrive.  The paper relates the skills to specific majors and explains why some fields of study are more sought after by employers than others even though they do not have highly specialized knowledge, like engineering, for example.


Other Education References:

The Degree Qualifications Profile (Lumina Foundation)  A learning-centered framework for what college graduates should know and be able to do to earn the associate, bachelor’s or master’s degree.

The 6 Most Enlightening Education Stories Of 2014 (Fast Company)  A little bit of fluff, but interesting.

High-paying college majors to study (Bankrate.com)

Top 10 College Majors (Princeton Review)  These are the most popular - compare to best paying above.

15 Most Valuable College Majors (Forbes)

30 Best Paying College Majors: 2014 (ThinkAdvisor)


Other Economics and Business Items of Note and Miscellanea

Some States See Budgets at Risk as Oil Price Falls (The New York Times)

Where Has Global Warming Gone? (Project Syndicate)

A Real World Story About Value Investing (New Constructs)

That Debt From 1720? Britain’s Payment Is Coming (The New York Times)

Meet the most famous woman in computing you've probably never heard of (PRI)  Simultaneously inspiring and depressing.

The 3 Biggest Lies Employers Tell Their Workers (Monster.com)

Antarctic Seals May Navigate by Earth's Magnetic Field (Discovery News)

The 13 Most Fattening Foods on Earth (MSN Food & Drink)

Skier Survives Utah Avalanche (MSN Video)

‘Zionist Film’ About Moses Banned By Egyptians, Who Call ‘Exodus: Gods and Kings’ Historical Insult (International Business Times)


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