The erosion of American competitive advantage
July 15, 2010
– Comments (11)
Very good post by Humble Student of the Markets. I have stated before that I am a mechanical engineer, and my job affords me the opportunity to work with a lot of very smart people in a lot of different industries. The amount of innovation and understanding of science by people in a number of fields is nothing short of astounding. This is a first-hand reason why I am very optimistic for the future. I do not buy the 'death of civilization' and despite my belief that the next 5-10 years will be very tough economically, I have a lot of long term optimism for the economy, the markets, human endeavors and humanity as a whole.
But I don't believe US policy is doing anything to fundamentally encourage America's continuation at the forefront of science and technology. The US economic policy is more concerned with propping up asset bubbles than building infrastructure (and yes that includes academic instiutions). The chart below showing tuition inflation says it all, as asset prices are all propped up tuition is rising faster, making less and less able to afford college. This trend has to change.
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The erosion of American competitive advantage
Thursday, July 15, 2010
http://humblestudentofthemarkets.blogspot.com/2010/07/erosion-of-american-competitive.html
[excerpt]
... The question is, can America retain its status as a leading economic power?
The news is grim. I have written before about the analytical framework of deficit reduction. That kind of macroeconomic adjustment is only effective if Americans retain their underlying competitive advantage. John Hussman wrote this week that the basis of American competitive advantage rests on superior physical capital and human capital [emphasis added]:
The main source of this difference in productivity is that U.S. workers have a substantially larger stock of productive capital per worker, as well as generally higher levels of educational attainment, which is a form of human capital. This relative abundance of physical and educational capital has been a driver of U.S. prosperity for generations. Neither advantage in capital, however, is intrinsic to American workers, and it will be impossible to prevent a long-term convergence of U.S. wages toward those of developing countries unless the U.S. efficiently allocates its resources to productive investment and educational quality. This is where our policy makers are failing us.
The US is squandering its lead on both fronts. Instead of investing on productive physical capital, we have seen excessive malinvestment leading to bubbles in technology, real estate and finance over the past couple of decades. The internet and real estate bubbles were plain to see.
As for finance, what does all of the malinvestment of human talent into Wall Street say to the world? Despite the ineffectual efforts at financial regulation, American remain in denial about the role of finance in society. The news of the Alan Greenspan chair at NYU is just another sign of denial.
‘Nuff said.
Trouble in higher education
In addition, there seems to be signs of trouble in higher education, which is a key driver of the productiveness of human capital. ...
.... Rising prices and ample credit to finance purchase – does that sound like anything we saw before, such as the housing market? Carpe Diem shows this chart to illustrate how fast prices have been rising and went on to warn of a bubble in higher education:
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