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May 19, 2011

Pardon me, sir, do you have any DOOM?

DOOOOM

That expensive college degree is looking more and more like a waste of money to a lot of people. There are a lot of problems in America's higher-ed system: some regulatory, some financial, some cultural, some demographic. The main problem (I think) is that too many kids are going to college because they view it as a ticket to a better job -- but as a jobs-training program, a college education fails more often than not, and it's an expensive failure at that. And there's a horrible amount of malinvestment of human labor at work there -- many young people invest 12 years of primary and six years of secondary (or more) into schooling, meaning that they are often in their mid to late 20's before even entering the jobs market...only to find that their 18+ years of education were -- well, not exactly wasted, but rather misdirected. Whatever marginal gain in earning power the college degree gives them is offset by the debt and time loss they incurred just getting the degree in the first place. Yet American parents and children both seem absolutely bent on a college education, the costs be damned.

I sure wish I had $787B to piss away. The only thing the "stimulus" did was "stimulate" the size and reach of the federal government (and throw money at insolvent states, who promptly squandered it).

Yet another economic Pollyanna says, "We can grow our way out of it!" No, we can't. GDP growth over the next decade is likely to be flat or at best a half-percentage point or so higher each year -- the chances of a major spike in GDP are not good, and thus it is irresponsible to plan on them. (The writer of the article says that if only we could cure Alzheimer's disease, diabetes, and cancer, Medicare would be just fine. Well, I'd be happy if we cured those diseases too, but I see no evidence that a cure for any of them is close. Therefore it seems...ill advised...to plan Medicare spending as if cures are right around the corner.) America can certainly grow quickly if certain measures are taken -- reformation of the Byzantine tax code, and shrinking both our national debt and the size of both federal and state governments -- but this is a project measured in decades, not years. And we do not have decades to get our financial house in order; we may not even have a single decade. Put more simply: we can surely hope for the best, but we must plan for the worst.

Another point about "curing" diseases: many chronic diseases have very effective treatments (e.g., cancer and diabetes), but these treatments are incredibly expensive. Hence the skyrocketing cost of medical care as a person ages. "Cures" for these conditions, even if discovered, would likely be incredibly expensive also -- and would simply pave the way to other age-related ailments as people live longer and longer. Until we perfect a technology to prevent aging entirely, increasing age is going to mean increasing medical costs -- there's no magic bullet to remove that cost.

Paul Ryan's budget plan is not sufficient to solve our financial problems, but it is a necessary first step because it directly addresses the main driver of our spending: entitlement costs. But the resistance to any sort of entitlement reform is growing, and the Democrats, predictably, are rolling out the "Paul Ryan wants to kill granny!" ads.

The EU default that dare not speak its name. The EU and ECB are in an odd position: it's obvious that Greece (and probably Ireland and Portugal) are going to default at some point. It's pretty much a mathematical certainty at this point. Yet the ECB is terrified of what a Greek default will mean to the Euro project -- it would expose the incompetence and flawed assumptions that have been part of the Euro project from the very beginning. This is why they seem bound and determined to shovel good money after bad -- not to "save" the Greeks, but to avoid embarrassment (and also to prevent German and French banks from taking huge haircuts on their Greek debt-holdings). I think the next step in this ridiculous melodrama is when the maturity of Greek bonds are extended for some arbitrary period -- a "soft default" that can be glossed by the ECB. It won't work, but it'll be yet another sign that the ECB is bending to the inevitable.

Veroniqe de Rugy has a good piece on how and why we suck at financial modeling and forecasting. (A lot of the problem is that when numbers get as large as the ones the government is throwing around, the discussion leaves the world of real things and enters the land of theory, probability, and statistics -- all areas where "exact" carries a far different meaning than it does in the real world.)

Los Angeles, home of the boned: LA wants to issue $1.35 billion in debt to cover pension costs. A juicy bit:

The Chief Administrative Officer recognizes that the investors may not be willing to purchase the Notes given the market’s skepticism of the City’s credit rating. In last year’s offering, the underwriters “ate” $252 million of notes that they were unable to sell.
Investors are waking up to the miserable condition of many cities' finances, and muni bonds are going to suffer because of it.

[UPDATE 1]: Skyrocketing food prices turning hedge-fund managers into survivalists.

[UPDATE 2]: Obama figures America is so flush with cash that we can forgive Egypt's debt. To foster democracy, and we all know that the Muslim Brotherhood is all about the democracy.


I find your soul...quite tasty.


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posted by Monty at 09:19 AM

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