Krugman: The Middle Class is Toast

Paul Krugman basically comes out and admits it: This whole "invest in education to stay competitive" mantra is a sham. Oh no, he doesn't quite say it that way, because that would be debunking Obama's most articulated vision. But he comes close. "What we can’t do is get where we need to go just by giving workers college degrees, which may be no more than tickets to jobs that don’t exist or don’t pay middle-class wages."

In a way though he's being either too pessimistic - or perhaps a bit disingenuous (Krugman? Never!). The key is of course intelligence - those who have the brains that can process information beyond routine tasks will have jobs. Sure, having lawyers pore through tens of thousands of documents looking for gotchas in massive discovery exercises is a terrible waste of precious higher education dollars. But then again such an endeavor is a terrible waste of society's resources however it's done. So if you're a lawyer unable to provide much value added over a search engine and some fundamental legal principles, well you should expect to be at risk over the coming years.

And that goes for any line of work. If you're not able to add value by, basically, thinking on your feet, nimbly responding to business opportunities and challenges, then your job can be done by a computer or a foreigner.

Given that he's only just discovered this problem, I can forgive him for not having thought about the solution very much. His knee-jerk suggestion is to have stronger unions. But how is that going to help? That will only hasten the carnage as businesses close down entire offices and ship jobs overseas to avoid union interference in business practices. Look at how well unions have worked out in the U.S. auto industry - 2 of the big 3 bankrupt.

Does immigration even pop into his head for just a moment? If so, he leaves no trace of it. Yet, with what he notes is the hollowing out of the American middle-class, it would seem particularly relevant to consider the effect of low-skill immigration on further eroding wages. Wouldn't it be important that Americans be given a chance to man these lower-skill occupations at a living wage?

And speaking of low-skill work, he fails to note why getting a college education is so important these days: without it, the odds are really stacked against you. Thirty years ago, a smart high-school grad could make a very nice career for himself in a white collar job. But today no company is going to hire a college graduate for any kind of cognitive work. That's primarily to avoid disparate-impact lawsuits. The college degree, being a significant milestone above high school, requires some degree of intelligence and conscientiousness and thus provides a signal to employers that you're likely to be employable. The approach formerly used, of just giving a test to see how smart the applicant is, presents some serious disparate-impact risks for the employer.

So, while college for the vast majority of students may not mean all that much in the aggregate, it means an awful lot to each student, who is doomed without it. And so the waste continues. Karl Denninger points out today that the increase in consumer credit for January appears to be primarily driven by increases in student loans, a truly depressing observation.